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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 8, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BTI TELECOM CORP.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
NORTH CAROLINA 4813 56-2047220
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
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BTI CORPORATE CENTER
4300 SIX FORKS ROAD
RALEIGH, NORTH CAROLINA 27609
(800) 849-9100
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
PETER T. LOFTIN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BTI TELECOM CORP.
BTI CORPORATE CENTER
4300 SIX FORKS ROAD
RALEIGH, NORTH CAROLINA 27609
(800) 849-9100
(Name, address, including zip code, and telephone number, including
area code, of agent for service of process)
COPIES TO:
DONALD R. REYNOLDS, ESQ.
WYRICK ROBBINS YATES & PONTON LLP
4101 LAKE BOONE TRAIL, SUITE 300
RALEIGH, NORTH CAROLINA 27619
(919) 781-4000
FAX: (919) 781-4865
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED DISTRIBUTION TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of 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
[CAPTION]
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFER- REGISTRATION
BE REGISTERED REGISTERED (1) PER NOTE ING PRICE FEE
<S> <C> <C> <C> <C>
10 1/2% Senior Notes
due 2007.................. $250,000,000 100% $250,000,000 $73,750.00
</TABLE>
(1) Equals the aggregate principal amount of the securities being registered.
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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(A redherring appears on the left-hand side of this page, rotated 90 degrees.
Text follows.)
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.
SUBJECT TO COMPLETION, DATED DECEMBER 8, 1997
PROSPECTUS
BTI TELECOM CORP.
OFFER TO EXCHANGE ITS
10 1/2% SENIOR NOTES DUE 2007 THAT HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("EXCHANGE NOTES"),
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/2% SENIOR NOTES DUE 2007 ("INITIAL NOTES")
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
------------------------
BTI Telecom Corp. (the "Company" or "BTI Telecom") hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), which together with the Prospectus constitute the "Exchange
Offer," to exchange up to an aggregate principal amount of $250.0 million of its
10 1/2% Senior Notes Due 2007 (the "Exchange Notes") that have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this Prospectus is a part, for an equal amount
of its outstanding 10 1/2% Senior Notes Due 2007 (the "Initial Notes"). The
terms of the Exchange Notes are identical in all material respects to those of
the Initial Notes, except for certain transfer restrictions and registration
rights relating to the Initial Notes. The Exchange Notes will be issued pursuant
to, and entitled to the benefits of, the Indenture (as defined herein) governing
the Initial Notes. The Exchange Notes and the Initial Notes are sometimes
referred to collectively as the "Notes."
The Exchange Notes are redeemable at the option of the Company, in whole or
in part, at any time on or after September 15, 2002, initially at 105.25% of
their principal amount, plus accrued interest, declining ratably to 100% of
their principal amount, plus accrued interest, on or after September 15, 2004.
In addition, at any time prior to September 15, 2000, the Company may redeem up
to 35% of the aggregate principal amount of the Initial Notes and the Exchange
Notes from the proceeds of one or more Public Equity Offerings (as defined
herein) at 110.5% of their principal amount, plus accrued interest; provided
that after any such redemption at least $162.5 million aggregate principal
amount of the Initial Notes and the Exchange Notes remains outstanding. See
"Description of the Exchange Notes -- Certain Definitions."
The Exchange Notes will bear interest from September 17, 1997, the date of
issuance of the Initial Notes that are tendered in exchange for the Exchange
Notes (or the most recent Interest Payment Date (as defined herein) to which
interest on such Notes has been paid), at the rate of 10 1/2% per annum and will
be payable semiannually in cash on each March 15 and September 15, commencing on
March 15, 1998.
Approximately $74.1 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 Notes.
The Exchange Notes will be unsubordinated indebtedness of the Company,
ranking PARI PASSU in right of payment with all existing and future unsecured
unsubordinated indebtedness of the Company and senior in right of payment to all
subordinated indebtedness of the Company. As of September 30, 1997, the Company
had (on an unconsolidated basis) no indebtedness outstanding other than the
Initial Notes. However, the Company is a holding company and the Exchange Notes
will be effectively subordinated to all existing and future liabilities
(including trade payables) of the Company's subsidiaries. On September 30, 1997,
the Company's subsidiaries had approximately $34.4 million of liabilities
(excluding intercompany payables), including approximately $2.0 million of
indebtedness (including capital leases). See "Description of the Exchange
Notes -- Security" and " -- Ranking."
(Continued on the next page.)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PARTICIPANTS IN THE EXCHANGE OFFER.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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 , 1998.
<PAGE>
The Initial Notes were originally issued and sold on September 17, 1997 in
a transaction not registered under the Securities Act (the "Offering").
Accordingly, the Initial 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 older that is (i) a broker-dealer
that acquired Initial 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 Initial 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 Initial 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
Initial Notes, where such Initial 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. 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 Initial Notes where such Initial 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 intends to apply for listing of the Exchange Notes on the
Luxembourg Stock Exchange. The Company does not intend to apply for listing of
the Exchange Notes on any other securities exchange, nor does the Company intend
to apply for inclusion of the Exchange Notes in any automated quotation system.
The Initial 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 Initial Notes not
tendered and accepted in the Exchange Offer will remain outstanding. To the
extent that Initial Notes are not tendered and accepted in the Exchange Offer, a
holder's ability to sell such Initial Notes could be adversely affected.
Following consummation of the Exchange Offer, the holders of Initial 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 Initial Notes. See "Description of
the Exchange Notes -- Exchange Offer; Registration Rights." No assurance can be
given as to the liquidity of either the Initial Notes or the Exchange Notes.
2
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THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF INITIAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
INITIAL NOTES PURSUANT TO THE EXCHANGE OFFER.
Initial Notes may be tendered for exchange prior to 5:00 p.m., New York
City time, on , 1998 (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 Initial 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 Initial 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 dated
September 22, 1997 (the "Registration Rights Agreement") between the Company and
Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (together, the "Placement Agents"). Initial 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
Initial Notes as of the date hereof.
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 of the Exchange Notes" and "Plan of
Distribution."
------------------------
TABLE OF CONTENTS
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PAGE
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Prospectus Summary............................. 4
Note Regarding Forward-Looking
Statements................................... 14
Risk Factors................................... 14
Use of Proceeds of the Exchange
Notes........................................ 23
Capitalization................................. 24
Selected Financial and Operating Data.......... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 27
The Exchange Offer............................. 33
Business....................................... 40
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Management..................................... 51
Certain Transactions........................... 54
Principal Shareholders......................... 54
Description of Credit Facility................. 55
Description of the Exchange Notes.............. 56
Certain United States Federal Tax
Considerations............................... 82
Plan of Distribution........................... 84
Legal Matters.................................. 85
Experts........................................ 85
Available Information.......................... 85
Glossary....................................... 86
Index to Financial Statements.................. F-1
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3
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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. 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 IN ITS ENTIRETY. UNLESS OTHERWISE
INDICATED, (I) THE INFORMATION IN THIS PROSPECTUS, OTHER THAN THE HISTORICAL
FINANCIAL INFORMATION, GIVES EFFECT TO THE REORGANIZATION, THE SHARE REPURCHASE
AND THE FIBERSOUTH ACQUISITION (EACH AS DEFINED HEREIN) AND THE OFFERING, AND
(II) REFERENCES HEREIN TO THE "COMPANY" REFER TO BTI TELECOM CORP. ("BTI
TELECOM") AND REFERENCES HEREIN TO BTI REFER TO ITS OPERATING SUBSIDIARY,
BUSINESS TELECOM, INC. ("BTI"). CERTAIN TERMS USED IN THIS PROSPECTUS ARE
DEFINED IN THE "GLOSSARY" APPEARING ELSEWHERE HEREIN.
THE COMPANY
BTI is a leading provider of telecommunications services in the
southeastern United States. BTI currently offers (i) integrated
telecommunications services, including long distance (domestic and
international, "1+" outbound dialing and toll-free service), data, Internet
access, paging, advanced intelligent network ("AIN") applications, operator and
other enhanced services, primarily to small and medium-sized business customers,
and (ii) wholesale telecommunications services, including switched, dedicated
access (private line and dedicated data facilities) and special access services,
primarily to telecommunications carriers. BTI had pro forma revenues of
approximately $149.7 million and earnings before interest, income taxes,
depreciation and amortization ("EBITDA") of approximately $9.7 million for the
year ended December 31, 1996, and pro forma revenues of approximately $147.0
million and EBITDA of approximately $6.0 million for the nine months ended
September 30, 1997. For the five years ended December 31, 1996, BTI's revenues
increased at a compound annual growth rate of approximately 37.6%. As of
September 30, 1997, BTI provided its services to over 31,000 business customers
and over 150 telecommunications carriers and other end-user customers.
BTI has begun, and intends to continue, adding local exchange services to
its current array of integrated telecommunications services where authorized.
With the addition of local exchange, BTI will be able to offer "one-stop"
integrated telecommunications services, tailored to the individual needs of
small to medium-sized business customers. BTI began offering local exchange
services in selected markets in October 1997, initially by reselling the
services of the incumbent local exchange carriers ("ILECs") in those markets,
and intends to install network infrastructure to support local switched services
as market conditions warrant.
BTI entered the wholesale services business to leverage its network
infrastructure for its integrated telecommunications services business. BTI
provides wholesale services to telecommunications carriers and other end-user
customers, including Nextel Communications, GTE, Sprint Mid-Atlantic, BellSouth
Mobility, UUNET, WorldCom, PSINet, ITC DeltaCom and CCI (McLeod). BTI provides
access services over its fiber optic network, which currently extends
approximately 65 route miles in North Carolina, linking Raleigh, Durham and the
Research Triangle Park area.
BTI operates an advanced telecommunications network including digital
switches in Atlanta, Dallas, New York, Orlando and Raleigh interconnected by
leased transmission capacity from major facilities-based carriers (including
AT&T, MCI and WorldCom). BTI uses multiple carriers and multiple switches in
order to improve network redundancy and re-route capability. BTI leases network
capacity either on its own or through its membership in the Associated
Communications Companies of America (the "ACCA"), an 11-member trade association
co-founded by BTI in 1993. The ACCA 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. In October 1997, BTI entered into an
agreement to acquire, through long-term lease on an irrevocable right to use
("IRU") basis, approximately 3,200 route miles of fiber optic network to be
built over 18 months to serve markets from New York to Miami and Nashville,
Tennessee. BTI believes that this network will enable it to carry its
intraregional telecommunications traffic over its owned facilities, thereby
reducing its cost of services by decreasing payments to other carriers for use
of their transport facilities.
BTI's objective is to strengthen its market position as a leading provider
of telecommunications services in the southeastern United States. To achieve
this objective, BTI intends to (i) leverage its current market position,
extensive customer base, brand name and network capacity to aggressively
penetrate the local exchange market
4
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and enter new geographic markets while further penetrating existing markets and
(ii) expand its telecommunications network to lower the cost of providing
services to its customers. As part of its expansion strategy, BTI may make
acquisitions and enter into joint ventures or strategic alliances with
businesses that are related or complementary to its current operations. The
principal elements of BTI's business strategy include:
PROVIDING INTEGRATED TELECOMMUNICATIONS SERVICES TO SMALL AND MEDIUM-SIZED
BUSINESS CUSTOMERS. BTI believes that there is substantial and growing demand,
particularly in the southeastern United States, among small and medium-sized
businesses for an integrated package of services. BTI offers long distance,
data, Internet access, paging, AIN, operator and other enhanced services to
small and medium-sized businesses, and began adding local telephone service to
its current service offerings in October 1997. BTI believes that bundling local
telephony with its current array of telecommunications services will enable it
to offer "one-stop" integrated telecommunications services and allow it to
leverage its existing infrastructure, increase customer retention and better
penetrate its target markets.
RAPIDLY PENETRATING THE LOCAL EXCHANGE MARKET. BTI is among the first
providers of competitive local exchange carrier ("CLEC") services in key markets
in the southeastern United States and intends to leverage its sales force and
existing customer base to rapidly gain CLEC market share. BTI began offering
local exchange services in selected markets throughout the southeastern United
States in October 1997. BTI is currently in the process of installing a Lucent
5ESS local switch in Raleigh, where it will begin offering switch-based local
exchange services in late 1997. Following its "smart-build" strategy, BTI will
initially resell ILEC services in its other target markets, and intends to
install network infrastructure to support local switched services as market
conditions warrant.
"SMART-BUILDING" ITS NETWORK EXPANSION. BTI's strategy since its inception
has been to add revenue-producing customers before building or acquiring
additional network capacity. BTI believes that using this "smart-build" strategy
reduces the risks associated with speculative network expansion and allows it to
focus its capital expenditures in markets where network expansion will provide
competitive or cost advantages. Given BTI's favorable experience leasing network
capacity at competitive rates, through the ACCA and otherwise, BTI has typically
chosen to lease network capacity to enter new markets prior to building or
purchasing capacity. Following its "smart-build" strategy, in October 1997 BTI
entered into an agreement to lease on an IRU basis for the lesser of 25 years
or the life of the fiber approximately 3,200 route miles of fiber optic network
to be built over 18 months to serve markets from New York to Miami and
Nashville, Tennessee. This network will enable BTI to carry its intraregional
telecommunications traffic over its owned facilities, thereby reducing its cost
of services by decreasing payments to other carriers for use of their transport
facilities. BTI also intends to follow its "smart-build" strategy in entering
the local exchange market.
BUILDING MARKET SHARE BY FOCUSING ON PERSONALIZED SALES, MARKETING AND
CUSTOMER SERVICE. BTI believes that the key to revenue growth in its target
markets is capturing and retaining customers through effective, personalized
sales, marketing and customer service programs. BTI's direct sales force markets
BTI's entire range of services and is responsible and rewarded for obtaining and
maintaining face-to-face relationships with business customers. BTI seeks to
build long-term relationships with its customers by responding rapidly and
creatively to their telecommunications needs. BTI currently has 22 sales offices
staffed by representatives trained in marketing BTI's services and providing
comprehensive customer service and support. BTI's customer-support software and
network architecture give BTI personnel, along with its dealers and agents,
immediate access to customer data, allowing for quick and effective response to
customer requests and needs. This software also permits BTI to provide its
customers one fully integrated monthly billing statement for all of its current
services and is expected to permit the inclusion of local exchange service as
well.
FOCUSING ON THE SOUTHEASTERN UNITED STATES. BTI intends to continue to
focus on the high-growth southeastern United States in order to leverage its
existing market presence and telecommunications network in the region. In 1996,
the Company derived over 75% of its revenue from North Carolina, South Carolina,
Georgia, Florida and Virginia. BTI believes that its regional focus will enable
it to take advantage of economies of scale in network infrastructure, operations
and maintenance, sales, marketing and management, and further develop its
long-standing customer and business relationships in the region. BTI's market
presence in the southeastern United States should provide opportunities for BTI
to increase revenues and gain market share in the region.
LEVERAGING PROVEN MANAGEMENT TEAM. The Company's management team consists
of experienced telecommunications executives led by Peter T. Loftin, Chairman
and Chief Executive Officer of the Company,
5
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who founded BTI 13 years ago. Other members of the team include R. Michael
Newkirk, President and Chief Operating Officer, H.A. (Butch) Charlton, Senior
Vice President, Sales, and Brian K. Branson, Chief Financial Officer. These
executives collectively have over 60 years of experience in the
telecommunications industry.
BTI's principal executive offices are located at BTI Corporate Center, 4300
Six Forks Road, Raleigh, North Carolina 27609, and its telephone number at that
location is (800) 849-9100.
THE TRANSACTIONS
The Company has undertaken a series of transactions (collectively, the
"Transactions") that are designed to provide BTI with greater liquidity and
financial flexibility and enhance its ability to execute its business strategy,
including rapidly penetrating the local exchange market and expanding its
network.
The Transactions, each of which was consummated on September 22, 1997,
consisted of the following:
1. BTI entered into a five-year, senior secured reducing revolving
credit facility (the "Credit Facility"), guaranteed by the Company,
with General Electric Capital Corporation ("GE Capital"), amending
and restating its then-existing credit facility with GE Capital
(the "Original Credit Facility"), to provide BTI with up to $60.0
million of availability to be used for working capital and other
purposes, including capital expenditures;
2. BTI repaid all $26.6 million of indebtedness outstanding under the
Original Credit Facility, including accrued interest thereon (the
"BTI Refinancing");
3. BTI repurchased, pursuant to a Stock Purchase Option and Put Option
Agreement dated July 1, 1992, as amended (the "Shareholders'
Agreement"), among BTI, Peter T. Loftin, the Company's Chairman and
Chief Executive Officer, and A.B. Andrews (the "Retiring
Shareholder"), the 50% interest in BTI held by the Retiring
Shareholder for approximately $28.3 million (the "Share
Repurchase");
4. the Company issued $250.0 million aggregate principal amount of
Initial Notes in the Offering;
5. BTI was merged with a wholly owned subsidiary of BTI Telecom and
converted for income tax purposes from an S corporation to a C
corporation (the "Reorganization"); and
6. in order to obtain equipment and technology it needs to begin
offering local exchange services and expand its fiber optic
facilities, BTI acquired substantially all of the assets of
FiberSouth, Inc. ("FiberSouth"), whose principal shareholder is
Peter T. Loftin, the Company's Chairman and Chief Executive
Officer, for $31.0 million (the "FiberSouth Acquisition"). The
assets acquired in this acquisition included FiberSouth's Lucent
5ESS local switch and its 65-mile fiber optic network in North
Carolina linking Raleigh, Durham and the Research Triangle Park
area. In connection with the FiberSouth Acquisition, BTI repaid all
of FiberSouth's outstanding indebtedness (approximately $5.2
million), together with accrued interest thereon.
6
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THE INITIAL NOTES OFFERING
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The Initial Notes............................ $250.0 million aggregate principal amount of 10 1/2% Senior Notes
due 2007. The Initial Notes were sold by the Company on September
17, 1997 to the Placement Agents pursuant to a Placement
Agreement, dated September 17, 1997 (the "Placement Agreement").
The Placement Agents subsequently resold the Initial Notes to
qualified institutional buyers pursuant to Rule 144A under the
Securities Act and to a limited number of Accredited Investors.
Registration Rights Agreement................ Pursuant to the Placement Agreement, the Company, and the
Placement Agents entered into a Registration Rights Agreement,
which grants the holders of the Initial Notes certain exchange and
registration rights. The Exchange Offer is intended to satisfy
such exchange rights, which terminate upon the consummation of the
Exchange Offer.
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THE EXCHANGE OFFER
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The Exchange Notes........................... The forms and terms of the Exchange Notes are identical in all
material respects to the terms of the Initial Notes for which they
may be exchanged pursuant to the Exchange Offer, except for
certain transfer restrictions and registration rights relating to
the Initial Notes and except for certain penalty interest
provisions relating to the Initial Notes described below under
" -- Terms of the Exchange Notes."
The Exchange Offer........................... The Company is offering to exchange $1,000 principal amount of
Exchange Notes for each $1,000 principal amount of Initial Notes.
As of the date hereof, $250.0 million aggregate principal amount
of Initial Notes are outstanding. The Company will issue the
Exchange Notes to holders on or promptly after the Expiration
Date.
Based on an interpretation by the staff of the Commission set
forth in no-action letters issued to third parties, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer
in exchange for Initial Notes may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any
such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) 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 holder's business and that such holder
does not intend to participate and has no arrangement or
understanding with any person to participate in the distribution
of such Exchange Notes. Each holder accepting the Exchange Offer
is required to represent to the Company in the Letter of
Transmittal that, among other things, (i) the Exchange Notes will
be acquired by the holder in the ordinary course of business, (ii)
the holder is not an "affiliate" (as defined in Rule 405 under the
Securities Act) of the Company, and (iii) the holder is not
participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in
the distribution of such Exchange Notes.
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7
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Each Participating Broker-Dealer (as defined) 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. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a
Participating 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 resale of
Exchange Notes received in exchange for Initial Notes where such
Initial 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 of 180 days after the Expiration
Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale; provided
that the Company has no obligation to amend or supplement this
Prospectus unless it has received written notice from a
Participating Broker-Dealer of its prospectus delivery
requirements under the Securities Act within five business days
following consummation of the Exchange Offer. See "Plan of
Distribution."
Any holder who tenders in the Exchange Offer with the intention to
participate, or for the purpose of participating, in a
distribution of the Exchange Notes could not rely on the position
of the staff of the Commission enunciated in no-action letters
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 resale transaction. Failure
to comply with such requirements in such instance may result in
such holder incurring liability under the Securities Act for which
the holder is not indemnified by the Company.
Expiration Date; Withdrawal of Tender........ The Exchange Offer will expire at 5:00 p.m., New York City time,
on , 1998, or such later date and time to which it is
extended by the Company (the "Expiration Date"). The tender of
Initial Notes pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any Initial Notes not
accepted for exchange for any reason will be returned without
expense to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
Certain Conditions to the Note Exchange
Offer...................................... The Exchange Offer is subject to certain customary conditions,
which may be waived by the Company. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer."
Procedures for Tendering Initial Notes....... Each holder of Initial Notes wishing to accept the Exchange Offer
must complete, sign and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the instructions contained
herein and therein, and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with such Initial Notes
and any other required documentation to the Exchange Agent (as
defined) at the address set forth herein.
Special Procedures for Beneficial Owners..... Any beneficial owner whose Initial Notes are registered in the
name of a broker, dealer, commercial bank, trust or other
</TABLE>
8
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<TABLE>
<S> <C>
nominee and who wishes to tender such Initial Notes in the
Exchange Offer should contact such registered holder and promptly
instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering his Initial
Notes, either make appropriate arrangements to register ownership
of the Initial Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of
registered ownership may take considerable time and may not be
able to be completed prior to the Expiration Date.
Registration Requirements.................... The Company has agreed to use its best efforts to consummate, by
March 22, 1998, the registered Exchange Offer pursuant to which
holders of the Initial Notes will be offered an opportunity to
exchange their Initial Notes for the Exchange Notes that will be
issued without legends restricting the transfer thereof. In the
event that applicable interpretations of the staff of the
Commission do not permit the Company to effect the Exchange Offer
or in certain other circumstances, the Company has agreed to file
a Shelf Registration Statement covering resales of the Initial
Notes and to use their best efforts to cause such Shelf
Registration Statement to be declared effective under the
Securities Act and, subject to certain exceptions, keep such Shelf
Registration Statement effective until two years after the
original issuance of the Initial Notes.
Certain Federal Income Tax
Consequences............................... Based upon the opinion of Wyrick Robbins Yates & Ponton LLP that
the summary under the heading "Certain United States Federal Tax
Consequences" herein "fairly describes the material United States
federal income tax consequences to holders resulting from their
exchange of the Initial Notes for the Exchange Notes and the
ownership and disposition of Exchange Notes under currently
applicable federal income tax law," there should be no U.S.
federal income tax consequences to holders exchanging Initial
Notes for Exchange Notes pursuant to the Exchange Offer. See
"Certain United States Federal Tax Consequences."
Use of Proceeds.............................. There will be no cash proceeds to the Company from the exchange of
Notes pursuant to the Exchange Offer. See "Use of Proceeds of the
Exchange Notes."
Consequences of Exchanging Initial
Notes...................................... As a result of the making of this Exchange Offer, the Company will
have fulfilled certain of their obligations under the Registration
Rights Agreement, and holders of Initial Notes who do not tender
their Notes will generally not have any further registration
rights under the Registration Rights Agreement or otherwise. Such
holders will continue to hold the untendered Initial Notes and
will be entitled to all the rights and subject to all the
limitations applicable thereto under the Indenture (as defined
herein), except to the extent such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a
result of the Exchange Offer. All untendered Initial Notes will
continue to be subject to certain restrictions on transfer.
Accordingly, if
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
any Initial Notes are tendered and accepted in the Exchange Offer,
the trading market for the untendered Initial Notes could be
adversely affected.
Exchange Agent............................... First Trust of New York, National Association, is the Exchange
Agent. The address and telephone number of the Exchange Agent are
set forth in "The Exchange Offer -- Exchange Agent."
</TABLE>
TERMS OF THE EXCHANGE NOTES
<TABLE>
<S> <C>
General...................................... The form and terms of the Exchange Notes are the same as the form
and terms of the Initial Notes (which they replace) except that
(i) the Exchange Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer
thereof, and (ii) the holders of Exchange Notes will not be
entitled to certain rights under the Registration Rights
Agreement, including the provisions providing for an increase in
the interest rate on the Initial Notes in certain circumstances
relating to the timing of the Exchange Offer, which rights will
terminate when the Exchange Offer is consummated. See "The
Exchange Offer -- Consequences of Failure to Exchange." The
Exchange Notes will evidence the same debt as the Initial Notes
and will be entitled to the benefits of the Indenture. See
"Description of the Exchange Notes."
Maturity..................................... September 15, 2007.
Interest..................................... The Exchange Notes will bear interest at the rate of 10 1/2% per
annum from September 17, 1997, the date of issuance of the Initial
Notes that are tendered in exchange for the Exchange Notes (or the
most recent interest Payment Date to which interest on such Notes
has been paid). Accordingly, holders of Initial Notes that are
accepted for exchange will not receive interest on the Initial
Notes that is accrued by unpaid at the time of tender, but such
interest will be payable on the first Interest Payment Date after
the Expiration Date. Interest on the Exchange Notes will be
payable semiannually in cash on each March 15 and September 15,
commencing March 15, 1998.
Security..................................... Pursuant to the Indenture, approximately $74.1 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.
securities) that are being held as security for the payment of the
first six scheduled interest payments due on the Initial Notes and
the Exchange Notes. The Pledged Securities are being held by the
Trustee for the benefit of the holders of the Initial Notes and
the Exchange Notes the Pledge Agreement (as defined herein)
pending disbursement. After the first six scheduled interest
payments on the Initial Notes and the Exchange Notes are made, the
Initial Notes and the Exchange Notes will be unsecured. See
"Description of the Exchange Notes -- Security."
Optional Redemption.......................... The Exchange Notes are redeemable at the option of the Company, in
whole or in part, at any time on or after September 15, 2002, at
105.25% of their principal amount, plus accrued interest,
declining ratably to 100% of their principal amount, plus accrued
interest, on or after September 15, 2004. See "Description of the
Exchange Notes -- Optional Redemption." In addition, at any time
prior to September 15, 2000, the Company
</TABLE>
10
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<TABLE>
<S> <C>
may redeem up to 35% of the aggregate principal amount of Notes
from the proceeds of one or more Public Equity Offerings at 110.5%
of their principal amount, plus accrued interest; provided that
after any such redemption at least $162.5 million aggregate
principal amount of 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 Notes). See "Description of the Exchange
Notes -- Repurchase of Notes upon a Change of Control."
Ranking...................................... The Exchange Notes will be unsecured (except as described above
under " -- Security"), unsubordinated indebtedness of the Company,
ranking PARI PASSU in right of payment with all existing and
future unsubordinated indebtedness of the Company and senior in
right of payment to all subordinated indebtedness of the Company.
As of September 30, 1997, the Company had (on an unconsolidated
basis) no indebtedness outstanding other than the Exchange Notes.
However, the Company is a holding company and the Exchange Notes
will be effectively subordinated to all existing and future
liabilities (including trade payables) of the Company's
subsidiaries. As of September 30, 1997, the subsidiaries of the
Company had $34.4 million of liabilities (excluding intercompany
payables), including $2.0 million of indebtedness (including
capital leases). In September 1997, a subsidiary of the Company
entered into the $60.0 million Credit Facility with GE Capital 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" and "Description of Credit
Facility."
Certain Covenants............................ The Indenture contains certain covenants that, among other things,
restrict the ability of the Company and its Restricted
Subsidiaries (as defined herein) to incur additional indebtedness,
create liens, engage in sale-leaseback transactions, pay dividends
or make distributions in respect of their capital stock, make
investments or certain other restricted payments, sell assets,
redeem capital stock, issue or sell stock of Restricted
Subsidiaries, enter into transactions with stockholders or
affiliates or effect a consolidation or merger. However, these
limitations are subject to a number of important qualifications
and exceptions. See "Description of the Exchange Notes --
Covenants."
</TABLE>
For additional information regarding the Exchange Notes, see "Description
of the Exchange Notes."
RISK FACTORS
See "Risk Factors" beginning on page 14 for a discussion of certain factors
that should be considered by participants in the Exchange Offer.
11
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
The following summary historical financial and operating data for the three
years ended December 31, 1996 were derived from the audited financial statements
of the Company. The summary financial data presented below as of and for the
nine months ended September 30, 1996 and 1997 were derived from the unaudited
financial statements of the Company and in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial position and the results of operations for
these periods. Operating results for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the
entire year or any future interim period.
The pro forma statements of operations data give effect to the Transactions
as if each had occurred on January 1, 1996. The pro forma financial and
operating information does not purport to represent what the Company's results
of operations would have been if these transactions had in fact occurred on
these dates, nor does it purport to indicate the future financial position or
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. All pro forma information is unaudited. The summary
historical and pro forma financial and operating data set forth below should be
read in conjunction with "Selected Financial and Operating 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------- ----------------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996 1996 1997 1997
----------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $91,547,763 $114,536,706 $148,780,816 $149,746,351 $106,237,643 $145,145,510 $146,988,741
Operating expenses:
Cost of services............. 54,424,983 68,199,125 90,820,467 90,288,850 62,884,645 101,238,476 101,870,571
Selling, general and
administrative expenses.... 33,671,250 44,732,343 53,791,036 54,695,814 40,688,329 43,753,394 44,770,946
----------- ------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses... 88,096,233 112,931,468 144,611,503 144,984,664 103,572,974 144,991,870 146,641,517
----------- ------------ ------------ ------------ ------------ ------------ ------------
Income from operations......... 3,451,530 1,605,238 4,169,313 4,761,687 2,664,669 153,640 347,224
Interest expense(a)............ (749,661) (1,296,707) (1,695,324) (27,762,707) (1,366,903) (2,108,730) (21,339,675)
Gain on sale of marketable
securities................... -- 62,298 131,910 131,910 -- -- --
----------- ------------ ------------ ------------ ------------ ------------ ------------
Income (loss) before income
taxes........................ 2,701,869 370,829 2,605,899 (22,869,110) 1,297,766 (1,955,090) (20,992,451)
Income taxes................... -- -- -- -- -- 2,210,000 2,210,000
----------- ------------ ------------ ------------ ------------ ------------ ------------
Net income (loss).............. 2,701,869 370,829 2,605,899 $(22,869,110) 1,297,766 $ (4,165,090) $(23,202,451)
------------ ------------ ------------
------------ ------------ ------------
Pro forma income taxes(b)...... 1,134,785 155,748 1,094,478 545,062
----------- ------------ ------------ ------------
Pro forma net income
(loss)(b).................... $ 1,567,084 $ 215,081 $ 1,511,421 $ 752,704
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
OTHER FINANCIAL DATA:
Capital expenditures, including
line access fees............. $ 4,434,616 $ 10,717,866 $ 8,589,707 $ 9,792,395 $ 5,690,992 $ 7,973,910 $ 8,496,278
Depreciation and
amortization................. 2,748,903 3,073,368 4,471,623 4,917,636 3,256,526 4,545,000 5,603,186
Net cash provided by (used in)
operating activities......... 6,230,855 9,446,250 (175,347) 64,077 (1,445,198) 9,543,813 11,910,152
Net cash used in investing
activities................... (4,529,987) (10,894,197) (8,893,125) (10,231,278) (6,532,633) (126,797,057) (127,421,780)
Net cash provided by (used in)
financing activities......... (1,774,752) 1,858,401 9,259,142 10,117,198 7,795,480 194,990,195 194,973,945
EBITDA(c)...................... 6,200,433 4,678,606 8,640,936 9,679,323 5,921,195 4,698,640 5,950,410
Ratio of earnings to fixed
charges(d)................... 3.3x 1.2x 1.8x -- 1.5x -- --
BALANCE SHEET DATA (AT PERIOD
END):
Working capital (deficit)...... $(1,546,220) $ (5,182,319) $ 741,199 $ 2,315,053 $149,273,417
Property and equipment, net.... 9,008,664 16,792,434 21,498,067 18,888,377 30,230,037
Total assets................... 26,802,487 35,968,645 48,223,809 44,684,021 221,493,450
Debt and capital lease
obligations.................. 8,388,172 13,553,439 25,017,610 23,140,561 252,045,816
Shareholders' equity
(deficit).................... 4,070,371 1,896,559 2,374,398 1,436,172 (63,129,976)
</TABLE>
(FOOTNOTES ON NEXT PAGE)
12
<PAGE>
(a) Pro forma interest expense reflects (i) interest expense of $26,250,000
and $19,687,500, for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, relating to the Notes,
the amortization of $860,000 and $645,000, respectively, of debt
issuance costs relating to the Offering, and the amortization of
$135,000 and $101,250, respectively, of financing fees related to the
Credit Facility, and (ii) the elimination of $1,659,441 and $1,674,487
of interest expense for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively, relating to the
$26,597,914 indebtedness repaid in the BTI Refinancing and $5,227,691
repaid in connection with the FiberSouth Acquisition. Pro forma
interest expense excludes interest income of $3,742,360 and $2,806,770,
respectively, for the year ended December 31, 1996 and the nine months
ended September 30, 1997, that would have been earned on the
$74,093,277 of the proceeds from the Offering placed in a pledged
account to secure and fund the first six scheduled interest payments
(including .5% interest in the event the Exchange Offer is not
consummated as required) on the Notes.
(b) Historical financial information for the three years in the period
ended December 31, 1996 and the nine months ended September 30, 1996
does not include a provision for income taxes because, prior to the
Reorganization, BTI was an S corporation not subject to income taxes.
Net income has been adjusted on a pro forma basis to reflect the tax
that would have been paid by BTI if it had been subject to income tax
for the full period. Pro forma net income (loss) for the year ended
December 31, 1996 and for the nine months ended September 30, 1997 does
not include an adjustment for income taxes due to the pro forma net
loss.
(c) EBITDA consists of income (loss) before 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. Pro forma EBITDA for the year ended December 31, 1996 and
the nine months ended September 30, 1997 excludes an estimated
$3,742,360 and $2,806,770, respectively, of interest income that would
have been earned on the $74,093,277 placed in a pledged account and
invested in Pledged Securities to fund the first six scheduled interest
payments on the Notes. See "Description of the Notes -- Security."
(d) The ratio of earnings to fixed charges is computed by dividing income
before income taxes and fixed charges (other than capitalized interest)
by fixed charges. Fixed charges consist of interest charges,
amortization of debt issuance costs and discount or premium related to
indebtedness, whether expensed or capitalized, and that portion of
rental expense the Company believes to be representative of interest
(estimated to be one-third of such expense). For the nine months ended
September 30, 1997, earnings were insufficient to cover fixed charges
by $4,165,090. For the year ended December 31, 1996 and the nine months
ended September 30, 1997, on a pro forma basis giving effect to the
Transactions, earnings would have been insufficient to cover fixed
charges by $22,869,110 and $23,202,451, respectively.
13
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act which represent the Company's
expectations or beliefs, including, but not limited to, statements concerning:
industry performance; the Company's operations, performance, financial
condition, growth and acquisition strategies, margins; and growth in sales of
the Company's services. For this purpose, any statements contained in this
Prospectus that are not statements of historical fact may be deemed to be
forward-looking statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company's control, and actual
results may differ materially depending on a variety of important factors,
including those described in "Risk Factors" below.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY
AND ITS BUSINESS BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
ANTICIPATED FUTURE NEGATIVE CASH FLOW AFTER CAPITAL EXPENDITURES
Although its revenue has increased substantially in each of the last three
years, the Company also has experienced significant increases in expenses
associated with the development and expansion of its customer base and network
infrastructure. For the years ended December 31, 1994, 1995 and 1996, the
Company's EBITDA less capital expenditures and interest expense was $1.0
million, $(7.3) million and $(1.6) million, respectively, and for the nine
months ended September 30, 1996 and 1997 was $(1.1) million and $(5.4) million,
respectively. After giving pro forma effect to the Transactions, for the year
ended December 31, 1996 and the nine months ended September 30, 1997, the
Company's EBITDA less capital expenditures and interest expense would have been
$(27.9) million and $(23.9) million, respectively. The Company expects to incur
significant and increasing 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. There can be no assurance that the Company will sustain
profitability or achieve or sustain positive net cash flow in the future. If the
Company cannot do so, it may not be able to meet its working capital or debt
service requirements, which could have a material adverse effect on the Company
and its ability to meet its obligations on the Notes. See " -- Significant
Capital Requirements; Uncertainty of Additional Financing" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SIGNIFICANT CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FINANCING
Expansion of BTI's network, operations and services will require
significant capital. The Company currently estimates that its aggregate capital
expenditure requirements will total approximately $21.5 million for the second
half of 1997 and $62.3 million for 1998. The Company anticipates making
substantial capital expenditures thereafter. Capital expenditures will be
primarily for the addition of local telephone service to its integrated
telecommunications services offerings, including the acquisition and
installation of switches, opening direct sales and dealer service offices,
expansion of its fiber optic network (including transmission equipment), and
infrastructure enhancements. The Company believes that the net proceeds from the
Offering, together with cash flow from operations and borrowings under the
Credit Facility, will provide sufficient funds to enable BTI to expand its
business as currently planned.
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
BTI'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 flow
or raising sufficient debt or capital to meet its strategic objectives or that
such funds, if available, will be available on a timely basis and on terms that
are acceptable to the Company and within the limitations contained in the
Company's financing arrangements. See " -- High Leverage; Ability to Service
Debt; Restrictive Covenants." Failure to generate or raise sufficient funds
14
<PAGE>
may 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. Such failure could also limit the ability of the Company to make
principal and interest payments on its indebtedness, including the Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HIGH LEVERAGE; ABILITY TO SERVICE DEBT; RESTRICTIVE COVENANTS
At September 30, 1997, the Company had $252.0 million of debt and capital
lease obligations, and its shareholder's deficit was $63.1 million. On a pro
forma basis, giving effect to the Transactions, the Company's earnings would
have been insufficient to cover its fixed charges for the year ended December
31, 1996 and the nine months ended September 30, 1997 by $22.9 million and $23.2
million, respectively, and its EBITDA less capital expenditures and interest
expense, net, would have been $(27.9) million and $(23.9) 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, their ability 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 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. 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
and 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 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 indebtedness, 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 under the Credit
Facility or on the Notes and could delay or preclude payment of interest or
principal on the 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 Credit Facility" and "Description of the
Notes -- Covenants."
The level of the Company's indebtedness could have important consequences
to its future prospects, including the following: (i) limiting the ability of
the Company to obtain any necessary financing in the future for working capital,
capital expenditures, debt service requirements or other purposes; (ii) limiting
the flexibility of the Company in planning for, or reacting to, changes in its
business; (iii) leveraging the Company more highly than some of its competitors,
which may place it at a competitive disadvantage; (iv) increasing its
vulnerability in the event of a downturn in its business or the economy
generally; (v) making it more difficult for the Company to make payments on the
Notes; and (vi) requiring that a substantial portion of the Company's cash flow
from operations be dedicated to the payment of principal and interest on its
indebtedness and not be available for other purposes. In addition, BTI's
indebtedness under the Credit Facility bears interest at variable rates, which
causes BTI to be vulnerable to increases in interest rates.
The successful implementation of BTI's strategy and significant and
sustained growth in cash flows from operating activities are necessary for the
Company and its subsidiaries to meet their debt service requirements, including
its obligations under the Notes. There can be no assurance that BTI 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
BTI'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 a timely basis on terms that are
acceptable to the Company, or at all. In the absence of such financing, the
Company and its subsidiaries 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. There can be no assurance that the assets of the Company
15
<PAGE>
and its subsidiaries could be sold quickly enough or for sufficient amounts to
enable them to meet their obligations, including its obligations with respect to
the Notes.
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 BTI. The Company is dependent on the
cash flow of BTI to meet its obligations, including the payment of interest and
principal on the Notes. BTI is a separate legal entity that has no obligation to
pay any amounts due pursuant to the Notes or to make any funds available
therefor, whether by dividends, loans or other payments. Because BTI will not
guarantee the payment of the principal or interest on the Notes, any right of
the Company to receive assets of BTI upon its liquidation or reorganization (and
the consequent right of holders of the Notes to participate in the distribution
or realize proceeds from those assets) will be effectively subordinated to the
claims of the creditors of BTI (including trade creditors and holders of
indebtedness of such subsidiary), except if and to the extent the Company is
itself a creditor of BTI, in which case the claims of the Company would still be
effectively subordinated to any security interest in the assets of BTI held by
other creditors. As of September 30, 1997, BTI had approximately $34.4 million
of liabilities (excluding intercompany payables), including approximately $2.0
million of indebtedness (including capital leases). In addition, BTI has up to
$60.0 million of availability under the Credit Facility. See "Description of
Credit Facility."
The Notes are unsecured (except with respect to the Pledged Securities) and
therefore 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 $100.0 million of
other secured indebtedness pursuant to one or more credit facilities, including
the Credit Facility. The Credit Facility is guaranteed by BTI Telecom. The
Credit Facility is secured by a first priority security interest in
substantially all of the assets of BTI and a pledge of the capital stock of BTI.
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 (including the
Credit Facility) before any payment could be made on the Notes. In addition, to
the extent such assets did not satisfy in full the secured indebtedness
(including the Credit Facility), 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 BTI) with the Notes. Accordingly, there may only be
a limited amount of assets available to satisfy any claims of the holders of the
Notes upon an acceleration of the Notes.
ABILITY TO MANAGE GROWTH
BTI's rapid growth has placed, and anticipated growth in the future will
also place, a significant strain on its administrative, operational and
financial resources. BTI's ability to continue to manage its growth successfully
will require BTI to enhance its operational, managerial, financial and
information systems and controls and to hire and retain qualified sales,
marketing, administrative, operating and technical personnel. In particular, as
BTI commences providing local exchange services, the need for enhanced
provisioning, billing and information systems will increase significantly. In
addition, as BTI 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. There can be no
assurance that BTI will be able to successfully enhance its systems and controls
or hire and retain qualified personnel. BTI's inability to manage its growth
effectively would have a material adverse effect on the Company.
BUSINESS DEVELOPMENT AND EXPANSION RISKS
The successful implementation of BTI's strategy to expand and develop its
business will depend on, among other things, its ability to successfully
implement its sales and marketing strategy, evaluate markets, design fiber
routes, secure financing, install or obtain fiber optic facilities equipment,
acquire rights of way, obtain required government authorizations, comply with
applicable regulations and court orders, compete effectively, negotiate
interconnection agreements and implement and maintain interconnection to, and
co-location with, facilities owned by ILECs and obtain appropriately priced
unbundled network elements and wholesale services from the ILECs, all in a
timely manner, at reasonable costs and on satisfactory terms and conditions. In
addition, the expansion of BTI's services to include local telephony will
subject the Company to additional risks. See " -- Risks Related to Local
Services Strategy." The expansion of BTI's business may involve acquisitions of
other
16
<PAGE>
telecommunications businesses and assets. Such transactions commonly involve
certain risks including, among others: the difficulty of assimilating the
acquired operations and personnel; the potential disruption of BTI's ongoing
business and diversion of resources and management time; the possible inability
of management to maintain uniform standards, controls, procedures and policies;
the risks of entering markets in which BTI has little or no direct prior
experience; and the potential impairment of relationships with employees or
customers as a result of changes in management. There can be no assurance that
BTI will be successful in overcoming these risks and other problems encountered
in connection with any future transactions, that any acquired business will be
successfully integrated into BTI's operations or that any acquired business will
perform as expected. As part of its expansion, BTI may also enter into joint
ventures in the future. There are risks in participating in joint ventures,
including the risk that the other joint venture partners may at any time have
economic, business or legal interests or goals that are inconsistent with those
of the joint venture or BTI. The risk is also present that a joint venture
partner may be unable to meet its economic or other obligations in the joint
venture and that the Company may be required to fulfill some or all of those
obligations. Failure of BTI to implement its expansion and growth strategy
successfully could have a material adverse effect on the Company.
RISKS RELATED TO LOCAL SERVICES STRATEGY
BTI began offering local exchange services in late 1997. While some states
authorized local competition prior to 1996, the local dial tone services market
was largely opened to competition through the passage of the Telecommunications
Act of 1996 (the "Telecommunications Act") in February 1996 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 fully
implement local service competition, and there is little experience under those
decisions that have been made to date. Although BTI has entered into
interconnection agreements with BellSouth (the "BellSouth Interconnection
Agreement"), GTE and Sprint, BTI will need to enter into interconnection
agreements with other ILECs, including Bell Atlantic. Changes in the regulatory
environment, including the recent decision of the U.S. Court of Appeals for the
Eighth Circuit (the "Eighth Circuit Court"), could make negotiating such
agreements more difficult and protracted, and there can be no assurance that BTI
will be able to enter into such agreements on terms acceptable to the Company.
See " -- Regulation."
BTI will have to make significant operating and capital investments in
order to implement its local exchange service strategy. There are numerous
operating complexities associated with providing these services. BTI 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. BTI will also need to implement the necessary provisioning,
billing and collection systems for these services. BTI will face significant
competition from the Regional Bell Operating Companies (the "RBOCs"), whose core
business is providing local dial tone service. The RBOCs, who currently are the
dominant providers of services in their markets, are expected to mount a
significant competitive response to new entrants such as BTI. BTI also will face
significant competitive product and pricing pressures from other ILECs and from
other firms seeking to compete in the local services market, including AT&T,
MCI, Sprint and WorldCom.
BTI also expects that the addition of local service to its bundle of
telecommunications services will initially have an adverse impact on its gross
margin because the gross margin on the resale of local services through ILEC
facilities is lower than the gross margin on BTI's existing business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON BILLING, CUSTOMER SERVICE AND INFORMATION SYSTEMS
Sophisticated information and processing systems are vital to BTI's growth
and its ability to monitor costs, provision customer orders, bill customers and
achieve operating efficiencies. As BTI 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 adequately
identify all of its information and processing needs, or to upgrade systems as
necessary, could have a material adverse effect 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 Notes.
17
<PAGE>
DEPENDENCE ON RIGHTS OF WAY AND OTHER THIRD PARTY AGREEMENTS
BTI has obtained, and in the future will need to obtain, easements, rights
of way, franchises and licenses from various private parties, including actual
and potential competitors, and local governments in order to implement its
business strategy, including constructing and maintaining its fiber optic
network. There can be no assurance that BTI will obtain such rights and
franchises or will continue to have access to existing rights and franchises
after the expiration of such agreements. If a franchise, license or lease
agreement were terminated and BTI were forced to remove or abandon a significant
portion of its network, such termination could have a material adverse effect on
the Company.
REGULATION
BTI is subject to significant regulation at the federal, state and local
levels. Delays in receiving required regulatory approvals or the enactment of
adverse regulations or regulatory requirements may have a material adverse
effect upon the Company. BTI is required to obtain authorizations from the
Federal Communications Commission ("FCC") and state public utility commissions
("PUCs") to offer its telecommunications services, as well as file tariffs for
many of its services. Local authorities regulate BTI's access to municipal
rights of way. BTI will face new obligations arising out of the
Telecommunications Act as it begins to enter the local telephone market. 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 BTI. Failure to maintain proper federal and state
tariffing or state certification, or noncompliance with federal or state laws or
regulations, could have a material adverse effect on the Company.
Although BTI entered into the BellSouth Interconnection Agreement, pursuant
to which it will obtain wholesale local services and access to unbundled network
elements from BellSouth, the terms of the BellSouth Interconnection Agreement
must be approved by certain of the PUCs regulating BTI's markets. BellSouth
recently filed the agreement with such PUCs, however, there can be no assurance
that the agreement will be approved by these PUCs on a timely basis, or at all.
BTI is currently negotiating interconnection agreements with other local
exchange carriers. To the extent such agreements must be approved by any of the
PUCs regulating BTI's markets, there can be no assurance that such agreements
will be approved by them on a timely basis, or at all.
In addition, BTI's plans to provide local telephone service are heavily
dependent upon implementation of provisions of the Telecommunications Act. The
Telecommunications Act preempts state and local laws to the extent that they
prohibit local telephone competition, and imposed a variety of new duties on
ILECs intended to advance such competition, including the duty to negotiate in
good faith with competitors requesting interconnection to the ILEC's network.
However, negotiations with ILECs 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 BTI will be able to negotiate acceptable
interconnection agreements with ILECs or that if state regulatory authorities
impose terms and conditions on the parties in arbitration, such terms will be
acceptable to BTI. On August 8, 1996, the FCC adopted rules and policies
implementing certain of the local competition provisions of the
Telecommunications Act, which rules, in general, are considered favorable to new
competitive entrants, but those rules have not been fully implemented. On July
18, 1997, the Eighth Circuit Court vacated certain of the pricing provisions of
the FCC rules and the rules that enable new entrants to "pick and choose"
elements of existing interconnection agreements between the ILECs and other
carriers. The Eighth Circuit Court ruling does not affect the implementation of
the FCC's other interconnection rules and does not affect the statutory
requirements of the Telecommunications Act, including the statutory requirements
that ILECs conduct negotiations and enter into interconnection agreements with
competitive carriers. However, the Eighth Circuit Court decision may act to
reduce the role of the FCC in fostering competition in the local service market,
including the FCC's ability to take enforcement action if the Telecommunications
Act is violated, thereby increasing the role of the PUCs. The overall impact of
the Eighth Circuit Court decision on the Company cannot yet be determined and
there can be no assurance that it will not have a material adverse effect on the
Company. In addition, other FCC rules relating to local service competition are
still being challenged and there can be no assurance that decisions with respect
to such rules will not be adverse to companies seeking to enter the local
service market. Although the Company
18
<PAGE>
believes that the Telecommunications Act and other state and federal regulatory
initiatives that favor increased competition are advantageous to the Company,
there can be no assurance that changes in current or future state or federal
regulations, including changes that may result from court review of the FCC's
implementing rules, or increased competition by ILECs and others resulting from
such changes, will not have a material adverse effect on the Company.
The Telecommunications Act also creates the foundation for increased
competition in the long distance market from the RBOCs, which could affect the
successful implementation of BTI's business plans. For example, certain
provisions eliminate previous prohibitions on the provision of interLATA long
distance services (both retail and wholesale) by the RBOCs 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 RBOCs
(particularly BellSouth) are allowed to provide wireline interLATA long distance
services within their own regions before local competition is firmly
established. In a related development, the FCC is considering proposed new
policies and rules that would grant the ILECs additional flexibility in the
pricing of interstate access services, and states are considering or are
expected to consider ILEC 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 ILECs could have a material adverse effect on the Company.
See "Business -- Regulation."
COMPETITION
BTI operates in a highly competitive environment, and the level of
competition, particularly with respect to pricing, is increasing. Many of BTI'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 market has generally been characterized by over-capacity
and declining prices since shortly after the AT&T divestiture in 1984 and has
been extremely competitive, with prices declining substantially in recent years.
BTI anticipates that prices for its long distance services will continue to
decline over the next several years, which will adversely affect the Company's
gross margins as a percentage of revenues. The long distance market consists of
four major competitors (AT&T, MCI, Sprint and WorldCom), but other companies are
building nationwide networks and some compete in various geographic areas. Other
competitors are likely to include RBOCs providing out-of-region (and, with the
future removal of regulatory barriers, in-region) long distance services, other
CLECs, microwave and satellite carriers, and private networks owned by large
end-users. If industry capacity expansion results in capacity that exceeds
overall demand along any of BTI'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 RBOCs 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 FCC has
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
BTI are likely to make similar reductions. In such event, BTI may need to reduce
its rates to respond to competitive pressures. See " -- Dependence on Incumbent
Local Exchange Carriers" and "Business -- Regulation."
Local telephone and intraLATA long distance services substantially similar
to those expected to be offered by BTI are also offered by the ILECs serving the
markets that BTI plans to serve. BellSouth is the ILEC and a particularly strong
competitor in most of the markets targeted by BTI. BellSouth recently announced
its intent to establish its own CLEC to obtain pricing flexibility to compete in
areas served by BTI and to provide competitive local services in areas where it
is not the ILEC. BellSouth and other ILECs already have relationships with
virtually every customer and have the potential to effectively subsidize
services of the type offered by BTI from service revenues not subject to
effective competition, which could result in even more intense price
competition. 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 barriers to
local exchange competition. However, these new competitive opportunities are
expected to be accompanied by new competitive opportunities for the ILECs. It is
also expected that increased local competition
19
<PAGE>
will result in increased pricing flexibility for, and relaxation of regulatory
oversight of, the ILECs. If the ILECs are permitted to engage in increased
volume and discount pricing practices or charge CLECs increased fees for
interconnection to their networks, or if the ILECs 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 CLEC, in December 1996. In November 1997,
WorldCom and MCI announced their agreement to merge. 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.
BTI will also face competition in the markets in which it operates from one
or more CLECs operating fiber optic networks, in some cases in conjunction with
the local cable television operator or electric utility. 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
CLECs.
To complement its telecommunications services offerings, BTI offers data
transmission services on a resale basis. 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. AT&T has 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
BTI is dependent on ILECs to provide access service for the origination and
termination of its toll long distance traffic and interexchange private lines.
Historically those access charges 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 and 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.
BTI intends to obtain the local telephone services of the ILECs on a
wholesale basis and resell that service to end users, in the early stages of its
local telephone service business, and thereafter plans to install network
infrastructure to support local switched services as market conditions warrant.
BTI generally will be dependent on ILECs for provision of local telephone
service through access to local loops, termination service and, in some markets,
central office switches of such carriers. Additionally, BTI will be heavily
dependent on the ILECs and other carriers for provisioning of connections to
local exchange customers, and will require substantial
20
<PAGE>
development of new internal provisioning, billing and customer management
systems. Although under the Telecommunications Act the ILECs are generally
required to cooperate with BTI, the ILECs can impose significant operating
delays on BTI, thereby causing the loss of revenues or slowing of the Company's
planned growth. There also are no guarantees that BTI can design and install
necessary provisioning, billing and customer management systems in a timely
manner to permit BTI to provision local exchange, long distance or data services
as planned.
Any successful effort by the ILECs to deny or substantially limit BTI's
access to their network elements or wholesale services would have a material
adverse effect on BTI's ability to provide local telephone services. Although
the Telecommunications Act imposes interconnection obligations on ILECs, there
can be no assurance that BTI will be able to obtain access to such network
elements or services at rates, and on terms and conditions, that permit BTI to
offer local services at rates that are both profitable and competitive. BTI has
entered into the BellSouth Interconnection Agreement, pursuant to which it will
obtain wholesale local services and access to unbundled network elements from
BellSouth, but the agreement does not provide all material terms for the resale
of local services or access to the unbundled network elements. Some of such
terms may be affected by pending legal proceedings regarding FCC regulatory
requirements, the outcome of which will apply to the industry as a whole.
Although there can be no assurance, BTI expects that the BellSouth
Interconnection Agreement will provide a foundation for it to provide local
service on a reasonable commercial basis in several of its target markets. BTI
also has interconnection agreements with GTE and Sprint, and is currently
negotiating similar interconnection agreements with other local exchange
carriers. The BellSouth Interconnection Agreement expires in January 1999, and
there can be no assurance that BTI will be able to renew it under favorable
terms, or at all. Many issues relevant to the terms and conditions by which
competitors may use the ILEC network and wholesale services remain unresolved.
For example, BellSouth and certain other ILECs have taken the position that when
a carrier seeking to provide local service obtains all necessary elements (loops
and switches) from the ILEC in a combined form, the ILEC retains the right to
receive the access revenues associated with service to the customers served on
that basis. In addition, the FCC has recently created a task force to examine
complaints that competition in the local service market has been delayed by
problems that have arisen with respect to the systems used by carriers to order
and receive network elements and wholesale services from the ILECs. These
systems are necessary for carriers like BTI to provide local service on a timely
and competitive basis. See "Business -- Regulation."
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 networks, 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 and its subsidiaries cannot
be predicted. The Company believes its future success will depend, in part, on
its ability to anticipate or adapt to such changes and to offer, on a timely
basis, services that meet customer demands. There can be no assurance that
technological developments in telecommunications will not have a material
adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's business is dependent upon a small number of key management
and operating personnel, particularly Peter T. Loftin, Chairman and Chief
Executive Officer, R. Michael Newkirk, President and Chief Operating Officer,
and H.A. (Butch) Charlton, Senior Vice President, Sales. With the exception of
Mr. Charlton, none of these employees has an employment agreement with the
Company, and, with the exception of Mr. Loftin, the Company does not maintain
"key man" insurance on any of 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.
CONTROL OF THE COMPANY; CONFLICTS OF INTEREST
All of the outstanding capital stock of the Company is held by Peter T.
Loftin, Chairman and Chief Executive Officer of the Company. Accordingly, Mr.
Loftin is in a position to elect all of the Company's directors and determine
the outcome of corporate actions requiring shareholder approval. Certain
decisions
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<PAGE>
concerning the operations or financial structure of the Company may present
conflicts of interest between Mr. Loftin and the holders of the Notes. For
example, if the Company encounters financial difficulties or is unable to pay
its debts as they mature, the interests of Mr. Loftin might conflict with those
of the holders of the Notes. In addition, Mr. Loftin may have an interest in
pursuing acquisitions, divestitures, financings or other transactions that, in
his judgment, could enhance his equity investment in the Company, even though
such transactions might involve risk to the holders of the Notes.
Mr. Loftin has a 50% interest in International Communications, Inc.
("ICI"), a company that sells telecommunications services as an agent for BTI.
Conflicts may arise in connection with transactions between ICI and the Company,
including the negotiation or enforcement of the terms of such arrangements. In
addition, ICI or Mr. Loftin may compete with the Company in the provision of
telecommunications services and conflicts of interest may also arise with
respect to future business opportunities.
FRAUDULENT CONVEYANCE CONSIDERATIONS
The Company's management believes that the indebtedness represented by the
Notes is being incurred for proper purposes and in good faith, and that, based
on present forecasts, asset valuations and other financial information, the
Company is solvent, will have sufficient capital for carrying on its business
and will be able to pay its debts as they mature. Notwithstanding management's
belief, if a court in a suit by an unpaid creditor or representative of
creditors were to find that, after giving effect to the sale of the Notes and
the applications of the net proceeds therefrom, either (a) the Company incurred
such indebtedness with the intent of hindering, delaying or defrauding creditors
or (b) the Company received less than reasonably equivalent value or
consideration for incurring such indebtedness and (i) was insolvent or was
rendered insolvent by reason of such transactions, (ii) was engaged in a
business or transaction for which the assets remaining with the Company
constituted unreasonably small capital or (iii) intended to incur, or believed
that it would incur, debts beyond its ability to pay such debts as they matured,
such court may subordinate such indebtedness to existing and future indebtedness
of the Company, avoid such indebtedness and direct the repayment of any amounts
paid thereunder to the Company's creditors or take other action detrimental to
the holders of such indebtedness. The measure of insolvency for purposes of the
foregoing varies depending upon the law of the jurisdiction which is being
applied. Generally, however, a company would be considered insolvent if the sum
of all its liabilities, including contingent liabilities, were greater than the
value of all its property at a fair valuation, or if the present fair saleable
value of the company's assets were less than the amount required to repay its
liabilities on its debts, including contingent liabilities, as they become
absolute and matured.
LACK OF PUBLIC MARKET FOR THE NOTES; RESTRICTIONS ON TRANSFERABILITY
The Notes are a new issue of securities for which there is currently no
active trading market. If the Notes are traded after their initial issuance,
they may trade at a discount from their face value, depending upon prevailing
interest rates, the market for similar securities, the financial condition and
prospects of the Company and other factors beyond the control of the Company,
including general economic conditions. The Company does not intend to apply for
a listing or quotation of the Notes in the United States. Although the Placement
Agents have informed the Company that they currently intend to make a market in
the Notes, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, no assurance can be given
as to the development or liquidity of any trading market for the Notes.
22
<PAGE>
USE OF PROCEEDS OF THE EXCHANGE NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any cash 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, Initial Notes in like principal amount.
The form and terms of the Exchange Notes are identical in all material respects
to the form and terms of the Initial Notes, except as otherwise described herein
under "The Exchange Offer -- Terms of the Exchange Offer." The Initial Notes
surrendered in exchange for the Exchange Notes will be retired and cancelled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not result
in any increase in the outstanding debt of the Company.
23
<PAGE>
CAPITALIZATION
The following table sets forth the cash and capitalization of the Company
on a historical basis as of September 30, 1997. This table should be read in
conjunction with "Selected Financial and Operating 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 Prospectus.
<TABLE>
<CAPTION>
BTI
TELECOM
CORP.
SEPTEMBER 30, 1997
------------------
<S> <C>
Cash............................................................................................ $ 78,233,461
------------------
------------------
Restricted cash................................................................................. $ 74,093,277
------------------
------------------
LONG-TERM DEBT, SHAREHOLDER NOTES PAYABLE, AND CAPITAL LEASE OBLIGATIONS:
Shareholder notes payable..................................................................... $ 1,930,493
Capital lease obligations, including current portion of $90,919............................... 115,323
Senior notes.................................................................................. 250,000,000
------------------
Total debt and capital lease obligations, including current portion (a).................... 252,045,816
------------------
Total shareholders' deficit (b)................................................................. (63,129,976)
------------------
Total capitalization............................................................................ $188,915,840
------------------
------------------
</TABLE>
- ---------------
(a) Excludes any potential borrowings under the Credit Facility. See
"Description of Credit Facility."
(b) The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, no par value per share. As of September 30, 1997, 10,000,000
shares of such Common Stock were issued and outstanding.
There has been no material adverse change in the capitalization of the
Company since September 30, 1997.
24
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following selected historical financial and operating data for the five
years ended December 31, 1996 were derived from the audited financial statements
of the Company. The financial data for the nine months ended September 30, 1996
and 1997 were derived from the Company's unaudited financial statements and in
the opinion of management include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Operating results for
the nine months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the entire year. The selected data should be
read in conjunction with "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.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $42,019,704 $62,984,752 $91,547,763 $114,536,706 $148,780,816 $106,237,643 $145,145,510
Operating expenses:
Cost of services...... 25,184,302 38,067,197 54,424,983 68,199,125 90,820,467 62,884,645 101,238,476
Selling, general and
administrative
expenses............ 13,411,799 20,778,939 33,671,250 44,732,343 53,791,036 40,688,329 43,753,394
----------- ----------- ----------- ------------ ------------ ------------ ------------
Total operating
expenses.......... 38,596,101 58,846,136 88,096,233 112,931,468 144,611,503 103,572,974 144,991,870
----------- ----------- ----------- ------------ ------------ ------------ ------------
Income from
operations............ 3,423,603 4,138,616 3,451,530 1,605,238 4,169,313 2,664,669 153,640
Interest expense........ (357,207) (463,651) (749,661) (1,296,707) (1,695,324) (1,366,903) (2,108,730)
Gain on sale of
marketable
securities............ -- 21,618 -- 62,298 131,910 -- --
----------- ----------- ----------- ------------ ------------ ------------ ------------
Income (loss) before
income taxes.......... 3,066,396 3,696,583 2,701,869 370,829 2,605,899 1,297,766 (1,955,090)
Income taxes............ -- -- -- -- -- -- 2,210,000
----------- ----------- ----------- ------------ ------------ ------------ ------------
Net income (loss)....... 3,066,396 3,696,583 2,701,869 370,829 2,605,899 1,297,766 $ (4,165,090)
------------
------------
Pro forma income
taxes(a).............. 1,287,886 1,552,565 1,134,785 155,748 1,094,478 545,062
----------- ----------- ----------- ------------ ------------ ------------
Pro forma net income
(loss)(a)............. $ 1,778,510 $ 2,144,018 $ 1,567,084 $ 215,081 $ 1,511,421 $ 752,704
----------- ----------- ----------- ------------ ------------ ------------
----------- ----------- ----------- ------------ ------------ ------------
OTHER FINANCIAL DATA:
Capital expenditures,
including line access
fees.................. $ 1,031,241 $ 1,736,013 $ 4,434,616 $ 10,717,866 $ 8,589,707 $ 5,690,992 $ 7,973,910
Depreciation and
amortization.......... 1,380,676 1,881,937 2,748,903 3,073,368 4,471,623 3,256,526 4,545,000
Net cash provided by
(used in) operating
activities............ 2,691,810 4,551,789 6,230,855 9,446,250 (175,347) (1,445,198) 9,543,813
Net cash used in
investing
activities............ (1,031,241) (1,903,993) (4,529,987) (10,894,197) (8,893,125) (6,532,633) (126,797,057)
Net cash provided by
(used in) financing
activities............ (1,253,887) (2,929,915) (1,774,752) 1,858,401 9,259,142 7,795,480 194,990,195
EBITDA(b)............... 4,804,279 6,020,553 6,200,433 4,678,606 8,640,936 5,921,195 4,698,640
Ratio of earnings to
fixed charges(c)...... 6.4x 6.0x 3.3x 1.2x 1.8x 1.5x --
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficit)............. $ 717,309 $ 542,918 $(1,546,220) $ (5,182,319) $ 741,199 $ 2,315,053 $149,273,417
Property and equipment,
net................... 2,918,266 6,168,816 9,008,664 16,792,434 21,498,067 18,888,377 30,230,037
Total assets............ 10,638,072 18,856,576 26,802,487 35,968,645 48,223,809 44,684,021 221,493,450
Debt and capital lease
obligations........... 3,626,550 6,605,821 8,388,172 13,553,439 25,017,610 23,140,561 252,045,816
Shareholders' equity
(deficit)............. 2,390,970 3,989,003 4,070,371 1,896,559 2,374,398 1,436,172 (63,129,976)
</TABLE>
- ---------------
(a) Historical financial information for the five years in the period ended
December 31, 1996 and the nine months ended September 30, 1996 does not
include a provision for income taxes because, prior to the Reorganization,
BTI was an S corporation not subject to income taxes. Net income has been
adjusted on a pro
25
<PAGE>
forma basis to reflect the tax that would have been paid by BTI if it had
been subject to income tax for the full period.
(b) EBITDA consists of income (loss) before interest, income taxes, depreciation
and amortization and other income and expense. 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.
(c) The ratio of earnings to fixed charges is computed by dividing income before
income taxes and fixed charges (other than capitalized interest) by fixed
charges. Fixed charges consist of interest charges, amortization of debt
issuance costs and discount or premium related to indebtedness, whether
expensed or capitalized, and that portion of rental expense the Company
believes to be representative of interest (estimated to be one-third of such
expense). For the nine months ended September 30, 1997, earnings were
insufficient to cover fixed charges by $4,165,090.
26
<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 NOTES THERETO AND THE OTHER FINANCIAL DATA APPEARING ELSEWHERE IN
THIS MEMORANDUM. THE COMPANY HAS INCLUDED EBITDA DATA IN THE FOLLOWING ANALYSIS
BECAUSE IT IS A MEASURE COMMONLY USED IN THE INDUSTRY. EBITDA REPRESENTS
EARNINGS BEFORE 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.
OVERVIEW
COMPANY BACKGROUND. BTI provides high quality long distance
telecommunications services at competitive prices. Since inception, BTI's
business strategy has been to focus primarily on small to medium-sized business
customers located in the southeastern United States, utilizing a sales and
marketing approach driven by an emphasis on customer relationships. Although
initially only providing long distance service, BTI has continually expanded its
service offerings, and now provides a wide array of integrated and wholesale
telecommunications services.
BTI currently has sales offices in 22 markets primarily in the southeastern
United States, along with switching operations centers in Atlanta, Dallas, New
York, Orlando and Raleigh. BTI has a fiber optic network concentrated within the
southeastern United States, primarily through lease agreements with
facilities-based carriers. BTI uses multiple carriers to obtain competitive
pricing and high quality service for its customers while maintaining built-in
flexibility and routing diversity to mitigate the impact of service
interruptions.
REVENUES. BTI generates its revenues primarily from: (i) the sale of
integrated telecommunications services, primarily to small and medium-sized
businesses; and (ii) the sale of wholesale telecommunications services,
primarily to other telecommunications carriers. For the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1997, revenues from
integrated services represented approximately 95.1%, 95.0%, 82.7% and 60.2%,
respectively, of BTI's total revenue. During the past several years, market
prices for many telecommunications services have been declining, which is a
trend that the Company believes will likely continue. 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.
BTI's portfolio of integrated telecommunications services includes long
distance, data, Internet access, paging, AIN, operator and other enhanced
services. In order to capitalize on the excess capacity of its network in
off-peak hours, BTI markets long distance services to the residential market
through its Alliance Program for trade associations and professional
organizations and its Academic Edge Program for colleges and universities, and
through direct mail marketing of its dial-around long distance service. BTI
began adding local exchange services to its current array of integrated
telecommunications services in selected markets throughout the southeastern
United States beginning in October 1997. BTI is currently in the process of
installing a Lucent 5ESS local switch in Raleigh, where it will begin offering
switch-based local exchange services in late 1997. BTI will initially resell
ILEC services in its other target markets, and intends to install network
infrastructure to support local switched services as market conditions warrant.
Through 1995, BTI's direct sales compensation structure consisted of base
salary plus one-time commissions on each customer's initial monthly billings and
nominal residual commissions. During 1996, BTI redesigned its sales compensation
structure in order to provide sales representatives with greater long-term
incentives and to encourage stronger customer relationships. The new sales
commission structure, known as the Partner Program, compensates sales
representatives by offering a base salary for a ramp-up period, with higher
commissions on initial billings, followed by more significant residual
commissions. As the Company anticipated, the implementation of the new sales
commission structure initially caused increased turnover of sales
representatives and managers and resulted in decreased integrated services
revenues. However, there has been recent improvement in integrated services
revenues as a result of the new sales compensation structure and recent changes
in the sales management team. Although there can be no assurance, management
believes that this trend will continue.
27
<PAGE>
BTI's portfolio of wholesale telecommunications services includes switched
and dedicated access services. BTI entered the wholesale services business to
leverage its network infrastructure for its integrated telecommunications
services. In 1996, BTI began to aggressively pursue wholesale revenues to
carriers, resellers and debit card providers. BTI has increased monthly
wholesale revenue from $.7 million in January 1996 to $6.9 million in September
1997.
OPERATING EXPENSES. The Company's primary operating expense categories
include cost of services and selling, general and administrative expenses
("SG&A"). Cost of services consists of the fixed costs of leased facilities and
the variable costs of origination, termination, and access services provided
through ILECs and other telecommunications companies. By using multiple carriers
for its transmission capacity, BTI is able to maintain network diversity and
take advantage of least-cost traffic routing. In addition, in October 1997 BTI
entered into an agreement to lease on an IRU basis for the lesser of 25 years
or the life of the fiber approximately 3,200 route miles of fiber optic
network to be built over 18 months serving markets from New York to Miami and
Nashville, Tennessee. This network is expected to enable BTI to carry its
intraregional traffic over its own facilities, thereby reducing its costs of
services by decreasing payments to other carriers for the use of their
facilities. Although the initial gross margins on local services will be lower
because the Company will be reselling ILEC local services, the Company expects
these margins to improve as BTI begins to offer these services using its own
local switching facilities.
SG&A includes all infrastructure costs such as selling, customer support,
corporate administration, personnel, network maintenance, depreciation and
amortization and alternate sales channels. Selling expenses include commissions
for the Company's direct sales program, which consist of a large percentage of
customers' first month's billings, plus a residual percentage of ongoing monthly
revenues. Selling expenses also include commissions paid to the Company's
Corporate Partners (third party agents), which are based upon a fixed percentage
of the customers' monthly billings. Depreciation and amortization is primarily
related to switching equipment, facilities, computer equipment and software, and
is expected to increase as the Company incurs substantial capital expenditures
on its infrastructure and begins acquiring its own fiber optic network
facilities. In addition, depreciation and amortization also includes line access
fees, which represent installation charges paid primarily to ILECs for leased
fiber optic facilities.
In connection with the Transactions, the Company issued options to purchase
333,260 shares of Common Stock to certain individuals under the BTI 1994 Stock
Plan and the BTI Telecom 1997 Stock Plan and recorded approximately $2.1 million
in compensation expense with respect thereto in quarter ended September 30,
1997. The Company expects to repurchase certain of such options.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
REVENUE
Revenue increased 36.6% from $106.2 million for the nine months ended
September 30, 1996 to $145.1 million for the nine months ended September 30,
1997, primarily as a result of a $44.9 million increase in wholesale services
revenue. This increase was partially offset by an anticipated decrease in
integrated services revenue resulting from the implementation of BTI's new sales
commission structure and price declines in retail long distance rates due to
competitive pressures. The increase in wholesale services revenue was a result
of an increase in both revenues from existing customers and sales to new
customers.
COST OF SERVICES
Cost of services increased 61.0% from $62.9 million for the nine months
ended September 30, 1996 to $101.2 million for the nine months ended September
30, 1997, primarily as a result of the increase in total call volume resulting
from increased wholesale revenue. Cost of services as a percentage of revenue
increased from 59.2% for the nine months ended September 30, 1996 to 69.8% for
the nine months ended September 30, 1997, primarily due to the increase in lower
margin wholesale revenue as a percentage of BTI's total revenues. Wholesale
revenue accounted for 39.8% of total revenue for the nine months ended September
30, 1997, up from 12.2% for the nine months ended September 30, 1996.
28
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses increased 7.4% from $40.7 million for the nine months ended
September 30, 1996 to $43.7 million for the nine months ended September 30,
1997, primarily due to the 1997 stock option compensation expense of $2.1
million discussed above and an increase in depreciation and amortization,
partially offset by certain cost containment measures implemented in the second
quarter of 1996. SG&A decreased as a percentage of total revenue from 38.3% for
the nine months ended September 30, 1996 to 30.1% for the nine months ended
September 30, 1997. Depreciation and amortization increased 36.4% from $3.3
million for the nine months ended September 30, 1996 to $4.5 million for the
nine months ended September 30, 1997. This increase is due primarily to capital
expenditures related to the addition of new switching operations centers in
Orlando and Dallas during 1996 and in New York during 1997. In addition, BTI
continues to invest in expanding its existing operations centers and
infrastructure due to increased traffic volume and expanded product offerings.
INTEREST EXPENSE
Interest expense was $1.4 million for the nine-month period ended September
30, 1996, as compared to $2.1 million for the nine-month period ended September
30, 1997, primarily due to increased borrowings during the latter period,
primarily to finance working capital and capital expenditures related to
continued expansion.
EBITDA
EBITDA decreased 20.1% from $6.0 million for the nine months ended
September 30, 1996 to $4.8 million for the nine months ended September 30, 1997.
The decrease is due primarily to an increase in cost of services, partially
offset by increased revenues.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUE
Revenue increased 29.9% from $114.5 million for 1995 to $148.8 million for
1996. This $34.2 million increase consists primarily of a $20.0 million increase
in wholesale revenues. The remaining $14.3 million net increase was generated by
improved integrated service revenues, primarily from sales to new customers and
increased sales to existing customers. The increase includes $5.0 million in new
revenue derived from alternate sales channels, $3.0 million of which was from
direct mail marketing of dial-around long distance services.
COST OF SERVICES
Cost of services increased 33.2% from $68.2 million for 1995 to $90.8
million for 1996, primarily due to the increase in total call volume from 1995
to 1996. Cost of services as a percentage of revenue increased from 59.5% for
1995 to 61.0% for 1996, primarily due to the increase in lower margin wholesale
revenue as a percentage of BTI's total revenues, partially offset by cost
reductions during 1996. Wholesale revenue accounted for 17.3% of BTI's total
revenue for 1996 as compared to 5.0% for 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased 20.3% from $44.7 million for 1995 to $53.8 million for 1996,
but decreased as a percentage of revenue from 39.1% in 1995 to 36.2% in 1996.
The $9.1 million increase was primarily due to increases in support and
operational costs for BTI's continued business infrastructure growth, including
the opening of additional sales offices. Depreciation and amortization increased
45.5% from $3.1 million for 1995 to $4.5 million for 1996. This increase is due
primarily to capital expenditures related to the addition of new switching
operations centers in Orlando and Dallas during 1996.
INTEREST EXPENSE
Interest expense increased from $1.3 million for 1995 to $1.7 million for
1996, primarily due to an increase of $11.5 million in BTI's outstanding debt
(including capital leases) from December 31, 1995 to December 31, 1996. The
additional outstanding indebtedness consisted primarily of indebtedness under
the Original Credit Facility to finance working capital and capital expenditures
related to continued expansion.
29
<PAGE>
EBITDA
EBITDA increased 84.7% from $4.7 million for 1995 to $8.6 million for 1996.
The increase is due primarily to a decrease in BTI's SG&A as a percent of total
revenue offset by the increase in cost of services as a percentage of total
revenue.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUE
Revenue increased 25.1% from $91.5 million for 1994 to $114.5 million for
1995. The increase of $23.0 million includes $21.8 million of sales of
integrated services primarily to new customers from the continued expansion of
BTI's direct sales force.
COST OF SERVICES
Cost of services increased 25.3% from $54.4 million for 1994 to $68.2
million for 1995. The change results from an increase in BTI's total call
volume, as the revenue mix remained relatively constant from 1994 to 1995. For
both periods, cost of services as a percentage of revenue was approximately
59.5%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased 32.9% from $33.7 million for 1994 to $44.7 million for 1995
increasing as a percentage of revenue from 36.8% in 1994 to 39.1% in 1995. This
$11.1 million increase was due to investments in the expansion of BTI's support
infrastructure and sales channels. During 1994 and 1995, BTI opened nine
additional sales offices, increasing its total sales offices to 21 at December
31, 1995. Depreciation and amortization increased 11.8% from $2.7 million for
1994 to $3.1 million for 1995 due to continued network equipment expansion.
INTEREST EXPENSE
Interest expense increased from $.7 million for 1994 to $1.3 million for
1995. The increase is due to an increase of $5.2 million in BTI's outstanding
debt and capital leases from December 31, 1994 to December 31, 1995.
EBITDA
EBITDA decreased 24.5% from $6.2 million for 1994 to $4.7 million for 1995.
The decrease is due primarily to an increase in BTI's SG&A as a percent of
revenues from 36.8% for 1994 to 39.1% for 1995, as a result of BTI's expansion
of its sales channels (including the opening of new direct sales offices) and
its network operations infrastructure.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation in 1983, BTI has funded its operations and growth
primarily from cash flow from operations, capital leases and borrowings under
various credit facilities. For the years ended December 31, 1994 and 1995 and
the nine months ended September 30, 1997, BTI generated cash flow from operating
activities of $6.2 million, $9.4 million and $9.5 million, respectively. For the
year ended December 31, 1996, BTI used net cash of approximately $175,000 in
operating activities. Included in net cash used in operating activities for 1996
was a $7.4 million change in operating assets and liabilities, primarily
resulting from the $7.3 million growth in trade accounts receivable due to
increased revenues and slower collections from wholesale accounts.
Cash used in investing activities was $4.5 million, $10.9 million and $8.9
million for the years ended December 31, 1994, 1995, and 1996, respectively, and
$126.8 million for the nine months ended September 30, 1997. Cash used in
investing activities in 1997 included $74.1 million in restricted cash used to
secure the first six scheduled interest payments due on the Notes and $35.6
million related to the FiberSouth Acquisition. Other investing activities
consisted primarily of capital expenditures for the expansion of operations
centers and related support systems. In addition, cash used in investing
activities includes the capitalization of line access fees, which represent
installation charges paid primarily to ILECs for securing additional leased
fiber optic facilities.
Net cash used by financing activities was $1.8 million for the year ended
December 31, 1994, and net cash provided by financing activities was $1.9
million and $9.3 million for the years ended December 31, 1995 and
30
<PAGE>
1996, respectively. Net cash provided by financing activities for the nine
months ended September 30, 1997 was $195.0 million, including $250.0 million of
cash provided by the Offering partially offset by $28.3 million of cash used for
the Share Repurchase. In 1995 and 1996, cash provided by financing activities
primarily consisted of net borrowings on working capital and long-term credit
facilities. In addition, the Company paid dividends of $2.6 million, $2.6
million, $2.0 million and $3.7 million for the years ended December 31, 1994,
1995 and 1996 and the nine months ended September 30, 1997, respectively. Since
1987, BTI has been subject to taxation under Subchapter S of the Internal
Revenue Code of 1986, as amended (the "Code"). As a result, the net income of
BTI, for federal and certain state income tax purposes, was reported by and
taxable directly to BTI shareholders, rather than to BTI. The dividends were
paid in part to provide funds for tax obligations owed by BTI's shareholders as
a result of BTI's income. In connection with the Transactions, in September
1997, BTI converted from S corporation to C corporation status. As a result, at
that time the Company became fully subject to federal and state income taxes,
and it recorded approximately $2.2 million in deferred income tax expense and
$2.8 million of deferred income tax liabilities. However, the Company will
continue to be required to reimburse BTI's shareholders for their tax
obligations arising from income earned by BTI while it was an S corporation.
In September 1997, BTI and GE Capital entered into the Credit Facility,
which provides BTI with a five-year $60.0 million senior secured, reducing,
revolving credit facility for working capital and other purposes, including
capital expenditures. The Credit Facility contains restrictions on the Company
and its subsidiaries and requires the Company to comply with certain financial
tests and to maintain certain financial ratios. See "Risk Factors -- High
Leverage; Ability to Service Debt; Restrictive Covenants" and "Description of
Credit Facility."
The Company expects to require significant financing for capital
expenditure and working capital requirements. The Company currently estimates
that its aggregate capital requirements will total approximately $21.5 million
in the second half of 1997 and approximately $62.3 million for 1998. The Company
expects to make substantial capital expenditures thereafter. Capital
expenditures will be primarily for: (i) the build out of long haul fiber optic
facilities; (ii) the addition of facilities-based local exchange services,
including the acquisition and installation of switches and related equipment;
(iii) market expansion; (iv) the continued development of its existing
operations centers to service anticipated increased traffic volumes and
increased geographic areas; and (v) the continued development and expansion of
infrastructure and systems to support its operations. The actual amount and
timing of the Company's capital requirements may differ materially from the
foregoing estimate as a result of regulatory, technological or competitive
developments (including market developments and new opportunities) in the
Company's industry. See "Risk Factors -- Significant Capital Requirements;
Uncertainty of Additional Financing."
Although there can be no assurance, management believes that proceeds from
the Offering, together with cash on hand, borrowings expected to be available
under the Credit Facility and cash flow from operations, will be sufficient to
consummate the BTI Refinancing, the Share Repurchase and the FiberSouth
Acquisition and to expand the Company's business as currently planned. See "Risk
Factors -- Anticipated Future Negative Cash Flow After Capital Expenditures" and
" -- High Leverage; Ability to Service Debt; Restrictive Covenants."
EFFECTS OF NEW ACCOUNTING STANDARDS
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," 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 such asset may
not be recoverable. The Company adopted SFAS No. 121 effective January 1, 1996
with no material impact on the financial statements.
31
<PAGE>
SFAS No. 123, "Accounting for Stock-Based Compensation," establishes a fair
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 plans to disclose the pro
forma effects of the new measurement criteria in its financial statements for
the year ending December 31, 1997 to reflect certain stock options granted
under the Company's 1997 Stock Plan during the quarter ending December 31, 1997.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," and SFAS No. 129, "Disclosure of Information about
Capital Structure." SFAS 128 specifies the computation, presentation and
disclosure requirements for earnings per share. SFAS No. 129 incorporates
related disclosure requirements from APB Opinion No. 10, "Disclosure of
Long-Term Obligations," and SFAS No. 47, "Disclosure of Long-Term Obligations,"
for entities that were subject to the requirements for those standards. Both
statements are effective for fiscal years beginning after December 15, 1997. The
Company will adopt the statements effective January 1, 1998 and does not expect
adoption of the statements to have a significant impact on its earnings per
share calculation and disclosures.
INFLATION
The Company does not believe inflation has had a significant impact on the
Company's operations.
32
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement the Company has agreed to use
its best efforts to cause to be filed a registration statement with respect to
an offer to exchange the Initial Notes for senior debt securities of the Company
with terms substantially identical to the Initial Notes (except that the
Exchange Notes will not contain terms with respect to transfer restrictions) and
to use its best efforts to have the Exchange Offer consummated not later than 60
days after such registration statement has been declared effective by the
Commission. In the event that applicable law or interpretations of the staff of
the Commission do not permit the Company to file the registration statement
containing this Prospectus or to effect the Exchange Offer, or if certain
holders of the Initial Notes notify the Company that they are not permitted to
participate in, or would not receive freely tradeable Exchange Notes pursuant
to, the Exchange Offer, the Company will use its best efforts to cause to become
effective the Shelf Registration Statement with respect to the resale of the
Initial Notes and to keep the Shelf Registration Statement effective until two
years after the original issuance of the Initial Notes. The interest rate on the
Initial Notes is subject to increase under certain circumstances if the Company
is not in compliance with its obligations under the Registration Rights
Agreement.
Each holder of the Initial Notes who wishes to exchange such Initial Notes
for Exchange Notes in the Exchange Offer will be required to make certain
representations in the Letter of Transmittal, including representations that (i)
any Exchange Notes to be received by it will be acquired in the ordinary course
of its business, (ii) it is not participating, does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, and (iii) it is not an "affiliate" as
defined in Rule 405 of the Securities Act, of the Company or, if it is an
affiliate, it will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. See "Description of
the Exchange Notes -- Exchange Offer; Registration Rights."
RESALE OF EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that, except as
described below, Exchange Notes issued pursuant to the Exchange Offer in
exchange for Initial Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) 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 holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Exchange Notes. Any holder who tenders in the Exchange
Offer with the intention or for the purpose of participating in a distribution
of the Exchange Notes cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration statement
containing the selling security holders information required by Item 507 of
Regulation S-K under the Securities Act. This Prospectus may be used for an
offer to resell, resale or other retransfer of Exchange Notes only as
specifically set forth herein. Each broker-dealer that receives Exchange Notes
for its own account in exchange for Initial Notes, where such Initial 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."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept for exchange any and
all Initial Notes properly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
outstanding Initial Notes surrendered pursuant to the Exchange Offer. Initial
Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Exchange Notes will be the same as the form and
terms of the Initial Notes except the Exchange Notes will be registered under
the Securities Act and hence will not bear legends restricting the
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<PAGE>
transfer thereof. The Exchange Notes will evidence the same debt as the Initial
Notes. The Exchange Notes will be issued under and entitled to the benefits of
the Indenture, which also authorized the issuance of the Initial Notes, such
that both series will be treated as a single class of debt securities under the
Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Initial Notes being tendered for exchange.
As of the date of this Prospectus, $250.0 million aggregate principal
amount of the Initial Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Initial Notes.
There will be no fixed record date for determining registered holders of Initial
Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with the
provisions of the Registration Rights Agreement and the applicable requirements
of the Exchange Act, and the rules and regulations of the Commission thereunder.
Initial Notes which are not tendered for exchange in the Exchange Offer will
remain outstanding and continue to accrue interest and will be entitled to the
rights and benefits such holders have under the Indenture.
The Company shall be deemed to have accepted for exchange properly tendered
Notes when, as and if the Issuer shall have given oral or written notice thereof
to the Exchange Agent and complied with the relevant provisions of the
Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purposes of receiving the Exchange Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Initial Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions specified
below under " -- Certain Conditions to the Exchange Offer".
Holders who tender Initial Notes in 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 Initial
Notes pursuant to 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".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the registered
holders of Initial Notes an announcement thereof, each prior to 9:00 a.m., New
York City time, on the next business day after the then effective Expiration
Date.
The Company reserves the right, in its sole discretion, to (i) delay
accepting for exchange any Initial Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
" -- Certain Conditions of the Exchange Offer" shall not have been satisfied, by
giving oral or written notice of such delay, extension or termination to the
Exchange Agent or (ii) amend the terms of the Exchange Offer in any manner. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the registered
holders of Initial Notes. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders, and the Company will extend the
Exchange Offer, depending upon the significance of the amendment and the manner
of disclosure to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at the rate of 10 1/2% per annum from
September 17, 1997, the date of issuance of the Initial Notes that are tendered
in exchange for the Exchange Notes (or the most recent Interest Payment Date (as
defined) to which interest on such Notes has been paid). Accordingly, holders of
Initial Notes that are accepted for exchange will not receive interest on the
Initial Notes that is accrued but unpaid at the time of tender, but such
interest will be payable on the first Interest Payment Date after the Expiration
Date. Interest
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<PAGE>
on the Exchange Notes will be payable semiannually in cash on each March 15 and
September 15, commencing March 15, 1998.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange any Exchange Notes for, any
Initial Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of any Initial Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency with respect to the Exchange Offer
which, in the Company's sole judgment, might materially impair the ability
of the Company to proceed with the Exchange Offer;
(b) any law, statute, rule or regulation is proposed, adopted or
enacted, or any existing law, statute, rule or regulation is interpreted by
the staff of the Commission, which, in the Company's sole judgment, might
materially impair the ability of the Company to proceed with the Exchange
Offer; or
(c) any governmental approval has not been obtained, which approval
the Company shall, in its sole discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Initial Notes, by giving oral or
written notice of such extension to the holders thereof. During any such
extensions, all Initial Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company. Any Initial
Notes not accepted for exchange for any reason will be returned without expense
to the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Initial Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified above. The Company will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Initial Notes as
promptly as practicable, such notice in the case of any extension to be issued
no later than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable judgment. The failure by the Company at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Initial Notes
tendered, and no Exchange Notes will be issued in exchange for any such Initial
Notes, if at such time any stop order shall be threatened or in effect with
respect to the Registration Statement of which this Prospectus constitutes a
part or the qualification of the Indenture under the Trust Indenture Act of 1939
(the "TIA").
PROCEDURES FOR TENDERING
Only a holder of Initial Notes may tender such Initial Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) Initial Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of book-entry
transfer (a "Book-Entry Confirmation") of such Initial Notes, if such procedure
is available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
at the address set forth below under " -- Exchange Agent" prior to 5:00 p.m.,
New York City time, on the Expiration Date.
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<PAGE>
The tender by a holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
Any beneficial owner whose Initial Notes are registered in the name of a
broker, dealer, commercial bank, trust or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder of Initial Notes to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Initial Notes, either make appropriate arrangements to register
ownership of the Initial Notes in such owner's name or obtain a properly
completed bond power from the registered holder of Initial Notes. The transfer
of registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below, as the case be, must be guaranteed by an Eligible Institution (as defined
below) unless the Initial Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantor must be a member firm of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust issuer having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Initial Notes listed therein, such Initial Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Initial Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Initial Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Initial Notes and withdrawal of tendered
Initial Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Initial Notes not properly tendered or any Initial Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Initial Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Initial Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Initial Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Initial Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holder, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In all cases, issuance of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of the Initial Notes or a timely Book-Entry
Confirmation of such Initial Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Initial Notes are
not accepted for exchange for any reason set forth in the terms and conditions
of the Exchange Offer or if Initial Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Initial Notes will be returned without expense to the tendering holder thereof
(or, in the case of Initial Notes tendered by book-entry transfer into the
Exchange Agent's account
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<PAGE>
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described below, such non-exchanged Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Initial Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Initial Notes by causing the
Book-Entry Transfer Facility to transfer such Initial Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal or facsimile thereof, with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received by the Exchange Agent at the address set
forth below under " -- Exchange Agent" on or prior to the Expiration Date or, if
the guaranteed delivery procedures described below are to be complied with,
within the time period provided under such procedures. Delivery of documents to
the Book-Entry Transfer Facility does not constitute delivery to the Exchange
Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Initial Notes and (i) whose Initial Notes
are not immediately available or (ii) who cannot deliver their Initial Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Dates, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the registered number(s)
of such Initial Notes and the principal amount of Initial Notes tendered,
stating that the tender is being made thereby and guaranteeing that, within
three New York Stock Exchange trading days after the Expiration Date, the
Letter of Transmittal (or facsimile thereof) together with the Initial
Notes 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; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Initial Notes in proper form
for transfer or a Book-Entry Confirmation, as the case may be, and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Initial Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at one of the addresses set forth below under
" -- Exchange Agent". Any such notice of withdrawal must specify the name of the
person having tendered the Initial Notes to be withdrawn, identify the Initial
Notes to be withdrawn (including the principal amount of such Initial Notes) and
(where certificates for Initial Notes have been transmitted) specify the name in
which such Initial Notes were registered, if different from that of the
withdrawing holder. If certificates for Initial Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Initial Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and
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number of the account at the Book-Entry Transfer Facility to be credited with
the withdrawn Initial Notes and otherwise comply with the procedures of such
facility. All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Issuer, whose
determination shall be final and binding on all parties. Any Initial Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Initial Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Initial Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Initial Notes will be credited to an account maintained
with such Book-Entry Transfer Facility for the Initial Notes) as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Initial Notes may be retendered by following one of
the procedures described under " -- Procedures for Tendering" above at any time
on or prior to the Expiration Date.
EXCHANGE AGENT
First Trust of New York, National Association, has been appointed as
Exchange Agent of the Exchange Offer. Questions and request for assistance,
request for additional copies of this Prospectus or of the Letter of Transmittal
and requests for Notice of Guaranteed Delivery should be directed to the
Exchange Agent addressed as follows:
FOR INFORMATION BY TELEPHONE:
(212) 361-2894
<TABLE>
<S> <C>
BY FACSIMILE TRANSMISSION BY HAND OR OVERNIGHT
(FOR ELIGIBLE INSTITUTIONS DELIVERY SERVICE OR BY MAIL:
ONLY):
(212) 809-5459 100 Wall Street, 16th Floor
New York, New York 10005
Attention: Glenn Andersen
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by facsimile, telephone, in person or otherwise by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will 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 cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Notes pursuant to the Exchange Offer. If, however, certificates representing
Initial Notes for principal amounts not tendered or accepted for exchange are to
be delivered to, or are to be issued in the name of, any person other than the
registered holder of Initial Notes tendered, or if tendered Initial Notes are
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (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.
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CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Initial Notes, as set forth (i) in the legend
thereon as a consequence of the issuance of the Initial Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws and (ii)
otherwise set forth under "Transfer Restrictions" in the Offering Memorandum
dated September 22, 1997 distributed in connection with the Initial Offering. In
general, the Initial Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Initial Notes
under the Securities Act. Based on interpretations by the staff of the
Commission set forth in no-action letters issued to third parties, Exchange
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) 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 respect to the distribution of the Exchange Notes to be
acquired pursuant to the Exchange Offer. Any holder who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
(i) could not rely on the applicable interpretations of the staff of the
Commission and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. In addition, to comply with the securities laws of certain
jurisdictions, if applicable, the Exchange Notes may not be offered or sold
unless they have been registered or such securities laws have been complied
with. The Company has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the
Exchange Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Exchange Notes reasonably requests in
writing.
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BUSINESS
OVERVIEW
The Company is a holding company organized under North Carolina law in
August 1997 for the purpose of issuing the Notes. The Company's sole asset is
all of the outstanding capital stock of its subsidiary, BTI, which it acquired
in September 1997. Consequently, the business of the Company consists solely of
the business of BTI, a discussion of which follows.
BTI is a leading provider of telecommunications services in the
southeastern United States. BTI currently offers (i) integrated
telecommunications services, including long distance (domestic and
international, "1+" outbound dialing and toll-free service), data, Internet
access, paging, AIN, operator and other enhanced services, primarily to small
and medium-sized businesses, and (ii) wholesale telecommunications services,
including switched, dedicated access (private line and dedicated data
facilities) and special access services, primarily to telecommunications
carriers. The Company had pro forma revenues of approximately $149.7 million and
EBITDA of approximately $9.7 million for the year ended December 31, 1996, and
pro forma revenues of approximately $147.0 million and EBITDA of approximately
$6.0 million, for the nine months ended September 30, 1997. For the five years
ended December 31, 1996, BTI's revenues increased at a compound annual growth
rate of approximately 37.6%. As of September 30, 1997, BTI provided its services
to over 31,000 business customers and over 150 telecommunications carriers and
other end-user customers.
In October 1997, BTI began to add local exchange services to its current
array of integrated telecommunications services where authorized. With the
addition of local exchange, BTI will be able to offer "one-stop" integrated
telecommunications services, tailored to the individual needs of small to
medium-sized businesses. BTI began to offer local exchange services in selected
markets throughout the southeastern United States in October 1997. BTI is
currently in the process of installing a Lucent 5ESS local switch in Raleigh,
where it will begin offering switch-based local exchange services in late 1997.
BTI will initially resell ILEC services in its other target markets, and as and
if local exchange market share is gained, BTI intends to install network
infrastructure to support local switched services in those markets.
BTI entered the wholesale services business to leverage its network
infrastructure for its integrated telecommunications services business. BTI
provides wholesale services to telecommunications carriers and other end-user
customers, including Nextel Communications, GTE, Sprint Mid-Atlantic, BellSouth
Mobility, UUNET, WorldCom, PSINet, ITC DeltaCom and CCI (McLeod). BTI provides
access services over its fiber optic network, which currently extends
approximately 65 route miles in North Carolina, linking Raleigh, Durham and the
Research Triangle Park area.
BTI operates an advanced telecommunications network including digital
switches in Atlanta, Dallas, New York, Orlando and Raleigh interconnected by
leased transmission capacity from major facilities based carriers (including
AT&T, MCI and WorldCom). BTI uses multiple carriers and multiple switches in
order to improve network redundancy and re-route capability. BTI leases network
capacity either on its own or through its membership in the ACCA, an 11-member
trade association co-founded by the Company in 1993. The ACCA 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. In October 1997 BTI entered
into an agreement to lease on an IRU basis for the lesser of 25 years or the
life of the fiber approximately 3,200 route miles of fiber optic network to be
built over 18 months serving markets from New York to Miami and Nashville,
Tennessee. The Company believes that this network will enable it to carry its
intraregional telecommunications traffic over BTI's facilities, thereby reducing
its cost of services by decreasing payments to other carriers for use of their
transport facilities.
BUSINESS STRATEGY
BTI's objective is to strengthen its market position as a leading provider
of telecommunications services in the southeastern United States. To achieve
this objective, BTI intends to (i) leverage its current market position,
extensive customer base, brand name and network capacity to aggressively
penetrate the local exchange market and enter new geographic markets while
further penetrating existing markets and (ii) expand its telecommunications
network to lower the cost of providing services to its customers. As part of its
expansion strategy, BTI may make acquisitions and enter into joint ventures or
strategic alliances with businesses that are related or complementary to its
current operations. The principal elements of BTI's business strategy include:
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PROVIDING INTEGRATED TELECOMMUNICATIONS SERVICES TO SMALL AND MEDIUM-SIZED
BUSINESS CUSTOMERS. BTI believes that there is substantial and growing demand,
particularly in the southeastern United States, among small and medium-sized
business customers for an integrated package of services. BTI offers long
distance, data, Internet access, paging, AIN, operator and other enhanced
services to small and medium-sized businesses, and began to add local telephone
service to its current service offerings in October 1997. BTI believes that
bundling local telephony with its current array of telecommunications services
will enable it to offer "one-stop" integrated telecommunications service and
allow it to leverage its existing infrastructure, increase customer retention
and better penetrate its target markets.
RAPIDLY PENETRATING THE LOCAL EXCHANGE MARKET. BTI intends to be among the
first providers of CLEC services in key markets in the southeastern United
States and to leverage its sales force and existing customer base to rapidly
gain CLEC market share. BTI began offering local exchange services in selected
markets throughout the southeastern United States beginning in October 1997. BTI
currently is in the process of installing a Lucent 5ESS local switch in Raleigh,
where it will begin offering switch-based local exchange services in late 1997.
Following its "smart-build" strategy, BTI will initially resell ILEC services in
its other target markets, and intends to install network infrastructure to
support local switched services as market conditions warrant.
"SMART-BUILDING" ITS NETWORK EXPANSION. BTI's strategy since its inception
has been to add revenue-producing customers before building or acquiring
additional network capacity. BTI believes that using this "smart-build" strategy
reduces the risks associated with speculative network expansion and allows it to
focus its capital expenditures in markets where network expansion will provide
competitive or cost advantages. Given BTI's favorable experience leasing network
capacity at competitive rates, through the ACCA and otherwise, BTI has typically
chosen to lease network capacity to enter new markets prior to building or
purchasing capacity. Following its "smart-build" strategy, in October 1997 BTI
entered into an agreement to lease on an IRU basis for the lesser of 25 years
or the life of the fiber approximately 3,200 route miles of fiber optic network
to be built over 18 months serving markets from New York to Miami and Nashville,
Tennessee. This network will enable BTI to carry its intraregional
telecommunications traffic over its own facilities, thereby reducing its cost of
services by decreasing payments to other carriers for use of their transport
facilities. BTI also intends to follow its "smart-build" strategy in entering
the local exchange market.
BUILDING MARKET SHARE BY FOCUSING ON PERSONALIZED SALES, MARKETING AND
CUSTOMER SERVICE. BTI believes that the key to revenue growth in its target
markets is capturing and retaining customers through effective, personalized
sales, marketing and customer service programs. BTI's direct sales force markets
BTI's entire range of services and is responsible and rewarded for obtaining and
maintaining face-to-face relationships with business customers. BTI seeks to
build long-term relationships with its customers by responding rapidly and
creatively to their telecommunications needs. BTI currently has 22 sales offices
staffed by representatives trained in marketing BTI's services and providing
comprehensive customer service and support. BTI's customer-support software and
network architecture give BTI personnel, along with its dealers and agents,
immediate access to customer data, allowing for quick and effective response to
customer requests and needs. This software also permits BTI to provide its
customers one fully integrated monthly billing statement for all of its current
services and is expected to permit the inclusion of local exchange service as
well.
FOCUSING ON THE SOUTHEASTERN UNITED STATES. BTI intends to continue to
focus on the high-growth southeastern United States in order to leverage its
existing market presence and telecommunications network in the region. In 1996,
BTI derived over 75% of its revenue from North Carolina, South Carolina,
Georgia, Florida and Virginia. BTI believes that its regional focus will enable
it to take advantage of economies of scale in network infrastructure, operations
and maintenance, sales, marketing and management. BTI also believes that its
regional focus will enable it to further develop its long-standing customer and
business relationships in the region. BTI's market presence in the southeastern
United States should provide opportunities for BTI to increase revenues and gain
market share in the region.
LEVERAGING PROVEN MANAGEMENT TEAM. The Company's management team consists
of experienced telecommunications executives led by Peter T. Loftin, Chairman
and Chief Executive Officer of the Company, who founded BTI 13 years ago. Other
members of the team include R. Michael Newkirk, President and Chief Operating
Officer, H.A. (Butch) Charlton, Senior Vice President, Sales, and Brian K.
Branson, Chief Financial Officer. These executives collectively have over 60
years of experience in the telecommunications industry. See "Management."
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MARKET POTENTIAL
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, local area charges, enhanced calling features and
private line services (dedicated point-to-point intraLATA service); (ii) network
access services, which consist of access provided by local exchange carriers to
long distance network carriers; (iii) 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 and the
sale of business telephone equipment. 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. In addition, the FCC reported that total long distance (interLATA)
service revenues in the United States in 1995 were $83.8 billion (which includes
network access revenues paid to local exchange carriers).
SERVICES
BTI offers (i) integrated telecommunications services, which currently
include long distance, data, Internet access, paging, AIN, operator and other
enhanced services, with plans to add local exchange services in late 1997, and
(ii) wholesale telecommunications services, including switched, dedicated access
and special access services. For the nine months ended September 30, 1997,
integrated telecommunications services and wholesale services represented 60.2%
and 39.8%, respectively, of the Company's total pro forma revenues.
INTEGRATED TELECOMMUNICATIONS SERVICES. As of September 30, 1997, BTI
provided integrated telecommunications services to over 31,000 small and
medium-sized business customers located primarily in the southeastern United
States and long distance services to over 27,000 residential customers. BTI's
current and planned services include:
LONG DISTANCE. BTI offers a full range of domestic and international
long distance services, including "1+" outbound dialing (switched and
dedicated line) and inbound toll-free service.
LOCAL SERVICES. BTI began offering local exchange services, including
local dial tone and enhanced features such as call forwarding, call
waiting, caller ID and voice mail, in selected markets throughout the
southeastern United States in October 1997. See " -- Implementation of
Local Telecommunications Services."
DATA SERVICES. BTI offers advanced data transmission services, such as
local area networks ("LANs") and wide area networks ("WANs"), to its
customers via dial-up, dedicated point-to-point and frame relay services.
INTERNET ACCESS. BTI offers dial-up and dedicated Internet access and
Web hosting services. The Web browser offered by BTI uses "softcasting(tm)"
to automatically download the latest version of the browser software each
time a user logs on.
PAGING. BTI offers advanced wireless paging services, including
digital and alphanumeric paging, PIN services, voicemail, out-dial
capability, locator service, fax-on-demand and broadcast faxing, through
its own platform facilities in Atlanta.
ADVANCED INTELLIGENT NETWORK APPLICATIONS. BTI offers AIN
functionality and services tailored to the individual needs of its
customers. Services include NPA/NXX routing and menu routing, virtual
private networks and other advanced custom applications.
OPERATOR SERVICES. BTI offers owners of pay telephones, and
multi-telephone facilities, such as hotels, hospitals and universities,
live or automated operators to assist their patrons in placing outbound
long distance calls and to transmit the calls over BTI's network.
OTHER ENHANCED SERVICES. BTI offers conference calling services
(including toll-free access and valet, sub-conferencing and transcription
services), prepaid calling cards, and enhanced calling card services
(including features such as voice and fax mail, voice-activated speed
dialing, conference calling and network voice messaging).
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WHOLESALE SERVICES. As of September 30, 1997, BTI provided wholesale
switched services to over 50 telecommunications carriers and dedicated access
and special access and private line services to over 100 telecommunications
carriers and other end-user customers, including Nextel Communications, GTE,
Sprint Mid-Atlantic, BellSouth Mobility, UUNET, WorldCom, PSINet, ITC DeltaCom
and CCI (McLeod). BTI's wholesale switched services include origination,
termination, Signaling System 7 ("SS7") connectivity and LATA transport
services. BTI's access services include dedicated access and special access
services. Dedicated access services include end-user to end-user private line
and dedicated data facilities. Special access services include
telecommunications lines that link the points-of-presence ("POPs") of one long
distance carrier, or the POPs of different long distance carriers, in a market
as well as lines that connect an end user to the local POP of its selected long
distance carrier. Private line services provide telecommunications connectivity
between various locations of a customer's operations to internally transmit
voice, video or data traffic.
IMPLEMENTATION OF LOCAL TELECOMMUNICATIONS SERVICES
BTI began offering local exchange services in selected markets throughout
the southeastern United States beginning in October 1997, initially by reselling
ILEC services in its target markets. BTI is currently in the process of
installing a Lucent 5ESS local switch in Raleigh, where it began offering
switch-based local exchange services in October 1997. BTI intends to install
network infrastructure to support local switched services in other markets as
market conditions warrant.
In connection with offering local exchange services, BTI has entered into
the BellSouth Interconnection Agreement to (i) resell BellSouth's local exchange
services and (ii) interconnect BTI's network with BellSouth's network for the
purpose of gaining access to the unbundled network elements necessary to provide
local exchange services. The BellSouth Interconnection Agreement contains "most
favored nation" provisions which grant BTI the right to obtain the benefit of
any arrangements entered into during the term of the agreement between BellSouth
and any other carrier that materially differ from the rates, terms or conditions
of the BellSouth Interconnection Agreement. The BellSouth Interconnection
Agreement expires in January 1999. However, the Interconnection Agreement
requires that no later than January 2, 1998 the parties shall commence the
negotiation of renewal terms to begin January 2, 1999, with the terms and
conditions of the existing BellSouth Interconnection Agreement to continue until
the terms for renewal are agreed upon.
BTI's ability to provide local switched services in its other target
markets is dependent upon obtaining favorable interconnection agreements with
local exchange carriers. BTI has entered into interconnection agreements with
GTE and Sprint, and is currently negotiating interconnection agreements with
other local exchange carriers such as Bell Atlantic. Changes in the regulatory
environment, including the recent Eighth Circuit Court decision could make
negotiating such agreements more difficult and protracted, and there can be no
assurance that BTI will be able to obtain interconnection agreements on terms
acceptable to the Company. See "Risk Factors -- Risks Related to Local Services
Strategy," " -- Regulation" and " -- Dependence on Incumbent Local Exchange
Carriers" and "Business -- Regulation."
SALES AND MARKETING
INTEGRATED TELECOMMUNICATIONS SERVICES. BTI focuses its retail sales
efforts on small to medium-sized businesses in the southeastern United States.
BTI believes that it can effectively compete in this market based upon a
combination of service, product diversity, price and reliability. BTI markets
its integrated telecommunications services primarily through two channels: BTI's
direct sales force (the "Partner Program") and its network of independent
dealers (the "Corporate Partner Program"). BTI also markets long distance
services to the residential market through its Alliance Program and Academic
Edge Program, as well as by direct mail.
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In 1995, 1996 and the nine months ended September 30, 1997, BTI's direct
sales force generated 72.9%, 69.7% and 63.6% of integrated services revenues,
respectively. BTI's sales personnel call on prospective and existing business
customers, conduct analyses of business customers' telecommunications usage
histories and service needs, and demonstrate how BTI's various service packages
will improve a customer's communications capabilities in a cost-effective
manner. Sales personnel identify 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. BTI's sales personnel work closely with BTI's
engineers and field support specialists to address customers' network and
service delivery needs and to design new service products and applications for
customers. BTI employed 230 full-time representatives as of September 30, 1997,
including 209 direct sales personnel and 21 field support specialists, in sales
offices located in:
Charlotte, NC
Greensboro, NC
Greenville, NC
Raleigh, NC
Wilmington, NC
Charleston, SC
Columbia, SC
Greenville, SC
Atlanta, GA
Ft. Lauderdale, FL
Jacksonville, FL
Orlando, FL
Tampa, FL
Norfolk, VA
Richmond, VA
Roanoke, VA
Vienna, VA
Knoxville, TN
Nashville, TN
Dallas, TX
Houston, TX
Albany, NY
BTI's Corporate Partner Program, established in 1992, is a network of
independent telephone equipment vendors and other agents authorized by BTI to
market its products and services. As of September 30, 1997, approximately 300
dealers were participating in the Corporate Partner Program. Authorized dealers
receive recurring commissions based on products and services sold, volume of
usage and retention of the customer. In 1995, 1996 and the nine months ended
September 30, 1997, the Corporate Partner Program generated 24.6%, 28.0% and
33.9% of integrated services revenues, respectively. BTI has established dealer
service offices staffed with dealer managers who actively recruit dealers and
field support specialists who handle all customer service and billing activities
associated with sales made under the Corporate Partner Program. BTI has dealer
service personnel in its sales offices in Orlando, Florida; Atlanta, Georgia;
Raleigh, North Carolina; Dallas, Texas; and Vienna, Virginia.
BTI's direct sales force and its authorized dealer agents are trained to
emphasize BTI's customer-focused sales and customer service approach. BTI
reinforces this approach by tying a portion of each sales representative's and
dealer agent's compensation directly to the longevity of their customer
accounts. BTI's marketing strategy is built upon the belief that customers
prefer to have one company serve all of their telecommunications needs. As part
of this strategy, BTI generally assigns to each customer its own dedicated field
support specialist, thereby providing the customer with a single point of
contact to address its telecommunications needs with the right mix of products
and services in a timely manner. The Company believes that this personalized
attention to a business needs, coupled with BTI's ability to provide one fully
integrated billing statement for all of the services that it offers, is very
appealing to both existing and prospective customers.
In order to capitalize on the excess capacity of its network in off-peak hours,
BTI markets long distance services to residential accounts through its Alliance
Program for trade associations and professional organizations and its Academic
Edge Program for colleges and universities, and through direct mail marketing of
its dial-around long distance service. By utilizing off-peak network capacity
and existing infrastructure, these residential-targeted programs produce
incremental revenue for the Company without materially increasing fixed network
costs. As of September 30, 1997, BTI had over 1,000 residential customers
through its Alliance Program and over 6,000 residential customers through its
Academic Edge Program. BTI's Alliance Program enables customers who are members
of organizations that participate in the program to contribute a small portion
of their monthly bill to help fund their organization. As of September 30, 1997,
there were over 160 associations participating in the Alliance Program.
Similarly, BTI's Academic Edge Program was launched in 1994 and caters to the
specialized needs of colleges and universities. Under the program, BTI provides
a revenue share to participating colleges and universities in return for their
selecting BTI as an official campus telecommunications service provider. As of
September 30, 1997, there were over 30 colleges and universities participating
in the Academic Edge Program. BTI recently began direct mail marketing its
dial-around service which enables customers to use BTI's long distance
services without changing their presubscribed long distance carrier by dialing
BTI's five
<PAGE>
digit access code before dialing the number they are calling. BTI markets its
integrated services through print and radio advertisements, event sponsorships,
trade journals, direct mail and trade forums.
WHOLESALE SERVICES. BTI established a wholesale service sales force in
November 1995. This group markets BTI's wholesale services to telecommunications
carriers and other end-user customers. The Company believes it can compete
effectively in this market based on a combination of price, reliability,
advanced technology, route diversity, ease of ordering and customer service. BTI
markets its wholesale services primarily through six direct sales personnel and
three support specialists located in BTI's sales office in Raleigh. In general,
these sales professionals locate potential customers for BTI's wholesale
services through customer referrals, trade shows and industry alliances. When
calling on a potential customer, BTI's sales professionals work with network
engineers to gain a better understanding of the customer's operations and bulk
telecommunications transmission needs to develop innovative application-specific
solutions to each customer's requirements. BTI markets its wholesale services
through print and radio advertisements, event sponsorships, trade journals,
direct mail and trade forums.
NETWORK FACILITIES
BTI operates an advanced telecommunications network including five digital
switches interconnected by leased transmission capacity. BTI currently has a DSC
DEX 600E tandem switch in Raleigh and DSC DEX 600 switches in Atlanta, Dallas,
New York and Orlando. Following its "smart-build" strategy, BTI may in the
future add new switches in selected markets where the volume of its customer
traffic makes such investments economically viable. BTI has deployed a gateway
pair of DSC Signaling Transfer Points ("STPs") in Atlanta and Raleigh to provide
SS7 common channel signaling throughout its network. The SS7 signaling system
reduces connect time delays and provides additional technical capabilities and
efficiencies for call routing. BTI's network has also been designed to use AIN
technology to allow BTI greater flexibility in data management and feature
development. BTI's investment in digital switching, SS7 signaling and AIN
technology has significantly increased network capacity, which has lowered the
cost of providing services and enabled BTI to sell excess capacity to other
telecommunications carriers.
BTI leases fiber optic network capacity from major facilities-based
carriers (including AT&T, MCI and WorldCom) either on its own or through its
membership in the ACCA, an 11-member trade association co-founded by BTI in
1993. The ACCA 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. In October 1997 BTI entered into an agreement to lease on an IRU basis
for the lesser of 25 years or the life of the fiber approximately 3,200 route
miles of fiber optic network to be built over 18 months serving markets from New
York to Miami and Nashville, Tennessee. BTI believes that this network will
enable it to carry its intraregional telecommunications traffic over its own
facilities, thereby reducing its cost of services by decreasing payments to
other carriers for use of their transport facilities. The extent and manner of
expansion of BTI's fiber optic network will be based on various factors,
including: (i) the number of its customers and volume of their
telecommunications traffic in a market; (ii) the anticipated operating cost
savings associated with the transmission of the telecommunications traffic in a
given area using Company-owned facilities in lieu of capacity purchased from
other operators; and (iii) the expenditures required to acquire (by
construction, purchase or long-term lease) the required network facilities.
BTI has installed a fiber optic network extending approximately 65 route
miles in North Carolina, linking Raleigh, Durham and the Research Triangle Park
area, to provide services in its Raleigh market. BTI has built this network in a
ring configuration in order to ensure redundancy, deploying throughout a
self-healing SONET architecture, high-quality fiber and advanced transmission
electronics.
COMPETITION
The telecommunications industry is highly competitive. BTI competes
primarily on the basis of customer service, price, product availability,
reliability and variety of service offerings. The ability of BTI 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 integrated telecommunications services and
wholesale services markets has generally been intense. Many of BTI's competitors
have substantially greater financial, personnel, technical, marketing and other
resources, larger numbers of established customers and more prominent name
recognition than BTI and utilize more extensive transmission networks than BTI.
In particular,
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RBOCs 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 RBOCs already have extensive fiber optic cable, switching, and
other network facilities in their respective regions that can be used for their
long distance services. In addition, other new competitors, such as ILECs
(outside their home regions), CLECs, switchless resellers, satellite carriers,
public utilities and cable companies, may enter BTI's current or future markets.
BTI's principal competitor for local exchange services is the ILEC in the
particular market, including BellSouth in virtually all of BTI's initial target
markets. The ILECs 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, BTI will be highly dependent on the competing ILEC for local
network facilities and wholesale services required in order for BTI to assemble
its own products. See "Risk Factors -- Dependence on Incumbent Local Exchange
Carriers." BTI will also face competition from other CLECs, including US LEC,
Intermedia, MCI Metro, and Time Warner, some of whom have already established
local operations in BTI's target markets.
Large long distance carriers, such as AT&T, MCI and Sprint, have begun to
offer a package of local and long distance telecommunications services. In
addition, ILECs are expected to compete in each other's markets in some cases.
For example, in the future RBOCs may provide local services within their
respective geographic regions in competition with independent telephone
companies, as well as outside their regions. BellSouth recently announced its
intention to establish its own CLEC to obtain pricing flexibility to compete in
areas served by the Company. Wireless telecommunications providers may develop
into effective substitutes for wireline local telephone service. AT&T has
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 transmissions 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.
A continuing trend toward consolidation, mergers, acquisitions and
strategic alliances in the telecommunications industry could also increase the
level of competition faced by BTI or BTI's wholesale customers. In December
1996, WorldCom, a national long distance carrier, acquired MFS Communications
Company, Inc., one of the largest CLECs, and, in November 1997, WorldCom, and
MCI announced their agreement to merge. In March 1997, BellSouth and IBM
announced an alliance to provide Internet and Intranet services to businesses in
the southern United States. The telecommunications market is very dynamic, and
additional competitive changes are likely in the future.
REGULATION
OVERVIEW. BTI is subject to federal, state and local regulation. The FCC
exercises jurisdiction over all facilities of, and services offered by,
telecommunications common carriers to the extent those facilities are used to
provide, originate or terminate interstate or international communications.
State regulatory commissions retain some jurisdiction over the same facilities
and services to the extent they are used to originate or terminate intrastate
common carrier communications. Local governments may require BTI to obtain
licenses, permits or franchises regulating the use of public rights-of-way
necessary to install and operate its networks.
BTI holds various federal and state regulatory authorizations and often
joins other industry members in seeking regulatory reform at the federal and
state levels to open additional telecommunications markets to competition.
BTI provides certain competitive access services as a private carrier on a
non-regulated basis. In general, a private carrier is one that provides services
to customers on a individually negotiated contractual basis, as opposed to a
common carrier that provides services to the public on the basis of generally
available rates, terms and conditions. The Company believes that BTI's private
carrier status is consistent with applicable federal and state laws, as well as
regulatory decisions interpreting and implementing those laws as of the date of
this Memorandum. Should such laws or regulatory interpretations change in the
future to reclassify BTI's regulatory status, the Company believes that
compliance with such reclassification would not have a material adverse effect
on the Company.
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FEDERAL REGULATION. The Telecommunications Act became effective February 8,
1996. The Telecommunications Act preempts state and local laws to the extent
that they prevent competitive entry into the provision of any telecommunications
service. Subject to this limitation, however, the state and local governments
retain most of their existing regulatory authority. The Telecommunications Act
imposes a variety of new duties on incumbent local exchange carriers in order to
promote competition in local exchange and access services. Some smaller
telephone companies may seek suspension or modification of these duties, and
some companies serving rural areas are exempt from these duties. Some duties are
also imposed on non-incumbent local exchange carriers, such as BTI. The duties
created by the Telecommunications Act include reciprocal compensation, resale,
interconnection, unbundled access, number portability, dialing parity and access
to rights-of-way.
Incumbent local exchange carriers are required to negotiate in good faith
with carriers requesting any or all of the above arrangements. Certain FCC rules
regarding negotiation and pricing of interconnection agreements have been
vacated by the U.S. Eighth Circuit Court of Appeals. However, carriers still may
negotiate agreements, and if the negotiating carriers cannot reach agreement
within a prescribed time, either carrier may request binding arbitration of the
disputed issues by the state regulatory commission.
The Telecommunications Act also eliminates previous prohibitions on the
provision of interLATA long distance services by the RBOCs and the General
Telephone Operating Companies ("GTOCs"). The RBOCs 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. Under the Telecommunications Act, the RBOCs will be allowed to provide
long distance service within the regions in which they also provide local
exchange service ("in-region service") upon specific approval of the FCC and
satisfaction of other conditions, including a checklist of interconnection
requirements. BellSouth has announced its intention to seek such authority by
January 1998. The GTOCs are permitted to enter the long distance market without
regard to limitations by region, although regulatory approvals otherwise
applicable to the provision of long distance service will need to be obtained.
The GTOCs are also subject to the provisions of the Telecommunications Act that
impose interconnection and other requirements on local exchange carriers.
The Telecommunications Act imposes certain restrictions on the RBOCs in
connection with the RBOCs' entry into long distance services. Among other
things, the RBOCs must pursue such activities only through separate subsidiaries
with separate books and records, financing, management and employees, and all
affiliate transactions must be conducted on an arm's length and
nondiscriminatory basis. The RBOCs are also prohibited from jointly marketing
local and long distance services, equipment and certain information services
unless competitors are permitted to offer similar packages of local and long
distance services in their market. Further, the RBOCs must obtain in-region long
distance authority before jointly marketing local and long distance services in
a particular state. Additionally, AT&T and other major carriers serving more
than 5% of the nation's presubscribed long distance access lines are also
restricted, under certain conditions, from packaging their long distance
services and local services provided over RBOC facilities. These restrictions do
not, however, apply to the Company because it does not serve more than 5% of the
nation's presubscribed access lines.
Prior to the passage of the Telecommunications Act, the FCC had already
established different levels of regulations for dominant and non-dominant
carriers. For domestic common carrier telecommunications regulation, ILECs,
including the RBOCs, are, as of the date of this Memorandum, considered dominant
carriers for the provision of interstate access and interexchange services,
while other interstate service providers, such as the Company, are considered
non-dominant carriers. The FCC has recently proposed that the RBOCs offering
out-of-region interstate long distance services be regulated as non-dominant
carriers, as long as such services are offered by an affiliate of the RBOC that
complies with certain structural separation requirements. The FCC regulates many
of the rates, charges and services of dominant carriers to a greater degree than
non-dominant carriers.
As a non-dominant carrier, BTI may install and operate facilities for the
transmission of domestic interstate communications without prior FCC
authorization, although FCC authorization is required for the provision of
international telecommunications by non-dominant carriers. BTI has obtained FCC
authority to provide international services. Services of non-dominant carriers
are subject to relatively limited regulation by the FCC. As of the date of this
Memorandum, non-dominant carriers are required to file tariffs listing the
rates, terms and conditions of interstate access and international services
provided by the carrier. Periodic reports concerning the
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carrier's interstate circuits and deployment of network facilities also are
required to be filed. The FCC generally does not exercise direct oversight over
cost justification and the level of charges for services of non-dominant
carriers, although it has the power to do so. BTI must offer its interstate
services on a nondiscriminatory basis, at just and reasonable rates, and remains
subject to FCC complaint procedures. Pursuant to these FCC requirements, BTI has
filed and maintains with the FCC a tariff for its interstate and international
services.
On October 29, 1996, the FCC adopted an order in which it eliminated the
requirement that non-dominant interstate carriers such as BTI maintain tariffs
on file with the FCC for domestic interstate interexchange services. The FCC's
order was issued pursuant to authority granted to the FCC in the
Telecommunications Act to "forebear" from regulating any telecommunications
service provider if the FCC determines that the public interest will be served.
Following a nine-month transition period, relationships between carriers and
their customers will be set by contract. Several parties formally requested the
FCC to reconsider its order, and MCI, Sprint and The American Carriers Telephone
Association have separately appealed the FCC's order to the United States Court
of Appeals for the District of Columbia Circuit. On February 13, 1997, the
United States Court of Appeals for the District of Columbia Circuit stayed the
FCC's order pending judicial review of the appeals. If the appeals are
unsuccessful and the FCC's order becomes effective, BTI believes that the
elimination of the FCC's tariff requirement will permit the Company to respond
more rapidly to changes in the marketplace. In the absence of tariffs, however,
BTI will be required to obtain agreements with its customers regarding many of
the terms of its existing tariffs, and uncertainties regarding such new
contractual terms could increase the risk of claims against BTI from its
customers.
On May 8, 1997, the FCC issued an order to implement the provisions of the
Telecommunications Act relating to the preservation and advancement of universal
telephone service (the "Universal Service Order"). The Universal Service Order
affirmed the policy principles for universal telephone service set forth in the
Telecommunications Act, including quality service, affordable rates, access to
advanced services, access in rural and high-cost areas, equitable and
non-discriminatory contributions, specific and predictable support mechanisms,
and access to advanced telecommunications services for schools, health care
providers and libraries. The Universal Service Order added "competitive
neutrality" to the FCC's universal service principles by providing that
universal service support mechanisms and rules should not unfairly advantage or
disadvantage one provider over another, nor unfairly favor or disfavor one
technology over another. The Universal Service Order also requires all
telecommunications carriers providing interstate telecommunications services,
including the Company, to contribute to universal service support. Such
contributions will be assessed based on interstate and international end-user
telecommunications revenues. The Company does not expect the Universal Service
Order to have a material adverse effect on the Company.
The FCC also imposes prior approval requirements on transfers of control
and assignments of operating authorizations. The FCC has the authority to
generally 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, through decisions announced in September 1992 and August 1993, as
modified by subsequent FCC and court decisions (the "Initial Interconnection
Decisions"), has ordered the RBOCs and all but one of the other local exchange
carriers having in excess of $100 million in gross annual revenue for regulated
services to provide expanded interconnection to local exchange carrier central
offices to any competitive access provider, interexchange carrier or end user
seeking such interconnection for the provision of interstate access services. As
a result of this decision and the Telecommunications Act, once BTI has entered
into interconnection agreements with local exchange carriers, BTI will be able
to reach most business customers in its metropolitan service areas and can
expand its potential customer base. The FCC has imposed mandatory virtual
collocation obligations on the local exchange carriers. Virtual collocation is a
service in which the local exchange carrier leases or purchases equipment
designated by the interconnector and exerts complete physical control over this
equipment, including central office installation, maintenance and repair. Some
ILECs have voluntarily filed tariffs making "physical collocation" available,
enabling the interconnector to place its equipment in the central office space
of these ILECs. The Telecommunications Act now requires most ILECs to offer
physical collocation.
Subsequent to the enactment of the Telecommunications Act, the FCC began a
series of expedited rulemaking proceedings to implement the requirements of the
Telecommunications Act concerning
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interconnection with local exchange carrier facilities and other essential terms
of the relationships between competing local carriers. On August 8, 1996, the
FCC adopted the Interconnection Decision to implement the interconnection,
resale and number portability provisions of the Telecommunications Act. Certain
provisions of these rules were appealed to various federal courts of appeals.
The Eighth Circuit Court has vacated certain provisions of the Interconnection
Decision, including the pricing rules and rules that would have permitted new
entrants to "pick and choose" among various provisions of existing
interconnection agreements between the ILECs and other carriers. All other
provisions of the Interconnection Decision remain in effect. However, the Eighth
Circuit Court decision may act to reduce the role of the FCC in fostering
competition in the local service market, including the FCC's ability to take
enforcement action if the Telecommunications Act is violated, and increases the
role of the PUCs. The overall impact of the Eighth Circuit Court decision on the
Company cannot yet be determined and there can be no assurance that it will not
have a material adverse affect on the Company. In addition, other FCC rules
relating to local service competition are still being challenged and there can
be no assurance that decisions with respect to such rules will not be adverse to
companies seeking to enter the local service market.
In connection with the Initial Interconnection Decisions, the FCC granted
local exchange carriers additional flexibility in pricing their interstate
special and switched access services on a central office specific basis. Under
this pricing scheme, local exchange carriers may establish pricing zones based
on access traffic density and charge different prices for central offices in
each zone. Although there can be no assurance, the Company anticipates that the
FCC will grant local exchange carriers increasing pricing flexibility as the
number of interconnection agreements and competitors increases. On May 7, 1997,
the FCC announced that it is adopting new pricing rules that restructure local
exchange carrier switched transport rates in order to facilitate competition for
switched access. In addition, the FCC adopted rules that will require ILECs to
substantially decrease the prices they charge for switched and special access,
and that will change how access charges are calculated. These changes are
intended to reduce access charges paid by interexchange carriers to local
exchange companies and shift certain usage-based charges to flat-rate, monthly
per-line charges. The FCC has also requested comments on whether to impose
usage-sensitive charges on Internet service providers that are presently exempt
from access charges.
STATE REGULATION. BTI is subject to various state laws and regulations.
Most public utilities commissions subject providers such as BTI to some form of
certification requirement, which requires providers to obtain authority from the
state public utilities commission prior to the initiation of service. In most
states, BTI also is required to file tariffs setting forth the terms, conditions
and prices for services that are classified as intrastate. BTI 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 BTI's compliance with applicable laws or
regulations.
BTI is authorized to offer long distance service in the continental United
States and the District of Columbia. BTI has obtained authority to provide long
distance service in states outside of its target markets because it believes
this capability enhances BTI's ability to attract business customers that have
offices outside of BTI's target markets. BTI may also apply for authority to
provide services in other states in the future. BTI holds certificates to offer
local services in North Carolina and Georgia and has applications pending for
authority to offer local services in Alabama, Florida, Louisiana, Mississippi,
South Carolina, Texas and Virginia. While the Company expects and intends to
obtain necessary operating authority in each jurisdiction where it intends to
operate, there can be no assurance that each jurisdiction will grant the
Company's request for authority.
Although the Telecommunications Act preempts the ability of states to
forbid local service competition, some states have not yet completed all
regulatory actions to comply with the Telecommunications Act. Furthermore, the
Telecommunications Act preserves the ability of states to impose reasonable
terms and conditions of service and other regulatory requirements. In the last
several years, North Carolina, South Carolina,
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Georgia, Virginia and Florida have enacted broad changes in their
telecommunications laws that authorize the entry of competitive local exchange
carriers and provide for new regulations to promote competition in local and
other intrastate telecommunications services.
The Company believes that, as the degree of intrastate competition
increases, the states will offer ILECs increasing pricing flexibility. This
flexibility may present ILECs with an opportunity to subsidize services that
compete with BTI's services with revenues generated from non-competitive
services, thereby allowing ILECs to offer competitive services at prices below
the cost of providing the service. The Company cannot predict the extent to
which this may occur or its impact on the Company's business.
LOCAL GOVERNMENT AUTHORIZATIONS. BTI 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
BTI 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, ILECs do not pay such franchise fees or pay fees that are substantially
less than those required to be paid by BTI. To the extent that competitors do
not pay the same level of fees as BTI, 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 BTI remove its facilities or abandon its
network in place could have a material adverse effect on the Company.
REGULATORY APPROVALS REQUIRED FOR THE REORGANIZATION, THE SHARE REPURCHASE
AND THE FIBERSOUTH ACQUISITION. Consummation of each of the Reorganization, the
Share Repurchase and the FiberSouth Acquisition is subject to prior receipt of
certain regulatory approvals. BTI holds international FCC authorizations. FCC
rules require that any transfer of control of a holder of such authorizations,
including the transfers to be effected in the Reorganization and the Share
Repurchase, receive the prior approval of the FCC. The Company has submitted the
applications necessary to obtain such FCC consent, and the Company believes that
it will be able to obtain FCC approval of these applications. In addition the
public service commissions of certain states must consent to the transfers of
control of BTI that will occur in the Reorganization and the Share Repurchase
and the transfer of FiberSouth's assets that will occur in the FiberSouth
Acquisition. The Company may also need to obtain regulatory approval in certain
states in connection with the Credit Facility. The Company is seeking such state
regulatory approvals as appropriate. Although there can be no assurance, the
Company believes that it will be able to obtain all necessary state approvals.
EMPLOYEES
As of September 30, 1997, the Company employed a total of 540 employees.
The Company believes that its future success will depend on its continued
ability to attract and retain highly skilled and qualified employees. None of
the Company's employees are currently represented by a collective bargaining
agreement. The Company believes that its relations with its employees are good.
PROPERTIES
The Company leases offices and space in a number of locations, primarily
for sales offices and network equipment installations. The Company leases
approximately 80,000 square feet of office space for its corporate headquarters
in Raleigh, North Carolina, under a lease expiring in 2005. The Company leases
space for sales offices in North Carolina, Florida, Georgia, New York, South
Carolina, Tennessee, Texas and Virginia. The leases for these offices expire
between September 1997 and 2005. In addition the Company leases rights-of-way,
office space and land for its network equipment. The leases for the office space
and land expire between January 1998 and 2004. The leases for the rights-of-way
are either perpetual or are renewable through 2023. The Company believes that
its leased facilities are adequate to meet its current needs and that additional
facilities are available to meet its needs for the foreseeable future.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings that the
Company believes would, individually or in the aggregate, have a material
adverse effect on the Company's financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the executive
officers and directors of the Company as of September 30, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH COMPANY
- -------------------------- --- -----------------------------------------------
<S> <C> <C>
Peter T. Loftin........... 39 Chairman, Chief Executive Officer and Director
R. Michael Newkirk........ 35 President, Chief Operating Officer and Director
H.A. (Butch) Charlton..... 47 Senior Vice President, Sales
Anthony M. Copeland....... 41 Vice President, Secretary and General Counsel
Brian K. Branson.......... 32 Chief Financial Officer, Treasurer and Director
</TABLE>
PETER T. LOFTIN founded BTI in November 1983 and has served as Chief
Executive Officer and Chairman of the Board of Directors of BTI since that time.
Mr. Loftin has more than 15 years of experience in the telecommunications
industry. He is a founding member of the North Carolina Long Distance
Association, representing the state's independent long distance carriers. He
also serves on the Advisory Board of the Duke Heart Center at the Duke
University Medical Center, the Steering Committee for the North Carolina Museum
of Natural Sciences and the Board of the Chamber of Commerce of Raleigh, North
Carolina. Mr. Loftin attended North Carolina State University.
R. MICHAEL NEWKIRK joined BTI in 1986 and has served as BTI's Chief
Operating Officer since October 1996, its President since July 1997 and as
Director since August 1997. Mr. Newkirk was Executive Vice President of BTI from
March 1994. Mr. Newkirk has over 15 years of experience in the
telecommunications industry and is Vice President of the ACCA. He also serves on
the Board of Directors of America's Carriers Telecommunications Association
("ACTA"), a national organization that represents telecommunications companies
before legislative and regulatory bodies.
H.A. (BUTCH) CHARLTON has served as President and CEO of FiberSouth since
April 1997. He has also served as Senior Vice President, Sales of BTI since July
1997. Prior to joining FiberSouth, Mr. Charlton served from 1984 to 1997 with
DSC Communications Corporation, a manufacturer of telecommunications equipment
for local, long distance and cellular markets, most recently as Vice
President -- Public Network Sales. Prior to joining DSC, Mr. Charlton spent 13
years with Contel Corporation, a local exchange carrier, holding a variety of
positions in the engineering and network planning area. Mr. Charlton holds a
B.S. in Business Finance from the University of Texas at Dallas.
ANTHONY M. COPELAND joined BTI as General Counsel in 1992 after serving as
Chief Counsel for the North Carolina Department of Public Instruction and as
Assistant District Attorney for North Carolina's 10th Prosecutorial District.
Mr. Copeland has served on the North Carolina Board of Public Telecommunications
since July 1995, and in July 1996 was appointed to the Board of Directors of the
North Carolina Electronics and Information Technologies Association. He is also
a member of the Wake Technical Community College Telecommunications Industry
Advisory Committee, the Wake Education Partnership-Technology Committee, the
Federal Communications Bar Association, the North Carolina State Bar and the
North Carolina Bar Association. Mr. Copeland received his A.B. from Duke
University and his J.D. from the T.M. Cooley Law School at Lansing, Michigan.
BRIAN K. BRANSON was named Chief Financial Officer of BTI in August 1996
and Treasurer and Director of BTI in August 1997. Mr. Branson joined BTI in July
1992 as a financial analyst and served in a variety of financial roles prior to
his appointment as Chief Financial Officer. Prior to joining BTI, he worked in
the Entrepreneurial Services Group of Ernst & Young LLP. Mr. Branson is a board
member of the National Telecom Data Exchange. Mr. Branson is a Certified Public
Accountant and holds a B.S. in Accounting and an M.B.A. from Elon College.
INCENTIVE COMPENSATION PLANS
STOCK PLANS
The Company's 1997 Stock Plan (the "1997 Plan") was adopted by the
Company's Board of Directors in August 1997. A total of 500,000 shares of Common
Stock of the Company (the "Common Stock") have been
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<PAGE>
reserved for issuance under the 1997 Plan. As of September 30, 1997, no options
had been granted and no shares had been issued under the 1997 Plan. The 1997
Plan will terminate in August 2007, unless sooner terminated by the Board of
Directors.
Pursuant to the Reorganization, the Company assumed the BTI 1994 Stock Plan
(the "1994 Plan", together with the 1997 Plan, the "Plans") which will terminate
in March 2005, unless sooner terminated by the Board of Directors. A total of
499,890 shares of Common Stock will be reserved for issuance under the 1994
Plan. As of September 30, 1997, no shares had been issued under the 1994 Plan.
Options to purchase 333,260 shares of Common Stock at an exercise price of $1.47
per share were issued in connection with the Share Repurchase.
The Plans provide for grants of "incentive stock options," within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to
employees (including officers and employee directors) and grants of nonstatutory
options to employees and consultants. The Plans also allow for the grant of
stock purchase rights. The Plans will be administered by the Board of Directors.
The exercise price of incentive stock options granted under the Plans must not
be less than the fair market value of the Common Stock on the date of grant.
With respect to any optionee who owns stock representing more than 10% of the
voting power of all classes of the Company's outstanding capital stock, the
exercise price of any incentive stock option must be equal to at least 110% of
the fair market value of the Common Stock on the date of grant, and the term of
the option must not exceed five years. The terms of all other options may not
exceed ten years. The aggregate fair market value of Common Stock (determined as
of the date of the option grant) for which incentive stock options may for the
first time become exercisable by any individual in any calendar year may not
exceed $100,000.
In connection with the 1994 Plan, in March 1995 BTI adopted a Senior
Executive Bonus Plan (the "Bonus Plan"). The Bonus Plan provides that Senior
Executive Officers of BTI may earn a portion of the exercise price of their
options under the 1994 Plan upon achievement of certain performance objectives.
401(K) PLAN
The Company maintains an Employees' Retirement Savings Plan (the "401(k)
Plan") for employees who elect to participate. Subject to certain limitations,
participants may contribute up to 15% of their compensation on a pre-tax basis
to the 401(k) Plan. In 1994, 1995 and 1996, BTI contributed matching funds in
amounts equal to 25%, 25% and 50%, respectively, of each dollar of an employee's
contributions, up to 6% of the employee's salary. Amounts attributable to
participant contributions under the 401(k) Plan are fully vested at all times
(with BTI's contributions vesting beginning after three years and becoming fully
vested after five years). Participants are entitled to receive their vested
401(k) Plan accounts, including investment earnings, upon death, retirement or
other termination of employment. The 401(k) Plan will be assumed by the Company
in the Reorganization.
PROFIT SHARING
In 1993, BTI implemented a profit-sharing arrangement, allocating 5% of net
profits (net income before vice president bonuses) to BTI's vice presidents, 5%
of net profits to Peter T. Loftin, Chairman, Chief Executive Officer and a 50%
shareholder of BTI, and 5% of net profits to an employee pool. The employees'
portion was split, with 50% going directly to the employees via payroll and 50%
going to the 401(k) Plan. Amounts were paid bi-annually on January 31 and July
31. In 1996, BTI terminated the portion of the profit-sharing plan related to
Mr. Loftin and the employee pool and reduced the vice presidents' pool to
approximately 2% of profits. This plan was assumed by the Company in the
Reorganization.
52
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth certain information for 1996 concerning
compensation earned by BTI's Chief Executive Officer and BTI's other executive
officers who were paid more than $100,000 in salary and bonus.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL
COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- -------------------------------------------------------------------------- -------- -------- ------------
<S> <C> <C> <C>
Peter T. Loftin, Chairman and CEO......................................... $500,000 $ 20,763 $190,000(1)
R. Michael Newkirk, President and COO..................................... 100,000 137,706 10,327(2)
Anthony M. Copeland, Vice President and General Counsel................... 100,000 17,586 13,728(3)
</TABLE>
- ---------------
(1) Includes $148,000 of relocation expenses and a $42,000 car allowance.
(2) Includes $3,193, representing the taxable portion of certain car lease
payments, and $7,134 of BTI's matching contributions to the 401(k) Plan.
(3) Includes a $10,200 car allowance and $3,528 of BTI's matching contributions
to the 401(k) Plan.
EMPLOYMENT AGREEMENT
In April 1997, H.A. (Butch) Charlton entered into a two-year employment
agreement with FiberSouth pursuant to which Mr. Charlton became President of
FiberSouth. The agreement provides for an annual base salary of $175,000, a
signing bonus of $20,000 and a guaranteed bonus of $50,000 payable in April
1998. BTI has agreed to reimburse Mr. Charlton for up to three months' living
expenses in connection with his relocation to Raleigh, North Carolina. The
agreement also entitles Mr. Charlton to receive stock in FiberSouth. Upon
consummation of the FiberSouth Acquisition, such right was converted into the
right to receive stock options under the 1997 Plan.
STOCK OPTIONS
BTI did not grant any stock options during 1996, and no stock options were
exercised during 1996.
53
<PAGE>
CERTAIN TRANSACTIONS
The Company leases on a month-to-month basis a townhouse in Raleigh, North
Carolina for relocation of employees and a condominium in Wilmington, North
Carolina for corporate and customer entertainment from Peter T. Loftin, Chairman
and Chief Executive Officer and a 50% shareholder of the Company. Payments by
the Company for the townhouse were $24,000, $27,500 and $32,500 in 1994, 1995
and 1996, respectively. Payments by the Company for the condominium were
$24,000, $27,500 and $32,500 in 1994, 1995 and 1996, respectively.
The Company also leases a corporate aircraft from an entity controlled by
Mr. Loftin. Payments by the Company for the aircraft, which is subject to a
five-year "dry" lease entered into in November 1995, were $28,000 and $343,000
in 1995 and 1996, respectively. The Company has an option to renew this lease
for an additional five years.
Since 1994, BTI has paid certain operating expenses and provided certain
management services for ComSouth Cable International, Inc. ("ComSouth"), an
undersea fiber optic cable company which is 80% owned by Mr. Loftin. These
expenses are recorded on the Company's books as accounts receivable and totaled
$592,000 as of September 30, 1997.
Since February 1997, BTI has sold certain integrated telecommunications
services through International Communications, Inc. ("ICI"), a company which is
50% owned by Mr. Loftin. BTI pays ICI between a 5% and 20% commission on all
sales through it. Through September 30, 1997, BTI had paid ICI $113,000 in
commissions pursuant to this arrangement.
Pursuant to the Shareholders' Agreement each of Mr. Loftin and the Retiring
Shareholder was entitled to receive distributions in amounts sufficient to pay
their taxes resulting from ownership of BTI while it was an S corporation. In
addition, each of them was entitled to receive dividends in an amount equal to
$61,736 per month (the "Additional Dividends"). Pursuant to the Shareholders'
Agreement, Mr. Loftin was required to loan the Additional Dividends paid to him
through June 1996 to BTI. This loan, which as of September 30, 1997 totaled
$1,930,000, net of certain advances to Mr. Loftin, bears interest at prime and
is payable over 24 months following the Share Repurchase in September 1997. The
Shareholders' Agreement and the right to receive Additional Dividends terminated
upon consummation of the Share Repurchase.
PRINCIPAL SHAREHOLDERS
As of September 30, 1997, all 10,000,000 shares of the outstanding Common
Stock of the Company were held by Peter T. Loftin, Chairman and Chief Executive
Officer of the Company. In addition, as of that date R. Michael Newkirk,
President and Chief Operating Officer of the Company, held an option to purchase
166,630 shares of Common Stock (or approximately 1.6% of the outstanding shares
of Common Stock on a fully diluted basis) and Mr. Charlton had the right to
receive certain stock options of the Company.
54
<PAGE>
DESCRIPTION OF CREDIT FACILITY
BTI has entered into an amended and restated loan agreement with General
Electric Capital Corporation and the other financial institutions party thereto
from time to time, and GE Capital as agent (the "Credit Agreement"), providing
for a $60 million senior secured, reducing, revolving credit facility to be used
for working capital and other purposes, including capital expenditures.
The following summary of the material provisions of the Credit Facility
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 but
not defined herein are defined in the Credit Agreement.
The Credit Facility is subject to certain borrowing limits based on
multiples of EBITDA. The Credit Facility will mature on September 17, 2002. The
Company will be required to repay outstanding indebtedness under the Credit
Facility with the proceeds of asset sales.
Amounts drawn under the Credit Facility will bear interest, at BTI's
option, at either LIBOR or the Index Rate, plus in each case an Applicable
Spread which will fluctuate based on BTI's Leverage Ratio.
BTI's obligations under the Credit Facility are guaranteed by the Company
and its other subsidiaries and secured by a first priority lien on all current
and future assets of BTI and the Company's other subsidiaries and the Company's
pledge of the stock of BTI and any intercompany notes.
The Credit Facility restricts BTI from declaring and paying dividends or
making other distributions, including dividends or distributions to pay
scheduled interest on the Notes. However, BTI will be permitted to pay dividends
or make other distributions to BTI Telecom to pay scheduled interest on the
Notes, commencing with the seventh scheduled interest payment, unless at the
time of such dividend or distribution an event of default under the Credit
Facility 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
default in the cash interest coverage ratio, a bankruptcy event with respect to
BTI Telecom or BTI or the loss of a material license, operating authority or
fiber network), BTI will not be prohibited from paying dividends or making other
distributions to BTI Telecom to pay scheduled interest on the Notes for more
than 180 days in any consecutive 360-day period.
The Credit Facility contains a number of covenants, including, among
others, covenants limiting the ability of BTI to incur debt, create liens, pay
dividends, make distributions or stock repurchases, make capital expenditures,
engage in transactions with affiliates, sell assets and engage in mergers and
acquisitions. In addition, the Credit Facility contains affirmative covenants,
including, among others, covenants requiring maintenance of corporate existence,
licenses and insurance, payment of taxes and the delivery of financial and other
information.
The Credit Facility provides that BTI will be required to comply with
certain financial tests and to maintain certain financial ratios, including but
not limited to, Consolidated Interest Coverage Ratio, Total Debt to EBITDA and
minimum EBITDA.
Failure to satisfy any of the financial covenants will constitute an event
of default under the Credit Facility, notwithstanding the ability of BTI to meet
its debt service obligations. The Credit Facility also includes other customary
events of default, including, without limitation, a cross-default to other
indebtedness, certain undischarged judgments, bankruptcy and a change of control
of BTI.
55
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
The Initial Notes were, and the Exchange Notes will be, issued under an
indenture (the "Indenture"), dated as of September 22, 1997, between BTI
Telecom, BTI and First Trust of New York, National Association, 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. For purposes of
the following summary, the Initial Notes and the Exchange Notes are sometimes
referred to collectively as the "Notes." 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 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 Initial 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 Initial Notes and (ii) Holders of the
Exchange Notes will not be entitled to certain rights of nolders of Initial
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 $250.0 million aggregate principal amount, and will mature on
September 15, 2007. Each Exchange Note will bear interest at the rate of 10 1/2%
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 March 1 or September 1 immediately
preceding the Interest Payment Date) on March 15 and September 15, of each year,
commencing March 15, 1998.
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.
PAYMENT AND PAYING AGENTS
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, First Trust
of New York, National Association, 100 Wall Street, New York, New York 10005)
and in Luxembourg (which initially will be at the offices of the Paying Agent
and Transfer Agent at Banque Generale Du Luxembourg at 50 Avenue J.F. Kennedy,
Luxembourg); 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. For so long as the Exchange Notes are listed on the
Luxembourg Stock Exchange and the rules on such stock exchange shall so require,
the Company shall maintain a Paying Agent and a Transfer Agent in Luxembourg.
NOTICES
For so long as the Exchange Notes are listed on the Luxembourg Stock
Exchange and the rules of the Luxembourg Stock Exchange so requires, all notices
regarding the Exchange Notes will be valid if published in one daily newspaper
of general circulation in Luxembourg. It is expected that publication of notices
will be made in the Luxembourger Wort or, if publication in Luxembourg is not
practicable, publication shall be made in another principal city in Europe in a
newspaper of general circulation. Any such notice shall be deemed to have been
given on the date of such publication or, if published more than once or on
different dates, on the date of the first such publication in the required
newspaper or newspapers.
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<PAGE>
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 September 15, 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 September 15,
of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ------------------------------------------------------------------------ ----------------
<S> <C>
2002.................................................................... 105.250%
2003.................................................................... 102.625
2004 and thereafter..................................................... 100.000
</TABLE>
In addition, at any time prior to September 15, 2000, the Company may
redeem up to 35% of the aggregate principal amount of the initial Notes and the
Exchange Notes from 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
110.5%, plus accrued 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 after any such redemption at least $162.5 million aggregate principal
amount of initial Notes and the Exchange Notes remains outstanding.
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.
All notices required under this subheading shall be given in accordance
with the "Notices" provision above.
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 Initial Notes and the Exchange Notes. Approximately $74.1
million of such proceeds are held by the Trustee as security for and to fund the
first six interest payments on the Initial Notes and the Exchange Notes.
The Pledged Securities are pledged to the Trustee for the benefit of the
Holders of the Initial 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 Initial Notes and the Exchange Notes.
A failure to pay interest on the Initial 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 Initial 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.
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EXCHANGE OFFER; REGISTRATION RIGHTS
The Company entered into the Registration Rights Agreement with the
Placement Agents, for the benefit of the holders of Initial 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 Commission and to have the Exchange
Offer consummated not later than 60 days after such Registration Statement has
been declared effective by the Commission. Upon the effectiveness of the
Registration Statement, the Company will offer the Exchange Notes in exchange
for surrender of the Initial Notes. The Company has agreed to keep the Exchange
Offer open for not less than 20 business days after the date notice of the
Exchange Offer is mailed to the holders of Initial Notes. For each Initial Note
surrendered to the Company pursuant to the Exchange Offer, the holder of such
Initial Note will receive an Exchange Note having a principal amount equal to
that of the surrendered Initial 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 Initial Notes who wishes to exchange such Initial 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
Initial 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 Initial 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 Initial
Notes. A Holder selling such Initial 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 March 22, 1998, the interest
rate on the Initial Notes will be increased by .5% per annum until the Exchange
Offer is consummated or the Shelf Registration is declared effective.
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Initial Notes not tendered in the Exchange Offer shall accrue interest at
the rate of 10 1/2% 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
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 all existing and future unsubordinated indebtedness of the
Company and senior in right of payment to all existing and future subordinated
indebtedness of the Company. As of September 30, 1997, the Company had (on an
unconsolidated basis) no indebtedness outstanding other than the Notes. The
Company is permitted to incur indebtedness to finance the acquisition of
equipment, inventory and network assets and up to $100.0 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 have no direct
obligation to pay amounts due on the Notes and will not guarantee the Notes. As
a result, the Notes will be effectively subordinated to all existing and future
indebtedness and other liabilities (including trade payables) of the Company's
subsidiaries. As of September 30, 1997, the Company's subsidiaries had
approximately $34.4 million of liabilities (excluding intercompany payables),
including approximately $2.0 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 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 are 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 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 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
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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;
(vi) all extraordinary gains and extraordinary losses; and (vii) any
compensation expense paid or payable solely with Capital Stock (other than
Redeemable Stock) of the Company or any options, warrants or other rights to
acquire Capital Stock (other than Redeemable Stock) of the Company.
"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 assets (other than the Capital Stock of 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 $1 million 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
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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.
"BTI Refinancing" means the execution and delivery, on or prior to the
Closing Date, of the Credit Agreement.
"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 Peter T. Loftin and his Affiliates 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), other
than Peter T. Loftin and his Affiliates, 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 Peter T.
Loftin and his Affiliates 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 September 22, 1997, 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 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.
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"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 Transactions, 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 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 Second Amended and Restated Loan Agreement
dated September 22, 1997, between BTI and General Electric Capital Corporation
("GE Capital") and the other financial institutions party thereto from time to
time, with GE Capital as agent, together with any agreements, instruments and
documents executed or delivered pursuant to or in connection with such credit
agreement, in each case as such credit agreement or such agreements, instruments
or documents may be amended, supplemented, extended, renewed, replaced or
otherwise modified from time to time.
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"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.
"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.
"FiberSouth Acquisition" means the acquisition by BTI of substantially all
the assets of FiberSouth, Inc. (other than its cable television assets) for
approximately $31.0 million and the repayment of up to $5.5 million of
indebtedness of FiberSouth, Inc. in connection therewith.
"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 Transactions and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinions Nos. 16 and 17.
"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 terms 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. The terms "Incurrence" and "Incurred"
shall have corresponding meanings.
"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), but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations
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described in (i) or (ii) above or (v), (vi) or (vii) below) entered into in the
ordinary course of business of such Person to the extent such letters of credit
are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed
no later than the third Business Day following receipt by such Person of a
demand for reimbursement), (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 as
described above, the maximum liability upon the occurrence of the contingency
giving rise to the obligation, PROVIDED that (A) 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) 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)
Indebtedness shall not include any liability (including any liability arising
under a tax indemnification agreement with a shareholder of the Company at the
time the Company was an S corporation) for federal, state, local or other taxes
(including penalties and interest, if any).
"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 (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.
"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
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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 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
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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,
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;
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(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 purchase of the Pledged Securities.
"Pledge Agreement" means the Pledge and Security Agreement, dated as of the
Closing Date, made by BTI and Business Telecom 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 securities 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.
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 merger of BTI with a wholly owned subsidiary of
BTI Telecom pursuant to which (i) the shareholders of BTI receive shares of
Capital Stock (other than Redeemable Stock) of BTI Telecom, (ii) BTI becomes a
wholly owned subsidiary of BTI Telecom and (iii) BTI will be converted from an S
corporation to a C corporation.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Share Repurchase" means the purchase, on or prior to the Closing Date, by
BTI of all outstanding Capital Stock of BTI not owned by Peter T. Loftin for
approximately $28.5 million.
"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 Subsidiary 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.
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"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.
"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 Services; 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
Services 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.
"Transactions" means, collectively, the BTI Refinancing, the FiberSouth
Acquisition, the Reorganization, the Share Repurchase and the sale of the Notes.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America (x) the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or (y) that are rated at
least "Aaa" (or the then equivalent grade) by Moody's Investors Service, Inc. or
"AAA" (or the then equivalent grade) by Standard & Poor's Ratings Services.
"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
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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.
"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
September 30, 1999, 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 a
promissory note or (B) to any Restricted Subsidiary; PROVIDED that any event
which results in 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), (ix), (x) or (xi) 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
of 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
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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 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) to acquire equipment, inventory or network assets
(including acquisitions by way of a Capitalized Lease and acquisitions of the
Capital Stock of a Person that becomes a Restricted Subsidiary to the extent of
the Fair Market Value of the equipment, inventory or network assets so 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; (x) Indebtedness Incurred to finance Asset
Acquisitions (and refinancings of such Indebtedness) in an aggregate principal
amount outstanding at any time not to exceed $50 million, less the amount of
such Indebtedness permanently repaid as provided under the "Limitation on Asset
Sales" covenant described below; PROVIDED that immediately after giving effect
to the Incurrence of such Indebtedness and the consummation of such Asset
Acquisition, the Company's Consolidated Leverage Ratio would be (A) less than or
equal to the Company's Consolidated Leverage Ratio immediately prior to such
transactions and (B) less than or equal to 7 to 1; and (xi) Indebtedness of the
Company (in addition to Indebtedness permitted under clauses (i) through (x)
above) in an aggregate principal amount outstanding or available at any time not
to exceed $25 million, less any amount of such Indebtedness permanently repaid
as provided under the "Limitation on Asset Sales" covenant described below.
(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) Indebtedness Incurred under the
Credit Agreement on or prior to the Closing Date shall be treated as Incurred
pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant, (2) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise
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included in the determination of such particular amount shall not be included
and (3) 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 (other than Indebtedness referred to in clause (1) of the preceding
sentence), the Company, in its sole discretion, may classify such item of
Indebtedness in one or more 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 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
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Restricted Subsidiaries (valued in such 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 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),
other than an Affiliate of the Company, 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 $5 million in the aggregate (unless such
repurchases are made with the proceeds of insurance policies and the shares of
Capital Stock are repurchased from the executors, administrators, testamentary
trustees, heirs, legatees or beneficiaries); (ix) Investments acquired as a
capital contribution to the Company or in exchange for Capital Stock (other than
Redeemable Stock) of the Company; (x) distributions to shareholders (or former
shareholders of BTI) in respect of any liability for federal, state, local or
other taxes (including penalties and interest, if any) under a tax
indemnification agreement relating to the time BTI was an S corporation; or (xi)
the Share Repurchase and the Reorganization; 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
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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 Credit Agreement, 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, 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, and any extensions, refinancings,
renewals or replacements of such agreements; PROVIDED that the encumbrances and
restrictions in any such extensions, 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; (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, (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 by 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
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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 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
(x) any
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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 and (y) any tax-indemnity agreement between
the Company and any shareholder (or former shareholder of BTI) at the time BTI
was an S corporation; (v) any Restricted Payments not prohibited by the
"Limitation on Restricted Payments" covenant; or (vi) the Transactions.
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 $1 million in value, must be approved or determined to be fair
in the manner provided for in clause (i)(A) or (B) above.
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 million, 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 million (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
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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
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
At all times from and after the earlier of (i) the date of the commencement
of an Exchange Offer or the effectiveness of the Shelf Registration Statement
(the "Registration") and (ii) the date that is six months after the Closing
Date, in either case whether or not the Company is then required to file reports
with the Commission, 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 (unless the Commission will not accept such a filing,
in which case the Company shall provide such documents to the Trustee). 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. In addition, at all
times prior to the earlier of (i) the date of the Registration and (ii) six
months after the Closing Date, the Company shall, at its cost, deliver to each
Holder of the Notes quarterly and annual reports substantially equivalent to
those which would be required by the Exchange Act. In addition, at all times
prior to the Registration, upon the request of any Holder or any prospective
purchaser of the Notes designated by a Holder, the Company shall supply to such
Holder or such prospective purchaser the information required under Rule 144A
under the Securities Act.
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
The Company shall commence, within 30 days after 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 will be 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
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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 with the "Limitation on Asset Sales" or the "Repurchase of Notes upon
a Change of Control" covenant or "Special Mandatory Redemption and Repurchase
Offer" provisions 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
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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 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 will require 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 will also be 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 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 a Wholly Owned Restricted Subsidiary with a positive net
worth, PROVIDED that 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 shareholders
of the Company; 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,
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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 will provide 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
and unpaid 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 will provide 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 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
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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
The Company and the Trustee, without the consent of the Holders, may amend
the Indenture for certain specified purposes, including, without limitation, (i)
curing ambiguities, defects or inconsistencies and (ii) other changes so long as
any such change does not adversely affect the rights of any Holders in any
material respect. 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 be issued in fully
registered form without interest coupons. Notes sold in offshore transactions in
reliance on Regulation S under the Securities Act will initially be represented
by one or more temporary global Notes in definitive, fully registered form
without interest coupons (each a "Temporary Regulation S Global Note") and will
be deposited with the Trustee as custodian for, and registered in the name of a
nominee of, DTC for the accounts of Euroclear and Cedel Bank. The Temporary
Regulation S Global Note will be exchangeable for one or more permanent global
Notes (each a "Permanent Regulation S Global Note"; and together with the
Temporary Regulation S Global Notes, the "Regulation S Global Note") on or after
the 40th day following the Closing Date upon certification that the beneficial
interests in such global Note are owned by non-U.S. persons. Prior to the 40th
day after the Closing Date, beneficial interests in the Temporary Regulation S
Global Note may be held only through Euroclear or Cedel Bank.
Notes sold in reliance on Rule 144A will be represented by one or more
permanent global Notes in definitive, fully registered form without interest
coupons (each a "Restricted Global Note"; and together with the Regulation S
Global Note, the "Global Notes") and will be deposited with the Trustee as
custodian for, and registered in the name of, a nominee of DTC.
Each Global Note (and any Notes issued for exchange therefor) will be
subject to certain restrictions on transfer set forth therein as described under
"Transfer Restrictions."
Notes originally purchased by or transferred to Institutional Accredited
Investors who are not qualified institutional buyers ("Non-Global Purchasers")
will be in registered form without interest coupons ("Certificated Notes"). Upon
the transfer of Certificated Notes initially issued to a Non-Global Purchaser to
a qualified institutional buyer or in accordance with Regulation S, such
Certificated Notes will, unless the relevant Global Note has previously been
exchanged in whole for Certificated Notes, be exchanged for an interest in a
Global Note. For a description of the restrictions on the transfer of
Certificated Notes, see "Transfer Restrictions."
THE GLOBAL NOTES. 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). Qualified institutional buyers
may hold their interests in a Restricted Global Note directly through DTC if
they are participants in such system, or indirectly through organizations which
are participants in such system.
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Investors may hold their interests in a Regulation S Global Note directly
through Cedel Bank or Euroclear, if they are participants in such systems, or
indirectly through organizations that are participants in such systems.
Investors may hold their interest in a Regulation S Global Note directly through
Cedel Bank and Euroclear will hold interests in the Regulation S Global Notes on
behalf of their participants through DTC.
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 the applicable procedures of DTC, in addition to those provided
for under the Indenture and, if applicable, those of Euroclear and Cedel Bank.
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 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. Transfers
between participants in Euroclear and Cedel Bank will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
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 interest 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 Notes, which it will
distribute to its participants and which may be legended as set forth under the
heading "Transfer Restrictions."
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 Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A under 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, Euroclear and Cedel Bank are expected to follow the foregoing
procedures in order to facilitate transfers of interests in a Global Note among
participants of DTC, Euroclear and Cedel Bank, they are 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, Euroclear or Cedel Bank or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
The information in this section concerning DTC, Cedel Bank and Euroclear
and the book-entry system of each organization has been obtained from sources
that the Company believes to be reliable, but the Company takes no
responsibility for the accuracy of such information.
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CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days or, if an
Event of Default under the Indenture has occurred and is continuing, the Company
will issue Certificated Notes, which may bear the legend referred to under
"Transfer Restrictions," in exchange for the Global Notes representing such
Notes. Upon the exchange of the entire Global Notes for Certificated Notes, the
Global Notes will be cancelled by the Trustee.
Holders of an interest in a Global Note may receive Certificated Notes,
which may bear the legend referred to under "Transfer Restrictions" in
accordance with the DTC's rules and procedures in addition to those provided for
under the Indenture.
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, 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 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 Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, shareholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the 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 of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
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.
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
The Comnpany has received the opinion of Wyrick Robbins Yates & Ponton LLP
that the following summary "fairly describes the material United States federal
income tax consequences to holders resulting from their exchange of the Initial
Notes for the Exchange Notes and the ownership and disposition of Exchange Notes
under currently applicable federal income tax law." The following summary is
based upon the provisions of the Internal Revenue Code of 1986, as amended, the
final, temporary and proposed regulations promulgated thereunder, and
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. The following summary is not binding on the Internal Revenue
Service ("IRS") and there can be no assurance that the IRS will take a similar
view with respect to the tax consequences described below. No ruling has been or
will be requested by the Issuer from the IRS on any tax matters relating to the
Exchange Notes or the Exchange Offer. This discussion is for general information
only and does not purport to address all of the possible federal income tax
consequences or any state, local or foreign tax consequences of the acquisition,
ownership and disposition of the Initial Notes, the Exchange Notes or the
Exchange Offer. It is limited to investors who will hold the Initial Notes and
the Exchange Notes as capital assets and does not address the federal income tax
consequences that may be relevant to particular investors in light of their
unique circumstances or to certain types of investors (such as dealers in
securities, insurance companies, financial institutions, foreign corporations,
partnerships, trusts, nonresident individuals and tax-exempt entities) who may
be subject to special treatment under federal income tax laws. PERSONS
CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE NOTES SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX
CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR INTERNATIONAL TAXING JURISDICTION.
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INDEBTEDNESS
The Initial Notes and the Exchange Notes should be treated as indebtedness
of the Company. In the unlikely event the Initial Notes or the Exchange Notes
were treated as equity, the amount treated as a distribution on any such Initial
Note or Exchange Note would first be taxable to the Holder as dividend income to
the extent of the Company's current and accumulated earnings and profits, and
would next be treated as a return of capital to the extent of the Holder's tax
basis in the Initial Notes or Exchange Notes, with any remaining amount treated
as a gain from the sale of an Initial Note or an Exchange Note. In addition, in
the event of equity treatment, amounts received in retirement of an Initial Note
or an Exchange Note might in certain circumstances be treated as a dividend, and
the Company could not deduct amounts paid as interest on such Initial Notes or
Exchange Notes. The remainder of this discussion assumes that the Initial Notes
and the Exchange Notes will constitute indebtedness of the Company.
EXCHANGE OFFER
The exchange of the Initial Notes for Exchange Notes pursuant to the
Exchange Offer should not be treated as an "exchange" because the Exchange Notes
should not be considered to differ materially in kind or extent from the Initial
Notes. Rather, the Exchange Notes received by a Holder of the Initial Notes
should be treated as a continuation of the Initial Notes in the hands of such
Holder. Accordingly, there should be no federal income tax consequences to
Holders exchanging the Initial Notes for the Exchange Notes pursuant to the
Exchange Offer. The holding period of Exchange Notes in the hands of a Holder
should include the holding period of the Initial Notes exchanged for such
Exchange Notes.
INTEREST
A Holder of an Initial Note or an Exchange Note will be required to report
stated interest on the Initial Note and the Exchange Note as interest income in
accordance with the Holder's method of accounting for tax purposes. Because the
Initial Notes were issued at par there is no original issue discount pursuant to
the de minimis exception to the "original issue discount" rules.
TAX BASIS IN INITIAL NOTES AND EXCHANGE NOTES
A Holder's tax basis in an Initial Note will generally be the Holder's
purchase price for the Initial Note. If a Holder of an Initial Note exchanges
the Initial Note for an Exchange Note pursuant to the Exchange Offer, the tax
basis of the Exchange Note immediately after such exchange should equal the
Holder's tax basis in the Initial Note immediately prior to the exchange.
DISPOSITION OF INITIAL NOTES OR EXCHANGE NOTES
The sale, exchange, redemption or other disposition of an Initial Note or
an Exchange Note, except in the case of an exchange pursuant to the Exchange
Offer (see the above discussion), generally will be a taxable event. A Holder
generally will recognize gain or loss equal to the difference between (i) the
amount of cash plus the fair market value of any property received upon such
sale, exchange, redemption or other taxable disposition of the Initial Note or
the Exchange Note (except to the extent attributable to accrued interest) and
(ii) the Holder's adjusted tax basis in such debt instrument. Such gain or loss
will be capital gain or loss, and will be mid-term if the Initial Notes or
Exchange Notes have been held for longer than a year but no more than 18 months
at the time of sale or other disposition, and will be long-term if the Initial
Notes or the Exchange Notes have been held for more than 18 months at the time
of the sale or other disposition.
PURCHASERS OF INITIAL NOTES AT OTHER THAN ORIGINAL ISSUANCE PRICE
The foregoing does not discuss special rules which may affect the treatment
of purchasers that acquired Initial Notes other than at par, including those
provisions of the Internal Revenue Code relating to the treatment of "market
discount" and "amortizable bond premium." Any such purchaser should consult its
tax advisor as to the consequences to it of the acquisition, ownership and
disposition of Initial Notes.
83
<PAGE>
BACKUP WITHHOLDING
Unless a Holder provides its correct taxpayer identification number
(employer identification number or social security number) to the Issuer and
certifies that such number is correct, generally under the federal income tax
backup withholding rules, 31% of (1) the interest paid on the Initial Notes and
the Exchange Notes, and (2) proceeds of sale of the Initial Notes and the
Exchange Notes, must be withheld and remitted to the United States Treasury.
Therefore, each Holder should complete and sign the Substitute Form W-9 included
with the Letter of Transmittal so as to provide the information and
certification necessary to avoid backup withholding. However, certain Holders
(including, among others, certain foreign individuals) are not subject to these
backup withholding and reporting requirements. For a foreign individual Holder
to qualify as an exempt foreign recipient, that Holder must submit a statement,
signed under penalties of perjury, attesting to that individual's exempt foreign
status. Such statements can be obtained from the Issuer. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if the Initial Notes are
held in more than one name), contact the Company's Controller, BTI Corporate
Center, 4300 Six Forks Road, Raleigh, North Carolina 27609, telephone (800)
849-9100.
Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If backup withholding results in an
overpayment of taxes, a refund may be obtained from the IRS.
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 Initial Notes where such Initial 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. While the Company plans to apply for listing of the
Exchange Notes on the Luxembourg Stock market, the Company does not intend to
list the Exchange Notes on any U.S. 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
84
<PAGE>
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 Initial Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The legality of the Notes offered hereby is being passed upon for the
Company by Wyrick Robbins Yates & Ponton LLP, Raleigh, North Carolina, counsel
for the Company.
EXPERTS
The financial statements of BTI Telecom Corp. and FiberSouth, Inc. at
December 31, 1996 and 1995 and for the three years in the period ended December
31, 1996 appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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.
85
<PAGE>
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.
BELLSOUTH -- BellSouth Telecommunications, Inc.
BELLSOUTH MOBILITY -- BellSouth Mobility Inc.
CCI (MCLEOD) -- Consolidated Communications, Inc., a subsidiary of
McLeodUSA Incorporated.
CENTRAL OFFICES -- The switching centers or central switching facilities of
the local exchange carriers.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER) -- A company authorized by
regulatory agencies to provide service in competition with the ILECs.
COLLOCATION -- The ability of a competitor carrier to connect its network
to the local exchange carriers' central offices. Physical collocation occurs
when a competitor carrier places its network connection equipment inside the
local exchange carrier central offices. Virtual collocation is an alternative to
physical collocation pursuant to which the local exchange carrier permits a
competitor carrier to connect its network to the local exchange carrier's
central offices on comparable terms, even though 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.
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.
GTE -- GTE Corporation.
GTOCS -- General Telephone Operating Companies.
IBM -- International Business Machines Corporation.
ILEC -- The incumbent local exchange carrier (typically one of the RBOCs
created by the divesture of AT&T).
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.
INTERMEDIA -- Intermedia Communications, Inc.
86
<PAGE>
INTRALATA -- Telecommunications services originating and terminating in the
same LATA.
ITC DELTACOM -- ITC^DeltaCom, 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.
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.
LUCENT -- Lucent Technologies Inc.
MCI -- MCI Communications Corporation.
MCI METRO -- MCI Metro Access Transmission Services, Inc.
NEXTEL COMMUNICATIONS -- Nextel Communications, Inc.
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
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.
PSINET -- PSINet Inc.
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.
RBOCS -- Regional Bell Operating Companies.
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.
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.
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 that 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.
87
<PAGE>
SPRINT -- Sprint Corporation.
SPRINT MID-ATLANTIC -- Sprint Mid-Atlantic, Inc.
"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 carrier 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 carrier's
central offices.
TIME WARNER -- Time Warner Communications.
US LEC -- US LEC of North Carolina, L.L.C.
UUNET -- UUNET Technologies, 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.
88
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<S> <C>
BTI TELECOM CORP.
Report of Independent Auditors........................................................................... F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and September 30, 1997 (Unaudited).......... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 and for the
Nine Months Ended September 30, 1996 and 1997 (Unaudited)............................................. F-4
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and
1996 and for the Nine Months Ended September 30, 1997 (Unaudited)..................................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the
Nine Months Ended September 30, 1996 and 1997 (Unaudited)............................................. F-6
Notes to Consolidated Financial Statements............................................................... F-7
FIBERSOUTH, INC.
Report of Independent Auditors........................................................................... F-16
Balance Sheets as of December 31, 1995 and 1996.......................................................... F-17
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months
Ended September 30, 1996 and 1997 (Unaudited)......................................................... F-18
Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1994, 1995 and 1996 and for
the Nine Months Ended September 30, 1997 (Unaudited).................................................. F-19
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 and for the Nine Months
Ended September 30, 1996 and 1997 (Unaudited)......................................................... F-20
Notes to Financial Statements............................................................................ F-21
BTI TELECOM CORP. UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Financial Data................................................................................. F-24
Unaudited Pro Forma Condensed Statement of Operations for the Year Ended December 31, 1996............... F-25
Unaudited Pro Forma Condensed Statement of Operations for the Nine Months Ended September 30, 1997....... F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
BTI TELECOM CORP.
We have audited the accompanying consolidated balance sheets of BTI Telecom
Corp. as of December 31, 1995 and 1996, and the related consolidated statements
of operations, shareholders' equity (deficit) and cash flows for each of the
three years in the period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BTI Telecom
Corp. at December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 21, 1997
F-2
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1995 1996 1997
----------- ----------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 305,840 $ 496,510 $ 78,233,461
Restricted cash..................................................... -- -- 74,093,277
Marketable equity securities........................................ 266,918 7,791 7,791
Accounts receivable, less allowance of $2,335,000 and $3,034,000 at
December 31, 1995 and 1996, respectively, and $3,758,000 at
September 30, 1997............................................... 11,802,461 18,735,696 18,158,590
Accounts receivable from related parties (Note 6)................... 210,202 567,984 --
Accrued revenue..................................................... 2,998,707 2,869,997 6,374,833
Prepaid expenses and other current assets........................... 708,772 639,985 1,301,292
Inventories......................................................... 644,050 719,027 571,971
----------- ----------- -------------
Total current assets.................................................. 16,936,950 24,036,990 178,741,215
Equipment, furniture and fixtures (Note 3):
Data processing equipment........................................... 3,762,629 5,281,764 6,336,925
Telephone service equipment......................................... 17,852,269 22,682,446 34,868,190
Paging equipment.................................................... 824,074 1,417,571 1,551,479
Office furnishings and equipment.................................... 2,302,650 2,736,666 2,832,116
Leasehold improvements.............................................. 921,304 1,951,446 2,744,110
Vehicles............................................................ 386,217 245,015 255,547
Construction in progress............................................ -- -- 106,496
----------- ----------- -------------
26,049,143 34,314,908 48,694,863
Accumulated depreciation and amortization........................... (9,256,709) (12,816,841) (18,464,826)
----------- ----------- -------------
16,792,434 21,498,067 30,230,037
Other assets:
Line access fees.................................................... 4,571,356 5,160,212 5,729,410
Deferred financing costs............................................ -- -- 9,321,201
Other............................................................... 275,173 945,621 942,065
----------- ----------- -------------
4,846,529 6,105,833 15,992,676
Accumulated amortization............................................ (2,607,268) (3,417,081) (3,470,478)
----------- ----------- -------------
2,239,261 2,688,752 12,522,198
----------- ----------- -------------
Total assets.......................................................... $35,968,645 $48,223,809 $ 221,493,450
----------- ----------- -------------
----------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.................................................... $17,484,317 $16,665,127 $ 22,335,051
Accrued expenses and other payables................................. 1,970,380 2,643,335 4,572,989
Unearned revenue.................................................... 589,052 726,660 804,940
Shareholder notes payable (Note 7).................................. 1,411,282 1,938,408 924,393
Lease allowance, current............................................ 36,540 89,316 91,506
Current portion of capital lease obligations (Note 3)............... 627,698 382,893 90,919
Current portion of long-term debt (Note 4).......................... -- 850,052 --
Deferred tax liability, current..................................... -- -- 648,000
----------- ----------- -------------
Total current liabilities............................................. 22,119,269 23,295,791 29,467,798
Capital lease obligations, less current portion (Note 3).............. 540,546 95,635 24,404
Long-term debt, less current portion (Note 4)......................... 10,973,913 21,750,622 --
Senior notes.......................................................... -- -- 250,000,000
Shareholder notes payable, less current portion....................... -- -- 1,006,100
Lease allowance, less current portion................................. 438,358 707,363 675,579
Deferred tax liability, less current portion.......................... -- -- 2,135,436
Accrued compensation expense.......................................... -- -- 908,779
Other long-term liabilities........................................... -- -- 405,330
Shareholders' equity (deficit):
Common Stock, no par value, authorized 100,000,000 shares, issued
and outstanding 20,000,000 shares at December 31, 1995 and 1996
and 10,000,000 at September 30, 1997............................. 73,336 73,336 36,668
Additional paid-in-capital.......................................... 326,684 326,684 707,500
Unrealized gain on equity securities................................ 82,085 2,345 2,345
Retained earnings................................................... 1,414,454 1,972,033 (63,876,489)
----------- ----------- -------------
Total shareholders' equity (deficit).................................. 1,896,559 2,374,398 (63,129,976)
----------- ----------- -------------
Total liabilities and shareholders' equity (deficit).................. $35,968,645 $48,223,809 $ 221,493,450
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenue......................... $91,547,763 $114,536,706 $148,780,816 $106,237,643 $145,145,510
Cost of services................ 54,424,983 68,199,125 90,820,467 62,884,645 101,238,476
----------- ------------ ------------ ------------ ------------
Gross profit.................... 37,122,780 46,337,581 57,960,349 43,352,998 43,907,034
Selling, general and
administrative expenses....... 33,671,250 44,732,343 53,791,036 40,688,329 43,753,394
----------- ------------ ------------ ------------ ------------
Income from operations.......... 3,451,530 1,605,238 4,169,313 2,664,669 153,640
Other income (expense):
Interest expense.............. (749,661) (1,296,707) (1,695,324) (1,366,903) (2,108,730)
Gain on sale of marketable
securities................. -- 62,298 131,910 -- --
----------- ------------ ------------ ------------ ------------
Net income (loss) before income
taxes......................... 2,701,869 370,829 2,605,899 1,297,766 (1,955,090)
Income taxes:
Deferred...................... -- -- -- -- 2,210,000
----------- ------------ ------------ ------------ ------------
Net income (loss)............... $ 2,701,869 $ 370,829 $ 2,605,899 $ 1,297,766 $ (4,165,090)
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Pro forma net income (loss)
(Note 9) (unaudited).......... $ 1,567,084 $ 215,081 $ 1,511,421 $ 752,704 $ (4,165,090)
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Pro forma earnings (loss) per
share (unaudited)............. $ .08 $ .01 $ .08 $ .04 $ (.21)
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
Weighted average shares
outstanding................... 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000
----------- ------------ ------------ ------------ ------------
----------- ------------ ------------ ------------ ------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED TOTAL
COMMON PAID-IN INVESTMENT RETAINED SHAREHOLDERS'
STOCK CAPITAL GAINS EARNINGS EQUITY (DEFICIT)
-------- ---------- ---------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993............... $ 73,336 $ 326,684 $ -- $ 3,588,983 $ 3,989,003
Dividends ($.13 per common share)........ -- -- -- (2,635,945) (2,635,945)
Net income............................... -- -- -- 2,701,869 2,701,869
Unrealized gains on investments.......... -- -- 15,444 -- 15,444
-------- ---------- ---------- ------------ ----------------
Balance at December 31, 1994............... 73,336 326,684 15,444 3,654,907 4,070,371
Dividends ($.13 per common share)........ -- -- -- (2,611,282) (2,611,282)
Net income............................... -- -- -- 370,829 370,829
Increase in unrealized gains............. -- -- 66,641 -- 66,641
-------- ---------- ---------- ------------ ----------------
Balance at December 31, 1995............... 73,336 326,684 82,085 1,414,454 1,896,559
Dividends ($.10 per common share)........ -- -- -- (2,048,320) (2,048,320)
Net income............................... -- -- -- 2,605,899 2,605,899
Decrease in unrealized gains............. -- -- (79,740) -- (79,740)
-------- ---------- ---------- ------------ ----------------
Balance at December 31, 1996............... 73,336 326,684 2,345 1,972,033 2,374,398
Repurchase of shares (unaudited)......... (36,668) -- -- (28,463,332) (28,500,000)
Compensation related to stock options
(unaudited)........................... -- 380,816 -- -- 380,816
Acquisition of Fiber South (unaudited)... -- -- (29,776,344) (29,776,344)
Dividends (unaudited) ($.17 per common
share)................................ -- -- -- (3,443,756) (3,443,756)
Net loss (unaudited)..................... -- -- -- (4,165,090) (4,165,090)
-------- ---------- ---------- ------------ ----------------
Balance at September 30, 1997
(unaudited).............................. $ 36,668 $ 707,500 $ 2,345 $(63,876,489) $(63,129,976)
-------- ---------- ---------- ------------ ----------------
-------- ---------- ---------- ------------ ----------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -----------------------------
1994 1995 1996 1996 1997
----------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income (loss)............................ $ 2,701,869 $ 370,829 $ 2,605,899 $ 1,297,766 $ (4,165,090)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation............................... 2,651,644 2,402,736 4,101,249 3,205,758 3,732,558
Amortization............................... 97,259 670,632 370,374 50,768 812,442
Loss (gain) on disposal of fixed assets.... -- 15,471 682 13,704 (2,164)
Non-cash compensation expense related to
stock options............................ -- -- -- -- 707,500
Deferred interest expense on shareholder
note..................................... -- 92,990 156,709 113,741 (7,915)
Changes in operating assets and
liabilities:
Accounts receivable, including related
parties................................ (3,247,816) (1,255,042) (7,291,017) (4,874,624) 1,145,090
Accrued revenue.......................... (975,574) 77,601 128,710 (493,330) (3,504,836)
Prepaid expenses......................... (726,166) 1,067,459 68,787 (19,145) (661,307)
Inventories.............................. (207,880) (775,743) (629,894) (328,415) 147,056
Accounts payable, accrued expenses and
unearned revenue....................... 5,508,308 6,304,419 (8,627) (669,870) 8,586,637
Lease allowance.......................... -- 474,898 321,781 258,509 (29,594)
Deferred taxes........................... -- -- -- -- 2,783,436
Deferred promotional discounts........... 429,211 -- -- -- --
----------- ------------ ------------- ------------- -------------
Net cash provided by (used in) operating
activities................................. 6,230,855 9,446,250 (175,347) (1,445,198) 9,543,813
INVESTING ACTIVITIES
Proceeds from disposals of property and
equipment.................................. -- -- 187,643 25,300 194,025
Change in marketable equity securities....... (95,371) (3,567) 179,387 178,363 --
Change in restricted cash.................... -- -- -- -- (74,093,277)
Purchases of equipment, furniture and
fixtures................................... (3,626,248) (9,710,756) (8,000,851) (5,340,701) (7,404,712)
Purchase of FiberSouth....................... -- -- -- -- (35,606,250)
Line access fees............................. (808,368) (1,007,110) (588,856) (350,291) (569,198)
Purchases of deferred financing costs and
other assets............................... -- (172,764) (670,448) (1,045,304) (9,317,645)
----------- ------------ ------------- ------------- -------------
Net cash used in investing activities........ (4,529,987) (10,894,197) (8,893,125) (6,532,633) (126,797,057)
FINANCING ACTIVITIES
Proceeds from shareholder's notes payable.... 41,134 556,846 370,417 370,417 --
Payments on line-of-credit borrowings........ 500,000 (500,000) -- -- --
Payments on short-term borrowings............ 700,000 (700,000) -- -- --
Proceeds from long-term borrowings........... 1,235,052 28,907,308 165,944,830 119,776,703 218,673,659
Payments on long-term borrowings............. (334,091) (19,370,042) (154,318,069) (110,169,651) (241,274,333)
Proceeds from Senior notes................... -- -- -- -- 250,000,000
Payments on capital leases................... (1,280,902) (4,424,429) (689,716) (504,086) (363,205)
Reacquisition of common stock................ -- -- -- -- (28,300,000)
Dividends paid............................... (2,635,945) (2,611,282) (2,048,320) (1,677,903) (3,745,926)
----------- ------------ ------------- ------------- -------------
Net cash (used in) provided by financing
activities................................. (1,774,752) 1,858,401 9,259,142 7,795,480 194,990,195
(Decrease) increase in cash and cash
equivalents................................ (73,884) 410,454 190,670 (182,351) 77,736,951
Cash (checks issued not yet presented for
payment) at beginning of period............ (30,730) (104,614) 305,840 305,840 496,510
----------- ------------ ------------- ------------- -------------
Cash (checks issued not yet presented for
payment) at end of period.................. $ (104,614) $ 305,840 $ 496,510 $ 123,489 $ 78,233,461
----------- ------------ ------------- ------------- -------------
----------- ------------ ------------- ------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest....................... $ 741,000 $ 1,171,000 $ 1,480,000 $ 1,557,729 $ 2,508,639
----------- ------------ ------------- ------------- -------------
----------- ------------ ------------- ------------- -------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Transfer of paging equipment from inventory
to equipment............................... $ 154,042 $ 339,573 $ 554,917 $ -- $ --
----------- ------------ ------------- ------------- -------------
----------- ------------ ------------- ------------- -------------
Capital lease obligations incurred (Note
2)......................................... $ 1,416,777 $ 102,592 $ -- $ -- $ --
----------- ------------ ------------- ------------- -------------
----------- ------------ ------------- ------------- -------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OF THE COMPANY
The Company, which began operations in 1984, provides telecommunications
services, primarily to commercial customers located in the southeastern United
States.
BASIS OF PRESENTATION
During 1997, Business Telecom, Inc. was reorganized into a new corporate
structure consisting of BTI Telecom Corp. as parent company and Business
Telecom, Inc. as a wholly owned subsidiary. The consolidated financial
statements include the accounts of BTI Telecom Corp. (the "Company") and
Business Telecom, Inc. All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid, short-term investments with a maturity
of three months or less when purchased to be cash equivalents.
INVESTMENTS IN EQUITY SECURITIES
As of January 1, 1994, the Company implemented the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Under this
pronouncement, securities are classified as held-to maturity, available-for-sale
or trading securities. Held-to-maturity securities are carried at amortized
cost. Available-for-sale and trading securities are carried at estimated fair
value. Unrealized holding gains and losses are carried as a separate component
of shareholders' equity for available-for-sale securities and are reported in
earnings for trading securities. In 1995 and 1996, the Company's marketable
equity securities were classified as available-for-sale and carried at fair
market value.
The following is a summary of available-for-sale securities:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1995:
Available-for-sale securities.................................. $184,833 $ 85,357 $3,272 $ 266,918
December 31, 1996:
Available-for-sale securities.................................. $ 5,446 $ 4,210 $1,865 $ 7,791
</TABLE>
Estimated fair value represents market value of the securities at December
31, 1995 and 1996.
INCOME TAXES
The Company has elected to be taxed for federal and state income tax
purposes as an S corporation under provisions of the Internal Revenue Code.
Consequently income, losses and credits are passed through directly to the
shareholders, rather than being taxed at the corporate level.
REVENUE RECOGNITION
Revenue for telecommunications services is recognized at the time the
services are provided to customers. Revenue which has been earned but not yet
billed to customers is included in accrued revenue.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are stated on the basis of cost, which is
being amortized over the estimated useful lives of the assets principally by the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes.
To more accurately match the depreciable useful lives with actual economic
lives, during 1996 the Company changed the estimated average useful lives used
to compute depreciation for some of its leasehold improvements
F-7
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
from 35 years to between five and 20 years. The effect of this change was a
decrease in net income of $35,000 in 1996. The Company made a similar estimate
revision in 1995, changing the useful life for most of its switching equipment
from 5 years to 7 years. The effect of this change was an increase in net income
of $650,000 in 1995. These changes did not affect cash flow.
LINE ACCESS FEES AND OTHER ASSETS
Line access fees are capitalized and amortized over the estimated period
the related lines will be used by the Company (60 months) using the
straight-line method.
Other assets consist primarily of loan origination fees and related
financing costs amortized ratably over the life of the loan (see Note 3).
Deferred promotional discounts on sales to customers are amortized over the
term of the customer's contract.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
cost flow assumption) or market, and consist primarily of paging equipment.
Paging equipment may also be leased to customers, at which time it is
reclassified from inventory to equipment, furniture and fixtures.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ADVERTISING EXPENSE
Statement of Position 93-7 "Reporting on Advertising Costs" was implemented
by the Company during the year ended December 31, 1995. As a result, the Company
capitalized approximately $254,000 in direct response advertising costs in 1996
of which approximately $172,000 remained unamortized at December 31, 1996. The
costs are amortized into expense over the estimated future benefit period. The
remaining costs of advertising are expensed as incurred. The Company expensed
$163,190, $170,825 and $600,553 in advertising costs during 1994, 1995 and 1996,
respectively.
RECLASSIFICATIONS
Certain amounts in the December 31, 1994 and 1995 financial statements have
been reclassified to conform to the December 31, 1996 presentation. These
reclassifications had no material effect on net income or shareholders' equity
as previously reported.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements include all adjustments
(consisting of normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the financial position of the
Company as of September 30, 1997 and the results of operations and cash flows
for the nine-month periods ended September 30, 1996 and 1997. Operating results
for the nine months ended September 30, 1997 are not necessarily indicative of
the results to be expected for future interim periods or the entire year. All
interim financial data presented is unaudited.
F-8
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
The Company's principal financial instrument subject to potential
concentration of credit risk is trade accounts receivable which are unsecured.
As of December 31, 1996, the Company had no significant concentrations of credit
risk with individual customers. The Company uses the allowance method of
accounting for uncollectible accounts receivable. Management believes that
adequate provision has been made for uncollectible accounts as of December 31,
1996. The following table sets forth certain information about the Company's
allowance for doubtful accounts for the years ended December 31, 1994, 1995 and
1996:
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO UNCOLLECTIBLE BALANCE
BEGINNING OF COSTS AND ACCOUNTS AT END OF
DESCRIPTION PERIOD EXPENSES WRITTEN OFF PERIOD
- --------------------------------------------------------- ------------ ---------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts........................ $ 461,000 $1,172,000 $ 601,000 $1,032,000
------------ ---------- ------------- ----------
------------ ---------- ------------- ----------
Year ended December 31, 1995:
Allowance for doubtful accounts........................ $ 1,032,000 $1,997,000 $ 694,000 $2,335,000
------------ ---------- ------------- ----------
------------ ---------- ------------- ----------
Year ended December 31, 1996:
Allowance for doubtful accounts........................ $ 2,335,000 $3,440,000 $ 2,741,000 $3,034,000
------------ ---------- ------------- ----------
------------ ---------- ------------- ----------
Nine months ended September 30, 1997 (unaudited):
Allowance for doubtful accounts........................ $ 3,034,000 $2,808,000 $ 2,084,000 $3,758,000
------------ ---------- ------------- ----------
------------ ---------- ------------- ----------
</TABLE>
3. LEASES
The Company acquired telephone equipment, furniture and fixtures with an
aggregate cost of $102,529 in 1995 and $0 in 1996, under capital lease
agreements which expire at various times through 1998. At the end of the lease
terms, the Company has the option to purchase the equipment for a nominal
amount.
Equipment, furniture and fixtures includes the following amounts for
capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Equipment, furniture and fixtures..................................................... $2,305,826 $2,193,419
Less allowance for amortization....................................................... 929,648 1,189,230
---------- ----------
$1,376,178 $1,004,189
---------- ----------
---------- ----------
</TABLE>
Amortization of capital leases is included in amortization expense.
Future minimum lease payments, by year and in the aggregate, under capital
leases with remaining terms of one year or more consisted of the following at
December 31, 1996:
<TABLE>
<S> <C>
1997........................................................................ $ 406,406
1998........................................................................ 100,042
----------
Total minimum lease payments................................................ 506,448
Amounts representing interest............................................... (27,920)
----------
478,528
Current portion............................................................. (382,893)
----------
$ 95,635
----------
----------
</TABLE>
During 1995, the Company entered into an operating lease for an airplane
with a company under common management. Rent expense related to this lease was
approximately $28,000 and $343,000 for the year ending December 31, 1995 and
1996, respectively. Amounts related to the lease which are included in the
payment horizon categories below are $342,557 per year for 1997 through 1999 and
$285,464 for the year 2000.
F-9
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. LEASES -- Continued
The Company rents its facilities and certain office and other equipment
under operating leases which contain various renewal and buy-out provisions.
Future minimum lease payments under the leases, which have remaining terms in
excess of one year, are as follows:
<TABLE>
<S> <C>
1997................................... $ 3,804,555
1998................................... 3,607,736
1999................................... 3,304,467
2000................................... 2,652,855
2001................................... 1,778,992
Thereafter............................. 6,328,432
-----------
$21,477,037
-----------
-----------
</TABLE>
Total rent expense was $1,230,633, $2,841,242 and $3,913,850 (including
facilities rents of $48,000, $55,000 and $65,000, respectively, paid to a
related party) in 1994, 1995 and 1996, respectively.
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
At December 31, 1995 and 1996, long-term debt outstanding consisted of the
following amounts owed to one finance company, secured by substantially all of
the Company's assets:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Revolving credit facility for borrowings up to $20,000,000, due June 2001.......... $10,973,913 $ 7,699,942
Term loan payable in two quarterly installments of $250,000 beginning in August
1997 and fourteen quarterly installments of $450,000 thereafter with remaining
balance due June 2001............................................................ -- 10,000,000
Capital expenditures facility, payable in equal quarterly installments beginning
August 1997 with remaining balance due June 2001................................. -- 4,900,732
----------- -----------
10,973,913 22,600,674
Less current portion............................................................... -- 850,052
----------- -----------
$10,973,913 $21,750,622
----------- -----------
----------- -----------
</TABLE>
The Company's loans described above bear interest, at the Company's option,
either at the 30-day LIBOR rate (5.53% at December 31, 1996) or the bank's prime
rate (8.25% at December 31, 1996), in each case plus an applicable "margin"
which varies between the ranges specified below based on the Company's financial
position as measured by defined ratios.
<TABLE>
<CAPTION>
30-DAY PRIME
LIBOR PLUS PLUS
---------------- ----------------
<S> <C> <C>
Revolving Credit Facility.............. 1.50% -- 2.75% 0.00% -- 1.25%
Term Loan.............................. 2.00% -- 3.25% 0.50% -- 1.75%
Capital Expenditures Facility.......... 2.50% -- 3.75% 1.00% -- 2.25%
</TABLE>
The loans also contain various financial covenants with which the Company
must comply on a quarterly basis. At December 31, 1996, the Company was in
compliance with these requirements.
F-10
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY -- Continued
Principal maturities of the above indebtedness during each of the following
five years are as follows:
<TABLE>
<S> <C>
1997................................... $ 850,052
1998................................... 2,500,105
1999................................... 2,500,105
2000................................... 2,500,105
2001................................... 14,250,307
-----------
$22,600,674
-----------
-----------
</TABLE>
In connection with the issuance of the senior notes (see Note 11), all of
the outstanding debt under the revolving credit facility, term loan and capital
expenditures facility was repaid in full.
The Company estimates that the fair value of debt instruments approximates
the carrying value based upon its effective current borrowing rate for debt with
similar terms and remaining maturities. Disclosure about fair value of financial
instruments is based upon information available to management as of December 31,
1996. Although management is not aware of any factors that would significantly
affect the fair value of amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date.
The Company has a commitment from a financial institution for letters of
credit up to $3,000,000. At December 31, 1995 and 1996, the Company had $490,000
and $621,000, respectively, of letters of credit outstanding to various vendors.
The letters of credit were issued as security for trade payables and certain
fixed asset purchases of the Company. They expire at various times through 1997,
unless extension provisions are elected by the Company.
5. EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Plan and Trust covering substantially all
employees. Participants may elect to defer up to 15% of their salary, not to
exceed $9,500 annually, which was the maximum allowed by the Internal Revenue
Service in 1996. The Company matched 25% of employee contributions in 1994 and
1995 and 50% of employee contributions in 1996, up to 6% of each employee's
salary. Employer contributions for the years ended December 31, 1994, 1995 and
1996 were $88,220, $120,309 and $251,512, respectively. Plan administrative
expenses incurred by the Company for the years ended December 31, 1994, 1995 and
1996 were $17,400, $22,153 and $20,383, respectively.
In 1993, the Company implemented a profit-sharing arrangement, allocating
5% of net profits (net income before vice president bonuses) to the Company's
vice presidents, 5% of net profits to an owner of the company, and 5% of net
profits to an employee pool. The employees' portion was split, with 50% going
directly to the employees via payroll and 50% going to the 401(k) Plan. Amounts
were paid bi-annually on January 31 and July 31. In 1996, the Company terminated
the portions of the profit sharing plan related to an owner of the Company and
the employee pool, and the portion of net profits allocated to the Company's
vice presidents was changed from 5% to approximately 2%. The expense associated
with this profit-sharing arrangement was $364,223, $63,837 and $65,989 in 1994,
1995 and 1996, respectively.
6. RELATED PARTY TRANSACTIONS
The Company has historically funded certain operating expenses of two
entities with common ownership. Accounts receivable from these entities included
$210,202 and $567,984 at December 31, 1995 and 1996, respectively. In 1995 and
1996, the Company paid approximately $1.4 million to FiberSouth, Inc., a Company
related through Common ownership, for local access services.
F-11
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. COMMON STOCK REPURCHASE AGREEMENT
In July 1992, the Company entered into agreements with one of its
shareholders (the "Retiring Shareholder") to purchase the outstanding common
shares held by this shareholder's estate upon his death. The agreements were
amended in June 1996. Under the amended agreements, the Company may at its
option purchase the outstanding shares from the shareholder. The purchase price
is to be paid by a combination of an initial cash payment and subordinated debt
issued to the estate.
Pursuant to the agreements, the Company is required to make monthly
distributions to each shareholder of $61,736 beginning in July 1992 until
closing of the repurchase. The 1992 agreement required that an escrow account be
established into which the non-Retiring Shareholder was required to deposit his
pro rata share of these distributions. Under the provisions of the 1992
agreements, the non-Retiring Shareholder remitted those funds back to the
Company in exchange for subordinated notes payable. The 1996 amended agreement
allows the non-Retiring Shareholder to retain his pro rata share of the monthly
distributions. The $1,411,282 and $1,938,408 balance in shareholder notes
payable at December 31, 1995 and 1996, respectively, represents the amounts
remitted back to the Company by the non-Retiring Shareholder under the original
agreement, plus accrued interest at the prime rate. This amount is payable on
demand.
8. STOCK OPTIONS
In 1994, the Company formalized the 1994 Stock Plan (the "1994 Plan"),
subject to shareholder approval, whereby 499,890 shares of Common Stock were
reserved for future issuance under the 1994 Plan. The Company has committed to
grant options to purchase 499,890 shares at an exercise price of $1.47 per
share, subject to future revision, under the 1994 Plan to a certain officer and
two former employees of the Company at the time that the Company purchases the
outstanding shares of the Retiring Shareholder. The measurement date for
compensation related to these options does not occur until the repurchase of the
shares from the Retiring Shareholder. The repurchase of the shares from the
Retiring Shareholder was consummated on September 22, 1997. Accordingly, the
Company recognized non-cash compensation expense of $707,500 in connection with
the options.
In connection with the 1994 Plan, in March 1995 the Company set up a Senior
Executive Bonus Plan (the "Bonus Plan"), subject to shareholder approval. The
Bonus Plan provides that Senior Executive Officers of the Company may exercise a
portion of their options under the 1994 Plan without paying the exercise price
therefor. The portion which may be exercised without payment increased in the
event that the Company achieved either its budgeted gross revenue or net income
targets as approved from year to year by the Board of Directors.
The Company accounts for the 1994 Plan using the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and
provides the related pro forma disclosures in the footnotes to the financial
statements as required by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
F-12
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. INCOME TAXES
The following unaudited pro forma income tax information is presented in
accordance with Statement of Financial Accounting Standard No. 109 (SFAS 109) as
if the Company had been a C Corporation subject to federal and state income
taxes throughout all periods presented. No pro forma financial information has
been presented for the nine months ended September 30, 1997 since the Company
has converted to C Corporation status as of that date. Accordingly, all deferred
tax assets and liabilities and related income tax expense associated with the
retroactive adoption of SFAS 109 are reflected in the Company's balance sheet
and statement of operations as of and for the nine months ended September 30,
1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1994 1995 1996
----------- -------- ----------
<S> <C> <C> <C>
Earnings before pro forma adjustments..................................... $ 2,701,869 $370,829 $2,605,899
Pro forma statement:
Provision for income taxes to increase tax expense to estimated
effective rate of 42%................................................ 1,134,785 155,748 1,094,478
----------- -------- ----------
Pro forma net income.................................................... $ 1,567,084 $215,081 $1,511,421
----------- -------- ----------
----------- -------- ----------
</TABLE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 109 (SFAS 109), "Accounting for Income Taxes," in
February 1992. Because of its conversion from S Corporation to C Corporation
status (see Note 11), the Company adopted the provisions of this standard, the
cumulative effect of which is reflected in its financial statements for the
nine months ended September 30, 1997.
The provision for income taxes for the nine months ended September 30, 1997
consists of the following:
<TABLE>
<S> <C>
Deferred:
Federal........................................... $1,796,000
State............................................. 414,000
----------
$2,210,000
----------
----------
</TABLE>
A reconciliation of the provision for income taxes to income tax expense,
computed by applying the statutory federal income tax rate to pre-tax earnings
at September 30, 1997, is as follows:
<TABLE>
<S> <C>
Income tax expense at statutory federal rate........ $ --
Increase (decrease) resulting from:
Stock options..................................... (647,000)
FiberSouth asset purchase......................... 555,000
Cumulative effect of SFAS 109 adoption............ 2,124,000
Other............................................. 178,000
----------
$2,210,000
----------
----------
</TABLE>
F-13
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. INCOME TAXES -- Continued
The tax effects of temporary differences at September 30, 1997 that give
rise to significant portions of deferred tax assets and deferred tax liabilities
are presented below:
<TABLE>
<S> <C>
Deferred tax liabilities:
Tax over book depreciation........................ $1,440,000
Line install fees................................. 777,000
FiberSouth asset purchase......................... 555,000
Accrual to cash conversion........................ 93,000
----------
Total deferred tax liabilities...................... 2,865,000
Deferred tax assets:
Stock options..................................... 647,000
Group insurance reserve........................... 82,000
----------
Total deferred tax assets........................... 729,000
----------
Net deferred tax liabilities........................ $2,136,000
----------
----------
</TABLE>
The Company's deferred income tax expense for the nine months ended
September 30, 1997 results from the following:
<TABLE>
<S> <C>
Excess of tax over financial reporting:
Depreciation...................................... $1,440,000
Line install fees................................. 777,000
Stock options..................................... (647,000)
FiberSouth asset purchase......................... 555,000
Other items, net.................................. 85,000
----------
$2,210,000
----------
----------
</TABLE>
10. COMMITMENT
The Company is in negotiations with a municipality to finalize the terms of
the Company's planned $3.1 million charitable contribution to partially fund the
construction of a performing arts center. The contribution, which will be in a
combination of cash and in-kind (telephone and data transmission service), will
be paid over a ten year period beginning in 1998.
On October 31, 1997, the Company signed a contract for the right to use
certain optical fibers in a fiber optic communication system. Under the
agreement, the Company will pay approximately $50.1 million over the
construction period of the system (estimated to be 18 months), approximately $10
million of which is due in December 1997.
11. ISSUANCE OF SENIOR NOTES AND RELATED TRANSACTIONS
In September 1997, the Company issued ten-year notes (the "Notes") with a
principal value of $250.0 million (the "Offering"). The Notes bear interest at
the rate of 10 1/2% per annum, payable semiannually in cash on each March 15 and
September 15, commencing March 15, 1998 and mature in 2007. The Notes will be
subject to mandatory redemption as a whole at 101% of their principal amount
plus accrued interest in the event certain conditions are not satisfied by
December 31, 1997. Additionally, if conditions are not satisfied by December 31,
1997, the Company will be required to make an offer to repurchase $35 million in
principal amount of the Notes at 101% of their principal amount plus accrued
interest.
Prior to the consummation of the Reorganization, the net proceeds from the
Offering were held and invested in U.S. government securities. Upon consummation
of the Reorganization, a portion of the proceeds held were
F-14
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. ISSUANCE OF SENIOR NOTES AND RELATED TRANSACTIONS -- Continued
used to purchase a portfolio of U.S. government securities that will be held as
security for the first six scheduled interest payments on the notes.
In connection with the Offering, the Company also consummated the following
transactions:
(i) The Company entered into an amended and restated credit facility which
will provide the Company with up to $60.0 million of availability to
be used for working capital and other uses, including capital
expenditures. The Company repaid all indebtedness outstanding under
its existing credit agreement together with accrued interest thereon.
(ii) The Company repurchased the 50% interest in the Company not held by
the Company's Chairman and Chief Executive Officer.
(iii) Effective September 30, 1997, the Company acquired certain assets and
the related business of FiberSouth, Inc. ("FiberSouth") for cash and
assumption of debt. The acquisition was accounted for using the
historical basis of the assets acquired under the provisions of AIN
No. 39 of APB No. 16, "Business Combinations". The transaction
resulted in the acquisition of approximately $1.2 million in net
assets and a corresponding charge to equity of $29.8 million.
Accordingly, the acquisition is reflected in the Company's statement
of financial position at September 30, 1997. The operations of
FiberSouth, Inc. from January 1, 1997 through the effective date of
the transaction are not reflected in the Company's statement of
operations for the nine months ended September 30, 1997.
(iv) The Company converted from an S corporation to a C corporation
subject to income tax (the "Reorganization").
12. SUBSEQUENT EVENT
The Company intends to establish a 1997 Stock Plan (the "1997 Plan") for
the purpose of attracting and retaining certain key employees of the Company.
The 1997 Plan will provide that an aggregate of 500,000 of the Company's
authorized shares will be reserved for issuance. In the case of initial grants,
the exercise price will be fixed by the compensation committee on the date of
grant.
F-15
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
FIBERSOUTH, INC.
We have audited the accompanying balance sheets of FiberSouth, Inc. as of
December 31, 1995 and 1996 and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of FiberSouth, Inc. at December
31, 1995 and 1996 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
FEBRUARY 21, 1997, EXCEPT FOR NOTE 5,
AS TO WHICH THE DATE IS MAY 2, 1997
F-16
<PAGE>
FIBERSOUTH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 211,327 $ --
Accounts receivable -- trade........................................................ 41,453 201,418
Inventory supplies.................................................................. 229,213 --
Other current assets................................................................ 36,999 29,235
---------- ----------
Total current assets.................................................................. 518,992 230,653
Equipment, furniture and fixtures:
Telephone service equipment......................................................... 4,783,410 6,007,307
Office, computer and other equipment................................................ 110,062 127,236
Leasehold improvements.............................................................. 112,905 147,853
Construction in progress............................................................ 73,331 --
---------- ----------
5,079,708 6,282,396
Accumulated depreciation............................................................ (284,219) (708,564)
---------- ----------
4,795,489 5,573,832
Other assets:
Organization costs.................................................................. 79,761 85,443
Loan origination costs.............................................................. 22,025 116,604
---------- ----------
101,786 202,047
Accumulated amortization............................................................ (26,012) (47,680)
---------- ----------
75,774 154,367
Prepaids and other long-term assets................................................... 400,903 436,107
---------- ----------
Total assets.......................................................................... $5,791,158 $6,394,959
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Checks issued not yet presented for payment......................................... $ -- $ 29,346
Accounts payable and accrued expenses (Note 4)...................................... 831,806 341,343
Accounts payable -- related party................................................... 146,731 321,319
Deferred revenue -- related party (Note 4).......................................... 75,000 --
Current portion of long-term debt (Note 3).......................................... 504,113 969,117
---------- ----------
Total current liabilities............................................................. 1,557,650 1,661,125
Deferred rent......................................................................... 7,825 4,549
Long-term debt, less current portion (Note 3)......................................... 3,874,979 4,317,531
Shareholders' equity:
Common Stock, $1.00 par value -- authorized 100,000, issued and outstanding 100
shares........................................................................... 100 100
Retained earnings................................................................... 350,604 411,654
---------- ----------
Total shareholders' equity............................................................ 350,704 411,754
---------- ----------
Total liabilities and shareholders' equity............................................ $5,791,158 $6,394,959
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-17
<PAGE>
FIBERSOUTH, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------------
1994 1995 1996 1996 1997
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenue (Note 4)............................ $ 603,921 $1,518,372 $2,522,535 $1,621,839 $4,161,231
Operating expenses.......................... 144,599 333,467 960,383 596,478 2,841,852
Selling, general and administrative
expenses.................................. 291,338 1,002,285 1,451,602 1,076,091 1,570,233
--------- ---------- ---------- ---------- ----------
Net income (loss)........................... $ 167,984 $ 182,620 $ 110,550 $ (50,730) $ (250,854)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Net income (loss) per share................. $1,679.84 $ 1,826.20 $ 1,105.50 $ (507.30) $ (2508.54)
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
Weighted average shares outstanding......... 100 100 100 100 100
--------- ---------- ---------- ---------- ----------
--------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-18
<PAGE>
FIBERSOUTH, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
SHAREHOLDERS'
COMMON RETAINED EQUITY
STOCK EARNINGS (DEFICIT)
------ ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1993........................................... $ -- $ -- $ --
Issuance of 100 shares of $1.00 par value common stock............... 100 -- 100
Net income........................................................... -- 167,984 167,984
------ ------------ -------------
Balance at December 31, 1994........................................... 100 167,984 168,084
Net income........................................................... -- 182,620 182,620
------ ------------ -------------
Balance at December 31, 1995........................................... 100 350,604 350,704
Dividends ($495.00 per common share)................................. -- (49,500) (49,500)
Net income........................................................... -- 110,550 110,550
------ ------------ -------------
Balance at December 31, 1996........................................... 100 411,654 411,754
Dividends (unaudited) ($310,262.32 per common share)................. -- (31,026,232) (31,026,232)
Net loss (unaudited)................................................. -- (250,854) (250,854)
------ ------------ -------------
Balance at September 30, 1997 (unaudited).............................. $100 $(30,865,432) $ (30,865,332)
------ ------------ -------------
------ ------------ -------------
</TABLE>
See accompanying notes.
F-19
<PAGE>
FIBERSOUTH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- --------------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income (loss)........................ $ 167,984 $ 182,620 $ 110,550 $ (50,730) $ (250,854)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation........................... 52,265 231,954 424,345 309,192 407,468
Amortization........................... 4,179 21,833 21,668 7,446 5,718
Write-off of loan origination costs.... -- -- -- -- (66,626)
Changes in operating assets and
liabilities:
Accounts receivable -- trade........ -- (41,453) (159,965) 42,082 2,670
Accounts receivable -- related
party............................. (115,096) 115,096 -- -- --
Inventory supplies.................. (262,668) 33,455 229,213 (34,855) --
Other current assets................ -- (36,999) 7,764 9,099 (27,683)
Deferred revenue -- related party... -- 75,000 (75,000) (75,000) --
Deferred rent....................... 7,182 643 (3,276) (2,529) (2,359)
Accounts payable and accrued
expenses.......................... 108,353 740,453 (490,463) (19,555) 2,130,061
Accounts payable -- related
parties........................... -- 129,731 174,588 (139,470) --
Other long-term liabilities......... -- -- -- -- 167,944
---------- ---------- ---------- ---------- ------------
Net cash (used in) provided by operating
activities............................. (37,801) 1,452,333 239,424 45,680 2,366,339
INVESTING ACTIVITIES
Purchases of equipment, furniture and
fixtures............................... (1,907,892) (3,171,816) (1,202,688) (971,340) (522,368)
Transfer of construction in progress to
fixed assets........................... -- -- -- 73,331 --
Construction in progress................. -- -- -- -- (106,495)
Payments for other assets................ (251,971) (250,718) (135,465) (188,820) 4,140
---------- ---------- ---------- ---------- ------------
Net cash used in investing activities.... (2,159,863) (3,422,534) (1,338,153) (1,086,829) (624,723)
FINANCING ACTIVITIES
Proceeds on advance from BTI Telecom
Corp................................... -- -- -- -- 36,296,630
Proceeds from long-term borrowings....... 2,500,000 1,905,000 1,535,000 1,046,949 (4,317,531)
Payments on long-term borrowings......... -- (25,908) (627,444) -- (969,117)
Issuance of common stock................. 100 -- -- -- --
Dividends paid........................... -- -- (49,500) -- (31,026,232)
---------- ---------- ---------- ---------- ------------
Net cash provided by (used in) financing
activities............................. 2,500,100 1,879,092 858,056 1,046,949 (16,250)
---------- ---------- ---------- ---------- ------------
Increase (decrease) in cash and cash
equivalents............................ 302,436 (91,109) (240,673) 5,800 1,725,366
Cash and cash equivalents (checks issued
not yet presented for payment) at
beginning of period.................... -- 302,436 211,327 211,327 (29,346)
---------- ---------- ---------- ---------- ------------
Cash and cash equivalents (checks issued
not yet presented for payment) at end
of period.............................. $ 302,436 $ 211,327 $ (29,346) $ 217,127 $ 1,696,020
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid for interest................... $ 22,431 $ 296,363 $ 518,721 $ 429,654 $ 471,682
---------- ---------- ---------- ---------- ------------
---------- ---------- ---------- ---------- ------------
</TABLE>
See accompanying notes.
F-20
<PAGE>
FIBERSOUTH, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OF THE COMPANY
FiberSouth, Inc. (the "Company"), which began operations in 1994, provides
local telephone service, primarily to commercial customers located in the
southeastern United States.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid, short-term investments with a maturity
of three months or less when purchased to be cash equivalents.
INCOME TAXES
The Company has elected to be taxed for federal and state income tax
purposes as an S corporation under provisions of the Internal Revenue Code.
Consequently income, losses and credits are passed through directly to the
shareholders, rather than being taxed at the corporate level.
REVENUE RECOGNITION
Revenue for telecommunications services is recognized at the time services
are provided to customers.
EQUIPMENT, FURNITURE AND FIXTURES
Equipment, furniture and fixtures are stated on the basis of cost, which is
being amortized over the estimated useful lives of the assets principally by the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes.
OTHER ASSETS
Organization costs are capitalized and amortized ratably over sixty months.
Loan origination fees are capitalized and amortized over the term of the
related loan (60 months) using the straight line method.
Other assets consist of prepaid right-of-way fees to owners of property
where the Company has constructed cable lines. The fees are amortized ratably
over the life of the contract (ten years).
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which are unsecured. The
Company uses the allowance method of accounting for uncollectible accounts
receivable. As of December 31, 1996, the Company had no significant
concentrations of outstanding accounts receivable with individual customers.
RECLASSIFICATION
Certain amounts in the 1994 and 1995 financial statements have been
reclassified to conform to the 1996 presentation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The unaudited interim financial statements include all adjustments
(consisting of normal recurring adjustments) that are, in the opinion of
management, necessary for a fair presentation of the results of operations and
cash flows of the Company for the nine months ended September 30, 1996 and 1997.
Operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be achieved for the entire year. All
interim financial data presented is unaudited. The Company was acquired by BTI
Telecom Corp.,
F-21
<PAGE>
FIBERSOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
a related company, on September 22, 1997. The transaction was effective on
September 30, 1997. Accordingly, the results of operations of the company are
included herein from January 1, 1997 through the effective date of the
transaction.
2. LEASES
The Company rents its facilities and equipment under operating leases which
expire at various times through the year 2000. Future minimum lease payments
under the leases are as follows:
<TABLE>
<S> <C>
1997...................................... $ 92,342
1998...................................... 28,917
1999...................................... 21,733
2000...................................... 1,440
--------
$144,432
--------
--------
</TABLE>
Total rent expense was $43,333, $49,556 and $102,325 in 1994, 1995 and
1996, respectively.
3. LONG-TERM DEBT
At December 31, 1995 and 1996, the Company had long-term debt consisting of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Note payable to a bank, payable in monthly installments of $47,500 including interest
at 9.50% with remaining balance payable in full in November 1999.................... $2,474,092 $2,181,225
Note payable to a bank, payable in monthly installments of interest only at 10.00%
until February 1996 and monthly installments of $9,300 thereafter including interest
at 10.00% with remaining balance payable in full in January 2000.................... 500,000 447,568
Note payable to a bank, payable in monthly installments of interest only at 8.75%
until May 1996 and monthly installments of $25,240 thereafter, including interest at
8.75% with remaining balance payable in full in April 2000.......................... 1,405,000 1,299,676
Note payable to a bank, payable in monthly installments of $14,300 including interest
at 8.25% with remaining balance payable in full in January 2001..................... -- 603,231
Note payable to a bank, payable in monthly installments of $4,000 including interest
at 7.50% with remaining balance payable in full in February 2001.................... -- 174,881
Note payable to a bank, payable in monthly installments of $8,700 including interest
at 8.30% with remaining balance payable in full in March 2001....................... -- 378,455
Note payable to a bank, payable in monthly installments of $4,320 including interest
at 8.50% with remaining balance payable in full in August 2001...................... -- 201,612
---------- ----------
4,379,092 5,286,648
Less current portion.................................................................. 504,113 969,117
---------- ----------
$3,874,979 $4,317,531
---------- ----------
---------- ----------
</TABLE>
All notes payable described above are secured by the fixed assets of the
Company and an interest in a network lease agreement. The notes are also
personally guaranteed by a shareholder of the Company.
Following are maturities of long-term debt by year:
<TABLE>
<S> <C>
1997.................................... $ 969,117
1998.................................... 983,579
1999.................................... 2,049,432
2000.................................... 1,199,096
2001.................................... 85,424
----------
$5,286,648
----------
----------
</TABLE>
F-22
<PAGE>
FIBERSOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. LONG-TERM DEBT -- Continued
Interest expense was $35,625, $360,110 and $494,044 in 1994, 1995 and 1996,
respectively.
The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective current borrowing rate for debt with
similar terms and remaining maturities. Disclosure about fair value of financial
instruments is based upon information available to management as of December 31,
1996. Although management is not aware of any factors that would significantly
affect the fair value of amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date.
4. RELATED PARTY TRANSACTIONS
The Company has an agreement with BTI Telecom Corp., a company affiliated
with the Company through common ownership, whereby the Company provides local
telephone service to BTI for approximately $115,000 per month. This affiliate
accounted for 100%, 91% and 55% of the Company's total revenue in 1994, 1995 and
1996, respectively. Deferred revenue resulting from the contract was $75,000 and
$0 at December 31, 1995 and 1996, respectively. The agreement also stipulates
that the Company will pay two percent of monthly revenues to the affiliate for
provision of management services. The Company paid $12,000, $30,000 and $50,000
to this affiliate in 1994, 1995 and 1996, respectively, for management fees. The
Company also owed the affiliate $147,000 and $321,000 at December 31, 1995 and
1996, respectively for expenses incurred on behalf of the Company.
The Company also paid $100,000 in consulting fees to a shareholder in 1994.
5. SUBSEQUENT EVENT
On May 2, 1997, the Company obtained borrowings under a promissory note
from a bank for working capital purposes in the amount of $650,000 bearing
interest at prime plus one percent (8.25% at December 31, 1996). The note is
secured by the fixed assets of the Company and personally guaranteed by a
shareholder of the Company.
6. SALE OF ASSETS (UNAUDITED)
Effective September 30, 1997, all of the Company's operating assets were
sold to its affiliate, BTI Telecom Corp.
F-23
<PAGE>
PRO FORMA FINANCIAL DATA
The accompanying unaudited pro forma condensed statements of operations of
BTI Telecom Corp. (the "Company") for the year ended December 31, 1996 and the
nine months ended September 30, 1997 give effect to the following transactions
(collectively, the "Transactions"): (i) the amendment and restatement of the
existing credit agreement (the "Original Credit Facility") of Business Telecom,
Inc. ("BTI") (as amended, the "Credit Facility") and the repayment of all
indebtedness outstanding under the Original Credit Facility together with
accrued interest thereon (collectively the "BTI Refinancing"); (ii) the purchase
of the 50% interest in BTI (the "Share Repurchase") not held by Peter T. Loftin,
the Chairman and Chief Executive Officer of the Company, for approximately $28.5
million; (iii) the sale by the Company on September 22, 1997 of $250.0 million
aggregate principal amount of Senior Notes due 2007 (the "Notes") in a private
placement (the "Offering"); (iv) the merger of BTI with a wholly owned
subsidiary of the Company, pursuant to which BTI became a wholly owned
subsidiary of the Company and was converted from an S corporation to a C
corporation subject to federal and state income tax (the "Reorganization"); and
(v) the acquisition of substantially all of the assets of FiberSouth, Inc.
("FiberSouth") by BTI for $31.0 million and the repayment of $5.4 million of
FiberSouth's indebtedness in connection therewith (the "FiberSouth
Acquisition"). The unaudited pro forma condensed statements of operations have
been prepared to reflect the Transactions as if they were consummated at the
beginning of each period presented. No unaudited pro forma condensed balance
sheet of the Company has been presented because the Transactions were
consummated and recorded in the books and records of the Company as of September
30, 1997. The pro forma adjustments are based on the historical financial
statements of BTI and FiberSouth and the effect of the FiberSouth Acquisition
accounted for using the historical basis of the assets acquired under the
provisions of AIN #39 of APB No. 16 and giving effect to the Transactions under
the assumptions and adjustments described in the accompanying supplemental
notes. In the opinion of management, the pro forma financial information
provides all adjustments necessary to reflect the effects of the Transactions.
The pro forma information is not intended to be indicative of the actual
results that would have been achieved had the Transactions in fact been
consummated at the beginning of each period presented, nor does it purport to be
indicative of the future consolidated operating results of the Company. Such pro
forma financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto of BTI and FiberSouth included
elsewhere in this Prospectus.
F-24
<PAGE>
BTI TELECOM CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
BTI FIBERSOUTH
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue......................................... $148,780,816 $2,522,535 $ (1,380,000)(a) $149,746,351
(177,000)(b)
Cost of services................................ 90,820,467 960,383 (1,380,000)(a) 90,288,850
(112,000)(b)
------------ ---------- ------------ ------------
Gross profit.................................... 57,960,349 1,562,152 (65,000) 59,457,501
Selling, general and administrative expenses.... 53,791,036 969,778 (65,000)(b) 54,695,814
------------ ---------- ------------ ------------
Income from operations.......................... 4,169,313 592,374 -- 4,761,687
Interest expense, net......................... 1,695,324 481,824 27,245,000(c) 27,762,707
(1,659,441)(d)
Gain on sale of marketable securities......... 131,910 -- -- 131,910
------------ ---------- ------------ ------------
Net income (loss)............................... $ 2,605,899 $ 110,550 $(25,585,559)(e) $(22,869,110)
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</TABLE>
- ---------------
(a) Represents the elimination of revenue generated by FiberSouth for services
provided to BTI and the related reduction in cost of services for BTI.
(b) Represents the elimination of (i) $65,000 in salary expense, (ii) $50,000 in
management fees and (iii) $62,000 in long distance service charges, incurred
by FiberSouth and paid or payable to BTI and the related income generated by
BTI.
(c) Represents (i) the estimated additional interest expense of $26,250,000
related to the Notes, (ii) the amortization of $860,000 of debt issuance
costs relating to the Offering and (iii) the amortization of $135,000 of
financing fees related to the Credit Facility. Excludes interest expense on
any borrowings that may be made by the Company under the Credit Facility
prior to the consummation of the Reorganization and $3,742,360 of interest
income that would have been earned on the $74,093,277 of proceeds from the
Offering required to be placed in a pledged account to secure and fund the
first six scheduled interest payments (including .5% interest per annum in
the event that the exchange offer relating to the Notes is not consummated
within six months after the initial sale of the Notes) on the Notes. Under
the terms of the indenture relating to the Notes, the amounts placed in the
pledged account are required to be invested in U.S. government securities
which will secure the Notes.
(d) Represents the elimination of the $1,177,617 of interest expense of BTI
under the Original Credit Facility to be repaid in the BTI Refinancing and
the elimination of $481,824 of interest expense (including the amortization
of debt issuance costs) related to the indebtedness of FiberSouth to be
repaid in connection with the FiberSouth Acquisition.
(e) Net income (loss) does not include a pro forma adjustment for income taxes
due to the pro forma net loss position.
F-25
<PAGE>
BTI TELECOM CORP.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
BTI FIBERSOUTH
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue........................................... $145,145,510 $4,161,231 $ (1,035,000)(a) $146,988,741
(1,283,000)(b)
Cost of services.................................. 101,238,476 2,869,095 (1,035,000)(a) 101,870,571
(1,202,000)(b)
------------ ---------- ------------ ------------
Gross profit...................................... 43,907,034 1,292,136 (81,000) 45,118,170
Selling, general and administrative expenses...... 43,753,394 1,098,552 (81,000)(b) 44,770,946
------------ ---------- ------------ ------------
Income from operations............................ 153,640 193,584 -- 347,224
Interest expense, net........................... 2,108,730 471,682 20,433,750(c) 21,339,675
(1,674,487)(d)
Income taxes.................................... 2,210,000 -- --(e) 2,210,000
------------ ---------- ------------ ------------
Net loss.......................................... $ (4,165,090) $ (278,098) $(18,759,263) $(23,202,451)
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</TABLE>
- ---------------
(a) Represents the elimination of revenue generated by FiberSouth for services
provided to BTI and the related reduction in cost of services for BTI.
(b) Represents the elimination of (i) $81,000 in salary expense, (ii) $83,000 in
management fees and (iii) $1,119,000 in long distance service charges,
incurred by FiberSouth and paid or payable to BTI and the related income
generated by BTI.
(c) Represents (i) the interest expense of $19,687,500 related to the Notes,
(ii) the amortization of $645,000 of debt issuance costs relating to the
Offering and (iii) the amortization of $101,250 of financing fees related to
the Credit Facility. Excludes interest expense on any borrowings that may be
made by the Company under the Credit Facility prior to the consummation of
the Reorganization and the $2,806,770 of interest income that would have
been earned on the $74,093,277 of proceeds from the Offering required to be
placed in a pledged account to secure and fund the first six scheduled
interest payments (including .5% interest per annum in the event that the
exchange offer relating to the Notes is not consummated within six months
after the initial sale of the Notes) on the Notes. Under the terms of the
indenture relating to the Notes, the amounts placed in the pledged account
are required to be invested in U.S. government securities which will secure
the Notes.
(d) Represents the elimination of the $1,310,005 of interest expense related to
the debt of BTI under the Original Credit Facility to be repaid in the BTI
Refinancing and the elimination of $364,482 of interest expense (including
the amortization of debt issuance costs) related to the indebtedness of
FiberSouth to be repaid in connection with the FiberSouth Acquisition.
(e) Pro forma net loss for the nine months ended September 30, 1997 does not
include an adjustment for income taxes due to the pro forma net loss.
F-26
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation and Bylaws include provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the fullest extent permitted
by Section 55-8-30(e) of the North Carolina Business Corporation Act (the "North
Carolina Law"), and (ii) require the Registrant to indemnify its directors and
officers to the fullest extent permitted by Sections 55-8-50 through 55-8-58 of
the North Carolina Law, including circumstances in which indemnification is
otherwise discretionary. Pursuant to Sections 55-8-51 and 55-8-57 of the North
Carolina Law, a corporation generally has the power to indemnify its present and
former directors, officers, employees and agents against expenses incurred by
them in connection with any suit to which they are, or are threatened to be
made, a party by reason of their serving in such positions so long as they acted
in good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interests of the corporation, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful. The
Registrant believes that these provisions are necessary to attract and retain
qualified persons as directors and officers. These provisions do not eliminate
the directors' duty of care, and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under North Carolina Law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for acts or omissions that the director
believes to be contrary to the best interests of the Registrant or its
shareholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Registrant or its shareholders when the director was
aware or should have been aware of a risk of serious injury to the Registrant or
its shareholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the
Registrant or its shareholders, for improper transactions between the director
and the Registrant and for improper distributions to shareholders and loans to
directors and officers. These provisions do not affect a director's
responsibilities under any other laws, such as the federal securities laws or
state or federal environmental laws.
The Registrant's Bylaws require the Registrant to indemnify in directors
and officers against expenses, judgments, fines, settlement and other amounts
actually and reasonably incurred (including expenses of a derivative action) in
connection with any proceeding, whether actual or threatened, to which any such
person may be made a party by reason of the fact that such person is or was a
director or officer of the Registrant or any of its affiliated enterprises,
provided such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interest of the Registrant and,
with respect to any criminal proceeding, had no reasonable cause to believe his
or her conduct was unlawful. The Registrant's Bylaws also set forth certain
procedures that will apply in the event of a claim for indemnification
thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Placement Agreement filed as Exhibit 1.1 to this Registration Statement
provides for indemnification by the Placement Agents of the Registrant and its
directors and officers, and by the Registrant of the Placement Agents, for
certain liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"), or otherwise.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
1.1 Placement Agreement dated September 17, 1997, among BTI Telecom Corp., Business Telecom, Inc.,
and Morgan Stanley & Co. Incorporated and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated.
2.1 Agreement and Plan of Merger dated as of September 17, 1997, among Business Telecom, Inc., BTI
Telecom Corp., and BTI OpCo Inc.
2.2 Asset Purchase Agreement dated September 17, 1997, between FiberSouth, Inc. and Business
Telecom, Inc.
3.1 Articles of Incorporation of BTI Telecom Corp.
3.2 Bylaws of BTI Telecom Corp.
4.1 Indenture dated as of September 22, 1997, among BTI Telecom Corp., Business Telecom, Inc. and
First Trust of New York, National Association, as Trustee, relating to the 10 1/2% Senior
Notes due 2007 of BTI Telecom Corp.
4.2 Registration Rights Agreement dated September 22, 1997, between BTI Telecom Corp. and Morgan
Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
4.3 Pledge and Security Agreement dated as of September 22, 1997, from BTI Telecom Corp., as
Pledgor, and Business Telecom, Inc., as Guarantor, To First Trust of New York, National
Association, as Trustee.
5.1 Opinion of Wyrick Robbins Yates & Ponton LLP.
8.1 Tax Opinion of Wyrick Robbins Yates & Ponton LLP.
10.1 1994 Stock Plan.
10.2 1997 Stock Plan.
10.3 Second Amended and Restated Loan Agreement dated September 22, 1997, between Business Telecom,
Inc. and General Electric Capital Corporation and the other financial institutions party
thereto from time to time as Lenders and General Electric Capital Corporation as Agent.
10.4 Future Advance Promissory Note, dated June 30, 1997, made by ComSouth Cable International,
Inc. in favor of Business Telecom, Inc.
10.5 Subordinated Promissory Note, dated August 31, 1997, made by Business Telecom, Inc. in favor
of Peter T. Loftin.
10.6 Employment Letter Agreement, dated March 20, 1997 and March 26, 1997, between FiberSouth, Inc.
and H.A. (Butch) Charlton.
10.7 Interconnection Agreement, dated November 5, 1997, between Business Telecom, Inc. and
BellSouth Telecommunications, Inc.
10.8 Lease, dated May 13, 1994, between RBC Corporation and Business Telecom, Inc., as amended
March 1, 1995, November 30, 1995 and May 15, 1997.
11.1 Computation of Earnings Per Common Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 Subsidiaries of BTI Telecom Corp.
23.1 Consent of Ernst & Young LLP.
23.2 Consents of Wyrick Robbins Yates & Ponton LLP (contained in Exhibits 5.1 and 8.1).
24.1 Power of Attorney (see page II-4).
25.1 Statement of Eligibility of Trustee.
27.1 Financial Data Schedule for the Year Ended December 31, 1996 and the Nine Months Ended
September 30, 1997.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
(b) FINANCIAL STATEMENT SCHEDULES.
No schedules have been included because the information required to be set
forth therein is disclosed in the financial statements or is not applicable.
II-2
<PAGE>
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; 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-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on December 5, 1997.
BTI TELECOM CORP.
By: /s/______PETER T. LOFTIN_______
PETER T. LOFTIN
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Peter T.
Loftin and Brian K. Branson, and each of them, his true and lawful
attorney-in-fact and agent, with full powers of substitution, for him and his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
related Registration Statements filed pursuant to Rule 462(b) promulgated under
the Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof. Pursuant to the requirements
of the Securities Act of 1933, this Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------------------------ ------------------------------- ------------------
<S> <C> <C>
/s/ PETER T. LOFTIN Chairman, Chief Executive December 5, 1997
PETER T. LOFTIN Officer and Director
(Principal Executive Officer)
/s/ R. MICHAEL NEWKIRK President, Chief Operating December 5, 1997
R. MICHAEL NEWKIRK Officer and Director
/s/ BRIAN K. BRANSON Chief Financial Officer, December 5, 1997
BRIAN K. BRANSON Treasurer and Director
(Principal Financial and
Accounting Officer)
</TABLE>
II-4
BTI TELECOM CORP.
PLACEMENT AGREEMENT
September 17, 1997
Morgan Stanley & Co. Incorporated
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036-8293
Ladies and Gentlemen:
BTI Telecom Corp., a North Carolina corporation (the
"Company"), proposes to issue and sell to Morgan Stanley & Co. Incorporated and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
(collectively, the "Placement Agents") $250,000,000 principal amount of its 10
1/2% Senior Notes due 2007 (the "Notes") to be issued pursuant to the provisions
of an Indenture dated as of September 22, 1997 (the "Indenture") between the
Company, Business Telecom, Inc., a North Carolina corporation ("BTI") and First
Trust of New York, National Association, as Trustee (the "Trustee"). In
connection with the sale of the Notes, BTI will merge with a wholly owned
subsidiary of the Company, pursuant to which BTI will become a wholly owned
subsidiary of the Company (the "Reorganization"). In addition, as soon as
practicable following the consummation of the Reorganization, BTI will acquire
substantially all of the assets of FiberSouth, Inc. (the "FiberSouth
Acquisition"). Capitalized terms used herein but not defined have the meanings
specified therefor in the Final Memorandum (as defined below).
The net proceeds from the issuance of the Notes will be held
by the Trustee pursuant to a pledge and security agreement to be dated as of the
Closing Date (as defined below) and to be substantially in the form attached
hereto as Exhibit A, with such revisions
<PAGE>
2
as shall be reasonably satisfactory to the Placement Agents, the Company and BTI
(the "Pledge and Security Agreement"). In the event the Reorganization is not
consummated by December 31, 1997, the Company will be required to consummate a
Special Redemption. In connection with the consummation of the Reorganization,
the Trustee will release Collateral (as defined in the Pledge and Security
Agreement) such that the amount of funds remaining subject to the Pledge and
Security Agreement would equal an amount sufficient to purchase a sufficient
amount of Pledged Securities to provide for the first six scheduled interest
payments due on the Notes. In addition, a portion of the remaining proceeds will
continue to be held by the Trustee and secure the Notes until the consummation
of the FiberSouth Acquisition. In the event the FiberSouth Acquisition is not
consummated by December 31, 1997, the Company will be required to consummate a
Special Repurchase Offer.
The Notes will be offered, without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), only to qualified
institutional buyers in compliance with the exemption from registration provided
by Rule 144A under the Securities Act, in offshore transactions in reliance on
Regulation S under the Securities Act ("Regulation S") and to institutional
accredited investors as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act ("institutional accredited investor") that deliver a letter in
the form annexed to the Final Memorandum (as defined below).
The Placement Agents and their direct and indirect transferees
will be entitled to the benefits of a Registration Rights Agreement, dated the
Closing Date, substantially in the form attached hereto as Exhibit B.
In connection with the sale of the Notes, the Company and BTI
have prepared a preliminary private placement memorandum (the "Preliminary
Memorandum") and will prepare a final private placement memorandum (the "Final
Memorandum" and, with the Preliminary Memorandum, each a "Memorandum") setting
forth or including a description the Transactions, the terms of the Notes, the
terms of the offering and a description of the Company and BTI and their
business.
1. Representations and Warranties. The Company and BTI each
represents and warrants to, and agrees with, you that as of the date hereof:
(a) The Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Placement Agents to be used to confirm sales
and on the Closing Date, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this Section 1(a) do
not apply to statements or omissions in either Memorandum based upon and in
conformity with information relating to any Placement Agent furnished to the
Company in writing by such Placement Agent expressly for use therein.
<PAGE>
3
(b) It has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of North Carolina, has
the corporate power and authority to own its property and to conduct its
business as described in each Memorandum and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and BTI,
taken as a whole.
(c) It has no direct or indirect subsidiaries.
(d) This Agreement has been duly authorized, executed and
delivered by it.
(e) The Notes have been duly authorized and, when executed,
authenticated in accordance with the terms of the Indenture and delivered to and
paid for by the Placement Agents in accordance with the terms of this Agreement,
will (x) be valid and binding obligations of the Company enforceable in
accordance with their terms, except as (A) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (B) rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles of general
applicability and (y) be entitled to the benefits of the Indenture, Registration
Rights Agreement and the Pledge Agreement.
(f) The Indenture has been duly authorized and, when executed
and delivered by it, will be a valid and binding agreement enforceable against
it in accordance with its terms except as (x) the enforceability against it
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (y) rights of acceleration, if applicable, and
the availability of equitable remedies may be limited by equitable principles of
general applicability.
(g) The Registration Rights Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
it, enforceable in accordance with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally, (y) the availability of equitable remedies may be
limited by equitable principles of general applicability and (z) the rights to
indemnification and contribution thereunder may be limited by public policy.
(h) The Pledge Agreement has been duly authorized and, when
executed and delivered by it, will be a valid and binding agreement of it,
enforceable in accordance with its terms except as (x) the enforceability
thereof may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (y) the availability of equitable remedies may
be limited by equitable principles of general applicability.
<PAGE>
4
(i) Upon the delivery to the Trustee of the certificates or
instruments, if any, representing the Pledged Securities (as defined in the
Final Memorandum), the pledge of and grant of a security interest in the Pledged
Securities for the benefit of the Trustee and the holders of the Notes will
constitute a first priority security interest in the Pledged Securities,
enforceable as against all creditors of the Company (and any persons purporting
to purchase any of the Pledged Securities from the Company).
(j) The execution and delivery by it of, and the performance
by it of its obligations under, this Agreement, the Indenture, the Registration
Rights Agreement, the Pledge Agreement and the Notes (collectively, the
"Documents"), and the issuance, sale and delivery of the Notes, will not
contravene any provision of applicable law or the Articles of Incorporation or
By-laws of it or any agreement or other instrument binding upon it or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over it, and no permit, license, consent, approval, authorization
or order of, or filing, declaration or qualification with, any governmental body
or agency is required for the performance by it of its obligations under the
Documents, except (i) such as may be required by the securities or Blue Sky laws
of the various states in connection with the offer and sale of the Notes and
(ii) such as are required to be obtained after the date hereof and specifically
set forth in the Documents.
(k) The consummation of the Share Repurchase, the BTI
Refinancing, the Reorganization and the FiberSouth Acquisition (collectively,
the "Transactions") will not contravene any provision of applicable law or the
Articles of Incorporation or By-laws of it or any agreement or other instrument
binding upon it or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over it, and no permit, license, consent,
approval, authorization or order of, or filing, declaration or qualification
with, any governmental body or agency is required for the consummation by it of
the Transactions, except for (i) the consents and approvals required by the
Federal Communications Commission (the "FCC") and any other federal governmental
authority or agency and (ii) the consents and approvals required by the state
public utility commission of North Carolina, in each case with respect to the
consummation of the Reorganization and the FiberSouth Acquisition.
(l) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company, BTI or FiberSouth, from that set forth in the Preliminary Memorandum.
Furthermore, except in each case as described in the Final Memorandum, (i)
neither the Company, BTI or FiberSouth has incurred any material liability or
obligation, direct or contingent, nor entered into any material transaction not
in the ordinary course of business; (ii) neither the Company, BTI or FiberSouth
has purchased any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its capital stock,
except for (x) the
<PAGE>
5
cancellation of 611 options to buy shares of capital stock of BTI from Kim
Chapman, and (y) the repurchase of 36,668 shares of capital stock of BTI from
A.B. Andrews pursuant to the Share Repurchase; and (iii) since the date of the
Preliminary Offering Memorandum, there has not been any material change in the
capital stock, short-term debt or long-term debt of the Company or BTI.
(m) There are no legal or governmental proceedings pending or,
to the Company's knowledge, threatened to which the Company, BTI or FiberSouth
is a party or to which any of the properties of the Company, BTI or FiberSouth
is subject other than proceedings accurately described in all material respects
in each Memorandum and proceedings that would not have a material adverse effect
on the Company and BTI, taken as a whole, or on the power or ability of the
Company or BTI to perform its obligations under the Documents or to consummate
the transactions contemplated by the Final Memorandum.
(n) Neither the Company nor any affiliate (as defined in Rule
501(b) of Regulation D under the Securities Act, an "Affiliate") of the Company
has directly, or through any agent, (i) sold, offered for sale, solicited offers
to buy or otherwise negotiated in respect of, any security (as defined in the
Securities Act) which is or will be integrated with the sale of the Notes in a
manner that would require the registration under the Securities Act of the Notes
or (ii) engaged in any form of general solicitation or general advertising in
connection with the offering of the Notes (as those terms are used in Regulation
D under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(o) The Company is not, and after giving effect to the
offering and sale of the Notes and the application of the proceeds thereof as
described in the Final Memorandum, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(p) It is not necessary in connection with the offer, sale and
delivery of the Notes to the Placement Agents in the manner contemplated by this
Agreement to register the Notes under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended.
(q) The Company, BTI and FiberSouth (i) are in compliance with
any and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants, including
all such laws and regulations concerning electromagnetic radio frequency
emissions ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with
<PAGE>
6
Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a material
adverse effect on the Company and BTI, taken as a whole.
(r) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on the Company
and BTI, taken as a whole.
(s) None of the Company, its Affiliates or any person acting
on its or their behalf (other than the Placement Agents) has engaged in any
directed selling efforts (as that term is defined in Regulation S with respect
to the Notes and the Company and its Affiliates and any person acting on its or
their behalf (other than the Placement Agents) have complied with the offering
restrictions requirement of Regulation S.
(t) The Company, BTI and FiberSouth (i) have all necessary
licenses, consents, authorizations, approvals, orders, certificates and permits
of and from, and have made all declarations and filings with, all federal,
state, local and other governmental, administrative and regulatory authorities,
all self-regulatory organizations and all courts and other tribunals, to own,
lease, license and use its properties and assets and to conduct its business in
the manner described in each Memorandum, except to the extent that the failure
to obtain such licenses, consents, authorizations, approvals, orders,
certificates and permits or make such declarations and filings would not have a
material adverse effect on the Company and BTI, taken as a whole and (ii) have
not received any notice of proceedings relating to revocation or modification of
any such license, consent, authorization, approval, order, certificate or permit
which, singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or in the earnings, business or
operations of the Company and BTI, taken as a whole, except with respect to each
of (i) and (ii) as described in or contemplated by each Memorandum.
(u) Each of the Company, BTI and FiberSouth maintains a system
of internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
<PAGE>
7
(v) Each of the Company, BTI and FiberSouth has good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by it which is material to its business in
each case free and clear of all liens, encumbrances and defects, except such as
are described in each Memorandum and such other liens as do not materially
affect the value of such property and do not materially interfere with the use
made and proposed to be made of such property by it; and any real property and
buildings held under lease by it are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by it, in each case except as described in or contemplated by each
Memorandum.
(w) Each of the Company, BTI and FiberSouth owns or possesses,
or believes that it can acquire on reasonable terms, all material patents,
patent rights, licenses, inventions, copyrights, know-how (including trade
secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and trade names
currently employed by them in connection with the business now operated by it,
and neither the Company, BTI or FiberSouth has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in any material adverse
change in the condition, financial or otherwise, or in the earnings, business or
operations of the Company and BTI, taken as a whole.
(x) No material labor dispute with the employees of the
Company, BTI or FiberSouth exists or, to the knowledge of it, is imminent; and
the Company and BTI are not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal suppliers, manufacturers or
contractors that could result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of the
Company and BTI, taken as a whole.
(y) Each of the Company, BTI and FiberSouth is insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are customary in the businesses in which it is engaged;
and neither the Company, BTI or FiberSouth has any reason to believe that it
will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and BTI, taken as a whole, except as
described in or contemplated by each Memorandum.
(z) All licenses issued by the FCC required for the operation
of the business of the Company, BTI and FiberSouth (the "FCC Licenses") are in
full force and effect and there are no pending modifications, amendments or
revocation proceedings which
<PAGE>
8
would adversely affect the operations of the Company, BTI or FiberSouth. All
fees due and payable to governmental authorities pursuant to the rules governing
FCC Licenses have been paid and no event has occurred with respect to the FCC
Licenses held by the Company, BTI or FiberSouth which, with the giving of notice
or the lapse of time or both, would constitute grounds for revocation thereof.
Each of the Company, BTI and FiberSouth is in compliance in all material
respects with the terms of the FCC Licenses, as applicable, and there is no
condition, event or occurrence existing, nor is there any proceeding being
conducted of which the Company, BTI or FiberSouth has received notice, nor, to
the Company's or BTI's knowledge, is there any proceeding threatened, by any
governmental authority, which would cause the termination, suspension,
cancellation or nonrenewal of any of the FCC Licenses, or the imposition of any
penalty or fine by any regulatory authority. No registrations, filings,
applications, notices, transfers, consents, approvals, audits, qualifications,
waivers or other action of any kind is required by virtue of the execution and
delivery of the Documents or of the consummation of the transactions
contemplated hereby, other than as previously obtained from the FCC (a) to avoid
the loss of any such license, permit, consent, concession or other authorization
or any asset, property or right pursuant to the terms thereof, or the violation
or breach of any applicable law thereto or (b) to enable the Company, BTI or
FiberSouth to hold and enjoy the same after the Closing Date (as defined herein)
in the conduct of its business as conducted prior to the Closing Date, except,
in each case, for registrations, filings, applications, notices, transfers,
consents, approvals, audits, qualifications, waivers or other actions with
respect to the consummation of the Reorganization and the FiberSouth
Acquisition, as applicable.
(aa) Each of the Company, BTI and FiberSouth is solvent and
has tangible and intangible assets having a fair value in excess of the amount
required to pay its probable liabilities on its existing debts as they become
absolute and matured, and has access to adequate capital for the conduct of its
business and the ability to pay its debts from time to time incurred in
connection therewith as such debts mature. Neither the Company, BTI or
FiberSouth is contemplating either the filing of a petition by it under any
state or federal bankruptcy or insolvency laws or the liquidating of all or a
substantial portion of its property, and neither the Company, BTI or FiberSouth
has any knowledge of any person contemplating the filing of any such petition
against it.
2. Offering. You have advised the Company that the Placement
Agents will make an offering of the Notes purchased by the Placement Agents
hereunder on the terms set forth in the Final Memorandum as soon as practicable
after this Agreement is entered into as in your judgment is advisable.
3. Purchase and Delivery. The Company, upon the basis of the
representations and warranties of the Placement Agents herein contained, hereby
agrees to sell to the Placement Agents, and the Placement Agents, upon the basis
of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agree,
<PAGE>
9
severally and not jointly, to purchase from the Company the respective principal
amount of Notes set forth in Schedule I hereto opposite their names at a
purchase price of 97.25% of the principal amount thereof plus accrued interest,
if any, from September 22, 1997 to the date of payment and delivery.
Payment for the Notes shall be made against delivery of the
Notes at a closing (the "Closing") to be held at the office of Shearman &
Sterling, 599 Lexington Avenue, New York, New York, at 9:00 A.M., local time, on
September 22, 1997, or at such other time on the same or such other date, not
later than October 6, 1997, as shall be designated in writing by you. The time
and date of such payment are herein referred to as the Closing Date. Payment for
the Notes shall be made to the Company (which will immediately deposit such
proceeds with the Trustee pursuant to the Pledge Agreement) in federal funds or
other funds immediately available in New York City.
Certificates for the Notes shall be in definitive form and
registered in such names and in such denominations as you shall request in
writing not less than one full business day prior to the Closing Date. The
certificates evidencing the Notes shall be delivered to you on the Closing Date
for the respective accounts of the Placement Agents, with any transfer taxes
payable in connection with the transfer of the Notes to the Placement Agents
duly paid, against payment of the purchase price therefor.
4. Conditions to Closing. The several obligations of the
Placement Agents under this Agreement to purchase the Notes will be subject to
the following conditions:
(a) Subsequent to the date of this Agreement and prior to the
Closing Date,
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial
or otherwise, or in the earnings, business or operations, of the
Company and BTI, taken as a whole, from that set forth in the
Preliminary Memorandum that, in your judgment, is material and adverse
and that makes it, in your judgment, impracticable to market the Notes
on the terms and in the manner contemplated in the Final Memorandum.
<PAGE>
10
(b) You shall have received on the Closing Date a certificate,
dated the Closing Date and signed by an executive officer of the Company and
BTI, to the effect set forth in clause (a)(i) above and to the effect that the
representations and warranties of the Company and BTI contained in this
Agreement are true and correct as of the Closing Date and that the Company and
BTI each has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied on or before the Closing
Date.
The officer signing and delivering such certificate may rely
upon the best of his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of
Wyrick Robbins Yates & Ponton LLP, counsel for the Company and BTI, dated the
Closing Date, in the form attached hereto as Exhibit C.
(d) You shall have received on the Closing Date an opinion of
Swidler & Berlin Chartered, regulatory counsel for the Company, dated the
Closing Date, in the form attached hereto as Exhibit D.
The opinions of Wyrick Robbins Yates & Ponton LLP and Swidler
& Berlin Chartered shall be rendered to you at the request of the Company and
BTI and shall so state therein.
(e) You shall have received on the Closing Date an opinion of
Shearman & Sterling, counsel for the Placement Agents, dated the Closing Date,
in form and substance satisfactory to you.
(f) You shall have received on each of the date hereof and the
Closing Date a letter, dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from Ernst & Young LLP, the
Company's and BTI's independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in or incorporated by reference into the Final Memorandum.
(g) The Company and BTI shall have entered into the Credit
Facility in substantially the form contemplated by the Final Memorandum and
there shall be no default or event of default under the Credit Facility or the
existence of any event which with notice or lapse of time, or both, would
constitute a default or event of default under the Credit Facility.
(h) The Company shall have consummated the Share Repurchase as
described in the Final Memorandum.
<PAGE>
11
(i) You shall have received such other certificates and
documents as you or your counsel may reasonably request.
5. Covenants of the Company. In further consideration of the
agreements of the Placement Agents contained in this Agreement, the Company
covenants as follows:
(a) To furnish to you, without charge, during the period
mentioned in paragraph (c) below, as many copies of the Final
Memorandum and any supplements or amendments thereto as you may
reasonably request and to use its best efforts to deliver such copies
to you by 5:00 p.m. (New York time) on the business day following the
date of this Agreement.
(b) Before amending or supplementing either Memorandum, to
furnish to you a copy of each such proposed amendment or supplement and
not to use any such proposed amendment or supplement to which you
reasonably object within a reasonable time.
(c) If, during such period after the date hereof and prior to
the date on which all of the Notes shall have been sold by the
Placement Agents, any event shall occur or condition exist as a result
of which it is necessary in your judgment to amend or supplement the
Final Memorandum in order to make the statements therein, in the light
of the circumstances when such Memorandum is delivered to a purchaser,
not misleading, or if, in the opinion of counsel to the Placement
Agents it is necessary to amend or supplement such Memorandum to comply
with applicable law, forthwith to prepare and furnish, at its own
expense, to the Placement Agents, either amendments or supplements to
such Memorandum so that the statements in such Memorandum as so amended
or supplemented will not, in the light of the circumstances when such
Memorandum is delivered to a purchaser, be misleading or so that such
Memorandum, as so amended or supplemented, will comply with applicable
law.
(d) To endeavor to qualify the Notes for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) Whether or not any sale of such Notes is consummated or
this Agreement is terminated, to pay or cause to be paid all costs and
expenses incident to the performance of its obligations under this
Agreement, including: (i) the preparation of each Memorandum and all
amendments and supplements thereto, (ii) the transfer and delivery of
the Notes to the Placement Agents, including any transfer or other
taxes payable thereon, (iii) the preparation, issuance and delivery of
the Notes, (iv) the fees, disbursements and expenses of the Company's
counsel and
<PAGE>
12
accountants and the Trustee and its counsel, (v) the qualification of
such Notes under securities or Blue Sky laws in accordance with the
provisions of Section 5(d), including filing fees and the reasonable
fees and disbursements of counsel for the Placement Agents in
connection therewith and in connection with the preparation of any Blue
Sky or legal investment memoranda, (vi) the printing and delivery to
the Placement Agents in quantities as hereinabove stated of copies of
the Memorandum and any amendments or supplements thereto, (vii) any
fees charged by rating agencies for the rating of such Notes, (viii)
all document production charges and reasonable expenses of counsel to
the Placement Agents (but not including their fees for professional
services) in connection with the preparation of this Agreement, (ix)
the fees and expenses, if any, incurred in connection with the
admission of such Notes for trading in PORTAL or any other appropriate
market system, (x) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with
the marketing of the Notes, including, without limitation, expenses
associated with the production of road show slides and graphics, fees
and expenses of any consultants engaged in connection with the road
show presentations with the prior approval of the Company, travel and
lodging expense of the representatives and officers of the Company and
any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (xi) all other costs and expenses
incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section.
(f) Neither the Company nor any Affiliate will sell, offer for
sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) which could be integrated
with the sale of the Notes in a manner which would require the
registration under the Securities Act of such Notes.
(g) Not to solicit any offer to buy or offer or sell the Notes
by means of any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act) or in
any manner involving a public offering within the meaning of Section
4(2) of the Securities Act.
(h) While any of the Notes remain outstanding, to make
available, upon request, to any seller of such Notes the information
specified in Rule 144A(d)(4) under the Securities Act, unless the
Company is then subject to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(i) None of the Company, its Affiliates or any person acting
on its or their behalf (other than the Placement Agents) will engage in
any directed selling efforts (as that term is defined in Regulation S)
with respect to the Notes, and the Company and its Affiliates and each
person acting on its or their behalf (other than the Placement Agents)
will comply with the offering restrictions of Regulation S.
<PAGE>
13
(j) To use its best efforts to permit the Notes to be
designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers,
Inc. relating to trading in the PORTAL Market.
(k) It will, and will cause the Trustee to, refuse to register
any transfer of Notes sold pursuant to Regulation S if such transfer is
not made in accordance with the provisions of Regulation S and the
Indenture.
(l) To use the net proceeds received by it from the sale of
the Notes pursuant to this Agreement in the manner specified and to the
extent set forth in the Final Memorandum under the caption "Use of
Proceeds."
(m) To use its best efforts to have the Notes listed on the
Luxembourg Stock Exchange.
(n) To use its best efforts to add two independent directors
to its board of directors within 6 months of the Closing Date.
6. Offering of Notes; Restrictions on Transfer. (a) Each
Placement Agent, severally and not jointly, represents and warrants that such
Placement Agent is a qualified institutional buyer as defined in Rule 144A under
the Securities Act (a "QIB"). Each Placement Agent, severally and not jointly,
agrees with the Company that (i) it will not solicit offers for, or offer or
sell, such Notes by any form of general solicitation or general advertising (as
those terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the Securities
Act and (ii) it will solicit offers for such Notes only from, and will offer
such Notes only to, persons that it reasonably believes to be (A) in the case of
offers inside the United States, (x) QIBs or (y) other institutional accredited
investors (as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities
Act) that, prior to their purchase of the Notes, deliver to such Placement Agent
a letter containing the representations and agreements set forth in Appendix A
to the Memorandum and (B) in the case of offers outside the United States, to
persons other than U.S. persons ("foreign purchasers," which term shall include
dealers or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an estate or
trust)) that, in each case, in purchasing such Notes are deemed to have
represented and agreed as provided in the Final Memorandum under the caption
"Transfer Restrictions."
(b) Each Placement Agent, severally and not jointly,
represents, warrants, and agrees with respect to offers and sales outside the
United States that:
(i) it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public offering of
the Notes, or
<PAGE>
14
possession or distribution of either Memorandum or any other offering
or publicity material relating to the Notes, in any country or
jurisdiction where action for that purpose is required;
(ii) such Placement Agent will comply with all applicable laws
and regulations in each jurisdiction in which it acquires, offers,
sells or delivers Notes or has in its possession or distributes either
Memorandum or any such other material, in all cases at its own expense;
(iii) the Notes have not been and will not be registered under
the Securities Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the Securities Act or pursuant to an
exemption from the registration requirements of the Securities Act;
(iv) such Placement Agent has offered the Notes and will offer
and sell the Notes (A) as part of their distribution at any time and
(B) otherwise until 40 days after the later of the commencement of the
offering of the Notes and the Closing Date, only in accordance with
Rule 903 of Regulation S or another exemption from the registration
requirements of the Securities Act. Accordingly, neither such Placement
Agent, its Affiliates nor any persons acting on its or their behalf
have engaged or will engage in any directed selling efforts (within the
meaning of Regulation S) with respect to the Notes, and any such
Placement Agent, its Affiliates and any such persons have complied and
will comply with the offering restrictions requirements of Regulation
S;
(v) such Placement Agent has (A) not offered or sold and,
during the period of six months from the Closing Date, will not offer
or sell any Notes to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted
and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995;
(B) complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the Notes in, from or otherwise involving the United
Kingdom; and (C) only issued or passed on and will only issue or pass
on to any person in the United Kingdom any document received by it in
connection with the issue of the Notes if that person is of a kind
described in Article 11(3) of the Financial Services Act 1986
(Investment Advertisements) (Exemptions) Order 1996 or is a person to
whom such document may otherwise lawfully be issued or passed on;
<PAGE>
15
(vi) without limiting the generality of Sections (b)(i) or (ii)
above, such Placement Agent understands that the Notes have not been
and will not be registered under the Securities and Exchange Law of
Japan, and represents that it has not offered or sold, and agrees that
it will not offer or sell, any Notes, directly or indirectly in Japan
or to any resident of Japan except (A) pursuant to an exemption from
the registration requirements of the Securities and Exchange Law of
Japan and (B) in compliance with any other applicable requirements of
Japanese law; and
(vii) such Placement Agent agrees that, at or prior to
confirmation of sales of the Notes, it will have sent to each
distributor, dealer or person receiving a selling concession, fee or
other remuneration that purchases Notes from it during the restricted
period a confirmation or notice to substantially the following effect:
"The Notes covered hereby have not been registered under the U.S.
Securities Act of 1933 (the "Securities Act") and may not be offered
and sold within the United States or to, or for the account or benefit
of, U.S. persons (i) as part of their distribution at any time or (ii)
otherwise until 40 days after the closing date, except in either case
in accordance with Regulation S (or Rule 144A, if available) under the
Securities Act. Terms used above have the meaning given to them by
Regulation S."
Terms used in this Section 6 have the meanings given to them by Regulation S.
7. Indemnification and Contribution. (a) The Company and BTI
each agrees to indemnify and hold harmless each Placement Agent, and each
person, if any, who controls such Placement Agent within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, or is under
common control with, or is controlled by, such Placement Agent, from and against
any and all losses, claims, damages and liabilities, as incurred (including,
without limitation, any legal or other expenses reasonably incurred by any
Placement Agent or any such controlling of affiliated person in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in either
Memorandum (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a material fact necessary to make the statements
therein in light of the circumstances under which they were made not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission based
upon information relating to any Placement Agent furnished to the Company in
writing by such Placement Agent expressly for use therein; provided, however,
that the foregoing indemnity shall not inure to the benefit of any Placement
Agent to the extent that any such losses, claims, damages or liabilities result
from the fact that such Placement Agent sold securities to a person to whom
there was not sent or given by or on behalf of such Placement Agent a copy of
the Final Memorandum at or prior to the written confirmation of the sale of the
<PAGE>
16
Notes to such person, and if the losses, claims, damages or liabilities result
from an untrue statement or alleged untrue statement or an omission or alleged
omission contained in the Preliminary Memorandum that was corrected in the Final
Memorandum.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless the Company and BTI, its respective directors, its
respective officers and each person, if any, who controls the Company and BTI
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
and BTI to such Placement Agent, but only with reference to information relating
to such Placement Agent furnished to the Company in writing by such Placement
Agent through you expressly for use in either Memorandum or any amendments or
supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or (b) above, such
person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all such indemnified parties and that all
such fees and expenses shall be reimbursed as they are incurred. Such firm shall
be designated in writing by Morgan Stanley & Co. Incorporated in the case of
parties indemnified pursuant to paragraph (a) above and by the Company in the
case of parties indemnified pursuant to paragraph (b) above. The indemnifying
party shall not be liable for any settlement of any proceeding effected without
its written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than
<PAGE>
17
30 days after receipt by such indemnifying party of the aforesaid request and
(ii) such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in
paragraph (a) or (b) of this Section 7 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and BTI, on the one hand, and the Placement
Agents, on the other hand, from the offering of such Notes or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
BTI on the one hand and the Placement Agents on the other hand in connection
with the statements or omissions that resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company and BTI on the one hand and the
Placement Agents on the other hand in connection with the offering of such Notes
shall be deemed to be in the same respective proportions as the net proceeds
from the offering of such Notes (before deducting expenses) received by the
Company and the total discounts and commissions received by the Placement Agents
in respect thereof bear to the aggregate offering price of such Notes. The
relative fault of the Company and BTI on the one hand and of the Placement
Agents on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or BTI or by the Placement Agents and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Placement Agents' respective obligations
to contribute pursuant to this Section 7 are several in proportion to the
respective principal amount of Notes they have purchased hereunder, and not
joint.
(e) The Company, BTI and the Placement Agents agree that it
would not be just or equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Placement Agents were treated as
one entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in paragraph (d) above.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall
<PAGE>
18
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Placement Agent shall be required to contribute
any amount in excess of the amount by which the total price at which the Notes
resold by it in the initial placement of such Notes were offered to investors
exceeds the amount of any damages that such Placement Agent has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The indemnity and contribution provisions contained in this
Section 7 and the representations and warranties of the Company and BTI
contained in this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any investigation made
by or on behalf of the Placement Agents or any person controlling the Placement
Agents or by or on behalf of the Company and BTI, its respective officers or
directors or any person controlling the Company and BTI and (iii) acceptance of
and payment for any of the Notes. The remedies provided for in this Section 7
are not exclusive and shall not limit any rights or remedies which may otherwise
be available to any indemnified party at law or in equity.
8. Termination. This Agreement shall be subject to
termination by notice given by you to the Company, if (a) after the execution
and delivery of this Agreement and prior to the Closing Date (i) trading
generally shall have been suspended or materially limited on or by, as the case
may be, any of the New York Stock Exchange, the American Stock Exchange, the
National Association of Securities Dealers, Inc., the Chicago Board of Options
Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (ii)
trading of any securities of the Company shall have been suspended on any
exchange or in any over-the-counter market, (iii) a general moratorium on
commercial banking activities in New York shall have been declared by either
Federal or New York State authorities or (iv) there shall have occurred any
outbreak or escalation of hostilities or any change in financial markets or any
calamity or crisis that, in your judgment, is material and adverse and (b) in
the case of any of the events specified in clauses (a)(i) through (iv), such
event singly or together with any other such event makes it, in your judgment,
impracticable to market the Notes on the terms and in the manner contemplated in
the Final Memorandum.
9. Miscellaneous. If, on the Closing Date, either Placement
Agent shall fail or refuse to purchase Notes that it has agreed to purchase
hereunder on such date, and the aggregate principal amount of Notes which such
defaulting Placement Agent agreed but failed or refused to purchase is not more
than one-tenth of the aggregate principal amount of Notes to be purchased on
such date, the other Placement Agent shall be obligated to purchase the Notes
which such defaulting Placement Agent agreed but failed or refused to purchase
on such date; provided that in no event shall the principal amount of Notes that
either Placement Agent has agreed to purchase pursuant to Section 3 be increased
pursuant to this Section 9 by
<PAGE>
19
an amount in excess of one-ninth of such principal amount of Notes without the
written consent of such Placement Agent. If, on the Closing Date either
Placement Agent shall fail or refuse to purchase Notes which it has agreed to
purchase hereunder on such date and the aggregate principal amount of Notes with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of Notes to be purchased on such date and arrangements
satisfactory to you and the Company for the purchase of such Notes are not made
within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Placement Agent or of the Company.
In any such case either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Final Memorandum or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Placement Agent from liability in respect of any default
of such Placement Agent under this Agreement.
This Agreement may be signed in any number of counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
If this Agreement shall be terminated by the Placement Agents,
or either of them, because of any failure or refusal on the part of the Company
to comply in any material respect with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company shall be unable
to perform its obligations under this Agreement in any material respect, the
Company will reimburse the Placement Agents or such Placement Agent as has so
terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Placement Agents in connection with this Agreement
or the offering contemplated hereunder.
All notices and other communications under this Agreement
shall be in writing, and, if sent to the Placement Agents, be mailed, delivered
or sent by facsimile transmission to:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Attention: High Yield New Issue Group
Facsimile Number: (212) 761-0587
<PAGE>
20
or, if sent to the Company or to BTI, will be mailed, delivered or sent by
facsimile transmission to the Company or BTI at:
Business Telecom, Inc.
4300 Six Forks Road
Raleigh, North Carolina 27609
Attention: Chief Financial Officer
Facsimile Number: (919) 510-7222
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
<PAGE>
Please confirm your agreement to the foregoing by signing in
the space provided below for that purpose and returning to us a copy hereof,
whereupon this Agreement shall constitute a binding agreement between us.
Very truly yours,
BTI TELECOM CORP.
By /s/ Peter T. Loftin
--------------------
Name: Peter T. Loftin
Title: Chief Executive Officer
BUSINESS TELECOM, INC.
By /s/ R. Michael Newkirk
----------------------
Name: R. Michael Newkirk
Title: President
Agreed, as of the first date written above
Morgan Stanley & Co. Incorporated
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By Morgan Stanley & Co. Incorporated
By /s/ James B. Avery
----------------------
Name: James. B. Avery
Title: Vice President
<PAGE>
SCHEDULE I
Principal Amount of Notes
Placement Agent To Be Purchased
Morgan Stanley & Co. Incorporated $175,000,000
Merrill Lynch & Co., 75,000,000
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Total........................ $250,000,000
============
<PAGE>
EXHIBIT A
Form of Pledge and Security Agreement
<PAGE>
EXHIBIT B
Form of Registration Rights Agreement
<PAGE>
EXHIBIT C
Opinion of Counsel
for the Company and BTI
[Attach draft opinion of the counsel for the Company and BTI
to be delivered pursuant to Section 4(c) of the Placement Agreement to the
effect that:]
(A) the Company and BTI each has been duly incorporated, is
validly existing as a corporation in good standing under the laws of
the State of North Carolina, has the corporate power and authority to
own its property and to conduct its business as described in the Final
Memorandum (references herein to the Final Memorandum being taken to
mean the same, as amended or supplemented), and is duly qualified to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a material
adverse effect on the Company and BTI, taken as a whole;
(B) the Placement Agreement has been duly authorized, executed
and delivered by the Company and BTI;
(C) the Notes have been duly authorized and executed and, when
authenticated and delivered to and paid for in accordance with the
terms of the Placement Agreement, will (x) be valid and binding
obligations of the Company enforceable in accordance with their terms,
except as (A) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and
(B) rights of acceleration, if applicable, and the availability of
equitable remedies may be limited by equitable principles of general
applicability and (y) be entitled to the benefits of the Indenture, the
Registration Rights Agreement and the Pledge Agreement;
(D) the Indenture has been duly authorized, executed and
delivered by, and is a valid and binding agreement of, the Company and
BTI, enforceable in accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (y) rights of
acceleration, if applicable, and the availability of equitable remedies
may be limited by equitable principles of general applicability;
C-1
<PAGE>
(E) the Registration Rights Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company and BTI, enforceable in accordance with its
terms except as (x) the enforceability thereof may be limited by
bankruptcy, insolvency or similar laws affecting creditors' rights
generally, (y) the availability of equitable remedies may be limited by
equitable principles of general applicability and (z) the rights to
indemnification and contribution thereunder may be limited by public
policy;
(F) the Pledge Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company
and BTI, enforceable in accordance with its terms except as (x) the
enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and (y) the
availability of equitable remedies may be limited by equitable
principles of general applicability; and upon the Closing Date, the
pledge of and grant of a security interest in the Pledged Securities
for the benefit of the Trustee and the holders of the Notes will
constitute a perfected security interest in the Pledged Securities,
enforceable as against all creditors of the Company (and any persons
purporting to purchase any of the Pledged Securities from the Company);
(G) the execution and delivery by the Company and BTI of, and
the performance by the Company and BTI of its respective obligations
under, the Placement Agreement, the Indenture, the Registration Rights
Agreement, the Pledge Agreement and the Notes (collectively, the
"Documents"), and the issuance, sale and delivery of the Notes will not
contravene (i) any provision of applicable law, (ii) the Articles of
Incorporation or By-laws of the Company or BTI, (iii) to such counsel's
knowledge, any agreement or other instrument binding upon the Company,
BTI or FiberSouth that is material to the Company and BTI, taken as a
whole, or (iv) to such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over the Company, BTI or FiberSouth and no permit, license, consent,
approval, authorization or order of, or filing, declaration or
qualification with, any governmental body or agency is required for the
performance by the Company and BTI of its respective obligations under
the Placement Agreement, the Indenture, the Registration Rights
Agreement, the Pledge Agreement and the Notes or the consummation of
the BTI Refinancing, the Share Repurchase, the Reorganization or the
FiberSouth Acquisition, except (x) such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Notes, (y) such as may be required by the
federal or state telecommunications laws and (z) such as are required
to be obtained after the date hereof and specifically set forth in the
Documents;
(H) after due inquiry, such counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company,
BTI or FiberSouth is a party or to which any of the properties of the
Company, BTI or
C-2
<PAGE>
FiberSouth is subject other than proceedings fairly summarized in all
material respects in the Final Memorandum and proceedings which such
counsel believes are not likely to have a material adverse effect on
the Company and BTI, taken as a whole, or on the power or ability of
the Company and BTI to perform its respective obligations under the
Placement Agreement, the Indenture, the Registration Rights Agreement,
the Pledge Agreement and the Notes or to consummate the transactions
contemplated by the Final Memorandum;
(I) the Company is not, and after giving effect to the
offering and sale of the Notes and the application of the proceeds
thereof as described in the Final Memorandum, will not be an
"investment company", as such term is defined in the Investment Company
Act of 1940, as amended;
(J) the statements in the Final Memorandum under the captions
"Certain Transactions", "Description of the Notes", "Private Placement"
and "Transfer Restrictions", insofar as such statements constitute a
summary of the legal matters, documents or proceedings referred to
therein, fairly summarize the matters referred to therein;
(K) such counsel is of the opinion that the statements in the
Final Memorandum, under the caption "Certain U.S. Federal Income Tax
Considerations" are accurate and fairly summarize the matters referred
to therein;
(L) such counsel believes that (except for the financial data
and financial statements and notes hereto as to which such counsel need
not express any belief) the Final Memorandum when issued did not, and
as of the date such opinion is delivered does not, contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(M) based upon the representations, warranties and agreements
of the Company, BTI and the Placement Agents in the Placement
Agreement, it is not necessary in connection with the offer, sale and
delivery of the Notes to the Placement Agents under the Placement
Agreement or in connection with the initial resale of such Notes by the
Placement Agents in accordance with the Placement Agreement to register
the Notes under the Securities Act of 1933, it being understood that no
opinion is expressed as to any subsequent resale of any Note;
(N) the Company and BTI (i) have all necessary consents,
authorizations, approvals, orders, certificates and permits of and
from, and have made all declarations and filings with, all federal,
state, local and other governmental, administrative or regulatory
authorities, all self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use its properties and assets and
to
C-3
<PAGE>
conduct its business in the manner described in the Final Memorandum,
(x) except to the extent that the failure to obtain such consents,
authorizations, approvals, orders, certificates and permits or make
such declarations and filings would not have a material adverse effect
on the Company and BTI, taken as a whole and (y) such as may be
required by federal or state telecommunications laws and (ii) have not
received any notice of proceedings relating to revocation or
modification of any such consent, authorization, approval, order,
certificate or permit which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would reasonably be
expected to result in material adverse change in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and BTI, taken as a whole, except as described in or
contemplated by the Final Memorandum;
With respect to paragraph (L) above, counsel may state that
their opinion and belief are based upon their participation in the preparation
of the Final Memorandum (and any amendments or supplements thereto) and review
and discussion of the contents thereof, but are without independent check or
verification except with respect to paragraphs (J) and (K) above.
C-4
<PAGE>
EXHIBIT D
Opinion of Regulatory Counsel
for the Company
[Attach draft opinion of regulatory counsel for the Company to
be delivered pursuant to Section 4(d) of the Placement Agreement to the effect
that:]
(A) (1) the execution and delivery of the Placement Agreement
by the Company and BTI and the consummation of the transactions
contemplated thereby do not violate (i) the Federal Communications Act
of 1934, as amended (the "Communications Act"), (ii) any rules or
regulations of the Federal Communications Commission ("FCC") applicable
to the Company or BTI, (iii) any state telecommunications law, rules or
regulations ("State Law") applicable to the Company or BTI, and (iv) to
the best of such counsel's knowledge, any decree from any court, and
(2) no consent, approval, authorization or order of or filing with the
FCC or any state authority overseeing telecommunications matters
("State Authority"), is necessary for the execution and delivery of the
Placement Agreement by the Company and BTI and the consummation of the
BTI Refinancing, the Share Repurchase, the Reorganization, and the
FiberSouth Acquisition and the other transactions contemplated thereby
in accordance with the terms thereof except for consents, approvals,
authorizations or orders of or qualifications (x) with the FCC in
connection with the Reorganization, (y) with the State Authorities in
the States of [________], in connection with the Reorganization and the
FiberSouth Acquisition and (z) as have already been obtained and except
to the extent that the failure to obtain such consents, approvals,
authorizations or orders or to qualify with the FCC or any State
Authority would not, individually or in the aggregate, have a material
adverse effect on the prospects, condition (financial or otherwise) or
in the earnings, business or operations of the Company and BTI, taken
as a whole;
(B) (1) each of the Company, BTI and FiberSouth has made all
reports and filings, and paid all fees, required by the FCC and the
State Authorities, and has all certificates, orders, permits, licenses,
authorizations, consents and approvals of and from, and has made all
filings and registrations, with the FCC and the State Authorities
necessary to own, lease, license and use its properties and assets and
to conduct its respective business in the manner described in the Final
Memorandum; and (2) none of the Company, BTI or FiberSouth has received
any notice of proceedings relating to the violation, revocation or
modification of any such certificates, orders, permits, licenses,
authorizations, consents or approvals, or the qualification or
rejection of any such filing or registration, the effect of which,
singly
D-1
<PAGE>
or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company and BTI, taken as a whole;
(C) none of the Company, BTI or FiberSouth is in violation of,
or in default under the Communications Act, the telecommunications
rules or regulations of the FCC or State Law, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company and BTI, taken as a whole;
(D) to the best of such counsel's knowledge after due inquiry
(i) no adverse judgment, decree or order of the FCC or any State
Authority has been issued against the Company, BTI or FiberSouth and
(ii) no litigation, proceeding, inquiry or investigation has been
commenced or threatened against the Company, BTI or FiberSouth before
or by the FCC or any State Authority which, if decided adversely to the
Company's interest, would have a material adverse effect on the Company
and BTI, taken as a whole; and
(E) the statements in the Final Memorandum under the captions
"Risk Factors - Regulation," "Risk Factors - Competition," "Business -
Industry Overview" and "Business - Regulation," insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly summarize the matters referred
to therein.
D-2
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Plan"), dated as of September
17, 1997, is among Business Telecom, Inc., a North Carolina corporation ("BTI"),
BTI Telecom Corp., a North Carolina corporation ("BTITC") and BTI OpCo Inc., a
North Carolina corporation and wholly owned subsidiary of Telecom ("OpCo"). BTI
and OpCo are hereinafter collectively referred to as the "Constituent
Corporations" and individually as a "Constituent Corporation".
1. THE MERGER. On the Effective Time (as hereinafter defined), OpCo
shall be merged with and into BTI (the "Merger"), the separate corporate
existence of OpCo shall thereupon cease, and BTI shall be the surviving
corporation in the Merger (the "Surviving Corporation"). The name of the
Surviving Corporation shall be Business Telecom, Inc. The Merger shall be
effected pursuant to the provisions of and shall have the effect provided by the
Business Corporation Act of the State of North Carolina (the "BCA").
2. ARTICLES OF INCORPORATION AND BYLAWS. On and subsequent to the
Effective Time, the Articles of Incorporation and Bylaws of BTI in effect
immediately prior to the Effective Time shall continue to be the Articles of
Incorporation and Bylaws of the Surviving Corporation, until duly amended in
accordance with the terms thereof and the BCA.
3. EFFECT OF THE MERGER. On the Effective Time, the corporate existence
of OpCo shall, as provided in the BCA, be merged into and continued in the
Surviving Corporation, and the Surviving Corporation shall be deemed a
continuation in entity and identity of each of the Constituent Corporations. The
Surviving Corporation shall, from and after the Effective Time, possess all the
rights, privileges, powers and franchises of whatsoever nature and description,
as well as a public or private nature, and be subject to all the restrictions,
liabilities and duties of each of the Constituent Corporations; and all rights,
privileges, powers and franchises of each of the Constituent Corporations, and
all property, tangible and intangible, real, personal and mixed, and debts due
to either of the Constituent Corporations on whatever account as well for stock
subscriptions as all other things in action or belonging to each of the
Constituent Corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the several and respective Constituent Corporations,
and the title to any real estate vested by deed or otherwise in any of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger. All rights of creditors and all liens upon the property of the
Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by it.
Any claim existing or action or proceeding, whether civil, criminal or
administrative, pending by or against either Constituent
<PAGE>
Corporation may be prosecuted to judgment or decree as if the Merger had not
taken place, or the Surviving Corporation may be substituted in such action or
proceeding.
4. CONVERSION AND EXCHANGE OF SHARES. The manner and basis of
converting and exchanging shares of the capital stock of the Constituent
Corporations shall be as follows:
4.1 Stock of OpCo. Upon and by reason of the Merger becoming
effective, each one (1) share of OpCo Common Stock issued and
outstanding immediately prior to the Effective Time shall thereupon,
without any action on the part of the holder thereof or the Constituent
Corporations, be changed and converted into and become one (1) fully
paid and nonassessable share of the Common Stock of the Surviving
Corporation.
4.2 Stock of BTITC. Upon and by reason of the Merger becoming
effective, each share of BTITC Common Stock issued and outstanding
immediately prior thereto shall be cancelled and returned to the status
of authorized but unissued shares.
4.3 Stock of BTI. Upon and by reason of the Merger becoming
effective, each share of BTI Common Stock issued and outstanding
immediately prior to the Effective Time shall thereupon, without any
action on the part of the holder thereof or the Constituent
Corporations, be converted into and become an aggregate of 272.72
shares (the "Exchange Ratio") of the Common Stock of BTITC.
5. Stock Certificates. After the Effective Time, each holder
of an outstanding certificate or certificates which prior thereto represented
shares of the Common Stock of BTI shall surrender the same, and such holder
shall be entitled, upon such surrender, to receive in exchange therefor a
certificate or certificates representing the number of whole shares of BTITC
Common Stock, into and for which the shares of BTI Common Stock, so surrendered
shall have been converted and exchanged as provided above. Until a certificate
which represented shares of BTI Common Stock prior to the Effective Time and
which is held by a person entitled to receive BTI Common Stock is surrendered,
such certificate shall evidence for all purposes, other than the payment of any
dividends or other distributions to holders of record of shares of BTI Common
Stock, the ownership of shares of BTI Common Stock into which the shares of BTI
Common Stock represented by such certificate prior to the Effective Time have
been converted as provided above; provided, however, that upon surrender of a
certificate theretofore representing shares of BTI Common Stock, there shall be
paid to the record holder or holders of the certificate or certificates of BTITC
Common Stock issued in conversion thereof the amount without interest thereon of
such dividends and other distributions, if any, which theretofore have become
payable with respect to the number of the whole shares of BTITC Common Stock
represented thereby.
6. STOCK OPTIONS. On the Effective Time, BTI hereby assigns, delegates
and transfers to BTITC, and BTITC hereby assumes and continues: (i) all of BTI's
stock option plans (including, without limitation, all of BTI's rights, title,
interests, remedies, powers, obligations and duties under such stock option
plans) in existence on the Effective Time, and (ii) the outstanding and
unexercised portions of all outstanding options to purchase BTI Common Stock
(including, without limitation, all of BTI's rights, title, interests, remedies,
powers, obligations
<PAGE>
and duties under such stock options), whether granted under any such stock
option plan or otherwise. The outstanding and unexercised portions of all
options to purchase BTI Common Stock, including without limitation all options
outstanding under BTI's stock option plans and any other outstanding stock
options shall, as of the Effective Time, become options to purchase the number
of shares of BTI Common Stock equal to the number of shares of BTI Common Stock
subject to such option multiplied by the Exchange Ratio with no other changes in
terms or conditions, (except for a corresponding adjustment to the per share
exercise price), unless such changes shall be required to maintain the tax
qualified status of incentive stock options under the Internal Revenue Code of
1986, as amended (the "Code"). Consistent with the provisions of the Code and
the regulations, BTITC may, in its discretion, grant new options to purchase
shares of BTITC Common Stock under the continued stock plans or otherwise, in
the stead of BTI Common Stock as if BTITC had been the creator of BTI's stock
option plans and stock options, and BTITC shall be substituted for and have all
the obligations and liabilities of BTI under such continued stock plans and
stock options. BTITC Common Stock shall be substituted for BTI Common Stock on a
272.72-for-1 basis as to any options granted by BTITC pursuant to the continued
stock plans or otherwise subsequent to the Effective Time. It is the intention
of the parties hereto that while the benefits of BTI's stock option plans and
stock options shall be preserved for the employees of BTI, the assumption of
such stock option plans and the outstanding and unexercised portions of all
options to purchase BTI Common Stock by BTITC shall not confer any additional
benefits on the holders of options granted under the stock option plans or
otherwise, whether now outstanding or hereafter granted.
7. OFFICERS AND DIRECTORS. The officers of the Surviving Corporation at
and as of the Effective Time shall consist of all the persons who are officers
of BTI immediately prior to the Effective Time until their successors have been
duly elected or appointed and qualified in accordance with the Surviving
Corporation's Articles of Incorporation and Bylaws. The Board of Directors of
the Surviving Corporation at and as of the Effective Time shall consist of all
the persons who are directors of BTI immediately prior to the Effective Time
until their successors have been duly elected or appointed and qualified in
accordance with the Surviving Corporation's Articles of Incorporation and
Bylaws.
8. RATIFICATION BY SHAREHOLDERS. This Plan shall be submitted to the
shareholders of BTI , OpCo and BTITC for approval in accordance with applicable
laws and the respective Articles of Incorporation and Bylaws of the Constituent
Corporations. BTI, OpCo, and BTITC shall proceed expeditiously and cooperate
fully in the procurement of any other consents and approvals and the taking of
any other action, and the satisfaction of all other requirements prescribed by
law or otherwise, necessary for consummation of the Merger on the terms herein
provided.
9. TERMINATION. If for any reason the consummation of the Merger is
inadvisable in the opinion of the Boards of Directors of BTI , OpCo or Telecom,
this Plan may be terminated at any time before the Effective Time by written
notice by one or more party to the other. Upon termination by written notice as
provided in this Section, this Plan shall be void and of no further force or
effect.
<PAGE>
10. EFFECTIVE TIME. The Merger shall become effective, and the
Effective Time of the Merger shall occur upon filing of the Articles of Merger
with the North Carolina Secretary of State.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of this 17th day of September 1997.
BUSINESS TELECOM, INC.
By:__________________________
Name:________________________
Title:_________________________
BTI OPCO INC.
By:__________________________
Name:________________________
Title:_________________________
BTI TELECOM CORP.
By:___________________________
Name:________________________
Title:_________________________
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made and entered
into this ____ day of September 1997, by and between FiberSouth, Inc., a North
Carolina corporation (the "Seller"), and Business Telecom, Inc., a North
Carolina corporation ("Buyer").
WITNESSETH:
WHEREAS, Seller is a provider of local telephone service, primarily to
commercial customers in the Southeastern United States, that owns and operates,
among other assets, a Lucent 5ESS local switch (the "Lucent Switch") and a
65-mile fiber optic network (the "Network") in North Carolina linking Raleigh,
Durham and the Research Triangle Park area (the "Business");
WHEREAS, Seller is willing to sell to Buyer, and Buyer is willing to
purchase from Seller, certain assets and rights of Seller on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the above premises and of the
mutual covenants, conditions and agreements set forth herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale of Assets; Assets to be Conveyed. At the Closing
(as defined herein), and based upon the representations and warranties contained
in this Agreement and subject to the terms and conditions set forth herein,
Seller shall sell, assign, convey, transfer and deliver to Buyer, and Buyer
shall purchase from Seller, all of the Purchased Assets (as defined below),
excluding the Excluded Assets (as defined below).
(a) Purchased Assets. Except as specifically excluded in
Section 1.1(b) hereof, the Purchased Assets shall include the following assets,
properties and rights of Seller used in or useful for the Business:
(i) all of Seller's rights, title and interest in and
to the Lucent Switch and the Network;
(ii) all equipment, automobiles, machinery, networks,
switches, furniture, fixtures, tools, devices and improvements owned or leased
by Seller and used in connection with or useful for the Business (collectively,
the "Fixed Assets");
<PAGE>
(iii) all of Seller's rights to customer lists,
distributor lists, and other documentation or analyses of Seller's customer
relationships, all business and data files and other general administrative
records, all accounting systems and related records, all employee records, all
books and files, all marketing files, product photographs, sales literature,
warranty records and all other business records used in or relating to the
Business (the "Records");
(iv) all of Seller's inventories of products, supplies
and materials, including inventory in transit and any previously produced
systems or parts of systems returned or not sold ("Inventory");
(v) all federal, state and local governmental licenses,
permits, approvals and authorizations relating to the Assets, to the extent
transferable;
(vi) all diagrams, plans, designs, schemes or similar
items relating to the Assets;
(vii) all of Seller's accounts receivable arising
from operations;
(viii) all trade names, trademarks, goodwill, rights of
Seller under any lease, contract or agreement (including, without limitation,
any and all rights of way), and other intangible property owned by Seller;
(ix) all of Seller's real property, if any, and all
improvements located thereon (the "Real Property"); and
(x) all other assets, tangible or intangible, owned by
Seller.
All of the assets described in Sections 1.1(a) are hereinafter
sometimes referred to as the "Purchased Assets".
(b) Excluded Assets. Notwithstanding the foregoing, the Purchased
Assets shall not include any of Seller's right, title and
interest in and to its cable franchise and any and all assets
relating solely thereto.
1.2 Liabilities Assumed. As partial consideration of the Purchase Price
to be paid for the Purchased Assets, Buyer agrees to assume substantially all of
Buyer's outstanding indebtedness as of the Closing Date in the amount of
$5,227,690.94 (the "FiberSouth Indebtedness"). In addition, Buyer agrees to
assume, discharge and perform all liabilities or obligations of Seller under all
agreements assigned by Seller to Buyer hereunder. Except as described above,
Buyer shall not: (i) assume or agree to pay or discharge any liability or
obligation of Seller or the Business, including liability for taxes or accounts
payable; or (ii) assume, observe or perform the terms of any agreement or
contract of the Seller or the Business unless the liability or contract of the
Seller or the Business is specifically assumed in writing by Buyer.
2
<PAGE>
ARTICLE II
PURCHASE PRICE
2.1 Purchase Price and Method of Payment. The total purchase price
("Purchase Price") to be paid by Buyer at Closing for the Purchased Assets shall
be Thirty Six Million Two Hundred Twenty-Seven Thousand Six Hundred Ninety and
94/100 Dollars ($36,227,690.94), payable as follows:
(a) Thirty One Million Dollars ($31,000,000.00) of the
Purchase Price shall be paid in cash (the "Cash Consideration").
(b) Five Million Two Hundred Twenty-Seven Thousand Six Hundred
Ninety and 94/100 Dollars ($5,227,690.94) of the Purchase Price shall be paid by
Buyer to Seller in the form of Buyer's assumption and/or satisfaction of the
FiberSouth Indebtedness.
2.2 Purchase Price Allocation. The Purchase Price shall be allocated
among the Purchased Assets as set forth on Schedule 2.2 attached hereto. The
parties agree to adhere to the purchase price allocation set forth on Schedule
2.2 in all reports, returns and other documents filed with any governmental
authority.
ARTICLE III
CLOSING
3.1 Date and Place of Closing; Time of Closing. The closing of the sale
of the Purchased Assets hereunder (the "Closing") shall be held at the offices
of Wyrick Robbins Yates & Ponton LLP, 4101 Lake Boone Trail, Suite 300, Raleigh,
North Carolina at __:00 a.m. on _____________, 1997, or such other date as the
parties may mutually agree (the "Closing Date").
3.2 Deliveries at Closing by Seller. At the Closing, provided Buyer has
fully performed its obligations hereunder, the Seller shall deliver or cause to
be delivered to Buyer the following:
(a) a Bill of Sale and Assignment, substantially in the form
of Exhibit A attached hereto and made a part hereof, conveying the Purchased
Assets;
(b) a general warranty deed for the Real Property with full
warranties conveying to Buyer, or its assigns, an indefeasible fee simple
absolute, marketable and insurable title to the Real Property;
(c) such consents, releases and other collateral documents as
are necessary to transfer title to the Purchased Assets; and
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(d) such other certificates, title certificates, resolutions
or other documents as may be reasonably required to close the transaction
contemplated hereby.
3.3 Deliveries at Closing by Buyer. At the Closing, provided the Seller
has fully performed its obligations hereunder, Buyer shall deliver or cause to
be delivered to the Seller the following:
(a) the Cash Consideration;
(b) an Undertaking and Assumption Agreement substantially in
the form of Exhibit B attached hereto; and
(c) such other certificates, title certificates, resolutions
or other documents as may be reasonably required to close the transaction
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Seller represents and warrants to Buyer that the statements contained
in this Article IV are true, correct and complete as of the date of this
Agreement and will be true, correct and complete as of the Closing Date.
4.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina, and
has the power and authority and is entitled to carry on its business as now
being conducted and to own, lease or operate its properties as and in the places
where its business is now conducted and such properties are now owned, leased or
operated.
4.2 Authorization; Enforceability. Seller has the power and authority
to enter into this Agreement and to carry out the transactions contemplated
hereby. All proceedings required to be taken to authorize the execution,
delivery and performance of this Agreement and the agreements relating hereto
have been properly taken. This Agreement constitutes the legal, valid and
binding obligation of the Seller enforceable against Seller in accordance with
its terms, subject to the provisions of federal and any other applicable
bankruptcy, reorganization, insolvency, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors and to general
equitable principles. Neither the execution, delivery nor performance of this
Agreement by the Seller will, with or without the giving of notice or the
passage of time, or both, conflict with, violate any provisions of, have a
material adverse effect on, result in a default, breach, right to accelerate or
loss of rights under, or result in the creation of any lien, charge or
encumbrance upon any property or assets of the Seller under, any terms or
provisions of any franchise, mortgage, note, deed of trust, lease, license,
agreement, contract, understanding or other instrument to which Seller is a
party or by which Seller or any of its properties may be bound or affected, or
any law, rule or regulation or any
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order, judgment or decree of any government, governmental instrumentality or
court, domestic or foreign, having jurisdiction over Seller or any of its
respective properties, except where the violation, conflict, effect, default,
breach, right, lien, charge or encumbrance would not have a material adverse
effect on the financial condition or business of Seller.
4.3 Material Compliance. Seller has complied in all material respects
with all laws, regulations and orders applicable to its business, except where
the failure so to comply would not have a material adverse effect on the
financial condition of Seller or the Purchased Assets.
4.4 Litigation. Seller is not subject to any outstanding injunction,
judgment, order, decree, ruling or charge and there is no litigation, proceeding
or investigation pending or, to the best of Seller's knowledge, threatened
against Seller or affecting any of its rights or the Purchased Assets or which
might result in any material adverse change in the business or financial
condition of Seller or which materially and adversely affects or could
reasonably be expected to affect the Purchased Assets or liabilities of Seller
or the transactions contemplated by this Agreement, in any court or before any
authority or governmental entity.
4.5 Title to Properties; Mortgages; Liens, Leases, Etc. Sellers has
good and marketable title to, or a valid leasehold interest in, all of the
Purchased Assets to be conveyed hereunder, subject to no liens, encumbrances or
adverse claims. None of the Purchased Assets used by Seller are held as lessee
under any lease, or as conditional vendee under any conditional sales contract
or other title retention agreement, except as previously disclosed to Buyer.
4.6 Tax Returns and Payments. Seller has filed all federal, state,
county and municipal income, franchise and real and personal property tax
returns or listings required to be filed for all taxable years or periods up to
and including December 31, 1996, and have paid all taxes as shown on such
returns or listings and all tax assessments related thereto to the extent that
such taxes and assessments have become or will become payable, and will pay all
such taxes applicable to the Seller at the Closing Date. As of the date hereof,
no tax liabilities or assessments, whether federal, state, county, municipal or
otherwise, have been proposed or assessed which remain unpaid nor will any such
be assessed which remain unpaid and not appealed through the Closing Date and
which would result in the creation of a lien on any of the Purchased Assets.
4.7 No Consents. Seller does not need to obtain any authorization,
consent, or approval of any government or governmental agency in order for the
parties to consummate the transactions contemplated by this Agreement, except
such authorizations, consents or approval, which shall have been obtained on or
before Closing.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that the statements contained
in this Article V are true, correct and complete as of the date of this
Agreement and will be true, correct and complete as of the Closing Date.
5.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina.
Buyer has full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder.
5.2 Authorization; Enforceability. The execution, delivery and
performance of this Agreement are within the power of Buyer and have been duly
authorized by all necessary action by Buyer. This Agreement is, and the other
documents and instruments required hereby will be, when executed and delivered
by Buyer, the valid and binding obligations of Buyer enforceable against Buyer
in accordance with their respective terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws at the time in effect
affecting the enforceability or right of creditors generally and by general
equitable principles which may limit the right to obtain equitable remedies.
5.3 No Consents. Neither the execution and the delivery, nor the
consummation of the transactions contemplated in this Agreement, will violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any government, governmental
agency, or court to which Buyer is subject or any provision of its charter or
bylaws. Buyer does not need to obtain any authorization, consent, or approval of
any government or governmental agency in order for the parties to consummate the
transactions contemplated by this Agreement, except such authorizations,
consents or approval, which shall have been obtained on or before Closing.
ARTICLE VI
OTHER AGREEMENTS AND COVENANTS
6.1 Employees. Buyer is under no obligation to offer employment to any
of the employees of Seller. Buyer shall not assume any obligation or liability
of any kind under any pension, profit-sharing or other employee benefit plan
maintained currently or in the past by Seller, or under which Seller has any
present or future obligations or liability or under which any of its employees
has any present or future rights.
6.2 Bulk Sales Laws Compliance. Seller shall pay its creditors in full
or otherwise satisfy in full all obligations of Seller which relate to the
period ending as of the Closing Date and the Seller shall indemnify and hold
Buyer harmless from and against any claims of creditors with respect to such
obligations asserted pursuant to or in connection with the provisions of Article
6, Chapter 25 of the North Carolina General Statutes or otherwise.
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7 6.3 Possession of the Purchased Assets. On the Closing Date, Seller shall take
such steps as may be reasonably necessary to put Buyer in actual possession and
operating control of the Purchased Assets.
6.4 Cooperation. Seller shall use its best efforts to cause the sale
contemplated by this Agreement to be consummated and shall make all filings
with, give all notices to and obtain all consents from third parties which may
be necessary or required in order to effect the transactions contemplated
hereby. Seller shall cooperate with Buyer in obtaining the transfer of any
licenses and permits necessary for Buyer's use of the Purchased Assets, to the
extent such cooperation is a prerequisite to such transfer and to the extent
such licenses and permits are assignable.
ARTICLE VII
INDEMNIFICATION
(a) Indemnification by the Seller. In the event Seller
breaches any of its representations, warranties and covenants contained herein
within the survival period set forth in Section 8.1 or if the Buyer incurs any
Losses (as defined below) due to failure by the Seller to comply with any
applicable bulk sales statutes, provided that the Buyer makes a written claim
for indemnification against the Seller pursuant to Section 8.3 below within 180
days, with respect to third-party Losses, and 90 days, with respect to other
Losses, of the termination of such survival period, then Seller agrees to
indemnify the Buyer from and against any actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, costs, liabilities, obligations, losses,
expenses and fees, including court costs and reasonable attorneys' and
consultants' fees and expenses ("Losses") the Buyer shall incur or suffer
through and after the date of the claim for indemnification caused by the
breach. Buyer shall be entitled, but not obligated, to enforce the indemnity
obligation of the Seller by set off against any amounts owed to the Seller by
the Buyer.
(b) Indemnification by Buyer. In the event the Buyer breaches
any of its representations, warranties and covenants contained herein, and, if
there is an applicable survival period pursuant to Section 8.1, provided that
the Seller makes a written claim for indemnification against the Buyer pursuant
to Section 8.3 below within 180 days, with respect to third-party Losses, and 90
days, with respect to other Losses, of the termination of such survival period,
then the Buyer agrees to indemnify Seller from and against any Losses the Seller
shall suffer through and after the date of the claim for indemnification caused
by the breach.
(c) Indemnification Procedures.
(i) With regard to Losses hereunder arising out of
claims, actions or proceedings brought by third parties, the indemnification
procedure shall be as follows:
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(A) Upon receipt by a party of notice of a
claim, action or proceeding, if a claim is to be made
with regard thereto, such party shall be given
written notice (the "Notice") to the indemnifying
party within three (3) business days thereafter
specifying, in detail, the basis for the claim.
Failure to give the Notice shall not affect the right
of a party to indemnification hereunder except to the
extent the indemnifying party can demonstrate actual
prejudice caused by such failure.
(B) The indemnifying party shall have the
right, at its option, to elect to settle, compromise
or defend, by its own counsel and at its own expense,
any claim, action or proceeding brought by a third
party. If the indemnifying party advises the
indemnified party that it will not contest such a
claim, action or proceeding or fails to give written
notice to the indemnified party within three (3)
business days after receipt of any Notice of its
election to settle, compromise or defend such claim,
action or proceeding, then the indemnified party may,
at its option, defend such claim, action or
proceeding at the cost of the indemnifying party
unless and until the indemnifying party gives notice
to the indemnified party of its election to do so;
provided, however, that in such case the indemnified
party shall provide the indemnifying party with such
information concerning such claim, action or
proceeding as the indemnifying party may reasonably
request from time to time and may not settle such
claim, action or proceeding without the indemnifying
party's consent.
(C) The indemnified party shall cooperate
fully with the indemnifying party and its counsel in
the settlement or compromise of or the defense
against such claim, action or proceeding, and shall
furnish to the indemnifying party all information
reasonably available to the indemnifying party which
relates to such claim, action or proceeding. If the
indemnifying party elects to defend any such claim,
action or proceeding, then the indemnified party
shall be entitled to participate in such defense with
counsel of its choice at its sole cost and expense.
(ii) In the event of an indemnification payment being
made as provided for hereunder, the indemnifying party shall be subrogated to
all rights of the indemnified party with respect to indemnification has been
made.
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ARTICLE VIII
MISCELLANEOUS
8.1 Survival of Representations and Warranties. All representations and
warranties of Seller and of Buyer hereunder shall survive the Closing for a
period of one (1) year from the Closing Date.
8.2 Knowledge. Whenever the expression "to the knowledge" or similar
phrase encompassing the knowledge of a party to this Agreement is used herein,
it shall mean the actual knowledge of such party after reasonable investigation.
8.3 Notices. All notices to a party hereunder shall be deemed to have
been adequately given if in writing and delivered personally or upon confirmed
receipt of first class, postage prepaid, registered or certified mail or
overnight courier service with confirmed delivery, to such party at its address
set forth below (or such other address as it may from time to time designate in
writing to the other parties hereto):
If to Buyer: Business Telecom, Inc.
4300 Six Forks Road
Raleigh, NC 27609
Attn: Anthony M. Copeland,
General Counsel
Telephone No.: (919) 510-7009
with a copy to: Larry E. Robbins, Esq.
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Telephone No.: (919) 781-4000
If to Seller: FiberSouth, Inc.
4300 Six Forks Road, Suite 500
Raleigh, North Carolina 27609
Attn:Chief Financial Officer
8.4 No Waiver. No failure to exercise and no delay in exercising, on
the part of Buyer or Seller, any right, power or remedy hereunder shall operate
as a waiver thereof; nor shall any single or partial exercise of any right,
power or remedy hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. The rights provided are cumulative
and not exclusive of any rights provided by law.
8.5 Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by each party hereto. No waiver of any term or
provision hereof shall be effective unless in writing signed by the party
waiving such term or provision.
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8.6 Transaction Costs. Seller and Buyer shall each bear and be
responsible for their own costs and expenses in connection with the consummation
of the transactions contemplated by this Agreement, including but not limited to
the payment of respective legal counsel and accounting fees.
8.7 Construction. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina. The descriptive
headings of the several Articles and Sections hereof are for convenience only
and shall not control or affect the meaning or construction of any of the
provisions hereof.
8.8 Binding Effect; Parties in Interest; Assignment. This Agreement
shall be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns, but nothing in this
Agreement, express or implied, is intended to confer upon any entity or
individual, other than the parties, and their permitted successors and assigns
any rights or remedies under or by reason of this Agreement. This Agreement may
not be assigned by Seller without the prior written consent of Buyer.
8.9 Prior Agreements. This writing embodies the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior discussions, understandings and agreements concerning the
matters covered hereby.
8.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.11 Severability. If any provision of this Agreement shall be
determined to be unenforceable or illegal, the remaining provisions of the
Agreement shall remain in full force and effect.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and have attached their respective seals hereto as of the day and year
first above written.
SELLER:
FIBERSOUTH, INC.
By:
---------------------
Name:
---------------------
Title:
---------------------
BUYER:
BUSINESS TELECOM, INC.
By:
---------------------
Name:
---------------------
Title:
---------------------
[SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT]
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ARTICLES OF MERGER
-------------------
Pursuant to Section 55-11-05 of the General Statutes of North Carolina. the
undersigned corporation as the surviving corporation in a merger hereby submits
the following Articles of Merger.
1. The name of the surviving corporation is Business Telecom, Inc., a
corporation organized under the laws of the State of North
Carolina, and the name of the merged corporation is BTI OpCo Inc.,
a corporation organized under the laws of the State of North
Carolina.
2. Attached as Exhibit A hereto and made a part hereof is a copy of
the Plan of Merger that was duly adopted in the manner prescribed
by law by the Boards of Directors of each of the corporations
participating in the merger.
3. The merger was approved by the shareholders of each of the
surviving corporation and the merging corporation as required by
Chapter 55 of the North Carolina General Statutes.
4. These Articles of Merger will be effective on the filing hereof
with the North Carolina Secretary of State.
This the 17th day of September 1997.
BUSINESS TELECOM, INC.
By:
---------------------
Name:
---------------------
Title:
---------------------
<PAGE>
ARTICLES OF INCORPORATION
OF
BTI TELECOM CORP.
The undersigned, pursuant to Section 55-2-02 of the North Carolina
General Statutes, does hereby submit these Articles of Incorporation for the
purpose of forming a business corporation under and by virtue of the laws of the
State of North Carolina.
1. The name of the corporation is BTI Telecom Corp.
2. The corporation shall have authority to issue One Hundred
Million (100,000,000) shares, no par value, of Common Stock,
and Ten Million (10,000,000) shares, $0.01 par value,
Preferred Stock.
3. The Board of Directors is authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock,
and within the limitations and restrictions stated in any
resolution or resolutions of the Board originally fixing the
number of shares constituting any series, to increase or
decrease (but not below the number of shares of any such
series then outstanding) the number of shares of any such
series subsequent to the issue of shares of that series, to
determine the designation of any series and to fix the number
of shares of any series.
4. The street address and county of the initial registered office
of the corporation are 4101 Lake Boone Trail, Suite 300,
Raleigh, Wake County, North Carolina and the name of the
initial registered agent at such address is Larry E. Robbins.
The mailing address of the initial registered office of the
corporation is Post Office Drawer 17803, Raleigh, North
Carolina 27619.
5. The name and address of the incorporator are:
NAME ADDRESS
Donald R. Reynolds 4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
6. Except to the extent that the North Carolina General Statutes
prohibit such limitation or elimination of liability of
directors for breaches of duty, no director of the corporation
shall be liable to the corporation or to any of its
shareholders for monetary damages for breach of duty as a
director. No amendment to or repeal of this provision or
adoption of a provision inconsistent herewith shall apply to
or have any effect on the liability or alleged liability of
any director of the corporation for or with respect to any
acts or omissions of such director occurring prior to such
amendment or repeal or adoption of an inconsistent provision.
The provisions of this Article shall not be deemed to limit or
preclude indemnification of a director by the corporation for
any liability that has not been eliminated by the provisions
of this Article.
IN WITNESS WHEREOF, I have executed these Articles of Incorporation
this the 18th day of August 1997.
-----------------------------------
Donald R. Reynolds, Incorporator
BYLAWS
OF
BTI TELECOM CORP.
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the corporation shall be
located at such place as the Board of Directors may fix from time to
time.
Section 2. Registered Office. The registered office of the corporation required
by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
Section 3. Other Offices. The corporation may have offices at such other places,
either within or without the State of North Carolina, as the Board of
Directors may designate or as the affairs of the corporation may require
from time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders shall be held at the
principal office of the corporation, or at such other place, whether
within or without the State of North Carolina, as shall be designated in
the notice of the meeting or agreed upon by the Board of Directors.
Section 2. Annual Meeting. The annual meeting of shareholders shall be held
during the fourth full month following the end of the corporation's
fiscal year at a time and on any day (except Saturday, Sunday or a legal
holiday) in that month as determined by the Board of Directors for the
purpose of electing directors of the corporation and for the transaction
of such other business as may be properly brought before the meeting.
Section 3. Substitute Annual Meetings. If the annual meeting shall not be held
on the day designated by these Bylaws, a substitute annual meeting may
be called
<PAGE>
in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as
the annual meeting.
Section 4. Special Meetings. Special meetings of the shareholders may be called
at any time by the Chairman of the Board, President, Secretary or Board
of Directors of the corporation, or by any shareholder pursuant to the
written request of the holders of not less than one-tenth (1/10th) of
all shares entitled to vote at the meeting.
Section 5. Notice of Meetings. Written or printed notice stating the time and
place of the meeting shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of any shareholders' meeting,
either personally or by telegraph, teletype or other form of wire or
wireless communication, or by facsimile, by or at the direction of the
Chairman of the Board, the President, the Secretary or other person
calling the meeting, to each shareholder of record entitled to vote at
such meeting; provided that such notice must be given to all
shareholders with respect to any meeting at which a merger, share
exchange, sale of assets other than in the regular course of business or
voluntary dissolution is to be considered and in such other instances as
required by law. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, addressed to the shareholder
at his address as it appears on the record of shareholders of the
corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall
specifically state the purpose or purposes for which the meeting is
called; but, in the case of an annual or substitute annual meeting, the
notice of meeting need not specifically state the business to be
transacted thereat unless such a statement is required by the provisions
of the North Carolina Business Corporation Act.
When a meeting is adjourned to a different date, time or place, notice
need not be given of the new date, time or place if the new date, time
or place is announced at the meeting before adjournment.
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If, however, a new record date for the adjourned meeting is fixed,
notice of the adjourned meeting will be given to all persons who are
shareholders as of the new record date in accordance with this Section
5.
Section 6. Waiver of Notice. Any shareholder may waive notice of any meeting.
The waiver must be in writing, signed by the shareholder and delivered
to the corporation for inclusion in the minutes or filing with the
corporate records. A shareholder's attendance at a meeting (a) waives
objection to lack of notice or defective notice of the meeting, unless
the shareholder at the beginning of the meeting objects to holding the
meeting or transacting business at the meeting; and (b) waives objection
to consideration of a particular matter at the meeting that is not
within the purpose or purposes described in the meeting notice, unless
the shareholder objects to considering the matter before it is voted
upon.
Section 7. Shareholder Lists. Before each meeting of shareholders, the Secretary
of the corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting. The list shall be
arranged by voting group (and within each voting group by class or
series of shares) and show the address and number of shares held by each
shareholder. The list shall be kept on file at the principal office of
the corporation, or at a place identified in the meeting notice in the
city where the meeting will be held, for the period beginning two
business days after notice of the meeting is given and continuing
through the meeting, and shall be subject to inspection by any
shareholder at any time during regular business hours. This list shall
also be produced and kept open at the time and place of the meeting and
shall be subject to inspection by any shareholder during the meeting or
any adjournment thereof.
Section 8. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall be required
for, and shall constitute a quorum at all meetings of shareholders.
Shares entitled to vote as a separate voting group may take action on a
matter only if a quorum of those shares exists; a
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majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group. The shareholders
present at a duly organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum.
In the absence of a quorum at the opening of any meeting of
shareholders, such meeting may be adjourned from time to time by a vote
of a majority of the shares voting on the motion to adjourn; and at any
adjourned meeting at which a quorum is present, any business may be
transacted that might have been transacted at the original meeting.
Section 9. Organization. Each meeting of shareholders shall be presided over by
the Chairman of the Board, and in his absence or at his request by the
President, and in their absence or at their request by any person
selected to preside by vote of the holders of a majority of the shares
present and entitled to vote at the meeting. The Secretary, or in his
absence or at his request, any person designated by the person presiding
at the meeting, shall act as secretary of the meeting.
Section 10. Proxies. Shares may be voted either in person or by one or more
agents authorized by a written proxy executed by the shareholder or by
his duly authorized attorney-in-fact. A proxy is not valid after the
expiration of eleven months from the date of its execution, unless the
person executing it specifies therein the length of time for which it is
to continue in force, or limits its use to a particular meeting. Any
proxy shall be revocable by the shareholder unless the written
appointment expressly and conspicuously provides that it is irrevocable
and the appointment is coupled with an interest as required by law.
Section 11. Voting of Shares. Subject to the provisions of Section 4 of Article
III and the corporation's Articles of Incorporation, each outstanding
share entitled to vote shall be entitled to one vote on each matter
submitted to a vote at a meeting of shareholders. All shares entitled to
vote shall be counted together collectively on a matter as provided by
the Articles of Incorporation or by
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the North Carolina Business Corporation Act shall constitute a single
voting group. Additional required voting groups shall be determined in
accordance with the Articles of Incorporation and these Bylaws of this
corporation and the North Carolina Business Corporation Act.
Except in the election of directors as governed by the provisions of
Section 3 of Article III, the vote of a majority of the shares voted on
any matter at a meeting of shareholders at which a quorum is present
shall be the act of the shareholders on that matter, unless the vote of
a greater number is required by law or by the Articles of Incorporation
or Bylaws of this corporation. Further, except in the election of
directors, action on a matter by a voting group shall be approved if the
votes cast within the voting group favoring the action exceed the votes
cast opposing the action, unless the vote by a greater number is
required by law or by the Articles of Incorporation or Bylaws of this
corporation. Corporate action on such matters shall be taken only when
approved by each and every voting group entitled to vote as a separate
voting group on such matters as provided by the Articles of
Incorporation or Bylaws of this corporation or by the North Carolina
Business Corporation Act.
Voting on all matters except the election of directors shall be by voice
vote or by a show of hands unless the holders of one-tenth (1/10th) of
the shares represented at the meeting shall, prior to the voting on any
matter, demand a ballot vote on that particular matter. Abstentions
shall not be treated as negative votes.
Shares of the corporation's stock are not entitled to vote if they are
owned, directly or indirectly, by a second corporation and the
corporation owns, directly or indirectly, a majority of the shares
entitled to vote for directors of the second corporation, except that
shares held in a fiduciary capacity, including the corporation's own
shares, may be voted.
Section 12. Informal Action by Shareholders. Any action that is required or
permitted to be taken at a meeting of the shareholders may be taken
without a meeting
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if one or more written consents, describing the action so taken, shall
be signed by all of the persons who would be entitled to vote upon such
action at a meeting, and delivered to the corporation for inclusion in
the minutes or filing with the corporate records. Such consent shall
have the same force and effect as a unanimous vote of shareholders. Any
shareholder may retract his consent until the last shareholder entitled
to vote has signed the appropriate written consent and all consents have
been delivered to the Secretary of the corporation. When notice of a
proposed action is required to be given to nonvoting shareholders as
provided in Section 5 of Article II of these Bylaws, the corporation
shall give the nonvoting shareholders notice at least ten (10) days
before action is taken in lieu of a meeting by unanimous consent of the
voting shareholders. Such notice to nonvoting shareholders shall contain
or be accompanied by any material that would have been required to be
sent to the nonvoting shareholders in a notice of meeting at which the
proposed action would have been submitted to the shareholders for
action.
Section 13. Inspectors of Election.
(a) Appointment of Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or
any adjournment thereof. If inspectors of election are not so appointed,
the chairman of any such meeting may appoint inspectors of election at
the meeting. The number of inspectors shall be either one or three. In
case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the Board of
Directors in advance of the meeting or at the meeting by the person
acting as chairman.
(b) Duties of Inspectors. The inspectors of election shall determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies, receive votes, ballots or consents, hear
and determine all challenges and questions in any way arising in
connection with the right to
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vote, count and tabulate all votes or consents, determine the result and
do such acts as may be proper to conduct the election or vote with
fairness to all shareholders. The inspectors of election shall perform
their duties impartially, in good faith, to the best of their ability
and as expeditiously as is practical.
(c) Vote of Inspectors. If there are three inspectors of election, the
decision, act or certificate of a majority shall be effective in all
respects as the decision, act or certificate of all.
(d) Report of Inspectors. On a request of the chairman of the meeting,
the inspectors shall make a report in writing of any challenge or
question or matter determined by them and shall execute a certificate of
any fact found by them. Any report or certificate made by them shall be
a prima facie evidence of the facts stated therein.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation
managed under the direction of, its Board of Directors or by such
executive or other committees as the Board may establish pursuant to
these Bylaws.
Section 2. Number and Qualifications. The number of directors constituting the
initial Board of Directors shall be not less than one (1) nor more than
five (5) as may be fixed or changed from time to time, within the
minimum and maximum, by the shareholders or by the Board of Directors.
The number of directors is initially set at three (3). Directors need
not be residents of the State of North Carolina or shareholders of the
corporation.
Section 3. Election of Directors. Except as provided in Section 6 of this
Article III, the directors shall be elected at the annual meeting of
shareholders; and those persons who receive the highest number of votes
shall be deemed to have been elected. Every shareholder entitled to vote
at an election of directors shall have the right to vote the number
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of shares standing of record in his name for as many persons as there
are directors to be elected and for whose election he has a right to
vote, or, if cumulative voting rights have been provided for in the
corporation's Articles of Incorporation, to cumulate his vote by giving
one candidate as many votes as the number of such directors multiplied
by the number of his shares shall equal, or by distributing such votes
on the same principle among any number of such candidates. This right of
cumulative voting, if available to the shareholders, shall not be
exercised unless (a) the meeting notice or proxy statement accompanying
the notice states conspicuously that shareholders are entitled to
cumulate their votes, or (b) a shareholder or proxy holder who has the
right to cumulate his votes announces in open meeting, before the voting
for the directors starts, his intention so to vote cumulatively; and if
such announcement is made, the chair shall declare that all shares
entitled to vote have the right to vote cumulatively and shall announce
the number of shares present in person and by proxy and shall thereupon
grant a recess of not less than one nor more than four hours, as he
shall determine, or of such other period of time as is unanimously then
agreed upon.
Section 4. Term of Directors. Each initial director shall hold office until the
first shareholders' meeting at which directors are elected, or until
such director's death, resignation or removal. The terms of every other
director shall expire at the next annual shareholders' meeting following
a director's election or upon such director's death, resignation or
removal. The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected. Despite the
expiration of a director's term, such director shall continue to serve
until a qualified successor shall be elected. A decrease in the number
of directors does not shorten an incumbent director's term.
Section 5. Removal. Any director may be removed at any time with or without
cause by a vote of the shareholders if the number or votes cast to
remove such director exceeds the number of votes cast not to remove him.
However, if cumulative voting is authorized, a director shall not be
removed when the number of
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shares voting against the proposal for removal would be sufficient to
elect a director if such shares were voted cumulatively at an annual
election. If a director is elected by a voting group of shareholders,
only the shareholders of that voting group may participate in the vote
to remove him. If any directors are so removed, new directors may be
elected at the same meeting. A director may not be removed by the
shareholders at a meeting unless the notice of the meeting states that
the purpose, or one of the purposes, of the meeting, is removal of the
director.
Section 6. Vacancies. Any vacancy occurring in the Board of Directors,
including, without limitation, a vacancy resulting from an increase in
the number of directors or from the failure by the shareholders to elect
the full authorized number of directors, may be filled by the
shareholders or the Board of Directors, whichever group shall act first.
If the directors remaining in office do not constitute a quorum of the
Board, the directors may fill the vacancy by the affirmative vote of a
majority of the remaining directors.
Section 7. Chairman of the Board. There may be a Chairman of the Board of
Directors elected by the directors from their number at any meeting of
the Board. The Chairman shall preside at all meetings of the Board of
Directors and perform such other duties as may be directed by the Board.
He shall be an ex officio member of all committees. He shall make a
report in writing at the annual meeting of the Board of Directors
stating the condition of the corporation and shall make such suggestions
and recommendations as he shall deem proper for the best interests of
the corporation. He shall appoint delegates and representatives to the
organizations with which the corporation is affiliated. He shall have
the power to call the regular and any special meetings of the Board of
Directors. Until a Chairman is elected, the President of the corporation
shall preside at the meetings of the Board of Directors and
shareholders.
Section 8. Compensation. The Board of Directors, in its discretion, may
compensate directors for their services as such and may provide for the
payment of all expenses incurred by directors in attending
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regular and special meetings of the Board or of the Executive Committee.
Nothing herein contained, however, shall be construed to preclude any
director from serving the corporation in any other capacity and
receiving compensation therefor.
Section 9. Executive Committees. The Board of Directors, by resolution adopted
by a majority of the number of directors in office when the action is
taken or, if greater, the number of directors required to take action
pursuant to Section 6 of Article IV, may designate two or more directors
to constitute an Executive Committee and other committees, each of
which, to the extent authorized by law and provided in such resolution,
shall have and may exercise all of the authority of the Board of
Directors in the management of the corporation. Each committee member
serves at the pleasure of the Board of Directors. The provisions in
these Bylaws that govern meetings, action without meetings, notice and
waiver of notice, and quorum and voting requirements of the Board of
Directors apply to committees established by the Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. A regular meeting of the Board of Directors shall
be held immediately after, and at the same place as, the annual meeting
of shareholders. In addition, the Board of Directors may provide, by
resolution, the time and place, either within or without the State of
North Carolina, for the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors may be
called by or at the request of the Chairman of the Board of Directors,
if any, by the President or any two directors. Such meetings may be held
either within or without the State of North Carolina, as fixed by the
person or persons calling the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of Directors may be
held without notice.
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The person or persons calling a special meeting of the Board of
Directors shall, at least two days before the meeting, give notice
thereof by any usual means of communication. Such notice need not
specify the purpose for which the meeting is called.
Section 4. Waiver of Notice. Any director may waive notice of any meeting. The
waiver must be in writing, signed by the director entitled to the notice
and delivered to the corporation for inclusion in the minutes or filing
with the corporate records. A director's attendance at or participation
in a meeting shall constitute a waiver of notice of such meeting, unless
the director at the beginning of the meeting (or promptly on arrival)
objects to holding the meeting or transacting business at the meeting
and does not thereafter vote for or assent to action taken at the
meeting.
Section 5. Quorum. A majority of the directors fixed by these Bylaws shall be
required for, and shall constitute, a quorum for the transaction of
business at any meeting of the Board of Directors unless the Articles of
Incorporation or these Bylaws provide otherwise.
Section 6. Manner of Acting. Except as otherwise provided in the Articles of
Incorporation or these Bylaws, the act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of
the Board of Directors.
Section 7. Presumption of Assent. A director of the corporation who is present
at a meeting of the Board of Directors or a committee of the Board of
Directors when corporate action is taken is deemed to have assented to
the action taken unless (a) he objects at the beginning of the meeting
(or promptly upon his arrival) to holding it or transacting business at
the meeting, or (b) his dissent or abstention from the action taken is
entered in the minutes of the meeting, or (c) he files written notice of
his dissent or abstention with the presiding officer of the meeting
before its adjournment or with the corporation immediately after the
adjournment. Such right to dissent shall not apply to a director who
voted in favor of such action.
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Section 8. Action Without Meeting. Action required or permitted to be taken at a
meeting of the Board of Directors may be taken without a meeting if the
action is taken by all members of the Board. The action must be
evidenced by one or more written consents signed by each director before
or after such action, describing the action taken, and included in the
minutes or filed with the corporate records. Such action will become
effective when the last director signs the consent, unless the consent
specifies a different date.
Section 9. Conference Telephone Meetings. Any one or more directors or members
of a committee may participate in a meeting of the Board of Directors or
committee by means of a conference telephone or similar communications
device that allows all persons participating in the meeting to hear each
other, and such participation in a meeting shall be deemed presence in
person at such meeting.
ARTICLE V
OFFICERS
Section 1. Officers of the Corporation. The officers of the corporation shall
consist of a Chairman of the Board, President, a Secretary, a Treasurer
and such Vice-Presidents, Assistant Secretaries, Assistant Treasurers,
and other officers (including Controllers and Assistant Controllers) as
the Board of Directors may from time to time elect. Any two or more
offices may be held by the same person, but no officer may act in more
than one capacity where action of two or more officers is required.
Section 2. Appointment and Term. The officers of the corporation shall be
appointed by the Board of Directors and each officer shall hold office
until his death, resignation, retirement, removal, disqualification, or
his successor shall have been appointed and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board at any time with or without cause;
but such removal shall be without prejudice to the contract rights, if
any, of the person so removed.
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Section 4. Resignation. An officer may resign at any time by communicating his
resignation to the corporation, orally or in writing. A resignation is
effective when communicated unless it specifies in writing a later
effective date. If a resignation is made effective at a later date that
is accepted by the corporation, the Board of Directors may fill the
pending vacancy before the effective date if the Board provides that the
successor does not take office until the effective date. An officer's
resignation does not affect the corporation's contract rights, if any,
with the officer.
Section 5. Compensation of Officers. The compensation of all officers of the
corporation shall be fixed by the Board of Directors and no officer
shall serve the corporation in any other capacity and receive
compensation therefor unless such additional compensation be authorized
by the Board of Directors.
Section 6. Chairman of the Board. Unless otherwise specified by resolution of
the Board, the Chairman of the Board shall be the Chief Executive
Officer of the corporation (and may be identified as such in his title)
and, subject to the direction and control of the Board of Directors,
shall supervise and control the management of the corporation. The
Chairman of the Board shall, when present, preside at all meetings of
the directors and shareholders and, in general, shall perform all duties
incident to the office of Chairman of the Board and such other duties as
may be prescribed from time to time by the Board of Directors.
Section 7. President. Unless otherwise specified by resolution of the Board, the
President shall be the Chief Operating Officer of the corporation and,
subject to the control of the Board of Directors, shall in general
supervise and control all of the business and affairs of the
corporation. He shall, in the absence of the Chairman of the Board,
preside at all meetings of the shareholders. He shall sign, with the
Secretary, an Assistant Secretary, or any other proper officer of the
corporation thereunto authorized by the Board of Directors, certificates
for shares of the corporation, any deeds, mortgages, bonds, contracts,
or other instruments that the Board of Directors has authorized to be
executed, except in cases where the signing and
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execution thereof shall be expressly delegated by the Board of Directors
or by these Bylaws to some other officer or agent of the corporation, or
shall be required by law to be, otherwise signed or executed; and, in
general, he shall perform all duties incident to the office of President
and such other duties as may be prescribed by the Board of Directors
from time to time.
Section 8. Vice-Presidents. In the absence of the President or in the event of
his death, inability or refusal to act, the Vice-Presidents in the order
of their length of service as such, unless otherwise determined by the
Board of Directors, shall perform the duties of the President, and when
so acting shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice-President may sign, with the
Secretary or an Assistant Secretary, certificates of shares of the
corporation; and shall perform such other duties as from time to time
may be assigned to him by the President or Board of Directors. The Board
of Directors may designate one or more Vice-Presidents to be responsible
for certain functions, including, without limitation, Marketing,
Finance, Manufacturing and Personnel.
Section 9. Secretary. The Secretary shall: (a) keep the minutes of the meetings
of shareholders, of the Board of Directors and of all Executive
Committees in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (c) be custodian of the corporate records
and of the seal of the corporation and see that the seal of the
corporation is affixed to all documents the execution of which on behalf
of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e) sign with the
President, or a Vice-President, certificates for shares of the
corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) maintain and have general
charge of the stock transfer books of the corporation; (g) prepare or
cause to be prepared shareholder lists prior to each meeting of
shareholders as required by law; (h) attest the signature or certify the
incumbency or signature
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of any officer of the corporation; and (i) in general perform all duties
incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the President or by the Board of
Directors.
Section 10. Assistant Secretaries. In the absence of the Secretary or in the
event of his death, inability or refusal to act, the Assistant
Secretaries in the order of their lengths of service as Assistant
Secretaries, unless otherwise determined by the Board of Directors,
shall perform the duties of the Secretary, and when so acting shall have
all the powers of and be subject to all the restrictions upon the
Secretary. They shall perform such other duties as may be assigned to
them by the Secretary, by the President, or by the Board of Directors.
Any Assistant Secretary may sign, with the President or a
Vice-President, certificates for shares of the corporation.
Section 11. Treasurer. The Treasurer shall: (a) have charge and custody of and
be responsible for all funds and securities of the corporation; receive
and give receipts for monies due and payable to the corporation from any
source whatsoever, and deposit all such monies in the name of the
corporation in such depositories as shall be selected in accordance with
the provisions of Section 4 of Article VI of these Bylaws; (b) maintain
appropriate accounting records as required by law; (c) prepare, or cause
to be prepared, annual financial statements of the corporation that
include a balance sheet as of the end of the fiscal year and an income
and cash flow statement for that year, which statements, or a written
notice of their availability, shall be mailed to each shareholder within
One Hundred Twenty (120) days after the end of such fiscal year; and (d)
in general perform all of the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him by the
President or by the Board of Directors, or by these Bylaws.
Section 12. Assistant Treasurers. In the absence of the Treasurer or in the
event of his death, inability or refusal to act, the Assistant
Treasurers in the order of their length of service as such, unless
otherwise determined by the Board of Directors,
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shall perform the duties of the Treasurer, and when so acting shall have
all the powers of and be subject to all the restrictions upon the
Treasurer. They shall perform such other duties as may be assigned to
them by the Treasurer, by the President, or by the Board of Directors.
Section 13. Controller and Assistant Controllers. The Controller, if one has
been appointed, shall have charge of the accounting affairs of the
corporation and shall have such other powers and perform such other
duties as the Board of Directors shall designate. Each Assistant
Controller shall have such powers and perform such duties as may be
assigned by the Board of Directors and the Assistant Controller shall
exercise the powers of the Controller during that officer's absence or
inability to act.
Section 14. Delegation of Duties of Officers. In case of the absence of any
officer of the corporation or for any other reason that the Board may
deem sufficient, the Board may delegate the powers or duties of such
officer to any other officer or to any director for the time being
provided a majority of the entire Board of Directors concurs herein.
Section 15. Bonds. The Board of Directors may by resolution, require any or all
officers, agents or employees of the corporation to give bond to the
corporation, with sufficient sureties, conditioned on the faithful
performance of the duties of their respective offices or positions, and
to comply with such other conditions as may from time to time be
required by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation,
and such authority may be general or confined to specific instances. Any
resolution of the Board of Directors authorizing the execution of
documents by the proper officers of the
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corporation or by the officers generally shall be deemed to authorize
such execution by the Chairman of the Board, the President, any
Vice-President, or the Treasurer, or any other officer if such execution
is generally within the scope of the duties of his office. The Board of
Directors may by resolution authorize such execution by means of one or
more facsimile signatures.
Section 2. Loans. No loans shall be contracted on behalf of the corporation and
no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may
be general or confined to specific instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for the payment
of money issued in the name of the corporation shall be signed by such
officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the
Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such
depositories as the Board of Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may authorize the
issuance of some or all of the shares of the corporation's classes or
series without issuing certificates to represent such shares. If shares
are represented by certificates, the certificates shall be in such form
as required by law and shall be determined by the Board of Directors.
Certificates shall be signed (either manually or in facsimile) by the
Chairman of the Board, President or a Vice-President and by the
Secretary or Treasurer or an Assistant Secretary or an Assistant
Treasurer. The signatures of any such officers upon a certificate may be
facsimiles or may be engraved or printed. In case any officer who has
signed or whose facsimile or other signature has been placed upon such
certificate shall have
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ceased to be such officer before such certificate is issued, it may be
issued by the corporation with the same effect as if he were such
officer at the date of its issue. All certificates for shares shall be
consecutively numbered or otherwise identified and entered into the
stock transfer books of the corporation. When shares are represented by
certificates, the corporation shall issue and deliver to each
shareholder to whom such shares have been issued or transferred,
certificates representing the shares owned by him. When shares are not
represented by certificates, then within a reasonable time after the
issuance or transfer of such shares, the corporation shall send the
shareholder to whom such shares have been issued or transferred a
written statement of the information required by law to be on
certificates.
Section 2. Stock Transfer Books. The corporation shall keep a book or set of
books, to be known as the stock transfer books of the corporation,
containing the name of each shareholder of record, together with such
shareholder's address and the number and class or series of shares held
by him. Transfer of shares shall be made only on the stock transfer
books of the corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, and on surrender for
cancellation of the certificate for such shares (if the shares are
represented by certificates). All certificates surrendered for transfer
(if the shares are represented by certificates) shall be cancelled
before new certificates (or written statements in lieu thereof) for the
transferred shares shall be issued or delivered to the shareholder.
Section 3. Restrictions on Transfer.
(a) If the corporation has elected Subchapter S status under Section
1362 of the Internal Revenue Code of 1986, as amended, no shareholder or
involuntary transferee shall dispose of or transfer any shares of the
corporation that he now owns or may hereafter acquire if such
disposition or transfer would result in the termination of such
Subchapter S status, unless such disposition or transfer is consented to
by all shareholders of
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the corporation. Any such disposition or transfer that does not comply
with the terms of this section shall be void and have no legal force or
effect and shall not be recognized on the share transfer books of the
corporation as effective.
(b) If the corporation has elected Subchapter S status under Section
1362 of the Code, every certificate representing shares of the
corporation shall bear a legend prominently displayed that notes the
restrictions on transfer contained in these Bylaws.
(c) The restrictions contained in this Section 3 shall automatically
terminate on the effectiveness of the corporation's initial registration
statement for a public offering of its securities.
Section 4. Fixing Record Date. The Board of Directors may fix a future date as
the record date for one or more voting groups in order to determine the
shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment
of any distribution, or in order to make a determination of shareholders
for any other proper purpose. Such record date may not be more than
seventy (70) days before the meeting or date on which the particular
action requiring such determination of shareholders is to be taken. A
determination of shareholders entitled to notice of or to vote at a
shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned
meeting, which it must do if the meeting is adjourned to a date more
than One Hundred Twenty (120) days after the date fixed for the original
meeting.
If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a distribution, the close of
business on the day before the first notice of the meeting is delivered
to shareholders or the date on which the resolution of the Board of
Directors declaring such distribution is adopted, as the case may be,
shall be the record date for such determination of shareholders.
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Section 5. Lost or Destroyed Certificate. The Board of Directors may direct a
new certificate to be issued in place of any certificate theretofore
issued by the corporation claimed to have been lost, destroyed or
wrongfully taken, upon receipt of an affidavit of such fact from the
person claiming the certificate of stock to have been lost or destroyed.
When authorizing such issue of a new certificate, the Board of Directors
shall require that the owner of such lost or destroyed certificate, or
his legal representative, give the corporation a bond in such sum as the
Board may direct as indemnity against any claim that may be made against
the corporation with respect to the certificate claimed to have been
lost or destroyed, except where the Board of Directors by resolution
finds that in the judgment of the directors the circumstances justify
omission of a bond.
Section 6. Holder of Record. Except as otherwise required by law, the
corporation may treat as absolute owner of shares the person in whose
name the shares stand of record on its books just as if that person had
full competency, capacity and authority to exercise all rights of
ownership irrespective of any knowledge or notice to the contrary or any
description indicating a representative, pledge or other fiduciary
relation or any reference to any other instrument or to the rights of
any other person appearing upon its record or upon the share certificate
except that any person furnishing to the corporation proof of his
appointment as a fiduciary shall be treated as if he were a holder of
record of its shares.
Section 7. Shares Held By Nominees.
(a) The corporation shall recognize the beneficial owner of shares
registered in the name of a nominee as the owner and shareholder of such
shares for certain purposes if the nominee in whose name such shares are
registered files with the Secretary of the corporation a written
certificate in a form prescribed by the corporation, signed by the
nominee and indicating the following: (1) the name, address and taxpayer
identification number of the nominee; (2) the name, address and taxpayer
identification number of the beneficial owner; (3) the number and class
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or series of shares registered in the name of the nominee as to which
the beneficial owner shall be recognized as the shareholder; and (4) the
purposes for which the beneficial owner shall be recognized as the
shareholder.
(b) The purposes for which the corporation shall recognize a beneficial
owner as the shareholder may include the following: (1) receiving notice
of, voting at and otherwise participating in shareholders' meetings; (2)
executing consents with respect to the shares; (3) exercising
dissenters' rights under Article 13 of the North Carolina Business
Corporation Act; (4) receiving distributions and share dividends with
respect to the shares; (5) exercising inspection rights; (6) receiving
reports, financial statements, proxy statements and other communications
from the corporation; (7) making any demand upon the corporation
required or permitted by law; and (8) exercising any other rights or
receiving any other benefits of a shareholder with respect to the
shares.
(c) The certificate shall be effective ten (10) business days after its
receipt by the corporation and until it is changed by the nominee,
unless the certificate specifies a later effective time or an earlier
termination date.
(d) If the certificate affects less than all of the shares registered in
the name of the nominee, the corporation may require the shares affected
by the certificate to be registered separately on the books of the
corporation and be represented by a share certificate that bears a
conspicuous legend stating that there is a nominee certificate in effect
with respect to the shares represented by that share certificate.
Section 8. Acquisition by Corporation of its Own Shares. The corporation may
acquire its own shares and shares so acquired shall constitute
authorized but unissued shares. Unless otherwise prohibited by the
Articles of Incorporation, the corporation may reissue such shares. If
reissue is prohibited, the Articles of Incorporation shall be amended to
reduce the number of authorized shares by the number of shares so
acquired. Such required
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amendment may be adopted by the Board of Directors without shareholder
action.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time to time
authorize, and the corporation may make distributions to its
shareholders pursuant to law and subject to the provisions of its
Articles of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist of two
concentric circles between which is the name of the corporation and in
the center of which is inscribed CORPORATE SEAL; and such seal, as
impressed on the margin hereof, is hereby adopted as the corporate seal
of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed by the
Board of Directors.
Section 4. Amendments. Except as otherwise provided herein and by law, these
Bylaws may be amended or repealed and new bylaws may be adopted by the
affirmative vote of a majority of the directors then holding office at
any regular or special meeting of the Board of Directors.
No bylaw adopted or amended or repealed by the shareholders shall be
readopted, amended or repealed by the Board of Directors, unless the
Articles of Incorporation or a bylaw adopted by the shareholders
authorizes the Board of Directors to adopt, amend or repeal that
particular bylaw or the Bylaws generally.
Section 5. Salary and Other Compensation. Any payments made to an officer of the
corporation such as salary, commission, bonus, interest, rent or
entertainment expense incurred by him, that shall be disallowed in whole
or in part as a deductible expense by the Internal Revenue Service,
shall be reimbursed by such officer of the corporation to the full
extent of such disallowance.
Section 6. Indemnification. Any person who at any time serves or has served as a
director or officer of the corporation or in such capacity at the
request of
22
<PAGE>
the corporation or officer of the corporation, partnership, joint
venture, trust or other enterprise, shall have a right to be indemnified
by the corporation to the fullest extent permitted by law against (a)
reasonable expenses, including attorneys' fees, actually and necessarily
incurred by him in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (and any appeal therein), and whether or not brought by or
on behalf of the corporation, seeking to hold him liable by reason of
the fact that he is or was acting in such capacity, and (b) reasonable
payments made by him in satisfaction of any judgment, money decree,
fine, penalty or settlement for which he may have become liable in any
such action, suit or proceeding.
The Board of Directors of the corporation shall take all such action as
may be necessary and appropriate to authorize the corporation to pay the
indemnification required by this bylaw, including without limitation, to
the extent needed, making a good faith evaluation of the manner in which
the claimant for indemnity acted and of the reasonable amount of
indemnity due him and giving notice to, and obtaining approval by, the
shareholders of the corporation. Any person who at any time after the
adoption of this bylaw serves or has served in any of the aforesaid
capacities for or on behalf of the corporation shall be deemed to be
doing or to have done so in reliance upon, and as consideration for, the
right of indemnification provided herein. Such right shall inure to the
benefit of the legal representatives of any such person and shall not be
exclusive of any other rights to which such person may be entitled apart
from the provision of this bylaw.
Section 7. Advance Payment of Expenses. The corporation shall (upon receipt of
an undertaking by or on behalf of the director or officer involved to
repay the expenses described herein unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation
against such expenses) pay expenses (including attorneys' fees) incurred
by such director, officer, employee or agent in defending any
threatened, pending or completed action, suit or proceeding and any
23
<PAGE>
appeal therein whether civil, criminal, administrative, investigative or
arbitrative and whether formal or informal or appearing as a witness at
a time when he has not been named as a defendant or a respondent with
respect thereto in advance of the final disposition of such proceeding.
Section 8. Directors and Officers Liability Insurance. The Board of Directors
may cause the corporation to purchase and maintain "Directors and
Officers Liability Insurance" for the benefit of any person who is or
was serving as a director, officer, employee or agent of this
corporation or for the benefit of any person who is or was serving at
the request of this corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust or other
enterprise. This insurance may cover any liability incurred by such
person in any capacity arising out of this status as such even if the
corporation would not otherwise have the power to indemnify him against
that liability.
Section 9. Effective Date of Notice. Except as provided in Section 5 of Article
II, written notice shall be effective at the earliest of the following:
(1) when received; (2) five days after its deposit in the United States
mail, as evidenced by the postmark, if mailed with postage thereon
prepaid and correctly addressed; or (3) on the date shown on the return
receipt, if sent by registered or certified mail, return receipt
requested and the receipt is signed by or on behalf of the addressee.
Section 10. Corporate Records. Any records maintained by the corporation in the
regular course of its business, including its stock ledger, books of
account and minute books, may be kept on or be in the form of punch
cards, magnetic tape, photographs, microphotographs or any other
information storage device; provided that the records so kept can be
converted into clearly legible form within a reasonable time. The
corporation shall so convert any records so kept upon the request of any
person entitled to inspect the same. The corporation shall maintain at
its principal office the following records: (1) Articles of
Incorporation or Restated Articles of Incorporation and all
24
<PAGE>
amendments thereto; (2) Bylaws or restated Bylaws and all amendments
thereto; (3) resolutions by the Board of Directors creating classes or
series of shares and affixing rights, preferences or limitations to
shares; (4) minutes of all shareholder meetings or action taken without
a meeting for the past three years; (5) all written communications to
shareholders for the past three years, including financial statements;
and (6) the corporation's most recent annual report filed with the North
Carolina Secretary of State.
Section 11. Amendments to Articles of Incorporation. To the extent permitted by
law, the Board of Directors may amend the Articles of Incorporation
without shareholder approval to (1) delete the initial directors' names
and addresses; (2) change the initial registered agent or office in any
state in which it is qualified to do business, provided such change is
on file with the applicable Secretary of State; (3) change each issued
and unissued share of an outstanding class into a greater number of
whole shares, provided that class is the corporation's only outstanding
share class; (4) change the corporate name by substituting
"corporation," "incorporated," "company," "limited" or the abbreviations
therefor for a similar word or abbreviation or by adding, deleting or
changing a geographic designation in the name; (5) make any other change
expressly permitted by the North Carolina Business Corporation Act to be
made without shareholder action. All other amendments to the Articles of
Incorporation must be approved by the appropriate voting group or groups
as required by law.
25
<PAGE>
CERTIFICATE OF ADOPTION OF BYLAWS
<PAGE>
FOR BTI TELECOM CORP.
<PAGE>
The undersigned certifies that the foregoing twenty-six (26) pages were
adopted as the Bylaws of the corporation effective ________________________,
1997 by the Board of Directors of the corporation pursuant to the initial action
of the Board of Directors by unanimous written consent and were recorded in the
minutes thereof.
<PAGE>
IN WITNESS WHEREOF, the undersigned certifies that he has hereunto set
his hand and affixed the corporate seal this ______ day of ___________, 1997.
BTI TELECOM CORP.,
BUSINESS TELECOM, INC.
and
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
Indenture
Dated as of September 22, 1997
10 1/2% Senior Notes due 2007
<PAGE>
CROSS-REFERENCE TABLE
TIA Sections Indenture Sections
ss. 310(a)(1)............................................. 7.10
(a)(2)............................................. 7.10
(b)................................................ 7.08
ss. 313(c)................................................ 7.06; 11.02
ss. 314(a)................................................ 4.17; 11.02
(a)(4)............................................. 4.16; 11.02
(c)(1)............................................. 11.03
(c)(2)............................................. 11.03
(e)................................................ 11.04
ss. 315(b)................................................ 7.05; 11.02
ss. 316(a)(1)(A).......................................... 6.05
(a)(1)(B).......................................... 6.04
(b)................................................ 6.07
ss. 317(a)(1)............................................. 6.08
(a)(2)............................................. 6.09
ss. 318(a)................................................ 11.01
(c)................................................ 11.01
Note: The Cross-Reference Table shall not for any purpose be deemed to be a
part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. Definitions............................................................. 1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.......................22
SECTION 1.03. Rules of Construction...................................................22
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating.........................................................23
SECTION 2.02. Restrictive Legends.....................................................24
SECTION 2.03. Execution, Authentication and Denominations.............................26
SECTION 2.04. Registrar and Paying Agent..............................................27
SECTION 2.05. Paying Agent to Hold Money in Trust.....................................28
SECTION 2.06. Transfer and Exchange...................................................28
SECTION 2.07. Book-Entry Provisions for Global Notes..................................29
SECTION 2.08. Special Transfer Provisions.............................................31
SECTION 2.09. Replacement Notes.......................................................34
SECTION 2.10. Outstanding Notes.......................................................35
SECTION 2.11. Temporary Notes.........................................................35
SECTION 2.12. Cancellation............................................................36
SECTION 2.13. CUSIP Numbers...........................................................36
SECTION 2.14. Defaulted Interest......................................................36
SECTION 2.15. Issuance of Additional Notes............................................36
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Mandatory Redemption...............................37
SECTION 3.02. Notices to Trustee......................................................37
SECTION 3.03. Selection of Notes to Be Redeemed.......................................38
SECTION 3.04. Notice of Redemption....................................................38
SECTION 3.05. Effect of Notice of Redemption..........................................39
SECTION 3.06. Deposit of Redemption Price.............................................39
- --------
Note: The Table of Contents shall not for any purposes be deemed to be a part
of the Indenture.
<PAGE>
ii
Page
SECTION 3.07. Payment of Notes Called for Redemption..................................40
SECTION 3.08. Notes Redeemed in Part..................................................40
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes........................................................40
SECTION 4.02. Maintenance of Office or Agency.........................................40
SECTION 4.03. Limitation on Indebtedness..............................................41
SECTION 4.04. Limitation on Restricted Payments.......................................44
SECTION 4.05. Limitation on Dividend and Other Payment Restrictions Affecting
Restricted Subsidiaries.........................................48
SECTION 4.06. Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries....................................................49
SECTION 4.07. Limitation on Issuances of Guarantees by Restricted Subsidiaries........50
SECTION 4.08. Limitation on Transactions with Stockholders and Affiliates.............50
SECTION 4.09. Limitation on Liens.....................................................51
SECTION 4.10. Limitation on Asset Sales...............................................52
SECTION 4.11. Repurchase of Notes upon a Change of Control............................53
SECTION 4.12. Existence...............................................................53
SECTION 4.13. Payment of Taxes and Other Claims.......................................53
SECTION 4.14. Maintenance of Properties and Insurance.................................54
SECTION 4.15. Notice of Defaults......................................................54
SECTION 4.16. Compliance Certificates.................................................54
SECTION 4.17. Commission Reports and Reports to Holders...............................55
SECTION 4.18. Waiver of Stay, Extension or Usury Laws.................................55
SECTION 4.19. Limitation on Sale-Leaseback Transactions...............................56
SECTION 4.20. Special Repurchase Offer................................................56
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc.............................................57
SECTION 5.02. Successor Substituted...................................................58
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.......................................................58
SECTION 6.02. Acceleration............................................................59
<PAGE>
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Page
SECTION 6.03. Other Remedies..........................................................60
SECTION 6.04. Waiver of Past Defaults.................................................60
SECTION 6.05. Control by Majority.....................................................61
SECTION 6.06. Limitation on Suits.....................................................61
SECTION 6.07. Rights of Holders to Receive Payment....................................61
SECTION 6.08. Collection Suit by Trustee..............................................62
SECTION 6.09. Trustee May File Proofs of Claim........................................62
SECTION 6.10. Priorities..............................................................62
SECTION 6.11. Undertaking for Costs...................................................63
SECTION 6.12. Restoration of Rights and Remedies......................................63
SECTION 6.13. Rights and Remedies Cumulative..........................................63
SECTION 6.14. Delay or Omission Not Waiver............................................63
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General ................................................................64
SECTION 7.02. Certain Rights of Trustee...............................................64
SECTION 7.03. Individual Rights of Trustee............................................65
SECTION 7.04. Trustee's Disclaimer....................................................65
SECTION 7.05. Notice of Default.......................................................65
SECTION 7.06. Reports by Trustee to Holders...........................................66
SECTION 7.07. Compensation and Indemnity..............................................66
SECTION 7.08. Replacement of Trustee..................................................67
SECTION 7.09. Successor Trustee by Merger, Etc........................................68
SECTION 7.10. Eligibility.............................................................68
SECTION 7.11. Money Held in Trust.....................................................68
SECTION 7.12. Withholding Taxes.......................................................68
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations....................................69
SECTION 8.02. Defeasance and Discharge of Indenture...................................70
SECTION 8.03. Defeasance of Certain Obligations.......................................72
SECTION 8.04. Application of Trust Money..............................................74
SECTION 8.05. Repayment to Company....................................................74
SECTION 8.06. Reinstatement...........................................................74
<PAGE>
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Page
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders..............................................75
SECTION 9.02. With Consent of Holders.................................................75
SECTION 9.03. Revocation and Effect of Consent........................................77
SECTION 9.04. Notation on or Exchange of Notes........................................77
SECTION 9.05. Trustee to Sign Amendments, Etc.........................................77
SECTION 9.06. Conformity with Trust Indenture Act.....................................78
ARTICLE TEN
SECURITY
SECTION 10.01. Security...............................................................78
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939............................................79
SECTION 11.02. Notices................................................................79
SECTION 11.03. Certificate and Opinion as to Conditions Precedent.....................81
SECTION 11.04. Statements Required in Certificate or Opinion..........................81
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar............................81
SECTION 11.06. Payment Date Other Than a Business Day.................................81
SECTION 11.07. Governing Law..........................................................82
SECTION 11.08. No Adverse Interpretation of Other Agreements..........................82
SECTION 11.09. No Recourse Against Others.............................................82
SECTION 11.10. Successors.............................................................82
SECTION 11.11. Duplicate Originals....................................................82
SECTION 11.12. Separability...........................................................82
SECTION 11.13. Table of Contents, Headings, Etc.......................................83
ARTICLE TWELVE
MEETINGS OF HOLDERS
SECTION 12.01. Purposes for Which Meetings May Be Called..............................83
SECTION 12.02. Manner of Calling Meetings.............................................83
SECTION 12.03. Call of Meetings by the Company or Holders.............................84
SECTION 12.04. Who May Attend and Vote at Meetings....................................84
SECTION 12.05. Quorum; Action.........................................................84
<PAGE>
v
Page
SECTION 12.06. Regulations May Be Made by Trustee; Conduct of the Meeting;
Voting Rights; Adjournment......................................85
SECTION 12.07. Voting at the Meeting and Record to Be Kept............................86
SECTION 12.08. Exercise of Rights of Trustee or Holders May Not Be Hindered or
Delayed by Call of Meeting......................................86
SECTION 12.09. Procedures Not Exclusive...............................................86
EXHIBIT A Form of Note.........................................................A-1
EXHIBIT B Form of Certificate..................................................B-1
EXHIBIT C Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Non-QIB Accredited Investors........C-1
EXHIBIT D Form of Certificate to Be Delivered in Connection with
Transfers Pursuant to Regulation S........................D-1
</TABLE>
<PAGE>
INDENTURE, dated as of September 22, 1997, between BTI TELECOM CORP., a
North Carolina corporation ("BTI Telecom"), BUSINESS TELECOM, INC., a North
Carolina corporation ("BTI"), and First Trust of New York, National Association,
a national banking association (the "Trustee").
RECITALS
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance initially of up to $250,000,000 aggregate
principal amount of BTI Telecom's 10 1/2% Senior Notes due 2007 (the "Notes")
issuable as provided in this Indenture. The Notes will be partially secured
pursuant to the terms of a Pledge Agreement (as defined herein) as provided by
Article Ten of this Indenture. All things necessary to make this Indenture a
valid agreement of BTI Telecom and BTI, in accordance with its terms, have been
done, and BTI Telecom has done all things necessary to make the Notes, when
executed by BTI Telecom and authenticated and delivered by the Trustee hereunder
and duly issued by BTI Telecom, the valid obligations of BTI Telecom as
hereinafter provided.
This Indenture is subject to, and shall be governed by, the provisions
of the Trust Indenture Act of 1939 that are required to be a part of and to
govern indentures qualified under the Trust Indenture Act of 1939.
AND THIS INDENTURE FURTHER WITNESSETH
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders, BTI Telecom, BTI and the Trustee, as
follows.
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"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
<PAGE>
2
transactions by which such Person becomes a Restricted Subsidiary or such Asset
Acquisition 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 paragraph Section 4.04 (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 Section 4.04, 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; (vi) all extraordinary gains and extraordinary losses;
and (vii) any compensation expense paid or payable solely with Capital Stock
(other than Redeemable Stock) of the Company or any options, warrants or other
rights to acquire Capital Stock (other than Redeemable Stock) of the Company.
"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.
<PAGE>
3
"Agent" means any Registrar, Co-Registrar, Paying Agent or
authenticating agent.
"Agent Members" has the meaning provided in Section 2.07(a).
"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 assets (other than the Capital Stock of 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 Article
Five; 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 $1 million 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 first paragraph of Section 4.10,
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
<PAGE>
4
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.
"Board of Directors" means the Board of Directors of the Company or any
committee of such Board of Directors duly authorized to act under this
Indenture.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in The City of New York, or in the city of the Corporate
Trust Office of the Trustee, are authorized by law to close.
"BTI" means the party named in the first paragraph of this Indenture.
"BTI Refinancing" means the execution and delivery, on or prior to the
Closing Date, of the Credit Agreement.
"BTI Telecom" means the party named in the first paragraph of this
Indenture.
"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 Peter T. Loftin and his Affiliates 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), other
than
<PAGE>
5
Peter T. Loftin and his Affiliates, 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 Peter T.
Loftin and his Affiliates 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 this Indenture.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the TIA, then the body performing such duties at
such time.
"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.
"Company" means, (i) prior to the consummation of the Reorganization,
collectively BTI Telecom and BTI and (ii) following the consummation of the
Reorganization, BTI Telecom, in each case until a successor replaces it pursuant
to Article Five and thereafter means the successor.
"Company Order" means a written request or order signed in the name of
the Company (i) by its Chairman, a Vice Chairman, its President or a Vice
President and (ii) by its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary and delivered to the Trustee; provided, however, that such
written request or order may be signed by any two of the officers or directors
listed in clause (i) above in lieu of being signed by one of such officers or
directors listed in such clause (i) and one of the officers listed in clause
(ii) above.
"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 calculating Adjusted
Consolidated Net Income, (iii)
<PAGE>
6
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 Transactions, 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
<PAGE>
7
pursuant to Section 4.17 (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 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).
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, at the date of this Indenture,
located at 100 Wall Street, 16th Floor, New York, New York 10005, Attention:
Corporate Trust Department.
"Credit Agreement" means the amended and restated credit agreement
contemplated by the Commitment Letter dated August 29, 1997 between BTI and
General Electric Capital Corporation, together with any agreements, instruments
and documents executed or delivered
<PAGE>
8
pursuant to or in connection with such credit agreement, in each case as such
credit agreement or such agreements, instruments or documents may be amended,
supplemented, extended, renewed, replaced or otherwise modified from time to
time.
"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.
"Depositary" means The Depository Trust Company, its nominees, and
their respective successors.
"Event of Default" has the meaning provided in Section 6.01.
"Excess Proceeds" has the meaning provided in Section 4.10.
"Exchange Act" means the Securities Exchange Act of 1934.
"Exchange Notes" means any securities of the Company containing terms
identical to the Notes (except that such Exchange Notes shall be registered
under the Securities Act) that are issued and exchanged for the Notes pursuant
to the Registration Rights Agreement and this Indenture.
"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 Section 4.03(a), (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.
"FiberSouth" means FiberSouth, Inc., a North Carolina corporation.
<PAGE>
9
"FiberSouth Acquisition" means the acquisition by BTI of substantially
all the assets of FiberSouth (other than its cable television assets) for
approximately $31.0 million and the repayment of up to $5.5 million of
indebtedness of FiberSouth in connection therewith.
"FiberSouth Officers' Certificate and Opinion of Counsel" means
collectively the FiberSouth Officers' Certificate (as defined in the Pledge
Agreement) and the Opinion of Counsel (as defined in the Pledge Agreement) with
respect to the FiberSouth Acquisition.
"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
this 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 this Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the Transactions and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles Board
Opinions Nos. 16 and 17.
"Global Notes" has the meaning provided in Section 2.01.
"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 terms 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.
"Guaranteed Indebtedness" has the meaning provided in Section 4.07.
"Holder" means the registered holder of any Note.
<PAGE>
10
"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. The terms "Incurrence" and
"Incurred" shall have corresponding meanings.
"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), but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (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 as described above, the maximum liability
upon the occurrence of the contingency giving rise to the obligation, provided
that (A) 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) 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) Indebtedness shall
not include any liability (including any liability arising under a tax
indemnification agreement with a shareholder of the Company at the time the
Company was an S corporation) for federal, state, local or other taxes
(including penalties and interest, if any).
<PAGE>
11
"Indenture" means this Indenture as originally executed or as it may be
amended or supplemented from time to time by one or more indentures supplemental
to this Indenture entered into pursuant to the applicable provisions of this
Indenture.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Interest Payment Date" means each semiannual interest payment date on
March 15 and September 15 of each year, commencing March 15, 1998.
"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
(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 Section 4.06. For
purposes of the definition of "Unrestricted Subsidiary" and Section 4.04, (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.
"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).
<PAGE>
12
"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.
"Non-U.S. Person" means a person who is not a "U.S. person" (as defined
in Regulation S).
"Notes" means any of the securities, as defined in the first paragraph
of the recitals hereof, that are authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
the Notes initially issued on the Closing Date, any Exchange Notes to be issued
and exchanged for any Notes pursuant to the Registration Rights Agreement and
this Indenture and any other Notes issued after the Closing Date under this
Indenture. For purposes of this Indenture, all Notes shall vote together as one
series of Notes under this Indenture.
"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
<PAGE>
13
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 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.
"Officer" means, with respect to the Company, (i) the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President or the
Chief Financial Officer, and (ii) the Treasurer or any Assistant Treasurer, or
the Secretary or any Assistant Secretary.
"Officers' Certificate" means a certificate signed by one Officer
listed in clause (i) of the definition thereof and one Officer listed in clause
(ii) of the definition thereof or two officers listed in clause (i) of the
definition thereof. Each Officers' Certificate (other than
<PAGE>
14
certificates provided pursuant to TIA Section 314(a)(4)) shall include the
statements provided for in TIA Section 314(e).
"Offshore Global Note" has the meaning provided in Section 2.01.
"Offshore Notes Exchange Date" has the meaning provided in Section
2.01.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Opinion of Counsel" means a written opinion signed by legal counsel,
who may be an employee of or counsel to the Company, that meets the requirements
of Section 11.04 hereof. Each such Opinion of Counsel shall include the
statements provided for in TIA Section 314(e).
"Paying Agent" has the meaning provided in Section 2.04, except that,
for the purposes of Article Eight, the Paying Agent shall not be the Company or
a Subsidiary of the Company or an Affiliate of any of them. The term "Paying
Agent" includes any additional Paying Agent.
"Permanent Offshore Global Notes" has the meaning provided in Section
2.01.
"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
Section 4.03(a).
"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
<PAGE>
15
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 Section
4.03, to finance the cost (including, without limitation, the cost of design,
development, construction, acquisition, installation, 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
<PAGE>
16
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.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or any other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Physical Notes" has the meaning provided in Section 2.01.
"Pledge Account" means the accounts established with the Trustee
pursuant to the terms of the Pledge Agreement for the purchase of the Pledged
Securities.
"Pledge Agreement" means the Pledge and Security Agreement, dated as of
the Closing Date, made by BTI and Business Telecom 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 Securities 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.
"principal" of a debt security, including the Notes, means the
principal amount due on the Stated Maturity as shown on such debt security.
"Private Placement Legend" means the legend initially set forth on the
Notes in the form set forth in Section 2.02.
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"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.
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.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"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 Section
4.10 and Section 4.11 are to the Holders 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 Section 4.10 and Section 4.11.
"Redemption Date" means, when used with respect to any Note to be
redeemed, the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" means, when used with respect to any Note to be
redeemed, the price at which such Note is to be redeemed pursuant to this
Indenture.
"Registrar" has the meaning provided in Section 2.04.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Closing Date, between BTI Telecom, Morgan Stanley &
Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith Incorporated and
certain permitted assigns specified therein.
"Registration Statement" means the Registration Statement as defined
and described in the Registration Rights Agreement.
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"Regular Record Date" for the interest payable on any Interest Payment
Date means the March 1 or September 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Reorganization" means the merger of BTI with a wholly owned subsidiary
of BTI Telecom pursuant to which (i) the shareholders of BTI receive shares of
Capital Stock (other than Redeemable Stock) of BTI Telecom, (ii) BTI becomes a
wholly owned subsidiary of BTI Telecom and (iii) BTI will be converted from an S
corporation to a C corporation.
"Reorganization Officers' Certificate and Opinion of Counsel" means
collectively the Reorganization Officer's Certificate (as defined in the Pledge
Agreement) and the Opinion of Counsel (as defined in the Pledge Agreement) with
respect to the Reorganization.
"Responsible Officer", when used with respect to the Trustee, means the
chairman or any vice chairman of the board of directors, the chairman or any
vice chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, any assistant vice
president, the secretary, any assistant secretary, the treasurer, any assistant
treasurer, the cashier, any assistant cashier, any trust officer or assistant
trust officer, the controller or any assistant controller or any other officer
of the Trustee in its Corporate Trust Department customarily performing
functions similar to those performed by any of the above-designated officers and
in each case having direct responsibility for the administration of this
Indenture or the Pledge Agreement and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his or her knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning provided in Section 4.04.
"Restricted Subsidiary" means any Subsidiary of the Company other than
an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities Act" means the Securities Act of 1933.
"Security Register" has the meaning provided in Section 2.04.
"Share Repurchase" means the purchase, on or prior to the Closing Date,
by BTI of all outstanding Capital Stock of BTI not owned by Peter T. Loftin for
approximately $28.5 million.
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"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 Subsidiary 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.
"Special Repurchase Offer" means an Offer to Purchase pursuant to
Section 4.20 of this Indenture.
"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.
"Subsidiary Guarantee" has the meaning provided in Section 4.07.
"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
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20
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,
which may include Affiliates of the Trustee or entities in whom the Trustee may
otherwise be interested, 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, which may include Affiliates of the Trustee or entities in
whom the Trustee may otherwise be interested; (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
Services; 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 Services or Moody's Investors Service, Inc.
"Temporary Offshore Global Notes" has the meaning provided in Section
2.01.
"TIA" or "Trust Indenture Act" means the Trust Indenture Act of 1939
(15 U.S. Code ss.ss. 77aaa-77bbbb), as in effect on the date this Indenture was
executed, except as provided in Section 9.06.
"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.
"Transactions" means, collectively, the BTI Refinancing, the FiberSouth
Acquisition, the Reorganization, the Share Repurchase and the sale of the Notes.
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21
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
Article Seven of this Indenture and thereafter means such successor.
"United States Bankruptcy Code" means the Bankruptcy Reform Act of
1978, as amended and as codified in Title 11 of the United States Code, as
amended from time to time hereafter, or any successor federal bankruptcy law.
"U.S. Global Notes" has the meaning provided in Section 2.01.
"U.S. Government Securities" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America (x) the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America or (y) that are rated at
least "Aaa" (or the then equivalent grade) by Moody's Investors Service, Inc. or
"AAA" (or the then equivalent grade) by Standard & Poor's Ratings Services.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"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 Section
4.04. 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 this 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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22
"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.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Notes;
"indenture security holder" means a Holder or a Noteholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee; and
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by a rule of the
Commission and not otherwise defined herein have the meanings assigned to them
therein.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(iii) "or" is not exclusive;
(iv) words in the singular include the plural, and words in
the plural include the singular;
(v) provisions apply to successive events and transactions;
(vi) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article,
Section or other subdivision;
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23
(vii) all ratios and computations based on GAAP contained in
this Indenture shall be computed in accordance with the definition of
GAAP set forth in Section 1.01; and
(viii) all references to Sections or Articles refer to
Sections or Articles of this Indenture unless otherwise indicated.
ARTICLE TWO
THE NOTES
SECTION 2.01. Form and Dating. The Notes and the Trustee's certificate
of authentication shall be substantially in the form annexed hereto as Exhibit A
with such appropriate insertions, omissions, substitutions and other variations
as are required or permitted by this Indenture. The Notes may have notations,
legends or endorsements required by law, stock exchange agreements to which the
Company is subject or usage. The Company shall approve the form of the Notes and
any notation, legend or endorsement on the Notes. Each Note shall be dated the
date of its authentication.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Notes offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent global Notes in registered form,
substantially in the form set forth in Exhibit A (the "U.S. Global Notes"),
registered in the name of the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Notes may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, in accordance with the instructions given by the
Holder thereof, as hereinafter provided.
Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of one or more temporary
global Notes in registered form substantially in the form set forth in Exhibit A
(the "Temporary Offshore Global Notes"), registered in the name of the nominee
of the Depositary, deposited with the Trustee, as custodian for the Depositary,
duly executed by the Company and authenticated by the Trustee as hereinafter
provided. At any time following November 1, 1997 (the "Offshore Notes Exchange
Date"), upon receipt by the Trustee and the Company of a certificate
substantially in the form of Exhibit B hereto, one or more permanent global
Notes in registered form
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24
substantially in the form set forth in Exhibit A (the "Permanent Offshore Global
Notes"; and together with the Temporary Offshore Global Notes, the "Offshore
Global Notes") duly executed by the Company and authenticated by the Trustee as
hereinafter provided shall be deposited with the Trustee, as custodian for the
Depositary, and the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Temporary Offshore Global Notes in
an amount equal to the principal amount of the beneficial interest in the
Temporary Offshore Global Notes transferred.
Notes offered and sold in reliance on Regulation D under the Securities
Act shall be issued in the form of permanent certificated Notes in registered
form in substantially the form set forth in Exhibit A (the "U.S. Physical
Notes"). Notes issued pursuant to Section 2.07 in exchange for interests in the
Offshore Global Notes shall be in the form of permanent certificated Notes in
registered form substantially in the form set forth in Exhibit A (the "Offshore
Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes." The U.S. Global Notes
and the Offshore Global Notes are sometimes referred to herein as the "Global
Notes."
The definitive Notes shall be typed, printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Notes may
be listed, all as determined by the Officers executing such Notes, as evidenced
by their execution of such Notes.
SECTION 2.02. Restrictive Legends. Unless and until a Note is exchanged
for an Exchange Note in connection with an effective Registration Statement
pursuant to the Registration Rights Agreement, the U.S. Global Notes, Temporary
Offshore Global Notes and each U.S. Physical Note shall bear the following
legend on the face thereof:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT
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25
WILL NOT, WITHIN TWO YEARS AFTER THE INITIAL SALE OF THE NOTES, RESELL
OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
THE TRUSTEE) AND IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF NOTES OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION",
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER ANY TRANSFER OF
THIS NOTE IN VIOLATION OF THE FOREGOING RESTRICTIONS.
Each Global Note, whether or not an Exchange Note, shall also bear the
following legend on the face thereof:
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26
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE
HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.08 OF THE INDENTURE.
SECTION 2.03. Execution, Authentication and Denominations. Subject to
Article Four, the aggregate principal amount of Notes which may be authenticated
and delivered under this Indenture is unlimited. The Notes shall be executed by
two Officers of the Company. The signature of these Officers on the Notes may be
by facsimile or manual signature in the name and on behalf of the Company.
If an Officer whose signature is on a Note no longer holds that office
at the time the Trustee or authenticating agent authenticates the Note, the Note
shall be valid nevertheless.
A Note shall not be valid until the Trustee or authenticating agent
manually signs the certificate of authentication on the Note. The signature
shall be conclusive evidence that the Note has been authenticated under this
Indenture.
At any time and from time to time after the execution of this
Indenture, the Trustee or an authenticating agent shall upon receipt of a
Company Order authenticate for original issue Notes in the aggregate principal
amount specified in such Company Order; provided that the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company in connection with such authentication of Notes. Such Company Order
shall specify the amount of Notes to be authenticated and the date on which the
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27
original issue of Notes is to be authenticated and in case of an issuance of
Notes pursuant to Section 2.15, shall certify that such issuance is in
compliance with Article Four.
The Trustee may appoint an authenticating agent to authenticate Notes.
An authenticating agent may authenticate Notes whenever the Trustee may do so.
Each reference in this Indenture to authentication by the Trustee includes
authentication by such authenticating agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate of the Company.
The Trustee shall not be liable for the misconduct or negligence of any
authenticating agent appointed with due care.
The Notes shall be issuable only in registered form without coupons and
only in denominations of $1,000 in principal amount and any integral multiple of
$1,000 in excess thereof.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain an
office or agency where Notes may be presented for registration of transfer or
for exchange (the "Registrar"), an office or agency where Notes may be presented
for payment (the "Paying Agent") and an office or agency where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served, which shall be in the Borough of Manhattan, The City of New York and, in
the event the Notes are listed on the Luxembourg Stock Exchange, in Luxembourg.
The Company shall cause the Registrar to keep a register of the Notes and of
their transfer and exchange (the "Security Register"). The Company may have one
or more co-Registrars and one or more additional Paying Agents.
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall give
prompt written notice to the Trustee of the name and address of any such Agent
and any change in the address of such Agent. If the Company fails to maintain a
Registrar, Paying Agent and/or agent for service of notices and demands, the
Trustee shall act as such Registrar, Paying Agent and/or agent for service of
notices and demands. The Company may remove any Agent upon written notice to
such Agent and the Trustee; provided that no such removal shall become effective
until (i) the acceptance of an appointment by a successor Agent to such Agent as
evidenced by an appropriate agency agreement entered into by the Company and
such successor Agent and delivered to the Trustee or (ii) notification to the
Trustee that the Trustee shall serve as such Agent until the appointment of a
successor Agent in accordance with clause (i) of this proviso. The Company, any
Subsidiary of the Company, or any Affiliate of any of them may act as Paying
Agent, Registrar or co-Registrar, and/or agent for service of notice and
demands.
The Company initially appoints the Trustee as Registrar, Paying Agent,
authenticating agent and agent for service of notice and demands. The Trustee
shall preserve in as current
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28
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders and shall otherwise comply with TIA ss. 312(a).
If the Trustee is not the Registrar, the Company shall furnish to the Trustee as
of each Regular Record Date and at such other times as the Trustee may request
in writing a list in such form and as of such date as the Trustee may reasonably
require of the names and addresses of Holders, including the aggregate principal
amount of Notes held by each Holder.
SECTION 2.05. Paying Agent to Hold Money in Trust. Not later than 11:00
a.m. (New York City time) each due date of the principal, premium, if any, and
interest on any Notes, the Company shall deposit with the Paying Agent money in
immediately available funds sufficient to pay such principal, premium, if any,
and interest so becoming due. The Company shall require each Paying Agent other
than the Trustee to agree in writing that such Paying Agent shall hold in trust
for the benefit of the Holders or the Trustee all money held by the Paying Agent
for the payment of principal of, premium, if any, and interest on the Notes
(whether such money has been paid to it by the Company or any other obligor on
the Notes), and such Paying Agent shall promptly notify the Trustee of any
default by the Company (or any other obligor on the Notes) in making any such
payment. The Company at any time may require a Paying Agent to pay all money
held by it to the Trustee and account for any funds disbursed, and the Trustee
may at any time during the continuance of any payment default, upon written
request to a Paying Agent, require such Paying Agent to pay all money held by it
to the Trustee and to account for any funds disbursed. Upon doing so, the Paying
Agent shall have no further liability for the money so paid over to the Trustee.
If the Company or any Subsidiary of the Company or any Affiliate of any of them
acts as Paying Agent, it will, on or before each due date of any principal of,
premium, if any, or interest on the Notes, segregate and hold in a separate
trust fund for the benefit of the Holders a sum of money sufficient to pay such
principal, premium, if any, or interest so becoming due until such sum of money
shall be paid to such Holders or otherwise disposed of as provided in this
Indenture, and will promptly notify the Trustee of its action or failure to act.
SECTION 2.06. Transfer and Exchange. The Notes are issuable only in
registered form. A Holder may transfer a Note only by written application to the
Registrar stating the name of the proposed transferee and otherwise complying
with the terms of this Indenture. No such transfer shall be effected until, and
such transferee shall succeed to the rights of a Holder only upon, final
acceptance and registration of the transfer by the Registrar in the Security
Register. Prior to the registration of any transfer by a Holder as provided
herein, the Company, the Trustee, and any agent of the Company shall treat the
person in whose name the Note is registered as the owner thereof for all
purposes whether or not the Note shall be overdue, and neither the Company, the
Trustee, nor any such agent shall be affected by notice to the contrary.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Note may be
effected only through a book entry system maintained by the Holder of such
Global Note (or
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29
its agent) and that ownership of a beneficial interest in the Note shall be
required to be reflected in a book entry. When Notes are presented to the
Registrar or a co-Registrar with a request to register the transfer or to
exchange them for an equal principal amount of Notes of other authorized
denominations (including an exchange of Notes for Exchange Notes), the Registrar
shall register the transfer or make the exchange as requested if its
requirements for such transactions are met (including that such Notes are duly
endorsed or accompanied by a written instrument of transfer in form satisfactory
to the Trustee and Registrar duly executed by the Holder thereof or by an
attorney who is authorized in writing to act on behalf of the Holder); provided
that no exchanges of Notes for Exchange Notes shall occur until a Registration
Statement shall have been declared effective by the Commission and that any
Notes that are exchanged for Exchange Notes shall be cancelled by the Trustee.
To permit registrations of transfers and exchanges, the Company shall execute
and the Trustee shall authenticate Notes at the Registrar's request. No service
charge shall be made for any registration of transfer or exchange or redemption
of the Notes, but the Company may require payment of a sum sufficient to cover
any transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or other similar governmental charge payable
upon exchanges pursuant to Section 2.11, 3.08 or 9.04).
The Registrar shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Notes selected
for redemption under Section 3.03 and ending at the close of business on the day
of such mailing, or (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part.
SECTION 2.07. Book-Entry Provisions for Global Notes. (a) The U.S.
Global Notes and Offshore Global Notes initially shall (i) be registered in the
name of the Depositary for such Global Notes or the nominee of such Depositary,
(ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear
legends as set forth in Section 2.02.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or impair, as between the Depositary
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Note. Neither the Company nor the
Trustee shall be liable for any delay by the Depositary in identifying the
beneficial owners of the Notes and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the
<PAGE>
30
Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of any Notes to be issued).
(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees. Interests of beneficial owners in a Global Note may
be transferred in accordance with the rules and procedures of the Depositary and
the provisions of Section 2.08. In addition, U.S. Physical Notes and Offshore
Physical Notes shall be transferred to all beneficial owners in exchange for
their beneficial interests in the U.S. Global Notes or the Offshore Global
Notes, respectively, if (i) the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary for the U.S. Global Notes or the
Offshore Global Notes, as the case may be, and a successor depositary is not
appointed by the Company within 90 days of such notice, (ii) an Event of Default
has occurred and is continuing and the Registrar has received a request from the
Depositary or (iii) in accordance with the rules and procedures of the
Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) In connection with any transfer of a portion of the beneficial
interests in one of the Global Notes to beneficial owners pursuant to paragraph
(b) of this Section 2.07, the Registrar shall reflect on its books and records
the date and a decrease in the principal amount of such Global Note in an amount
equal to the principal amount of the beneficial interest in the Global Note to
be transferred, and the Company shall execute, and the Trustee shall
authenticate and deliver, one or more U.S. Physical Notes or Offshore Physical
Notes, as the case may be, of like tenor and amount.
(e) In connection with the transfer of an entire Global Note to
beneficial owners pursuant to paragraph (b) of this Section 2.07, such Global
Note shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute and the Trustee shall authenticate and deliver to each
beneficial owner identified by the Depositary in exchange for its beneficial
interest in such Global Note an equal aggregate principal amount of U.S.
Physical Notes or Offshore Physical Notes, as the case may be, of authorized
denominations.
(f) Any U.S. Physical Note delivered in exchange for an interest in the
U.S. Global Note pursuant to paragraph (b), (d) or (e) of this Section 2.07
shall, except as
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31
otherwise provided by paragraph (f) of Section 2.08, bear the legend regarding
transfer restrictions applicable to the U.S. Physical Note set forth in Section
2.02.
(g) Any Offshore Physical Note delivered in exchange for an interest in
the Offshore Global Note pursuant to paragraph (b), (d) or (e) of this Section
2.07 shall, except as otherwise provided by paragraph (f) of Section 2.08, bear
the legend regarding transfer restrictions applicable to the Offshore Physical
Note set forth in Section 2.02.
(h) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 2.08. Special Transfer Provisions. Unless and until a Note is
exchanged for an Exchange Note in connection with an effective Registration
Statement pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) Transfers to Non-QIB Institutional Accredited Investors. The
following provisions shall apply with respect to the registration of any
proposed transfer of a Note to any Institutional Accredited Investor which is
not a QIB (excluding Non-U.S. Persons):
(i) The Registrar shall register the transfer of any Note,
whether or not such Note bears the Private Placement Legend, if (x) the
requested transfer is after two years following the Closing Date or (y)
the proposed transferee has delivered to the Registrar (A) a
certificate substantially in the form of Exhibit C hereto and (B) if
the aggregate principal amount of the Notes being transferred is less
than $100,000, an opinion of counsel acceptable to the Company that
such transfer is in compliance with the Securities Act.
(ii) If the proposed transferor is an Agent Member holding a
beneficial interest in the U.S. Global Note, upon receipt by the
Registrar of (x) the documents, if any, required by paragraph (i) and
(y) instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Note to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver,
one or more U.S. Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a U.S. Physical Note or
an interest in the U.S. Global Note to a QIB (excluding Non-U.S. Persons):
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32
(i) If the Note to be transferred consists of (x) U.S.
Physical Notes, the Registrar shall register the transfer if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has
signed the certification provided for on the form of Note stating, or
has otherwise advised the Company and the Registrar in writing, that it
is purchasing the Note for its own account or an account with respect
to which it exercises sole investment discretion and that it and any
such account is a QIB within the meaning of Rule 144A, and is aware
that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the
Company as it has requested pursuant to Rule 144A or has determined not
to request such information and that it is aware that the transferor is
relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A or (y) an interest in
the U.S. Global Note, the transfer of such interest may be effected
only through the book entry system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and the
Note to be transferred consists of U.S. Physical Notes, upon receipt by
the Registrar of the documents referred to in clause (i) and
instructions given in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and an increase in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the U.S.
Physical Notes to be transferred, and the Trustee shall cancel the U.S.
Physical Note so transferred.
(c) Transfers of Interests in the Temporary Offshore Global Note. The
following provisions shall apply with respect to registration of any proposed
transfer of interests in the Temporary Offshore Global Note:
(i) The Registrar shall register the transfer of any Note (x)
if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially
in the form of Exhibit D hereto or (y) if the proposed transferee is a
QIB and the proposed transferor has checked the box provided for on the
form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Note for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has
<PAGE>
33
determined not to request such information and that it is aware that
the transferor is relying upon its foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member, upon
receipt by the Registrar of the documents referred to in clause (i)(y)
above and instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the
U.S. Global Note in an amount equal to the principal amount of the
Temporary Offshore Global Note to be transferred, and the Trustee shall
decrease the amount of the Temporary Offshore Global Note.
(d) Transfers of Interests in the Permanent Offshore Global Note or
Offshore Physical Notes to U.S. Persons. The following provisions shall apply
with respect to any transfer of interests in the Permanent Offshore Global Note
or Offshore Physical Notes to U.S. Persons: The Registrar shall register the
transfer of any such Note without requiring any additional certification.
(e) Transfers to Non-U.S. Persons at Any Time. The following provisions
shall apply with respect to any transfer of a Note to a Non-U.S. Person:
(i) Prior to November 1, 1997, the Registrar shall register
any proposed transfer of a Note to a Non-U.S. Person upon receipt of a
certificate substantially in the form of Exhibit D hereto from the
proposed transferor.
(ii) On and after November 1, 1997, the Registrar shall
register any proposed transfer of a Note to any Non-U.S. Person if the
Note to be transferred is a U.S. Physical Note or an interest in the
U.S. Global Note, upon receipt of a certificate substantially in the
form of Exhibit D hereto from the proposed transferor.
(iii) (a) If the proposed transferor is an Agent Member
holding a beneficial interest in the U.S. Global Note, upon receipt by
the Registrar of (x) the documents, if any, required by paragraph (ii)
and (y) instructions in accordance with the Depositary's and the
Registrar's procedures, the Registrar shall reflect on its books and
records the date and a decrease in the principal amount of the U.S.
Global Note in an amount equal to the principal amount of the
beneficial interest in the U.S. Global Note to be transferred, and (b)
if the proposed transferee is an Agent Member, upon receipt by the
Registrar of instructions given in accordance with the Depositary's and
the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the
Offshore Global Note in an amount equal to the principal amount of the
U.S. Physical Notes or the U.S. Global Note, as the case may be, to be
transferred, and the Trustee shall cancel
<PAGE>
34
the Physical Note, if any, so transferred or decrease the amount of the
U.S. Global Note.
(f) Private Placement Legend. Upon the transfer, exchange or
replacement of Notes not bearing the Private Placement Legend, the Registrar
shall deliver Notes that do not bear the Private Placement Legend. Upon the
transfer, exchange or replacement of Notes bearing the Private Placement Legend,
the Registrar shall deliver only Notes that bear the Private Placement Legend
unless either (i) the circumstances contemplated by the fourth paragraph of
Section 2.01 or paragraph (a)(i)(x) or (e)(ii) of this Section 2.08 exist or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(g) General. By its acceptance of any Note bearing the Private
Placement Legend, each Holder of such a Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private Placement
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees by
its acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such letters,
notices or other written communications at any reasonable time upon the giving
of reasonable written notice to the Registrar.
SECTION 2.09. Replacement Notes. If a mutilated Note is surrendered to
the Trustee or if the Holder claims that the Note has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Note of like tenor and principal amount and bearing a number not
contemporaneously outstanding; provided that the requirements of the second
paragraph of Section 2.10 are met. If required by the Trustee or the Company, an
indemnity bond must be furnished that is sufficient in the judgment of both the
Trustee and the Company to protect the Company, the Trustee or any Agent from
any loss that any of them may suffer if a Note is replaced. The Company may
charge such Holder for its expenses and the expenses of the Trustee in replacing
a Note. In case any
<PAGE>
35
such mutilated, lost, destroyed or wrongfully taken Note has become or is about
to become due and payable, the Company in its discretion may pay such Note
instead of issuing a new Note in replacement thereof.
Every replacement Note is an additional obligation of the Company and
shall be entitled to the benefits of this Indenture.
SECTION 2.10. Outstanding Notes. Notes outstanding at any time are all
Notes that have been authenticated by the Trustee except for those cancelled by
it, those delivered to it for cancellation and those described in this Section
2.10 as not outstanding.
If a Note is replaced pursuant to Section 2.09, it ceases to be
outstanding unless and until the Trustee and the Company receive proof
satisfactory to them that the replaced Note is held by a bona fide purchaser.
If the Paying Agent (other than the Company or an Affiliate of the
Company) holds on the maturity date money sufficient to pay Notes payable on
that date, then on and after that date such Notes cease to be outstanding and
interest on them shall cease to accrue.
A Note does not cease to be outstanding because the Company or one of
its Affiliates holds such Note, provided, however, that in determining whether
the Holders of the requisite principal amount of the outstanding Notes have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Notes owned by the Company or any other obligor upon the Notes or any
Affiliate of the Company or of such other obligor shall be disregarded and
deemed not to be outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which a Responsible Officer of
the Trustee actually knows to be so owned shall be so disregarded. Notes so
owned which have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Notes and that the pledgee is not the Company or
any other obligor upon the Notes or any Affiliate of the Company or of such
other obligor.
SECTION 2.11. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee shall authenticate temporary
Notes. Temporary Notes shall be substantially in the form of definitive Notes
but may have insertions, substitutions, omissions and other variations
determined to be appropriate by the Officers executing the temporary Notes, as
evidenced by their execution of such temporary Notes. If temporary Notes are
issued, the Company will cause definitive Notes to be prepared without
unreasonable delay. After the preparation of definitive Notes, the temporary
Notes shall be exchangeable for definitive Notes upon surrender of the temporary
Notes at the office or agency of the Company designated for such purpose
pursuant to Section 4.02, without charge
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36
to the Holder. Upon surrender for cancellation of any one or more temporary
Notes the Company shall execute and the Trustee shall authenticate and deliver
in exchange therefor a like principal amount of definitive Notes of authorized
denominations. Until so exchanged, the temporary Notes shall be entitled to the
same benefits under this Indenture as definitive Notes.
SECTION 2.12. Cancellation. The Company at any time may deliver to the
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and may
deliver to the Trustee for cancellation any Notes previously authenticated
hereunder which the Company has not issued and sold. The Registrar and the
Paying Agent shall forward to the Trustee any Notes surrendered to them for
transfer, exchange or payment. The Trustee shall cancel all Notes surrendered
for transfer, exchange, payment or cancellation and shall destroy them in
accordance with its normal procedure. Except as expressly permitted by this
Indenture, the Company may not issue new Notes to replace Notes it has paid in
full or delivered to the Trustee for cancellation.
SECTION 2.13. CUSIP Numbers. The Company in issuing the Notes may use
"CUSIP", "CINS" or "ISIN" numbers (if then generally in use), and the Trustee
shall use CUSIP, CINS or ISIN numbers, as the case may be, in notices of
redemption or exchange as a convenience to Holders; provided that any such
notice shall state that no representation is made as to the correctness of such
numbers either as printed on the Notes or as contained in any notice of
redemption or exchange and that reliance may be placed only on the other
identification numbers printed on the Notes. The Company will promptly notify
the Trustee of any change in "CUSIP", "CINS" or "ISIN" numbers for the Notes.
SECTION 2.14. Defaulted Interest. If the Company defaults in a payment
of interest on the Notes, it shall pay, or shall deposit with the Paying Agent
money in immediately available funds sufficient to pay, the defaulted interest,
plus (to the extent lawful) any interest payable on the defaulted interest, to
the Persons who are Holders on a subsequent special record date. A special
record date, as used in this Section 2.14 with respect to the payment of any
defaulted interest, shall mean the 15th day next preceding the date fixed by the
Company for the payment of defaulted interest, whether or not such day is a
Business Day. At least 15 days before the subsequent special record date, the
Company shall mail to each Holder and to the Trustee a notice that states the
subsequent special record date, the payment date and the amount of defaulted
interest to be paid.
SECTION 2.15. Issuance of Additional Notes. The Company may, subject to
Article Four of this Indenture, issue additional Notes under this Indenture. The
Notes issued on the Closing Date and any additional Notes subsequently issued
shall be treated as a single class for all purposes under this Indenture.
<PAGE>
37
ARTICLE THREE
REDEMPTION
SECTION 3.01. Right of Redemption; Mandatory Redemption. (a) The 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 September 15, 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 September 15 of the years set
forth below:
Redemption
Year Price
---- ----------
2002............................... 105.250%
2003............................... 102.625%
2004 and thereafter................ 100.000%
(b) At any time prior to September 15, 2000, the Company may redeem up
to 35% of the aggregate principal amount of the Notes from 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 110.50%, plus accrued 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 after any such redemption at least
$162.5 million aggregate principal amount of Notes remains outstanding.
(c) In the event the Reorganization is not consummated and the
Reorganization Officers' Certificate and Opinion of Counsel is not delivered by
December 31, 1997, or within five Business Days of the Trustee receiving an
officers' certificate stating that the Reorganization Officers' Certificate and
Opinion of Counsel will not be delivered by December 31, 1997, if it appears in
the sole judgment of the Company that the Reorganization will not be
consummated, the Company will redeem the Notes in whole on 10 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at a Redemption Price equal to 101% of their principal
amount, plus accrued interest to the Redemption Date.
SECTION 3.02. Notices to Trustee. If the Company elects to redeem Notes
pursuant to Section 3.01(a) or (b), it shall notify the Trustee in writing of
the Redemption Date and the principal amount of Notes to be redeemed.
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38
The Company shall give each notice provided for in this Section 3.02 in
an Officers' Certificate at least 45 days before the Redemption Date (unless a
shorter period shall be satisfactory to the Trustee for its convenience).
SECTION 3.03. Selection of Notes to Be Redeemed. If less than all of
the Notes are to be redeemed at any time, the Trustee shall select the Notes to
be redeemed in compliance with the requirements, as certified to it by the
Company, 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 fair and appropriate; provided that no Notes of
$1,000 in principal amount or less shall be redeemed in part.
The Trustee shall make the selection from the Notes outstanding and not
previously called for redemption. Notes in denominations of $1,000 in principal
amount may only be redeemed in whole. The Trustee may select for redemption
portions (equal to $1,000 in principal amount or any integral multiple thereof)
of Notes that have denominations larger than $1,000 in principal amount.
Provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption. The Trustee shall notify the
Company and the Registrar promptly in writing of the Notes or portions of Notes
to be called for redemption.
SECTION 3.04. Notice of Redemption. With respect to any redemption of
Notes (a) pursuant to Section 3.01(a) or (b), at least 30 days but not more than
60 days before a Redemption Date, the Company shall mail and (b) pursuant to
Section 3.01(c), on the earlier of (x) December 31, 1997, if the Trustee has not
received the Reorganization Officers' Certificate and Opinion of Counsel and (y)
such date on which the Trustee receives an officer's certificate stating that
the Reorganization Officers' Certificate and Opinion of Counsel will not be
delivered by December 31, 1997, the Trustee shall mail, a notice of redemption
by first-class mail to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for redemption must be surrendered to
the Paying Agent in order to collect the Redemption Price;
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39
(v) that, unless the Company defaults in making the redemption
payment, interest on Notes called for redemption ceases to accrue on
and after the Redemption Date and the only remaining right of the
Holders is to receive payment of the Redemption Price plus accrued
interest to the Redemption Date upon surrender of the Notes to the
Paying Agent;
(vi) that, if any Note is being redeemed in part, the portion
of the principal amount (equal to $1,000 in principal amount or any
integral multiple thereof) of such Note to be redeemed and that, on and
after the Redemption Date, upon surrender of such Note, a new Note or
Notes in principal amount equal to the unredeemed portion thereof will
be reissued; and
(vii) that, if any Note contains a CUSIP, CINS or ISIN number
as provided in Section 2.13, no representation is being made as to the
correctness of the CUSIP, CINS or ISIN number either as printed on the
Notes or as contained in the notice of redemption and that reliance may
be placed only on the other identification numbers printed on the
Notes.
At the Company's request (which request may be revoked by the Company
at any time prior to the time at which the Trustee shall have given such notice
to the Holders), made in writing to the Trustee at least 45 days (or such
shorter period as shall be satisfactory to the Trustee) before a Redemption
Date, the Trustee shall give the notice of redemption pursuant to Section
3.01(a) or (b) in the name and at the expense of the Company. If, however, the
Company gives such notice to the Holders, the Company shall concurrently deliver
to the Trustee an Officers' Certificate stating that such notice has been given.
SECTION 3.05. Effect of Notice of Redemption. Once notice of redemption
is mailed, Notes called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender of any Notes to the Paying
Agent, such Notes shall be paid at the Redemption Price, plus accrued interest,
if any, to the Redemption Date.
Notice of redemption shall be deemed to be given when mailed, whether
or not the Holder receives the notice. In any event, failure to give such
notice, or any defect therein, shall not affect the validity of the proceedings
for the redemption of Notes held by Holders to whom such notice was properly
given.
SECTION 3.06. Deposit of Redemption Price. On or prior to any
Redemption Date, the Company shall deposit with the Paying Agent (or, if the
Company is acting as its own Paying Agent, shall segregate and hold in trust as
provided in Section 2.05) money sufficient to pay the Redemption Price of and
accrued interest on all Notes to be redeemed on that date other than Notes or
portions thereof called for redemption on that date that have been delivered by
the Company to the Trustee for cancellation.
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40
SECTION 3.07. Payment of Notes Called for Redemption. If notice of
redemption has been given in the manner provided above, the Notes or portion of
Notes specified in such notice to be redeemed shall become due and payable on
the Redemption Date at the Redemption Price stated therein, together with
accrued interest to such Redemption Date, and on and after such date (unless the
Company shall default in the payment of such Notes at the Redemption Price and
accrued interest to the Redemption Date, in which case the principal, until
paid, shall bear interest from the Redemption Date at the rate prescribed in the
Notes), such Notes shall cease to accrue interest. Upon surrender of any Note
for redemption in accordance with a notice of redemption, such Note shall be
paid and redeemed by the Company at the Redemption Price, together with accrued
interest, if any, to the Redemption Date; provided that installments of interest
whose Stated Maturity is on or prior to the Redemption Date shall be payable to
the Holders registered as such at the close of business on the relevant Regular
Record Date.
SECTION 3.08. Notes Redeemed in Part. Upon surrender of any Note that
is redeemed in part, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder a new Note equal in principal amount to
the unredeemed portion of such surrendered Note.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Notes. The Company shall pay the principal of,
premium, if any, and interest on the Notes on the dates and in the manner
provided in the Notes and this Indenture. An installment of principal, premium,
if any, or interest shall be considered paid on the date due if the Trustee or
Paying Agent (other than the Company, a Subsidiary of the Company, or any
Affiliate of any of them) holds on that date money designated for and sufficient
to pay the installment. If the Company or any Subsidiary of the Company or any
Affiliate of any of them acts as Paying Agent, an installment of principal,
premium, if any, or interest shall be considered paid on the due date if the
entity acting as Paying Agent complies with the last sentence of Section 2.05.
As provided in Section 6.09, upon any bankruptcy or reorganization procedure
relative to the Company, the Trustee shall serve as the Paying Agent, if any,
for the Notes.
The Company shall pay interest on overdue principal, premium, if any,
and interest on overdue installments of interest, to the extent lawful, at the
rate per annum specified in the Notes.
SECTION 4.02. Maintenance of Office or Agency. The Company will
maintain in the Borough of Manhattan, The City of New York, an office or agency
where Notes may be surrendered for registration of transfer or exchange or for
presentation for payment and where notices and demands to or upon the Company in
respect of the Notes and this
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41
Indenture may be served. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
The City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
The Company hereby initially designates the Corporate Trust Office of
the Trustee as such office of the Company in accordance with Section 2.04.
SECTION 4.03. 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 September 30, 1999, 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 Section 4.10;
(ii) Indebtedness owed (A) to the Company and evidenced by a
promissory note or (B) to any Restricted Subsidiary; provided that any
event which results in 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),
(ix), (x) or (xi) of this paragraph) and any
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42
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 of
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 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
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43
result of a Change of Control or (B) deposited to defease all of the
Notes in accordance with Article Eight;
(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 Section
4.07;
(vii) Indebtedness Incurred to finance the cost (including the
cost of design, development, acquisition, construction, installation,
improvement, transportation or integration) to acquire equipment,
inventory or network assets (including acquisitions by way of a
Capitalized Lease and acquisitions of the Capital Stock of a Person
that becomes a Restricted Subsidiary to the extent of the Fair Market
Value of the equipment, inventory or network assets so 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 Section 4.04 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
Section 4.04 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;
(x) Indebtedness Incurred to finance Asset Acquisitions (and
refinancings of such Indebtedness) in an aggregate principal amount
outstanding at any time not to exceed $50 million, less the amount of
such Indebtedness permanently repaid as provided under Section 4.10;
provided that immediately after giving effect to the Incurrence of such
Indebtedness and the consummation of such Asset Acquisition, the
Company's Consolidated Leverage Ratio would be (A) less than or equal
to the Company's Consolidated Leverage Ratio immediately prior to such
transactions and (B) less than or equal to 7 to 1; and
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44
(xi) Indebtedness of the Company (in addition to Indebtedness
permitted under clauses (i) through (x) above) in an aggregate
principal amount outstanding or available at any time not to exceed $25
million, less any amount of such Indebtedness permanently repaid as
provided under Section 4.10.
(b) Notwithstanding any other provision of this Section 4.03, the
maximum amount of Indebtedness that the Company or a Restricted Subsidiary may
Incur pursuant to this Section 4.03 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 Section 4.03, (1) Indebtedness Incurred under the Credit Agreement on
or prior to the Closing Date shall be treated as Incurred pursuant to clause (i)
of the second paragraph of this Section 4.03, (2) 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 (3) any Liens granted pursuant to the equal and ratable provisions referred
to in Section 4.09 shall not be treated as Indebtedness. For purposes of
determining compliance with this Section 4.03, 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 (other than Indebtedness referred to in clause
(1) of the preceding sentence), the Company, in its sole discretion, may
classify such item of Indebtedness in one or more of such clauses.
SECTION 4.04. 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
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
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45
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 Section 4.03 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 Section 4.17 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 this 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 of Section 4.03, 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 Section
4.04) 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 such 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:
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46
(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 Section 4.03(a);
(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 Article
Five;
(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) of Section 4.03(a) or to
make Restricted Payments pursuant to clause (C)(2) of the first
paragraph, or clause (iii) or (iv) of this paragraph, of this Section
4.04, 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
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47
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),
other than an Affiliate of the Company, 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 $5 million in the aggregate (unless such repurchases are made
with the proceeds of insurance policies and the shares of Capital Stock
are repurchased from the executors, administrators, testamentary
trustees, heirs, legatees or beneficiaries);
(ix) Investments acquired as a capital contribution to the
Company or in exchange for Capital Stock (other than Redeemable Stock)
of the Company;
(x) distributions to shareholders (or former shareholders of
BTI) in respect of any liability for federal, state, local or other
taxes (including penalties and interest, if any) under a tax
indemnification agreement relating to the time BTI was an S
corporation; or
(xi) the Share Repurchase and the Reorganization;
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 Section 4.04
have been met
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48
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 Section 4.04 only
to the extent such proceeds are not used for such redemption, repurchase or
other acquisition of Indebtedness.
SECTION 4.05. 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 Credit Agreement, this
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, 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, and any extensions, refinancings, renewals or replacements
of such agreements; provided that the encumbrances and restrictions in
any such extensions, 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;
(iv) in the case of clause (iv) of the first paragraph of this
Section 4.05, (A) that restrict in a customary manner the subletting,
assignment or transfer of any
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49
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 this 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, (B) the encumbrance or restriction is
not materially more disadvantageous to the Holders 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 Section 4.05 shall prevent the Company or any
Restricted Subsidiary from (1) creating, incurring, assuming or suffering to
exist any Liens otherwise permitted in Section 4.09 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.
SECTION 4.06. 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 Section 4.04 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 first paragraph of Section 4.10.
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SECTION 4.07. 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 to, the Notes
("Guaranteed Indebtedness"), unless (i) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to this 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 Section 4.03 or (II) pursuant to clause
(vii) of the second paragraph of Section 4.03(a). 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 this 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.
SECTION 4.08. 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
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51
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 (x) 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 and (y) any
tax-indemnity agreement between the Company and any shareholder (or
former shareholder of BTI) at the time BTI was an S corporation;
(v) any Restricted Payments not prohibited by Section 4.04; or
(vi) the Transactions.
Notwithstanding the foregoing, any transaction covered by the first paragraph of
this Section 4.08 and not covered by clauses (ii) through (vi) of this
paragraph, the aggregate amount of which exceeds $1 million in value, must be
approved or determined to be fair in the manner provided for in clause (i)(A) or
(B) above.
SECTION 4.09. 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 this
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:
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52
(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 Section 4.03(a); 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 Section 4.03(a);
or
(vi) Permitted Liens.
SECTION 4.10. 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 million, 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 million (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 Section 4.07
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 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
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53
Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided
in the following paragraph of this Section 4.10. 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
Section 4.10 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.
SECTION 4.11. Repurchase of Notes upon a Change of Control. The Company
shall commence, within 30 days after the occurrence of a Change of Control, and
consummate an Offer to Purchase for all Notes then outstanding, at a purchase
price equal to 101% of the principal amount thereof, plus accrued interest to
the Payment Date.
SECTION 4.12. Existence. Subject to Articles Four and Five of this
Indenture, the Company will do or cause to be done all things necessary to
preserve and keep in full force and effect its existence and the existence of
each of its Restricted Subsidiaries in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(whether pursuant to charter, partnership certificate, agreement, statute or
otherwise), material licenses and franchises of the Company and each such
Subsidiary; provided that the Company shall not be required to preserve any such
right, license or franchise, or the existence of any Restricted Subsidiary, if
the maintenance or preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole.
SECTION 4.13. Payment of Taxes and Other Claims. The Company will pay
or discharge and shall cause each of its Subsidiaries to pay or discharge, or
cause to be paid or discharged, before the same shall become delinquent (i) all
material taxes, assessments and governmental charges levied or imposed upon (a)
the Company or any such Subsidiary, (b) the income or profits of any such
Subsidiary which is a corporation or (c) the property of the Company or any such
Subsidiary and (ii) all material lawful claims for labor, materials and supplies
that, if unpaid, might by law become a lien upon the property of the Company or
any such Subsidiary; provided that the Company shall not be required to pay or
discharge, or cause to be paid or discharged, any such tax, assessment, charge
or claim the amount, applicability or validity of which is being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established.
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54
SECTION 4.14. Maintenance of Properties and Insurance. The Company will
cause all properties used or useful in the conduct of its business or the
business of any of its Restricted Subsidiaries to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company may
be necessary so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided that nothing in
this Section 4.14 shall prevent the Company or any such Subsidiary from
discontinuing the use, operation or maintenance of any of such properties or
disposing of any of them, if such discontinuance or disposal is, in the judgment
of the Company, desirable in the conduct of the business of the Company or such
Subsidiary.
The Company will provide or cause to be provided, for itself and its
Restricted Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds customarily insured against by corporations
similarly situated and owning like properties, including, but not limited to,
products liability insurance and public liability insurance, with reputable
insurers or with the government of the United States of America, or an agency or
instrumentality thereof, in such amounts, with such deductibles and by such
methods as shall be customary for corporations similarly situated in the
industry in which the Company or any such Restricted Subsidiary, as the case may
be, is then conducting business.
SECTION 4.15. Notice of Defaults. In the event that the Company becomes
aware of any Default or Event of Default, the Company, promptly after it becomes
aware thereof, will give written notice thereof to the Trustee.
SECTION 4.16. Compliance Certificates. (a) The Company shall deliver to
the Trustee, within 45 days after the end of each fiscal quarter (90 days after
the end of the last fiscal quarter of each year), an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
occurred during such fiscal quarter. In the case of the Officers' Certificate
delivered within 90 days after the end of the Company's fiscal year, such
certificate shall contain a certification from the principal executive officer,
principal financial officer or principal accounting officer of the Company that
a review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under this Indenture and that the Company has complied with all conditions and
covenants under this Indenture. For purposes of this Section 4.16, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If the officers of the
Company signing such certificate do know of such a Default or Event of Default,
the certificate shall describe any such Default or Event of Default and its
status. The first certificate to be delivered pursuant to this Section 4.16(a)
shall be for the first fiscal quarter beginning after the execution of this
Indenture.
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55
(b) The Company shall deliver to the Trustee, within 90 days after the
end of the Company's fiscal year, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of this
Section 4.16 and (iii) whether, in connection with their audit examination,
anything came to their attention that caused them to believe that the Company
was not in compliance with any of the terms, covenants, provisions or conditions
of Article Four and Section 5.01 of this Indenture as they pertain to accounting
matters and, if any Default or Event of Default has come to their attention,
specifying the nature and period of existence thereof; provided that such
independent certified public accountants shall not be liable in respect of such
statement by reason of any failure to obtain knowledge of any such Default or
Event of Default that would not be disclosed in the course of an audit
examination conducted in accordance with generally accepted auditing standards
in effect at the date of such examination.
SECTION 4.17. Commission Reports and Reports to Holders. At all times
from and after the earlier of (i) the date of the commencement of an Exchange
Offer or the effectiveness of the Shelf Registration Statement (the
"Registration") and (ii) the date that is six months after the Closing Date, in
either case whether or not the Company is then required to file reports with the
Commission, 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 (unless the Commission will not accept such a filing, in which case
the Company shall provide such documents to the Trustee). 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. In addition, at all times prior to the
earlier of (i) the date of the Registration and (ii) six months after the
Closing Date, the Company shall, at its cost, deliver to each Holder of the
Notes quarterly and annual reports substantially equivalent to those which would
be required by the Exchange Act. In addition, at all times prior to the
Registration, upon the request of any Holder or any prospective purchaser of the
Notes designated by a Holder, the Company shall supply to such Holder or such
prospective purchaser the information required under Rule 144A under the
Securities Act.
SECTION 4.18. Waiver of Stay, Extension or Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any stay or extension law or any usury law or other law
that would prohibit or forgive the Company from paying all or any portion of the
principal of, premium, if any, or interest on the Notes
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56
as contemplated herein, wherever enacted, now or at any time hereafter in force,
or that may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.19. 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 Section 4.10.
SECTION 4.20. Special Repurchase Offer. In the event that the
FiberSouth Acquisition is not consummated and the FiberSouth Officers'
Certificate and Opinion of Counsel is not delivered by December 31, 1997 or if
it appears in the sole judgement of the Company that the FiberSouth Acquisition
will not be consummated and the FiberSouth Officers' Certificate and Opinion of
Counsel will not be delivered by December 31 1997, the Company shall commence an
Offer to Purchase $35.0 million principal amount of the Notes at a purchase
price equal to 101% of their principal amount, plus accrued interest to the
Payment Date. On the earlier of (i) December 31, 1997, if the Trustee has not
received the FiberSouth Officers' Certificate and Opinion of Counsel, and (ii)
five Business Days after the date on which the Trustee receives an officers'
certificate stating that the FiberSouth
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Officers' Certificate and Opinion of Counsel will not be delivered by December
31, 1997 the Trustee will mail by first class mail to each Holder's last address
as it appears in the Security Register a written notice commencing the Special
Repurchase Offer. In the event that the FiberSouth Acquisition is not
consummated by November 30, 1997, within 5 days thereafter the Company shall
deliver to the Trustee a form of written notice to be used in connection with
the Special Repurchase Offer set forth herein.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. When Company May Merge, Etc. 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 (other than the merger of BTI with a Wholly Owned Restricted Subsidiary
of BTI Telecom in the Reorganization) 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 this 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 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 Section 4.03; provided, however, that this clause (iv) shall not
apply to a consolidation or merger with or into a Wholly Owned Restricted
Subsidiary with a positive net worth, provided that 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 (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,
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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.
SECTION 5.02. Successor Substituted. Upon any consolidation or merger,
or any sale, conveyance, transfer, lease or other disposition of all or
substantially all of the property and assets of the Company in accordance with
Section 5.01 of this Indenture, the successor Person formed by such
consolidation or into which the Company is merged or to which such sale,
conveyance, transfer, lease or other disposition is made shall succeed to, and
be substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor Person had been named
as the Company herein; provided that the Company shall not be released from its
obligation to pay the principal of, premium, if any, or interest on the Notes in
the case of a lease of all or substantially all of its property and assets.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default. An "Event of Default" shall occur with
respect to the Notes if:
(a) the Company 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) the Company 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) the Company defaults in the performance or breaches Section 3.01(c)
or Article Five, or the failure to make or consummate an Offer to Purchase in
accordance with Section 4.10, Section 4.11 or Section 4.20;
(d) the Company defaults in the performance or breaches any covenant or
agreement of the Company in this 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,
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(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.
SECTION 6.02. Acceleration. If an Event of Default (other than an Event
of Default specified in clause (g) or (h) of Section 6.01 that occurs with
respect to the
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Company) occurs and is continuing under this 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) of Section 6.01 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)
of Section 6.01 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) of Section 6.01 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 judgment or decree of
a court of competent jurisdiction.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least a
majority in principal amount of the outstanding Notes shall, pursue any
available remedy by proceeding at law or in equity to collect the payment of
principal of, premium, if any, or interest on the Notes or to enforce the
performance of any provision of the Notes, the Pledge Agreement or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding.
SECTION 6.04. Waiver of Past Defaults. Subject to Sections 6.02, 6.07
and 9.02, the Holders of at least a majority in principal amount of the
outstanding Notes, by notice to the Trustee, may waive an existing Default or
Event of Default and its consequences, except a Default in the payment of
principal of, premium, if any, or interest on any Note as specified in clause
(a) or (b) of Section 6.01 or in respect of a covenant or provision of this
Indenture which cannot be modified or amended without the consent of the Holder
of each outstanding Note affected. Upon any such waiver, such Default shall
cease to exist, and any Event of Default arising therefrom shall be deemed to
have been cured, for every purpose of
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this Indenture; but no such waiver shall extend to any subsequent or other
Default or Event of Default or impair any right consequent thereto.
SECTION 6.05. Control by Majority. 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 this
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.
SECTION 6.06. Limitation on Suits. A Holder may not pursue any remedy
with respect to this 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 (and if requested provide)
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.
For purposes of Section 6.05 of this Indenture and this Section 6.06,
the Trustee shall comply with TIA Section 316(a) in making any determination of
whether the Holders of the required aggregate principal amount of outstanding
Notes have concurred in any request or direction of the Trustee to pursue any
remedy available to the Trustee or the Holders with respect to this Indenture or
the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding any
other provision of this Indenture, the right of any Holder of a Note to receive
payment of the
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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, shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default in
payment of principal, premium or interest specified in clause (a), (b) or (c) of
Section 6.01 occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company or any other
obligor of the Notes for the whole amount of principal, premium, if any, and
accrued interest remaining unpaid, together with interest on overdue principal,
premium, if any, and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate specified
in the Notes, and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07) and the Holders allowed in any judicial proceedings relative to
the Company (or any other obligor of the Notes), its creditors or its property
and shall be entitled and empowered to collect and receive any monies,
securities or other property payable or deliverable upon conversion or exchange
of the Notes or upon any such claims and to distribute the same, and any
custodian, receiver, assignee, trustee, liquidator, sequestrator or other
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07. Nothing herein contained shall be
deemed to empower the Trustee to authorize or consent to, or accept or adopt on
behalf of any Holder, any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 6.10. Priorities. If the Trustee collects any money pursuant to
this Article Six, it shall pay out the money in the following order:
First: to the Trustee for all amounts due under Section 7.07;
Second: to Holders for amounts then due and unpaid for
principal of, premium, if any, and interest on the Notes in respect of
which or for the benefit of
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which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such
Notes for principal, premium, if any, and interest, respectively; and
Third: to the Company or any other obligors of the Notes, as
their interests may appear, or as a court of competent jurisdiction may
direct.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Holders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement of
any right or remedy under this Indenture or in any suit against the Trustee for
any action taken or omitted by it as Trustee, a court may require any party
litigant in such suit to file an undertaking to pay the costs of the suit, and
the court may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section 6.11
does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section
6.07, or a suit by Holders of more than 10% in principal amount of the
outstanding Notes.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then, and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Company, Trustee and the Holders shall continue as though no such proceeding had
been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided with respect to the replacement or payment of mutilated, destroyed,
lost or wrongfully taken Notes in Section 2.09, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders is intended to be
exclusive of any other right or remedy, and every right and remedy shall, to the
extent permitted by law, be cumulative and in addition to every other right and
remedy given hereunder or now or hereafter existing at law or in equity or
otherwise. The assertion or employment of any right or remedy hereunder, or
otherwise, shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of the
Trustee or of any Holder to exercise any right or remedy accruing upon any Event
of Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default or an acquiescence therein. Every right and remedy given
by this Article Six or by law to the
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Trustee or to the Holders may be exercised from time to time, and as often as
may be deemed expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. General. The duties and responsibilities of the Trustee
shall be as provided by the TIA and as set forth herein. Notwithstanding the
foregoing, no provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it. Whether or not herein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of this
Article Seven.
SECTION 7.02. Certain Rights of Trustee. Notwithstanding any other
provision of this Indenture, subject to TIA Sections 315(a) through (d):
(i) the Trustee may rely, and shall be protected in acting or
refraining from acting, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper person. The Trustee need not investigate any
fact or matter stated in any such document;
(ii) before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, which shall
conform to Section 11.04. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion;
(iii) the Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any
attorney or agent appointed with due care;
(iv) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities that might be incurred by it in
compliance with such request or direction;
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(v) the Trustee shall not be liable for any action it takes or
omits to take in good faith that it believes to be authorized or within
its rights or powers or for any action it takes or omits to take in
accordance with the written direction of the Holders of a majority in
principal amount of the outstanding Notes relating to the time, method
and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture;
(vi) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate; and
(vii) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company personally or by agent or
attorney.
SECTION 7.03. Individual Rights of Trustee. The Trustee, in its
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Company or its Affiliates with the same rights it
would have if it were not the Trustee. Any Agent may do the same with like
rights. However, the Trustee is subject to TIA Sections 310(b) and 311.
SECTION 7.04. Trustee's Disclaimer. The Trustee (i) makes no
representation as to the validity or adequacy of this Indenture or the Notes,
(ii) shall not be accountable for the Company's use or application of the
proceeds from the Notes and (iii) shall not be responsible for any statement in
the Notes other than its certificate of authentication.
SECTION 7.05. Notice of Default. If any Default or any Event of Default
occurs and is continuing and if such Default or Event of Default is actually
known to a Responsible Officer of the Trustee, the Trustee shall mail to each
Holder in the manner and to the extent provided in TIA Section 313(c) notice of
the Default or Event of Default within 45 days after it occurs, unless such
Default or Event of Default has been cured; provided, however, that, except in
the case of a default in the payment of the principal of, premium, if any, or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or
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Responsible Officers of the Trustee in good faith determine that the withholding
of such notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders. Within 60 days after each
May 15, beginning with May 15, 1998, the Trustee shall mail to each Holder as
provided in TIA Section 313(c) a brief report dated as of such May 15, if
required by TIA Section 313(a).
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee such compensation as shall be agreed upon in writing for its services.
The compensation of the Trustee shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses and advances (if any) incurred
or made by the Trustee. Such expenses shall include the reasonable compensation
and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any and all losses,
liabilities, obligations, damages, penalties, judgments, actions, suits,
proceedings, reasonable costs and expenses (including reasonable fees and
disbursements of counsel and other consultants) of any kind whatsoever which may
be incurred by the Trustee in connection with any investigative, administrative
or judicial proceeding (whether or not such indemnified party is designated a
party to such proceeding) arising out of or in connection with the acceptance or
administration of its duties under this Indenture; provided, however, that the
Company need not reimburse any expense or indemnify against any loss,
obligation, damage, penalty, judgment, action, suit, proceeding, reasonable cost
or expense (including reasonable fees and disbursements of counsel) of any kind
whatsoever which may be incurred by the Trustee in connection with any
investigative, administrative or judicial proceeding (whether or not such
indemnified party is designated a party to such proceeding) in which it is
determined by a final non-appealable order of a court of competent jurisdiction
that the Trustee acted with negligence, bad faith or willful misconduct. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. Failure by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder, unless the Company is materially
prejudiced thereby. The Company shall defend the claim and the Trustee shall
cooperate in the defense. Unless otherwise set forth herein, the Trustee may
have separate counsel and the Company shall pay the reasonable fees and expenses
of such counsel. The Company need not pay for any settlement made without its
consent, which consent shall not be unreasonably withheld.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee, in its capacity as Trustee, except money or property
held by the Trustee pursuant to the Pledge Agreement and money or property held
in trust to pay principal of, premium, if any, and interest on particular Notes.
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If the Trustee incurs expenses or renders services after the occurrence
of an Event of Default specified in clause (g) or (h) of Section 6.01, the
expenses and the compensation for the services will be intended to constitute
expenses of administration under Title 11 of the United States Bankruptcy Code
or any applicable federal or state law for the relief of debtors.
SECTION 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
The Trustee may resign at any time by so notifying the Company in
writing at least 30 days prior to the date of the proposed resignation. The
Holders of a majority in principal amount of the outstanding Notes may remove
the Trustee by so notifying the Trustee in writing and may appoint a successor
Trustee with the consent of the Company. The Company may remove the Trustee if:
(i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is
adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer
takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
If the Trustee resigns or is removed, or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company. If
the successor Trustee does not deliver its written acceptance required by the
next succeeding paragraph of this Section 7.08 within 30 days after the retiring
Trustee resigns or is removed, the retiring Trustee, the Company or the Holders
of a majority in principal amount of the outstanding Notes may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after the
delivery of such written acceptance, subject to the lien provided in Section
7.07, (i) the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, (ii) the resignation or removal of the retiring
Trustee shall become effective and (iii) the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A successor
Trustee shall mail notice of its succession to each Holder.
If the Trustee is no longer eligible under Section 7.10, any Holder who
satisfies the requirements of TIA Section 310(b) may petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor Trustee.
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The Company shall give notice of any resignation and any removal of the
Trustee and each appointment of a successor Trustee to all Holders. Each notice
shall include the name of the successor Trustee and the address of its Corporate
Trust Office.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligation under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates with, merges or converts into, or transfers all or substantially
all of its corporate trust business to, another corporation or national banking
association, the resulting, surviving or transferee corporation or national
banking association without any further act shall be the successor Trustee with
the same effect as if the successor Trustee had been named as the Trustee
herein. Such succession shall also apply to all agency appointments in which the
Trustee then serves.
SECTION 7.10. Eligibility. This Indenture shall always have a Trustee
who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have
a combined capital and surplus of at least $25 million as set forth in its most
recent published annual report of condition.
SECTION 7.11. Money Held in Trust. The Trustee shall not be liable for
interest on any money received by it except as the Trustee may agree with the
Company. Money held in trust by the Trustee need not be segregated from other
funds except to the extent required by law and except for money held in trust
under Article Eight of this Indenture.
SECTION 7.12. Withholding Taxes. The Trustee, as agent for the Company,
shall exclude and withhold from each payment of principal and interest and other
amounts due hereunder or under the Notes any and all withholding taxes
applicable thereto as required by law. The Trustee agrees to act as such
withholding agent and, in connection therewith, whenever any present or future
taxes or similar charges are required to be withheld with respect to any amounts
payable in respect of the Notes, to withhold such amounts and timely pay the
same to the appropriate authority in the name of and on behalf of the Holders,
that it will file any necessary withholding tax returns or statements when due,
and that, as promptly as possible after the payment thereof, it will deliver to
each Holder of a Note appropriate documentation showing the payment thereof,
together with such additional documentary evidence as such Holders may
reasonably request from time to time.
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ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01. Termination of Company's Obligations. Except as otherwise
provided in this Section 8.01, the Company may terminate its obligations under
the Notes and this Indenture if:
(i) all Notes previously authenticated and delivered (other
than destroyed, lost or stolen Notes that have been replaced or Notes
that are paid pursuant to Section 4.01 or Notes for whose payment money
or securities have theretofore been held in trust and thereafter repaid
to the Company, as provided in Section 8.05) have been delivered to the
Trustee for cancellation and the Company has paid all sums payable by
it hereunder; or
(ii) (A) the Notes mature within one year or all of them are
to be called for redemption within one year under arrangements
satisfactory to the Trustee for giving the notice of redemption, (B)
the Company irrevocably deposits in trust with the Trustee during such
one-year period, under the terms of an irrevocable trust agreement in
form and substance satisfactory to the Trustee, as trust funds solely
for the benefit of the Holders for that purpose, money or U.S.
Government Obligations sufficient (in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee), without
consideration of any reinvestment of any interest thereon, to pay
principal, premium, if, any, and interest on the Notes to maturity or
redemption, as the case may be, and to pay all other sums payable by it
hereunder, (C) no Default or Event of Default with respect to the Notes
shall have occurred and be continuing on the date of such deposit, (D)
such deposit will not result in a breach or violation of, or constitute
a default under, this Indenture or any other agreement or instrument to
which the Company is a party or by which it is bound and (E) the
Company has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, in each case stating that all conditions precedent
provided for herein relating to the satisfaction and discharge of this
Indenture have been complied with.
With respect to the foregoing clause (i), the Company's obligations
under Section 7.07 shall survive. With respect to the foregoing clause (ii), the
Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Notes are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. After any such irrevocable deposit,
the Trustee upon request shall acknowledge in writing the discharge of the
Company's obligations under the Notes and this Indenture except for those
surviving obligations specified above.
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Notwithstanding anything to the contrary contained in or implied by
this Indenture, (i) following consummation of the Reorganization, BTI shall have
no liability or obligation whatsoever, to any person or entity, under or
pursuant to this Indenture or the Notes, and (ii) in the event the
Reorganization is consummated on the Closing Date, neither the Trustee nor any
other person or entity shall have any claim or cause of action of any nature
whatsoever against BTI under or pursuant to this Indenture or the Notes,
including without limitation any such claim or cause of action arising prior to
consummation of the Reorganization.
SECTION 8.02. Defeasance and Discharge of Indenture. 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 date of the deposit referred to
in clause (A) of this Section 8.02, and the provisions of this Indenture will no
longer be in effect with respect to the Notes, and the Trustee, at the expense
of the Company, shall execute proper instruments acknowledging the same, except
as to (i) rights of registration of transfer and exchange, (ii) substitution of
apparently mutilated, defaced, destroyed, lost or stolen Notes, (iii) rights of
Holders to receive payments of principal thereof and interest thereon, (iv) the
Company's obligations under Section 4.02, (v) the rights, privileges,
obligations and immunities of the Trustee hereunder and (vi) the rights of the
Holders as beneficiaries of this Indenture with respect to the property so
deposited with the Trustee payable to all or any of them; provided that the
following conditions shall have been satisfied:
(A) with reference to this Section 8.02, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest for the benefit of the
Holders, under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee as trust funds in trust,
specifically pledged to the Trustee for the benefit of the Holders as
security for payment of the principal of, premium, if any, and
interest, if any, on the Notes, and dedicated solely to, the benefit of
the Holders, in and to (1) money in an amount, (2) U.S. Government
Obligations that, through the payment of interest, premium, if any, and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (A), money in an amount or (3) a combination
thereof in an amount sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and accrued interest on the outstanding
Notes at the Stated Maturity of such principal or interest; provided
that the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government Obligations to the
payment of such principal, premium, if any, and interest with respect
to the Notes;
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(B) such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(C) immediately after giving effect to such deposit on a pro
forma basis, no Default or 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 such date of deposit;
(D) the Company shall have delivered to the Trustee (1) either
(x) a ruling directed to the Trustee received from the Internal Revenue
Service to the effect that the 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 Section 8.02 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 option had not been
exercised or (y) an Opinion of Counsel to the same effect as the ruling
described in clause (x) above accompanied by a ruling to that effect
published by the Internal Revenue Service, unless there has been a
change in the applicable federal income tax law since the date of this
Indenture such that a ruling from the Internal Revenue Service is no
longer required and (2) an Opinion of Counsel to the effect that (x)
the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and (y) after the passage of 123 days following the
deposit (except, with respect to any trust funds for the account of any
Holder who may be deemed to be an "insider" for purposes of the United
States Bankruptcy Code, after one year following the deposit), the
trust funds 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 in a case commenced by or against the Company under either
such statute, and either (I) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (II) if a court
were to rule under any such law in any case or proceeding that the
trust funds remained property of the Company, (a) assuming such trust
funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to the Holders, the Trustee will hold,
for the benefit of the Holders, a valid and perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise
except for the effect of Section 552(b) of the United States Bankruptcy
Code on interest on the trust funds accruing after the commencement of
a case under such statute and (b) the Holders will be entitled to
receive adequate protection of their interests in such trust funds if
such trust funds are used in such case or proceeding;
(E) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit, defeasance and discharge will
not cause the Notes to be delisted; and
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(F) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02 have been complied with.
Notwithstanding the foregoing, prior to the end of the 123-day (or one
year) period referred to in clause (D)(2)(y) of this Section 8.02, none of the
Company's obligations under this Indenture shall be discharged. Subsequent to
the end of such 123-day (or one year) period with respect to this Section 8.02,
the Company's obligations in Sections 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08,
2.09, 2.14, 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06 shall survive until the Notes
are no longer outstanding. Thereafter, only the Company's obligations in
Sections 7.07, 8.05 and 8.06 shall survive. If and when a ruling from the
Internal Revenue Service or an Opinion of Counsel referred to in clause (D)(1)
of this Section 8.02 is able to be provided specifically without regard to, and
not in reliance upon, the continuance of the Company's obligations under Section
4.01, then the Company's obligations under such Section 4.01 shall cease upon
delivery to the Trustee of such ruling or Opinion of Counsel and compliance with
the other conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.02.
After any such irrevocable deposit, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Notes and this Indenture except for those surviving obligations in the
immediately preceding paragraph.
SECTION 8.03. Defeasance of Certain Obligations. The Company may omit
to comply with any term, provision or condition set forth in clauses (iii) and
(iv) of Section 5.01 and Sections 4.03 through 4.17, Section 4.19 and clause (d)
of Section 6.01 with respect to clauses (iii) and (iv) of Section 5.01 and
Sections 4.03 through 4.17, Section 4.19 and clauses (e) and (f) of Section 6.01
shall be deemed not to be Events of Default, in each case with respect to the
outstanding Notes if:
(i) with reference to this Section 8.03, the Company has
irrevocably deposited or caused to be irrevocably deposited with the
Trustee (or another trustee satisfying the requirements of Section
7.10) and conveyed all right, title and interest to the Trustee for the
benefit of the Holders, under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee as trust
funds in trust, specifically pledged to the Trustee for the benefit of
the Holders as security for payment of the principal of, premium, if
any, and interest, if any, on the Notes, and dedicated solely to, the
benefit of the Holders, in and to (A) money in an amount, (B) U.S.
Government Obligations that, through the payment of interest and
principal in respect thereof in accordance with their terms, will
provide, not later than one day before the due date of any payment
referred to in this clause (i), money in an amount or (C) a combination
thereof in an amount sufficient, in the opinion of a nationally
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recognized firm of independent public accountants expressed in a
written certification thereof delivered to the Trustee, to pay and
discharge, without consideration of the reinvestment of such interest
and after payment of all federal, state and local taxes or other
charges and assessments in respect thereof payable by the Trustee, the
principal of, premium, if any, and interest on the outstanding Notes on
the Stated Maturity of such principal or interest; provided that the
Trustee shall have been irrevocably instructed to apply such money or
the proceeds of such U.S. Government Obligations to the payment of such
principal, premium, if any, and interest with respect to the Notes;
(ii) such deposit will not result in a breach or violation of,
or constitute a default under, this Indenture or any other agreement or
instrument to which the Company is a party or by which it is bound;
(iii) immediately after giving effect to such deposit on a pro
forma basis, no Default or 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 such date of deposit;
(iv) the Company has delivered to the Trustee an Opinion of
Counsel to the effect that (A) the creation of the defeasance trust
does not violate the Investment Company Act of 1940, (B) the Trustee,
for the benefit of the Holders, has a valid first-priority security
interest in the trust funds, (C) the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such
deposit and defeasance of certain obligations 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 and (D) after the passage of 123 days following the
deposit (except, with respect to any trust funds for the account of any
Holder who may be deemed to be an "insider" for purposes of the United
States Bankruptcy Code, after one year following the deposit), the
trust funds 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 in a case commenced by or against the Company under either
such statute, and either (1) the trust funds will no longer remain the
property of the Company (and therefore will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally) or (2) if a court
were to rule under any such law in any case or proceeding that the
trust funds remained property of the Company, (x) assuming such trust
funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to the Holders, the Trustee will hold,
for the benefit of the Holders, a valid and perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise
(except for the effect of Section 552(b) of the United States
Bankruptcy Code on interest on the trust funds accruing after the
commencement of a case under such statute) and (y) the Holders will be
entitled to
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receive adequate protection of their interests in such trust funds if
such trust funds are used in such case or proceeding;
(v) if the Notes are then listed on a national securities
exchange, the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that such deposit defeasance and discharge will
not cause the Notes to be delisted; and
(vi) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, in each case stating that all
conditions precedent provided for herein relating to the defeasance
contemplated by this Section 8.03 have been complied with.
SECTION 8.04. Application of Trust Money. Subject to Section 8.06, the
Trustee or Paying Agent shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01, 8.02 or 8.03, as the case may be,
and shall apply the deposited money and the money from U.S. Government
Obligations in accordance with the Notes and this Indenture to the payment of
principal of, premium, if any, and interest on the Notes; but such money need
not be segregated from other funds except to the extent required by law.
SECTION 8.05. Repayment to Company. Subject to Sections 7.07, 8.01,
8.02 and 8.03, the Trustee and the Paying Agent shall promptly pay to the
Company upon request set forth in an Officers' Certificate any excess money held
by them at any time and thereupon shall be relieved from all liability with
respect to such money. The Trustee and the Paying Agent shall pay to the Company
upon request any money held by them for the payment of principal, premium, if
any, or interest that remains unclaimed for two years; provided that the Trustee
or such Paying Agent before being required to make any payment may cause to be
published at the expense of the Company once in a newspaper of general
circulation in the City of New York and, in the event the Notes are listed on
the Luxembourg Stock Exchange, in Luxembourg, or mail to each Holder entitled to
such money at such Holder's address (as set forth in the Note Register) notice
that such money remains unclaimed and that after a date specified therein (which
shall be at least 30 days from the date of such publication or mailing) any
unclaimed balance of such money then remaining will be repaid to the Company.
After payment to the Company, Holders entitled to such money must look to the
Company for payment as general creditors unless an applicable law designates
another Person, and all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or U.S. Government Obligations in accordance with Section
8.01, 8.02 or 8.03, as the case may be, by reason of any legal proceeding or by
reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, the Company's
obligations under this Indenture and the Notes shall be revived
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and reinstated as though no deposit had occurred pursuant to Section 8.01, 8.02
or 8.03, as the case may be, until such time as the Trustee or Paying Agent is
permitted to apply all such money or U.S. Government Obligations in accordance
with Section 8.01, 8.02 or 8.03, as the case may be; provided that, if the
Company has made any payment of principal of, premium, if any, or interest on
any Notes because of the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money or U.S. Government Obligations held by the Trustee or Paying
Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders. The Company, when authorized
by a resolution of its Board of Directors (as evidenced by a Board Resolution
delivered to the Trustee), and the Trustee may amend or supplement this
Indenture or the Notes without notice to or the consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency in this
Indenture; provided that such amendments or supplements shall not, in
the good faith opinion of the Board of Directors as evidenced by a
Board Resolution, adversely affect the interests of the Holders in any
material respect;
(2) to comply with Article Five;
(3) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee; or
(5) to make any change that, in the good faith opinion of the
Board of Directors as evidenced by a Board Resolution, does not
materially and adversely affect the rights of any Holder.
SECTION 9.02. With Consent of Holders. Subject to Sections 6.04 and
6.07 and without prior notice to the Holders, the Company, when authorized by
its Board of Directors (as evidenced by a Board Resolution delivered to the
Trustee), and the Trustee may amend this Indenture, the Notes and the Pledge
Agreement with the written consent of the Holders of a majority in principal
amount of the Notes then outstanding, and the Holders of a majority in principal
amount of the Notes then outstanding by written notice to the Trustee
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may waive future compliance by the Company with any provision of this Indenture,
the Notes and the Pledge Agreement.
Notwithstanding the provisions of this Section 9.02, without the
consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or adversely affect any right of repayment at the
option of any Holder of any Note, or change any place of payment where,
or the currency in which, any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(ii) reduce the percentage in principal amount of outstanding
Notes the consent of whose Holders is required for any such
supplemental indenture, for any waiver of compliance with certain
provisions of this Indenture or certain Defaults and their consequences
provided for in this Indenture;
(iii) waive a default in the payment of principal of, premium,
if any, or interest on, any Note;
(iv) modify Article Ten or the Pledge Agreement in a manner
that adversely affects the rights of any Holder in any material
respect; or
(v) modify any of the provisions of this Section 9.02, except
to increase any such percentage or to provide that certain other
provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each outstanding Note affected thereby.
It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. The Company will
mail supplemental indentures to Holders upon request. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any such supplemental indenture or waiver.
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SECTION 9.03. Revocation and Effect of Consent. Until an amendment or
waiver becomes effective, a consent to it by a Holder is a continuing consent by
the Holder and every subsequent Holder of a Note or portion of a Note that
evidences the same debt as the Note of the consenting Holder, even if notation
of the consent is not made on any Note. However, any such Holder or subsequent
Holder may revoke the consent as to its Note or portion of its Note. Such
revocation shall be effective only if the Trustee receives written notice of
revocation before the time the amendment, supplement or waiver becomes
effective. An amendment, supplement or waiver shall become effective on receipt
by the Trustee of written consents from the Holders of the requisite percentage
in principal amount of the outstanding Notes.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver. If a record date is fixed, then, notwithstanding the last
two sentences of the immediately preceding paragraph, those persons who were
Holders at such record date (or their duly designated proxies) and only those
persons shall be entitled to consent to such amendment, supplement or waiver or
to revoke any consent previously given, whether or not such persons continue to
be Holders after such record date. No such consent shall be valid or effective
for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder unless it is of the type described in any of clauses (i)
through (v) of the second paragraph of Section 9.02. In case of an amendment or
waiver of the type described in clauses (i) through (v) of the second paragraph
of Section 9.02, the amendment or waiver shall bind each Holder who has
consented to it and every subsequent Holder of a Note that evidences the same
indebtedness as the Note of the consenting Holder.
SECTION 9.04. Notation on or Exchange of Notes. If an amendment,
supplement or waiver changes the terms of a Note, the Trustee may require the
Holder to deliver it to the Trustee. At the Company's expense and direction, the
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder and the Trustee may place an appropriate notation on
any Note thereafter authenticated. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms. Failure to make
the appropriate notation, or issue a new Note, shall not affect the validity and
effect of such amendment, supplement or waiver.
SECTION 9.05. Trustee to Sign Amendments, Etc. The Trustee shall be
entitled to receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or waiver
authorized pursuant to this Article Nine is authorized or permitted by this
Indenture and that it will be valid and binding upon the Company. Subject to the
preceding sentence, the Trustee shall sign such amendment,
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supplement or waiver if the same does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. The Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.06. Conformity with Trust Indenture Act. Every supplemental
indenture executed pursuant to this Article Nine shall conform to the
requirements of the TIA as then in effect.
ARTICLE TEN
SECURITY
SECTION 10.01. Security. (a) On the Closing Date, the Company shall (i)
enter into the Pledge Agreement and comply with the terms and provisions thereof
and (ii) cause the Pledged Securities to be pledged to the Trustee for the
benefit of the Holders in an amount equal to the net proceeds to be received by
the Company from the sale of the Notes. The Pledged Securities shall be pledged
by the Company to the Trustee for the benefit of the Holders and shall be held
by the Trustee in the Pledge Account pending disposition pursuant to the Pledge
Agreement.
(b) Each Holder, by its acceptance of a Note, consents and agrees to
the terms of the Pledge Agreement (including, without limitation, the provisions
providing for foreclosure and release of the Pledged Securities) as the same may
be in effect or may be amended from time to time in accordance with its terms,
and authorizes and directs the Trustee to enter into the Pledge Agreement and to
perform its respective obligations and exercise its respective rights thereunder
in accordance therewith. The Company will do or cause to be done all such acts
and things as may be necessary or proper, or as may be required by the
provisions of the Pledge Agreement, to assure and confirm to the Trustee the
security interest in the Pledged Securities contemplated hereby, by the Pledge
Agreement or any part thereof, as from time to time constituted, so as to render
the same available for the security and benefit of this Indenture and of the
Notes secured hereby, according to the intent and purposes herein expressed. The
Company shall take, or shall cause to be taken, any and all actions required by
law (and any action requested by the Trustee) to cause the Pledge Agreement to
create and maintain, as security for the obligations of the Company under this
Indenture and the Notes, valid and enforceable first priority liens in and on
all the Pledged Securities, in favor of the Trustee, superior to and prior to
the rights of third Persons and subject to no other Liens.
(c) The release of any Pledged Securities pursuant to the Pledge
Agreement will not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and
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the Pledge Agreement. To the extent applicable, the Company shall cause TIA
Section 314(d) relating to the release of property or securities from the Lien
and security interest of the Pledge Agreement (other than pursuant to Sections
7(c) and 7(d) thereof) and relating to the substitution therefor of any property
or securities to be subjected to the Lien and security interest of the Pledge
Agreement to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an Officer of the Company, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected by the Company.
(d) The Company shall cause TIA Section 314(b), relating to opinions of
counsel regarding the Lien under the Pledge Agreement, to be complied with. The
Trustee may, to the extent permitted by Sections 7.01 and 7.02 hereof, accept as
conclusive evidence of compliance with the foregoing provisions the appropriate
statements contained in such instruments.
(e) Following the occurrence of an Event of Default, the Trustee, in
its sole discretion and without the consent of the Holders, may, and at the
request of the Holders of at least 25% in aggregate principal amount of Notes
then outstanding shall, on behalf of the Holders, take all actions it deems
necessary or appropriate in order to (i) enforce any of the terms of the Pledge
Agreement and (ii) collect and receive any and all amounts payable in respect of
the obligations of the Company thereunder. The Trustee shall have power to
institute and to maintain such suits and proceedings as the Trustee may deem
expedient to preserve or protect its interests and the interests of the Holders
in the Pledged Securities (including power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid if the enforcement of, or compliance with, such enactment,
rule or order would impair the security interest hereunder or be prejudicial to
the interests of the Holders or of the Trustee).
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. Trust Indenture Act of 1939. Prior to the effectiveness
of the Registration Statement, this Indenture shall incorporate and be governed
by the provisions of the TIA that are required to be part of and to govern
indentures qualified under the TIA. After the effectiveness of the Registration
Statement, this Indenture shall be subject to the provisions of the TIA that are
required to be a part of this Indenture and shall, to the extent applicable, be
governed by such provisions.
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SECTION 11.02. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person, mailed by first-class
mail or sent by telecopier transmission addressed as follows:
if to the Company:
BTI Telecom Corp.
BTI Corporate Center
4300 Six Forks Road
Raleigh, North Carolina 27609
Telecopier No.: (919) 510-7222
Attention: Chief Financial Officer
if to the Trustee:
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, NY 10005
Telecopier No.: (212) 809-5459
Attention: Corporate Trust Department
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Holder shall be mailed to it at
its address as it appears on the Security Register by first-class mail and shall
be sufficiently given to him if so mailed within the time prescribed. Copies of
any such communication or notice to a Holder shall also be mailed to the Trustee
and each Agent at the same time.
Failure to transmit a notice or communication to a Holder as provided
herein or any defect in any such notice shall not affect its sufficiency with
respect to other Holders. Except for a notice to the Trustee, which is deemed
given only when received, and except as otherwise provided in this Indenture, if
a notice or communication is mailed in the manner provided in this Section
11.02, it is duly given, whether or not the addressee receives it.
Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
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In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
SECTION 11.03. Certificate and Opinion as to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee:
(i) an Officers' Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(ii) an Opinion of Counsel stating that, in the opinion of
such Counsel, all such conditions precedent have been complied with.
SECTION 11.04. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture shall include:
(i) a statement that each person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statement or opinion
contained in such certificate or opinion is based;
(iii) a statement that, in the opinion of each such person, he
has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(iv) a statement as to whether or not, in the opinion of each
such person, such condition or covenant has been complied with;
provided, however, that, with respect to matters of fact, an Opinion of
Counsel may rely on an Officers' Certificate or certificates of public
officials.
SECTION 11.05. Rules by Trustee, Paying Agent or Registrar. The Trustee
may make reasonable rules for action by or at a meeting of Holders. The Paying
Agent or Registrar may make reasonable rules for its functions.
SECTION 11.06. Payment Date Other Than a Business Day. If an Interest
Payment Date, Redemption Date, Payment Date, Stated Maturity or date of maturity
of any Note shall
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not be a Business Day, then payment of principal of, premium, if any, or
interest on such Note, as the case may be, need not be made on such date, but
may be made on the next succeeding Business Day with the same force and effect
as if made on the Interest Payment Date, Payment Date or Redemption Date, or at
the Stated Maturity or date of maturity of such Note; provided that no interest
shall accrue for the period from and after such Interest Payment Date, Payment
Date, Redemption Date, Stated Maturity or date of maturity, as the case may be.
SECTION 11.07. Governing Law. The laws of the State of New York shall
govern this Indenture and the Notes. The Trustee, the Company and the Holders
agree to submit to the jurisdiction of the courts of the State of New York in
any action or proceeding arising out of or relating to this Indenture or the
Notes.
SECTION 11.08. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt agreement
of the Company or any Subsidiary of the Company. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
SECTION 11.09. No Recourse Against Others. No recourse for the payment
of the principal of, premium, if any, or interest on any of the 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 contained in this
Indenture, or in any of the Notes, or because of the creation of any
Indebtedness represented thereby, shall be had against any incorporator or
against any past, present or future partner, shareholder, other equityholder,
officer, director, employee or controlling person, as such, of the Company or of
any successor Person, either directly or through the Company or any successor
Person, whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that all such liability is hereby expressly waived and released as a
condition of, and as a consideration for, the execution of this Indenture and
the issue of the Notes.
SECTION 11.10. Successors. All agreements of the Company in this
Indenture and the Notes shall bind its successors. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION 11.11. Duplicate Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
SECTION 11.12. Separability. In case any provision in this Indenture or
in the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
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SECTION 11.13. Table of Contents, Headings, Etc. The Table of Contents,
Cross- Reference Table and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
and provisions hereof.
ARTICLE TWELVE
MEETINGS OF HOLDERS
SECTION 12.01. Purposes for Which Meetings May Be Called. A meeting of
Holders may be called at any time and from time to time pursuant to the
provisions of this Article Twelve for any of the following purposes:
(a) to give any notice to the Company or to the Trustee, or to give any
directions to the Trustee, or to waive or to consent to the waiving of any
Default or Event of Default hereunder and its consequences, or to take any other
action authorized to be taken by Holders pursuant to any of the provisions of
Article Six;
(b) to remove the Trustee or appoint a successor Trustee pursuant to
the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant to the
provisions of Section 9.02; or
(d) to take any other action authorized to be taken by or on behalf of
the Holders of any specified aggregate principal amount of the Notes under any
other provision of this Indenture, or authorized or permitted by law.
SECTION 12.02. Manner of Calling Meetings. The Trustee may at any time
call a meeting of Holders to take any action specified in Section 12.01, to be
held at such time and at such place in The City of New York, New York or
elsewhere as the Trustee will determine. Notice of every meeting of Holders,
setting forth the time and place of such meeting and in general terms the action
proposed to be taken at such meeting, will be mailed by the Trustee, first-class
postage prepaid, to the Company and to the Holders at their last addresses as
they will appear on the registration books of the Registrar not less than 10 nor
more than 60 days prior to the date fixed for a meeting.
Any meeting of Holders will be valid without notice if the Holders of
all outstanding Notes are present in person or by proxy, or if notice is waived
before or after the meeting by the Holders of all outstanding Notes, and if the
Company and the Trustee are either present by duly authorized representatives or
have, before or after the meeting, waived notice.
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SECTION 12.03. Call of Meetings by the Company or Holders. In case at
any time the Company, pursuant to a Board Resolution, or the Holders of not less
than 10% in aggregate principal amount of the outstanding Notes will have
requested the Trustee to call a meeting of Holders to take any action specified
in Section 12.01, by written request setting forth in reasonable detail the
action proposed to be taken at the meeting, and the Trustee will not have mailed
the notice of such meeting within 20 days after receipt of such request, then
the Company or the Holders of Notes in the amount above specified may determine
the time and place in The City of New York, New York or elsewhere for such
meeting and may call such meeting for the purpose of taking such action, by
mailing or causing to be mailed notice thereof as provided in Section 12.02, or
by causing notice thereof to be published at least once in each of two
successive calendar weeks (on any Business Day during such week) in a newspaper
or newspapers printed in the English language, customarily published at least
five days a week of a general circulation in The City of New York, State of New
York and, in the event the Notes are listed on the Luxembourg Stock Exchange, in
Luxembourg, the first such publication to be not less than 10 nor more than 60
days prior to the date fixed for the meeting.
SECTION 12.04. Who May Attend and Vote at Meetings. To be entitled to
vote at any meeting of Holders, a Person must (i) be a registered Holder of one
or more Notes, or (ii) be appointed by an instrument in writing as proxy for the
registered Holder or Holders of Notes. The only persons who will be entitled to
be present or to speak at any meeting of Holders will be the persons entitled to
vote at such meeting and their counsel and any representatives of the Trustee
and its counsel and any representatives of the Company and their counsel.
SECTION 12.05. Quorum; Action. The Persons entitled to vote a majority
in principal amount of the outstanding Notes shall constitute a quorum. In the
absence of a quorum within 30 minutes of the time appointed for any such
meeting, the meeting shall, if convened at the request of Holders of Notes, be
dissolved. In any other case the meeting may be adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such meeting. In the absence of a quorum at any such adjourned
meeting, such adjourned meeting may be further adjourned for a period of not
less than 10 days as determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Notice of the reconvening of any
adjourned meeting shall be given as provided in Section 12.02, except that such
notice need be given only once and not less than five days prior to the date on
which the meeting is scheduled to be reconvened. Notice of the reconvening of an
adjourned meeting shall state expressly the percentage of the principal amount
of the outstanding Notes which shall constitute a quorum.
Subject to the foregoing, at the reconvening of any meeting adjourned
for a lack of a quorum, the Persons entitled to vote 25% in principal amount of
the outstanding Notes at the
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time shall constitute a quorum for the taking of any action set forth in the
notice of the original meeting.
At a meeting or an adjourned meeting duly reconvened and at which a
quorum is present as aforesaid, any action or matter, except as otherwise
specified herein, shall be effectively passed and decided if passed or decided
by the Persons entitled to vote not less than a majority in principal amount of
outstanding Notes represented and voting at such meeting.
Any action or matter passed or decision taken at any meeting of Holders
of Notes duly held in accordance with this Section 12.05 shall be binding on all
the Holders of Notes, whether or not present or represented at the meeting.
SECTION 12.06. Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights; Adjournment. Notwithstanding any other provision of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any action by or any meeting of Holders, in regard to proof of the
holding of Notes and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, and submission and examination of
proxies, certificates and other evidence of the right to vote, and such other
matters concerning the conduct of the meeting as it will think appropriate. Such
regulations may fix a record date and time for determining the Holders of record
of Notes entitled to vote at such meeting, in which case those and only those
Persons who are Holders of Notes at the record date and time so fixed, or their
proxies, will be entitled to vote at such meeting whether or not they will be
such Holders at the time of the meeting.
The Trustee will, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting will have been called by the Company
or by Holders as provided in Section 12.03, in which case the Company or the
Holders calling the meeting, as the case may be, will in like manner appoint a
temporary chairman. A permanent chairman and a permanent secretary of the
meeting will be elected by vote of the Holders of a majority in principal amount
of the Notes represented at the meeting and entitled to vote.
At any meeting each Holder or proxy will, subject to the provisions of
Section 12.04 hereof, be entitled to one vote for each $1,000 principal amount
of Notes held or represented by him or her; provided, however, that no vote will
be cast or counted at any meeting in respect of any Notes challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding. The
chairman may adjourn any such meeting if he is unable to determine whether any
Holder or proxy will be entitled to vote at such meeting. The chairman of the
meeting will have no right to vote other than by virtue of Notes held by him or
instruments in writing as aforesaid duly designating him as the proxy to vote on
behalf of other Holders. Any meeting of Holders duly called pursuant to the
provisions of Section 12.02 or Section 12.03 may be adjourned from time to time
by vote of the Holders of a
<PAGE>
86
majority in aggregate principal amount of the Notes represented at the meeting
and entitled to vote, and the meeting may be held as so adjourned without
further notice.
SECTION 12.07. Voting at the Meeting and Record to Be Kept. The vote
upon any resolution submitted to any meeting of Holders will be by written
ballots on which will be subscribed the signatures of the Holders of Notes or/of
their representatives by proxy and the principal amount of the Notes voted by
the ballot. The permanent chairman of the meeting will appoint two inspectors of
votes, who will count all votes cast at the meeting for or against any
resolution and will make and file with the secretary of the meeting their
verified written reports in duplicate of all votes cast at the meeting. A record
in duplicate of the proceedings of each meeting of Holders will be prepared by
the secretary of the meeting and there will be attached to such record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more persons having knowledge of the facts, setting
forth a copy of the notice of the meeting and showing that such notice was
mailed as provided in Section 12.02. The record will be signed and verified by
the affidavits of the permanent chairman and the secretary of the meeting and
one of the duplicates will be delivered to the Company and the other to the
Trustee to be preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting.
Any record so signed and verified will be conclusive evidence of the
matters therein stated.
SECTION 12.08. Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting. Nothing contained in this Article Twelve
will be deemed or construed to authorize or permit, by reason of any call of a
meeting of Holders or any rights expressly or impliedly conferred hereunder to
make such call, any hindrance or delay in the exercise of any right or rights
conferred upon or reserved to the Trustee or to the Holders under any of the
provisions of this Indenture or of the Notes.
SECTION 12.09. Procedures Not Exclusive. The procedures set forth in
this Article Twelve are not exclusive and the rights and obligations of the
Company, the Trustee and the Holders under other Articles of this Indenture
(including, without limitation, Articles Six, Seven, Eight and Nine) will in no
way be limited by the provisions of this Article Twelve.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
BTI TELECOM CORP.
By: /s/ Peter T. Loftin
-----------------------------------
Name: Peter T. Loftin
Title: Chief Executive Officer
BUSINESS TELECOM, INC.
By: /s/ R. Michael Newkivk
-----------------------------------
Name: R. Michael Newkivk
Title: President
FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION
By: /s/ Glenn W. Andersen
-----------------------------------
Name: Glenn W. Andersen
Title: Vice President
<PAGE>
EXHIBIT A
[FACE OF NOTE]
BTI TELECOM CORP.
10 1/2% Senior Note due 2007
[CUSIP] [CINS] [__________]
No. $_________
BTI TELECOM CORP., a North Carolina corporation (the "Company", which
term includes any successor under the Indenture hereinafter referred to), for
value received, promises to pay to _____________, or its registered assigns, the
principal sum of ____________ ($____) on September 15, 2007.
Interest Payment Dates: March 15 and September 15.
Regular Record Dates: March 1 and September 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE>
A-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
Date: BTI TELECOM CORP.
By:
-------------------------------
Name:
Title:
By:
-------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 10 1/2% Senior Notes due 2007 described in the
within-mentioned Indenture.
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION,
as Trustee
By:
-------------------------------
Authorized Signatory
<PAGE>
A-3
[REVERSE SIDE OF NOTE]
BTI TELECOM CORP.
10 1/2% Senior Note due 2007
1. Principal and Interest.
The Company will pay the principal of this Note on September 15, 2007.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest will be payable semiannually (to the holders of record of the
Notes at the close of business on the March 1 or September 1 immediately
preceding the Interest Payment Date) on each Interest Payment Date, commencing
March 15, 1998.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before March 22, 1998
in accordance with the terms of the Registration Rights Agreement the annual
interest rate borne by the Notes shall be increased by 0.5% from the rate shown
above accruing from March 22, 1998, payable in cash semiannually, in arrears, on
each Interest Payment Date, commencing September 15, 1998 until the Exchange
Offer is consummated or the Shelf Registration Statement is declared effective.
The Holder of this Note is entitled to the benefits of the Registration Rights
Agreement.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from September 22,
1997; provided that, if there is no existing default in the payment of interest
and this Note is authenticated between a Regular Record Date referred to on the
face hereof and the next succeeding Interest Payment Date, interest shall accrue
from such Interest Payment Date. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum that is 2% in excess of the rate otherwise payable.
<PAGE>
A-4
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Notes as provided above on each March 15 and September
15 commencing March 15, 1998 to the persons who are Holders (as reflected in the
Security Register at the close of business on the March 1 or September 1
immediately preceding the Interest Payment Date), in each case, even if the Note
is cancelled on registration of transfer or registration of exchange after such
record date; provided that, with respect to the payment of principal, the
Company will make payment to the Holder that surrenders this Note to a Paying
Agent on or after September 15, 2007.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. Indenture; Limitations.
The Company issued the Notes under an Indenture dated as of September
22, 1997 (the "Indenture"), among BTI Telecom, BTI and First Trust of New York,
National Association, trustee (the "Trustee"). Capitalized terms herein are used
as defined in the Indenture unless otherwise indicated. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act. The Notes are subject to all such terms,
and Holders are referred to the Indenture and the Trust Indenture Act for a
statement of all such terms. To the extent permitted by applicable law, in the
event of any inconsistency between the terms of this Note and the terms of the
Indenture, the terms of the Indenture shall control.
The Notes are general obligations of the Company.
<PAGE>
A-5
5. Optional Redemption.
The 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 September 15, 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 September 15,
of the years set forth below:
Redemption
Year Price
---- ----------
2002........................ 105.250%
2003........................ 102.625%
2004 and thereafter......... 100.000%
At any time prior to September 15, 2000, the Company may redeem up to
35% of the aggregate principal amount of the Notes from 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 110.50%, plus accrued 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 after any such redemption at least $162.5 million
aggregate principal amount of Notes remains outstanding.
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
6. Special Redemption.
In the event the Reorganization is not consummated and the
Reorganization Officers' Certificate and Opinion of Counsel is not delivered by
December 31, 1997, or within five Business Days of the Trustee receiving an
officers' certificate stating that the Reorganization Officers' Certificate and
Opinion of Counsel will not be delivered by December 31, 1997, if it appears in
the sole judgment of the Company that the Reorganization will not be
consummated, the Company will redeem the Notes in whole on 10 days' prior notice
mailed by first class mail to each Holder's last address as it appears in the
Security Register, at a Redemption Price equal to 101% of their principal
amount, plus accrued interest to the Redemption Date.
<PAGE>
A-6
7. Repurchase upon Change of Control.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at its last address as it appears in
the Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the purchase price.
8. Special Repurchase Offer.
In the event that the FiberSouth Acquisition is not consummated and the
FiberSouth Officer's Certificate and Opinion of Counsel is not delivered by
December 31, 1997 or if it appears in the sole judgement of the Company that the
FiberSouth Acquisition will not be consummated and the FiberSouth Officer's
Certificate and Opinion of Counsel will not be delivered by December 31 1997,
the Company will be required to make an Offer to Purchase $35.0 million
principal amount of the Notes at a purchase price equal to 101% of their
principal amount, plus accrued interest to the date of purchase. A notice of
such Offer to Purchase will be mailed on the earlier of (i) December 31, 1997,
if the Trustee has not received the FiberSouth Officer's Certificate and Opinion
of Counsel and (ii) five Business Days after the date on which the Trustee
receives an officers' certificate stating that the FiberSouth Officers'
Certificate and Opinion of Counsel will not be delivered by December 31, 1997.
9. Denominations; Transfer; Exchange.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
<PAGE>
A-7
10. Persons Deemed Owners.
A Holder shall be treated as the owner of a Note for all purposes.
11. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its written request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to redemption or maturity, the
Company will be discharged from the Indenture and the Notes, except in certain
circumstances for certain sections thereof, and (b) to the Stated Maturity, the
Company will be discharged from certain covenants set forth in the Indenture.
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
14. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, use the proceeds from Asset Sales,
engage in transactions with Affiliates or merge, consolidate or transfer
substantially all of its assets. Within 45 days after the end of each fiscal
quarter (90 days after the end of the last fiscal quarter of each year), the
Company must report to the Trustee on compliance with such limitations.
<PAGE>
A-8
15. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
16. Defaults and Remedies.
The following events constitute "Events of Default" under the
Indenture: (a) default 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) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues 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) default in the performance or
breach of Article Five or Section 3.01(c) of the Indenture or the failure to
make or consummate an Offer to Purchase in accordance with Section 4.10, Section
4.11 or 4.20 of the Indenture; (d) default in the performance of 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), and such
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,
<PAGE>
A-9
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, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then outstanding
may direct the Trustee in its exercise of any trust or power.
17. Collateral.
The payment of principal, interest and premium on the Notes will be
secured by the Pledged Securities, in accordance with the provisions of the
Pledge Agreement, until the first six scheduled interest payments on the Notes
are made. Once the first six scheduled interest payments are made, the Notes
will be unsecured.
18. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
19. No Recourse Against Others.
No incorporator or any past, present or future partner, stockholder,
other equity holder, officer, director, employee or controlling person as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the
<PAGE>
A-10
Pledge Agreement, the Notes or the Indenture or for any claim based on, in
respect of or by reason of, such obligations or their creation. Each Holder by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
20. Authentication.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
21. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to BTI Telecom Corp.,
BTI Corporate Center, 4300 Six Forks Road, Raleigh, North Carolina 27609;
Attention: Chief Financial Officer.
<PAGE>
A-11
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- --------------------------------------------------------------------------------
Please print or typewrite name and address including zip code of assignee
- --------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing______________________________________________________________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL NOTES OTHER THAN EXCHANGE NOTES,
PERMANENT OFFSHORE GLOBAL NOTES AND
PERMANENT OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) September 22, 1999, the undersigned confirms that
without utilizing any general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the exemption
from registration under the Securities Act of 1933 provided by Rule
144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Note and the Indenture.
<PAGE>
A-12
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date: _________________________ ____________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933 and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:_________________________ ____________________________________
NOTICE: To be executed by an
executive officer
<PAGE>
A-13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.10, 4.11 or 4.20 of the Indenture, check the Box: |_|
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.10, 4.11 or 4.20 of the Indenture, state the amount:
$___________________.
Date: _________________
Your Signature: ________________________________________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________________
<PAGE>
EXHIBIT B
Form of Certificate
,
First Trust of New York,
National Association
100 Wall Street, 16th Floor
New York, NY 10005
Attention: Corporate Trust Department
Re: BTI Telecom Corp. (the "Company")
10 1/2% Senior Notes due 2007 (the "Notes")
Dear Sirs:
This letter relates to U.S. $________ principal amount of Notes
represented by a Note (the "Legended Note") which bears a legend outlining
restrictions upon transfer of such Legended Note. Pursuant to Section 2.01 of
the Indenture dated as of September 22, 1997 (the "Indenture") relating to the
Notes, we hereby certify that we are (or we will hold such securities on behalf
of) a person outside the United States to whom the Notes could be transferred in
accordance with Rule 904 of Regulation S promulgated under the U.S. Securities
Act of 1933. Accordingly, you are hereby requested to exchange the legended
certificate for an unlegended certificate representing an identical principal
amount of Notes, all in the manner provided for in the Indenture.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Holder]
By:
-----------------------
Authorized Signature
<PAGE>
EXHIBIT C
Form of Certificate to Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
,
First Trust of New York,
National Association
100 Wall Street, 16th Floor
New York, NY 10005
Attention: Corporate Trust Department
Re: BTI Telecom Corp. (the "Company")
10 1/2% Senior Notes due 2007 (the "Notes")
Dear Sirs:
In connection with our proposed purchase of U.S. $______________
aggregate principal amount of the Notes, we confirm that:
1. We understand that any subsequent transfer of the Notes is subject
to certain restrictions and conditions set forth in the Indenture dated as of
September 22, 1997 (the "Indenture"), relating to the Notes, and the undersigned
agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes
except in compliance with, such restrictions and conditions and the Securities
Act of 1933 (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes may not be offered or
sold except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter stated,
that if we should sell any Notes, we will do so only (A) to the Company or any
subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to
a "qualified institutional buyer" (as defined therein), (C) to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to you and to the
Company a signed letter substantially in the form of this letter, (D) outside
the United States in accordance with Rule 904 of Regulation S under the
Securities Act, (E) pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available), or (F) pursuant to an effective
registration statement under the Securities Act, and we further agree to provide
to any person purchasing any of the Notes from us a notice advising such
purchaser that resales of the Notes are restricted as stated herein.
<PAGE>
C-2
3. We understand that, on any proposed resale of any Notes, we will be
required to furnish to you and the Company such certifications, legal opinions
and other information as you and the Company may reasonably require to confirm
that the proposed sale complies with the foregoing restrictions. We further
understand that the Notes purchased by us will bear a legend to the foregoing
effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes purchased by us for our own account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
-----------------------
Authorized Signature
<PAGE>
EXHIBIT D
Form of Certificate to Be Delivered in
Connection with Transfers Pursuant to Regulation S
,
First Trust of New York,
National Association
100 Wall Street, 16th Floor
New York, NY 10005
Attention: Corporate Trust Department
Re: BTI Telecom Corp. (the "Company")
10 1/2% Senior Notes due 2007 (the "Notes")
Dear Sirs:
In connection with our proposed sale of U.S. $________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the Securities Act of 1933
and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) at the time the buy order was originated, the transferee was outside
the United States or we and any person acting on our behalf reasonably believed
that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the U.S. Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------
Authorized Signature
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
Dated September 22, 1997
between
BTI TELECOM CORP.
and
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into September 22, 1997, between BTI TELECOM CORP., a North Carolina
corporation (the "Company"), and MORGAN STANLEY & CO. INCORPORATED and MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED (the "Placement Agents").
This Agreement is made pursuant to the Placement Agreement
dated September 17, 1997, between the Company, Business Telecom Inc., a North
Carolina corporation ("BTI") and the Placement Agents (the "Placement
Agreement"), which provides for the sale by the Company to the Placement Agents
of an aggregate of $250,000,000 principal amount of the Company's 10 1/2% Senior
Notes due 2007 (the "Securities"). In order to induce the Placement Agents to
enter into the Placement Agreement, the Company and BTI have agreed to provide
to the Placement Agents and their direct and indirect transferees the
registration rights set forth in this Agreement. The execution of this Agreement
is a condition to the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended
from time to time.
"1934 Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Closing Date" shall mean the Closing Date as defined in the
Placement Agreement.
"Company" shall have the meaning set forth in the preamble to
this Agreement and shall also include the Company's successors.
"Counsel for the Holders" shall mean (i) in the case of an
Underwritten Offer, counsel selected by the Majority Holders and (ii)
in any other offering, counsel for each Holder in such Offering.
<PAGE>
2
"Exchange Offer" shall mean the exchange offer by the Company
of Exchange Securities for Registrable Securities pursuant to Section
2(a) hereof.
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"Exchange Securities" shall mean securities issued by the
Company under the Indenture containing terms identical to the
Securities (except that the Exchange Securities will not contain
restrictions on transfer) and to be offered to Holders in exchange for
Registrable Securities pursuant to the Exchange Offer.
"Holder" shall mean the Placement Agents, for so long as they
own any Registrable Securities, and each of their successors, assigns
and direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture; provided that for purposes
of Sections 4 and 5 of this Agreement, the term "Holder" shall include
Participating Broker-Dealers (as defined in Section 4(a) hereof).
"Indenture" shall mean the Indenture relating to the
Securities dated as of the date hereof among the Company, BTI and First
Trust of New York, National Association, as trustee, and as the same
may be amended from time to time in accordance with the terms thereof.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities;
provided that whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or any of its affiliates (as
such term is defined in Rule 405 under the 1933 Act) (other than the
Placement Agents or subsequent holders of Registrable Securities if
such subsequent holders are deemed to be such affiliates solely by
reason of their holding of such Registrable Securities) shall not be
counted in determining whether such consent or approval was given by
the Holders of such required percentage or amount.
"Person" shall mean an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
<PAGE>
3
"Placement Agents" shall have the meaning set forth in the
preamble to this Agreement.
"Placement Agreement" shall have the meaning set forth in the
preamble to this Agreement.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by
a Shelf Registration Statement, and by all other amendments and
supplements to such prospectus, and in each case including all material
incorporated by reference therein.
"Registrable Securities" shall mean the Securities; provided,
however, that the Securities shall cease to be Registrable Securities
(i) when a Shelf Registration Statement with respect to such Securities
shall have been declared effective under the 1933 Act and such
Securities shall have been disposed of pursuant to such Registration
Statement, (ii) when such Securities have been sold to the public
pursuant to Rule 144 (or any similar provision then in force, but not
Rule 144A) under the 1933 Act or (iii) when such Securities shall have
ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. registration and
filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable
fees and disbursements of counsel for any underwriters or Holders in
connection with blue sky qualification of any of the Exchange
Securities or Registrable Securities), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing,
printing and distributing any Registration Statement, any Prospectus,
any amendments or supplements thereto, any underwriting agreements,
securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi)
the fees and disbursements of the Trustee and its counsel, (vii) the
fees and disbursements of counsel for the Company and, in the case of a
Shelf Registration Statement, the fees and disbursements of one counsel
for the Holders (which counsel shall be selected by the Majority
Holders and which counsel may also be counsel for the Placement Agents)
and (viii) the fees and disbursements of the independent public
accountants of the Company and BTI, including the expenses of any
special audits or "cold comfort" letters required by or incident to
such performance and compliance,
<PAGE>
4
but excluding fees and expenses of counsel to the underwriters (other
than fees and expenses set forth in clause (ii) above) or the Holders
and underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a
Holder.
"Registration Statement" shall mean any registration statement
of the Company that covers any of the Exchange Securities or
Registrable Securities pursuant to the provisions of this Agreement and
all amendments and supplements to any such Registration Statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of
Section 2(b) of this Agreement which covers all of the Registrable
Securities (but no other securities unless approved by the Holders of a
majority of the Registrable Securities are covered by such Shelf
Registration Statement) on an appropriate form under Rule 415 under the
1933 Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated
by reference therein.
"TIA" shall have the meaning set forth in Section 3(l) hereof.
"Trustee" shall mean the trustee with respect to the
Securities under the Indenture.
"Underwriter" shall have the meaning set forth in the last
paragraph of Section 3 hereof.
"Underwritten Offering" shall mean a registration in which
Registrable Securities are sold to an Underwriter for reoffering to the
public.
2. Registration Under the 1933 Act.
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the Staff of the SEC, the Company shall use its
best efforts to cause to be
<PAGE>
5
filed an Exchange Offer Registration Statement covering the offer by the Company
to the Holders to exchange all of the Registrable Securities for Exchange
Securities and to have such Registration Statement remain effective until the
closing of the Exchange Offer. The Company shall commence the Exchange Offer
promptly after the Exchange Offer Registration Statement has been declared
effective by the SEC and use its best efforts to have the Exchange Offer
consummated not later than 60 days after such effective date. The Company shall
commence the Exchange Offer by mailing the related exchange offer Prospectus and
accompanying documents to each Holder stating, in addition to such other
disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities
validly tendered will be accepted for exchange;
(ii) the dates of acceptance for exchange (which shall be a
period of at least 20 business days from the date such notice is
mailed) (the "Exchange Dates");
(iii) that any Registrable Security not tendered will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Security, together with the enclosed letters of
transmittal, to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election,
not later than the close of business on the last Exchange Date, by
sending to the institution and at the address (located in the Borough
of Manhattan, The City of New York) specified in the notice a telegram,
telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for
exchange and a statement that such Holder is withdrawing his election
to have such Securities exchanged.
As soon as practicable after the last Exchange Date, the
Company shall:
(i) accept for exchange Registrable Securities or portions
thereof validly tendered and not withdrawn pursuant to the Exchange
Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted
for exchange by the Company
<PAGE>
6
and issue, and cause the Trustee to promptly authenticate and mail to
each Holder, an Exchange Security equal in principal amount to the
principal amount of the Registrable Securities surrendered by such
Holder.
The Company shall use its best efforts to complete the Exchange Offer as
provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agents of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Placement Agents shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Securities in the Exchange Offer.
(b) In the event that (i) the Company determines that the
Exchange Offer Registration provided for in Section 2(a) above is not available
or may not be consummated as soon as practicable after the last Exchange Date
because it would violate applicable law or the applicable interpretations of the
Staff of the SEC, (ii) the Exchange Offer is not for any other reason
consummated by March 22, 1998 or (iii) the Exchange Offer has been completed and
in the opinion of counsel for the Placement Agents a Registration Statement must
be filed and a Prospectus must be delivered by the Placement Agents in
connection with any offering or sale of Registrable Securities, the Company
shall use its best efforts to cause to be filed as soon as practicable after
such determination, date or notice of such opinion of counsel is given to the
Company, as the case may be, a Shelf Registration Statement providing for the
sale by the Holders of all of the Registrable Securities and to have such Shelf
Registration Statement declared effective by the SEC. In the event the Company
is required to file a Shelf Registration Statement solely as a result of the
matters referred to in clause (iii) of the preceding sentence, the Company shall
use its best efforts to file and have declared effective by the SEC both an
Exchange Offer Registration Statement pursuant to Section 2(a) with respect to
all Registrable Securities and a Shelf Registration Statement (which may be a
combined Registration Statement with the Exchange Offer Registration Statement)
with respect to offers and sales of Registrable Securities held by the Placement
Agents after completion of the Exchange Offer. The Company agrees to use its
best efforts to keep the Shelf Registration Statement continuously effective
until two years after the Closing Date or such shorter period that will
terminate when all of the Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf Registration
Statement. The Company further agrees to supplement or amend the Shelf
Registration Statement if required by the rules, regulations or instructions
applicable to the registration form used by the Company for such Shelf
Registration Statement or by the 1933 Act or by any other rules and regulations
thereunder for shelf registration or if reasonably requested by a Holder with
respect to information relating to such Holder, and to use its best efforts to
cause any such amendment to become effective and such Shelf Registration
Statement to
<PAGE>
7
become usable as soon as practicable thereafter. The Company agrees to furnish
to the Holders of Registrable Securities copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) or Section 2(b). Each
Holder shall pay all underwriting discounts and commissions and transfer taxes,
if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to the Shelf Registration Statement.
(d) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. As provided for in
the Indenture, in the event the Exchange Offer is not consummated and the Shelf
Registration Statement is not declared effective on or prior to March 22, 1998,
the annual interest rate on the Securities (and the Exchange Securities) will
increase by 0.5% until the Exchange Offer is consummated or the Shelf
Registration Statement is declared effective.
(e) Without limiting the remedies available to the Placement
Agent and the Holders, the Company acknowledges that any failure by the Company
to comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agents or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agents or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect
to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on
the appropriate form under the 1933 Act, which form (x) shall be
selected by the Company and (y) shall, in the case of a Shelf
Registration, be available for the sale of
<PAGE>
8
the Registrable Securities by the selling Holders thereof and (z) shall
comply as to form in all material respects with the requirements of the
applicable form and include all financial statements required by the
SEC to be filed therewith, and use its best efforts to cause such
Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be
necessary to keep such Registration Statement effective for the
applicable period and cause each Prospectus to be supplemented by any
required prospectus supplement and, as so supplemented, to be filed
pursuant to Rule 424 under the 1933 Act; to keep each Prospectus
current during the period described under Section 4(3) and Rule 174
under the 1933 Act that is applicable to transactions by brokers or
dealers with respect to the Registrable Securities or Exchange
Securities;
(c) in the case of a Shelf Registration, furnish to each
Holder, to counsel for the Placement Agent, to Counsel for the Holders
and to each Underwriter of an Underwritten Offering of Registrable
Securities, if any, without charge, as many copies of each Prospectus,
including each preliminary Prospectus, and any amendment or supplement
thereto and such other documents as such Holder or Underwriter may
reasonably request, in order to facilitate the public sale or other
disposition of the Registrable Securities; and the Company consents to
the use of such Prospectus and any amendment or supplement thereto in
accordance with applicable law by each of the selling Holders and any
such Underwriters in connection with the offering and sale of the
Registrable Securities covered by and in the manner described in such
Prospectus or any amendment or supplement thereto in accordance with
applicable law;
(d) use its best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder of Registrable Securities
covered by a Registration Statement shall reasonably request in writing
by the time the applicable Registration Statement is declared effective
by the SEC, to cooperate with such Holders in connection with any
filings required to be made with the National Association of Securities
Dealers, Inc. and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate
the disposition in each such jurisdiction of such Registrable
Securities owned by such Holder; provided, however, that the Company
shall not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(d), (ii) file any general
consent to service of process or (iii) subject itself to taxation in
any such jurisdiction if it is not so subject;
<PAGE>
9
(e) in the case of a Shelf Registration, notify each Holder,
Counsel for the Holders and counsel for the Placement Agent promptly
and, if requested by any such Holder or counsel, confirm such advice in
writing (i) when a Registration Statement has become effective and when
any post-effective amendment thereto has been filed and becomes
effective, (ii) of any request by the SEC or any state securities
authority for amendments and supplements to a Registration Statement
and Prospectus or for additional information after the Registration
Statement has become effective, (iii) of the issuance by the SEC or any
state securities authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose, (iv) if, between the effective date of a
Registration Statement and the closing of any sale of Registrable
Securities covered thereby, the representations and warranties of the
Company contained in any underwriting agreement, securities sales
agreement or other similar agreement, if any, relating to the offering
cease to be true and correct in all material respects or if the Company
receives any notification with respect to the suspension of the
qualification of the Registrable Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (v)
of the happening of any event during the period a Shelf Registration
Statement is effective which makes any statement made in such
Registration Statement or the related Prospectus untrue in any material
respect or which requires the making of any changes in such
Registration Statement or Prospectus in order to make the statements
therein not misleading and (vi) of any determination by the Company
that a post-effective amendment to a Registration Statement would be
appropriate;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at
the earliest possible moment and provide to each Holder immediate
notice of the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each
Holder, without charge, at least one conformed copy of each
Registration Statement and any post-effective amendment thereto
(without documents incorporated therein by reference or exhibits
thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and enable such Registrable Securities
to be in such denominations (consistent with the provisions of the
Indenture) and registered in such names as the selling Holders may
reasonably request at least one business day prior to the closing of
any sale of Registrable Securities;
<PAGE>
10
(i) in the case of a Shelf Registration, upon the occurrence
of any event contemplated by Section 3(e)(v) hereof, use its best
efforts to prepare and file with the SEC a supplement or post-effective
amendment to a Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Company agrees to notify the
Holders to suspend use of the Prospectus as promptly as practicable
after the occurrence of such an event, and the Holders hereby agree to
suspend use of the Prospectus until the Company has amended or
supplemented the Prospectus to correct such misstatement or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide copies of
such document to the Placement Agents and their counsel (and, in the
case of a Shelf Registration Statement, the Holders and Counsel for the
Holders) and make such of the representatives of the Company as shall
be reasonably requested by the Placement Agents or their counsel (and,
in the case of a Shelf Registration Statement, the Holders or Counsel
for the Holders) available for discussion of such document, and shall
not at any time file or make any amendment to the Registration
Statement, any Prospectus or any amendment of or supplement to a
Registration Statement or a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
of which the Placement Agents and their counsel (and, in the case of a
Shelf Registration Statement, the Holders and Counsel for the Holders)
shall not have previously been advised and furnished a copy or to which
the Placement Agents or their counsel (and, in the case of a Shelf
Registration Statement, the Holders or Counsel for the Holders) shall
object;
(k) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the
effective date of a Registration Statement;
(l) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Securities or Registrable Securities, as
the case may be, cooperate with the Trustee and the Holders to effect
such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and execute,
and use its best efforts to cause the Trustee to execute, all documents
as may be required
<PAGE>
11
to effect such changes and all other forms and documents required to be
filed with the SEC to enable the Indenture to be so qualified in a
timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant
to such Shelf Registration Statement, accountants designated by the
Holders and Counsel for the Holders, at reasonable times and in a
reasonable manner, all financial and other records, pertinent documents
and properties of the Company, and cause the respective officers,
directors and employees of the Company to supply all information
reasonably requested by any such representative, Underwriter, attorney
or accountant in connection with a Shelf Registration Statement;
(n) use its best efforts to have the Exchange Securities
listed on the Luxembourg Stock Exchange and, in the case of a Shelf
Registration, use its best efforts to cause all Registrable Securities
to be listed on any securities exchange or any automated quotation
system on which similar securities issued by the Company are then
listed if requested by the Majority Holders, to the extent such
Registrable Securities satisfy applicable listing requirements;
(o) use its best efforts to cause the Exchange Securities or
Registrable Securities, as the case may be, to be rated by two
nationally recognized statistical rating organizations (as such term is
defined for purposes of Rule 436(g)(2) under the 1933 Act);
(p) if reasonably requested by any Holder of Registrable
Securities covered by a Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information with respect to such Holder as such Holder reasonably
requests to be included therein and (ii) make all required filings of
such Prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters
to be incorporated in such filing; and
(q) in the case of a Shelf Registration, enter into such
customary agreements and take all such other actions in connection
therewith (including those requested by the Holders of a majority of
the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities including,
but not limited to, an Underwritten Offering and in such connection,
(i) to the extent possible, make such representations and warranties to
the Holders and any Underwriters of such Registrable Securities with
respect to the business of the Company and its subsidiaries, the
Registration Statement, Prospectus and documents incorporated by
reference or deemed incorporated by reference, if any, in each case,
<PAGE>
12
in form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company (which
counsel and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holders and such Underwriters and their respective
counsel) addressed to each selling Holder and Underwriter of
Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold
comfort" letters from the independent certified public accountants of
the Company (and, if necessary, any other certified public accountant
of any subsidiary of the Company, or of any business acquired by the
Company for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to
each selling Holder and Underwriter of Registrable Securities, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and
certificates as may be reasonably requested by the Holders of a
majority in principal amount of the Registrable Securities being sold
or the Underwriters, and which are customarily delivered in
underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause
(i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.
In the case of a Shelf Registration Statement, the Company may
require each Holder to furnish to the Company such information regarding the
Holder and the proposed distribution by such Holder of such Registrable
Securities as the Company may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Registrable Securities pursuant to a
Registration Statement, the Company shall extend the period during which the
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. The Company may give any such notice only twice during any
365-day period and any such suspensions may not exceed
<PAGE>
13
30 days for each suspension and there may not be more than two suspensions in
effect during any 365-day period.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an Underwritten Offering. In any such Underwritten Offering, the investment
banker or investment bankers and manager or managers (the "Underwriters") that
will administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering, subject to the approval of the
Company, which shall not be unreasonably withheld.
4. Participation of Broker-Dealers in Exchange Offer.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter" within the
meaning of the 1933 Act and must deliver a prospectus meeting the requirements
of the 1933 Act in connection with any resale of such Exchange Securities.
The Company understands that it is the Staff's position that
if the Prospectus contained in the Exchange Offer Registration Statement
includes a plan of distribution containing a statement to the above effect and
the means by which Participating Broker- Dealers may resell the Exchange
Securities, without naming the Participating Broker-Dealers or specifying the
amount of Exchange Securities owned by them, such Prospectus may be delivered by
Participating Broker-Dealers to satisfy their prospectus delivery obligation
under the 1933 Act in connection with resales of Exchange Securities for their
own accounts, so long as the Prospectus otherwise meets the requirements of the
1933 Act.
(b) In light of the above, notwithstanding the other
provisions of this Agreement, the Company agrees that the provisions of this
Agreement as they relate to a Shelf Registration shall also apply to an Exchange
Offer Registration to the extent, and with such reasonable modifications thereto
as may be, reasonably requested by the Placement Agent or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; provided that:
(i) the Company shall not be required to amend or supplement
the Prospectus contained in the Exchange Offer Registration Statement,
as would otherwise be contemplated by Section 3(i), for a period
exceeding 180 days after the last Exchange Date (as such period may be
extended pursuant to the penultimate paragraph of Section 3 of this
Agreement) and Participating Broker-Dealers shall not
<PAGE>
14
be authorized by the Company to deliver and shall not deliver such
Prospectus after such period in connection with the resales
contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set
forth in Section 3 of this Agreement to an Exchange Offer Registration,
to the extent not required by the positions of the Staff of the SEC or
the 1933 Act and the rules and regulations thereunder, will be in
conformity with the reasonable request to the Company by the Placement
Agent or with the reasonable request in writing to the Company by one
or more broker-dealers who certify to the Placement Agent and the
Company in writing that they anticipate that they will be Participating
Broker-Dealers; and provided further that, in connection with such
application of the Shelf Registration procedures set forth in Section 3
to an Exchange Offer Registration, the Company shall be obligated (x)
to deal only with one entity representing the Participating Broker-
Dealers, which shall be the Placement Agent unless it elects not to act
as such representative, (y) to pay the fees and expenses of only one
counsel representing the Participating Broker-Dealers, which shall be
counsel to the Placement Agent unless such counsel elects not to so act
and (z) to cause to be delivered only one, if any, "cold comfort"
letter with respect to the Prospectus in the form existing on the last
Exchange Date and with respect to each subsequent amendment or
supplement, if any, effected during the period specified in clause (i)
above.
(c) The Placement Agents shall have no liability to the
Company or any Holder with respect to any request that it may make pursuant to
Section 4(b) above.
5. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Placement Agents, each Holder and each person, if any, who controls any
Placement Agent or any Holder within the meaning of either Section 15 of the
1933 Act or Section 20 of the 1934 Act, or is under common control with, or is
controlled by, any Placement Agent or any Holder, from and against all losses,
claims, damages and liabilities (including, without limitation, any legal or
other expenses reasonably incurred by any Placement Agent, any Holder or any
such controlling or affiliated person in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) pursuant to which Exchange Securities or
Registrable Securities were registered under the 1933 Act, including all
documents incorporated therein by reference, or caused by any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or caused by any
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or alleged
omission to state therein a
<PAGE>
15
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Placement Agents or any Holder furnished to the Company in
writing by the Placement Agents or any selling Holder expressly for use therein.
In connection with any Underwritten Offering permitted by Section 3, the Company
will also indemnify the Underwriters, if any, selling brokers, dealers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (within
the meaning of the 1933 Act and the 1934 Act) to the same extent as provided
above with respect to the indemnification of the Holders, if requested in
connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Placement Agents and the other
selling Holders, and each of their respective directors, officers who sign the
Registration Statement and each Person, if any, who controls the Company, any
Placement Agent and any other selling Holder within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act to the same extent as
the foregoing indemnity from the Company to the Placement Agents and the
Holders, but only with reference to information relating to such Holder
furnished to the Company in writing by such Holder expressly for use in any
Registration Statement (or any amendment thereto) or any Prospectus (or any
amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such person (the "indemnified party") shall promptly notify the person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agents and all
persons, if any, who control any Placement Agent within the meaning of either
Section 15 of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and
expenses of more than one separate firm (in addition to any local counsel) for
the Company,
<PAGE>
16
its directors, its officers who sign the Registration Statement and each person,
if any, who controls the Company within the meaning of either such Section and
(c) the fees and expenses of more than one separate firm (in addition to any
local counsel) for all Holders and all persons, if any, who control any Holders
within the meaning of either such Section, and that all such fees and expenses
shall be reimbursed as they are incurred. In such case involving the Placement
Agents and persons who control any Placement Agent, such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated. In such case
involving the Holders and such persons who control any Holders, such firm shall
be designated in writing by the Majority Holders. In all other cases, such firm
shall be designated by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but,
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party for such fees and expenses of
counsel in accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which such indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Holders shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Holders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Holders' respective obligations to contribute
<PAGE>
17
pursuant to this Section 5(d) are several in proportion to the respective amount
of Registrable Securities of such Holder that were registered pursuant to a
Registration Statement.
(e) The Company and each Holder agree that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Securities were sold by such Holder exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 5 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this
Section 5 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Placement Agents, any Holder or any person controlling any Placement
Agent or any Holder, or by or on behalf of the Company, its officers or
directors or any person controlling the Company, (iii) acceptance of any of the
Exchange Securities and (iv) any sale of Registrable Securities pursuant to a
Shelf Registration Statement.
6. Miscellaneous.
(a) No Inconsistent Agreements. The Company has not entered
into, and on or after the date of this Agreement will not enter into, any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate
<PAGE>
18
principal amount of the outstanding Registrable Securities affected by such
amendment, modification, supplement, waiver or consent; provided, however, that
no amendment, modification, supplement, waiver or consents to any departure from
the provisions of Section 5 hereof shall be effective as against any Holder
unless consented to in writing by such Holder.
(c) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 6(c), which address initially is, with respect to the Placement Agents,
the address set forth in the Placement Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Placement Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 6(c).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the person giving the same to the Trustee, at
the address specified in the Indenture.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; provided that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement and such person shall be entitled to receive the benefits hereof. The
Placement Agents (in their capacity as Placement Agents) shall have no liability
or obligation to the Company with respect to any failure by a Holder to comply
with, or any breach by any Holder of, any of the obligations of such Holder
under this Agreement.
<PAGE>
19
(e) Purchases and Sales of Securities. The Company shall not,
and shall use its best efforts to cause its affiliates (as defined in Rule 405
under the 1933 Act) not to, purchase and then resell or otherwise transfer any
Securities.
(f) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Placement Agents, on the other hand, and any Holder shall have the
right to enforce such agreements directly to the extent it deems such
enforcement necessary or advisable to protect its rights or the rights of
Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
BTI TELECOM CORP.
By /s/ Peter T. Loftin
-------------------------------------
Name: Peter T. Loftin
Title: Chief Executive Officer
Confirmed and accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By Morgan Stanley & Co. Incorporated
By /s/ James B. Avery
-----------------------------------
Name: James B. Avery
Title: Vice President
Exhibit 4.3
PLEDGE AND
SECURITY AGREEMENT
Dated as of September 22, 1997
From
BTI TELECOM CORP.,
as Pledgor
and
BUSINESS TELECOM, INC.,
as Guarantor
to
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
as Trustee
<PAGE>
T A B L E O F C O N T E N T S
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
SECTION 1. Definitions; Appointment; Deposit and Investment................................................. 2
1.1. Definitions...................................................................................... 2
1.2. Appointment of the Trustee....................................................................... 4
1.3. Pledge and Grant of Security Interest............................................................ 4
1.4. Deposit of Funds................................................................................. 4
SECTION 2. Security for Obligations.................................................................... 4
SECTION 3. Delivery of Collateral...................................................................... 5
SECTION 4. Maintaining the Cash Collateral Account..................................................... 5
SECTION 5. Investing of Amounts in the Cash Collateral Account......................................... 5
SECTION 6. Delivery of Collateral Investments; Filing.................................................. 6
SECTION 7. Disbursements............................................................................... 7
SECTION 8. Representations and Warranties.............................................................. 11
SECTION 9. Further Assurances.......................................................................... 13
SECTION 10. Covenants................................................................................... 13
SECTION 11. Power of Attorney........................................................................... 14
SECTION 12. No Assumption of Duties; Reasonable Care.................................................... 14
SECTION 13. Indemnity................................................................................... 15
SECTION 14. Remedies upon Event of Default.............................................................. 15
SECTION 15. Expenses.................................................................................... 16
SECTION 16. Security Interest Absolute.................................................................. 16
<PAGE>
A-ii
SECTION PAGE
SECTION 17. Miscellaneous Provisions.................................................................... 17
17.1. Notices..................................................................................... 17
17.2. No Adverse Interpretation of Other Agreements............................................... 17
17.3. Severability................................................................................ 17
17.4. Headings.................................................................................... 18
17.5. Counterpart Originals....................................................................... 18
17.6. Benefits of Pledge and Security Agreement................................................... 18
17.7. Amendments, Waivers and Consents............................................................ 18
17.8. Interpretation of Agreement................................................................. 18
17.9. Continuing Security Interest; Termination................................................... 19
17.10. Survival Provisions......................................................................... 19
17.11. Waivers..................................................................................... 19
17.12. Authority of the Trustee.................................................................... 20
17.13. Intentionally Omitted....................................................................... 20
17.14. Final Expression............................................................................ 20
17.15. Rights of Holders of the Notes.............................................................. 20
17.16. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES............................................................ 20
</TABLE>
<PAGE>
PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT (this "Pledge and Security
Agreement") is made and entered into as of September 22, 1997 by and among BTI
TELECOM CORP., a North Carolina corporation (the "Pledgor") and BUSINESS
TELECOM, INC., a North Carolina corporation ("BTI"), each having its principal
office at 4300 Six Forks Road, Raleigh, North Carolina 27609, MORGAN STANLEY &
CO. INCORPORATED and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as the
Placement Agents (collectively, the "Placement Agents"), in favor of FIRST TRUST
OF NEW YORK, NATIONAL ASSOCIATION, a national banking association ("First
Trust") having an office at 100 Wall Street, 16th Floor, New York, New York
10005, as trustee (the "Trustee") for the holders (the "Holders") of the Notes
(as defined herein) issued by the Pledgor under the Indenture referred to below.
W I T N E S S E T H
WHEREAS, the Pledgor, BTI and the Placement Agents are parties
to a Placement Agreement dated September 17, 1997 (the "Placement Agreement"),
pursuant to which the Pledgor will issue and sell to the Placement Agents $250.0
million in aggregate principal amount of its 10 1/2% Senior Notes due 2007 (the
"Notes");
WHEREAS, the Pledgor, BTI and the Trustee have entered into
that certain indenture dated as of the date hereof (as amended, restated,
supplemented or otherwise modified from time to time, the "Indenture"), pursuant
to which the Pledgor is issuing the Notes on the date hereof;
WHEREAS, pursuant to the Placement Agreement and the
Indenture, the Pledgor is required to direct that on the Closing Date (as
defined in the Placement Agreement) $243,125,000.00, or in the event the
Reorganization (as defined in the Indenture) and the FiberSouth Acquisition (as
defined in the Indenture) close on the date hereof, $74,093,277.10, (the
"Funds") be deposited with the Trustee to be held by the Trustee for the benefit
of the Holders of the Notes to secure the Pledgor's obligation to (i) provide
for payment in full of the first six scheduled interest payments due on the
Notes, (ii) secure repayment of the principal, premium and interest on the Notes
in the event that the Notes become due and payable prior to such time as the
first six scheduled interest payments thereon shall have been paid in full,
(iii) redeem all of the Notes (a "Special Redemption") if, prior to December 31,
1997 (the "Termination Date"), the Reorganization has not been consummated and
the applicable Material Regulatory Approvals (as defined herein) with respect
thereto have not been received, and (iv) consummate an Offer to Purchase (as
defined in the Indenture) $35.0 million principal amount of Notes (a "Special
Repurchase Offer") if the FiberSouth Acquisition has not been consummated and
the applicable Material Regulatory
<PAGE>
2
Approvals with respect thereto have not been received prior to the Termination
Date (collectively, the "Obligations"); provided that in the event the
Reorganization and FiberSouth Acquisition close on the date hereof, the
provisions in this Pledge and Security Agreement with respect to the release of
funds upon the occurrence of such events shall be of no further force and
effect; and
WHEREAS, to secure the Obligations of the Pledgor, the Pledgor
has agreed to (i) pledge to the Trustee for its benefit and the ratable benefit
of the Holders of the Notes, a security interest in the Funds and other
Collateral (as hereinafter defined) and (ii) execute and deliver this Pledge and
Security Agreement in order to secure the payment and performance by the Pledgor
of all the Obligations.
AGREEMENT
NOW, THEREFORE, in consideration of the promises herein
contained, and in order to induce the Holders of the Notes to purchase the
Notes, the Pledgor, BTI, the Placement Agents and the Trustee hereby agree, for
the benefit of the Trustee and for the ratable benefit of the Holders of the
Notes, as follows:
SECTION 1. Definitions; Appointment; Deposit and Investment.
1.1. Definitions.
"Cash Collateral Account" means an account established and
maintained by the Trustee in the name "First Trust of New York as
Trustee", which account shall at all times be under the sole dominion
and control of the Trustee and subject to the terms and conditions of
this Pledge and Security Agreement.
"Cash Equivalents" means, to the extent owned free and clear
of all liens other than liens created hereunder, U.S. Government
Securities.
"FiberSouth Officer's Certificate" shall mean a certificate
signed by the President or any Vice President of the Pledgor stating
that (i) the Reorganization Officer's Certificate and the Opinion of
Counsel relating to the Reorganization have been delivered to the
Trustee; (ii) the FiberSouth Acquisition has been consummated (or will
be consummated promptly upon the release of the proceeds held hereby to
the Pledgor), (iii) all Material Regulatory Approvals with respect to
the FiberSouth Acquisition have been received; and (iv) consummation of
the FiberSouth Acquisition does not violate or conflict with or give
rise to a right to terminate any material agreement or instrument to
which the Pledgor, BTI or any of their direct or indirect subsidiaries
is a party.
<PAGE>
3
"Government Book-Entry Security" means U.S. Government
Securities maintained in book-entry form through the United States
Federal Reserve Banks pursuant to (A) the United States Treasury
Department regulations codified at 31 C.F.R. Part 357, as modified by
the amendments promulgated at 61 Fed. Reg. 43, 626-43, 638 (Aug. 23,
1996), or (B) substantially identical regulations promulgated by any
other agency or instrumentality of the United States whose securities
qualify as "U.S. Government Securities" hereunder.
"Material Regulatory Approvals" shall mean with respect to the
Reorganization or the FiberSouth Acquisition (i) all consents and
approvals required by the Federal Communications Commission and any
other federal governmental authority or agency and (ii) all consents
and approvals required by the state public utilities commissions of
North Carolina and any other state governmental authority or agency in
such state, in each case with respect to consummation of the
Reorganization and the FiberSouth Acquisition, as applicable.
"Reorganization Officer's Certificate" shall mean a
certificate signed by the President or any Vice President of the
Pledgor stating that (i) the Reorganization has been consummated; (ii)
all Material Regulatory Approvals with respect to the Reorganization
have been received; and (iii) consummation of the Reorganization does
not violate or conflict with or give rise to a right to terminate any
material agreement or instrument to which the Pledgor, BTI or any of
their direct or indirect subsidiaries is a party.
"Opinion of Counsel" shall mean, collectively, (i) an opinion
of Wyrick, Robbins, Yates & Ponton substantially in the form attached
hereto as Exhibit A and (ii) an opinion of Swidler & Berlin
substantially in the form attached hereto as Exhibit B.
"Trustee" shall mean the Person named as the "Trustee" in the
first paragraph of this Agreement until a successor Trustee shall have
become such, and thereafter "Trustee" shall mean the Person who is then
the Trustee hereunder.
"U.S. Government Securities" means securities that are (i)
direct obligations of the United States of America for the payment of
which its full faith and credit is pledged or (ii) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America (x) the payment of
which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or (y) that are rated at
least "Aaa" (or the then equivalent grade) by Moody's Investors
Service, Inc. or "AAA" (or the equivalent grade) by Standard & Poor's
Ratings Services.
<PAGE>
4
All capitalized terms used herein without definition shall
have the respective meanings ascribed to them in the Indenture. Unless otherwise
defined herein or in the Indenture, (i) terms used in Articles 8 or 9 of the
Uniform Commercial Code as in effect in the State of New York (the "U.C.C.") are
used herein as therein defined and (ii) terms used in "Revised Article 8," as
such term is defined in 31 C.F.R. ss. 357.2, as modified by the amendments
promulgated at 61 Fed. Reg. 43, 628 (Aug. 23, 1996), are used herein as therein
defined.
1.2. Appointment of the Trustee. The Pledgor, BTI and the
Placement Agents hereby appoint First Trust as Trustee in accordance with the
terms and conditions set forth herein and the Trustee hereby accepts such
appointment.
1.3. Pledge and Grant of Security Interest. The Pledgor hereby
pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, and grants to the Trustee for its benefit and for the
ratable benefit of the Holders of the Notes, a continuing first priority
security interest in and to all of the Pledgor's right, title and interest in,
to and under the following (hereinafter collectively referred to as the
"Collateral"), whether characterized as certificated securities, uncertificated
securities, investment property, general intangibles or otherwise: (a) the Cash
Collateral Account, all funds held therein and all certificates and instruments,
if any, from time to time representing or evidencing the Cash Collateral
Account, (b) the Collateral Investments Account and all Collateral Investments
(as hereinafter defined) and all certificates and instruments, if any,
representing or evidencing the Collateral Investments, and any and all security
entitlements to the Collateral Investments, and any and all related securities
accounts in which security entitlements to the Collateral Investments are
carried, (c) all cash, notes, certificates of deposit, deposit accounts, checks
and other instruments from time to time hereafter delivered to or otherwise
possessed by the Trustee for or on behalf of the Pledgor in substitution for or
in addition to any or all of the then existing Collateral, and (d) all proceeds
of and other distributions on or with respect to any of the foregoing (and any
other proceeds or distributions), including, without limitation, all dividends,
interest, principal payments, cash, options, warrants, rights, instruments,
subscriptions and other property or proceeds from time to time received,
receivable or otherwise distributed or distributable in respect of or in
exchange for any of the foregoing or any security entitlement thereto.
1.4. Deposit of Funds. On the Closing Date, Pledgor shall
direct that all Funds be deposited into the Cash Collateral Account.
SECTION 2. Security for Obligations. This Pledge and Security
Agreement secures the prompt and complete payment and performance when due
(whether at stated maturity, by acceleration or otherwise) of all the
Obligations.
<PAGE>
5
Notwithstanding anything to the contrary contained in or
implied by this Pledge and Security Agreement, (i) following consummation of the
Reorganization, BTI shall have no liability or obligation whatsoever, to any
person or entity, under or pursuant to this Pledge and Security Agreement, and
(ii) in the event the Reorganization is consummated on the Closing Date, neither
the Trustee nor any other person or entity shall have any claim or cause of
action of any nature whatsoever against BTI under or pursuant to this Pledge and
Security Agreement, including without limitation any such claim or cause of
action arising prior to consummation of the Reorganization.
SECTION 3. Delivery of Collateral. All certificates or
instruments representing or evidencing the Collateral, including, without
limitation, amounts invested as provided in Section 5, shall be delivered to and
held by or on behalf of the Trustee pursuant hereto and shall be in suitable
form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
sufficient to establish and maintain in favor of the Trustee a valid security
interest in such Collateral, and shall be credited to a securities account (the
"Collateral Investments Account") designated by the Trustee.
SECTION 4. Maintaining the Cash Collateral Account. (a) So
long as any Obligation shall remain unpaid, the Cash Collateral Account shall be
maintained with the Trustee.
(b) It shall be a term and condition of the Cash Collateral
Account, notwithstanding any term or condition to the contrary in any other
agreement relating to the Cash Collateral Account, and except as otherwise
provided by the provisions of Section 7 and Section 14 hereof, that no amount
(including interest on Collateral Investments) shall be paid or released to or
for the account of, or withdrawn by or for the account of, the Pledgor or any
other Person from the Cash Collateral Account.
The Cash Collateral Account shall be subject to such
applicable laws, and such applicable regulations of the Board of Governors of
the Federal Reserve System and of any other appropriate banking or governmental
authority, as may now or hereafter be in effect.
SECTION 5. Investing of Amounts in the Cash Collateral
Account. If directed by the Pledgor in writing, the Trustee will, subject to the
provisions of Section 7 and Section 14 hereof, from time to time (a) invest
amounts on deposit in the Cash Collateral Account in such Cash Equivalents, each
in the name of or for the account of the Trustee, as the Pledgor may select and
(b) invest interest paid on the Cash Equivalents referred to in clause (a)
above, and reinvest other proceeds of any such Cash Equivalents that may mature
or be sold, in each case in such Cash Equivalents, each in the name of or for
the account of the Trustee, as the Pledgor may select (the Cash Equivalents
referred to in clauses (a) and (b) above being collectively "Collateral
Investments"); provided, however, that following
<PAGE>
6
disbursement of proceeds by the Trustee in accordance with both Section 7(c) and
Section 7(e), the amount on deposit in the Collateral Investments Account must
include U.S. Government Securities sufficient, in the opinion of a nationally
recognized firm of independent public accountants selected by the Pledgor, to
provide for the payment in full of the first six scheduled interest payments on
all of the Notes then outstanding (including any interest that may be due in the
event the Exchange Offer is not consummated or the Shelf Registration Statement
is not declared effective as required by the Registration Rights Agreement).
Interest and proceeds that are not invested or reinvested in Collateral
Investments as provided above shall be deposited and held in the Cash Collateral
Account. The Trustee shall in no event be liable for any loss in the investment
or reinvestment of amounts held in the Cash Collateral Account.
SECTION 6. Delivery of Collateral Investments; Filing. (a) The
Trustee shall become the holder of the Collateral Investments (or applicable
security entitlements thereto) through the following delivery procedures: (i) in
the case of Collateral Investments which are certificated securities in
registered form, delivery of the applicable certificate(s), specially endorsed
to the Trustee or registered in the name of the Trustee, to the possession of
(A) the Trustee, (B) a securities intermediary or financial intermediary acting
on behalf of the Trustee, or (C) another person, other than a securities
intermediary or financial intermediary, which person acknowledges that it holds
for the Trustee; (ii) in the case of Collateral Investments which are
uncertificated securities, registration of one of the following as owner of such
uncertificated securities: the Trustee or a person designated by the Trustee, or
person other than a securities intermediary or financial intermediary, that
becomes the registered owner of such uncertificated securities and acknowledges
that it holds the same for the Trustee; and (iii) in the case of Collateral
Investments in the form of Government Book-Entry Securities, the making by a
financial intermediary or securities intermediary (other than a clearing
corporation) to whose account such Government Book-Entry Securities have been
credited on the books of a Federal Reserve Bank (or on the books of another such
financial intermediary or securities intermediary (other than a clearing
corporation)), of book entries indicating that such Government Book-Entry
Securities have been credited to an account of the Trustee, and the sending by
such financial intermediary or securities intermediary to the Trustee of
confirmation of such transfer to the Trustee's account.
(b) Prior to receiving any Collateral Investments (or any
security entitlements thereto), as provided in subsection (a) of this Section 6,
the Trustee shall establish the Collateral Investments Account on its books as
an account segregated from all other custodial or collateral accounts at its
office at 100 Wall Street, New York, New York, 10005. Upon delivery of any
Collateral Investments to the Trustee (or the Trustee's acquisition of a
security entitlement thereto), the Trustee shall make appropriate book entries
indicating that such Collateral Investment and/or such security entitlement has
been credited to and is held in the Collateral Investments Account. Subject to
the terms and conditions of this Pledge and Security Agreement, all Collateral
Investments held by the Trustee pursuant
<PAGE>
7
to this Pledge and Security Agreement shall be held in the Collateral
Investments Account under exclusive dominion and control of the Trustee and for
the benefit of the Trustee and the ratable benefit of the Holders of the Notes
and segregated from all other funds or other property otherwise held by the
Trustee.
(c) All Collateral shall be retained in the Cash Collateral
Account and the Collateral Investments Account pending disbursement pursuant to
the terms hereof.
(d) Concurrently with the execution and delivery of this
Pledge and Security Agreement, the Pledgor is delivering to the Trustee
acknowledgement copies or stamped receipt copies of proper financing statements,
duly filed on or before the Closing Date in accordance with the Uniform
Commercial Code as in effect in the State of New York and the State of North
Carolina, covering the categories of Collateral described in this Pledge and
Security Agreement.
SECTION 7. Disbursements. The Trustee shall hold the assets in
the Cash Collateral Account and the Collateral Investments Account and release
the same, or a portion thereof, only as follows:
(a) At least five Business Days prior to the due date of any
of the first six scheduled interest payments on the Notes, the Pledgor
may, pursuant to written instructions executed by the Pledgor (an
"Issuer Order"), direct the Trustee to release from the Cash Collateral
Account, and if necessary liquidate Collateral Investments in the
Collateral Investments Account indicated in the Issuer Order, and pay
to the Holders of the Notes funds sufficient to provide for payment in
full of such interest then due on the Notes. Upon receipt of an Issuer
Order, the Trustee will take any action necessary to provide for the
payment of the interest on the Notes in accordance with the payment
provisions of the Indenture to the Holders of the Notes from (and to
the extent of) funds available in the Cash Collateral Account and/or
the Collateral Investments Account. Nothing in this Section 7 shall
affect the Trustee's rights to apply the Collateral to the payments of
amounts due on the Notes upon acceleration thereof.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Collateral is security from a source of
funds other than the Cash Collateral Account and/or the Collateral
Investments Account ("Pledgor Funds"), the Pledgor may, after payment
in full of such interest payment or portion thereof from proceeds of
the Collateral or such Pledgor Funds or both, direct the Trustee to
release to the Pledgor or to another party at the direction of the
Pledgor (a "Pledgor Designee") funds from the Cash Collateral Account,
and if necessary liquidate Collateral Investments in the Collateral
Investments Account indicated in the Issuer Order, in an amount less
than or equal to the amount of Pledgor Funds applied
<PAGE>
8
to such interest payment. Upon receipt of an Issuer Order by the
Trustee, the Trustee shall pay over to the Pledgor or the Pledgor's
Designee, as the case may be, the requested amount from funds in the
Cash Collateral Account and/or the Collateral Investments Account.
Concurrently with any release of funds to the Pledgor pursuant to this
Section 7(b), the Pledgor shall deliver to the Trustee a certificate
signed by an officer of the Pledgor stating that such release has been
duly authorized by the Pledgor and will not contravene any provision of
applicable law or the Certificate of Incorporation of the Pledgor or
any material agreement or other material instrument binding upon the
Pledgor or any of its subsidiaries or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over the
Pledgor or any of its subsidiaries or result in the creation or
imposition of any Lien on any assets of the Pledgor, except for the
security interest granted under the Pledge and Security Agreement.
(c) If the Trustee receives, prior to 5:00 P.M. New York City
time on the Termination Date, the Reorganization Officers' Certificate
and the Opinion of Counsel with respect to the Reorganization, the
Trustee shall immediately disburse funds and/or Cash Equivalents from
the Cash Collateral Account and/or the Collateral Investments Account
to the Pledgor, or at the written direction of the Pledgor, to a
Pledgor Designee, by the close of business on such date such that the
amount remaining in the Cash Collateral Account and the Collateral
Investments Account equals (i) an amount sufficient to purchase U.S.
Government Securities in such amount as will be sufficient upon receipt
of scheduled interest and principal payments on such securities, in the
opinion of a nationally recognized firm of independent public
accountants selected by the Pledgor (which opinion shall be delivered
to the Trustee), to provide for payment in full of the first six
scheduled interest payments due on the Notes (including any interest
that may be due in the event the Exchange Offer is not consummated or
the Shelf Registration Statement is not declared effective as required
by the Registration Rights Agreement) plus (ii) an amount sufficient to
consummate a Special Repurchase Offer at a purchase price equal to 101%
of the principal amount plus accrued interest to the repurchase date
(assuming the Special Repurchase Offer remains open for the longest
time permitted), in the event the FiberSouth Acquisition is not
consummated by December 31, 1997; provided, however, that if the
Reorganization Officer's Certificate and the Opinion of Counsel with
respect to the Reorganization are received by the Trustee (i) on a day
other than a Business Day or (ii) after 9:00 A.M. New York City time on
any date, then, in either instance, the Trustee may disburse the
proceeds by the close of business on the next Business Day.
(d) (i) On the Termination Date (or, in the event the Trustee
receives a certificate signed by the President or any Vice President of
the Pledgor stating that a Reorganization Officer's Certificate and
Opinion of Counsel with respect to the
<PAGE>
9
Reorganization will not be delivered to the Trustee by the Termination
Date, on the date five Business Days after the Trustee receives such
certificate), if the conditions required for release of funds and/or
Cash Equivalents as provided in clause (c) above have not been
satisfied, the Trustee shall mail a notice by first class mail to each
Holder's last address as it appears on the Security Register (as
determined in the Indenture) stating that all of the outstanding Notes
shall be redeemed within 10 days after the date of such notice (the
"Special Redemption Date"), at 101% of the principal amount thereof
plus accrued interest thereon to the Special Redemption Date (the
"Special Redemption Price"), and shall state that the Notes must be
surrendered to the Trustee in order to collect the Special Redemption
Price.
(ii) On the Business Day prior to the Special Redemption Date,
the Trustee shall release all Collateral to the Paying Agent. The Notes
shall be redeemed as specified in the Indenture.
(e) If the Trustee receives, prior to 5:00 P.M. New York City
time on the Termination Date, the FiberSouth Officers' Certificate and
the Opinion of Counsel with respect to the FiberSouth Acquisition, the
Trustee shall disburse from the Cash Collateral Account and/or the
Collateral Investments Account to the Pledgor or, at the written
direction of the Pledgor, to a Pledgor Designee, by the close of
business on such date funds and/or proceeds from the sale of the Cash
Equivalents held in the Collateral Investment Account other than the
U.S. Government Securities referred to in clause (c)(i) above;
provided, however, that if the FiberSouth Officer's Certificate and the
Opinion of Counsel with respect thereto are received by the Trustee (i)
on a day other than a Business Day or (ii) after 9:00 A.M. New York
City time on such date, then, in either instance, the Trustee may
disburse the proceeds by the close of business on the next Business
Day. The Pledgor agrees to use, or to cause to be used, to the extent
necessary, the disbursed proceeds to consummate the FiberSouth
Acquisition on the date of such release.
(f) (i) On the Termination Date (or, in the event the Trustee
receives a certificate signed by the President or any Vice President of
the Pledgor stating that a FiberSouth Officer's Certificate and Opinion
of Counsel with respect thereto will not be delivered to the Trustee by
the Termination Date, on the date five Business Days after the Trustee
receives such certificate), if the conditions required for release of
funds and/or Cash Equivalents as provided in clause (e) above have not
been satisfied, the Trustee shall mail a notice by first class mail to
each Holder's last address as it appears in the Security Register (as
defined in the Indenture) commencing the Special Repurchase Offer (and
stating the date of purchase (the "Special Repurchase Offer Payment
Date"), which shall be not less than 30 nor more than 60 days from the
date such notice is mailed), at a purchase price of 101% of the
principal amount thereof plus accrued interest thereon to the Special
Repurchase Offer Payment Date (the
<PAGE>
10
"Special Repurchase Offer Price"), and shall state that the Notes must
be surrendered to the Trustee in order to collect the Special
Repurchase Offer Price.
(ii) On the Business Day prior to the Special Repurchase Offer
Payment Date, the Trustee shall release to the Paying Agent Collateral
sufficient, to pay the Special Repurchase Offer Price for all Notes
validly tendered and not withdrawn. The Notes shall be purchased as
specified in the Indenture.
(g) If the Pledgor is required to effect a Special Redemption
contemplated by clause (d) or a Special Repurchase Offer contemplated
by clause (f) above and for any reason the amount of Collateral to be
released is insufficient to pay the aggregate Special Redemption Price
and/or Special Repurchase Offer Price, as the case may be, the Pledgor
and BTI jointly and severally agree to pay to the Paying Agent, on or
prior to the Special Redemption Date or the Special Repurchase Offer
Payment Date, as the case may be, the amount of funds necessary to
permit the payment of the aggregate Special Redemption Price and/or
Special Repurchase Offer Price, as the case may be.
(h) If at any time following disbursement by the Trustee in
accordance with clauses (c) and (e) above, the principal of and
earnings on the Collateral exceed 100% of the amount sufficient, in the
written opinion of a nationally recognized firm of independent
accountants selected by the Pledgor and delivered to the Trustee, to
provide for payment in full of the first six scheduled interest
payments due on the Notes (including any interest that may be due in
the event the Exchange Offer is not consummated or the Shelf
Registration Statement is not declared effective as required by the
Registration Rights Agreement), the Pledgor may direct the Trustee to
release any such overfunded amount to the Pledgor or to such other
party as the Pledgor may direct in writing. Upon receipt of an Issuer
Order, the Trustee shall pay over to the Pledgor or a Pledgor Designee,
as the case may be, any such overfunded amount.
(i) Upon payment in full of the first six scheduled interest
payments on the Notes in a timely manner, the security interest in the
Collateral evidenced by this Pledge and Security Agreement will
automatically terminate and be of no further force and effect and the
Collateral shall promptly be paid over and transferred to the Pledgor.
Furthermore, upon the release of any Collateral from the Cash
Collateral Account and/or the Collateral Investments Account in
accordance with the terms of this Pledge and Security Agreement,
whether upon release of Collateral to Holders as payment of interest or
otherwise, the security interest evidenced by this Pledge and Security
Agreement in such released Collateral will automatically terminate and
be of no further force and effect.
<PAGE>
11
(j) At least five Business Days prior to the due date of any
of the first six scheduled interest payments on the Notes, the Pledgor
covenants to give the Trustee (by Issuer Order) notice as to whether
payment of interest will be made pursuant to Section 7(a) or 7(b) and
as to the respective amounts of interest that will be paid pursuant to
Section 7(a) or 7(b). If no such notice is given, the Trustee will act
pursuant to Section 7(a) as if it had received an Issuer Order pursuant
thereto for the payment in full of the interest then due.
(k) The Trustee shall not be required to liquidate any
Collateral Investment in order to make any scheduled payment of
interest or any release hereunder unless instructed to do so by Issuer
Order or pursuant to Section 14 hereof.
(l) Nothing contained in Section 1, Section 5, Section 6, this
Section 7 or any other provision of this Pledge and Security Agreement
shall (i) afford the Pledgor any right to issue entitlement orders with
respect to any security entitlement to any of the Collateral
Investments or any securities account in which any such security
entitlement may be carried, or otherwise afford the Pledgor control of
any such security entitlement or (ii) otherwise give rise to any rights
of the Pledgor with respect to any of the Collateral Investments, any
security entitlement thereto or any securities account in which any
such security entitlement may be carried, other than the Pledgor's
beneficial interest under this Pledge and Security Agreement in
collateral pledged to and subject to the exclusive dominion and control
(consistent with this Pledge and Security Agreement) of the Trustee in
its capacity as such (and not as a securities intermediary). The
Pledgor acknowledges, confirms and agrees that the Trustee holds a
security entitlement to the Collateral Investments solely as trustee
for the Holders of the Notes and not as a securities intermediary or
financial intermediary.
SECTION 8. Representations and Warranties. The Pledgor and BTI
each hereby represents and warrants that:
(a) The execution and delivery by it of, and the performance
by it of its obligations under, this Pledge and Security Agreement will
not contravene any provision of applicable law or its Certificate of
Incorporation or any material agreement or other material instrument
binding upon it or any of its subsidiaries or any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over its or any of its subsidiaries, or result in the creation or
imposition of any Lien on any of its assets, except for the security
interests granted under this Pledge and Security Agreement; no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required (i) for the performance by it
of its obligations under this Pledge and Security Agreement, (ii) for
the pledge by the Pledgor of the Collateral pursuant to this Pledge and
Security
<PAGE>
12
Agreement or (iii) except for any such consents, approvals,
authorizations or orders required to be obtained by the Trustee (or the
Holders) for reasons other than the consummation of this transaction
(if any), for the exercise by the Trustee of the rights provided for in
this Pledge and Security Agreement or the remedies in respect of the
Collateral pursuant to this Pledge and Security Agreement.
(b) The Pledgor is the beneficial owner of the Collateral,
free and clear of any Lien or claims of any person or entity (except
for the security interests granted under this Pledge and Security
Agreement). No financing statement covering the Pledgor's interest in
the Collateral is on file in any public office other than the financing
statements, if any, filed pursuant to this Pledge and Security
Agreement.
(c) This Pledge and Security Agreement has been duly
authorized, validly executed and delivered by it and (assuming the due
authorization and valid execution and delivery of this Pledge and
Security Agreement by the Trustee and the Placement Agents and
enforceability of this Pledge and Security Agreement against the
Trustee and the Placement Agents in accordance with its terms)
constitutes a valid and binding agreement of it, enforceable against it
in accordance with its terms, except as (i) the enforceability hereof
may be limited by bankruptcy, insolvency, fraudulent conveyance,
preference, reorganization, moratorium or similar laws now or hereafter
in effect relating to or affecting creditors' rights or remedies
generally, (ii) the availability of equitable remedies may be limited
by equitable principles of general applicability and the discretion of
the court before which any proceeding therefor may be brought, (iii)
the exculpation provisions and rights to indemnification hereunder may
be limited by U.S. federal and state securities laws and public policy
considerations and (iv) the waivers of rights and defenses contained in
Section 14(b), Section 17.11 and Section 17.16 hereof may be limited by
applicable law.
(d) Upon the filing of financing statements, if any, required
by the U.C.C. in the appropriate offices in the State of New York and
the State of North Carolina, and the delivery to the Trustee of the
Collateral, in accordance with this Pledge and Security Agreement, the
pledge of and grant of a security interest in the Collateral securing
the payment of the Obligations for the benefit of the Trustee and the
Holders of the Notes will constitute a first priority perfected
security interest in such Collateral, enforceable as such against all
creditors of the Pledgor (and any persons purporting to purchase any of
the Collateral from the Pledgor), other than as permitted by the
Indenture.
(e) There are no legal or governmental proceedings pending or,
to the best of its knowledge, threatened to which it is a party or to
which any of its properties is subject that would materially adversely
affect the power or ability of it to perform its
<PAGE>
13
obligations under this Pledge and Security Agreement or to consummate
the transactions contemplated hereby.
(f) The pledge of the Collateral pursuant to this Pledge and
Security Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System) applicable to the Pledgor.
(g) No Event of Default exists.
SECTION 9. Further Assurances. The Pledgor and BTI will,
promptly upon request by the Trustee (which request the Trustee may submit at
the direction of the Holders of a majority in principal amount of the Notes then
outstanding), execute and deliver or cause to be executed and delivered, or use
its reasonable best efforts to procure, all assignments, instruments and other
documents, deliver any instruments to the Trustee and take any other actions
that are necessary or desirable to perfect, continue the perfection of, or
protect the first priority of the Trustee's security interest in and to the
Collateral, to protect the Collateral against the rights, claims or interests of
third persons (other than any such rights, claims or interests created by or
arising through the Trustee) or to effect the purposes of this Pledge and
Security Agreement. The Pledgor and BTI each also hereby authorizes the Trustee
to file any financing or continuation statements in the United States with
respect to the Collateral without the signature of the Pledgor (to the extent
permitted by applicable law). The Pledgor and BTI jointly and severally agree to
promptly pay all reasonable costs incurred in connection with any of the
foregoing within 45 days of receipt of an invoice therefor. The Pledgor and BTI
each also agrees, whether or not requested by the Trustee, to take all actions
that are necessary to perfect or continue the perfection of, or to protect the
first priority of, the Trustee's security interest in and to the Collateral,
including the filing of all necessary financing and continuation statements, and
to protect the Collateral against the rights, claims or interests of third
persons (other than any such rights, claims or interests created by or arising
through the Trustee).
SECTION 10. Covenants. The Pledgor and BTI each covenants and
agrees with the Trustee and the Holders of the Notes that from and after the
date of this Pledge and Security Agreement until the earlier of payment in full
in cash of (x) each of the first six scheduled interest payments due on the
Notes under the terms of the Indenture or (y) all obligations due and owing
under the Indenture and the Notes in the event such obligations become due and
payable prior to the payment of the first six scheduled interest payments on the
Notes:
(a) that (i) it will not (and will not purport to) sell or
otherwise dispose of, or grant any option or warrant with respect to,
any of the Collateral or its beneficial interest therein, and (ii) it
will not create or permit to exist any Lien upon or other
<PAGE>
14
adverse interest in or with respect to its beneficial interest in any
of the Collateral (except for the security interests granted under this
Pledge and Security Agreement); and
(b) that it will not (i) enter into any agreement or
understanding that restricts or inhibits or purports to restrict or
inhibit the Trustee's rights or remedies hereunder, including, without
limitation, the Trustee's right to sell or otherwise dispose of the
Collateral or (ii) fail to pay or discharge any tax, assessment or levy
of any nature with respect to its beneficial interest in the Collateral
not later than five days prior to the date of any proposed sale under
any judgment, writ or warrant of attachment with respect to such
beneficial interest.
SECTION 11. Power of Attorney. In addition to all of the
powers granted to the Trustee pursuant to the Indenture, the Pledgor and BTI
each hereby appoints and constitutes the Trustee as its attorney-in-fact (with
full power of substitution) to exercise to the fullest extent permitted by law
all of the following powers upon and at any time after the occurrence and during
the continuance of an Event of Default: (a) collection of proceeds of any
Collateral; (b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any Liens under Section 6 hereof; and
(d) paying or discharging taxes or Liens levied or placed upon the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by the Trustee in its sole reasonable discretion, and such
payments made by the Trustee to become part of the Obligations of the Pledgor to
the Trustee, due and payable immediately upon demand. The Trustee's authority
under this Section 11 shall include, without limitation, the authority to
endorse and negotiate any checks or other instruments representing proceeds of
Collateral, execute and give receipt for any certificate of ownership or any
document constituting Collateral, transfer title to any item of Collateral, sign
the Pledgor's name on all financing statements (to the extent permitted by
applicable law) or any other documents deemed necessary or appropriate by the
Trustee to preserve, protect or perfect the security interest in the Collateral
and to file the same, prepare, file and sign the Pledgor's name on any notice of
Lien, and to take any other actions arising from or incident to the powers
granted to the Trustee in this Pledge and Security Agreement. This power of
attorney is coupled with an interest and is irrevocable by the Pledgor.
SECTION 12. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Trustee hereunder are being granted in order to
establish, preserve and protect the security interest of the Trustee and the
Holders of the Notes in and to the Collateral granted hereby and shall not be
interpreted to and shall not impose any duties on the Trustee in connection
therewith other than those expressly provided herein or imposed under applicable
law. Except as expressly provided by applicable law or by the Indenture, the
Trustee shall be deemed to have exercised reasonable care in the custody and
preservation of the Collateral in its possession if the Collateral is accorded
treatment
<PAGE>
15
substantially equal to that which the Trustee accords similar property held by
the Trustee for its own account, it being understood that the Trustee in its
capacity as such shall not have any responsibility for (a) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities or other
matters relative to any Collateral, whether or not the Trustee has or is deemed
to have knowledge of such matters, (b) taking any necessary steps to preserve
rights against any parties with respect to any Collateral or (c) investing or
reinvesting any of the Collateral.
SECTION 13. Indemnity. The Pledgor shall indemnify, hold
harmless and defend the Trustee and its directors, officers, agents and
employees, from and against any and all claims, actions, obligations,
liabilities and expenses, including reasonable defense costs, reasonable
investigative fees and costs, and reasonable legal fees and damages arising from
the Trustee's performance as Trustee under this Pledge and Security Agreement,
except to the extent that such claim, action, obligation, liability or expense
is directly attributable to the bad faith, gross negligence or wilful misconduct
of such indemnified person.
SECTION 14. Remedies upon Event of Default. If any Event of
Default under the Indenture or default hereunder (any such Event of Default or
default being referred to in this Pledge and Security Agreement as an "Event of
Default") shall have occurred and be continuing:
(a) The Trustee and the Holders of the Notes shall have, in
addition to all other rights given by law or by this Pledge and
Security Agreement or the Indenture, all of the rights and remedies
with respect to the Collateral of a secured party under the U.C.C. in
effect in the State of New York at that time. In addition, with respect
to any Collateral that shall then be in or shall thereafter come into
the possession or custody of the Trustee, the Trustee may and, at the
direction of the Holders of a majority in principal amount of the Notes
then outstanding, shall, sell or cause the same to be sold at any
broker's board or at public or private sale, in one or more sales or
lots, at such price or prices as the Trustee may deem best, for cash or
on credit or for future delivery, without assumption of any credit
risk. The purchaser of any or all Collateral so sold shall thereafter
hold the same absolutely, free from any claim, encumbrance or right of
any kind whatsoever created by or through the Pledgor. Unless any of
the Collateral threatens, in the reasonable judgment of the Trustee, to
decline speedily in value or is or becomes of a type sold on a
recognized market, the Trustee will give the Pledgor reasonable notice
of the time and place of any public sale thereof, or of the time after
which any private sale or other intended disposition is to be made. Any
sale of the Collateral conducted in conformity with reasonable
commercial practices of banks, insurance companies, commercial finance
companies, or other financial institutions disposing of property
similar to the Collateral shall be deemed to be commercially
reasonable. Any requirements of reasonable notice shall be met if such
notice is mailed to the Pledgor as provided in
<PAGE>
16
Section 17.1 hereof at least ten (10) days before the time of the sale
or disposition. The Trustee or any Holder of Notes may, in its own name
or in the name of a designee or nominee, buy any of the Collateral at
any public sale and, if permitted by applicable law, at any private
sale. All fees and expenses (including court costs and reasonable
attorneys' fees, expenses and disbursements) of, or incident to, the
enforcement of any of the provisions hereof shall be recoverable from
the proceeds of the sale or other disposition of the Collateral. In no
event shall the Trustee be liable for any loss or diminution in value
of the Collateral sold or offered for sale in accordance with this
Section 14.
(b) The Pledgor further agrees to use its reasonable best
efforts to do or cause to be done all such other acts as may be
necessary to make such sale or sales of all or any portion of the
Collateral pursuant to this Section 14 valid and binding and in
compliance with any and all other applicable requirements of law. The
Pledgor further agrees that a breach of any of the covenants contained
in this Section 14 will cause irreparable injury to the Trustee and the
Holders of the Notes, that the Trustee and the Holders of the Notes
have no adequate remedy at law in respect of such breach and, as a
consequence, that each and every covenant contained in this Section 14
shall be specifically enforceable against the Pledgor, and the Pledgor
hereby waives and agrees not to assert any defenses against an action
for specific performance of such covenants except for a defense that no
Event of Default has occurred.
SECTION 15. Expenses. The Pledgor will upon demand pay to the
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee, that the Trustee may incur in
connection with (a) the review, negotiation and administration of this Pledge
and Security Agreement, (b) the custody or preservation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (c) the
exercise or enforcement of any of the rights of the Trustee and the Holders of
the Notes hereunder or (d) the failure by the Pledgor to perform or observe any
of the provisions hereof.
SECTION 16. Security Interest Absolute. All rights of the
Trustee and the Holders of the Notes and security interests hereunder, and all
obligations of the Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the
Indenture;
<PAGE>
17
(c) any exchange, surrender, release or non-perfection of any
Liens on any other collateral for all or any of the Obligations; or
(d) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to,
or a discharge of, the Pledgor in respect of the Obligations or of this
Pledge and Security Agreement.
SECTION 17. Miscellaneous Provisions.
17.1. Notices. Any notice or communication shall be
sufficiently given if in writing and delivered in person or mailed by first
class mail, commercial courier service or telecopier communication, addressed as
follows:
if to the Pledgor:
BTI Telecom Corp.
4300 Six Forks Road
Raleigh, North Carolina 27609
Attention: Anthony Copeland
if to BTI:
Business Telecom, Inc.
4300 Six Forks Road
Raleigh, North Carolina 27609
Attention: Anthony Copeland
if to the Trustee:
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, New York 10005
Attention: Corporate Trust Administration
17.2. No Adverse Interpretation of Other Agreements. This
Pledge and Security Agreement may not be used to interpret another pledge,
security or debt agreement of the Pledgor or any subsidiary thereof. No such
pledge, security or debt agreement (other than the Indenture) may be used to
interpret this Pledge and Security Agreement.
17.3. Severability. The provisions of this Pledge and Security
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in
<PAGE>
18
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect in that jurisdiction only such clause or provision, or part
thereof, and shall not in any manner affect such clause or provision in any
other jurisdiction or any other clause or provision of this Pledge and Security
Agreement in any jurisdiction.
17.4. Headings. The headings in this Pledge and Security
Agreement have been inserted for convenience of reference only, are not to be
considered a part hereof and shall in no way modify or restrict any of the terms
or provisions hereof.
17.5. Counterpart Originals. This Pledge and Security
Agreement may be signed in two or more counterparts, each of which shall be
deemed an original, but all of which shall together constitute one and the same
agreement.
17.6. Benefits of Pledge and Security Agreement. Nothing in
this Pledge and Security Agreement, express or implied, shall give to any
person, other than the parties hereto and their successors hereunder, and the
Holders of the Notes, any benefit or any legal or equitable right, remedy or
claim under this Pledge and Security Agreement.
17.7. Amendments, Waivers and Consents. Any amendment or
waiver of any provision of this Pledge and Security Agreement and any consent to
any departure by the Pledgor from any provision of this Pledge and Security
Agreement shall be effective only if made or duly given in compliance with all
of the terms and provisions of the Indenture, and neither the Trustee nor any
Holder of Notes shall be deemed, by any act, delay, indulgence, omission or
otherwise, to have waived any right or remedy hereunder or to have acquiesced in
any Default or Event of Default or in any breach of any of the terms and
conditions hereof. Consistent with the foregoing, this Pledge and Security
Agreement may be amended, its provisions may be waived and departures from its
provisions may be consented to by action of the Pledgor and the Trustee and (if
applicable) the Holders of the Notes, all as provided in the Indenture, and no
such amendment, waiver or consent shall require any action or approval of the
Placement Agents. Failure of the Trustee or any Holder of Notes to exercise, or
delay in exercising, any right, power or privilege hereunder shall not preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. A waiver by the Trustee or any Holder of Notes of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy that the Trustee or such Holder of Notes would otherwise have on
any future occasion. The rights and remedies herein provided are cumulative, may
be exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
17.8. Interpretation of Agreement. To the extent a term or
provision of this Pledge and Security Agreement conflicts with the Indenture,
the Indenture shall control with respect to the subject matter of such term or
provision. The Trustee shall be entitled to all its rights and privileges and
immunities under the Indenture in performing hereunder.
<PAGE>
19
Acceptance of or acquiescence in a course of performance rendered under this
Pledge and Security Agreement shall not be relevant to determine the meaning of
this Pledge and Security Agreement even though the accepting or acquiescing
party had knowledge of the nature of the performance and opportunity for
objection.
17.9. Continuing Security Interest; Termination. (a) This
Pledge and Security Agreement shall create a continuing security interest in and
to the Collateral and shall, except as otherwise provided in the Indenture or in
this Pledge and Security Agreement, remain in full force and effect until the
payment in full in cash of the Obligations. This Pledge and Security Agreement
shall be binding upon the Pledgor, its transferees, successors and assigns, and
shall inure, together with the rights and remedies of the Trustee hereunder, to
the benefit of the Trustee, the Holders of the Notes and their respective
successors, transferees and assigns.
(b) This Pledge and Security Agreement shall terminate (except
as to surviving rights of indemnity) upon the payment in full in cash of the
Obligations. At such time, the Trustee shall, pursuant to an Issuer Order,
reassign and redeliver to the Pledgor all of the Collateral hereunder that has
not been sold, disposed of, retained or applied by the Trustee in accordance
with the terms of this Pledge and Security Agreement and the Indenture. Such
reassignment and redelivery shall be without warranty by or recourse to the
Trustee in its capacity as such, except as to the absence of any Liens on the
Collateral created by or arising through the Trustee, and shall be at the
reasonable expense of the Pledgor.
(c) Notwithstanding anything to the contrary contained in or
implied by this Pledge and Security Agreement, in the event the Reorganization
and FiberSouth Acquisition are consummated on the date hereof (i) BTI shall have
no liability or obligation whatsoever, to any person or entity, under or
pursuant to this Pledge and Security Agreement and (ii) neither the Trustee nor
any other person or entity shall have any claim or cause of action of any nature
whatsoever against BTI under or pursuant to this Pledge and Security Agreement.
17.10. Survival Provisions. All representations, warranties
and covenants of the Pledgor and BTI contained herein shall survive the
execution and delivery of this Pledge and Security Agreement, and shall
terminate only upon the termination of this Pledge and Security Agreement. The
obligations of the Pledgor under Sections 13 and 15 hereof shall survive the
termination of this Agreement.
17.11. Waivers. The Pledgor waives presentment and demand for
payment of any of the Obligations, protest and notice of dishonor or default
with respect to any of the Obligations, and all other notices to which the
Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
<PAGE>
20
17.12. Authority of the Trustee. (a) The Trustee shall have
and be entitled to exercise all powers hereunder that are specifically granted
to the Trustee by the terms hereof, together with such powers as are reasonably
incident thereto. The Trustee may perform any of its duties hereunder or in
connection with the Collateral by or through agents or employees and shall be
entitled to retain counsel and to act in reliance upon the advice of counsel
concerning all such matters. Except as otherwise expressly provided in this
Pledge and Security Agreement or the Indenture, neither the Trustee nor any
director, officer, employee, attorney or agent of the Trustee shall be liable to
the Pledgor for any action taken or omitted to be taken by the Trustee, in its
capacity as Trustee hereunder, except for its own bad faith, gross negligence or
willful misconduct, and the Trustee shall not be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security furnished
pursuant hereto. The Trustee and its directors, officers, employees, attorneys
and agents shall be entitled to rely on any communication, instrument or
document reasonably believed by it or them to be genuine and correct and to have
been signed or sent by the proper person or persons. The Trustee shall have no
duty to cause any financing statement or continuation statement to be filed in
respect of the Collateral.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Trustee under this Pledge and Security Agreement with
respect to any action taken by the Trustee or the exercise or non-exercise by
the Trustee of any option, right, request, judgment or other right or remedy
provided for herein or resulting or arising out of this Pledge and Security
Agreement shall, as between the Trustee and the Holders of the Notes, be
governed by the Indenture and by such other agreements with respect thereto as
may exist from time to time among them, but, as between the Trustee and the
Pledgor, the Trustee shall be conclusively presumed to be acting as agent for
the Holders of the Notes with full and valid authority so to act or refrain from
acting, and the Pledgor shall not be obligated or entitled to make any inquiry
respecting such authority.
17.13. Intentionally Omitted.
17.14. Final Expression. This Pledge and Security Agreement,
together with the Indenture and any other agreement executed in connection
herewith, is intended by the parties as a final expression of this Pledge and
Security Agreement and is intended as a complete and exclusive statement of the
terms and conditions thereof.
17.15. Rights of Holders of the Notes. No Holder of Notes
shall have any independent rights hereunder other than those rights granted to
individual Holders of the Notes pursuant to Section 6.07 of the Indenture;
provided that nothing in this subsection shall limit any rights granted to the
Trustee under the Notes or the Indenture.
17.16. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER
OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE AND SECURITY
<PAGE>
21
AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF
NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND
THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE AND SECURITY AGREEMENT,
AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. NOTWITHSTANDING THE
FOREGOING: THE MATTERS IDENTIFIED IN 31 C.F.R. ss.ss. 357.10 AND 357.11 (AS IN
EFFECT ON THE DATE OF THIS AGREEMENT) SHALL BE GOVERNED SOLELY BY THE LAWS
SPECIFIED THEREIN.
(b) THE PLEDGOR AGREES TO SUBMIT TO THE JURISDICTION OF ANY
FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK.
(c) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY
AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE
COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND
HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE COLLATERAL, AS
THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH
PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE PLEDGOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY OF NEW YORK
ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
(d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR
(EXCEPT AS OTHERWISE PROVIDED IN THIS PLEDGE AND SECURITY AGREEMENT OR THE
INDENTURE) THE TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO
THE PLEDGOR (WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED
BY THE PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED
<PAGE>
22
TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS
PLEDGE AND SECURITY AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE
JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS
THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE
PART OF THE TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING
BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR
WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER
OF NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY
JUDGMENT OR OTHER COURT ORDER PERTAINING TO THIS PLEDGE AND SECURITY AGREEMENT
OR ANY RELATED AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY
HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING
ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS PLEDGE AND SECURITY AGREEMENT
OR ANY RELATED AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR ON THE ONE HAND AND THE
TRUSTEE AND/OR THE HOLDERS OF THE NOTES ON THE OTHER HAND.
<PAGE>
23
IN WITNESS WHEREOF, the Pledgor, BTI, the Placement Agents and
the Trustee have each caused this Pledge and Security Agreement to be duly
executed and delivered as of the date first above written.
BTI Telecom Corp.
By /s/ Peter T. Loftin
______________________________________
Name: Peter T. Loftin
Title: Chief Executive Officer
Business Telecom, Inc.
By /s/ R. Michael Newkirk
______________________________________
Name: R. Michael Newkirk
Title: President
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: Morgan Stanley & Co. Incorporated
By: /s/ James B. Avery
______________________________________
Name: James B. Avery
Title: Vice President
First Trust of New York, National Association,
as Trustee
By: /s/ Glenn W. Andersen
_________________________________________
Name: Glenn W. Andersen
Title: Vice President
<PAGE>
Exhibit A
Form of Opinion of Counsel
I. Form of opinion to be delivered in connection with the
Reorganization
(A) the Reorganization has been duly and validly authorized by
the Pledgor and BTI, and all corporate action on the part of the Pledgor and BTI
and the Pledgor's and BTI's shareholders necessary to approve the Reorganization
has been accomplished;
(B) no consent, approval, authorization or order of, or
qualification with, any United States or state governmental body, agency or
court having jurisdiction over the Pledgor or BTI or any of its subsidiaries is
required for the consummation of the Reorganization by the Pledgor or BTI
pursuant to the applicable transaction documents, except such as may be required
under the federal and state telecommunications laws; and
(C) the execution and delivery by the Pledgor and BTI of, and
the performance by the Pledgor and BTI of its obligations under the applicable
transaction documents and the consummation of the Reorganization by the Pledgor
and BTI, do not contravene (i) any provision of applicable law, (ii) the
articles of incorporation or by-laws of the Pledgor or BTI, (iii) to such
counsel's knowledge, any agreement or other instrument binding upon the Pledgor
or BTI or any of its subsidiaries that is material to the Pledgor and BTI, taken
as a whole, and (iv) to such counsel's knowledge, any judgment, order or decree
of any governmental body, agency or court having jurisdiction over the Pledgor
or BTI or any of its subsidiaries.
II. Form of opinion to be delivered in connection with the
FiberSouth Acquisition
(A) the FiberSouth Acquisition has been duly and validly
authorized by the Pledgor and by FiberSouth, and all corporate action on the
part of the Pledgor, the Pledgor's shareholders, FiberSouth and FiberSouth's
shareholders necessary to approve the FiberSouth Acquisition has been
accomplished;
(B) no consent, approval, authorization or order of, or
qualification with, any United States or state governmental body, agency or
court having jurisdiction over the Pledgor or any of its subsidiaries is
required for the consummation of the FiberSouth Acquisition by the Pledgor and
FiberSouth pursuant to the applicable transaction documents, except such as may
be required under the federal and state telecommunications laws; and the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, applicable to the FiberSouth Acquisition has expired; and
(C) the execution and delivery by each of the Pledgor and
FiberSouth of, and the performance by each of the Pledgor and FiberSouth of
their respective obligations
<PAGE>
A-2
under the applicable transaction documents and the consummation of the
FiberSouth Acquisition by the Pledgor and FiberSouth, do not contravene (i) any
provision of applicable law, (ii) the articles of incorporation or by-laws of
the Pledgor or FiberSouth, (iii) to such counsel's knowledge, any agreement or
other instrument binding upon the Pledgor, FiberSouth or any of their
subsidiaries that is material to the Pledgor and BTI, taken as a whole, and (iv)
to such counsel's knowledge, any judgment, order or decree of any governmental
body, agency or court having jurisdiction over the Pledgor, FiberSouth or any of
their subsidiaries.
<PAGE>
Exhibit B
Form of Opinion of Regulatory Counsel
I. Form of opinion to be delivered in connection with the
Reorganization
All authorizations of or filings with the FCC and any State Regulatory
Agency for the consummation of the Reorganization have been obtained or made,
except where failure to obtain such authorizations or make such filings would
not, individually or in the aggregate, have a material adverse effect on BTI
Telecom Corp. and Business Telecom, Inc., taken as a whole.
II. Form of opinion to be delivered in connection with the
FiberSouth Acquisition
All authorizations of or filings with the FCC and any State Regulatory
Agency for the consummation of the FiberSouth Acquisition have been obtained or
made, except where failure to obtain such authorizations or make such filings
would not, individually or in the aggregate, have a material adverse effect on
BTI Telecom Corp. and Business Telecom, Inc., taken as a whole.
EXHIBIT 5.1
December 5, 1997
BTI Telecom Corp.
BTI Corporate Center
4300 Six Forks Road
Raleigh, North Carolina 27609
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 to be filed by BTI
Telecom Corp., a North Carolina corporation (the "Issuer"), with the Securities
and Exchange Commission on or about the date hereof (the "Registration
Statement"), in connection with the registration under the Securities Act of
1933, as amended, of $250.0 million principal amount of 10-1/2% Senior Notes of
the Issuer. Such Notes are referred to herein as the "Securities". The
Securities are to be exchanged as described in the Registration Statement and
pursuant to the Indenture filed as an exhibit thereto (the "Indenture"). In our
examination, we have assumed the genuineness of all signatures, the authenticity
of all documents submitted to us as originals and the conformity with the
original of all documents submitted to us as copies thereof.
As your legal counsel, we have examined the proceedings taken, and are
familiar with the proceedings proposed to be taken, in connection with the
exchange and issuance of the Securities.
It is our opinion, subject to the assumptions and qualifications contained
herein, that:
1. The Indenture has been duly authorized, executed and delivered and
constitutes a valid and legally binding instrument of the Issuer.
2. Upon completion of the proceedings being taken or contemplated by us, as
your counsel, to be taken prior to the issuance of the Securities, including the
proceedings being taken in order to permit such transaction to be carried out in
accordance with applicable state securities laws, the Securities when issued and
exchanged in the manner referred to in the Registration Statement and in
accordance with the resolutions adopted by the Board of Directors of the Issuers
will be duly issued, valid and binding obligations of the Issuer and will be
entitled to the benefits of the Indenture.
The opinions set forth above are subject to the following qualifications
and limitations:
A. The enforceability of any obligation of the Issuer is subject to
applicable bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject to general principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of whether enforcement
is sought in proceeding at law or in equity);
B. We express no opinion as to any provision of the Indenture purporting to
relieve the trustee thereunder of the exercise of reasonable diligence, or with
respect to the enforceability of any provision of the Indenture pursuant to
which any party is indemnified against a liability arising under applicable
securities laws; and
C. In rendering the opinions set forth herein we have relieved solely on
the opinion of Shearman & Sterling in so far as such opinions relate to the laws
of the State of New York.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name wherever
appearing in the Registration Statement, including the Prospectus constituting a
part thereof.
Very truly yours,
WYRICK ROBBINS YATES & PONTON LLP
EXHIBIT 8.1
December 5, 1997
BTI Telecom Corp.
BTI Corporate Center
4300 Six Forks Road
Raleigh, North Carolina 27609
Ladies and Gentlemen:
We have acted as counsel to BTI Telecom Corp., a North Carolina
corporation (the "Issuer"), in connection with the offer to exchange under the
Securities Act of 1933, as amended (the "Act"), of $250.0 million in principal
amount of 10-1/2% Senior Notes due 2007, registered under the Act (the "Exchange
Notes"), for any and all of its outstanding 10-1/2% Senior Notes due 2007 (the
"Initial Notes"), up to an aggregate of $250.0 million, pursuant to Registration
Statement on Form S-4, to be filed with the Securities and Exchange Commission
on or about the date hereof (the "Registration Statement").
As such counsel, we have examined those documents that we have deemed
necessary as a basis for the opinion hereinafter expressed. Based upon the
foregoing, we are of the opinion that:
The description under the heading "Certain U.S. Federal Income Tax
Consequences" in the Registration Statement fairly describes the material
United States federal income tax consequences to holders resulting from their
exchange of the Initial Notes for the Exchange Notes, and the ownership and
disposition of the Exchange Notes under currently applicable federal income
tax law.
We hereby consent to the filing of the opinion as an Exhibit to the
Registration Statement, and to the reference to us under the heading "Certain
U.S. Federal Income Tax Consequences" therein.
Very truly yours,
WYRICK ROBBINS YATES & PONTON LLP
BUSINESS TELECOM, INC.
1994 STOCK PLAN
1. Purpose. This 1994 Stock Plan (the "Plan") is intended to provide
incentives:
(a) to employees of Business Telecom, Inc. (the "Company"), or
its parent (if any) or any of its present or future subsidiaries (collectively,
"Related Corporations"), by providing them with opportunities to purchase Common
Stock (as defined below) of the Company pursuant to options granted hereunder
that qualify as "incentive stock options" ("ISOs") under Section 422 of the
Internal Revenue Code of 1986, as amended, or any successor statute (the
"Code");
(b) to directors, employees and consultants of the Company and
Related Corporations by providing them with opportunities to purchase Common
Stock (as defined below) of the Company pursuant to options granted hereunder
that do not qualify as ISOs (nonstatutory options, or "NSOs");
(c) to directors, employees and consultants of the Company and
Related Corporations by providing them with bonus awards of Common Stock (as
defined below) of the Company ("Stock Bonuses"); and
(d) to directors, employees and consultants of the Company and
Related Corporations by providing them with opportunities to make direct
purchases of Common Stock (as defined below) of the Company ("Purchase Rights").
Both ISOs and NSOs are referred to hereafter individually as "Options,"
and Options, Stock Bonuses and Purchase Rights are referred to hereafter
collectively as "Stock Rights." As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation,"
respectively, as those terms are defined in Section 424 of the Code.
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors
of the Company (the "Board"); provided, however, in the event the Company (or
any successor thereto that maintains this Plan) registers equity securities
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Plan shall thereafter be administered by the Board only if
each member of the Board is a "disinterested person" as defined below.
Notwithstanding the preceding sentence, the Board may appoint a committee (the
"Committee") of two or more of its members to administer this Plan, provided,
however, in the event the Company (or any successor thereto that maintains this
Plan) registers equity securities under Section 12 of the Exchange Act, then
each member of the Committee shall be a "disinterested person" as
<PAGE>
defined below. A "disinterested person" is a director who has not received,
during the one year period (or such shorter period of time that the Company's
equity securities have been registered under Section 12 of the Exchange Act)
prior to service as an administrator of the Plan, any benefits pursuant to the
Plan, or any other stock award, stock purchase, stock option or stock
appreciation rights under any other plan sponsored by the Company or any of the
Related Corporations entitling participants to acquire stock, stock options,
stock appreciation rights or other equity securities of the Company or any of
its Related Corporations. Notwithstanding the preceding sentence, a director
shall not be disqualified from status as a "disinterested person" solely by
reason of (i) his or her participation in a formula plan satisfying the
requirements of Rule 16b-3(c)(2)(ii) promulgated under the Exchange Act, (ii)
his or her participation in an on-going securities acquisition plan meeting the
conditions of Rule 16b-3(d)(2)(i) promulgated under the Exchange Act, or (iii)
his or her election to receive any annual director's fee in either cash or an
equivalent amount of the Company's securities, or partly in both.
(c) Subject to ratification of the grant or authorization of each Stock
Right by the Board (if so required by applicable law), and subject to the terms
of the Plan, the Committee, if so appointed, shall have the authority to:
(i) determine the employees of the Company and Related
Corporations (from among the class of employees eligible under Section 3 to
receive ISOs) to whom ISOs may be granted, and to determine (from among the
class of individuals and entities eligible under Section 3 to receive NSOs,
Stock Bonuses and Purchase Rights) to whom NSOs, Stock Bonuses and Purchase
Rights may be granted;
(ii) determine the time or times at which Options, Stock
Bonuses or Purchase Rights may be granted;
(iii) determine the option price of shares subject to each
Option, which price shall not be less than the minimum price specified in
Section 6, and the purchase price of shares subject to each Purchase Right;
(iv) determine whether each Option granted shall be an ISO
or NSO;
(v) determine (subject to Section 7) the time or times
when each Option shall become exercisable and the duration of the exercise
period;
(vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Stock Bonuses and
Purchase Rights and the nature of such restrictions, if any; and
(vii) interpret the Plan and prescribe and rescind
<PAGE>
rules and regulations relating to it.
If the Committee determines to issue a NSO, it shall take
whatever actions it deems necessary, under Section 422 of the Code and the
regulations promulgated thereunder, to ensure that such Option is not treated as
an ISO. The interpretation and construction by the Committee of any provisions
of the Plan or of any Stock Right granted under it shall be final unless
otherwise determined by the Board. The Committee may from time to time adopt
such rules and regulations for carrying out the Plan as it may deem best. No
member of the Board or the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Stock Right
granted under it.
(c) The Committee may select one of its members as its
chairman, and shall hold meetings at such time and places as it may determine.
Acts by a majority of the Committee, or acts reduced to or approved in writing
by a majority of the members of the Committee, shall be the valid acts of the
Committee. All references in this Plan to the Committee shall mean the Board if
no Committee has been appointed. From time to time the Board may increase the
size of the Committee and appoint additional members thereof, remove members
(with or without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members thereof and thereafter directly
administer the Plan.
3. Eligible Employees and Others. ISOs may be granted to any employee
of the Company or any Related Corporation. Those officers of the Company who are
not employees may not be granted ISOs under the Plan. NSOs, Stock Bonuses and
Purchase Rights may be granted to any director, employee or consultant of the
Company or any Related Corporation; provided, however, that no director of the
Company who is not also an employee of the Company shall be eligible to receive
any Stock Right under the Plan after the time when the Company shall have
registered its equity securities under Section 12 of the Exchange Act. Granting
of any Stock Right to any individual or entity shall neither entitle that
individual or entity to, nor disqualify him or her from, participation in any
other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, par value $1.00 per share, or
such shares of the Company's capital stock into which such class of shares may
be converted pursuant to any reorganization, recapitalization, merger,
consolidation or the like (the "Common Stock"), or shares of Common Stock
reacquired by the Company in any manner. The aggregate number of shares that may
be issued pursuant to the Plan is 1,833 shares, subject to adjustment as
provided herein. Any such shares may be issued as ISOs, NSOs or Stock Bonuses,
or to persons or entities making purchases pursuant to Purchase Rights, so long
as the number of shares so issued does not exceed such aggregate number, as
adjusted. If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part,
<PAGE>
or if the Company shall reacquire any shares issued pursuant to Stock Rights,
the unpurchased shares subject to such Options and any shares so reacquired by
the Company shall again be available for grants of Stock Rights under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under
the Plan at any time after the Effective Date, as set forth in Section 16, and
prior to 10 years thereafter. The date of grant of a Stock Right under the Plan
will be the date specified by the Committee at the time it grants the Stock
Right; provided, however, that such date shall not be prior to the date on which
the Committee acts. The Committee shall have the right, with the consent of the
optionee, to convert an ISO granted under the Plan to a NSO pursuant to Section
17.
6. Minimum Price; ISO Limitations.
(a) The price per share specified in the agreement relating to
each NSO, Stock Bonus or Purchase Right granted under the Plan shall be
established by the Committee, taking into account any noncash consideration to
be received by the Company from the recipient of Stock Rights.
(b) The price per share specified in the agreement relating to
each ISO granted under the Plan shall not be less than the fair market value per
share of Common Stock on the date of such grant. In the case of an ISO to be
granted to an employee owning stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any Related
Corporation, the price per share specified in the agreement relating to such ISO
shall not be less than 110% of the fair market value per share of Common Stock
on the date of the grant.
(c) In no event shall the aggregate fair market value
(determined at the time an ISO is granted) of Common Stock for which ISOs
granted to any employee are exercisable for the first time by such employee
during any calendar year (under all stock option plans of the Company and any
Related Corporation) exceed $100,000; provided that this Section shall have no
force or effect to the extent that its inclusion in the Plan is not necessary
for Options issued as ISOs to qualify as ISOs pursuant to Section 422 of the
Code.
(d) If, at the time an Option is granted under the Plan, the
Company's Common Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the time such Option is granted and
shall mean:
(i) the average as of the close of business on that date
of the high and low prices of the Common Stock on the principal national
securities exchange on which the Common Stock is traded, if the Common Stock is
then traded on a national securities exchange;
<PAGE>
(ii) the last reported sale price as of the close of
business on that date of the Common Stock on the Nasdaq National Market System
(the "NASDAQ/NMS"), if the Common Stock is not then traded on a national
securities exchange but is then traded on the NASDAQ/NMS; or
(iii) the closing bid price or average of bid prices last
quoted on that date by an established quotation service, if the Common Stock is
not reported on the NASDAQ/NMS.
However, if the Common Stock is not publicly traded
at the time an Option is granted under the Plan, "fair market value" shall be
deemed to be the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors that it deems appropriate,
including, without limitation, recent sale and offer prices on the Common Stock
in private transactions negotiated at arm's length, but determined without
regard to any restriction other than a restriction that, by its terms, will
never lapse.
7. Option Duration. Subject to earlier termination as provided
in Sections 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than:
(a) 10 years from the date of grant in the case of NSOs;
(b) 10 years from the date of grant in the case of ISOs
generally; and
(c) 5 years from the date of grant in the case of ISOs granted
to an employee owning stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any Related Corporation.
Subject to earlier termination as provided in Sections 9 and
10, the term of each ISO shall be the term set forth in the original instrument
granting such ISO, except with respect to any part of such ISO that is converted
into an NSO pursuant to Section 17.
8. Exercise of Options. Subject to the provisions of Section 9
through Section 12 of the Plan, each Option granted under the Plan shall be
exercisable as follows:
(a) the Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify;
(b) once an installment becomes exercisable it shall remain
exercisable until expiration or termination of the Option, unless otherwise
specified by the Committee;
(c) each Option or installment may be exercised at any time or
from time to time, in whole or in part, for up to the total number of shares
with respect to which it is then exercisable; and
<PAGE>
(d) the Committee shall have the right to accelerate the date
of exercise of any installment of any Option, provided that the Committee shall
not accelerate the exercise date of any installment of any ISO granted to any
employee (and not previously converted into an NSO pursuant to Section 17) if
such acceleration would violate the annual vesting limitation contained in
Section 422 of the Code, as described in Section 6(c).
9. Termination of Employment. If an ISO optionee ceases to be employed
by the Company and all Related Corporations other than by reason of death or
disability as defined in Section 10, unless otherwise specified in the
instrument granting such ISO, the ISO optionee shall have the continued right to
exercise any ISO held by him or her, to the extent of the number of shares with
respect to which he or she could have exercised it on the date of termination,
until the date that is three months following the date of termination of
employment, after which such ISO will automatically terminate, subject to any
rights of the Committee set forth in Section 17 or as otherwise provided in any
instrument evidencing the ISO. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment with the Company is guaranteed by
statute or by contract. A bona fide leave of absence with the written approval
of the Company shall not be considered an interruption of employment under the
Plan, provided that such written approval contractually obligates the Company or
any Related Corporation to continue the employment of the optionee after the
approved period of absence. ISOs granted under the Plan shall not be affected by
any change of employment within or among the Company and Related Corporations,
so long as the optionee continues to be an employee of the Company or any
Related Corporation.
NOTHING IN THE PLAN SHALL BE DEEMED TO GIVE ANY GRANTEE OF ANY STOCK
RIGHT THE RIGHT TO BE RETAINED IN EMPLOYMENT OR OTHER SERVICE BY THE COMPANY OR
ANY RELATED CORPORATION FOR ANY PERIOD OF TIME.
10. Death; Disability.
(a) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of death, any ISO of his or hers may be
exercised to the extent of the number of shares with respect to which he or she
could have exercised it on the date of death, by his or her estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws of
descent and distribution, at any time prior to the expiration of three months
from the date of death, unless otherwise specified in the instrument granting
such ISO, after which time such ISO shall automatically terminate, subject to
any rights of the Committee set forth in Section 17 or as otherwise provided in
any instrument evidencing the ISO.
<PAGE>
(b) If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of disability, he or she shall continue
to have the right to exercise any ISO held by him or her on the date of
termination until the expiration of three months from the date of termination,
unless otherwise specified in the instrument granting such ISO, after which time
such ISO shall automatically terminate, subject to any rights of the Committee
set forth in Section 17 or as otherwise provided in any instrument evidencing
the ISO. For the purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code.
11. Assignability. No Stock Right shall be assignable or transferable
by the grantee except by will or by the laws of descent and distribution, and
during the lifetime of the grantee each Stock Right shall be exercisable only by
him or her.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in Sections 6 through 11 hereof and may contain such other
provisions as the Committee deems advisable that are not inconsistent with the
Plan, including restrictions (or other conditions deemed by the Committee to be
in the best interests of the Company) applicable to the exercise of Options or
to shares of Common Stock issuable upon exercise of Options. In granting any
NSO, the Committee may specify that such NSO shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any and all action necessary or advisable from time to time to carry out
the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events,
the rights of a recipient of a Stock Right granted hereunder shall be adjusted
as hereinafter provided, unless otherwise provided in the written agreement
between the recipient and the Company relating to such Stock Right:
(a) If the shares of Common Stock shall be subdivided or
combined into a greater or smaller number of shares or if the Company shall
issue any shares of Common Stock as a stock dividend on its outstanding Common
Stock, the number of shares of Common Stock deliverable upon the exercise of
outstanding Stock Rights shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
(if any) per share to reflect such subdivision, combination or stock dividend.
(b) If the Company is to be consolidated with or acquired by
another entity in a merger, sale of all or substantially all of the Company's
assets or otherwise (an "Acquisition"), unless otherwise provided by the
Committee, in its sole discretion, all conditions to the exercisability of
Options and rights of the Company to repurchase or restrict the sale of shares
of Common Stock issued pursuant to exercise of a Stock Right shall lapse and the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board") shall, as to outstanding Options,
make appropriate provision for the continuation of such Options by substituting
on an equitable basis for the shares then subject to such Options the
consideration payable with respect to the outstanding shares of Common Stock in
connection with the Acquisition.
(c) In the event of a recapitalization or reorganization of
the Company (other than a transaction described in subsection (b) above)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, an optionee upon
exercising an Option shall be entitled to receive for the purchase price paid
upon such exercise the securities he or she would have received if he or she had
exercised the Option immediately prior to such recapitalization or
reorganization.
(d) Notwithstanding the foregoing, any adjustments made
pursuant to subsections (a), (b) or (c) with respect to ISOs shall be made only
after the Committee determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the Code)
or would cause any adverse tax consequences for the holders of such ISOs. If the
Committee determines that such adjustments made with respect to ISOs would
constitute a modification of such ISOs, it may refrain from making such
adjustments as to all or some of such ISOs.
(e) In the event of the proposed dissolution or liquidation of
the Company, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Committee.
(f) Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares subject to Options. No
adjustments shall be made for dividends paid in cash or in property other than
Common Stock of the Company.
(g) No fractional shares shall be issued under the Plan and
any optionee who would otherwise be entitled to receive a fraction of a share
upon exercise of an Option shall receive from the Company cash in lieu of such
fractional shares in an amount equal to the fair market value of such fractional
shares, as determined in the sole discretion of the Committee.
(h) Upon the happening of any of the foregoing events
<PAGE>
described in subsections (a), (b) or (c) above, the class and aggregate number
of shares set forth in Section 4 hereof that are subject to Stock Rights that
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described. The Committee or the
Successor Board shall determine the specific adjustments to be made under this
Section 13 and, subject to Section 2, its determination shall be conclusive.
14. Means of Exercising Stock Rights.
(a) A Stock Right (or any part or installment thereof) shall
be exercised by giving written notice to the Company at its principal office
address. Such notice shall identify the Stock Right being exercised and specify
the number of shares as to which such Stock Right is being exercised,
accompanied by full payment of the exercise price therefor either (a) in United
States dollars in cash or by check, (b) at the discretion of the Committee,
through the delivery of already-owned shares of Common Stock having a fair
market value equal as of the date of the exercise to the cash exercise price of
the Stock Right, or (c) at the discretion of the Committee, by delivery of the
grantee's personal recourse note bearing interest payable not less than annually
at no less than 100% of the lowest applicable Federal rate, as defined in
Section 1274(d) of the Code, or (d) at the discretion of the Committee, by any
combination of (a), (b) and (c). If the Committee exercises its discretion to
permit payment of the exercise price of an ISO by means of the methods set forth
in clauses (b), (c) or (d) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in question. The holder
of a Stock Right shall not have the rights of a shareholder with respect to the
shares covered by the Stock Right until the date of issuance of a stock
certificate for such shares. Except as expressly provided above in Section 13
with respect to changes in capitalization and stock dividends, no adjustment
shall be made for dividends or similar rights for which the record date is
before the date such stock certificate is issued.
(b) All Stock Rights granted to officers and directors of the
Company within the meaning of Section 16 of the Exchange Act, or to beneficial
owners, directly or indirectly, of more than ten percent (10%) of any class of
any equity security of the Company which is registered pursuant to Section 12 of
the Exchange Act (such officers, directors and beneficial owners hereinafter
referred to as "Insiders"), shall be held by such Insiders for a period of at
least six (6) months from the date of grant prior to the disposition thereof. In
the case of Options and Purchase Rights, at least six months must elapse from
the date of the grant of the Option or Purchase Right to the date of the
disposition of such Option or Purchase Right (other than upon exercise thereof)
or underlying Common Stock of the Company.
15. Stock Appreciation Rights; Surrender of Options. The Committee may,
in its sole and absolute discretion and subject to such terms and conditions as
it deems appropriate, accept the
<PAGE>
surrender by an optionee of an Option granted to him under the Plan and
Tauthorize payment in consideration therefor of an amount equal to the
difference between the purchase price payable for the shares of Common Stock
under the instrument granting the Option and the fair market value of the shares
subject to the Option (determined as of the date of such surrender of the
Option). Such payment shall be made in shares of Common Stock valued at fair
market value on the date of such surrender, or in cash, or partly in such shares
of Common Stock and partly in cash as the Committee shall determine. The
surrender shall be permitted only if the Committee determines that such
surrender is consistent with the purpose set forth in Section 1, and only to the
extent that the Option is exercisable under Section 8 on the date of surrender.
In no event shall an optionee surrender his Option under this Section if the
fair market value of the shares on the date of such surrender is less than the
purchase price payable for the shares of Common Stock subject to the Option. Any
ISO surrendered pursuant to the provisions of this Section 15 shall be deemed to
have been converted into a NSO immediately prior to such surrender.
Notwithstanding the foregoing, if on the date of surrender the optionee is an
Insider, then any election to surrender an Option shall not be permitted unless
(a) such surrender shall occur after the date six (6) months from the date such
Option was granted, (b) the Insider shall have made an irrevocable election to
surrender the Option pursuant to this paragraph 15 at least six (6) months prior
to the date the Option is surrendered or (c) the surrender of the Option
hereunder by the Insider is otherwise exempt pursuant to the regulations
promulgated under Section 16 of the Exchange Act.
16. Term and Amendment of Plan. This Plan was adopted by the Board on
________ ___, 1994 (the "Effective Date"), subject (with respect to the
validation of ISOs granted under the Plan) to approval of the Plan by the
shareholders of the Company. If the approval of shareholders is not obtained by
one year after the Effective Date, any grants of ISOs under the Plan made prior
to that date will be rescinded. The Plan shall expire 10 years after the
Effective Date (except as to Stock Rightsoutstanding on that date). Subject to
the provisions of Section 5 above, Stock Rights may be granted under the Plan
prior to the date of shareholder approval of the Plan. The Board may terminate
or amend the Plan in any respect at any time, except that without the approval
of the shareholders obtained within 12 months before or after the Board adopts a
resolution authorizing any of the following actions,
(a) the total number of shares that may be issued under the
Plan may not be increased (except by adjustment pursuant to Section 13);
(b) the provisions of Section 3 regarding eligibility for
grants of ISOs may not be modified;
(c) the provisions of Section 6(b) regarding the exercise
price at which shares may be offered pursuant to ISOs may not be modified
(except by adjustment pursuant to Section 13); and
<PAGE>
(d) the expiration date of the Plan may not be extended.
Except as provided in Section 13(b) and the second sentence of this
Section 16, in no event may action of the Board or shareholders alter or impair
the rights of a grantee, without his or her consent, under any Stock Right
previously granted.
17. Conversion of ISOs into NSOs; Termination of ISOs. The Committee,
at the request of any optionee, may in its discretion take such actions as may
be necessary to convert such optionee's ISOs (or any installments or portions of
installments thereof) that have not been exercised on the date of conversion
into NSOs at any time prior to the expiration of such ISOs. Such actions may
include, but not be limited to, extending the exercise period or reducing the
exercise price of the appropriate installments of such Options. At the time of
such conversion, the Committee (with the consent of the optionee) may impose
such conditions on the exercise of the resulting NSOs as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with the Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into NSOs, and no such
conversion shall occur until and unless the Committee takes appropriate action.
The Committee, with the consent of the optionee, may also terminate any portion
of any ISO that has not been exercised at the time of such termination.
18. Application of Funds. The proceeds received by the Company from the
sale of shares pursuant to Stock Rights shall be used for general corporate
purposes.
19. Governmental Regulation. The Company's obligation to sell and
deliver shares of the Common Stock under the Plan is subject to the approval of
any governmental authority required in connection with the authorization,
issuance or sale of such shares.
20. Withholding of Additional Income Taxes.
(a) Upon the exercise of an NSO, or the grant of a Stock Bonus
or Purchase Right for less than the fair market value of the Common Stock, the
making of a Disqualifying Disposition (as defined in Section 21), the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder or
the surrender of an Option pursuant to Section 15, the Company, in accordance
with Section 3402(a) of the Code and any applicable state statute or regulation,
may require the optionee, Stock Bonus recipient or purchaser to pay to the
Company additional withholding taxes in respect of the amount that is considered
compensation includable in such person's gross income. With respect to (a) the
exercise of an Option, (b) the grant of a Stock Bonus, (c) the grant of a
Purchase Right of Common Stock for less than its fair market value, (d) the
vesting of restricted Common Stock acquired by exercising a Stock Right, or (e)
the acceptance of a surrender of an Option, the Committee in its discretion may
condition such event on the payment by the optionee, Stock Bonus recipient or
purchaser of any such additional withholding taxes.
<PAGE>
(b) At the sole and absolute discretion of the Committee, the
holder of Stock Rights may pay all or any part of the total estimated federal
and state income tax liability arising out of the exercise or receipt of such
Stock Rights, the making of a Disqualifying Disposition, or the vesting of
restricted Common Stock acquired on the exercise of a Stock Right hereunder
(each of the foregoing, a "Tax Event") by tendering already-owned shares of
Common Stock or (except in the case of a Disqualifying Disposition) by directing
the Company to withhold shares of Common Stock otherwise to be transferred to
the holder of such Stock Rights as a result of the exercise or receipt thereof
in an amount equal to the estimated federal and state income tax liability
arising out of such event. In such event, the holder of Stock Rights must,
however, notify the Committee of his or her desire to pay all or any part of the
total estimated federal and state income tax liability arising out of a Tax
Event by tendering already-owned shares of Common Stock or having shares of
Common Stock withheld prior to the date that the amount of federal or state
income tax to be withheld is to be determined. If the holder of Stock Rights is
an Insider, an election by an Insider to pay all or any part of the total
estimated federal and state income tax liability arising out of any Tax Event
(other than a Disqualifying Disposition) by having shares of Common Stock
withheld (i) shall be made at least six (6) months prior to the date of the Tax
Event and shall be irrevocable (except that an Insider can revoke such election
upon six months' notice to the Committee by making a written irrevocable
election to revoke the prior election); or (ii) shall be made in accordance with
paragraph 15 of the Plan or as otherwise may be permitted pursuant to the
regulations promulgated under Section 16 of the Exchange Act. For purposes of
this paragraph 20, shares of Common Stock shall be valued at their fair market
value on the date that the amount of the tax withholdings is to be determined.
21. Notice to Company of Disqualifying Disposition. Each employee who
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition (as defined below) of any Common
Stock acquired pursuant to the exercise of an ISO. A "Disqualifying Disposition"
is any disposition (including any sale) of such Common Stock before either (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
22. Governing Law; Construction. The validity and construction of the
Plan and the instruments evidencing Stock Rights shall be governed by the laws
of the State of North Carolina. In construing this Plan, the singular shall
include the plural and the masculine gender shall include the feminine and
neuter, unless the context otherwise requires.
23. Lock-up Agreement. Each recipient of securities hereunder agrees,
in connection with the first registration with the
<PAGE>
United States Securities and Exchange Commission under the Securities Act of
1933, as amended, of the public sale of the Company's Common Stock, upon request
of the Company or any underwriters managing such offering, not to sell, make any
short sale of, loan, grant any option for the purchase of or otherwise dispose
of any securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time (not to exceed 180 days) from the effective
date of such registration as the Company or the underwriters, as the case may
be, shall specify. Each such recipient agrees that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce this
Section 23.
BTI TELECOM CORP.
1997 STOCK OPTION PLAN
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BTI TELECOM CORP.
1997 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1997 Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries, and to promote the success of
the Company's business. Options granted under the Plan may be incentive stock
options (as defined under Section 422 of the Code) or non-statutory stock
options, as determined by the Administrator at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder. Stock purchase rights may also be
granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means BTI Telecom Corp., a North Carolina
corporation.
(g) "Consultant" means any person, including an advisor, who
is engaged by the Company or any Parent or Subsidiary of the Company to render
services and is compensated for such services, and any director of the Company
whether compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Administrator, provided that
such leave is for a period of not more than ninety (90) days, unless
reemployment upon the expiration of such leave is guaranteed by contract or
statute, or unless provided otherwise pursuant to Company policy adopted from
time to time; or (iv) transfers between locations of the Company or between the
Company, its Subsidiaries or their respective successors. For purposes of this
Plan, a change in status from an Employee to a Consultant or from a Consultant
to an Employee will not constitute a termination of employment or consulting
relationship; provided that a change from an Employee to a Consultant may cause
an Incentive Stock Option to become a Nonstatutory Stock Option under the Code.
(i) "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company,
with the status of employment determined based upon such minimum number of hours
or periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by the
Company shall not be sufficient to constitute "employment" by the Company.
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(j) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(k) "Fair Market Value" means, as of any date, the fair market
value of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day prior
to the time of determination, as reported in THE WALL STREET JOURNAL or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean between the high bid and low asked prices for the
Common Stock for the last market trading day prior to the time of determination,
as reported in THE WALL STREET JOURNAL or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be determined in good faith by
the Administrator.
(l) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, or any successor provision.
(m) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the
Plan.
(o) "Optioned Stock" means the Common Stock subject to an
Option or a Stock Purchase Right.
(p) "Optionee" means an Employee or Consultant who receives an
Option or a Stock Purchase Right.
(q) "Parent" means a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code, or any successor
provision.
(r) "Plan" means this 1997 Stock Option Plan.
(s) "Reporting Person" means an officer, director, or greater
than ten percent shareholder of the Company within the meaning of Rule 16a-2
under the Exchange Act, who is required to file reports pursuant to Rule 16a-3
under the Exchange Act, or any successor provision.
(t) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of a Stock Purchase Right under Section 10 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the
Exchange Act, as the same may be amended from time to time, or any successor
provision.
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(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated
stock price reporting system on which prices for the Common Stock are quoted at
any given time.
(x) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 10 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Code, or any
successor provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of shares that may be optioned and
sold under the Plan is 500,000 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock. If an Option should expire
or become unexercisable for any reason without having been exercised in full,
the unpurchased Shares that were subject thereto shall, unless the Plan shall
have been terminated, become available for future grant under the Plan. If the
Company shall repurchase unvested shares of Restricted Stock, such repurchased
Shares that were subject thereto shall, unless the Plan shall have been
terminated, become available for future grant under the Plan. In addition, any
shares of Common Stock which are retained by the Company upon exercise of an
Option or Stock Purchase Right in order to satisfy the exercise or purchase
price for such Option or Stock Purchase Right or any withholding taxes due with
respect to such exercise shall be treated as not issued and shall continue to be
available under the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by (A) the Board
or (B) a committee designated by the Board, which committee shall be constituted
in such a manner as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable state and
federal corporate and securities laws, of the Code and of any applicable Stock
Exchange (collectively, the "Applicable Laws"). Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies, however
caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of
the Plan and in the case of a Committee, the specific duties delegated by the
Board to such Committee, and subject to the approval of any relevant
authorities, including the approval, if required, of any Stock Exchange, the
Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock, in accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom
Options and Stock Purchase Rights may from time to time be granted hereunder;
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(iii) to determine whether and to what extent Options
and Stock Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the
Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what
circumstances an Option may be settled in cash under Section 9(f) instead of
Common Stock;
(viii) to accelerate the exercisability of any Option
or Stock Purchase Right;
(ix) to determine the terms and restrictions
applicable to Stock Purchase Rights and the Restricted Stock purchased by
exercising such Stock Purchase Rights;
(x) in order to fulfill the purposes of the Plan and
without amending the Plan, to modify grants of Options or Stock Purchase Rights
to participants who are foreign nationals or employed outside of the United
States in order to recognize differences in local law, tax policies or customs;
(xi) to accelerate the vesting of any Option or Stock
Purchase Right or waive forfeiture restrictions with respect thereto; and
(xii) to make all other determinations, not
inconsistent with the terms of the Plan, deemed necessary or advisable for
administering the Plan.
(c) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all holders of Options or Stock Purchase Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may
be granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
Fair Market Value of the Shares with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary) exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options
shall be taken into account in the order in which they were granted, and the
Fair Market Value of the Shares subject to an Incentive Stock Option shall be
determined as of the date of the grant of such Option.
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(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with such Optionee's right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 15 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; PROVIDED, HOWEVER, that the term shall be no more than ten
(10) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five (5) years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time
of the grant of such Incentive Stock Option, owns stock representing more than
ten percent (10%) of the voting power of all classes of stock of the Company or
any Parent or Subsidiary, the per Share exercise price shall be no less than
110% of the Fair Market Value per Share on the date of grant; and
(B) granted to any other Employee, the per
Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued
upon exercise of an Option, including the method of payment, shall be determined
by the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of: (1) cash; (2)
check; (3) promissory note; (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be required
to avoid a charge to the Company's earnings, and (y) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which such Option shall be exercised; (5) authorization for the Company to
retain from the total number of Shares as to which the Option is exercised that
number of Shares having a Fair Market Value on the date of exercise equal to the
exercise price for the total number of Shares as to which the Option is
exercised; (6) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company of
the sale or loan proceeds required to pay the exercise price and any applicable
income or employment taxes; (7) delivery of an irrevocable subscription
agreement for the Shares that irrevocably obligates the option holder to take
and pay for the Shares not more than 12 months after the date of delivery of the
subscription agreement; (8) any combination of the foregoing methods of payment;
or (9) such other consideration and method of payment for the issuance of Shares
to the extent
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permitted under Applicable Laws. In making its determination as to the type of
consideration to accept, the Administrator shall consider if acceptance of such
consideration may be reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder.
Any Option granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan. An Option may not be exercised for a fraction of a
Share. An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and the Company has
received full payment for the Shares with respect to which the Option is
exercised. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 12 of the Plan.
Exercise of an Option in any manner shall result in a
decrease in the number of Shares that thereafter may be available, both for
purposes of the Plan and for sale under the Option, by the number of Shares as
to which the Option is exercised.
(b) Termination of Employment or Consulting Relationship.
Subject to Section 9(c), in the event of termination of an Optionee's Continuous
Status as an Employee or Consultant with the Company, such Optionee may, but
only within three (3) months (or such other period of time not less than thirty
(30) days as is determined by the Administrator, with such determination in the
case of an Incentive Stock Option being made at the time of grant of the Option
and not exceeding three (3) months) after the date of such termination (but in
no event later than the expiration date of the term of such Option as set forth
in the Option Agreement), exercise his or her Option to the extent that the
Optionee was entitled to exercise it at the date of such termination. To the
extent that Optionee was not entitled to exercise the Option at the date of such
termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate. No
termination shall be deemed to occur and this Section 9(b) shall not apply if:
(i) the Optionee is a Consultant who becomes an Employee within the time
specified herein; or (ii) the Optionee is an Employee who becomes a Consultant
within the time specified herein.
(c) Disability of Optionee. Notwithstanding the provisions of
Section 9(b) above, in the event of termination of an Optionee's Continuous
Status as an Employee as a result of his or her total and permanent disability
(as defined in Section 22(e)(3) of the Code, or any successor provision), the
Optionee may, but only within six (6) months (or such other period of time not
exceeding twelve (12) months as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
the grant of the option) from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
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(d) Death of Optionee. In the event of the death of an
Optionee (i) during the period of Continuous Status as an Employee or Consultant
or (ii) within thirty (30) days following the termination of the Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within six (6) months (or such other period of time not exceeding
twelve (12) months as is determined by the Board, with such determination in the
case of an Incentive Stock Option being made at the time of the grant of the
option) following the date of death (but in no event later than the expiration
date of the term of such Option as set forth in the Option Agreement), by the
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent the Optionee was entitled to
exercise the Option at the date of death or, if earlier, the date of termination
or Continuous Status as an Employee or Consultant. To the extent that Optionee
was not entitled to exercise the Option at the date of death or termination, as
the case may be, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall
comply with Rule 16b-3 and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
(f) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted, based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
10. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer), and the time
within which such person must accept such offer, which shall in no event exceed
thirty (30) days from the date upon which the Administrator made the
determination to grant the Stock Purchase Right. The offer shall be accepted by
execution of a Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's Continuous Status as an Employee or Consultant for any reason
(including death or disability). The purchase price for Shares repurchased
pursuant to the Restricted Stock purchase agreement shall be the original
purchase price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to the Company.
(c) Other Provisions. The Restricted Stock purchase agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No
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adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 12 of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (a) by cash payment; (b) out of Optionee's
current compensation; (c) if permitted by the Administrator, in its discretion,
by surrendering to the Company Shares that (i) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (ii) have a fair market value on the date
of surrender equal to or greater than Optionee's marginal tax rate times the
ordinary income recognized; or (d) by electing to have the Company withhold from
the Shares to be issued upon exercise of the Option, or the Shares to be issued
in connection with the Stock Purchase Right, if any, that number of Shares
having a fair market value equal to the amount required to be withheld. For this
purpose, the fair market value of the Shares to be withheld shall be determined
on the date that the amount of tax to be withheld is to be determined (the "Tax
Date").
Any surrender by a Reporting Person of previously
owned Shares to satisfy tax withholding obligations arising upon exercise of
this Option must comply with the applicable provisions of Rule 16b-3 and shall
be subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld
to satisfy tax withholding obligations shall be made in writing in a form
acceptable to the Administrator and shall be subject to the following
restrictions:
(a) the election must be made on or prior to the applicable
Tax Date;
(b) once made, the election shall be irrevocable as to the
particular Shares of the Option or Stock Purchase Right as to which the election
is made;
(c) all elections shall be subject to the consent or
disapproval of the Administrator; and
(d) if the Optionee is a Reporting Person, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is
made by an Optionee and the Tax Date is deferred under Section 83 of the Code
because no election is filed under Section 83(b) of the Code, the Optionee shall
receive the full number of Shares with respect to which the Option or Stock
Purchase Right is exercised but such Optionee shall be unconditionally obligated
to tender back to the Company the proper number of Shares on the Tax Date.
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12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
Transactions.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; PROVIDED, HOWEVER,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale
of all or substantially all of the Company's assets or a merger of the Company
with or into another corporation where the successor corporation issues its
securities to the Company's shareholders (excluding any transaction with a
majority-owned or wholly-owned subsidiary), each outstanding Option or Stock
Purchase Right shall be assumed or an equivalent option or right shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation (and such assumed or substituted Option or Stock Purchase
Right shall provide that such Option or Stock Purchase Right shall vest in its
entirety in the event that the Consultant or Employee holding such Option or
Stock Purchaser Right is terminated without cause within the twelve (12) month
period following the consummation of the merger or sale of assets). If the
successor corporation does not agree to so assume an Option or Stock Purchase
Right or to so substitute an equivalent option or right, such Option or Stock
Purchase Right shall vest in its entirety and become exercisable prior to the
consummation of the merger or sale of assets. If an Option becomes fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets as provided in the preceding two sentences, the Board shall
notify the Optionee within a reasonable time prior to the consummation of such
transaction, and the Option shall be fully exercisable for a period of ten (10)
days from the date of such notice, and will terminate upon the expiration of
such period.
(d) Certain Distributions. In the event of any distribution to
the Company's shareholders of securities of any other entity or other assets
(other than dividends payable in cash or stock of the Company) without receipt
of consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. Non-Transferability of Options, Stock Purchase Rights and
Restricted Stock. To the extent required by any Applicable Law, Options and
Stock Purchase Rights may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
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descent or distribution and may be exercised or purchased during the lifetime of
the Optionee only by the Optionee.
14. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code, or any successor provision (or any other
applicable law or regulation, including the requirements of any Stock Exchange),
the Company shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
(b) Effect of Amendment or Termination. No amendment or
termination of the Plan shall adversely affect Options or Stock Purchase Rights
already granted, unless mutually agreed otherwise between the Optionee and the
Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery of
such Shares pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange. As a condition to the exercise of an Option,
the Company may require the person exercising such Option to represent and
warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required by law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
19. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Company in the degree and manner required
under applicable state and federal law and the rules of any Stock Exchange.
20. Lock-up Agreement. Each recipient of securities hereunder agrees,
in connection with the first registration with the United States Securities and
Exchange Commission under the Securities Act of 1933, as amended, of the public
sale of the Company's Common Stock, upon request of the
10
<PAGE>
Company or any underwriters managing such offering, not to sell, make any short
sale of, loan, grant any option for the purchase of or otherwise dispose of any
securities of the Company (other than those included in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for such period of time not to exceed 180 days from the effective
date of such registration as the Company or the underwriters, as the case may
be, shall specify. Each such recipient agrees that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce this
Section 20.
$60,000,000
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Between
BUSINESS TELECOM, INC.,
as Borrower
and
GENERAL ELECTRIC CAPITAL CORPORATION and the other
financial institutions party hereto from time to time,
as Lenders
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent
Dated as of September 22, 1997
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
i
<PAGE>
INDEX OF EXHIBITS, SCHEDULES AND ANNEXES
<TABLE>
<S> <C> <C>
Exhibit A-1 - Form of Borrower Pledge Agreement
Exhibit A-2 - Form of Borrowing Base Certificate
Exhibit B - Form of BTITC Pledge Agreement
Exhibit C - Form of BTITC Subordinated Note
Exhibit C-1 Form of Collateral Assignment of Rights Under Asset Purchase
Documents
Exhibit D - Form of BTITC Subordination Agreement
Exhibit D-1 - Form of Guaranty
Exhibit E - Form of Loftin Subordination Agreement
Exhibit F - Form of Perfection Certificate
Exhibit G - Form of Revolving Credit Note
Exhibit H - Form of Security Agreement
Exhibit I - Form of Solvency Certificate
Exhibit J - Form of Notice of Revolving Credit Advance
Exhibit J-1 - Form of Notice of Conversion/Continuation
Exhibit K - Form of Officer's Certificate
Exhibit L - Form of Secretary's Certificate
Exhibit M - Form of Assignment Agreement
Exhibit N - Form of Opinion of Counsel to Borrower
Exhibit O - Form of Power of Attorney
Schedule 1.1(a) - MPUCs
Schedule 1.1(b) - Loftin Notes
Schedule 1.1(c) - BTITC Indebtedness
Schedule 3.2 - Locations and Corporate or Other Names
Schedule 3.4 - Financial Statements and Projections
Schedule 3.6 - Real Estate and Leases
Schedule 3.8 - Labor Matters
Schedule 3.9 - Ventures; Subsidiaries and Affiliates; Outstanding Stock and
Indebtedness
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.15 - Brokers
Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.18 - Hazardous Materials
Schedule 3.19 - Insurance Policies
Schedule 3.20 - Banks and Deposit and Disbursement Accounts
Schedule 3.21 - Material Agreements
Schedule 3.22 - UCC Filing Jurisdictions
Schedule 3.23 - Instruments
Schedule 6.4 - Affiliate and Employee Loans, Transactions and Employment
Agreements
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<PAGE>
Schedule 6.5 - Changes in Business
Schedule 6.7 - Liens
Schedule 11.7 - Authorized Signatures
Schedule 11.8 - Notice to Lenders
Annex A - Cash Management System
Attachment I - Form of Lockbox Agreement
Attachment II - Form of Blocked Account Agreement
Attachment III - Form of Notice to Account Debtors
Attachment IV - Form of Clearing House Agreement
Annex B - Schedule of Documents
Annex C - Letters of Credit
Annex D - Lenders' Wire Transfer Information
</TABLE>
iii
<PAGE>
THIS SECOND AMENDED AND RESTATED LOAN AGREEMENT (the "Agreement"),
dated as of September 22, 1997, is made by and between BUSINESS TELECOM, INC., a
North Carolina corporation having an office at 4300 Six Forks Road, Raleigh,
North Carolina 27609 (the "Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION ("GE
Capital"), a New York corporation having an office at 3379 Peachtree Road, N.E.,
Suite 600, Atlanta, Georgia 30326, and the other financial institutions party to
this Agreement from time to time (collectively, the "Lenders") and GE Capital,
as agent (the "Agent").
W I T N E S S E T H:
WHEREAS, Borrower and GE Capital entered into that certain Loan
Agreement, dated November 8, 1995, wherein GE Capital agreed to provide a senior
secured revolving credit facility of up to Fifteen Million Dollars
($15,000,000), including a letter of credit subfacility of up to Three Million
Dollars ($3,000,000), (the "Original Facility"); and
WHEREAS, Borrower and GE Capital entered into that certain Amended and
Restated Loan Agreement, dated as of June 21, 1996, wherein GE Capital agreed to
increase the Original Facility to an amount of up to Twenty Million Dollars
($20,000,000) and provide additional secured financing in the form of a secured
term loan in the principal amount of Ten Million Dollars ($10,000,000) and a
secured capital expenditure facility of up to Ten Million Dollars ($10,000,000)
(the "First Amended Revolving Credit Facility"); and
WHEREAS, Borrower has requested that GE Capital increase the First
Amended Revolving Facility to an amount up to Sixty Million Dollars
($60,000,000) as the same may be reduced from time to time as herein provided,
including a Letter of Credit subfacility of up to Twelve Million Dollars
($12,000,000) (collectively, the "Revolving Credit Facility"); and
WHEREAS, BTI Telecom Corp., a North Carolina corporation ("BTITC"),
which is, or will become, after or simultaneously with the closing hereof, the
sole owner of all issued and outstanding shares of the Stock of Borrower
pursuant to the BTITC Transaction (defined below), is willing to guaranty all of
the obligations of Borrower to Lenders under the Loan Documents (as herein
defined) and to pledge to Agent, for the benefit of Lenders, all of the capital
stock of Borrower to secure such guaranty; and
WHEREAS, Borrower has requested that GE Capital extend the Revolving
Credit Facility as one of a series of transactions to be undertaken by Borrower
to provide Borrower with greater liquidity and financial flexibility and to
enhance its ability to execute its business strategy (collectively, the
"Transactions"), which Transactions are comprised of the following: (i)
amendment of the First Amended Revolving Credit Facility, pursuant to this
Agreement, with the Obligations of Borrower hereunder to be guaranteed by BTITC;
(ii) Borrower's repayment of all indebtedness and other obligations outstanding
under the First Amended Revolving Credit Facility; (iii) Borrower's purchase,
pursuant to that certain Stock Purchase Option and Put Option Agreement dated
July 1, 1992, as amended (the "Stock Purchase and Put Option Agreement"), among
Borrower, Peter T. Loftin ("Loftin"), and A.B. Andrews ("Andrews"), of the 50%
<PAGE>
portion of the Stock of Borrower held by Andrews for approximately $30.0 million
(the "Stock Purchase"); (iv) BTITC's issuance of $250.0 million aggregate
principal amount of Senior Notes (the "BTITC Senior Notes") (the "Note
Offering"); (v) upon receipt of approvals by certain public utility commissions
whose prior approvals are material and required under applicable law (together
with the respective public utility commissions whose approvals are material and
required to consummate the FiberSouth Acquisition (as defined below), and as
listed on Schedule 1.1(a), collectively "MPUC") and other consents, Borrower
will be merged with a wholly-owned subsidiary of BTITC and will be converted,
for tax purposes, from a Subchapter S corporation to a C corporation (the "BTITC
Transaction"); and (vi) following the consummation of the BTITC Transaction and
upon receipt of certain additional MPUC approvals and other consents, Borrower
will acquire substantially all of the assets of FiberSouth, Inc., an affiliate
of Borrower as of the date of this Agreement ("Fiber South"), for total
consideration of $31.0 million cash in consideration to be paid to Loftin (the
"FiberSouth Cash Portion") to be funded exclusively from the Remaining Escrow
Proceeds (as defined below) and the assumption of up to $7.5 million of existing
indebtedness and capital lease obligations of Fiber South (collectively, the
"FiberSouth Acquisition"); and
WHEREAS, upon the terms and conditions set forth herein, GE Capital,
together with other Lenders who may become party to this Agreement from time to
time, is willing to amend the First Amended Revolving Credit Facility and
provide the Revolving Credit Facility to Borrower by amending and restating the
First Amended and Restated Loan Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto, intending to be and being
legally bound hereby, agree as follows:
0.1. AMOUNT AND TERMS OF LOANS
1.1 DEFINITIONS AND OTHER REFERENTIAL PROVISIONS
(a) In addition to the defined terms appearing below,
capitalized terms used in the Agreement shall have (unless otherwise provided
elsewhere in the Agreement) the following respective meanings when used in the
Agreement:
"Account Debtor" shall mean any Person who may become
obligated to Borrower under, with respect to, or on account of, an Account.
"Accounts" shall mean all "accounts," as such term is defined
in the Code, now owned or hereafter acquired by Borrower and, in any event,
including, without limitation: (i) all accounts receivable, other receivables,
book debts and other forms of obligations now owned or hereafter received or
acquired by or belonging or owing to Borrower, whether arising out of goods sold
or services rendered by it or from any other transaction (including, without
limitation, any such obligations which may be characterized as an account or
contract right under the Code); (ii) all of Borrower's rights in, to and under
all purchase orders or receipts now owned or hereafter acquired by it for goods
or services; (iii) all of Borrower's rights to any goods
2
<PAGE>
represented by any of the foregoing (including, without limitation, unpaid
sellers' rights of rescission, replevin, reclamation and stoppage in transit and
rights to returned, reclaimed or repossessed goods); (iv) all monies due or to
become due to Borrower under all purchase orders and contracts for the sale of
goods or the performance of services or both by Borrower or in connection with
any other transaction (whether or not yet earned by performance on the part of
Borrower) now or hereafter in existence, including, without limitation, the
right to receive the proceeds of said purchase orders and contracts; and (v) all
collateral security and guarantees of any kind, now or hereafter in existence,
given by any Person to Borrower with respect to any of the foregoing.
"Accounts Payable Days Outstanding" shall mean, as of the end
of each Fiscal month, the number obtained by dividing (A) Total Accounts
Payable, by (B) Average Daily Purchases.
"Affiliate" shall mean, with respect to any Person: (i) each
Person that, directly or indirectly, owns or controls, whether beneficially, or
as a trustee, guardian or other fiduciary, five percent (5%) or more of the
Stock having ordinary voting power in the election of directors of such Person;
(ii) each Person that controls, is controlled by or is under common control with
such Person or any Affiliate of such Person; or (iii) each of such Person's
officers, directors, joint ventures and partners. For the purpose of this
definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means GE Capital and any successor agent appointed
pursuant to SECTION 10.6 hereof.
"Agent's Office" means the office of Agent specified in or
determined in accordance with the provisions of SECTION 11.8 hereof.
"Agreement" shall mean this Second Amended and Restated Loan
Agreement, including, without limitation, all Riders, Schedules, Exhibits and
Annexes attached hereto or otherwise identified herein or therein, restatements
and modifications and supplements thereto, and any appendices, exhibits or
schedules to any of the foregoing, and shall also mean and refer to this
Agreement as the same may be in effect at the time such reference becomes
operative; provided, that any reference to the Schedules to this Agreement shall
be deemed a reference to the Schedules as in effect on the Closing Date or in a
written amendment thereto executed by Borrower, Agent and Required Lenders.
"Applicable Law" shall mean all applicable provisions of
constitutions, statutes, rules, regulations and orders of all governmental
bodies and of all orders and decrees of all courts and arbitrators, including
without limitation, Environmental Laws.
"Applicable Spread" shall mean, with respect to the Revolving
Credit Facility, the applicable percentages per annum set forth below opposite
the relevant Leverage Ratio, to be
3
<PAGE>
determined as of the Measurement Date for and with respect to the immediately
succeeding Fiscal Month:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Leverage Ratio Applicable Spread for
Revolving Credit Facility
LIBOR Option Prime Rate Option Letter of Credit Fee
Percentage Percentage Percentage
Less than 3.0 1.75% 0.00% 1.50%
Greater than 3.0 and less 2.00% 0.25% 1.75%
than or equal to 4.0
Greater than 4.0 and less 2.25% 0.50% 2.00%
than or equal to 5.0
Greater than 5.0 and less 2.50% 0.75% 2.25%
than or equal to 6.0
Greater than 6.0 3.00% 1.25% 2.75%
</TABLE>
"Average Daily Purchases" shall mean, as of the end of each
Fiscal Month and as reflected in the financial statements for such month
prepared by Borrower on a basis consistent with its customary accounting
practices, an amount equal to (i) the accrued cost during such Fiscal Month of
(A) all telephony services incurred by Borrower in the operation of its Business
during such period, plus (B) all other operating expenses of Borrower during
such period other than (a) employee wages and salaries, (b) sales commissions
for sales booked in such Fiscal Month, (c) overtime compensation; (d) other
costs and expenses incurred in connection with sales during such period, (e)
payroll and other withholding taxes, (f) other taxes and license fees, (g)
interest expense, (h) expenses relating to bad debt and other writeoffs, and (i)
depreciation expense, divided by (ii) the number of calendar days in such Fiscal
Month.
"Average Total Debt" shall mean, for any Fiscal Period of
Borrower, the average daily balance of Total Debt for such period.
"Blocked Account Agreement" shall have the meaning assigned to
such term in Annex A to the Agreement.
4
<PAGE>
"Blocked Accounts" shall have the meaning assigned to such
term in Annex A to the Agreement.
"Borrower" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Borrower Pledge Agreement" shall mean that certain Pledge
Agreement, dated the Closing Date, substantially in the form attached hereto as
Exhibit A-1, executed by Borrower in favor of Agent for the benefit of the
Lenders, as may be amended, modified or supplemented from time to time together
with all acknowledgments, instruments, or other documents by any nominee
required to perfect a first priority security interest in the collateral which
is the subject of such agreement.
"Borrowing Base Certificate" shall mean a certificate to be
executed and delivered from time to time by Borrower in the form attached hereto
as Exhibit A-2.
"BTITC" shall have the meaning assigned to such term in the
preamble to this Agreement.
"BTITC Payment" means a payment or distribution by Borrower to
BTITC consisting of interest on BTITC Subordinated Debt, dividends on the Stock
of Borrower, or both, in an aggregate amount less than or equal to the amount
of, and not earlier than fifteen (15) days prior to the due date of, any
regularly scheduled interest payment due after January 1, 2001 on the BTITC
Senior Notes as in effect on the Closing Date.
"BTITC Pledge Agreement" shall mean a pledge agreement
executed by BTITC in the form attached hereto as Exhibit B, pursuant to which,
inter alia, BTITC pledges to Agent for the benefit of Lenders all of the Stock
of Borrower, as the same may be amended, modified or supplemented from time to
time.
"BTITC Senior Notes" shall have the meaning assigned to such
term in the preamble to this Agreement.
"BTITC Subordinated Debt" shall mean all Indebtedness owing
from Borrower or any Subsidiary of Borrower to BTITC to which Lender shall have
consented, including, without limitation, the Indebtedness evidenced by the
BTITC Subordinated Note and that Indebtedness set forth on Schedule 1.1(c).
"BTITC Subordinated Note" shall mean that certain subordinated
intercompany note to BTITC by Borrower as the same may be amended from time to
time in the form of Exhibit C hereto, and which results from the following
transactions: (i) upon receipt of the MPUC approvals relating to the BTITC
Transaction and simultaneously with the closing of the BTITC Transaction, the
First Escrowed Proceeds will be released from escrow and loaned to Borrower by
BTITC and (ii) upon receipt of the MPUC approvals and simultaneously with the
Closing of the FiberSouth Acquisition, all of the remaining proceeds of the
BTITC Senior Notes
5
<PAGE>
(other than the Interest Reserve) will be released from escrow and immediately
loaned to Borrower by BTITC.
"BTITC Subordination Agreement" shall mean that certain
subordination agreement among Borrower, BTITC and Agent in the form attached
hereto as Exhibit D.
"BTITC Transaction" shall have the meaning assigned to such
term in the preamble to this Agreement.
"Business Day" shall mean any day that is not a Saturday, a
Sunday or a day on which banks are required or permitted to be closed in the
State of Georgia.
"Capital Expenditures" shall mean, for any Fiscal Period, all
payments or accruals for any fixed assets or improvements or for replacements,
substitutions or additions thereto, that have a useful life of more than one
year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any
lease of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified and
accounted for as a capital lease on a balance sheet of such Person or otherwise
be disclosed as such in a note to such balance sheet.
"Capital Lease Obligation" shall mean, with respect to any
Capital Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease or otherwise be disclosed in a note to such balance sheet.
"Cash Collateral Account" shall have the meaning assigned to
such term in Annex A to the Agreement.
"Cash Management System" shall have the meaning assigned to
such term in Annex A to the Agreement.
"Change of Control" shall mean (i) prior to the consummation
of the BTITC Transaction, that on or after the Closing Date any Person or
"group" has acquired "beneficial ownership" (as such terms are defined under
Section 13d-3 of Regulation 13D under the Exchange Act, either directly or
indirectly, more than fifty percent (50%) of the outstanding shares of Stock of
Borrower having the right to vote for the election of directors of Borrower
under ordinary circumstances or (ii) following consummation of the BTITC
Transaction, (A) that on or after the Closing Date any Person or "group" other
than Loftin and his Affiliates has acquired "beneficial ownership" (as such term
is defined under Section 13d-3 of Regulation 13D of the Exchange Act either
directly or indirectly, of more than ten percent (10%) of the outstanding shares
of Stock of BTITC having the right to vote for the election of directors of
BTITC under ordinary circumstances, (B) the failure of BTITC to own one hundred
percent
6
<PAGE>
(100%) of the Stock of Borrower or (C) the failure of Borrower to own one
hundred percent (100%) of the Stock of any of its Subsidiaries.
"Charges" shall mean all Federal, state, county, city,
municipal, local, foreign or other governmental taxes (including, without
limitation, taxes owed to PBGC at the time due and payable), levies,
assessments, charges, liens, claims or encumbrances upon or relating to (i) the
Collateral, (ii) the Obligations, (iii) the employees, payroll, income or gross
receipts of Borrower, (iv) the ownership or use of any assets by Borrower, or
(v) any other aspect of Borrower's business.
"Chattel Paper" shall mean all "chattel paper," as such term
is defined in the Code, now owned or hereafter acquired by Borrower, wherever
located.
"Code" shall mean the Uniform Commercial Code as the same may,
from time to time, be in effect in the State of Georgia; provided, that in the
event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Lenders' security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of Georgia, the term "Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions of the Agreement (or other Loan Document, as applicable) relating
to such attachment, perfection or priority and for purposes of definitions
related to such provisions.
"Collateral" shall mean any or all of the property in which
Agent, for the benefit of Lenders, has received a Lien or security interest
pursuant to any of the Collateral Documents and any other property, real or
personal, tangible or intangible, now existing or hereafter acquired, that may
at any time be or become subject to a security interest or Lien in favor of
Agent for the benefit of Lenders, to secure the Obligations.
"Collateral Assignment" shall mean that certain Collateral
Assignment of Rights Under Asset Purchase Documents in the form attached hereto
as Exhibit C.
"Collateral Documents" shall mean the Security Agreement, the
BTITC Pledge Agreement, the Borrower Pledge Agreement, the Collateral Assignment
and the UCC-1 Financing Statements.
"Collection Account" shall mean that certain account of Agent,
account number 50-232-854 in the name of General Electric Capital Corporation at
Bankers Trust Company, 1 Bankers Trust Plaza, New York, New York, 10006 ABA
number 021-001-033, Attn: Judy Lancaster, Ref: CFA 4547, and referenced in Annex
A to the Agreement.
"Commitment" means, as to each Lender, the amount set forth
opposite such Lender's name on the signature page(s) hereof or in any Assignment
Agreement entered pursuant to SECTION 10.1, representing such Lender's
obligation, upon and subject to terms and conditions of the Agreement (including
the applicable provisions of ARTICLE 10, to make Revolving Credit Loans and to
purchase participations in Letter of Credit obligations.
7
<PAGE>
"Commitment Letter" shall mean the commitment letter dated
August 29, 1997 issued by Agent to, and accepted by, Borrower as the same may be
amended prior to the Closing Date, together with that certain Fee Letter between
the same parties of even date.
"Commitment Percentage" means, as to any Lender, the
percentage of the Total Commitment obtained by dividing such Lender's Commitment
by the Total Commitment.
"Commitment Termination Date" shall mean the earliest of (i)
the fifth anniversary of the Closing Date, (ii) the date that Agent or the
Lenders elect pursuant to SECTION 8.2 hereof to terminate Borrower's right to
receive any Revolving Credit Advances or accommodations for Letters of Credit
hereunder and (iii) the date of prepayment in full in cash by Borrower of the
Loans in accordance with the provisions of SECTION 1.4 of the Agreement.
"Consistently Applied" or "consistently applied" means, with
regard to the application of accounting principles, the use or application of
accounting principles in a manner consistent in all material respects with the
accounting principles used and applied in preparation of the financial
statements previously delivered to the Agent (whether under the First Amended
Revolving Credit Facility or otherwise), except as to changes required or
changes permitted, and as to which the Borrower's independent public accountants
have concurred, by generally accepted accounting principles in the United
States.
"Consolidated Interest Expense" means all interest on
Indebtedness paid or accrued by Borrower or BTITC for or during the period for
which the computation is being made, plus (without duplication) the aggregate
amount of all BTITC Payments made during such period, but excluding, with
respect to such period, (a) the amortization of fees and costs incurred with
respect to the closing of loans which have been capitalized as transaction
costs, (b) interest paid in kind, and (c) the amount of interest on the BTITC
Senior Notes with respect to such period which is paid or accrued (and where
such payment is actually subsequently made) solely from the Interest Reserve.
"Consolidated Interest Coverage Ratio" shall mean, as of the
end of any Fiscal Quarter, the ratio of (a) Consolidated Interest Expense for
the four (4) consecutive Fiscal Quarters ending on the last day of such Fiscal
Quarter to (b) Borrower's cumulative EBITDA for such four consecutive Fiscal
Quarters.
"Contracts" shall mean all the contracts, undertakings, or
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which Borrower may now or hereafter have any right,
title or interest, including, without limitation, any agreement relating to the
terms of payment or the terms of performance of any Account.
"Contract Rights" means and includes, as to any Person, all of
such Person's then owned or existing and future acquired or arising rights under
contracts not yet earned by performance and not evidenced by an instrument or
chattel paper, to the extent that the same may lawfully be assigned.
8
<PAGE>
"Current EBITDA" shall mean, as to any Fiscal Month, the
cumulative EBITDA of Borrower for the twelve-month period ended on the last day
of the month immediately prior to such Fiscal Month for which a Maximum Revolver
Leverage Ratio and a Maximum Revolving Credit Loan are being calculated.
"Customer List" shall mean the list or record, in whatever
form, containing the identifying information with respect to all Account Debtors
and all other Persons to whom Borrower sells or has sold goods or renders or has
rendered services and which give rise to or create Accounts.
"Default" or "event of default" shall mean any event which,
with the passage of time or notice or both, would, unless cured or waived,
become an Event of Default.
"Default Rate" shall have the meaning assigned to such term in
SECTION 1.8(E) hereof.
"Disbursement Account" shall mean one or more of the accounts
maintained by and in the name of Borrower with a Disbursing Bank for the
purposes of disbursing Revolving Credit Advances and any other amounts deposited
thereto and referenced in Annex A to the Agreement.
"Disbursing Bank" shall mean any commercial bank with which a
Disbursement Account is maintained after the Closing Date.
"Disposition" shall mean any sale, assignment, transfer or
other disposition (including, without limitation, dispositions pursuant to
merger, consolidation and sale-leaseback transactions) of any Subject Property
(other than a disposition of inventory or other assets in the ordinary course of
business) or a disposition of shares of Stock, notes or other securities issued
by such Person.
"DOL" shall mean the United States Department of Labor or any
successor thereto.
"Documents" shall mean all "documents," as such term is
defined in the Code, now owned or hereafter acquired by Borrower, wherever
located, including, without limitation, all bills of lading, dock warrants, dock
receipts, warehouse receipts, or other documents of title.
"EBITDA" shall mean, for any Fiscal Period of Borrower, (i)
income before interest income and expense and corporate income taxes, plus (ii)
to the extent deducted in determining such income, depreciation, amortization
and other similar non-cash charges determined in accordance with GAAP, and (iii)
an amount equal to any payments actually made with respect to the Former
Employee Indebtedness minus (iv) to the extent recognized in determining such
income, extraordinary gains, in each case of Borrower for such Fiscal Period, in
accordance with GAAP.
9
<PAGE>
"Environmental Laws" shall mean all Federal, state and local
laws, statutes, ordinances and regulations, now or hereafter in effect, and in
each case as amended or supplemented from time to time, and any applicable
judicial or administrative interpretation thereof relating to the regulation and
protection of human health, safety, the environment and natural resources
(including, without limitation, ambient air, surface water, groundwater,
wetlands, land surface or subsurface strata, wildlife, aquatic species and
vegetation). Environmental Laws include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. ss.ss. 9601 et seq.) ("CERCLA"); the Hazardous Material Transportation
Act, as amended (49 U.S.C. ss.ss. 1801 et seq.); the Federal Insecticide,
Fungicide, and Rodenticide Act, as amended (7 U.S.C. ss.ss. 136 et seq.); the
Resource Conservation and Recovery Act, as amended (42 U.S.C. ss.ss. 6901 et
seq.) ("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C. ss.ss.
2601 et seq.); the Clean Air Act, as amended (42 U.S.C. ss.ss. 740 et seq.); the
Federal Water Pollution Control Act, as amended (33 U.S.C. ss.ss. 1251 et seq.);
the Occupational Safety and Health Act, as amended (29 U.S.C. ss.ss. 651 et
seq.) ("OSHA"); and the Safe Drinking Water Act, as amended (42 U.S.C. ss.ss.
300(f) et seq.), and any and all regulations promulgated thereunder, and all
analogous state and local counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities and Costs" shall mean all
liabilities, obligations, responsibilities, remedial actions, removal costs,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including, without limitation, all reasonable fees, disbursements
and expenses of counsel, experts and consultants and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim, suit, action or demand by any person or entity, whether
based in contract, tort, implied or express warranty, strict liability, criminal
or civil statute or common law (including, without limitation, any thereof
arising under any Environmental Law, permit, order or agreement with any
Governmental Authority) and which relate to any health or safety condition
regulated under any Environmental Law or in connection with any other
environmental matter or Release, threatened Release, or the presence, storage,
use, manufacture, installation or generation of a Hazardous Material.
"Equipment" shall mean all "equipment" as defined in the Code
including, without limitation, all machinery, equipment, furniture and fixtures,
now owned or hereafter acquired by Borrower or in which Borrower now has or
hereafter may acquire any right, title or interest and any and all additions,
substitutions and replacements thereof, wherever located, together with all
attachments, components, parts, equipment and accessories installed therein or
affixed thereto, but excluding Borrower's leased pagers.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974 (or any successor legislation thereto), as amended from time to time,
and any regulations promulgated thereunder.
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"ERISA Affiliate" shall mean, with respect to Borrower, any
trade or business (whether or not incorporated) under common control with
Borrower and which, together with Borrower, are treated as a single employer
within the meaning of Sections 414(b), (c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to Borrower or any
ERISA Affiliate, (i) a Reportable Event with respect to a Title IV Plan or a
Multiemployer Plan; (ii) the withdrawal of Borrower or any ERISA Affiliate from
a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (iii) the
complete or partial withdrawal of Borrower or any ERISA Affiliate from any
Multiemployer Plan; (iv) the filing of a notice of intent to terminate a Title
IV Plan or the treatment of a plan amendment as a termination under Section 4041
of ERISA; (v) the institution of proceeding to terminate a Title IV Plan or
Multiemployer Plan by the PBGC; (vi) the failure to make required contributions
to a Qualified Plan; or (vii) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Title IV Plan
or Multiemployer Plan or the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA.
"Event of Default" shall have the meaning assigned to such
term in SECTION 8.1 of the Agreement.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Federal Reserve Board" shall have the meaning assigned to
such term in SECTION 3.11 of the Agreement.
"Fees" shall mean the fees due to Agent for the account of
Agent or the Lenders as set forth in SECTION 1.9 of the Agreement or otherwise
pursuant to the Loan Documents.
"FiberSouth" shall have the meaning assigned to such term in
the preamble to this Agreement.
"FiberSouth Account" shall have the meaning assigned to such
term in SECTION 2.1(L) of this Agreement.
"FiberSouth Acquisition" shall have the meaning assigned to
such term in the preamble to this Agreement.
"FiberSouth Application" means, collectively, those certain
applications pending with MPUC for approval of the FiberSouth Acquisition.
"FiberSouth Approval" means approval of the FiberSouth
Application by MPUC in a form or forms acceptable to Agent, among others.
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"FiberSouth Portion of Note Proceeds" shall have the meaning
assigned to such term in SECTION 5.17 of this Agreement.
"Financials" shall mean the financial statements referred
to in paragraph I of Schedule 3.4.
"First Escrowed Proceeds" shall mean that portion of the
escrowed proceeds of the Note Offering (exclusive of the Interest Reserve and
the FiberSouth Portion of the Note Proceeds) that will, simultaneously with the
closing of the BTITC Transaction, be (i) released from escrow and loaned to
Borrower by BTITC pursuant to the BTITC Subordinated Note and the BTITC
Subordination Agreement, and (ii) all or a portion of which shall be paid to
Agent for the account of the Lenders as the Mandatory Note Proceeds Payment;
provided, however, that under no circumstances shall the First Escrowed Proceeds
include all or any portion of the FiberSouth Portion of Note Proceeds.
"Fiscal Month" shall mean any of the monthly accounting
periods of Borrower.
"Fiscal Period" shall mean one or more Fiscal Month, Fiscal
Quarter or Fiscal Year of Borrower as the context requires.
"Fiscal Quarter" shall mean any of the quarterly accounting
periods of Borrower.
"Fiscal Year" shall mean the 12-month period of Borrower
ending December 31st of each year. Subsequent changes of the fiscal year of
Borrower shall not change the term "Fiscal Year," unless Agent shall consent in
writing to such change.
"Former Employee Indebtedness" shall mean (i) the Indebtedness
of Borrower to Kimberly Chapman pursuant to that certain Stock Redemption and
Option Cancellation Agreement, dated as of August 20, 1997, between FiberSouth,
Borrower and Kimberly Chapman, as the same exists on the date hereof (the
"Chapman Agreement"), and (ii) the Indebtedness to be incurred by Borrower to
Richard E. Brown on terms substantially similar to those contained in the
Chapman Agreement and as reflected in definitive documents, containing terms and
conditions and otherwise in form and substance acceptable to Agent.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time, consistently
applied.
"GE Capital" shall mean General Electric Capital Corporation,
a New York corporation having an office at 3379 Peachtree Road, N.E., Suite 600,
Atlanta, Georgia 30326.
"General Intangibles" shall mean all "general intangibles," as
such term is defined in the Code (but excluding any tariff, license or permit
issued by any Governmental Authority (including, without limitation, any
communications or utility commission or agency) to the extent the laws, rules or
regulations of such Governmental Authority prohibit the granting of a security
interest in such tariff, license or permit), now owned or hereafter acquired by
Borrower and, in
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any event, including, without limitation, all right, title and interest which
Borrower may now or hereafter have in or under any Contract, all customer lists,
Trademarks, Patents, services marks, trade names, business names, corporate
names, trade styles, logos and other source of business identifiers, and all
applications therefor and reissues, extensions or renewals thereof, rights in
intellectual property, interests in partnerships, joint ventures and other
business associations, licenses, permits, copyrights, trade secrets, proprietary
or confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including, without limitation, the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark license), all rights and claims in or under insurance
policies, (including, without limitation, insurance for fire, damage, loss, and
casualty, whether covering personal property, real property, tangible rights or
intangible rights, all liability, life, key man, and business interruption
insurance, and all unearned premiums), uncertificated securities, choses in
action, deposit accounts, rights to receive tax refunds and other payments and
rights of indemnification.
"Goods" shall mean all "goods," as such term is defined in
the Code, now owned or hereafter acquired by Borrower, wherever located,
including, without limitation, movables, fixtures, equipment, inventory, or
other tangible personal property.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any agency, department or
other entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guaranteed Indebtedness" shall mean, as to any Person, any
obligation of such Person guaranteeing any indebtedness, lease, dividend, or
other obligation ("primary obligations") of any other Person (the "primary
obligor") in any manner including, without limitation, any obligation or
arrangement of such Person: (i) to purchase or repurchase any such primary
obligation; (ii) to advance or supply funds (a) for the purchase or payment of
any such primary obligation or (b) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet condition of the primary obligor; (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, except for Borrower's obligations under that certain
Aircraft Lease Agreement, dated September 29, 1995, between Borrower and Cat &
Mouse Enterprises, Inc. and that certain Network Lease Agreement, dated November
10, 1994, between Borrower and Fiber South, Inc.; or (iv) to indemnify the owner
of such primary obligation against loss in respect thereof.
"Guarantor" shall mean BTI Telecom Corp.
"Guaranty" shall mean the guaranty substantially in the form
of Exhibit D attached hereto, dated as of the Closing Date and executed by the
Guarantor in favor of Agent for
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the benefit of Lenders, pursuant to which BTITC guarantees to Agent for the
benefit of Lenders payment of the Obligations.
"Hazardous Material" shall mean any substance material or
waste, the generation, handling, storage, treatment or disposal of which is
regulated by, or forms one or more of the bases of liability now or hereafter
under the laws, decisions or regulations of, any Government Authority in any
jurisdiction in which Borrower has owned, leased, or operated real property or
disposed of hazardous materials, or by any Federal government authority,
including, without limitation, any material or substance which is (i) defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous waste" or other similar
term or phrase under any Environmental Laws, or (ii) petroleum or any fraction
or by-product thereof, asbestos, polychlorinated biphenyls, or radioactive
substances.
"Indebtedness" of any Person shall mean: (i) all indebtedness
of such Person for Money Borrowed or for the deferred purchase price of property
or services (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured, but not including obligations to trade
creditors incurred in the ordinary course of business); (ii) all obligations
evidenced by notes, bonds, debentures or similar instruments; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreements with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property); (iv)
all Capital Lease Obligations; (v) all Guaranteed Indebtedness; (vi) all
Indebtedness referred to in clauses (i), (ii), (iii), (iv) or (v) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including, without limitation, accounts and contract rights) owned by such
Person, even though such Person has not assumed or become liable for the payment
of such Indebtedness; (vii) the Obligations; and (viii) all liabilities under
Title IV of ERISA.
"Instruments" shall mean all "instruments," as such term is
defined in the Code, now owned or hereafter acquired by Borrower, wherever
located, including, without limitation, all certificated securities and all
notes and other, without limitation, evidences of indebtedness, other than
instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.
"Interest Reserve" shall mean that portion of the proceeds of
the Note Offering which will be pledged as security for, and held in a special
account and used to make, the first six scheduled interest payments on the BTITC
Senior Notes.
"Inventory" shall mean all "inventory," as such term is
defined in the Code, now or hereafter owned or acquired by Borrower, wherever
located, and, in any event, including, without limitation, inventory,
merchandise, goods and other personal property which are held by or on behalf of
Borrower for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to
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be used or consumed in Borrower's business or in the processing, production,
packaging, promotion, delivery or shipping of the same, including, without
limitation, other supplies but excluding Borrower's pagers.
"Investment Account" shall mean a brokerage or other account
held in the name of Borrower which at all times shall be subject to the first
priority perfected security interest of Agent, for the benefit of the Lenders,
pursuant to the Borrower Pledge Agreement.
"IRC" shall mean the Internal Revenue Code of 1986, as
amended, and any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any
successor thereto.
"Issuing Bank" shall mean any banking institution which is an
issuer of a Letter of Credit and its successors and assigns hereunder.
"Leases" shall mean all of those leasehold estates in real
property now owned or hereafter acquired by Borrower, as lessee.
"Lenders" shall mean GE Capital and, if at any time GE
Capital shall decide to assign or syndicate all or any of the Obligations, such
term shall include such assignee(s) or such other members of the syndicate.
"Letters of Credit" shall mean commercial or standby letters
of credit issued by an Issuing Bank for the account of Borrower for which
Lenders have incurred Letter of Credit Obligations pursuant to SECTION 1.5.
"Letter of Credit Obligations" shall mean all outstanding
obligations incurred by Agent and Lenders at the request of Borrower, whether
direct or indirect, contingent or otherwise, due or not due, in connection with
the issuance or guaranty, by Lenders or another, of Letters of Credit. The
aggregate amount of such Letter of Credit Obligations at any time shall be equal
to the maximum aggregate amount which may, at any time prior to the expiration
of the underlying Letters of Credit, be payable by Agent and Lenders thereupon
or pursuant thereto.
"Letters of Credit Obligations Fee" shall have the meaning
assigned to such term in SECTION 1.9(C) hereof.
"Leverage Ratio" means, for any period, the ratio determined
by dividing (i) Total Debt (other than (a) trade debt incurred in the ordinary
course of business and (b) the then unpaid balance of the Subordinated
Indebtedness) by (ii) Current EBITDA.
"LIBOR" shall mean the rate per annum equal to the offered
rate on Eurodollar deposits for the specified LIBOR Option period (the "LIBOR
Option Period") selected by Borrower, as quoted by Telerate News Service on page
3750 which is the official British Bankers
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Association fixing rate recorded at 11:00 a.m. London setting time on the date
two Business Days prior to the first day of such interest period.
"LIBOR Advance" shall mean any advance of funds by Lenders to
Borrower hereunder that will bear interest at the LIBOR Option.
"LIBOR Breakage Costs" shall mean with respect to the
conversion of any of the Loans from LIBOR Option to Prime Rate Option at a time
other than the conclusion of a previously selected LIBOR Option Period (whether
upon a Default, Event of Default or otherwise), any loss, cost or expense
including without limitation, lost profit, incurred by Lenders as a result of
the liquidation or reemployment of deposits or other funds acquired by Lenders
to fund or maintain such LIBOR Option Advance.
"LIBOR Option" shall mean an annual rate of interest equal to
the then applicable reserve adjusted thirty (30), sixty (60) or ninety (90) day
LIBOR as selected by Borrower, plus the then applicable LIBOR Option Percentage
set forth in the definition of Applicable Spread.
"Lien" means: (a) any mortgage, deed to secure debt, deed of
trust, lien, pledge, charge, lease constituting a Capitalized Lease Obligation,
conditional sale or other title retention agreement, or other security interest,
security title or encumbrance of any kind in respect of any property of such
Person or upon the income or profits therefrom, (b) any arrangement, express or
implied, under which any property of such Person is transferred, sequestered or
otherwise identified for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to the payment
of the general, unsecured creditors of such Person, (c) any Indebtedness which
is unpaid more than thirty (30) days after the same shall have become due and
payable and which if unpaid could reasonably be expected to by law (including,
but not limited to, bankruptcy and insolvency laws) or otherwise be given any
priority whatsoever over general unsecured creditors of such Person, and (d) the
filing of, or any agreement to give, any financing statement under the UCC or
its equivalent in any jurisdiction.
"Loan Documents" shall mean the Agreement, the Revolving
Credit Notes, the Collateral Documents, the GE Capital Fee Letter and all such
other instruments, agreements and documents as are executed and delivered in
connection herewith or therewith, as any of the foregoing may be amended,
supplemented or otherwise modified from time to time.
"Loans" shall mean and include the outstanding and unpaid
balance, from time to time, of the loans and advances made by Lenders to
Borrower pursuant to the Revolving Credit Facility.
"Lockbox" means the U.S. Post Office Box specified in a
Lockbox Agreement.
"Lockbox Account" shall have the meaning assigned to such
term in Annex A to the Agreement.
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"Lockbox Agreement" shall have the meaning assigned to such
term in Annex A to the Agreement.
"Loftin" shall have the meaning assigned to such term in
the preamble to this Agreement.
"Loftin Notes" shall mean any and all notes evidencing the
obligation of Borrower to pay to Loftin the amount or aggregate amounts of the
notes described in Schedule 1.1(b); provided, however, that in no event shall
the aggregate principal amount thereof exceed $2,000,000.
"Loftin Subordinated Debt" shall mean all Indebtedness of
Borrower or any Subsidiary of Borrower to Loftin, including without limitation
the Indebtedness evidenced by the Loftin Notes.
"Loftin Subordination Agreement" shall mean that certain
Subordination Agreement, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit E, among Agent, Borrower and Loftin with respect to
the Loftin Notes, as the same may be amended, modified or supplemented from time
to time.
"Mandatory Note Proceeds Payment" means the payment to
Agent for the benefit of Lenders of all or a portion of the First Escrowed
Proceeds, simultaneously with the closing of the BTITC Transaction, as more
fully described in SECTION 5.18 hereunder.
"Material Adverse Effect" shall mean: (i) a material
adverse effect, whether individually or in the aggregate, on (a) the business,
assets, operations, prospects or financial or other condition of Borrower or the
industry within which Borrower operates; or (b) Borrower's ability to pay or
perform the Obligations under the Loan Documents in accordance with the terms
thereof; or (c) Guarantor's ability to pay or perform its obligations under the
Loan Documents to which Guarantor is a party in accordance with the terms
thereof; or (d) Guarantor's ability to pay or perform its obligations under the
BTITC Senior Notes; or (e) the Collateral or Lenders' Liens on the Collateral or
the priority of any such Lien, or (f) Lenders' rights and remedies under the
Agreement or the other Loan Documents, or (ii) the incurrence by Borrower of any
liability, contingent or liquidated (other than Indebtedness or another
liability otherwise permitted or not prohibited hereunder), which has an actual
or estimated incurrence of liability, or dollar exposure or loss, greater than
$150,000 to Borrower which loss or liability may or may not be reflected on
Borrower's income statement.
"Material Default" shall be applicable only to the definition
of a Permitted Payment and shall mean a Default or Event of Default under
subparagraphs (A), (B)(but only as to SECTION 6.11(A) or SECTION 6.20), (H), (I)
or (J) of SECTION 8.1.
"Maximum Lawful Rate" shall have the meaning assigned to such
term in SECTION 1.8(G) of the Agreement.
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"Maximum Revolver Leverage Ratio" shall mean an amount, as of
any Measurement Date, equal to:
(i) if such Measurement Date occurs during the
period commencing on the Closing Date and ending on September 30, 1998 (the
"First Period"), Borrower's then Current EBITDA multiplied by 6.00;
(ii) if such Measurement Date occurs during the
period commencing October 1, 1998 and ending on September 30, 1999 (the "Second
Period"), Borrower's then Current EBITDA multiplied by 5.75;
(iii) if such Measurement Date occurs during the
period commencing October 1, 1999 and ending on September 30, 2000 (the "Third
Period"), Borrower's then Current EBITDA multiplied by 5.50; and
(iv) if such Measurement Date occurs after October
1, 2000 (the "Fourth Period"), Borrower's then Current EBITDA multiplied by
5.00.
"Maximum Revolving Credit Loan" shall mean:
(i) during the First Period and ending on
September 30, 1999, the lesser of (A) $60 million or (B) an amount equal to the
then applicable Maximum Revolver Leverage Ratio;
(ii) during the Second Period, the lesser of (A)
$60 million or (B) an amount equal to the then applicable Maximum Revolver
Leverage Ratio;
(iii) during the Third Period, the lesser of (A)
$60 million or (B) an amount equal to the then applicable Maximum Revolver
Leverage Ratio; and
(iv) during the Fourth Period, the lesser of (A)
$50 million or (B) an amount equal to the then applicable Maximum Revolver
Leverage Ratio.
"Measurement Date" shall mean the last day of the Fiscal
Month immediately preceding the commencement of the Fiscal Month for which
Applicable Spread, Maximum Revolver Leverage Ratio, Maximum Revolving Credit
Loan, or Total Debt is being calculated.
"Memorial Auditorium Obligations" shall mean only those
certain financial obligations of Borrower to make certain cash and in-kind
contributions pursuant to definitive documentation reflecting the financial
terms and conditions set forth in that certain Memorandum of Understanding,
dated March 18, 1997, between The City of Raleigh, North Carolina and Borrower
(the "MOU"); provided that such definitive documentation shall not (i) contain
financial obligations or liabilities which are in addition to or inconsistent
with those set forth in the MOU, nor (ii) otherwise be materially inconsistent
with the MOU.
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"Money Borrowed" means, as applied to Indebtedness, (a)
Indebtedness for money borrowed, (b) Indebtedness, whether or not in any such
case the same was for money borrowed, (i) represented by notes payable and
drafts accepted, that represent extensions of credit, (ii) constituting
obligations evidenced by bonds, debentures, notes or similar instruments, or
(iii) upon which interest charges are customarily paid (other than trade
Indebtedness) or that was issued or assumed as full or partial payment for
property, (c) Indebtedness that constitutes a Capitalized Lease Obligation, and
(d) Indebtedness that is such by virtue of CLAUSE (F) of the definition thereof,
but only to the extent that the obligations Guaranteed are obligations that
would constitute Indebtedness for Money Borrowed.
"MPUC" shall have the meaning assigned to such term in the
preamble to this Agreement.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a) (3) of ERISA, and to which Borrower or any ERISA
Affiliate is making, is obligated to make, has made or been obligated to make,
contributions on behalf of participants who are or were employed by any of them.
"Net Cash Proceeds" shall mean (i) with respect to any
Disposition, the aggregate cash payments received (directly or indirectly),
including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, therefrom, but only
as and when received, net of all reasonable legal and investment banking fees
and expenses, title and recording tax expenses, commissions, fees and expenses
incurred in obtaining regulatory approvals and other reasonable and customary
fees and expenses incurred or agreed to be incurred, all foreign, federal, state
and local income or other Taxes estimated to be payable currently, attributable
thereto, and the amount of any contractually required repayments of Indebtedness
(other than repayments required by SECTION 1.4(B) hereof) to the extent secured
by a Permitted Lien on such Property; and (ii) with respect to the issuance of
any equity of Borrower (in accordance with and subject to SECTION 6.5 hereof),
the aggregate cash payments received (directly or indirectly) from such issuance
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise, therefrom, but only
as and when received), net of reasonable underwriting discounts, commissions and
other reasonable costs associated therewith.
"Net Outstandings" of any Lender means, at any time, the
sum of (a) all amounts paid by such Lender to Agent in respect of Revolving
Credit Loans or Letter of Credit Obligations or otherwise under this Agreement,
minus (b) all amounts paid by Agent to such Lender which are received by Agent
and which, pursuant to this Agreement, are paid over to such Lender for
application in reduction of the outstanding principal balance of the Revolving
Credit Loans or the Letter of Credit Obligations.
"Note Offering" shall have the meaning assigned to such
term in the preamble to this Agreement.
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"Non-Material Default" shall be applicable only to the
definition of a Permitted Payment and shall mean a Default or Event of Default
other than a Material Default.
"Non-use Fee" shall have the meaning assigned to such term
in SECTION 1.9(B) of the Agreement.
"Note" shall mean the Revolving Credit Note.
"Notice of Revolving Credit Advance" shall have the meaning
assigned to such term in SECTION 1.2(A) of the Agreement.
"Obligations" shall mean all loans, advances, debts,
liabilities, and obligations, for the performance of covenants, tasks or duties
or for payment of monetary amounts (whether or not such performance is then
required or contingent, or amounts are liquidated or determinable) owing by
Borrower, Agent or the Lenders, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under any of the Loan Documents
(as the same may be amended, modified or supplemented from time to time). This
term includes, without limitation, all principal, interest, (including, without
limitation, interest which accrues after the commencement of any case or
proceeding in bankruptcy after the insolvency of, or for the reorganization of
Borrower), Fees, Charges, expenses, attorneys' fees and any other sum chargeable
to Borrower under any of the Loan Documents.
"Offering Memorandum" shall mean that certain offering
memorandum dated September 17, 1997 with respect to the BTITC Senior Notes.
"Patent and Trademark Assignments" shall mean the patent
and trademark assignments made in favor of Agent on behalf of Lenders, by
Borrower.
"Patent License" shall mean rights under any written
agreement now owned or hereafter acquired by Borrower granting any right with
respect to any invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any
Borrower now holds or hereafter acquires any interest: (i) all letters patent of
the United States or any other country, all registrations and recordings
thereof, and all applications for letters patent of the United States or any
other country, including registrations, recordings and applications in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State or Territory thereof, or any other country; and
(ii) all reissues, continuations, continuations-in-part or extensions thereof.
"Perfection Certificate" shall mean a certificate dated the
Closing Date, substantially in the form attached hereto as Exhibit F.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation
or any successor thereto.
"Pension Plan" shall mean an employee pension benefit plan,
as defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is
not an individual account plan, as defined in Section 3(34) of ERISA, and which
Borrower or, if a Title IV Plan, any ERISA Affiliate maintains, contributes to
or has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
"Permitted Dividends" shall mean dividends on or other
payments with respect to the Stock of Borrower, otherwise falling within the
definition of Restricted Payments, (i) to which Agent has given its prior
written consent or (ii) which constitutes a Permitted Payment.
"Permitted Liens" shall mean the following Liens or
encumbrances: (i) Liens for taxes or assessments or other governmental Charges
or levies, either not yet due and payable or to the extent that nonpayment
thereof is permitted by the terms of SECTION 5.2(B) of the Agreement; (ii)
pledges or deposits securing obligations under workmen's compensation,
unemployment insurance, social security or public liability laws or similar
legislation; (iii) pledges or deposits securing bids, tenders, contracts (other
than contracts for the payment of money) or leases to which Borrower is a party
as lessee made in the ordinary course of business; (iv) deposits securing public
or statutory obligations of Borrower; (v) inchoate and unperfected workers',
mechanics', suppliers' or similar liens arising in the ordinary course of
business; (vi) carriers', warehousemen's or other similar possessory liens
arising in the ordinary course of business and securing indebtedness not yet due
and payable in an outstanding aggregate amount not in excess of $150,000 at any
time; (vii) deposits securing, or in lieu of, surety, appeal or customs bonds in
proceedings to which Borrower is a party; (viii) any attachment or judgment
lien, unless the judgment it secures shall not, within thirty (30) days after
the entry thereof, have been discharged or execution thereof stayed pending
appeal, or shall not have been discharged within thirty (30) days after the
expiration of any such stay; (ix) zoning restrictions, easements, licenses, or
other restrictions on the use of real property or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such real property, leases or
leasehold estates; (x) Liens relating to Permitted Purchase Money Indebtedness
which at all times secure only the tangible asset which is being financed by the
Purchase Money Indebtedness; and (xi) the Liens set forth in Schedule 6.7 of the
Agreement.
"Permitted Management Fee" shall mean a fee payable to
BTITC equal to all reasonable fees and expenses actually incurred by BTITC
(other than any fees or expenses paid to Affiliates) in connection with its
operations and required actions in connection with the BTITC Senior Notes.
"Permitted Payment" means (1) (a) a BTITC Payment under
circumstances where (b) no Default or Event of Default then exists under this
Agreement or would result from the making of such payment; provided that (x) if
any such then existing or prospective Default or
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Event of Default is a Non-Material Default, then the prohibition against making
such BTITC Payment shall expire on the earlier of (i) the date which is one
hundred eighty-one days after the effective date of such Non-Material Default or
(ii) the date on which such Non-Material Default is cured or waived in writing
unless, as of either such subsequent date, a Material Default then exists or
would result from the making of such BTITC Payment (in which case such
prohibition shall continue until any such Material Default is cured or waived by
Agent in writing), and (y) if such then existing or prospective Default or Event
of Default is a Material Default, then the prohibition against making such BTITC
Payment shall expire if and when (i) any such Material Default has been cured or
waived in writing by Agent and (ii) no other Material Default then exists or
would result from the making of such BTITC Payment; provided, however, and
notwithstanding anything to the contrary contained in or implied by the
foregoing, Borrower shall not be prohibited from making BTITC Payments for more
than 180 days in any consecutive 360 day period unless such prohibition (A)
results from an existing Material Default or a Material Default that would
result from the making of such payment and (B) only continues for so long as
either (i) such Material Default continues to exist or (ii) a Material Default
would result from the making of a BTITC Payment, or (2) payments in satisfaction
of the Former Employee Indebtedness under circumstances where (a) no Default or
Event of Default then exists under this Agreement or would result from the
making of such payment and (b) such payment is made solely from funds held in
the Investment Account, or (3) regularly scheduled payments of principal of the
Loftin Subordinated Note, not to exceed $100,000 per month, under circumstances
where no Default or Event of Default then exists under this Agreement or would
result from the making of such payment, or (4) distributions or other payments
required to satisfy income tax obligations of certain former shareholders of
Borrower relating to tax years of Borrower ending on or prior to the Closing
Date.
"Permitted Purchase Money Indebtedness" shall mean Purchase
Money Indebtedness incurred by Borrower after the Closing Date up to an
aggregate outstanding principal amount at any time during the term hereof of
$1,500,000; provided, that before and after giving effect to the incurrence of
such Indebtedness, (i) Borrower is in compliance with the financial covenants
set forth in SECTION 6.11 hereof and (ii) there is or will be no other Default
or Event of Default hereunder.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether Federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean, with respect to Borrower or any ERISA
Affiliate, at any time, an employee benefit plan, as defined in Section 3(3) of
ERISA, which Borrower maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed by any of them.
"Prime Index Rate" shall mean the prime or base rate of
interest most recently published or announced by any of the five largest member
banks of the New York Clearing House Association including, Citibank, N.A.,
Morgan Guaranty Trust Company of New York
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and Chase Manhattan Bank, N.A., which rates normally appear daily in the "Money
Rates" column of The Wall Street Journal (whether or not such rate is actually
charged by any such bank).
"Prime Rate Option" shall mean an annual rate of interest
equal to the sum of the then applicable Prime Index Rate plus the then
applicable Prime Rate Option Percentage set forth in the definition of
Applicable Spread.
"Prime Rate Option Advance" shall mean any advance of
funds by Lenders to Borrower hereunder that will bear interest at the Prime Rate
Option.
"Proceeds" shall mean "proceeds," as such term is defined
in the Code and, in any event, shall include, without limitation: (i) any and
all proceeds of any insurance, indemnity, warranty or guaranty payable to
Borrower from time to time with respect to any of the Collateral; (ii) any and
all payments (in any form whatsoever) made or due and payable to Borrower from
time to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any governmental
body, authority, bureau or agency (or any person acting under color of
governmental authority); (iii) any claim of Borrower against third parties (a)
for past, present or future infringement of any Patent or Patent License or (b)
for past, present or future infringement or dilution of any Trademark or
Trademark License or for injury to the goodwill associated with any Trademark,
Trademark registration or Trademark licensed under any Trademark License; (iv)
any recoveries by Borrower against third parties with respect to any litigation
or dispute concerning any of the Collateral; and (v) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral, upon disposition or otherwise.
"Projections" shall mean the projections referred to in
paragraph II of Schedule 3.4 to the Agreement.
"Purchase Money Indebtedness" shall mean Indebtedness
created after the Closing Date to finance the payment of all or any part of the
purchase price (not in excess of fair market value thereof) of any tangible
asset.
"Qualified Plan" shall mean an employee pension benefit
plan, as defined in Section 3(2) of ERISA, which is intended to be tax-qualified
under Section 401(a) of the IRC, and which Borrower or any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
"Related Transactions" means collectively the BTITC
Transaction, the offering of the BTITC Senior Notes, the FiberSouth Acquisition,
the Stock Purchase, and all of the transactions contemplated thereby.
"Related Transactions Documents" means collectively, all
agreements, instruments and documentation executed in connection with the BTITC
Transaction, the FiberSouth Acquisition, and the Stock Purchase.
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"Release" shall mean, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Materials in the indoor or outdoor
environment by such Person, including the movement of Hazardous Materials
through or in the air, soil, surface water, ground water or property.
"Remaining Escrow Proceeds" shall mean the net balance of
the escrowed proceeds of the Note Offering, net of the First Escrowed Proceeds
and the Interest Reserve, which shall be held in escrow pending the FiberSouth
Approval and thereafter released to BTITC and immediately loaned to Borrower
which shall be evidenced by the BTITC Subordination Note.
"Reportable Event" shall mean any of the events described
in Section 4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.
"Required Lenders" shall mean (a) Lenders having more than
sixty-six and two-thirds percent (66 2/3%) of the Commitments of all Lenders, or
(b) if the Commitments have been terminated, more than sixty-six and two-thirds
percent (66 2/3%) of the aggregate outstanding amount of all Loans and Letter of
Credit Obligations.
"Restricted Payment" shall mean: (i) the declaration or
payment of any dividend or the occurrence of any liability to make any other
payment or distribution of cash or other property or assets in respect of a
Person's Stock, (ii) any payment on account of the purchase, redemption,
defeasance or other retirement of a Person's Stock or any other payment or
distribution made in respect thereof, either directly or indirectly; (iii) any
payment or prepayment of principal of, premium, if any, or interest, fees or
other charges on or with respect to, and any redemption, purchase, retirement,
defeasance, sinking fund or similar payment and any claim for rescission with
respect to any Subordinated Indebtedness; (iv) any payment, loan, contribution,
or other transfer of funds or other property to any stockholder of such Person;
(v) any payment of management fees (or other fees of a similar nature) by such
Person to any stockholder of such Person or their Affiliates, other than a
Permitted Management Fee; and (vi) any payment, loan, contribution, or other
transfer of funds or other property to any stockholder of such Person, except
for any payments made pursuant to compensation programs consistent with past
practice.
"Retiree Welfare Plan" shall refer to any Welfare Plan
providing for continuing coverage or benefits for any participant or any
beneficiary of a participant after such participant's termination of employment,
other than continuation coverage provided pursuant to Section 4980B of the IRC
and at the sole expense of the participant or the beneficiary of the
participant.
"Revolving Credit Advance" shall have the meaning assigned
to such term in SECTION 1.2(A) hereof.
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"Revolving Credit Borrowing Availability" shall mean, at
any time, an amount equal to the lesser at such time of (A) the applicable
Maximum Revolving Credit Loan and (B) the then applicable Maximum Revolver
Leverage Ratio minus, in either case, (i) the aggregate amount of all Letter of
Credit Obligations then outstanding (if any) and (ii) such reserves as Agent may
reasonably deem appropriate.
"Revolving Credit Facility" shall have the meaning assigned
to such term in the preamble to the Agreement.
"Revolving Credit Loan" shall mean at any time, the
aggregate amount of Revolving Credit Advances then outstanding.
"Revolving Credit Note" shall mean a note dated the Closing
Date, substantially in the form attached hereto as Exhibit G, as the same may be
amended, modified or supplemented from time to time (and any promissory note or
notes that may be issued from time to time in substitution, renewal, extension,
replacement or exchange therefor, whether payable to Lenders or different
lenders, whether issued in connection with a Person becoming a lender after the
Closing Date or otherwise), evidencing the Obligation of Borrower to pay the
aggregate amount of Revolving Credit Advances outstanding from time to time
(regardless of whether in excess of the Maximum Revolving Credit Loan) together
with all earned or accrued, but unpaid, interest thereon calculated in
accordance with SECTION 1.8 hereof.
"Schedule of Accounts" shall mean a schedule of all
Accounts to be delivered by Borrower to Agent pursuant to SECTION 5.10(A) of the
Security Agreement.
"Schedule of Documents" shall mean the schedule, including
all appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the Loan Documents and the
transactions contemplated thereunder, substantially in the form of Annex B to
the Agreement.
"Schedule of Equipment" shall mean a schedule of all
Equipment to be delivered by Borrower to Agent pursuant to SECTION 5.10(C) of
the Security Agreement.
"Schedule of Inventory" shall mean the schedule of all
Inventory to be delivered by Borrower to Agent pursuant to SECTION 5.10(B) of
the Security Agreement, including, without limitation, Borrower's internal
reports classifying and valuing Inventory.
"Security Agreement" shall mean that certain Second Amended
and Restated Security Agreement, dated the Closing Date, substantially in the
form attached hereto as Exhibit H, executed by Borrower in favor of Agent for
the benefit of the Lenders, as may be amended, modified or supplemented from
time to time.
"Security Interest" shall mean the Liens of Agent for the
benefit of the Lenders on and in the Collateral effected by the Security
Agreement or by any of the other Collateral Documents or pursuant to the terms
hereof or thereof.
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"Solvency Certificate" shall mean a certificate to be dated
as of the Closing Date and executed by the Chief Executive Officer or President
of Borrower in the form attached hereto as Exhibit I; together with a "fair
value" balance sheet for Borrower and BTITC, on a consolidated and consolidating
basis, together with cash flow projections and such other supporting data,
information, estimates and projections as Agent may request, all in form and
substance (including, without limitation, the respective net worth and financial
condition of Borrower and BTITC reflected therein) acceptable to the Agent.
"Solvent" shall mean, with respect to any Person, such
Person (i) owns property whose fair saleable value is greater than the amount
required to pay all of such Person's Indebtedness (including contingent debts),
(ii) is able to pay all of its Indebtedness as such Indebtedness matures, and
(iii) has capital sufficient to carry on its business and transactions and all
business and transactions to which it is about to engage.
"Special Redemption Obligation" shall mean those certain
obligations of Borrower pursuant to Section 7(g) of that certain Pledge and
Security Agreement executed in connection with the BTITC Senior Notes.
"Stated Index Rate" shall mean (a) the Prime Rate Option,
or (b) the LIBOR Option.
"Stock" shall mean all shares, options, warrants, general
or limited partnership interests, participation or other equivalents (regardless
of how designated) of or in a corporation, partnership or equivalent entity
whether voting or nonvoting, including, without limitation, common stock,
preferred stock, or any other "equity security" (as such term is defined in Rule
3a11-1 of the General Rules and Regulations promulgated by the Securities and
Exchange Commission under the Exchange Act).
"Stock Purchase" shall have the meaning assigned to such
term in the preamble to this Agreement.
"Stock Purchase Bridge Loan" shall mean a Revolving Credit
Advance on the Closing Date, the proceeds of which shall be used by Borrower to
consummate the Stock Purchase, which Loan shall be repaid pursuant to SECTION
1.4(B)(I).
"Subject Property" shall mean all real and personal,
tangible and intangible, property owned, leased or operated by Borrower or any
Affiliate of Borrower.
"Subordinated Indebtedness" shall mean the Indebtedness
existing pursuant to the BTITC Subordinated Debt and the Loftin Subordinated
Debt.
"Subsidiary" shall mean, with respect to any Person, (i)
any corporation of which an aggregate of more than 50% of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time,
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Stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned legally or beneficially by such Person and/or one
or more Subsidiaries of such Person, or with respect to which any such Person
has the right to vote or designate the vote of 50% or more of such Stock whether
by proxy, agreement, operation of law or otherwise, and (ii) any partnership in
which such Person or one or more Subsidiaries of such Person shall have an
interest (whether in the form of voting or participation in profits or capital
contribution) of more than 50% or of which any such Person is a general partner
or may exercise the powers of a general partner.
"Taxes" shall mean taxes, levies, imposts, deductions,
Charges or withholdings, and all liabilities with respect thereto, excluding
taxes imposed on or measured by the net income of Lender.
"Temporary Cash Investments" shall mean 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 of 1933, as amended) 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 Borrower) 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 Services; 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 of taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Services or Moody's Investors Service, Inc.; PROVIDED,
in each case, any such Investment shall be held in the Investment Account.
"Termination Date" shall mean the date on which the
Revolving Credit Loan and any other Obligations have been completely discharged
and Borrower shall have funded the amounts required, if any, under the Agreement
into the Cash Collateral Account in respect of Letter of Credit Obligations, if
any, then outstanding, and Borrower shall have no further right to borrow any
monies or obtain other credit extensions or financial accommodations under the
Agreement.
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"Total Accounts Payable" shall mean, as of the end of each
Fiscal Month, the aggregate amount of all accounts payable of the Borrower, as
determined in accordance with GAAP and reflected in the financial statements
relating to such month and to be delivered pursuant to SECTION 4.1.
"Total Commitment" shall mean $60 million or such lesser
applicable amount as is described in clause (A) of subsections (i), (ii), (iii)
and (iv) of the definition of Maximum Revolving Credit Loan.
"Total Debt" shall mean, as of any date, the respective then
outstanding and unpaid balances of all Indebtedness of Borrower for Money
Borrowed including, without limitation, the Loans, the Loftin Notes, Capital
Lease Obligations, guarantees, Guaranteed Indebtedness and amounts drawn down
under Letters of Credit, but shall not include the BTITC Subordinated Debt.
"Total Debt to EBITDA Ratio" shall mean, for any Fiscal
Month, the ratio of (a) Total Debt outstanding on the last day of such Fiscal
Month to (b) cumulative EBITDA for the twelve (12) consecutive Fiscal Month
period ending on the last day of such Fiscal Month.
"Title IV Plan" shall mean a Pension Plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA.
"Trademark License" shall mean rights under any written
agreement now owned or hereafter acquired by Borrower granting any right to use
any Trademark or Trademark registration.
"Trademarks" shall mean all of the following now owned or
hereafter acquired by Borrower: (i) all trademarks, trade names, corporate
names, business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature, now existing
or hereafter adopted or acquired, all registrations and recordings thereof, and
all applications in connection therewith, including, without limitation, all
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State or Territory thereof, or any other country or any political subdivision
thereof, and (ii) all reissues, extensions or renewals thereof.
"Transactions" shall have the meaning assigned to such term
in the preamble of this Agreement.
"Type of Advance" shall mean with respect to any Loan, such
Loan is either a Prime Rate Option Advance or a LIBOR Advance, each of which
shall be a "Type" of Advance.
"Unfunded Pension Liability" shall mean, at any time, the
aggregate amount, if any, of the sum of (i) the amount by which the present
value of all accrued benefits under each Title IV Plan exceeds the fair market
value of all assets of such Title IV Plan allocable to such benefits in
accordance with Title IV of ERISA, all determined as of the most recent
valuation
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date for each such Title IV Plan using the actuarial assumptions in effect under
such Title IV Plan, and (ii) for a period of five (5) years following a
transaction reasonably likely to be covered by Section 4069 of ERISA, the
liabilities (whether or not accrued) that could be avoided by Borrower or any
ERISA Affiliate as a result of such transaction.
"Welfare Plans" shall mean any welfare plan, as defined in
Section 3(1) of ERISA, which is maintained or contributed to by Borrower or any
ERISA Affiliate.
"Withdrawal Liability" shall mean, at any time, the
aggregate amount of the liabilities, if any, pursuant to Section 4201 of ERISA,
and any increase in contributions pursuant to Section 4243 of ERISA with respect
to all Multiemployer Plans.
"Working Capital" shall mean the excess of Borrower's
current assets over its current liabilities (excluding current maturities of
Total Debt) as of any date as reported in accordance with GAAP.
(b) Any accounting term used in the Agreement shall have,
unless otherwise specifically provided therein, the meaning customarily given
such term in accordance with GAAP, and all financial computations thereunder
shall be computed, unless otherwise specifically provided therein, in accordance
with GAAP consistently applied. That certain items or computations are
explicitly modified by the phrase "in accordance with GAAP" shall in no way be
construed to limit the foregoing. All other undefined terms contained in the
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the Code as in effect in the State of Georgia to the extent the
same are used or defined therein. The words "herein," "hereof" and "hereunder"
or other words of similar import refer to the Agreement as a whole, including
the Exhibits and Schedules thereto, as the same may from time to time be
amended, modified or supplemented, and not to any particular section, subsection
or clause contained in this Agreement.
(c) Capitalized terms used herein shall have the meanings
ascribed to them in SECTION 1.1 of, or elsewhere in, this Agreement, including,
without limitation, the incorporation by reference of terms defined in other
instruments, agreements or other documents. All Schedules, Attachments, Exhibits
and Annexes hereto, or expressly identified to this Agreement, are incorporated
herein by reference, and taken together, shall constitute but a single
agreement. Unless otherwise expressly set forth herein, or in a written
amendment referring to such Schedules, all Schedules referred to herein shall
mean the Schedules as in effect on the Closing Date. The recitals set forth in
the preamble to this Agreement shall be construed as part of this Agreement.
Wherever from the context it appears appropriate, each term stated in either the
singular or plural shall include the singular and the plural, and pronouns
stated in the masculine, feminine or neuter gender shall include the masculine,
the feminine and the neuter.
(d) All terms in this Agreement, the Exhibits and Schedules
hereto, shall have the same defined meanings when used in any other Loan
Documents, unless the context shall require otherwise.
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(e) Titles of Articles and Sections in this Agreement are
for convenience only, do not constitute part of this Agreement, and neither
limit nor amplify the provisions of this Agreement, and all references in this
Agreement to Articles, Sections, Subsections, paragraphs, clauses, subclauses,
Schedules or Exhibits shall refer to the corresponding Article, Section,
Subsection, paragraph, clause or subclause of, or Schedule or Exhibit attached
to this Agreement, unless specific reference is made to the articles, sections
or other subdivisions or divisions of, or to schedules or exhibits to, another
document or instrument.
(f) Each definition of an instrument, agreement or other
document in this Agreement shall include the same as amended, modified,
supplemented or restated from time to time in accordance with the terms of this
Agreement.
(g) Except where specifically restricted, reference to a
party to a Loan Document includes that party and its successors and assigns
permitted hereunder or under such Loan Document.
(h) Unless otherwise specifically stated, whenever a time
is referred to in this Agreement or in any other Loan Document, such time shall
be the local time in Atlanta,
(i) Whenever the phrase "to the knowledge of the Borrower"
or words of similar import relating to the knowledge of the Borrowers are used
herein, such phrase shall mean and refer to (i) the actual knowledge of the
President or Chief Financial Officer, or (ii) the knowledge that such officers
would have obtained if they had engaged in good faith in the diligent
performance of their duties, including the making of such reasonable specific
inquiries as may be necessary of the appropriate persons in a good faith attempt
to ascertain the accuracy of the matter to which such phrase relates.
(j) The terms accounts, chattel paper, documents, equipment
instruments, general intangibles and inventory, as and when used (without being
capitalized) in this Agreement or any of the other Loan Documents, shall have
the meanings given those terms in the Code.
(k) All parties hereto (i) have had access to, and have
consulted with, their respective counsel, and (ii) have participated in the
drafting and creation of this Agreement and the other Loan Documents, and
therefore neither this Agreement nor any of the other Loan Documents, nor any
provision hereof or thereof, shall be construed more strictly against any party
hereto or in favor of any party hereto as the result of any presumption that one
party had a more dominant role in such drafting.
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1.2. LOANS.
(a) Upon and subject to the terms and conditions set forth
herein, each Lender agrees to, severally, but not jointly, make available, from
time to time, until the Commitment Termination Date, for Borrower's use and upon
the request of Borrower therefor, advances (each, a "Revolving Credit Advance")
in aggregate amounts equal to such Lenders' Commitment Percentage of each such
Loan requested or deemed requested hereunder up to an aggregate amount at any
one time outstanding equal to such Lender's Commitment Percentage of the Maximum
Revolving Credit Loan; PROVIDED, HOWEVER, that the aggregate principal amount of
all outstanding Revolving Credit Loans (after giving effect to the Loans
requested) shall not at any given time exceed the Revolving Credit Borrowing
Availability. Until all amounts outstanding in respect of the Revolving Credit
Loans shall become due and payable on the Commitment Termination Date, but
subject to the terms and conditions hereof, Borrower may from time to time
borrow, repay and reborrow under this SECTION 1.2(A). Each request for a
Revolving Credit Advance shall be given in writing (by telecopy, hand delivery,
or United States mail) by Borrower to Agent at the General Electric Capital
Corporation, 3379 Peachtree Road, NE, Suite 600, Atlanta, Georgia 30326,
Attention: Ms. Judy Lancaster (or such other person or address as Agent may
designate to Borrower in writing), Fax No. (404) 262-9175, given no later than
12:00 p.m. (Atlanta time) on the Business Day of the proposed Revolving Credit
Advance. Each such notice (a "Notice of Revolving Credit Advance") shall be
substantially in the form attached hereto as Exhibit J hereto, specifying
therein the requested date, the amount of such Revolving Credit Advance, whether
it will be a Prime Rate Option Advance or LIBOR Option Advance and such other
information as may be required by Agent. Agent shall be entitled to rely upon
and shall be fully protected under this Agreement in relying upon any Notice of
Revolving Credit Advance believed by Agent to be genuine and in assuming that
the persons executing and delivering the same were duly authorized unless the
responsible individual acting thereon for Agent shall have actual knowledge to
the contrary.
(b) Each Lender's Revolving Credit Loans and the
Borrower's obligation to repay such Revolving Credit Loans shall also be
evidenced by a Revolving Credit Note payable to the order of such Lender. The
date and amount of each Revolving Credit Advance and each payment of principal
with respect thereto shall be recorded on the books and records of each such
Lender, which books and records shall constitute PRIMA FACIE evidence of the
accuracy of the information therein recorded. The entire unpaid balance of the
Revolving Credit Loan shall be immediately due and payable on the Commitment
Termination Date.
(c) Subject to the provisions of SECTION 10.8, Agent shall
promptly notify Lenders of any notice of borrowing given or deemed given
pursuant to this SECTION 1.2 by 2:00 p.m. (Atlanta time) on the proposed
borrowing date with respect to any Prime Rate Option Advance and within a
reasonable time after receipt from Borrower of a notice of borrowing with
respect to a LIBOR Advance. The notice from Agent to Lenders shall set forth the
information contained in Borrower's Notice of Revolving Credit Advance. Not
later than 3:30 p.m. (Atlanta time) on the proposed borrowing date, each Lender
will make available to Agent, for the account of Borrower, at Agent's Office in
funds immediately available to Agent, an amount equal to such
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Lender's Commitment Percentage of the Revolving Credit Loans to be made on such
borrowing date.
1.3. MAKING OF LOANS.
(a) Nature of Obligations of Lenders to Make Loans. The
obligations of Lenders under this Agreement to make the Loans are several and
are not joint or joint and several. All Revolving Credit Advances shall be made
from the Lenders PRO RATA on the basis of their Percentage Commitment. It is
understood that no Lender shall be responsible for any default by any other
Lender in its obligation to make or support Loans hereunder and that each Lender
shall be obligated to make or support the Loans provided to be made or supported
by it hereunder, regardless of the failure of any other Lender to fulfill its
commitments hereunder.
(b) Assumption by Agent. Subject to the provisions of
SECTION 10.8 and notwithstanding the occurrence or continuance of a Default or
Event of Default or other failure of any condition to the making of Revolving
Credit Loans hereunder, unless Agent shall have received notice from a Lender in
accordance with the provisions of SECTION 10.8 prior to a proposed borrowing
date that such Lender will not make available to Agent such Lender's ratable
portion of the amount to be borrowed on such date, Agent may assume that such
Lender will make such portion available to Agent in accordance with SECTION 1.2,
and Agent may, in reliance upon such assumption, make available to Borrower on
such date a corresponding amount. If and to the extent such Lender shall not
make such ratable portion available to Agent, such Lender and Borrower severally
agree to repay to Agent forthwith on demand (provided Borrower shall be entitled
to a five-day grace period) such corresponding amount (the "Make-Whole Amount"),
together with interest thereon for each day from the date such amount is made
available to Borrower until the date such amount is repaid to Agent at the
interest rate selected by Borrower with respect to such Revolving Credit Advance
or, if lower, the Maximum Lawful Rate; PROVIDED, HOWEVER, if on the interest
payment date next following the date on which any Lender pays interest to Agent
on a Make-Whole Amount as aforesaid, Borrower default in making the interest
payment due, then Agent shall reimburse such Lender for the excess, if any, of
the amount of interest so paid by such Lender on the Make-Whole Amount over the
amount of interest that such Lender would have paid had such Lender been
required to pay interest on the Make-Whole Amount at the Prime Option. If such
Lender shall repay to Agent such corresponding amount, the amount so repaid
shall constitute such Lender's Commitment Percentage of the Loan made on such
borrowing date for purposes of this Agreement. The failure of any Lender to make
its Commitment Percentage of any Loan available shall not (without regard to
whether Borrower shall have returned the amount thereof to Agent in accordance
with this SECTION 1) relieve it or any other Lender of its obligation, if any,
hereunder to make its Commitment Percentage of such Loan available on such
borrowing date, but no Lender shall be responsible for the failure of any other
Lender to make its Commitment Percentage of such Loan available on the borrowing
date.
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(c) Delegation of Authority to Agent.
(i) Without limiting the generality of SECTION
10, each Lender expressly authorizes Agent to determine on behalf of such Lender
the creation or elimination of any reserves (other than the reserves established
with respect to Letter of Credit Obligations) against the Revolving Credit
Facility. Such authorization may be withdrawn by the Required Lenders by giving
Agent written notice of such withdrawal signed by the Required Lenders;
PROVIDED, HOWEVER, that unless otherwise agreed by Agent such withdrawal of
authorization shall not become effective until the thirtieth (30th) Business Day
after receipt of such notice by Agent. Thereafter, the Required Lenders shall
jointly instruct Agent in writing regarding such matters with such frequency as
the Required Lenders shall jointly determine.
(ii) Unless and until Agent shall have received written
notice from the Required Lenders that because of a Default or Event of Default
the Required Lenders do not intend to make available to Agent such Lenders'
ratable share of Loans made after the effective date of such notice, Agent shall
be entitled to continue to make the assumptions described in SECTION 1.3(B).
After receipt of the notice described in the preceding sentence, which shall
become effective on the third (3rd) Business Day after receipt of such notice by
Agent unless otherwise agreed by Agent, Agent shall be entitled to make the
assumptions described in SECTION 1.3(B) as to any Loans as to which it has not
received a written notice to the contrary prior to 11:00 a.m. (Atlanta time) on
the Business Day next preceding the day on which the Loan is to be made. Agent
shall not be required to make any Loan as to which it shall have received notice
by a Lender of such Lender's intention not to make its ratable portion of such
Loan available to Agent. Any withdrawal of authorization under this SECTION
1.3(C) shall not affect the validity of any Loans made prior to the
effectiveness thereof.
1.4. PREPAYMENT.
(a) Optional Prepayment. Borrower shall have the right at
any time upon sixty (60) days prior written notice to Agent to voluntarily
prepay the entire Revolving Credit Loan and terminate Borrower's right to
receive and Lenders' obligation to make Revolving Credit Advances, without
premium or penalty. Upon such prepayment and termination, Borrower's right to
receive Revolving Credit Advances and Borrower's obligation to pay the Non-use
Fee and maintain the Cash Management System shall simultaneously terminate. Such
prepayment and termination shall be accompanied by (i) the payment of all
accrued and unpaid interest, Fees and expenses thereon and (ii) the cash
collateralization or substitution of Letters of Credit with respect to Letter of
Credit Obligations in accordance with SECTION 1.5 hereof.
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(b) Mandatory Prepayment.
(i) Upon receipt of the amounts represented by
the BTITC Subordinated Note, Borrower shall immediately repay the Stock Purchase
Bridge Loan.
(ii) In the event that the outstanding balance of
the Revolving Credit Loan shall at any time exceed the Revolving Credit
Borrowing Availability, Borrower shall immediately repay the Revolving Credit
Loan in the amount of such excess with interest thereon until such repayment.
Any such excess balance shall nevertheless constitute Obligations that are
secured by the Collateral and entitled to all of the benefits thereof and of the
Loan Documents and shall be evidenced by the Revolving Credit Note.
(iii) Subject to SECTION 6.8, if Borrower shall
make any Disposition or Dispositions, (whether occurring in one transaction or a
series of transactions) an amount equal to such Net Cash Proceeds shall be
applied to the payment of any then outstanding Revolving Credit Loans.
(iv) Subject to SECTION 6.5, if Borrower shall
issue any Stock (including, without limitation, any treasury stock of Borrower),
an amount equal to such Net Cash Proceeds shall be applied to the payment of any
then outstanding Revolving Credit Loans.
1.5. LETTERS OF CREDIT. SUBJECT TO AND IN ACCORDANCE WITH THE
TERMS AND CONDITIONS CONTAINED HEREIN AND IN ANNEX C HERETO, BORROWER SHALL HAVE
THE RIGHT TO REQUEST, AND AGENT AND LENDERS AGREE TO INCUR, THE SUBFACILITY
LETTER OF CREDIT OBLIGATIONS IN ACCORDANCE WITH THE TERMS HEREINAFTER SET FORTH.
(a) Lenders agree, subject to the terms and conditions of
the Agreement, to incur from time to time upon written request of Borrower
(which request shall include an application in form and detail satisfactory to
Agent) not less than five (5) Business Days prior to the proposed issuance of
such Letter of Credit, Letter of Credit Obligations in respect of Letters of
Credit; PROVIDED, HOWEVER, that the aggregate amount of all Letter of Credit
Obligations incurred by Lenders pursuant to this paragraph at any one time
outstanding (whether or not then due and payable) shall not exceed the lesser of
(i) Twelve Million Dollars ($12,000,000) and (ii) the Revolving Credit Borrowing
Availability MINUS the then outstanding Revolving Credit Loans; and, PROVIDED,
further, that no such Letter of Credit shall have an expiry date which is later
than the earlier of (y) one year following the date of issuance thereof and (z)
the Commitment Termination Date. Lenders shall be under no obligation to incur
Letter of Credit Obligations in respect of any Letter of Credit having an expiry
date which is later than the Commitment Termination Date. It is understood that
the determination of the bank or other legally authorized Person (including
Agent or Lenders) which shall issue or accept, as the case may be, any Letter of
Credit contemplated by this paragraph (a) shall be reasonably acceptable to
Agent, Lenders and Borrower. In addition, all Letters of Credit and related
guaranties which are the subject of such Letter of Credit Obligations must be in
form and substance satisfactory to Agent, in its sole discretion.
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(b) In the event that Agent or any other Lender shall make
any payment on or pursuant to any Letter of Credit Obligation, such payment
shall then be deemed automatically to constitute a Revolving Credit Advance
under SECTION 1.2(A) of the Agreement, regardless of whether a Default or Event
of Default shall have occurred and be continuing and notwithstanding Borrower's
failure to satisfy the conditions precedent set forth in Article 2, and shall
bear interest as provided in SECTION 1.8 of the Agreement, and each Lender shall
be obligated to pay an amount calculated by applying such Lender's Commitment
Percentage to the aggregate amount of such payment. The failure of any Lender to
make available to Agent for Agent's own account an amount equivalent to a
Lender's Commitment Percentage as to any such Revolving Credit Loan or payment
by Agent under or in respect of a Letter of Credit shall not relieve any other
Lender of its obligation hereunder to make available to Agent an amount
equivalent to such other Lender's Commitment Percentage with respect thereto,
but no breach by a Lender shall cause an increase in any other Lender's
Commitment Percentage. The obligations of the Lenders to make payments to the
Agent with respect to Letter of Credit Obligations shall be irrevocable and not
subject to counterclaim, set-off or other defense or any other qualification or
exception whatsoever and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances, including, without
limitation, any of the following circumstances:
(i) any lack of validity or enforceability of
this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, set-off, defense
or other right which Borrower may have at any time against a beneficiary named
in a Letter of Credit, any transferee of any Letter of Credit (or any Person for
whom any such transferee may be acting), the Agent, the Letter of Credit issuer,
any Lender, or other Person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between Borrower and the
beneficiary named in any such Letter of Credit);
(iii) any draft, certificate or any other
document presented under the Letter of Credit proving to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security
for the performance or observance of any of the terms of any of the Loan
Documents; or
(v) the occurrence of any Default or Event of
Default.
(c) In the event that any Letter of Credit Obligation,
whether or not then due and payable, shall for any reason be outstanding on the
Commitment Termination Date, Borrower shall either (i) obtain substitute Letters
of Credit and releases of all Letter of Credit Obligations in form and substance
satisfactory to Agent, in its sole discretion, or (ii) pay to Agent for the
benefit of the Lenders cash in an amount equal to one hundred five percent
(105%) of the maximum amount then available to be drawn under the applicable
Letter(s) of Credit. Such cash
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shall be held by Agent in a cash collateral account (the "Cash Collateral
Account") maintained in a bank designated by Agent. The Cash Collateral Account
shall be in the name of Agent (as a cash collateral account) on behalf of
Lenders, and shall be under the sole dominion and control of Agent and subject
to the terms of this SECTION 1.5. Borrower agrees to execute and deliver to
Agent such documentation with respect to the Cash Collateral Account as Agent
may request, and Borrower hereby pledges, and grants to Lenders a security
interest in, all such funds held in the Cash Collateral Account from time to
time and all interest thereon and proceeds thereof, as security for the payment
of all amounts due in respect of the Letter of Credit Obligations, whether or
not then due. The Agreement shall constitute a security agreement under
applicable law.
(d) From time to time after funds are deposited in the
Cash Collateral Account, Agent may apply such funds then held in the Cash
Collateral Account to the payment of any amounts, in such order as Agent may
elect, as shall be or shall become due and payable by Borrower to Lenders with
respect to such Letter of Credit Obligations, and once all Letter of Credit
Obligations have been satisfied, to any other Obligations yet outstanding as and
when due and payable.
(e) Neither Borrower nor any other Person claiming on
behalf of or through any Borrower shall have any right to withdraw any of the
funds held in the Cash Collateral Account, except that upon the termination of
all Letter of Credit Obligations and the payment of all amounts payable by
Borrower to Lenders in respect thereof, any funds remaining in the Cash
Collateral Account in excess of the then remaining Letter of Credit Obligations
and any other outstanding Obligations to Lenders shall be returned to Borrower.
(f) Agent shall have the right but shall not have any
obligation to invest the funds in the Cash Collateral Account or deposit such
funds in an interest bearing account, provided that, if Agent shall invest such
funds or deposit such funds in an interest bearing account, the interest and
earnings thereon, if any, shall become part of the Cash Collateral Account and
shall be held by Agent as additional security for the Letter of Credit
Obligations.
1.6. USE OF PROCEEDS. BORROWER SHALL USE THE PROCEEDS OF THE
REVOLVING CREDIT ADVANCES FOR THE FINANCING OF BORROWER'S WORKING CAPITAL NEEDS,
CAPITAL EXPENDITURES, AND FOR OTHER CORPORATE PURPOSES PROVIDED, THAT (I) THE
PROCEEDS SHALL BE USED TO SATISFY IN FULL ALL OBLIGATIONS OF BORROWER THEN
OUTSTANDING UNDER THE FIRST AMENDED REVOLVING CREDIT FACILITY OTHER THAN THE
LETTER OF CREDIT OBLIGATIONS (AS THEREIN DEFINED) WHICH SHALL BE ADDRESSED AS
OTHERWISE HEREIN PROVIDED AND (II) UP TO BUT NOT MORE THAN $30,000,000 OF THE
PROCEEDS OF LOANS MAY BE UTILIZED FOR THE PURPOSES OF CONSUMMATING THE STOCK
PURCHASE PURSUANT TO THE STOCK PURCHASE BRIDGE LOAN. BORROWER FURTHER
ACKNOWLEDGES AND AGREES THAT NO PROCEEDS OF THE REVOLVING CREDIT ADVANCES HAVE
BEEN OR MAY BE USED IN CONNECTION WITH (I) THE CONSUMMATION OF THE FIBERSOUTH
ACQUISITION OR (II) ANY PAYMENTS IN CONNECTION WITH THE FORMER EMPLOYEE
INDEBTEDNESS.
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1.7. SINGLE LOAN. THE REVOLVING CREDIT LOANS AND ALL REVOLVING
CREDIT ADVANCES, ALL LETTER OF CREDIT OBLIGATIONS, IF ANY, AND ALL OF THE OTHER
OBLIGATIONS OF BORROWER ARISING UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL CONSTITUTE ONE GENERAL OBLIGATION OF BORROWER SECURED, UNTIL THE
TERMINATION DATE, BY ALL OF THE COLLATERAL.
1.8. INTEREST ON THE LOANS.
(a) Borrower shall be obligated to pay interest to Agent
on behalf of Lenders on the outstanding principal balance of the Loans owing to
Lenders from the Closing Date until the Revolving Credit Loan is paid in full at
either (a) a floating rate equal to the Prime Rate Option, or (b) a fixed rate
for interest periods of any LIBOR Option Period equal to its respective LIBOR
Option.
(b) So long as no Default or Event of Default shall have
occurred and be continuing, and subject to the additional conditions set forth
in SECTION 2.2, Borrower shall have the option to (i) request that any Revolving
Credit Advances be made as LIBOR Advances, (ii) convert at any time all or any
part of outstanding Loans from Prime Rate Option Advances to LIBOR Advances,
(iii) convert any LIBOR Rate Advance to a Prime Rate Option Advance, subject to
payment of LIBOR Breakage Costs if such conversion is made prior to the
expiration of the LIBOR Period applicable thereto, or (iv) continue all or any
portion of any Loan as a LIBOR Advance upon the expiration of the applicable
LIBOR Period and the succeeding LIBOR Period of that continued Loan shall
commence on the last day of the LIBOR Period of the Loan to be continued. Any
Loan to be made or continued as, or converted into, a LIBOR Advance must be a
minimum of $5,000,000 and integral multiples of $500,000 in excess of such
amount. Any such election must be made by 11:00 a.m. (Atlanta time) on the third
(3rd) Business Day prior to (1) the date of any proposed Advance which is to
bear interest at the LIBOR Option, (2) the end of each LIBOR Period with respect
to any LIBOR Advances to be continued as such, or (3) the date on which Borrower
wishes to convert any Prime Rate Option Advances to a LIBOR Advance for a LIBOR
Period designated by Borrower in such election. If no election is received with
respect to a LIBOR Advance by 11:00 a.m. (Atlanta time) on the third (3rd)
Business Day prior to the end of the LIBOR Period with respect thereto (or if a
Default or an Event of Default shall have occurred and be continuing of if the
additional conditions precedent set forth in SECTION 2.2 shall not have been
satisfied), that LIBOR Advance shall be converted to an Prime Rate Option
Advance at the end of its LIBOR Period. Borrower must make such election by
notice to Agent in writing, by telecopy or overnight courier. In the case of any
conversion or continuation, such election must be made pursuant to a written
notice (a "Notice of Conversion/Continuation") in the form attached hereto as
Exhibit J.
(c) Borrower shall pay interest to Agent on behalf of
Lenders (i) in arrears for the preceding calendar month on the first (1st) day
of each calendar month, commencing on October 1, 1997, (ii) on the Commitment
Termination Date, and (iii) if any interest accrues or remains payable after the
Commitment Termination Date, upon demand by Agent or the Lenders.
(d) All computations of interest shall be made by Agent or
the Lenders on the basis of a three hundred and sixty (360) day year, in each
case for the actual number of days
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occurring in the period for which such interest is payable. The Prime Index Rate
shall be determined (i) on the first Business Day immediately prior to the
Closing Date, and (ii) thereafter, on the last Business Day of each calendar
month for calculation of interest for the following month. Each determination by
Agent of an interest rate hereunder shall be conclusive and binding for all
purposes, absent manifest error or bad faith.
(e) Upon the occurrence of any Default and so long as any
Default shall have occurred and be continuing and at the election of Agent (or
upon the written request of the Required Lenders), the interest rate applicable
to the Obligations (including, without limitation, the Loans and the fees
payable in respect of Letter of Credit Obligations, if any), shall be increased
by two percent (2%) per annum above the rate otherwise applicable (the "Default
Rate") until such time as all of the Obligations of Borrower shall have been
paid in full or, if earlier, such time as the Default or Event of Default shall
have been cured or waived in writing by Lenders.
(f) If any interest or other payment on the Revolving
Credit Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(g) Notwithstanding anything to the contrary set forth in
this SECTION 1.8, if, at any time until payment in full of all of the
Obligations, the Stated Index Rate for the Loan exceeds the highest rate of
interest permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto (the "Maximum Lawful
Rate"), then in such event and so long as the Maximum Lawful Rate would be so
exceeded, the Stated Index Rate shall be equal to the Maximum Lawful Rate;
PROVIDED, that if at any time thereafter the Stated Index Rate is less than the
Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the
Maximum Lawful Rate until such time as the total interest received by Lenders
from the making of the Loans hereunder is equal to the total interest which
Lenders would have received had the Stated Index Rate been (but for the
operation of this paragraph) the interest rate payable since the Closing Date as
otherwise provided in this Agreement. Thereafter, the Stated Index Rate shall be
the rate of interest provided in SECTIONS 1.8 (A) THROUGH (F) of this Agreement,
unless and until the rate of interest again exceeds the Maximum Lawful Rate, in
which event this paragraph shall again apply. In no event shall the total
interest received by Lenders pursuant to the terms hereof exceed the amount
which Lenders could lawfully have received had the interest due hereunder been
calculated for the full term hereof at the Maximum Lawful Rate. In the event the
Maximum Lawful Rate is calculated pursuant to this paragraph, such interest
shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by
the number of days in the year in which such calculation is made. In the event
that a court of competent jurisdiction, notwithstanding the provisions of this
SECTION 1.8(G), shall make a final determination that Lenders have received
interest hereunder or under any of the Loan Documents in excess of the Maximum
Lawful Rate, Lenders shall, to the extent permitted by applicable law, promptly
apply such excess first to any interest due and not yet paid hereunder, then to
the outstanding principal of the Obligations, then to Fees and any other unpaid
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Obligations and thereafter shall refund any excess to Borrower or as a court of
competent jurisdiction may otherwise order.
(h) If after the date of this Agreement the introduction
of, or any change in, any law or any governmental rule, regulation, policy,
guideline or directive (whether or not having the force of law), or any
interpretation thereof, or compliance by Agent or the Lenders therewith,
(i) subjects Agent or the Lenders to any tax, duty, charge
or withholding on or from payments due from Borrower (excluding franchise taxes
imposed upon, and taxation of the overall net income of, the Lenders), or
changes the basis of taxation of payments, due the Lenders hereunder; or
(j) imposes or increases or makes applicable any reserve
requirement or other reserve, assessment, insurance charge, special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by Agent or Lenders; or
(k) imposes any other condition the result of which is to
increase the cost to Agent or Lenders of making, funding or maintaining any
Revolving Credit Advances or Letter of Credit Obligations or reduces any amount
receivable by Lenders in connection with Revolving Credit Advances or Letter of
Credit Obligations or requires Lenders to make payments calculated by reference
to the amount of loans held or interest received by it, by an amount deemed
material by the Lenders; or
(l) imposes or increases any capital requirement or
affects the amount of capital required or expected to be maintained by Lenders
or any corporation controlling Lenders, and Lenders determine that such
imposition or increase in capital requirements or increase in the amount of
capital expected to be maintained is based upon the existence of this Agreement
or its Revolving Credit Advances or Letter of Credit Obligations hereunder, all
of which may be determined by Lenders' reasonable allocation of the aggregate of
its impositions or increases in capital required or expected to be maintained,
and the result of any of the foregoing is to increase the cost or reduce the
rate of return to Lenders of making, renewing or maintaining the Loans or Letter
of Credit Obligations hereunder, Borrower shall pay to Agent on behalf of the
Lenders, and continue to make periodic payments to Agent, such additional
amounts as may be necessary to compensate Agent and/or the Lenders for such
additional cost incurred or reduced rate of return suffered.
1.9. FEES.
(a) Certain Fees to Agent. On the Closing Date, Borrower
agrees to pay to GE Capital, individually, the Fees specified in that certain
fee letter, dated August 29, 1997, between Borrower and GE Capital (the "GE
Capital Fee Letter").
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(b) Non-use Fee. As additional compensation for Lenders'
costs and risks in making the total amount of the Maximum Revolving Credit Loan
available to Borrower, Borrower agrees to pay to Agent for the account of each
existing and non-defaulting Lender, in arrears, on the first (1st) Business Day
of each month with respect to the immediately prior month, prior to the
Commitment Termination Date and on the Commitment Termination Date, a fee (the
"Non-use Fee") for Borrower's non-use of available funds or Letter of Credit
accommodations in an amount equal to one-quarter of one percent (0.25%) per
annum of the difference between the respective daily averages of (i) the Maximum
Revolving Credit Loan and (ii) the Revolving Credit Loan plus outstanding Letter
of Credit Obligations to Borrower during the period for which the Non-use Fee is
due.
(c) Letter of Credit Obligations Fee. In the event that
Lenders shall incur any Letter of Credit Obligations on behalf of Borrower,
Borrower agrees to pay to Agent for the account of Lenders, as compensation to
Lenders for such Letter of Credit Obligations, until Borrower has paid or
otherwise satisfied such Letter of Credit Obligations, commencing with the month
in which any such Letter of Credit Obligation is incurred by Lender and monthly
thereafter for each month during which such Letter of Credit Obligation shall
remain outstanding, a fee in an amount equal to the quotient of (i) an amount
equal to (x) the sum of the daily outstanding amount of all such Letter of
Credit Obligations on each day during the previous month, multiplied by (y) (1)
a rate equal to the applicable Letter of Credit Fee Percentage set forth in the
definition of Applicable Spread (the "Letter of Credit Obligations Fee"), or (2)
upon the occurrence and continuation of an Event of Default, a rate equal to two
percent (2%) in excess of the then applicable Letter of Credit Obligations Fee.
Fees, costs and expenses payable to issuers of Letters of Credit in connection
with the initial issuance of Letters of Credit shall be for the account of and
paid by Agent, on behalf of Lenders, out of the proceeds of the Letter of Credit
Obligations Fee. Any fees, costs or expenses payable to issuer of the Letters of
Credit, for including, without limitation, modifications, revisions or
amendments to existing Letters of Credit shall be solely for the account of
Borrower, and if paid by Lenders shall be reimbursed to Lenders, in arrears, on
the first (1st) Business Day of each month.
1.10. RECEIPT OF PAYMENTS. BORROWER SHALL MAKE EACH PAYMENT UNDER
THIS AGREEMENT NOT LATER THAN 1:30 P.M. (ATLANTA TIME) ON THE DAY WHEN DUE IN
LAWFUL MONEY OF THE UNITED STATES OF AMERICA IN IMMEDIATELY AVAILABLE FUNDS TO
THE COLLECTION ACCOUNT WITHOUT SETOFF, COUNTERCLAIM OR DEDUCTION WHATSOEVER TO
AGENT FOR THE ACCOUNT OF THE LENDERS ENTITLED THERETO. FOR PURPOSES OF COMPUTING
INTEREST AND FEES AND DETERMINING THE REVOLVING CREDIT BORROWING AVAILABILITY,
ALL PAYMENTS (INCLUDING, WITHOUT LIMITATION, CASH SWEEPS) CONSISTING OF CASH,
WIRE, OR ELECTRONIC TRANSFERS IN IMMEDIATELY AVAILABLE/COLLECTED FUNDS SHALL BE
DEEMED RECEIVED BY AGENT ON THE BUSINESS DAY OF SUCH DEPOSIT IN THE COLLECTION
ACCOUNT.
1.11. APPLICATION AND ALLOCATION OF PAYMENTS. BORROWER IRREVOCABLY
WAIVES THE RIGHT TO DIRECT THE APPLICATION OF ANY AND ALL PAYMENTS AT ANY TIME
OR TIMES HEREAFTER RECEIVED FROM OR ON BEHALF OF BORROWER, AND BORROWER
IRREVOCABLY AGREES THAT AGENT SHALL HAVE THE CONTINUING EXCLUSIVE RIGHT TO APPLY
ANY AND ALL SUCH PAYMENTS AGAINST THE THEN DUE AND PAYABLE OBLIGATIONS OF
BORROWER AND IN REPAYMENT OF REVOLVING CREDIT LOAN AND
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LETTER OF CREDIT OBLIGATIONS, IF ANY, AS AGENT MAY DEEM ADVISABLE
NOTWITHSTANDING ANY PREVIOUS ENTRY BY AGENT IN THE LOAN ACCOUNT OR ANY OTHER
BOOKS AND RECORDS. IN THE ABSENCE OF A SPECIFIC DETERMINATION BY AGENT WITH
RESPECT THERETO, THE SAME SHALL BE APPLIED IN THE FOLLOWING ORDER: (I) THEN DUE
AND PAYABLE FEES AND AGENT'S EXPENSES REIMBURSABLE HEREUNDER; (II) THEN DUE AND
PAYABLE INTEREST PAYMENTS; AND (III) OBLIGATIONS OTHER THAN FEES, EXPENSES AND
INTEREST. AGENT IS AUTHORIZED TO, AND AT ITS SOLE ELECTION MAY, MAKE OR CAUSE TO
BE MADE REVOLVING CREDIT ADVANCES ON BEHALF OF BORROWER FOR PAYMENT OF ALL FEES,
EXPENSES, CHARGES, COSTS, PRINCIPAL, INTEREST, OR OTHER OBLIGATIONS OWING BY
BORROWER UNDER THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, EVEN IF THE
MAKING OF SUCH REVOLVING CREDIT ADVANCE CAUSES THE OUTSTANDING BALANCE OF THE
REVOLVING CREDIT LOAN TO EXCEED THE REVOLVING CREDIT BORROWING AVAILABILITY, AND
BORROWER AGREES THAT THE MAKING OF ANY SUCH ADVANCE IN EXCESS OF THE REVOLVING
CREDIT BORROWING AVAILABILITY SHALL CONSTITUTE AN AUTOMATIC DEFAULT ENTITLING
AGENT TO EXERCISE ALL RIGHTS AND REMEDIES AVAILABLE TO AGENT UNDER THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR APPLICABLE LAW; PROVIDED, HOWEVER, THAT
PRIOR TO TAKING ANY ACTION IN CONNECTION WITH SUCH AUTOMATIC DEFAULT, AGENT
SHALL PROVIDE BORROWER WITH WRITTEN NOTICE ONE DAY PRIOR TO TAKING SUCH ACTION.
1.12. LOAN ACCOUNT AND ACCOUNTING. AGENT SHALL MAINTAIN A LOAN
ACCOUNT (THE "LOAN ACCOUNT") ON ITS BOOKS TO RECORD: (A) ALL ADVANCES, (B) ALL
PAYMENTS MADE BY BORROWER, AND (C) ALL OTHER DEBITS AND CREDITS AS PROVIDED IN
THIS AGREEMENT WITH RESPECT TO THE LOANS OR ANY OTHER OBLIGATIONS. ALL ENTRIES
IN THE LOAN ACCOUNT SHALL BE MADE IN ACCORDANCE WITH AGENT'S CUSTOMARY
ACCOUNTING PRACTICES AS IN EFFECT FROM TIME TO TIME. THE BALANCE IN THE LOAN
ACCOUNT, AS RECORDED ON AGENT'S MOST RECENT PRINTOUT OR OTHER WRITTEN STATEMENT,
SHALL BE PRESUMPTIVE EVIDENCE OF THE AMOUNTS DUE AND OWING TO AGENT AND LENDERS
BY BORROWER; PROVIDED, THAT ANY FAILURE TO SO RECORD OR ANY ERROR IN SO
RECORDING SHALL NOT LIMIT OR OTHERWISE AFFECT BORROWER'S DUTY TO PAY THE
OBLIGATIONS. AGENT SHALL RENDER TO BORROWER A MONTHLY ACCOUNTING OF TRANSACTIONS
WITH RESPECT TO THE LOANS SETTING FORTH THE BALANCE OF THE LOAN ACCOUNT. UNLESS
BORROWER NOTIFIES AGENT IN WRITING OF ANY OBJECTION TO ANY SUCH ACCOUNT
(SPECIFICALLY DESCRIBING THE BASIS FOR SUCH OBJECTION), WITHIN NINETY (90) DAYS
AFTER THE DATE THEREOF, EACH AND EVERY SUCH ACCOUNTING SHALL (ABSENT MANIFEST
ERROR) BE DEEMED FINAL, BINDING AND CONCLUSIVE UPON BORROWER IN ALL RESPECTS AS
TO ALL MATTERS REFLECTED THEREIN UNLESS BORROWER, WITHIN NINETY (90) DAYS AFTER
THE DATE ANY SUCH ACCOUNTING IS RENDERED, SHALL NOTIFY AGENT IN WRITING OF ANY
OBJECTION WHICH BORROWER MAY HAVE TO ANY SUCH ACCOUNTING, DESCRIBING THE BASIS
FOR SUCH OBJECTION WITH SPECIFICITY. IN THAT EVENT, ONLY THOSE ITEMS EXPRESSLY
OBJECTED TO IN SUCH NOTICE SHALL BE DEEMED TO BE DISPUTED BY BORROWER. AGENT'S
DETERMINATION, BASED UPON THE FACTS AVAILABLE, OF ANY ITEM OBJECTED TO BY
BORROWER IN SUCH NOTICE SHALL (ABSENT MANIFEST ERROR) BE FINAL, BINDING AND
CONCLUSIVE ON BORROWER, UNLESS BORROWER SHALL, AT BORROWER'S EXPENSE, REQUEST
AGENT'S INDEPENDENT AUDITOR TO RESOLVE SUCH OBJECTION WITHIN THIRTY (30) DAYS
FOLLOWING AGENT'S NOTIFICATION TO BORROWER OF SUCH DETERMINATION, IN WHICH EVENT
THE RESOLUTION BY AGENT'S INDEPENDENT AUDITOR SHALL BE FINAL, CONCLUSIVE AND
BINDING.
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1.13. INDEMNITY.
(a) Borrower shall indemnify and hold Agent, each Lender
and the Affiliates, officers, directors, employees, attorneys and agents of
Agent and each Lender (each, an "Indemnified Person"), harmless from and against
any and all suits, actions, costs, fines, deficiencies, penalties, proceedings,
claims, damages, losses, liabilities and expenses (including, but not limited
to, reasonable attorneys' fees and disbursements and other costs of
investigations or defense, including those incurred upon any appeal) (each, a
"Claim") which may be instituted or asserted against or incurred by such
Indemnified Person as the result of credit having been extended under this
Agreement and the other Loan Documents or in connection with or arising out of
the transactions contemplated hereunder and thereunder, including, without
limitation, any and all Environmental Liabilities and Costs; PROVIDED, that
Borrower shall not be liable for any indemnification to such Indemnified Person
to the extent that any such Claim results from such Indemnified Person's gross
negligence or willful misconduct. NEITHER AGENT, ANY LENDER NOR ANY OTHER
INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS OR AS A
RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) In any suit, proceeding or action brought by Agent or
any Lender relating to any Account, Chattel Paper, Contract, Equipment, General
Intangible, Instrument or Document or any other Collateral for any sum owing
thereunder, or to enforce any provision of any Account, Chattel Paper, Contract,
General Intangible, Instrument, or Document, Borrower shall save, indemnify and
keep Agent or such Lender harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or reduction
of liability whatsoever of the obligor thereunder arising out of a breach by
Borrower of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to, or in favor of, such obligor or
its successors from Borrower, all such obligations of Borrower shall be and
remain enforceable against, and only against, Borrower and shall not be
enforceable against Agent or any Lender.
(c) Borrower hereby acknowledges and agrees that neither
Agent nor any Lender (i) is now, or has ever been, in control of any of the
Subject Property or the affairs of Borrower or any Subsidiary of Borrower, and
(ii) has the capacity through the provisions of the Loan Documents to influence
Borrower's or any such Subsidiary's conduct with respect to the ownership,
operation or management of any of the Subject Property.
(d) Borrower, for itself and on behalf of its successors
and assigns, hereby waives, releases and forever discharges any now existing or
hereafter created or arising right or claim against Agent and each Lender and
their assigns for contribution, reimbursement, indemnity or other similar rights
against Agent or any Lender or their respective assigns in any
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way related to the use, storage, disposal, treatment or presence of any
Hazardous Materials on, in or about the Subject Property, including any right to
contribution that may exist in Borrower's favor pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601
et seq., or any other similar law, statute or regulation under any applicable
Federal or State law, or under any common law theory.
(e) To induce Lenders to provide the LIBOR Rate option on
the terms provided herein, if (i) any LIBOR Advances are repaid in whole or in
part prior to the last day of any applicable LIBOR Period (whether that
repayment is made pursuant to any provision of this Agreement or any other Loan
Document or is the result of acceleration, by operation of law or otherwise);
(ii) Borrower shall default in payment when due of the principal amount of or
interest on any LIBOR Advances; (iii) Borrower shall default in making any
borrowing of, conversion into or continuation of LIBOR Advances after Borrower
has given notice requesting the same in accordance herewith; or (iv) Borrower
shall fail to make any prepayment of a LIBOR Advance after Borrower has given
notice thereof in accordance herewith, Borrower shall indemnify and hold
harmless each Lender from and against all losses, costs and expenses resulting
from or arising from any of the foregoing. Such indemnification shall include
any loss (including loss of margin) or expense arising from such reemployment of
funds obtained by it or from fees payable to terminate deposits from which such
funds were obtained. For the purpose of calculating amounts payable to a Lender
under this Subsection, each Lender shall be deemed to have actually funded its
relevant LIBOR Advances through the purchase of a deposit bearing interest at
the LIBOR Rate in an amount equal to the amount of that LIBOR Advance and having
a maturing comparable to the relevant Interest Period; PROVIDED, HOWEVER, that
each Lender may fund each of its LIBOR Advances in any manner it sees fit, and
the foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. This covenant shall survive the termination of
this Agreement and the payment of the Revolving Credit Notes and all other
amounts payable hereunder. As promptly as practicable under the circumstances,
each Lender shall provide Borrower with its written calculation of all amounts
payable pursuant to this SECTION 1.13(E) and such calculation shall be binding
on the parties hereto unless Borrower shall object in writing within twenty (20)
Business Days of receipt thereof, specifying the basis for such objection in
detail.
(f) The indemnification in this SECTION 1.13 shall survive
termination of this Agreement and the other Loan Documents executed in
connection herewith as well as payment of the Notes.
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1.14. ACCESS. BORROWER SHALL, AND SHALL CAUSE EACH OF ITS
SUBSIDIARIES TO: (I) PROVIDE ACCESS DURING NORMAL BUSINESS HOURS TO AGENT AND
ANY OF ITS OFFICERS, EMPLOYEES AND AGENTS, AS FREQUENTLY AS AGENT DETERMINES TO
BE APPROPRIATE, UPON ADVANCE NOTICE (UNLESS A DEFAULT SHALL HAVE OCCURRED AND BE
CONTINUING, IN WHICH EVENT NO NOTICE SHALL BE REQUIRED AND AGENT SHALL HAVE
ACCESS AT ANY AND ALL TIMES), TO THE PROPERTIES AND FACILITIES OF BORROWER OR
ANY OF ITS SUBSIDIARIES; (II) PERMIT AGENT AND ANY OF ITS OFFICERS, EMPLOYEES
AND AGENTS TO INSPECT, AUDIT AND MAKE EXTRACTS FROM ALL OF BORROWER'S RECORDS,
FILES AND BOOKS OF ACCOUNT INCLUDING, WITHOUT LIMITATION, MANAGEMENT LETTERS
PREPARED BY INDEPENDENT ACCOUNTANTS; AND (III) PERMIT AGENT TO INSPECT, REVIEW,
EVALUATE AND VERIFY, FROM TIME TO TIME, AT AGENT'S DISCRETION, THE AMOUNT,
QUANTITY, VALUE OR CONDITION OF, OR ANY OTHER MATTER RELATING TO, THE COLLATERAL
AND THE RECORDS THEREOF OF BORROWER AND ITS SUBSIDIARIES AT BORROWER'S OR ANY
SUBSIDIARY'S LOCATIONS AND AT PREMISES NOT OWNED BY OR LEASED TO BORROWER OR
SUCH SUBSIDIARY, AND BORROWER AGREES TO RENDER TO AGENT, AT BORROWER'S COST AND
EXPENSE, SUCH CLERICAL AND OTHER ASSISTANCE AS MAY BE REASONABLY REQUESTED WITH
REGARD THERETO. BORROWER SHALL, AND SHALL CAUSE EACH OF ITS SUBSIDIARIES TO,
MAKE AVAILABLE TO AGENT AND ITS COUNSEL, AS QUICKLY AS PRACTICABLE UNDER THE
CIRCUMSTANCES, ORIGINALS OR COPIES OF ALL BOOKS, RECORDS, BOARD MINUTES,
CONTRACTS, INSURANCE POLICIES, ENVIRONMENTAL AUDITS, BUSINESS PLANS, FILES,
FINANCIAL STATEMENTS (ACTUAL AND PRO FORMA), FILINGS WITH FEDERAL, STATE AND
LOCAL REGULATORY AGENCIES, AND OTHER INSTRUMENTS AND DOCUMENTS WHICH AGENT MAY
REASONABLY REQUEST. AGENT SHALL HAVE THE RIGHT TO DISCUSS BORROWER AND ITS
SUBSIDIARIES' BUSINESS, ASSETS, LIABILITIES, FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND BUSINESS PROSPECTS INSOFAR AS THE SAME ARE REASONABLY RELATED TO
THE RIGHTS OF AGENT HEREUNDER AND UNDER ANY OF THE OTHER LOAN DOCUMENTS, WITH
BORROWER AND ITS SUBSIDIARIES. BORROWER SHALL DELIVER ANY DOCUMENT OR INSTRUMENT
REASONABLY NECESSARY FOR AGENT, AS IT MAY FROM TIME TO TIME REQUEST, TO OBTAIN
RECORDS FROM ANY SERVICE BUREAU OR OTHER PERSON WHICH MAINTAINS RECORDS FOR
BORROWER, AND SHALL MAINTAIN DUPLICATE RECORDS OR SUPPORTING DOCUMENTATION ON
MEDIA, INCLUDING, WITHOUT LIMITATION, COMPUTER TAPES AND DISCS OWNED BY
BORROWER. BORROWER SHALL INSTRUCT ITS CERTIFIED PUBLIC ACCOUNTANTS AND ITS
BANKING AND OTHER FINANCIAL INSTITUTIONS TO MAKE AVAILABLE TO AGENT SUCH
INFORMATION AND RECORDS AS AGENT MAY REASONABLY REQUEST.
1.15. TAXES.
(a) Any and all payments by or on behalf of Borrower
hereunder, in connection with the Loans or under the Revolving Credit Note, the
Letter of Credit Obligations, or any other Loan Document, shall be made, in
accordance with this SECTION 1.15, free and clear of and without deduction for
any and all present or future Taxes. If Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under the
Revolving Credit Note, the Letter of Credit Obligations, or any other Loan
Document to Agent for the account of Lenders, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this SECTION
1.15) Lenders receive an amount equal to the sum they would have received had no
such deductions been made, (ii) Borrower shall make such deductions, and (iii)
Borrower shall pay the full amount deducted to the relevant taxing or other
authority in accordance with applicable law.
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(b) Borrower shall indemnify and pay Agent for the account
of the Lenders, within ten (10) days of demand therefor, for the full amount of
Taxes (including, without limitation, any Taxes imposed by any jurisdiction on
amounts payable under this SECTION 1.15 paid by Agent or any Lender and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto, whether or not such Taxes were correctly or legally asserted
PROVIDED, HOWEVER, that Agent and any such Lender shall reasonably cooperate
with Borrower in connection with the contesting by Borrower of such amounts.
(c) Within thirty (30) days of Agent's reasonable request
therefor, Borrower shall furnish to Agent, at its address referred to in SECTION
11.8, the original or a certified copy of a receipt evidencing payment thereof
of any material Taxes.
(d) Each Lender organized under the laws of a jurisdiction
outside the United States (a "Foreign Lender") as to which payments to be made
under this Agreement or under the Revolving Credit Notes are exempt from United
States withholding tax under an applicable statute or tax treaty shall provide
to Borrower and Agent a properly completed and executed Internal Revenue Service
Form 4224 or Form 1001 or other applicable form, certificate or document
prescribed by the Internal Revenue Service or the United States certifying as to
such Foreign Lender's entitlement to such exemption ( a "Certificate of
Exemption"). Any foreign Person that seeks to become a Lender under this
Agreement shall provide a Certificate of Exemption to Borrower and Agent prior
to becoming a Lender hereunder. No foreign Person may become a Lender hereunder
if such Person is unable to deliver a Certificate of Exemption.
1.16. CAPITAL ADEQUACY; INCREASED COSTS;.
(a) If any Lender shall have determined that the adoption
after the date hereof of any law, treaty, governmental (or quasi-governmental)
rule, regulation, guideline or order regarding capital adequacy, reserve
requirements or similar requirements or compliance by any Lender with any
request or directive regarding capital adequacy, reserve requirements or similar
requirements (whether or not having the force of law) from any central bank or
other Governmental Authority increases or would have the effect of increasing
the amount of capital, reserves or other funds required to be maintained by such
Lender and thereby reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder, then Borrower shall from time to time
upon demand by such Lender (with a copy of such demand to Agent) pay to Agent,
for the account of such Lender, additional amounts sufficient to compensate such
Lender for such reduction. A certificate as to the amount of that reduction and
showing the basis of the computation thereof submitted by such Lender to
Borrower and to Agent shall, absent manifest error, be final, conclusive and
binding for all purposes.
(b) If, due to either (i) the introduction of or any
change in any law or regulation (or any change in the interpretation thereof) or
(ii) the compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to any Lender of agreeing to make or making, funding,
or maintaining any Loan, then Borrower shall from time to time, upon demand by
such Lender (with a copy of such demand to Agent), pay to Agent for the account
of such
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Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost, submitted
to Borrower and to Agent by such Lender, shall be conclusive and binding on
Borrower for all purposes, absent manifest error. Each Lender agrees that, as
promptly as practicable after it becomes aware of any circumstances referred to
above which would result in any such increased cost, the affected Lender shall,
to the extent not inconsistent with such Lender's internal policies of general
application, use reasonable commercial efforts to minimize costs and expenses
incurred by it and payable to it by Borrowers pursuant to this SECTION 1.16.
(c) Notwithstanding anything to the contrary contained
herein, if the introduction of or any change in any law or regulation (or any
change in the interpretation thereof) shall make it unlawful, or any central
bank or other Governmental Authority shall assert that it is unlawful, for any
Lender to agree to make or to make or to continue to fund or maintain any LIBOR
Advance, then, unless that Lender is able to make or to continue to fund or to
maintain such LIBOR Advance at another branch or office of that Lender without,
in that Lender's opinion, adversely affecting it or its Loans or the income
obtained therefrom, on notice thereof and demand therefor by such Lender to
Borrower through Agent, (i) the obligation of such Lender to agree to make or to
make or to continue to fund or maintain LIBOR Advances shall terminate and (ii)
Borrower shall forthwith prepay in full all outstanding LIBOR Advances owing by
Borrower to such Lender, together with interest accrued thereon, UNLESS
Borrower, within five (5) Business Days after the delivery of such notice and
demand, converts all such Loans into a Loan bearing interest based on the Prime
Rate Option.
(d) Replacement of Lender in Respect of Increased Costs.
Within fifteen (15) days after receipt by Borrower of written notice and demand
from any Lender (an "Affected Lender") for payment of additional amounts or
increased costs as provided in this SECTION 1.16, Borrower may, at its option,
notify Agent and such Affected Lender of its intention to replace the Affected
Lender. So long as no Default or Event of Default shall have occurred and be
continuing, Borrower, with the consent of Agent, may obtain, at Borrower's
expense, a replacement Lender ("Replacement Lender") for the Affected Lender,
which Replacement Lender must be satisfactory to Agent. If Borrower obtains a
Replacement Lender within ninety (90) days following notice of its intention to
do so, the Affected Lender must sell and assign its Loans and Commitments to
such Replacement Lender for an amount equal to the principal balance of all
Loans held by the Affected Lender and all accrued interest and Fees with respect
thereto through the date of such sale, provided that Borrower shall have
reimbursed such Affected Lender for the additional amounts or increased costs
that it is entitled to receive under this Agreement through the date of such
sale and assignment.
Notwithstanding the foregoing, Borrower shall not have the right to obtain a
Replacement Lender if the Affected Lender rescinds its demand for increased
costs or additional amounts within fifteen (15) days following its receipt of
Borrower's notice of intention to replace such Affected Lender. Furthermore, if
Borrower gives a notice of intention to replace and does not so replace such
Affected Lender within ninety (90) days thereafter, Borrower's rights under this
SECTION 1.16 shall terminate and Borrower shall promptly pay all increased costs
or additional amounts demanded by such Affected Lender pursuant to SECTIONS
1.15(A), 1.16(A) and 1.16(B).
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1.2. CONDITIONS PRECEDENT.
2.1. CONDITIONS TO THE INITIAL ADVANCE AND EXTENSION OF THE LOANS
AND THE INITIAL LETTER OF CREDIT OBLIGATIONS. NOTWITHSTANDING ANY OTHER
PROVISION OF THIS AGREEMENT AND WITHOUT AFFECTING IN ANY MANNER THE RIGHTS OF
LENDERS HEREUNDER, BORROWER SHALL HAVE NO RIGHTS UNDER THIS AGREEMENT (BUT SHALL
HAVE ALL APPLICABLE OBLIGATIONS HEREUNDER), AND LENDERS SHALL NOT BE OBLIGATED
TO MAKE THE LOANS OR ANY ADVANCES THEREOF TO INCUR LETTER OF CREDIT OBLIGATIONS,
IF ANY, OR TO TAKE, FULFILL, OR PERFORM ANY OTHER ACTION HEREUNDER, UNTIL THE
FOLLOWING CONDITIONS HAVE BEEN SATISFIED, IN AGENT'S SOLE DISCRETION, OR WAIVED
IN WRITING BY AGENT:
(a) the Closing Date shall have occurred and this
Agreement or counterparts hereof shall have been duly executed by, and delivered
to, Borrower, Agent and Lenders;
(b) Agent shall have received such documents, instruments
and agreements as it shall request in connection with the transactions
contemplated by this Agreement, including, without limitation, all documents,
instruments, agreements, listed in the Schedule of Documents, each in form and
substance satisfactory to Agent;
(c) all due diligence with respect to (A) this Agreement,
the other Loan Documents and the transactions contemplated herein and thereby,
as well as (B) the Related Transactions shall have been completed in a manner
satisfactory to Agent, and all issues raised by such due diligence shall have
been resolved to Agent's satisfaction;
(d) Agent shall have received evidence satisfactory to
Agent that Borrower has obtained consents and acknowledgments of all Persons
whose consents and acknowledgments may be required, including, without
limitation, all requisite Governmental Authorities, with respect to the terms,
and for the execution and delivery of this Agreement, the other Loan Documents,
the Related Transactions Documents and the consummation of the transactions
contemplated hereby and thereby;
(e) Agent shall have received evidence satisfactory to
Agent that the insurance policies provided for in SECTION 3.19 and Schedule 3.19
are in full force and effect, together with appropriate evidence showing loss
payable or additional insured clauses or endorsements, as appropriate, in favor
of Agent on behalf of Lenders and in form and substance satisfactory to Agent;
(f) Agent shall have received evidence satisfactory to
Agent that Lenders have a valid and perfected first priority security interest
as of the Closing Date in all of the Collateral, subject only to Permitted
Liens;
(g) payment by Borrower of all Fees, costs, and expenses
due on the Closing Date (including fees of consultants and counsel to Agent
presented as of the Closing
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Date) including, without limitation, those set forth in SECTION 1.9
hereof and in the GE Capital Fee Letter;
(h) no action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of (i) this
Agreement or any of the other Loan Documents, or (ii) any of the Related
Transactions, or the consummation of the transactions contemplated hereby or
thereby and which, in Agent's sole judgment, would have a Material Adverse
Effect on Borrower or materially impair the ability of Borrower or any party to
the other Loan Documents to perform their obligations hereunder or thereunder;
(i) Agent shall have received (i) Borrower's unaudited
financial statements for the Fiscal Month ending July 31,1997 (or if the Closing
Date occurs after September 30, 1997 such statements for the Fiscal Month ending
August 31, 1997) accompanied by those additional documents required by SECTION
4.1(C) hereof and (ii) a proforma consolidated balance sheet of BTITC and its
Subsidiaries as of the Closing Date, based upon the latest available financial
statements of Borrower and FiberSouth and prepared after giving effect to the
Related Transactions, together with the consolidating balance sheets of Borrower
and FiberSouth used in preparing such consolidated balance sheet;
(j) since December 31, 1996, no event has occurred which
would have a Material Adverse Effect;
(k) as of the Closing Date, (i) BTITC shall have received
at least $240.0 million in cash (in escrow, if applicable) from the Note
Offering; (ii) the terms of all other debt of BTITC, Borrower, and each
Subsidiary of Borrower shall be acceptable to Agent (including, without
limitation, terms governing the subordination of such to the Loans to be made
pursuant to this Agreement); (iii) all obligations of Borrower and each
Subsidiary of Borrower under or in respect of the Revolving Credit Facility and
all liens granted to Agent to secure such obligations must constitute permitted
indebtedness and permitted senior liens, as applicable, under the terms of any
and all indebtedness of BTITC and (iv) the agent shall have received copies of
the documents relating to the BTITC Senior Notes certified as true and correct
by an authorized officer of Borrower and such documents shall be in full force
and effect;
(l) Definitive documents with respect to the FiberSouth
Acquisition shall have been executed and delivered by the parties thereto which
shall provide that the aggregate purchase price shall be an amount no greater
than $38.5 million, and the aggregate fees and closing costs associated with the
consummation of the FiberSouth Acquisition, and which shall contain such other
terms and conditions acceptable to Agent in its sole discretion, including,
without limitation, the establishment of a separate bank account of Borrower
(the "FiberSouth Account") to be used solely for (i) receipt of that portion of
the proceeds of the Note Offering to be used for consummation of the FiberSouth
Acquisition, and (ii) payment and satisfaction of Borrower's and BTITC's
obligations in connection with the FiberSouth Acquisition;
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(m) Agent shall have received copies of the final
indenture issued in connection with the Note Offering in form and substance
satisfactory to Agent;
(n) Agent shall have received copies of the final Offering
Memorandum relating to the Note Offering, and the terms and conditions of such
final Offering Memorandum, together with the form thereof, shall be in form and
substance satisfactory to Agent;
(o) the aggregate purchase price for the Stock Purchase
shall be an amount no greater than $30 million (as reflected in the final
determination of the representative appointed by the parties), and any terms and
conditions thereto (other than those contained in the Stock Purchase Option and
Put Option Agreement, dated July 2, 1992) shall be evidenced by an executed
agreement relating thereto, in form and substance acceptable to Agent;
(p) Agent shall be satisfied regarding the availability of
enforceable remedies related to the pledge of Borrower's Stock by BTITC pursuant
to the BTITC Pledge Agreement and shall have received an opinion of Borrower's
regulatory counsel addressed to Agent and the Lenders, in form and substance
acceptable to Agent, with respect to the availability of certain remedies
contained in the BTITC Pledge Agreement;
(q) if the BTITC Application remains pending as of the
Closing Date, Agent shall be satisfied as to the status of such BTITC
Application, as well as the information provided by Borrower, BTITC and their
counsel regarding such status and their reasoned opinion as to the timing and
likely outcome of such BTITC Application;
(r) any obligations of Borrower, whether to BTITC or any
other Person, arising from or relating to Borrower's receipt of any of the
proceeds of the Note Offering, shall be subordinated to Borrower's obligations
to Agent and Lenders pursuant to the Revolving Credit Facility, except for the
Special Redemption Obligation.
(s) Agent shall have received evidence satisfactory to
Agent that Borrower has obtained all (A) necessary and appropriate general and
collateral releases from prior lenders, (B) customary corporate and estoppel
certificates, (C) material landlord/mortgagee/bailee waivers and (D) consignment
or similar filings with respect to the Collateral;
(t) Agent shall have received satisfactory opinions of
counsel from Borrower's and BTITC's respective counsel (including local or
special regulatory counsel as requested), in form and substance reasonably
satisfactory to Agent;
(u) Agent shall have received a Solvency Certificate,
dated as of the Closing Date and executed by an Officer of Borrower;
(v) Agent shall have received, with respect to any owned
real estate Collateral of Borrower, in amount, form and from an issuer
satisfactory to Agent, title insurance policies with respect to such real estate
Collateral of Borrower; and
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(w) Agent shall have received information and analyses
from Borrower's tax, legal and financial advisors which demonstrate, to Agent's
satisfaction, that neither (a) the conversion of Borrower from a "Subchapter S"
to a "C" corporation, nor (b) the FiberSouth Acquisition, will result in
negative tax consequences (including, without limitation, payment of additional
taxes, penalties or interest) to any of the shareholders of Borrower or
FiberSouth which will, or is proposed to be, funded by any direct or indirect
payments (other than normal compensation within any applicable limitations
pursuant to this Agreement) by Borrower.
2.2 FURTHER CONDITIONS TO EACH ADVANCE AND EACH LETTER OF CREDIT
OBLIGATION. IT SHALL BE A FURTHER CONDITION TO THE FUNDING OF THE LOANS AND EACH
ADVANCE THEREOF AND THE INCURRENCE OF THE INITIAL AND EACH SUBSEQUENT LETTER OF
CREDIT OBLIGATION, IF ANY, THAT THE FOLLOWING STATEMENTS SHALL BE TRUE ON THE
DATE OF EACH SUCH FUNDING, ADVANCE OR INCURRENCE, AS THE CASE MAY BE:
(a) all of Borrower's representations and warranties
contained herein or in any of the other Loan Documents shall be true and correct
on and as of the Closing Date and the date on which each such Revolving Credit
Advance is made or Letter of Credit Obligation, if any, is incurred, as though
made or incurred on and as of such date, except to the extent that any such
representation or warranty expressly relates solely to an earlier date and
except for changes therein permitted or contemplated by this Agreement;
(b) no event shall have occurred and be continuing, or
would result from the making of any Revolving Credit Advance or the incurrence
of any Letter of Credit Obligation, as the case may be, which constitutes a
Default or an Event of Default; and
(c) each of the conditions set forth in SECTION 2.1(A)
THROUGH (K) shall continue to be satisfied by Borrower as of such date.
The request and acceptance by Borrower of the proceeds of any
Revolving Credit Advance and the request by Borrower for the incurrence by
Lenders of Letter of Credit Obligations, as the case may be, shall be deemed to
constitute, as of the date of such request or acceptance, (i) a representation
and warranty by Borrower that the conditions in this SECTION 2.2 have been
satisfied, and (ii) a confirmation by Borrower of the granting and continuance
of Lenders' Liens pursuant to the Security Agreement and the other Collateral
Documents.
2.3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans, each advance thereof, and to
incur Letter of Credit Obligations, in each case as herein provided for,
Borrower makes the following representations and warranties to Agent and to
Lenders, each and all of which shall be true and correct as of the date of
execution and delivery of this Agreement and shall give effect to the
consummation of the transactions contemplated by (i) the FiberSouth Acquisition,
(ii) the Note Offering and (iii) the Stock Purchase, and shall survive the
execution and delivery of this Agreement:
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3.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. BORROWER, BTITC AND
EACH SUBSIDIARY OF BORROWER: (A) IS A CORPORATION DULY ORGANIZED, VALIDLY
EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE JURISDICTION OF ITS
INCORPORATION AND IS DULY QUALIFIED TO DO BUSINESS AND IS IN GOOD STANDING IN
EACH OTHER JURISDICTION WHERE ITS OWNERSHIP OR LEASE OF PROPERTY OR THE CONDUCT
OF ITS BUSINESS REQUIRES SUCH QUALIFICATION, EXCEPT WHERE THE FAILURE TO BE SO
QUALIFIED WOULD NOT HAVE A MATERIAL ADVERSE EFFECT, AND BORROWER SHALL GIVE
AGENT PROMPT NOTICE OF ANY ADDITIONAL JURISDICTIONS IN WHICH BORROWER, BTITC, OR
ANY SUBSIDIARY OF BORROWER BECOMES QUALIFIED TO DO BUSINESS AFTER THE CLOSING
DATE; (B) HAS THE REQUISITE CORPORATE POWER AND AUTHORITY AND THE LEGAL RIGHT TO
OWN, PLEDGE, MORTGAGE OR OTHERWISE ENCUMBER AND OPERATE ITS PROPERTIES, TO LEASE
THE PROPERTY IT OPERATES UNDER LEASE, AND TO CONDUCT ITS BUSINESS AS NOW,
HERETOFORE AND PROPOSED TO BE CONDUCTED; (C) HAS ALL MATERIAL LICENSES, PERMITS,
CONSENTS OR APPROVALS FROM OR BY, AND HAS MADE ALL FILINGS WITH, AND HAS GIVEN
ALL NOTICES TO, ALL FEDERAL AND STATE AUTHORITIES HAVING JURISDICTION, TO THE
EXTENT REQUIRED FOR SUCH OWNERSHIP, OPERATION AND CONDUCT; (D) HAS ALL LICENSES,
PERMITS, CONSENTS OR APPROVALS FROM OR BY, AND HAS MADE ALL FILINGS WITH, AND
HAS GIVEN ALL NOTICES TO, ALL LOCAL AND MUNICIPAL AUTHORITIES HAVING
JURISDICTION, TO THE EXTENT REQUIRED FOR SUCH OWNERSHIP, OPERATION AND CONDUCT,
EXCEPT WHERE THE FAILURE TO OBTAIN SUCH LICENCES, PERMITS, CONSENTS OR
APPROVALS, MAKE SUCH FILINGS OR GIVE SUCH NOTICES WOULD NOT HAVE A MATERIAL
ADVERSE EFFECT; (E) IS IN COMPLIANCE WITH ITS CERTIFICATE OR ARTICLES OF
INCORPORATION AND BY-LAWS; AND (F) IS IN COMPLIANCE WITH ALL APPLICABLE
PROVISIONS OF LAW WHERE THE FAILURE TO COMPLY WOULD HAVE OR RESULT IN A MATERIAL
ADVERSE EFFECT.
3.2 LOCATIONS AND CORPORATE OR OTHER NAMES. THE CURRENT LOCATIONS
OF BORROWER'S EXECUTIVE OFFICES, PRINCIPAL PLACES OF BUSINESS, CORPORATE
OFFICES, ALL WAREHOUSES AND PREMISES WITHIN WHICH ANY COLLATERAL HAVING AN
AGGREGATE FAIR MARKET VALUE OF $25,000 OR MORE IS STORED OR LOCATED AND THE
LOCATION OF ALL OF ITS RECORDS CONCERNING THE COLLATERAL ARE SET FORTH IN
SCHEDULE 3.2, AND, EXCEPT AS SET FORTH IN SCHEDULE 3.2, SUCH LOCATION HAS NOT
CHANGED DURING THE PRECEDING TWELVE (12) MONTHS. DURING THE PRIOR FIVE (5)
YEARS, EXCEPT AS SET FORTH IN SCHEDULE 3.2, NEITHER BORROWER NOR ANY OF ITS
SUBSIDIARIES HAS BEEN KNOWN AS OR USED ANY CORPORATE, FICTITIOUS OR TRADE NAME.
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3.3 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. THE
EXECUTION, DELIVERY AND PERFORMANCE BY BORROWER, BTITC AND EACH SUBSIDIARY OF
BORROWER OF THE LOAN DOCUMENTS AND ALL INSTRUMENTS AND DOCUMENTS TO BE DELIVERED
BY BORROWER, TO THE EXTENT IT IS A PARTY THERETO, HEREUNDER AND THEREUNDER, AND
THE CREATION OF ALL LIENS PROVIDED FOR HEREIN AND THEREIN: (A) ARE WITHIN SUCH
PERSON'S CORPORATE POWER; (B) HAVE BEEN DULY AUTHORIZED BY ALL NECESSARY OR
PROPER CORPORATE AND SHAREHOLDER ACTION; (C) ARE NOT IN CONTRAVENTION OF ANY
PROVISION OF SUCH PERSON'S CERTIFICATES OR ARTICLES OF INCORPORATION OR BY-LAWS;
WILL NOT VIOLATE ANY LAW OR REGULATION, OR ANY ORDER OR DECREE OF ANY COURT OR
GOVERNMENTAL INSTRUMENTALITY; (E) WILL NOT CONFLICT WITH OR RESULT IN THE BREACH
OR TERMINATION OF, CONSTITUTE A DEFAULT UNDER OR ACCELERATE ANY PERFORMANCE
REQUIRED BY, ANY INDENTURE, MORTGAGE, DEED OF TRUST, LEASE, AGREEMENT OR OTHER
INSTRUMENT TO WHICH SUCH PERSON IS A PARTY OR BY WHICH SUCH PERSON OR ANY OF ITS
PROPERTY IS BOUND; (F) WILL NOT RESULT IN THE CREATION OR IMPOSITION OF ANY LIEN
UPON ANY OF THE PROPERTY OF BORROWER OTHER THAN THOSE IN FAVOR OF LENDERS, ALL
PURSUANT TO THE LOAN DOCUMENTS; AND (G) DO NOT REQUIRE THE CONSENT OR APPROVAL
OF ANY GOVERNMENTAL AUTHORITY OR ANY OTHER PERSON, EXCEPT THOSE REFERRED TO IN
Section 2.1(d), ALL OF WHICH WILL HAVE BEEN DULY OBTAINED, MADE OR COMPLIED WITH
PRIOR TO THE CLOSING DATE. AT OR PRIOR TO THE CLOSING DATE, EACH OF THE LOAN
DOCUMENTS SHALL HAVE BEEN DULY EXECUTED AND DELIVERED FOR THE BENEFIT OF OR ON
BEHALF OF BORROWER AND EACH SHALL THEN CONSTITUTE A LEGAL, VALID AND BINDING
OBLIGATION OF BORROWER, TO THE EXTENT IT IS A PARTY THERETO, ENFORCEABLE AGAINST
IT IN ACCORDANCE WITH ITS TERMS.
3.4 FINANCIAL STATEMETNS AND PROJECTIONS. BORROWER HAS DELIVERED
THE FINANCIAL STATEMENTS AND PROJECTIONS IDENTIFIED IN SCHEDULE 3.4, AND EACH
SUCH FINANCIAL STATEMENT COMPLIES WITH THE DESCRIPTION THEREOF CONTAINED IN
SCHEDULE 3.4. BORROWER HAS PREPARED AND WILL PREPARE THE PROJECTIONS WITH CARE
AND DILIGENCE, AND BASED UPON ASSUMPTIONS WHICH ARE REASONABLE, AND ALL OF WHICH
ASSUMPTIONS HAVE BEEN DISCLOSED AS PART OF THE PROJECTIONS.
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3.5 MATERIAL ADVERSE CHANGE. NEITHER BORROWER, BTITC NOR ANY
SUBSIDIARY OF BORROWER AS OF THE CLOSING DATE HAD ANY OBLIGATIONS, CONTINGENT
LIABILITIES, OR LIABILITIES FOR CHARGES, LONG-TERM LEASES OR UNUSUAL FORWARD OR
LONG-TERM COMMITMENTS WHICH ARE NOT REFLECTED IN THE BALANCE SHEETS OF BORROWER
REFERRED TO IN Section 3.4 AND WHICH COULD, ALONE OR IN THE AGGREGATE, HAVE OR
RESULT IN A MATERIAL ADVERSE EFFECT. THERE HAS BEEN NO MATERIAL DEVIATION FROM
THE PROJECTIONS REGARDING BORROWER'S BUSINESS DATED SEPTEMBER 16, 1997 AND
PROVIDED TO AGENT. SINCE DECEMBER 31, 1996, NO EVENT HAS OCCURRED WHICH WOULD
RESULT IN A MATERIAL ADVERSE EFFECT.
. 3.6 OWNERSHIP OF SUBJECT PROPERTY; LIENS
(a) Except as described in Schedule 3.6, the real estate
listed in Schedule 3.6 constitutes all of the real property owned by Borrower or
any Subsidiary of Borrower, or leased or used in its business by Borrower and
any Subsidiary of Borrower where the aggregate lease or other usage payments
with respect to such real property equal or exceed $5,000 per month. Borrower
and each Subsidiary of Borrower owns good and marketable fee simple title to all
of its owned real estate, the Collateral and all of its other properties and
assets, and valid and marketable leasehold interests in all of its Leases (both
as lessor and lessee, sublessee or assignee), and none of the real estate, the
Collateral and the other properties and assets of Borrower and such Subsidiary
are subject to any Liens, security interests or other encumbrances except (i)
the Permitted Liens and (ii) from and after the Closing Date, the Lien in favor
of Lenders pursuant to the Security Agreement and the other Collateral
Documents.
(b) Borrower and each Subsidiary of Borrower has received
all deeds, assignments, waivers, consents, non-disturbance and recognition or
similar agreements, bills of sale and other documents, and has duly effected all
recordings, filings and other actions necessary to establish, protect and
perfect its right, title and interest in and to all such real estate, the
Collateral and other assets or property.
(c) Except as described in Schedule 3.6: (i) neither
Borrower nor any other party to any such Lease described in Schedule 3.6 is in
default of its obligations thereunder or has delivered or received any notice of
default under any such Lease, and no event has occurred which, with the giving
of notice, the passage of time, or both, would constitute a default under any
such Lease; (ii) neither Borrower nor any Subsidiary of Borrower owns or holds,
or is obligated under or a party to, any option, right of first refusal or any
other contractual right to purchase, acquire, sell, assign or dispose of any
real property owned or leased by such Person except as set forth therein; and
(iii) no portion of any real property owned or leased by Borrower or any
Subsidiary of Borrower has suffered any material damage by fire or other
casualty loss or a release which has not heretofore been completely repaired and
restored to its original condition or is being remedied. All permits required to
have been issued or appropriate to enable the real property owned or leased by
Borrower or any Subsidiary of Borrower to be lawfully occupied and used for all
of the purposed for which they are currently occupied, and used, have been
lawfully issued and are, as of the date hereof, in full force and effect.
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3.7 RESTRICTIONS; NO DEFAULT. NO CONTRACT, LEASE, AGREEMENT OR
OTHER INSTRUMENT TO WHICH BORROWER OR ANY SUBSIDIARY OF BORROWER IS A PARTY OR
BY WHICH IT OR ANY OF ITS PROPERTIES OR ASSETS IS BOUND OR AFFECTED AND NO
PROVISION OF APPLICABLE LAW OR GOVERNMENTAL REGULATION HAS RESULTED IN A
MATERIAL ADVERSE EFFECT, OR INSOFAR AS BORROWER CAN REASONABLY FORESEE COULD
HAVE OR WILL RESULT IN A MATERIAL ADVERSE EFFECT. NEITHER BORROWER NOR ANY
SUBSIDIARY OF BORROWER IS IN DEFAULT, AND TO BORROWER'S KNOWLEDGE NO THIRD PARTY
IS IN DEFAULT, UNDER OR WITH RESPECT TO ANY CONTRACT, AGREEMENT, LEASE OR OTHER
INSTRUMENT TO WHICH IT IS A PARTY AND WHICH COULD HAVE A MATERIAL ADVERSE
EFFECT. NO DEFAULT OR EVENT OF DEFAULT HAS OCCURRED AND IS CONTINUING WHICH
COULD HAVE A MATERIAL ADVERSE EFFECT.
3.8 LABOR MATTERS. EXCEPT AS SET FORTH IN SCHEDULE 3.8, THERE ARE
NO STRIKES OR OTHER LABOR DISPUTES AGAINST BORROWER OR ANY SUBSIDIARY OF
BORROWER THAT ARE PENDING OR, TO BORROWER'S KNOWLEDGE, THREATENED, WHICH COULD
HAVE OR RESULT IN A MATERIAL ADVERSE EFFECT. HOURS WORKED BY AND PAYMENT MADE TO
EMPLOYEES OF BORROWER HAVE NOT BEEN IN VIOLATION OF THE FAIR LABOR STANDARDS ACT
OR ANY OTHER APPLICABLE LAW DEALING WITH SUCH MATTERS WHICH WOULD HAVE A
MATERIAL ADVERSE EFFECT. ALL PAYMENTS DUE FROM BORROWER ON ACCOUNT OF EMPLOYEE
HEALTH AND WELFARE INSURANCE WHICH COULD HAVE OR RESULT IN A MATERIAL ADVERSE
EFFECT IF NOT PAID HAVE BEEN PAID OR ACCRUED AS A LIABILITY ON THE BOOKS OF
BORROWER. EXCEPT AS SET FORTH IN SCHEDULE 3.8, NEITHER BORROWER NOR ANY
SUBSIDIARY OF BORROWER HAS ANY OBLIGATION UNDER ANY COLLECTIVE BARGAINING
AGREEMENT, MANAGEMENT AGREEMENT, OR ANY EMPLOYMENT AGREEMENT, AND A COPY OF EACH
AGREEMENT LISTED IN SCHEDULE 3.8 HAS BEEN PROVIDED TO AGENT. THERE IS NO
ORGANIZING ACTIVITY INVOLVING BORROWER OR ANY SUBSIDIARY OF BORROWER PENDING OR
THREATENED BY ANY LABOR UNION OR GROUP OF EMPLOYEES. EXCEPT AS SET FORTH IN
SCHEDULE 3.14, THERE ARE NO REPRESENTATION PROCEEDINGS PENDING OR THREATENED
WITH THE NATIONAL LABOR RELATIONS BOARD, AND NO LABOR ORGANIZATION OR GROUP OF
EMPLOYEES OF BORROWER OR ANY SUBSIDIARY OF BORROWER HAS MADE A PENDING DEMAND
FOR RECOGNITION, AND THERE ARE NO COMPLAINTS OR CHARGES AGAINST SUCH PERSON
PENDING OR THREATENED TO BE FILED WITH ANY FEDERAL, STATE, LOCAL OR FOREIGN
COURT, GOVERNMENTAL AGENCY OR ARBITRATOR BASED ON, ARISING OUT OF, IN CONNECTION
WITH, OR OTHERWISE RELATING TO THE EMPLOYMENT OR TERMINATION OF EMPLOYMENT BY
BORROWER OR ANY SUBSIDIARY OF BORROWER.
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3.9 VENTURES, SUBSIDIARIES AND AFFILIATES; OUTSTANDING STOCK AND
INDEBTEDNESS. EXCEPT AS SET FORTH IN SCHEDULE 3.9, BORROWER HAS NO SUBSIDIARIES,
IS NOT ENGAGED IN ANY JOINT VENTURE OR PARTNERSHIP WITH ANY OTHER PERSON, AND IS
NOT AN AFFILIATE OF ANY OTHER PERSON. EXCEPT AS SET FORTH ON SCHEDULE 3.9 AND
OTHER THAN BORROWER, UPON CONSUMMATION OF THE BTITC TRANSACTION, BTITC WILL HAVE
NO SUBSIDIARIES, WILL BE ENGAGED IN NO JOINT VENTURE OR PARTNERSHIP WITH ANY
OTHER PERSON, AND WILL NOT BE AN AFFILIATE OF ANY OTHER PERSON (OTHER THAN
BORROWER). THE STOCK OF BORROWER, BTITC AND EACH SUBSIDIARY OF BORROWER OWNED BY
EACH OF THE STOCKHOLDERS NAMED IN SCHEDULE 3.9 CONSTITUTES ALL OF THE ISSUED AND
OUTSTANDING STOCK OF BORROWER, AND SUCH SUBSIDIARY. EXCEPT AS SET FORTH IN
SCHEDULE 3.9, THERE ARE NO OUTSTANDING RIGHTS TO PURCHASE OPTIONS, WARRANTS OR
SIMILAR RIGHTS OR AGREEMENTS PURSUANT TO WHICH BORROWER, BTITC OR ANY SUBSIDIARY
OF BORROWER MAY BE REQUIRED TO ISSUE OR SELL ANY STOCK OR OTHER EQUITY SECURITY.
EXCEPT AS OTHERWISE PERMITTED HEREUNDER, NO DIVIDENDS, ADVANCES OR OTHER
DISTRIBUTIONS HAVE BEEN DECLARED, PAID OR MADE UPON ANY STOCK OF BORROWER OR
BTITC AND, EXCEPT FOR THE TRANSACTION CONTEMPLATED BY THE STOCK PURCHASE AND
EXCEPT AS SET FORTH IN SCHEDULE 3.9, SINCE DECEMBER 31, 1994, NO SHARES OF STOCK
OF BORROWER OR BTITC HAVE BEEN, OR ARE NOW REQUIRED TO BE, REDEEMED, RETIRED,
PURCHASED OR OTHERWISE ACQUIRED FOR VALUE BY BORROWER OR BTITC. ALL OUTSTANDING
STOCK AND INDEBTEDNESS OF BORROWER, BTITC AND EACH SUBSIDIARY OF BORROWER IS
DESCRIBED IN SCHEDULE 3.9.
3.10 GOVERNMENT REGULATION. NEITHER BORROWER NOR ANY SUBSIDIARY OF
BORROWER (A) IS AN "INVESTMENT COMPANY" OR AN "AFFILIATED PERSON" OF, OR
"PROMOTER" OR "PRINCIPAL UNDERWRITER" FOR, AN "INVESTMENT COMPANY," AS SUCH
TERMS ARE DEFINED IN THE INVESTMENT COMPANY ACT OF 1940 AS AMENDED, OR (B) IS
SUBJECT TO REGULATION UNDER THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, THE
FEDERAL POWER ACT, THE INTERSTATE COMMERCE ACT OR ANY OTHER FEDERAL OR STATE
STATUTE THAT RESTRICTS OR LIMITS SUCH PERSON'S ABILITY TO INCUR INDEBTEDNESS,
PLEDGE ITS ASSETS, OR TO PERFORM ITS OBLIGATIONS HEREUNDER, OR UNDER ANY OTHER
LOAN DOCUMENTS, EXCEPT TO THE EXTENT THE FEDERAL COMMUNICATIONS ACT AND
COMPARABLE STATE STATUTES RELATING TO COMMUNICATIONS PREVENT THE GRANTING OF A
SECURITY INTEREST IN CERTAIN GENERAL INTANGIBLES. THE MAKING OF THE LOANS, ANY
ADVANCES AND THE INCURRENCE OF THE LETTER OF CREDIT OBLIGATIONS, IN EACH CASE BY
AGENT OR LENDERS, THE APPLICATION OF THE PROCEEDS AND REPAYMENT THEREOF BY
BORROWER OR ANY SUBSIDIARY OF BORROWER AND THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS WILL NOT VIOLATE ANY
PROVISION OF ANY SUCH STATUTE OR ANY RULE, REGULATION OR ORDER ISSUED BY THE
SECURITIES AND EXCHANGE COMMISSION.
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3.11 MARGIN REGULATIONS. NEITHER BORROWER NOR ANY SUBSIDIARY OF
BORROWER OWNS ANY "MARGIN SECURITY," AS THAT TERM IS DEFINED IN REGULATIONS G
AND U OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (THE "FEDERAL
RESERVE BOARD"), AND NONE OF THE PROCEEDS OF THE REVOLVING CREDIT ADVANCES WILL
BE USED DIRECTLY OR INDIRECTLY, FOR THE PURPOSE OF PURCHASING OR CARRYING ANY
MARGIN SECURITY, FOR THE PURPOSE OF REDUCING OR RETIRING ANY INDEBTEDNESS WHICH
WAS ORIGINALLY INCURRED TO PURCHASE OR CARRY ANY MARGIN SECURITY OR FOR ANY
OTHER PURPOSE WHICH MIGHT CAUSE ANY OF THE LOANS OR THE EXTENSIONS OF CREDIT
UNDER THIS AGREEMENT TO BE CONSIDERED A "PURPOSE CREDIT" WITHIN THE MEANING OF
REGULATION G, T, U OR X OF THE FEDERAL RESERVE BOARD. BORROWER WILL NOT TAKE OR
PERMIT TO BE TAKEN ANY ACTION WHICH MIGHT CAUSE THIS AGREEMENT OR ANY DOCUMENT
OR INSTRUMENT DELIVERED PURSUANT HERETO TO VIOLATE ANY REGULATION OF THE FEDERAL
RESERVE BOARD.
3.12 ERROR! BOOKMARK NOT DEFINED. TAXES. ALL FEDERAL, STATE, LOCAL
AND FOREIGN TAX RETURNS, REPORTS AND STATEMENTS, INCLUDING, WITHOUT LIMITATION,
INFORMATION RETURNS (FORM 1120-S) REQUIRED TO BE FILED BY BORROWER OR ANY
SUBSIDIARY OF BORROWER HAVE BEEN FILED WITH THE APPROPRIATE GOVERNMENTAL
AUTHORITY AND ALL CHARGES AND OTHER IMPOSITIONS SHOWN THEREON TO BE DUE AND
PAYABLE HAVE BEEN PAID PRIOR TO THE DATE ON WHICH ANY FINE, PENALTY, INTEREST OR
LATE CHARGE MAY BE ADDED THERETO FOR NONPAYMENT THEREOF, OR ANY SUCH FINE,
PENALTY, INTEREST, LATE CHARGE OR LOSS HAS BEEN PAID, EXCEPT WHERE THE FAILURE
TO PAY SUCH CHARGES TO CERTAIN LOCAL AND MUNICIPAL AUTHORITIES WOULD NOT RESULT
IN A MATERIAL ADVERSE EFFECT. BORROWER AND EACH SUBSIDIARY OF BORROWER HAS PAID
WHEN DUE AND PAYABLE ALL CHARGES REQUIRED TO BE PAID BY IT, EXCEPT WHERE THE
FAILURE TO PAY SUCH CHARGES TO CERTAIN LOCAL AND MUNICIPAL AUTHORITIES WOULD NOT
RESULT IN A MATERIAL ADVERSE EFFECT. PROPER AND ACCURATE AMOUNTS HAVE BEEN
WITHHELD BY BORROWER AND EACH SUBSIDIARY OF BORROWER FROM THEIR RESPECTIVE
EMPLOYEES FOR ALL PERIODS IN FULL AND COMPLETE COMPLIANCE WITH THE TAX, SOCIAL
SECURITY AND UNEMPLOYMENT WITHHOLDING PROVISIONS OF APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN LAW AND SUCH WITHHOLDINGS HAVE BEEN TIMELY PAID TO THE
RESPECTIVE GOVERNMENTAL AGENCIES. SCHEDULE 3.12 SETS FORTH THOSE TAXABLE YEARS
FOR WHICH ANY OF THE TAX RETURNS OF BORROWER, EACH SUBSIDIARY OF BORROWER AND
EACH STOCKHOLDER ARE CURRENTLY BEING AUDITED BY THE IRS OR ANY OTHER APPLICABLE
GOVERNMENTAL AUTHORITY; AND ANY ASSESSMENTS OR THREATENED ASSESSMENTS IN
CONNECTION WITH ANY SUCH AUDIT OR OTHERWISE CURRENTLY OUTSTANDING. EXCEPT AS
DESCRIBED IN SCHEDULE 3.12, NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER HAS
EXECUTED OR FILED WITH THE IRS OR ANY OTHER GOVERNMENTAL AUTHORITY ANY AGREEMENT
OR OTHER DOCUMENT EXTENDING, OR HAVING THE EFFECT OF EXTENDING, THE PERIOD FOR
ASSESSMENT OR COLLECTION OF ANY CHARGES. EXCEPT AS SET FORTH IN SCHEDULE 3.12,
NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER HAS FILED A CONSENT PURSUANT TO
SECTION 341(F) OF THE IRC OR AGREED TO HAVE SECTION 341(F)(2) OF THE IRC APPLY
TO ANY DISPOSITIONS OF SUBSECTION (F) ASSETS (AS SUCH TERM IS DEFINED IN SECTION
341(F)(4) OF THE IRC). NONE OF THE PROPERTY OWNED BY BORROWER OR ANY SUBSIDIARY
OF BORROWER IS PROPERTY WHICH IS REQUIRED TO TREAT AS BEING OWNED BY ANY OTHER
PERSON PURSUANT TO THE PROVISIONS OF SECTION 168(F)(8) OF THE INTERNAL REVENUE
CODE OF 1954, AS AMENDED AND IN EFFECT IMMEDIATELY PRIOR TO THE ENACTMENT OF THE
TAX REFORM ACT OF 1986, OR IS "TAX-EXEMPT USE PROPERTY" WITHIN THE MEANING OF
SECTION 168(H) OF THE IRC. NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER HAS
AGREED OR BEEN REQUESTED TO MAKE ANY ADJUSTMENT UNDER SECTION 481(A) OF THE IRC
BY REASON OF A CHANGE IN ACCOUNTING METHOD OR OTHERWISE. NEITHER
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BORROWER NOR ANY SUBSIDIARY OF BORROWER HAS ANY OBLIGATION UNDER ANY WRITTEN TAX
SHARING AGREEMENT.
3.13 ERISA.
(a) Schedule 3.13 lists all Plans maintained or contributed
to by Borrower or any Subsidiary and all Qualified Plans maintained or
contributed to by any ERISA Affiliate, and separately identifies the Title IV
Plans, Multiemployer Plans, any multiple employer plans subject to Section 4064
of ERISA, unfunded Pension Plans, Welfare Plans and Retiree Welfare Plans. Each
Qualified Plan has been determined by the IRS to qualify under Section 401 of
the IRC, and the trusts created thereunder have been determined to be exempt
from tax under the provisions of Section 501 of the IRC, and to the best
knowledge of Borrower nothing has occurred which would cause the loss of such
qualification or tax-exempt status. Each Plan is in compliance in all material
respects with the applicable provisions of ERISA and the IRC, including, without
limitation, the filing of reports required under ERISA or the IRC which are true
and correct as of the date filed, and with respect to each Plan, other than a
Qualified Plan, all required contributions and benefits have been paid in
accordance with the provisions of each such Plan. Neither Borrower, any
Subsidiary of Borrower nor other ERISA Affiliate, with respect to any Qualified
Plan, has failed to make any contribution or pay any amount due as required by
Section 412 of the IRC or Section 302 of ERISA or the terms of any such plan.
With respect to all Retiree Welfare Plans, there are no future anticipated
expenses pursuant to the latest actuarial projections of liabilities, and copies
of such latest projections have been provided to Agent. With respect to Pension
Plans, other than Qualified Plans, there are no liabilities for current
participants thereunder using PBGC interest assumptions. Neither Borrower nor
any Subsidiary of Borrower has engaged in a prohibited transaction, as defined
in Section 4975 of the IRC or Section 406 of ERISA, in connection with any Plan
which would subject any such Person (after giving effect to any exemption) to a
material tax on prohibited transactions imposed by Section 4975 of the IRC or
any other material liability.
(b) Except as set forth in Schedule 3.13: (i) no Title IV
Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described
in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
Borrower, threatened claims, actions or lawsuits (other than claims for benefits
in the normal course), asserted or instituted against (x) any Plan or its
assets, (y) any fiduciary with respect to any Plan, or (z) Borrower or any ERISA
Affiliate with respect to any Plan; (iv) neither Borrower nor any ERISA
Affiliate has incurred or reasonably expects to incur 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 from a Multiemployer Plan; (v) within
the last five (5) years neither Borrower nor any Subsidiary of Borrower nor
other ERISA Affiliate has engaged in a transaction which resulted in a Title IV
Plan with Unfunded Liabilities being transferred outside of the "controlled
group" (within the meaning of Section 4001(a)(14) of ERISA) of any such entity;
(vi) no plan which is a Retiree Welfare Plan provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after such
participant's termination of employment (except as may be required by Section
4980B of the IRC and at the sole expense of
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the participant or the beneficiary of the participant); (vii) Borrower and each
Subsidiary of Borrower or other ERISA Affiliate have complied with the notice
and continuation coverage requirements of Section 4980B of the IRC and the
regulations thereunder; and (viii) no liability under any Plan has been funded,
nor has such obligation been satisfied with, the purchase of a contract from an
insurance company that is not rated AAA by Standard & Poor's Corporation and the
equivalent by each other nationally recognized rating agency.
3.14 NO LITIGATION. EXCEPT AS SET FORTH IN SCHEDULE 3.14, NO
ACTION, CLAIM OR PROCEEDING IS NOW PENDING OR, TO THE KNOWLEDGE OF BORROWER,
THREATENED AGAINST BORROWER OR ANY SUBSIDIARY OF BORROWER, AT LAW, IN EQUITY OR
OTHERWISE, BEFORE ANY COURT, BOARD, COMMISSION, AGENCY OR INSTRUMENTALITY OF ANY
FEDERAL, STATE, OR LOCAL GOVERNMENT OR OF ANY AGENCY OR SUBDIVISION THEREOF, OR
BEFORE ANY ARBITRATOR OR PANEL OF ARBITRATORS WHICH (A) CHALLENGES ANY SUCH
PERSON'S RIGHT, POWER, OR COMPETENCE TO ENTER INTO OR PERFORM ANY OF ITS
OBLIGATIONS UNDER THE LOAN DOCUMENTS, OR THE VALIDITY OR ENFORCEABILITY OF ANY
LOAN DOCUMENT OR ANY ACTION TAKEN THEREUNDER, (B) IF DETERMINED ADVERSELY, COULD
HAVE OR RESULT IN A MATERIAL ADVERSE EFFECT OR (C) THAT COULD HAVE A MATERIAL
ADVERSE EFFECT ON THE RIGHTS OR REMEDIES OF THE AGENT OR THE LENDERS OR ON THE
ABILITY OF BORROWER TO PERFORM ITS OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN
DOCUMENT. TO THE KNOWLEDGE OF BORROWER THERE DOES NOT EXIST A STATE OF FACTS
WHICH IS REASONABLY LIKELY TO GIVE RISE TO SUCH PROCEEDINGS AND WHICH COULD HAVE
OR RESULT IN A MATERIAL ADVERSE EFFECT.
3.15 BROKERS. EXCEPT AS SET FORTH IN SCHEDULE 3.15, NO BROKER OR
FINDER ACTING ON BEHALF OF BORROWER, BTITC OR ANY SUBSIDIARY OF BORROWER (I)
BROUGHT ABOUT THE OBTAINING, MAKING OR CLOSING OF THE LOANS OR ANY OTHER
TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, OR (II) HAS OR WILL BRING ABOUT
THE CONSUMMATION OF THE BTITC TRANSACTION, THE FIBERSOUTH ACQUISITION, THE STOCK
PURCHASE OR ANY TRANSACTIONS CONTEMPLATED THEREBY, AND BORROWER HAS NO
OBLIGATION TO ANY PERSON IN RESPECT OF ANY FINDER'S OR BROKERAGE FEES IN
CONNECTION THEREWITH.
3.16 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. EXCEPT AS
OTHERWISE SET FORTH IN SCHEDULE 3.16, BORROWER AND EACH SUBSIDIARY OF BORROWER
OWNS ALL MATERIAL LICENSES, PATENTS, PATENT APPLICATIONS, COPYRIGHTS, SERVICE
MARKS, TRADEMARKS, TRADEMARK APPLICATIONS, AND TRADE NAMES NECESSARY TO CONTINUE
TO CONDUCT ITS BUSINESS AS HERETOFORE CONDUCTED BY IT, NOW CONDUCTED BY IT AND
PROPOSED TO BE CONDUCTED BY IT, EACH OF WHICH IS LISTED, TOGETHER WITH UNITED
STATES PATENT AND TRADEMARK OFFICE APPLICATION OR REGISTRATION NUMBERS, WHERE
APPLICABLE, IN SCHEDULE 3.16. EXCEPT AS SET FORTH IN SCHEDULE 3.16, BORROWER AND
EACH SUBSIDIARY OF BORROWER CONDUCTS BUSINESS WITHOUT INFRINGEMENT OR CLAIM OF
INFRINGEMENT OF ANY LICENSE, PATENT, COPYRIGHT, SERVICE MARK, TRADEMARK, TRADE
NAME, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY RIGHT OF OTHERS, EXCEPT WHERE
SUCH INFRINGEMENT OR CLAIM OF INFRINGEMENT COULD NOT HAVE OR RESULT IN A
MATERIAL ADVERSE EFFECT. EXCEPT AS SET FORTH IN SCHEDULE 3.16, THERE IS NO
INFRINGEMENT OR CLAIM OF INFRINGEMENT BY OTHERS OF ANY MATERIAL LICENSE, PATENT,
COPYRIGHT, SERVICE MARK, TRADEMARK, TRADE NAME, TRADE SECRET OR OTHER
INTELLECTUAL PROPERTY RIGHT OF BORROWER OR ANY SUBSIDIARY OF BORROWER.
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3.17 FULL DISCLOSURE. NO INFORMATION CONTAINED IN THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, THE FINANCIALS, THE RELATED TRANSACTIONS DOCUMENTS OR
ANY WRITTEN STATEMENT FURNISHED BY OR ON BEHALF OF BORROWER, BTITC OR ANY
SUBSIDIARY OF BORROWER PURSUANT TO THE TERMS OF THIS AGREEMENT, WHICH HAS
PREVIOUSLY BEEN DELIVERED TO AGENT OR ANY LENDER, CONTAINS ANY UNTRUE STATEMENT
OF A MATERIAL FACT OR OMITS TO STATE A MATERIAL FACT NECESSARY TO MAKE THE
STATEMENTS CONTAINED HEREIN OR THEREIN NOT MISLEADING IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE.
3.18 HAZARDOUS MATERIALS. EXCEPT AS SET FORTH IN SCHEDULE 3.18,
THE SUBJECT PROPERTY IS FREE OF CONTAMINATION FROM ANY HAZARDOUS MATERIAL. IN
ADDITION, SCHEDULE 3.18 DISCLOSES EXISTING OR POTENTIAL ENVIRONMENTAL
LIABILITIES OF BORROWER OR ANY SUBSIDIARY OF BORROWER OF WHICH BORROWER HAS
KNOWLEDGE, WHICH COULD CONSTITUTE OR RESULT IN A MATERIAL ADVERSE EFFECT OR
ENVIRONMENTAL LIABILITIES AND COSTS. NEITHER BORROWER NOR ANY SUBSIDIARY OF
BORROWER HAS CAUSED OR SUFFERED TO OCCUR ANY RELEASE AT, UNDER, ABOVE OR WITHIN
ANY REAL PROPERTY WHICH IT OWNS OR LEASES. NEITHER BORROWER NOR ANY SUBSIDIARY
OF BORROWER IS INVOLVED IN OPERATIONS WHICH, TO THE BEST OF SUCH PERSON'S
KNOWLEDGE, COULD LEAD TO THE IMPOSITION OF ANY LIABILITY OR LIEN ON IT, OR ANY
OWNER OF ANY PREMISES WHICH IT OCCUPIES, UNDER THE ENVIRONMENTAL LAWS, AND
NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER HAS, TO THE BEST OF SUCH
PERSON'S KNOWLEDGE, PERMITTED ANY TENANT OR OCCUPANT OF SUCH PREMISES TO ENGAGE
IN ANY SUCH ACTIVITY.
3.19 INSURANCE POLICIES. PART II OF SCHEDULE 3.19 LISTS ALL
INSURANCE OF ANY NATURE MAINTAINED FOR CURRENT OCCURRENCES BY BORROWER AND EACH
SUBSIDIARY OF BORROWER, AS WELL AS A SUMMARY OF THE TERMS OF SUCH INSURANCE. THE
COLLATERAL AND ALL OTHER PROPERTY AND ASSETS OF BORROWER ARE INSURED IN
ACCORDANCE WITH THE REQUIREMENTS OF THIS AGREEMENT.
3.20 DEPOSIT AND DISBURSEMENT ACCOUNTS. SCHEDULE 3.20 LISTS ALL
BANKS AND OTHER FINANCIAL INSTITUTIONS AT WHICH BORROWER AND EACH SUBSIDIARY OF
BORROWER MAINTAINS DEPOSITS AND/OR OTHER ACCOUNTS, INCLUDING, WITHOUT
LIMITATION, THE DISBURSEMENT ACCOUNTS AND THE LOCKBOX ACCOUNT, AND SUCH SCHEDULE
CORRECTLY IDENTIFIES THE NAME, ADDRESS AND TELEPHONE NUMBER OF EACH SUCH
DEPOSITORY, THE NAME IN WHICH THE ACCOUNT IS HELD, A DESCRIPTION OF THE PURPOSE
OF THE ACCOUNT, AND THE COMPLETE ACCOUNT NUMBER.
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3.21 MATERIAL AGREEMENTS. SCHEDULE 3.21 LISTS ALL OUTSTANDING
MATERIAL CONTRACTS AND AGREEMENTS ("MATERIAL AGREEMENTS") TO WHICH BORROWER WILL
BE A PARTY AS OF THE CLOSING DATE, EXCEPT (A) THE LEASES LISTED IN SCHEDULE 3.6,
(B) CONTRACTS ENTERED INTO IN THE ORDINARY COURSE OF BORROWER'S BUSINESS WITH
ANY CUSTOMER THAT DID NOT PURCHASE AN AGGREGATE OF MORE THAN $300,000 IN
PRODUCTS OR SERVICES IN 1996, (C) PURCHASE ORDERS COVERING INVENTORY ORDERED IN
THE ORDINARY COURSE OF BUSINESS, (D) CONTRACTS ENTERED INTO IN THE ORDINARY
COURSE OF BORROWER'S BUSINESS (OTHER THAN WITH VENDORS OR CUSTOMERS), WHICH DO
NOT INVOLVE AN AGGREGATE EXPENDITURE IN ANY YEAR OF MORE THAN $300,000 AND WHICH
DO NOT HAVE A TERM EXCEEDING ONE (1) YEAR, AND (E) WRITTEN SALES COMMISSION
AGREEMENTS. EXCEPT AS SET FORTH IN SCHEDULE 3.21, EACH MATERIAL AGREEMENT IS IN
FULL FORCE AND EFFECT AND IS BINDING UPON PARTIES THERETO, NO SUCH MATERIAL
AGREEMENT HAS BEEN AMENDED AND THERE EXISTS NO DEFAULT UNDER ANY MATERIAL
AGREEMENT BY ANY PARTY THERETO.
3.22 LIENS.
(a) No effective security agreement, financing statement,
mortgage, equivalent security or lien instrument or continuation statement
covering all or any part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be effective to perfect a
Lien on such Collateral, except (i) those filed by Borrower in favor of Lenders
pursuant to the Security Agreement and the other Collateral Documents, and (ii)
those relating to Permitted Liens.
(b) The information set forth in the Perfection
Certificate, substantially in the form of Exhibit G hereto, delivered by
Borrower to Agent on or prior to the Closing Date, is true, correct and complete
as of the Closing Date.
(c) As a result of the filing of appropriate financing
statements in the jurisdictions listed in Schedule 3.22 hereto, this Agreement
and the other Collateral Documents will be at the Closing Date effective to
create a valid and continuing Lien upon, and first priority perfected security
interest in favor of Lenders in, the Collateral with respect to which a security
interest may be perfected by filing pursuant to the UCC, except for the
Permitted Liens, and is enforceable as such as against creditors of, and
purchasers from, Borrower (other than purchasers of Inventory in the ordinary
course of business). All action necessary or desirable to protect and perfect
such security interest in each item of the Collateral has been duly taken. On or
promptly after the Closing Date, the Company shall furnish to Agent search
reports from each UCC filing office set forth in Schedule 3.22 hereto confirming
the filing information set forth in such Schedule.
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3.23 INSTRUMENTS. SCHEDULE 3.23 HERETO LISTS ALL INSTRUMENTS OF
BORROWER. ALL ACTION NECESSARY OR DESIRABLE TO PERMIT LENDERS TO PROTECT AND
PERFECT THE LIEN AND SECURITY INTEREST OF AGENT ON BEHALF OF LENDERS IN EACH
ITEM SET FORTH IN SCHEDULE 3.23 HERETO, INCLUDING, WITHOUT LIMITATION, THE
EXECUTION AND DELIVERY TO AGENT OF A NOTIFICATION TO A FINANCIAL INTERMEDIARY
CONCERNING AGENT'S SECURITY IN THE INSTRUMENTS, HAS BEEN MADE. NONE OF THE
INSTRUMENTS ARE SUBJECT TO ANY LIENS, SECURITY INTERESTS OR OTHER ENCUMBRANCES
EXCEPT PERMITTED LIENS AND THOSE LIENS SPECIFICALLY DESIGNATED IN SCHEDULE 6.7
HERETO. BORROWER SHALL NOT CHANGE THE LOCATION OF ITS SECURITIES ACCOUNTS OR
TAKE ANY OTHER ACTION WHICH WOULD RENDER INACCURATE THE FOREGOING NOTIFICATION
TO THE FINANCIAL INTERMEDIARY REGARDING AGENT'S SECURITY INTEREST IN THE
INSTRUMENTS.
3.24 ACCOUNTS. WITH RESPECT TO ANY ACCOUNT SCHEDULED OR LISTED ON
THE SCHEDULE OF ACCOUNTS OR ANY OTHER STATEMENT OR REPORT DELIVERED TO AGENT OR
LENDERS PURSUANT TO THE TERMS OF THIS AGREEMENT, Section 5.10(a) OF THE SECURITY
AGREEMENT OR ANY OTHER LOAN DOCUMENT, UNLESS OTHERWISE INDICATED IN WRITING TO
AGENT OR LENDERS: (A) AGENT OR LENDERS MAY RELY UPON ALL STATEMENTS,
REPRESENTATIONS OR WARRANTIES MADE BY BORROWER IN ANY SCHEDULE OF ACCOUNTS OR
OTHERWISE IN DETERMINING WHICH ACCOUNTS LISTED IN SUCH SCHEDULE OF ACCOUNTS ARE
TO BE DEEMED ELIGIBLE ACCOUNTS; (B) THE ACCOUNTS REPRESENT BONA FIDE SALES OF
INVENTORY AND/OR SERVICES TO CUSTOMERS IN THE ORDINARY COURSE OF BORROWER'S
BUSINESS COMPLETED IN ACCORDANCE WITH THE TERMS AND PROVISIONS CONTAINED IN THE
DOCUMENTS AVAILABLE TO AGENT AND LENDERS WITH RESPECT THERETO, AND ARE NOT
EVIDENCED BY A JUDGMENT, INSTRUMENT OR CHATTEL PAPER; (C) THE AMOUNTS SHOWN ON
ANY AGED RECEIVABLE TRIAL BALANCE DELIVERED BY BORROWER TO AGENT OR LENDERS
PURSUANT TO THE TERMS OF THIS AGREEMENT OR ON BORROWER'S BOOKS AND RECORDS, AND
ALL INVOICES AND STATEMENTS WHICH MAY BE DELIVERED TO AGENT OR LENDERS WITH
RESPECT THERETO ARE ACTUALLY AND ABSOLUTELY OWING TO BORROWER AND ARE NOT IN ANY
WAY CONTINGENT; (D) NO PAYMENTS HAVE BEEN OR SHALL BE MADE TO BORROWER WITH
RESPECT TO THE ACCOUNTS OR OTHER COLLATERAL EXCEPT PAYMENTS IMMEDIATELY
DELIVERED TO AGENT PURSUANT TO THE TERMS OF ANNEX A HERETO; (E) THERE ARE NO
MATERIAL SETOFFS, CLAIMS OR DISPUTES EXISTING OR ASSERTED WITH RESPECT TO ANY
ACCOUNTS AND BORROWER HAS NOT MADE ANY AGREEMENT WITH ANY ACCOUNT DEBTOR FOR ANY
DEDUCTION THEREFROM EXCEPT A DISCOUNT OR ALLOWANCE ALLOWED BY BORROWER IN THE
ORDINARY COURSE OF ITS BUSINESS FOR PROMPT PAYMENT; (F) TO THE BEST OF
BORROWER'S KNOWLEDGE, THERE ARE NO FACTS, EVENTS OR OCCURRENCES WHICH IN ANY WAY
IMPAIR THE VALIDITY OR ENFORCEMENT THEREOF OR TEND TO REDUCE THE AMOUNT PAYABLE
UNDER ANY ACCOUNT EXCEPT AS SHOWN ON THE RESPECTIVE AGED RECEIVABLE TRIAL
BALANCES, BORROWER'S BOOKS AND RECORDS AND ALL INVOICES AND STATEMENTS DELIVERED
TO AGENT OR LENDERS WITH RESPECT THERETO; (G) TO THE BEST OF BORROWER'S
KNOWLEDGE, ALL ACCOUNT DEBTORS HAVE THE CAPACITY TO CONTRACT; (H) BORROWER HAS
RECEIVED NO NOTICE OF PROCEEDINGS OR ACTIONS WHICH ARE THREATENED OR PENDING
AGAINST ANY ACCOUNT DEBTOR WHICH MIGHT RESULT IN ANY MATERIAL ADVERSE EFFECT;
AND (I) BORROWER HAS NO KNOWLEDGE THAT ANY ACCOUNT DEBTOR IS UNABLE GENERALLY TO
PAY ITS DEBTS AS THEY BECOME DUE.
3.25 INVENTORY. WITH RESPECT TO ANY INVENTORY SCHEDULED OR LISTED
ON THE SCHEDULE OF INVENTORY OR ANY OTHER STATEMENT OR REPORT DELIVERED TO AGENT
OR LENDERS PURSUANT TO THE TERMS OF THIS AGREEMENT, Section 5.10(c) OF THE
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, UNLESS OTHERWISE INDICATED IN
WRITING TO LENDER: (A) SUCH INVENTORY
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IS LOCATED AT THE LOCATIONS SET FORTH IN PARAGRAPH 2(D) OF THE PERFECTION
CERTIFICATE; (B) BORROWER HAS GOOD, INDEFEASIBLE AND MERCHANTABLE TITLE TO SUCH
INVENTORY AND SUCH INVENTORY IS NOT SUBJECT TO ANY LIEN OR SECURITY INTEREST OR
DOCUMENT WHATSOEVER EXCEPT FOR THE FIRST PRIORITY, PERFECTED SECURITY INTEREST
GRANTED TO LENDERS HEREUNDER AND THE PERMITTED LIENS; (C) SUCH INVENTORY IS IN
ALL MATERIAL RESPECTS OF GOOD AND MERCHANTABLE QUALITY, FREE FROM ANY DEFECTS;
(D) SUCH INVENTORY IS NOT SUBJECT TO ANY LICENSING, PATENT, ROYALTY, TRADEMARK,
TRADE NAME OR COPYRIGHT AGREEMENTS WITH ANY THIRD PARTIES; (E) THE COMPLETION OF
MANUFACTURE, SALE OR OTHER DISPOSITION OF SUCH INVENTORY BY LENDERS FOLLOWING AN
EVENT OF DEFAULT SHALL NOT REQUIRE THE CONSENT OF ANY PERSON AND SHALL NOT
CONSTITUTE A BREACH OR DEFAULT UNDER ANY CONTRACT OR AGREEMENT TO WHICH BORROWER
IS A PARTY OR TO WHICH SUCH PROPERTY IS SUBJECT; (F) EXCEPT AS SET FORTH IN
PARAGRAPH 2(E) OF THE PERFECTION CERTIFICATE OR AS NOTIFIED IN WRITING TO AGENT
OR LENDERS, NO SUCH INVENTORY IS STORED WITH A BAILEE, WAREHOUSEMAN, CONSIGNEE
OR SIMILAR PARTY; AND (G) ALL INVENTORY HAS OR WILL HAVE BEEN PRODUCED IN
COMPLIANCE WITH THE APPLICABLE REQUIREMENTS OF THE FAIR LABOR STANDARDS ACT, AS
AMENDED.
3.26 EQUIPMENT. WITH RESPECT TO ANY EQUIPMENT SCHEDULED OR LISTED
ON THE SCHEDULE OF EQUIPMENT OR ANY OTHER STATEMENT OR REPORT DELIVERED TO AGENT
OR LENDERS PURSUANT TO THE TERMS OF THIS AGREEMENT, Section 5.10(b) OF THE
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT, UNLESS OTHERWISE INDICATED IN
WRITING TO AGENT OR LENDERS: (A) ALL SUCH EQUIPMENT IS IN GOOD ORDER AND REPAIR
IN ALL MATERIAL RESPECTS; (B) BORROWER HAS GOOD, VALID AND INDEFEASIBLE TITLE TO
SUCH EQUIPMENT AND SUCH EQUIPMENT IS NOT SUBJECT TO ANY LIEN OR SECURITY
INTEREST OR DOCUMENT WHATSOEVER EXCEPT FOR THE FIRST PRIORITY, PERFECTED
SECURITY INTERESTED GRANTED TO LENDERS HEREUNDER AND THE PERMITTED LIENS; AND
(C) SUCH EQUIPMENT IS NOT SUBJECT TO ANY LICENSING, PATENT, ROYALTY, TRADEMARK,
TRADE NAME OR COPYRIGHT AGREEMENT WITH ANY THIRD PARTIES WHICH WOULD MATERIALLY
IMPAIR LENDER'S SECURITY INTEREST THEREIN.
3.27 OTHER REPRESENTATIONS AND WARRANTIES.
(a) Borrower represents and warrants that each of the
representations and warranties given or to be given by Borrower, BTITC, or any
Subsidiary of Borrower in connection with the Related Transactions Documents are
true and correct in all material respects as of the date hereof, and such
representations and warranties are hereby incorporated herein by this reference
as of such dates with the same effect as though set forth in their entirety
herein. Neither Borrower, BTITC, nor any other party to any Related Transactions
Documents is in default in the performance or compliance with any provision
thereof. The Related Transactions Documents each comply with, and the
transactions contemplated thereby have or will be consummated in accordance with
all Applicable Law. Each of the Related Transactions Documents is in full force
and effect as of the Closing Date and has not been terminated, rescinded or
withdrawn. All requisite approvals by Governmental Authorities having
jurisdiction over Borrower, BTITC or the other parties referenced therein, with
respect to the transactions contemplated by the Related Transactions Documents,
have been obtained, and no such approvals impose any conditions to the
consummation of the transactions contemplated thereby in the conduct by Borrower
or BTITC of their business thereafter.
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(b) Notwithstanding anything in the Related Transactions
Documents to the contrary, the representations and warranties of Borrower,
BTITC, or any Subsidiary of Borrower in the Related Transactions Documents
incorporated in this Agreement by subsection 3.27(A) shall, solely for the
purposes of this Agreement, survive the execution and delivery of the Related
Transactions Documents, the execution and delivery of this Agreement and the
other Loan Documents, the making of the Loans hereunder and the execution and
delivery of the BTITC Senior Notes.
3.28 BTITC. PRIOR TO THE CLOSING DATE, BTITC WILL NOT HAVE ENGAGED
IN ANY BUSINESS OR INCURRED ANY INDEBTEDNESS OR OTHER LIABILITY (EXCEPT IN
CONNECTION WITH ITS CORPORATION FORMATION, THE RELATED TRANSACTIONS DOCUMENTS
AND THE OTHER LOAN DOCUMENTS).
3.44. FINANCIAL STATEMENTS AND INFORMATION
4.1 REPORTS AND NOTICES. BORROWER COVENANTS AND AGREES THAT FROM
AND AFTER THE CLOSING DATE AND UNTIL THE COMMITMENT TERMINATION DATE, IT SHALL
DELIVER TO AGENT THE FINANCIAL STATEMENTS, NOTICES AND PROJECTIONS AT THE TIMES
AND IN THE MANNER SET FORTH BELOW.
(a) Within twenty (20) days after the end of each Fiscal
Month, copies of the unaudited consolidated balance sheet of Borrower as of the
end of such Fiscal Month and the related consolidated statements of income and
cash flow for such Fiscal Month and for that portion of the Fiscal Year ending
as of the end of such Fiscal Month, setting forth in comparative form in each
case the consolidated and consolidating budgeted figures for the corresponding
periods and the consolidated and consolidating actual figures for the
corresponding periods in the preceding Fiscal Year, accompanied by (i) a
statement in reasonable detail showing the calculations used in determining
compliance with the financial covenants set forth in SECTION 6.11, and (ii) the
certification of the chief executive officer or chief financial officer of
Borrower that, to the best of such officer's knowledge, all such financial
statements are complete and correct in all material respects and present fairly
in accordance with GAAP (except for normal year-end adjustments and the
inclusion of footnotes) the consolidated financial position and the consolidated
results of operations of Borrower as at the end of such Fiscal Month and for the
Fiscal Month then ended, and specifying, to the best of such officer's
knowledge, whether there was any Default or Event of Default in existence as of
such time.
(b) Within twenty (20) days after the end of each Fiscal
Month, a management's discussion and analysis of variances of actual results to
budget and prior year for each of the periods set forth in paragraph (a) of this
SECTION 4.1.
(c) Within one hundred twenty (120) days after the close
of each Fiscal Year, a copy of the annual audited consolidated and consolidating
financial statements of Borrower consisting of the consolidated and
consolidating balance sheets and consolidated and consolidating statements of
income and retained earnings and consolidated and consolidating statements of
cash flow, setting forth in comparative form in each case the consolidated and
consolidating figures for the previous Fiscal Year, which financial statements
shall be prepared in
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accordance with GAAP, accompanied by an auditor's report, without qualification
as to deviation from GAAP or material misstatement or omission and unqualified
by the independent certified public accountants regularly retained by Borrower,
or any other firm of independent certified public accountants of recognized
national standing selected by Borrower and reasonably acceptable to Agent
accompanied by (i) a statement in reasonable detail showing the calculations
used in determining compliance with the financial covenants set forth in SECTION
6.11, (ii) a report from such accountants to the effect that in connection with
their audit examination, nothing has come to their attention to cause them to
believe that a Default or Event of Default had occurred with regard to any of
the Obligations or specifying each Default or Event of Default of which they
became aware, and (iii) a certification of the chief executive officer or chief
financial officer of Borrower that, to the best of such officer's knowledge and
belief, all such financial statements are complete and correct in all material
respects and present fairly in accordance with GAAP the consolidated and
consolidating financial position, the consolidated and consolidating results of
operations and the changes in consolidated and consolidating financial position
of Borrower as at the end of such Fiscal Year and specifying, to the best of
such officer's knowledge, whether there was any Default or Event of Default in
existence as of such time.
(d) Within one hundred and twenty (120) days after the end
of the Fiscal Year, a management's discussion and analysis of variances of
actual results to budget and prior year for the Fiscal Year.
(e) As soon as available and in any event within twenty
(20) days after the end of each Fiscal Month and from time to time within twenty
(20) days of the request of Agent, a Borrowing Base Certificate as of the last
day of such period (or if requested by Agent, as of the date of request), in
form and substance acceptable to Agent.
(f) As soon as practicable, but in any event within two
(2) Business Days after Borrower determines the existence of any Default or
Event of Default, or any development or other information which could be
reasonably expected to have a Material Adverse Effect, telephonic notice
specifying the nature of such Default or Event of Default or development or
information, including the anticipated effect thereof, which notice shall be
promptly confirmed in writing within five (5) days.
(g) Within thirty (30) days prior to the beginning of each
Fiscal Year, Borrower's budget (the "Budget") as approved by Borrower's senior
management, which shall include:
(h) projected balance sheet of Borrower for such Fiscal
Year, on a Fiscal Month basis;
(i) projected cash flow statement of Borrower, including
summary details of cash disbursements, including for Capital Expenditures, for
such Fiscal Year, on a Fiscal Month basis;
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(j) projected income statements of Borrower for such
Fiscal Year, on a Fiscal Month basis; and
(k) a summary of key assumptions underlying all of the
materials delivered pursuant to this paragraph (f) of SECTION 4.1, together with
appropriate supporting details as reasonably requested by Agent.
(l) Upon the reasonable request of Agent, Borrower's
latest forecast of annual results containing the year-to-date actual results as
of the end of the latest Fiscal Month and the projections for the remaining
portion of the Fiscal Year including any revisions to Budget for such periods,
in form and detail satisfactory to Agent.
(m) Upon the reasonable request of Agent, copies of all
federal, state, local and foreign tax returns and reports filed by or on behalf
of Borrower in respect of income, franchise or other taxes on or measured by
income, sales, property, payroll or other taxes of Borrower.
(n) Within a reasonable period of time from, but no more
than fifteen (15) days after, Agent's request, such other information respecting
Borrower's, BTITC's and each Subsidiary of Borrower's business, financial
condition or prospects as Agent may, from time to time, reasonably request.
4.2 COMMUNICATION WITH ACCOUNTANTS. BORROWER (FOR ITSELF AND EACH
SUBSIDIARY) AUTHORIZES AGENT TO COMMUNICATE DIRECTLY WITH ITS, BTITC'S AND EACH
SUBSIDIARY OF BORROWER'S INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS AND TAX
ADVISORS AND AUTHORIZES THOSE ACCOUNTANTS TO DISCLOSE TO AGENT ANY AND ALL
FINANCIAL STATEMENTS AND OTHER SUPPORTING FINANCIAL DOCUMENTS AND SCHEDULES
INCLUDING, WITHOUT LIMITATION, COPIES OF ANY MANAGEMENT LETTER WITH RESPECT TO
THE BUSINESS, FINANCIAL CONDITION AND OTHER AFFAIRS OF BORROWER, BTITC AND SUCH
SUBSIDIARY. AT OR BEFORE THE CLOSING DATE, BORROWER SHALL DELIVER A LETTER
ADDRESSED TO SUCH ACCOUNTANTS AND TAX ADVISORS INSTRUCTING THEM TO COMPLY WITH
THE PROVISIONS OF THIS Section 4 AND AUTHORIZING AGENT TO RELY ON THE CERTIFIED
FINANCIAL STATEMENTS PREPARED BY SUCH ACCOUNTANTS.
4.5. AFFIRMATIVE COVENANTS
Borrower covenants and agrees (for itself and its Subsidiaries)
that, unless Lenders shall otherwise consent in writing, from and after the date
hereof and until the Termination Date:
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5.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. BORROWER
SHALL (AND SHALL CAUSE EACH SUBSIDIARY TO): (A) DO OR CAUSE TO BE DONE ALL
THINGS NECESSARY TO PRESERVE AND KEEP IN FULL FORCE AND EFFECT ITS CORPORATE
EXISTENCE AND ITS RIGHTS AND FRANCHISES; (B) CONTINUE TO CONDUCT ITS BUSINESS
SUBSTANTIALLY AS NOW CONDUCTED OR AS OTHERWISE PERMITTED HEREUNDER; (C) AT ALL
TIMES MAINTAIN, PRESERVE AND PROTECT ALL OF ITS TRADEMARKS, TRADE NAMES AND ALL
OTHER INTELLECTUAL PROPERTY AND RIGHTS AS LICENSEE OR LICENSOR THEREOF, AND
PRESERVE THE COLLATERAL AND ALL THE REMAINDER OF ITS PROPERTY, IN USE OR USEFUL
IN THE CONDUCT OF ITS BUSINESS AND KEEP THE SAME IN GOOD REPAIR, WORKING ORDER
AND CONDITION (TAKING INTO CONSIDERATION ORDINARY WEAR AND TEAR) AND FROM TIME
TO TIME MAKE, OR CAUSE TO BE MADE, ALL NECESSARY OR APPROPRIATE REPAIRS,
REPLACEMENTS AND IMPROVEMENTS THERETO CONSISTENT WITH INDUSTRY PRACTICES, SO
THAT THE BUSINESS CARRIED ON IN CONNECTION THEREWITH MAY BE PROPERLY AND
ADVANTAGEOUSLY CONDUCTED AT ALL TIMES; (D) KEEP AND MAINTAIN ITS EQUIPMENT IN
GOOD OPERATING CONDITION SUFFICIENT FOR THE CONTINUATION OF SUCH PERSON'S
BUSINESS CONDUCTED ON A BASIS CONSISTENT WITH PAST PRACTICES, SHALL PROVIDE OR
ARRANGE FOR ALL MAINTENANCE AND SERVICE AND ALL REPAIRS NECESSARY FOR SUCH
PURPOSE AND SHALL EXERCISE PROPER CUSTODY OVER ALL SUCH PROPERTY; AND (E)
TRANSACT BUSINESS ONLY IN SUCH NAMES SET FORTH IN SCHEDULE 3.2.
5.2 PAYMENT OF OBLIGATIONS.
(a) Borrower shall: (i) pay and discharge or cause to be
paid and discharged all of its Obligations, as and when they become due; (ii)
prior to an Event of Default, pay and discharge, or cause to be paid and
discharged, its Indebtedness (other than the Obligations); and (iii) subject to
SECTION 5.2(B), pay and discharge, or cause to be paid and discharged promptly,
(A) all Charges imposed upon it or any Subsidiary of Borrower or its or their
income and profits, or any of its property (real, personal or mixed), and (B)
all lawful claims for labor, materials, supplies and services or otherwise,
before any thereof shall become in default where the failure to do so would have
a Material Adverse Effect.
(b) Borrower or any Subsidiary of Borrower may in good
faith contest, by proper legal actions or proceedings, the validity or amount of
any Charges or claims arising under SECTION 5.2(A)(III); PROVIDED, that at the
time of commencement of any such action or proceeding, and during the pendency
thereof (i) no Default or Event of Default shall have occurred, (ii) adequate
reserves with respect thereto are maintained on the books of Borrower in
accordance with GAAP, (iii) such contest operates to suspend collection of the
contested Charges or claims and is maintained and prosecuted continuously with
diligence, (iv) none of the Collateral would be subject to forfeiture or loss or
any Lien by reason of the institution or prosecution of such contest, (v) no
Lien shall exist, be imposed or be attempted to be imposed for such Charges or
claims during such action or proceeding, (vi) Borrower shall promptly pay or
discharge such contested Charges and all additional charges, interest penalties
and expenses, if any, and shall deliver to Agent evidence acceptable to Agent of
such compliance, payment or discharge, if such contest is terminated or
discontinued adversely to Borrower, and (vii) Agent has not advised Borrower in
writing that Agent reasonably believes that nonpayment or nondischarge thereof
could have or result in a Material Adverse Effect.
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5.3 BOOKS AND RECORDS. BORROWER SHALL (AND SHALL CAUSE EACH
SUBSIDIARY TO) KEEP ADEQUATE RECORDS AND BOOKS OF ACCOUNT WITH RESPECT TO ITS
BUSINESS ACTIVITIES, IN WHICH PROPER ENTRIES, REFLECTING ALL OF ITS CONSOLIDATED
AND CONSOLIDATING FINANCIAL TRANSACTIONS, ARE MADE IN ACCORDANCE WITH GAAP AND
ON A BASIS CONSISTENT WITH THE FINANCIALS REFERRED TO IN PART I OF SCHEDULE 3.4.
5.4 LITIGATION. BORROWER SHALL NOTIFY AGENT IN WRITING, PROMPTLY
UPON LEARNING THEREOF, OF ANY LITIGATION COMMENCED OR THREATENED AGAINST
BORROWER, BTITC OR ANY SUBSIDIARY OF BORROWER, AND OF THE INSTITUTION AGAINST
ANY SUCH PERSON OF ANY SUIT OR ADMINISTRATIVE PROCEEDING THAT (A) MAY INVOLVE AN
AMOUNT IN EXCESS OF $250,000, OR (B) COULD HAVE OR RESULT IN A MATERIAL ADVERSE
EFFECT IF ADVERSELY DETERMINED. BORROWER SHALL NOTIFY AGENT OF ANY AND ALL
CLAIMS, ACTIONS, OR LAWSUITS ASSERTED OR INSTITUTED, AND OF ANY THREATENED
LITIGATION, OR CLAIMS, AGAINST BORROWER, OR AGAINST ANY ERISA AFFILIATE IN
CONNECTION WITH ANY PLAN MAINTAINED, AT ANY TIME, BY BORROWER OR ANY ERISA
AFFILIATE, OR TO WHICH BORROWER OR ANY ERISA AFFILIATE HAS OR HAD AT ANY TIME
ANY OBLIGATION TO CONTRIBUTE, OR AGAINST ANY SUCH PLAN ITSELF, OR AGAINST ANY
FIDUCIARY OF OR SERVICE PROVIDED TO ANY SUCH PLAN.
5.5 INSURANCE.
(a) Borrower shall, at its (or each Subsidiary of
Borrower's) sole cost and expense, maintain or cause to be maintained the
policies of insurance described in Schedule 3.19 in form and with insurers
reasonably recognized as adequate by Agent. Such policies shall be in such
amounts and shall comply at all times with the standards as set forth in Part I
of Schedule 3.19, and copies of such policies shall be delivered to Agent.
Borrower shall notify Agent promptly of any occurrence causing a material loss
or decline in value of any real or personal property and the estimated (or
actual, if available) amount of such loss or decline, except as specified
otherwise in Schedule 3.19.
(b) Borrower hereby directs all present and future
insurers under its "All Risk" policies of insurance to pay all proceeds payable
thereunder directly to Agent for the benefit of Lenders. Borrower irrevocably
makes, constitutes and appoints Agent for the benefit of Lenders (and all
officers, employees or agents designated by Agent), as Borrower's true and
lawful agent and attorney-in-fact for the purpose of making, settling and
adjusting claims under the "All Risk" policies of insurance, endorsing the name
of Borrower on any check, draft, instrument or other item of payment for the
proceeds of such "All Risk" policies of insurance, and for making all
determinations and decisions with respect to such "All Risk" policies of
insurance.
( ) In the event Borrower at any time or times hereafter
shall fail to obtain or maintain (or fail to cause to be obtained or maintained)
any of the policies of insurance required above or to pay any premium in whole
or in part relating thereto, Agent, without waiving or releasing any Obligations
or Default or Event of Default hereunder, may at any time or times thereafter
(but shall not be obligated to) obtain and maintain such policies of insurance
and pay such premium and take any other action with respect thereto which Agent
deems
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advisable. All sums so disbursed, including, without limitation, attorneys'
fees, court costs and other charges related thereto, shall be payable on demand
by Borrower to Agent and shall be additional Obligations hereunder secured by
the Collateral; provided, that if and to the extent Borrower fails to promptly
pay any of such sums upon Agent's demand therefor, Agent on behalf of Lenders is
authorized to, and at its option may, make or cause to be made Revolving Credit
Advances on behalf of Borrower for payment thereof.
(c) Agent reserves the right at any time, upon review of
Borrower's risk profile, to require additional forms and limits of insurance to
adequately protect Lender's interests, in Agent's sole discretion. Borrower
shall, if so requested by Agent, deliver to Agent as often as Agent may request,
a report of a reputable insurance broker, satisfactory to Agent, with respect to
Borrower's insurance policies.
(d) Borrower shall deliver to Agent, endorsements to all
of its and each Subsidiary of Borrower's (i) "All Risk" or "Special Causes of
Loss" insurance and business interruption insurance naming Agent as loss payee,
and (ii) general liability and other liability policies naming Agent for the
benefit of Lenders as additional insured.
(e) Any proceeds of insurance referred to in this SECTION
5.5 which are paid to Agent, for the account of Lenders, shall be, at the option
of the Required Lenders in their sole discretion, either (i) applied to replace
the damaged or destroyed property, or (ii) applied to the payment of the
Obligations.
5.6 COMPLIANCE WITH LAWS. BORROWER SHALL (AND SHALL CAUSE EACH
SUBSIDIARY OF BORROWER TO) COMPLY IN ALL MATERIAL RESPECTS WITH ALL FEDERAL,
STATE AND LOCAL LAWS AND REGULATIONS APPLICABLE TO IT, INCLUDING, WITHOUT
LIMITATION, THOSE RELATING TO LICENSING, ENVIRONMENTAL, ERISA AND LABOR MATTERS.
5.7 AGREEMENTS. BORROWER SHALL (AND SHALL CAUSE EACH SUBSIDIARY OF
BORROWER TO) PERFORM AND COMPLY WITH, WITHIN ALL REQUIRED TIME PERIODS, ALL OF
ITS OBLIGATIONS AND ENFORCE ALL OF ITS RIGHTS UNDER EACH AGREEMENT TO WHICH IT
IS A PARTY, INCLUDING, WITHOUT LIMITATION, ANY LEASES AND CUSTOMER CONTRACTS TO
WHICH IT IS A PARTY WHERE THE FAILURE TO SO PERFORM AND ENFORCE COULD HAVE OR
RESULT IN A MATERIAL ADVERSE EFFECT. BORROWER SHALL NOT (AND SHALL NOT PERMIT
ANY SUBSIDIARY OF BORROWER TO) TERMINATE OR MODIFY ANY PROVISION OF ANY
AGREEMENT TO WHICH IT IS A PARTY WHICH TERMINATION OR MODIFICATION COULD HAVE OR
RESULT IN A MATERIAL ADVERSE EFFECT.
5.8 SUPPLEMENTAL DISCLOSURE. ON THE REQUEST OF AGENT (IN THE EVENT
THAT SUCH INFORMATION IS NOT OTHERWISE DELIVERED BY BORROWER TO AGENT PURSUANT
TO THIS AGREEMENT), SO LONG AS THERE ARE OBLIGATIONS OUTSTANDING HEREUNDER, BUT
NOT MORE FREQUENTLY THAN EVERY THREE (3) MONTHS, BORROWER WILL SUPPLEMENT (OR
CAUSE TO BE SUPPLEMENTED) EACH SCHEDULE HERETO, OR REPRESENTATION HEREIN OR TO
OR IN ANY OTHER LOAN DOCUMENT WITH RESPECT TO ANY MATTER HEREAFTER ARISING
WHICH, IF EXISTING OR OCCURRING AT THE DATE OF THIS AGREEMENT, WOULD HAVE BEEN
REQUIRED TO BE SET FORTH OR DESCRIBED IN SUCH SCHEDULE OR AS AN EXCEPTION TO
SUCH REPRESENTATION OR WHICH IS NECESSARY TO CORRECT ANY INFORMATION IN SUCH
SCHEDULE OR
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REPRESENTATION WHICH HAS BEEN RENDERED INACCURATE THEREBY; PROVIDED, THAT SUCH
SUPPLEMENT TO SUCH SCHEDULE OR REPRESENTATION SHALL NOT BE DEEMED AN AMENDMENT
THEREOF UNLESS EXPRESSLY CONSENTED TO IN WRITING BY AGENT, AND NO SUCH
AMENDMENTS, EXCEPT AS THE SAME MAY BE CONSENTED TO IN A WRITING WHICH EXPRESSLY
INCLUDES A WAIVER, SHALL BE OR BE DEEMED A WAIVER BY LENDERS OF ANY DEFAULT OR
EVENT OF DEFAULT DISCLOSED THEREIN.
5.9 ENVIRONMENTAL MATTERS. BORROWER SHALL (AND SHALL CAUSE EACH
SUBSIDIARY TO): (A) COMPLY IN ALL MATERIAL RESPECTS WITH THE ENVIRONMENTAL LAWS
APPLICABLE TO IT; (B) NOTIFY AGENT PROMPTLY AFTER BORROWER BECOMES AWARE OF ANY
RELEASE UPON ANY PREMISES OWNED OR OCCUPIED BY IT; AND (C) PROMPTLY FORWARD TO
AGENT A COPY OF ANY ORDER, NOTICE, PERMIT, APPLICATION, OR ANY COMMUNICATION OR
REPORT RECEIVED BY BORROWER IN CONNECTION WITH ANY SUCH RELEASE OR ANY OTHER
MATTER RELATING TO THE ENVIRONMENTAL LAWS THAT MAY AFFECT SUCH PREMISES OR
BORROWER. THE PROVISIONS OF THIS Section 5.9 SHALL APPLY WHETHER OR NOT THE
ENVIRONMENTAL PROTECTION AGENCY, ANY OTHER FEDERAL AGENCY OR ANY STATE OR LOCAL
ENVIRONMENTAL AGENCY HAS TAKEN OR THREATENED ANY ACTION IN CONNECTION WITH ANY
RELEASE OR THE PRESENCE OF ANY HAZARDOUS MATERIALS.
5.10 LANDLORD'S AGREEMENTS. BORROWER SHALL UTILIZE ITS BEST
EFFORTS TO OBTAIN, WITHIN NINETY (90) DAYS OF THE CLOSING DATE, A LANDLORD'S
WAIVER AGREEMENT IN FORM ACCEPTABLE TO AGENT FROM EACH LESSOR OF LEASED PREMISES
UPON WHICH COLLATERAL IS LOCATED (AND AS TO WHICH THERE IS NOT A PRESENTLY
EFFECTIVE AGREEMENT BETWEEN SUCH PARTY AND GE CAPITAL), PROVIDED, HOWEVER, THAT
BORROWER MAY EXCLUDE ANY LEASED PREMISES WITH COLLATERAL THE VALUE OF WHICH IS
LESS THAN $50,000, BUT SHALL NOT EXCLUDE MORE THAN $250,000 OF SUCH COLLATERAL
IN THE AGGREGATE.
5.11 SUBSIDIARY. PRIOR TO FORMING ANY SUBSIDIARY, BORROWER SHALL:
(A) PROVIDE NOT LESS THAN THIRTY (30) DAYS PRIOR WRITTEN NOTICE TO AGENT; (B)
TAKE ALL ACTIONS REASONABLY REQUESTED BY AGENT TO PROTECT AND PRESERVE LENDERS'
COLLATERAL; AND (C) RECEIVE THE PRIOR WRITTEN CONSENT OF AGENT, WHICH CONSENT
SHALL NOT BE UNREASONABLY WITHHELD.
5.12 MINIMUM REVOLVING CREDIT BORROWING AVAILABILITY. IN THE EVENT
THAT THE REVOLVING CREDIT BORROWING AVAILABILITY AT ANY TIME FALLS BELOW
$500,000, BORROWER SHALL MEET WITH AGENT TO DISCUSS ITS FINANCIAL RESULTS AND
CONDITION.
5.13 CASH MANAGEMENT SYSTEM. ON THE CLOSING DATE, BORROWER AND
AGENT SHALL HAVE EXECUTED AND DELIVERED A NOTICE TO THE BANK WHICH IS PARTY TO
THE EXISTING LOCKBOX AGREEMENT NOTIFYING SUCH ENTITY THAT GE CAPITAL SHALL
THEREAFTER ACT AS AGENT FOR THE LENDERS PURSUANT TO THIS AGREEMENT AND THE
LOCKBOX AGREEMENT. BORROWER SHALL MAINTAIN DURING THE TERM HEREOF, WITH THE
COOPERATION OF AGENT, THE CASH MANAGEMENT SYSTEM SET FORTH IN ANNEX A HERETO.
BORROWER SHALL NOT OPEN OR MAINTAIN ANY DEPOSIT, OPERATING OR OTHER ACCOUNTS
EXCEPT FOR THOSE ACCOUNTS IDENTIFIED IN SCHEDULE 3.20, THE INVESTMENT ACCOUNT
AND THE FIBERSOUTH ACCOUNT (UNTIL SUCH TIME AS THE FIBERSOUTH ACQUISITION SHALL
BE CONSUMMATED) WITHOUT THE PRIOR EXPRESS WRITTEN CONSENT OF AGENT. FOLLOWING
PAYMENT OF THE FIBERSOUTH CASH PORTION, BORROWER SHALL CAUSE ALL AMOUNTS NOT
OTHERWISE REQUIRED TO BE HELD PURSUANT TO THE CASH MANAGEMENT SYSTEM (OR TO
SATISFY ITS
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OBLIGATIONS WITH RESPECT TO THE FIBERSOUTH ACQUISITION) TO BE HELD AND
MAINTAINED IN THE INVESTMENT ACCOUNT. BORROWER SHALL AT ALL TIMES CAUSE TO BE
AVAILABLE FOR PAYMENT FROM THE INVESTMENT ACCOUNT ALL AMOUNTS REQUIRED TO TIMELY
SATISFY ALL OBLIGATIONS OF BORROWER WITH RESPECT TO THE FORMER EMPLOYEE
INDEBTEDNESS.
5.14 REAL PROPERTY. SUBJECT TO THE PROVISIONS OF Sections 6.3 and
6.7, PROMPTLY UPON BORROWER'S ACQUISITION OF ANY OWNERSHIP OR FEE INTEREST IN
ANY REAL PROPERTY, BORROWER SHALL (A) IF SUCH REAL PROPERTY IS NOT SUBJECT TO A
MORTGAGE, DEED OF TRUST, DEED TO SECURE DEBT OR SIMILAR INSTRUMENT
(COLLECTIVELY, A "MORTGAGE"), DELIVER TO AGENT AN EXECUTED MORTGAGE IN FORM AND
SUBSTANCE SATISFACTORY TO AGENT, CONVEYING TO AGENT FOR THE BENEFIT OF LENDERS A
FIRST PRIORITY LIEN ON SUCH REAL PROPERTY, SUBJECT ONLY TO SUCH PRIOR LIENS AS
SHALL CONSENT TO IN WRITING AND (B) IF SUCH REAL PROPERTY IS SUBJECT TO A
MORTGAGE, USE ITS BEST EFFORTS TO DELIVER TO AGENT AN EXECUTED MORTGAGE, IN FORM
AND SUBSTANCE SATISFACTORY TO AGENT, CONVEYING TO AGENT FOR THE BENEFIT OF
LENDERS A SECOND PRIORITY LIEN ON SUCH REAL PROPERTY, SUBJECT ONLY TO SUCH PRIOR
LIENS AS AGENT SHALL CONSENT TO IN WRITING. IF REQUESTED BY AGENT, BORROWER
SHALL ALSO DELIVER TO AGENT AT BORROWER'S EXPENSE A MORTGAGEE TITLE INSURANCE
POLICY IN FAVOR OF AGENT FOR THE BENEFIT OF LENDERS INSURING THE MORTGAGE TO
CREATE AND CONVEY SUCH LIEN, SUBJECT ONLY TO SUCH EXCEPTIONS CONSENTED TO BY
AGENT, CURRENT AND ACCURATE SURVEYS AND APPRAISALS, SATISFACTORY TO AGENT, SUCH
ENVIRONMENTAL REPORTS AS AGENT MAY REASONABLY REQUEST AND SUCH OTHER REPORTS,
AFFIDAVITS, LETTERS, CERTIFICATES, MATERIALS OR INFORMATION RELATING TO SUCH
REAL PROPERTY AS REQUESTED BY AND SATISFACTORY TO AGENT.
5.15 EQUIPMENT. BORROWER SHALL DURING THE TERM HEREOF (A) MAINTAIN
A SYSTEM THAT WILL TRACK, ACCOUNT FOR, AND INVENTORY THE EQUIPMENT AND PERMIT
BORROWER TO MAINTAIN PROPER CUSTODY OVER AND PROTECT THE EQUIPMENT, (B) SHALL
CONDUCT OR SHALL HAVE CONDUCTED A PHYSICAL INVENTORY OF THE EQUIPMENT AT LEAST
ONCE EACH FISCAL YEAR AND (C) PROVIDE TO AGENT A COPY OF THE RESULTS OF THE
SEMI-ANNUAL INVENTORY OF EQUIPMENT AND, PROMPTLY UPON THE REQUEST OF AGENT, ANY
INFORMATION OR REPORTS PRODUCED BY BORROWER'S EQUIPMENT TRACKING/ACCOUNTING
SYSTEM.
5.16 MAINTENANCE OF CORPORATE SEPARATENESS. BORROWER WILL, AND
WILL CAUSE EACH OF ITS SUBSIDIARIES TO, SATISFY CUSTOMARY CORPORATE FORMALITIES,
INCLUDING THE HOLDING OF REGULAR BOARD OF DIRECTORS' AND SHAREHOLDERS' MEETINGS
AND THE MAINTENANCE OF CORPORATE OFFICES AND RECORDS. NEITHER BORROWER NOR ANY
OTHER SUBSIDIARY OF BORROWER SHALL MAKE ANY PAYMENT TO A CREDITOR OF BTITC IN
RESPECT OF ANY LIABILITY OF BTITC, AND NO BANK ACCOUNT OF BTITC SHALL BE
COMMINGLED WITH ANY BANK ACCOUNT OF ANY BORROWER OR ANY OTHER SUBSIDIARY OF
BORROWER. ANY FINANCIAL STATEMENTS DISTRIBUTED TO ANY CREDITORS OF BTITC SHALL,
TO THE EXTENT PERMITTED BY GAAP, CLEARLY ESTABLISH THE CORPORATE SEPARATENESS OF
BTITC FROM BORROWER AND EACH OF BTITC'S OTHER SUBSIDIARIES (IF ANY). FINALLY,
NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL TAKE ANY ACTION, OR
CONDUCT ITS AFFAIRS IN A MANNER, WHICH IS LIKELY TO RESULT IN THE SEPARATE
CORPORATE EXISTENCE OF BTITC FROM THAT OF ANY OR ALL OF BORROWER OR ANY
SUBSIDIARY OF BORROWER BEING IGNORED, OR IN THE ASSETS AND LIABILITIES OF
BORROWER OR ANY SUBSIDIARY OF BORROWER BEING SUBSTANTIVELY CONSOLIDATED WITH
THOSE OF BTITC IN A BANKRUPTCY, REORGANIZATION OR OTHER INSOLVENCY PROCEEDINGS.
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5.17 PAYMENT FOR FIBERSOUTH ACQUISITION. BORROWER AND BTITC SHALL
(A) CAUSE A PORTION OF THE PROCEEDS OF THE NOTE OFFERING, IN AN AMOUNT
SUFFICIENT TO SATISFY ALL OF BORROWER'S AND BTITC'S PAYMENT OBLIGATIONS IN
CONNECTION WITH THE FIBERSOUTH ACQUISITION, INCLUDING, WITHOUT LIMITATION, THE
FIBERSOUTH CASH PORTION AND ANY AND ALL FEES AND EXPENSES ASSOCIATED WITH THE
FIBERSOUTH ACQUISITION (COLLECTIVELY, THE "FIBERSOUTH PORTION OF NOTE
PROCEEDS"), (B) CAUSE THE FIBERSOUTH PORTION OF NOTE PROCEEDS TO BE DEPOSITED IN
THE FIBERSOUTH ACCOUNT, (C) NOT USE THE FIBERSOUTH PORTION NOTE PROCEEDS FOR ANY
PURPOSE OTHER THAN CONSUMMATION OF THE FIBERSOUTH ACQUISITION, AND (D) NOT USE
ANY OTHER ASSETS OR FUNDS OF OR AVAILABLE TO BORROWER (INCLUDING, WITHOUT
LIMITATION, ANY LOANS OR ADVANCES, OR LETTER OF CREDIT OBLIGATIONS, UNDER THIS
AGREEMENT) TO PAY OR SATISFY ALL OR ANY PORTION OF THE FIBERSOUTH CASH PORTION
OR ANY FEES OR EXPENSES ASSOCIATED WITH OR RELATED TO THE FIBERSOUTH
ACQUISITION.
5.18 MANDATORY NOTE PROCEEDS PAYMENT. SIMULTANEOUSLY WITH THE
CLOSING OF THE BTITC TRANSACTION, BORROWER SHALL PAY TO THE AGENT THE MANDATORY
NOTE PROCEEDS PAYMENT, TO BE APPLIED TO THE STOCK PURCHASE BRIDGE LOAN AND
THEREAFTER TO THE THEN OUTSTANDING LOANS.
5.19 SEC FILINGS; PRESS RELEASES; BTITC SENIOR NOTE MATTERS.
PROMPTLY UPON THEIR BECOMING AVAILABLE, BORROWER WILL DELIVER COPIES OF (I) ALL
FINANCIAL STATEMENTS, REPORTS, NOTICES OR OTHER STATEMENTS SENT OR MADE
AVAILABLE BY BTITC, BORROWER OR ANY OF THEIR RESPECTIVE SUBSIDIARIES TO THEIR
SECURITY HOLDERS; (2) ALL REGULAR AND PERIODIC REPORTS AND REGISTRATION
STATEMENTS AND PROSPECTUSES, IF ANY, FILED BY BTITC, BORROWER OR ANY OF THEIR
RESPECTIVE SUBSIDIARIES WITH ANY SECURITIES EXCHANGE OR THE SECURITIES AND
EXCHANGE COMMISSION OR ANY OTHER GOVERNMENTAL AUTHORITY; AND (3) ALL PRESS
RELEASES AND OTHER STATEMENTS MADE AVAILABLE BY BTITC, BORROWER OR ANY OF THEIR
RESPECTIVE SUBSIDIARIES TO THE PUBLIC CONCERNING DEVELOPMENTS IN THE BUSINESS OF
ANY SUCH PERSON AND ALL NOTICES OR CERTIFICATES DELIVERED PURSUANT TO SECTION
4.15 AND 4.16 OF THE INDENTURE GOVERNING THE ISSUANCE OF THE BTITC SENIOR NOTES.
5.20 LIMITATION ON REFERENCES TO AGENT AND LENDERS. EXCEPT AS
REQUIRED BY LAW, NEITHER THIS AGREEMENT NOR ITS CONTENTS WILL BE DISCLOSED
PUBLICLY OR PRIVATELY EXCEPT TO THOSE INDIVIDUALS WHO ARE BORROWER'S OFFICERS,
EMPLOYEES OR ADVISORS WHO HAVE A NEED TO KNOW OF THEM AS A RESULT OF THEIR BEING
OR EXPECTING TO BE SPECIFICALLY INVOLVED IN THE PROPOSED TRANSACTION AND THEN
ONLY ON THE CONDITION THAT EACH SUCH PERSON OR ENTITY AGREE TO BE BOUND BY THE
PROVISIONS OF THIS Section 5.20. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, NONE OF SUCH PERSONS SHALL, EXCEPT AS REQUIRED BY LAW, USE OR REFER
TO AGENT OR LENDERS, OR ANY OF THEIR AFFILIATES, IN ANY DISCLOSURE MADE IN
CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY WITHOUT PRIOR WRITTEN
CONSENT OF AGENT OR LENDERS, RESPECTIVELY, AND PROVIDED FURTHER THAT ANY SUCH
REQUESTED CONSENT OF AGENT OR LENDERS SHALL BE PRESENTED TO AGENT OR LENDERS IN
WRITING NOT LESS THAN 24 HOURS PRIOR TO THE TIME THE REQUESTED DISCLOSURE IS
PROPOSED BE MADE.
5.6. NEGATIVE COVENANTS
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Borrower covenants and agrees (for itself and each Subsidiary)
that, without Agent's prior written consent, from and after the date hereof
until the Termination Date:
6.1 MERGERS, ETC. EXCEPT FOR THE BTITC TRANSACTION AND THE
FIBERSOUTH ACQUISITION, NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL,
DIRECTLY OR INDIRECTLY, BY OPERATION OF LAW OR OTHERWISE, MERGE WITH,
CONSOLIDATE WITH, ACQUIRE ALL OR SUBSTANTIALLY ALL OF THE ASSETS OR CAPITAL
STOCK OF, OR OTHERWISE COMBINE WITH, ANY PERSON OR, EXCEPT AS OTHERWISE
PERMITTED BY Section 5.11, FORM ANY SUBSIDIARY.
6.2 INVESTMENTS; LOANS AND ADVANCES. EXCEPT AS OTHERWISE PERMITTED
BY Sections 6.3 or 6.4 BELOW AND EXCEPT FOR TEMPORARY CASH INVESTMENTS, NEITHER
BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL MAKE ANY INVESTMENT IN, OR MAKE OR
ACCRUE LOANS OR ADVANCES OF MONEY TO, ANY PERSON, THROUGH THE DIRECT OR INDIRECT
HOLDING OF SECURITIES OR OTHERWISE.
6.3 INDEBTEDNESS. NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER
SHALL CREATE, INCUR, ASSUME OR PERMIT TO EXIST ANY INDEBTEDNESS INCLUDING,
WITHOUT LIMITATION, REISSUE OR NONRECOURSE, SUPERIOR OR JUNIOR, SECURED OR
UNSECURED INDEBTEDNESS, EXCEPT: (A) INDEBTEDNESS SECURED BY LIENS PERMITTED
UNDER Section 6.7; (B) THE OBLIGATIONS, (C) THE BTITC SUBORDINATED INDEBTEDNESS,
(D) THE LOFTIN SUBORDINATED DEBT; (E) ALL DEFERRED TAXES; (F) ALL UNFUNDED
PENSION FUND AND OTHER EMPLOYEE BENEFIT PLAN OBLIGATIONS AND LIABILITIES NOT TO
EXCEED $50,000 AND THEN ONLY TO THE EXTENT THEY ARE PERMITTED TO REMAIN UNFUNDED
UNDER APPLICABLE LAW; (G) PERMITTED PURCHASE MONEY INDEBTEDNESS; (H) THE FORMER
EMPLOYEE INDEBTEDNESS; AND (I) OTHER INDEBTEDNESS SET FORTH IN SCHEDULE 3.9.
6.4 AFFILIATE AND EMPLOYEE LOANS; TRANSACTIONS AND EMPLOYMENT
AGREEMENTS. NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL ENTER INTO ANY
LENDING, BORROWING OR OTHER COMMERCIAL TRANSACTION WITH ANY OF ITS EMPLOYEES,
OFFICERS, DIRECTORS, SUBSIDIARIES, AFFILIATES, SHAREHOLDERS OR RELATED PARTIES
WITHOUT THE PRIOR WRITTEN CONSENT OF AGENT, INCLUDING, WITHOUT LIMITATION, (A)
UPSTREAMING AND DOWNSTREAMING OF CASH AND INTERCOMPANY ADVANCES, AND (B) PAYMENT
OF ANY MANAGEMENT, CONSULTING, ADVISORY OR SIMILAR FEE BASED ON OR RELATED TO
BORROWER'S OR SUCH SUBSIDIARY'S REVENUE, OPERATING PERFORMANCE OR INCOME OR ANY
PERCENTAGE THEREOF, OTHER THAN (I) PURSUANT TO THE TRANSACTIONS DESCRIBED IN
SCHEDULE 6.4, (II) FULL-TIME EMPLOYMENT AGREEMENTS AND INCENTIVE COMPENSATION
PROGRAMS WITH CURRENT EMPLOYEES ON COMMERCIALLY REASONABLE TERMS SUBSTANTIALLY
SIMILAR TO THE AGREEMENTS IN EFFECT ON THE CLOSING DATE AND DESCRIBED IN
SCHEDULE 6.4, (III) THE PERMITTED MANAGEMENT FEE, (IV) THE LOFTIN SUBORDINATED
DEBT AND (V) DIVIDENDS OR INTEREST PAYMENTS WHICH CONSTITUTE PERMITTED PAYMENTS.
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6.5 CAPITAL STRUCTURE AND BUSINESS. BORROWER SHALL NOT: (A) MAKE
ANY CHANGES IN ANY OF ITS OR ANY SUBSIDIARY OF BORROWER'S BUSINESS OBJECTIVES,
PURPOSES, OR OPERATIONS WHICH COULD IN ANY WAY ADVERSELY AFFECT THE REPAYMENT OF
THE OBLIGATIONS OR HAVE OR RESULT IN A MATERIAL ADVERSE EFFECT; (B) MAKE ANY
CHANGE IN ITS OR ANY SUBSIDIARY OF BORROWER'S CAPITAL STRUCTURE AS DESCRIBED IN
SCHEDULE 3.9 (INCLUDING, WITHOUT LIMITATION, THE ISSUANCE OF ANY STOCK OR OTHER
SECURITIES CONVERTIBLE INTO STOCK, OR ANY REVISION OF THE TERMS OF ITS
OUTSTANDING STOCK), OR (C) AMEND ITS OR ANY SUBSIDIARY OF BORROWER'S ARTICLES OF
CERTIFICATE OF INCORPORATION OR CHARTER OR BY-LAWS. EXCEPT AS SET FORTH IN
SCHEDULE 6.5, NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL ENGAGE IN
ANY BUSINESS OTHER THAN THE BUSINESS CURRENTLY ENGAGED IN BY SUCH PERSON.
6.6 GUARANTEED INDEBTEDNESS. NEITHER BORROWER NOR ANY SUBSIDIARY
OF BORROWER SHALL INCUR ANY GUARANTEED INDEBTEDNESS EXCEPT (A) BY ENDORSEMENT OF
INSTRUMENTS OR ITEMS OF PAYMENT FOR DEPOSIT TO THE GENERAL ACCOUNT OF SUCH
PERSON, AND (B) FOR GUARANTEED INDEBTEDNESS INCURRED FOR THE BENEFIT OF
BORROWER, IF THE PRIMARY OBLIGATION IS PERMITTED BY THIS AGREEMENT.
6.7 LIENS. NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL
CREATE OR PERMIT ANY LIEN ON ANY OF ITS PROPERTIES OR ASSETS, INCLUDING, WITHOUT
LIMITATION, ITS REAL AND TANGIBLE AND INTANGIBLE PERSONAL PROPERTY OR ASSETS AND
FIXTURES EXCEPT FOR PRESENTLY EXISTING OR HEREAFTER CREATED LIENS IN FAVOR OF
LENDERS AND THE PERMITTED LIENS.
6.8 SALE OF ASSETS. NEITHER BORROWER NOR ANY SUBSIDIARY OF
BORROWER SHALL SELL, TRANSFER, CONVEY, ASSIGN OR OTHERWISE DISPOSE OF ANY ITS
ASSETS OR PROPERTIES, WITHOUT THE CONSENT OF AGENT, EXCEPT FOR (I) THE SALE OF
INVENTORY OR FIBER CAPACITY IN THE ORDINARY COURSE OF BUSINESS AND ON BORROWER'S
ORDINARY BUSINESS TERMS, (II) EQUIPMENT NO LONGER USED OR USEFUL IN BORROWER'S
BUSINESS SUBJECT TO Section 1.4(b), AND (III) THE SALE OF ASSETS WITH AGGREGATE
NET CASH PROCEEDS OF $1,000,000 OR LESS IN ANY PERIOD OF 12 CONSECUTIVE MONTHS,
PROVIDED, THAT IN THE CASE OF A SALE UNDER SUBPARAGRAPH (II) AND (III)
HEREUNDER, EACH ASSET IS SOLD FOR AN AMOUNT NOT LESS THAN ITS FAIR MARKET VALUE.
6.9 EVENTS OF DEFAULT. BORROWER SHALL NOT TAKE ANY ACTION OR OMIT
TO TAKE ANY ACTION, WHICH ACT OR OMISSION WOULD CONSTITUTE (A) A DEFAULT OR AN
EVENT OF DEFAULT PURSUANT TO, OR NONCOMPLIANCE WITH ANY OF, THE TERMS OF ANY OF
THE LOAN DOCUMENTS, OR (B) A MATERIAL DEFAULT OR AN EVENT OF DEFAULT PURSUANT
TO, OR NONCOMPLIANCE WITH, ANY OTHER CONTRACT, LEASE, MORTGAGE, DEED OF TRUST OR
INSTRUMENT TO WHICH IT IS A PARTY OR BY WHICH IT OR ANY OF ITS PROPERTY IS
BOUND, OR ANY DOCUMENT CREATING A LIEN.
6.10 ERISA. NEITHER BORROWER NOR ANY ERISA AFFILIATE SHALL,
WITHOUT AGENT'S PRIOR WRITTEN CONSENT, ACQUIRE ANY NEW ERISA AFFILIATE THAT
MAINTAINS OR HAS AN OBLIGATION TO CONTRIBUTE TO A PENSION PLAN THAT HAS EITHER
AN "ACCUMULATED FUNDING DEFICIENCY," AS DEFINED IN SECTION 302 OF ERISA, OR ANY
"UNFUNDED VESTED BENEFITS," AS DEFINED IN SECTION 4006(A)(3)(E)(III) OF ERISA IN
THE CASE OF ANY PLAN OTHER THAN A MULTIEMPLOYER PLAN AND IN SECTION 4211 OF
ERISA IN THE CASE OF A MULTIEMPLOYER PLAN. ADDITIONALLY, NEITHER BORROWER NOR
ANY ERISA AFFILIATE SHALL, WITHOUT AGENT'S PRIOR WRITTEN CONSENT:
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(A) TERMINATE ANY PENSION PLAN THAT IS SUBJECT TO TITLE IV OF ERISA WHERE SUCH
TERMINATION COULD REASONABLY BE ANTICIPATED TO RESULT IN LIABILITY TO BORROWER;
(B) PERMIT ANY ACCUMULATED FUNDING DEFICIENCY, AS DEFINED IN SECTION 302(A)(2)
OF ERISA, TO BE INCURRED WITH RESPECT TO ANY PENSION PLAN; (C) FAIL TO MAKE ANY
CONTRIBUTIONS OR FAIL TO PAY ANY AMOUNTS DUE AND OWING AS REQUIRED BY THE TERMS
OF ANY PLAN BEFORE SUCH CONTRIBUTIONS OR AMOUNTS BECOME DELINQUENT; (D) MAKE A
COMPLETE OR PARTIAL WITHDRAWAL (WITHIN THE MEANING OF SECTION 4201 OF ERISA)
FROM ANY MULTIEMPLOYER PLAN; OR (E) AT ANY TIME FAIL TO PROVIDE AGENT WITH
COPIES OF ANY PLAN DOCUMENTS OR GOVERNMENTAL REPORTS OR FILINGS, IF REASONABLY
REQUESTED BY LENDER.
6.11 FINANCIAL COVENANTS. BORROWER SHALL NOT BREACH ANY OF THE
FOLLOWING FINANCIAL COVENANTS, EACH OF WHICH SHALL BE CALCULATED IN ACCORDANCE
WITH GAAP CONSISTENTLY APPLIED:
( ) Minimum Consolidated Interest Coverage Ratio. Borrower
shall not permit its Consolidated Interest Coverage Ratio as of the end of any
of the following Fiscal Quarters to be less than the respective ratio shown
opposite thereto:
Minimum Consolidated Interest
Fiscal Quarter Coverage Ratio
------------------ ---------------------------
Fourth Fiscal Quarter, 1997 2.0 to 1
First Fiscal Quarter, 1998 2.5 to 1
Each Fiscal Quarter commencing
with the Second Fiscal Quarter,
1998, through the Fourth Fiscal
Quarter, 2000 3.5 to 1
Any Fiscal Quarter thereafter 1.5 to 1
(a) Maximum Capital Expenditures.
(i) Borrower shall not permit the aggregate
amount of Capital Expenditures for Fiscal Year 1997 to exceed $40,000,000 in the
aggregate; provided that the obligations of Borrower with respect to the
FiberSouth Acquisition shall not be deemed a Capital Expenditure for purposes of
this Section 6.11(b)(i).
(ii) Borrower shall not permit the aggregate
amount of Capital Expenditures for Fiscal Year 1998 to exceed the sum of (a)
$100,000,000 plus (b) an amount equal to one hundred percent (100%) of that
portion (if any) of the permitted maximum Capital Expenditures for Fiscal Year
1997 which were not expended by Borrower in such Fiscal Year.
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(iii) Borrower shall not permit the aggregate
amount of Capital Expenditures for Fiscal Year 1999 to exceed an amount equal to
the sum of (a) an amount equal to 90% of the sum of (1) EBITDA for such Fiscal
Year less (2) Consolidated Interest Expense for such Fiscal Year, PLUS (b) an
amount equal to one hundred percent (100%) of that portion (if any) of the
maximum permitted Capital Expenditures for Fiscal Year 1998 which were not
expended by Borrower in such Fiscal Year, not in excess of $100,000,000.
(iv) Borrower shall not permit the aggregate
amount of Capital Expenditures for Fiscal Year 2000 and any Fiscal Year
thereafter to exceed an amount equal to 90% of the sum of (1) EBITDA for such
Fiscal Year, LESS (2) Consolidated Cash Interest Expense for such Fiscal Year.
(c) Total Debt/EBITDA Ratio. Borrower shall not permit its
Total Debt to EBITDA Ratio as of the end of any of the following Fiscal Quarters
to exceed the respective ratio shown opposite thereto:
Maximum Total
Fiscal Quarter Debt to EBITDA Ratio
------------------------------ --------------------
Fourth Fiscal Quarter, 1997 6.75 to 1
First Fiscal Quarter, 1998 7.25 to 1
Second Fiscal Quarter, 1998 6.00 to 1
Third Fiscal Quarter, 1998 and
any Fiscal Quarter thereafter 5.00 to 1
(d) Minimum EBITDA. Borrower shall not permit its
cumulative EBITDA for the four (4) consecutive Fiscal Quarters ending on the
last day of any Fiscal Quarters set forth below to be less than the respective
amount shown opposite thereto:
Four Fiscal Quarters Ending Minimum Cumulative
On Last Day of: EBITDA
----------------------- -----------------------
Fourth Fiscal Quarter, 1997 $ 9,400,000
First Fiscal Quarter, 1998 9,000,000
Second Fiscal Quarter, 1998 11,100,000
Third Fiscal Quarter, 1998 14,400,000
Fourth Fiscal Quarter, 1998 16,300,000
First Fiscal Quarter, 1999 18,100,000
Second Fiscal Quarter, 1999 20,600,000
Third Fiscal Quarter, 1999 24,000,000
Fourth Fiscal Quarter, 1999 27,900,000
Fourth Fiscal Quarter, 2000 44,300,000
Fourth Fiscal Quarter, 2001 60,200,000
Fourth Fiscal Quarter, 2002 65,000,000
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(e) Accounts Payable. Borrower shall not permit as of the
end of any Fiscal Month its Accounts Payable Days Outstanding to exceed 85 days.
6.12 HAZARDOUS MATERIALS. EXCEPT AS SET FORTH IN SCHEDULE 3.18,
BORROWER SHALL NOT AND SHALL NOT PERMIT ANY SUBSIDIARY OR ANY OTHER PERSON
WITHIN THE CONTROL OF BORROWER TO CAUSE OR PERMIT A RELEASE OR THE PRESENCE,
USE, GENERATION, MANUFACTURE, INSTALLATION, OR STORAGE OF ANY HAZARDOUS
MATERIALS ON, UNDER, IN OR ABOUT ANY OF ITS REAL ESTATE OR THE TRANSPORTATION OF
ANY HAZARDOUS MATERIALS TO OR FROM SUCH REAL ESTATE WHERE SUCH RELEASE OR
PRESENCE, USE, GENERATION, MANUFACTURE, INSTALLATION, OR STORAGE WOULD VIOLATE,
OR FORM THE BASIS FOR LIABILITY UNDER, ANY ENVIRONMENTAL LAWS.
6.13ERROR! BOOKMARK NOT DEFINED. SALE-LEASEBACK TRANSACTIONS.
NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL ENGAGE IN ANY
SALE-LEASEBACK OR SIMILAR TRANSACTION THAT WOULD BE CONSIDERED AN OPERATING
LEASE PURSUANT TO GAAP INVOLVING ANY OF ITS ASSETS WITHOUT THE PRIOR CONSENT OF
AGENT.
6.14 CANCELLATION OF INDEBTEDNESS. NEITHER BORROWER NOR ANY
SUBSIDIARY OF BORROWER SHALL CANCEL ANY CLAIM OR DEBT OWING TO IT, EXCEPT FOR
REASONABLE CONSIDERATION AND IN THE ORDINARY COURSE OF ITS BUSINESS.
6.15 RESTRICTED PAYMENTS. BORROWER SHALL NOT MAKE NOR SHALL IT
PERMIT ANY SUBSIDIARY TO MAKE ANY RESTRICTED PAYMENT OTHER THAN A PERMITTED
PAYMENT OR A PERMITTED DIVIDEND.
6.16 LEASES. NEITHER BORROWER NOR ANY SUBSIDIARY OF BORROWER SHALL
ENTER INTO ANY AGREEMENTS TO RENT OR LEASE ANY REAL PROPERTY OR PERSONAL
PROPERTY HAVING AN ORIGINAL TERM OF ONE YEAR OR LESS (OTHER THAN LEASES OF SALES
OFFICES) WHICH WOULD CAUSE THE AGGREGATE ANNUAL PAYMENT OBLIGATIONS OF BORROWER
UNDER SUCH LEASES TO EXCEED $150,000.
6.17 TAX SHARING AGREEMENTS. THE BORROWER WILL NOT AT ANY TIME
BECOME A PARTY TO ANY TAX SHARING AGREEMENT THE PROVISIONS OF WHICH OBLIGATE THE
BORROWER AND ITS SUBSIDIARIES TO PAY INCOME TAXES IN AN AMOUNT IN EXCESS OF THE
THEN CONSOLIDATED INCOME TAX LIABILITY OF BORROWER AND ITS SUBSIDIARIES,
CALCULATED WITHOUT GIVING EFFECT TO ANY SUCH TAX SHARING AGREEMENT.
6.18 CHANGES RELATING TO SUBORDINATED INDEBTEDNESS. BORROWER SHALL
NOT CHANGE OR AMEND THE TERMS OF ANY SUBORDINATED INDEBTEDNESS (OR ANY INDENTURE
OR AGREEMENT IN CONNECTION THEREWITH) IF THE EFFECT OF SUCH AMENDMENT IS TO: (A)
INCREASE THE INTEREST RATE ON SUCH SUBORDINATED INDEBTEDNESS; (B) CHANGE THE
DATES UPON WHICH PAYMENTS OF PRINCIPAL OR INTEREST ARE DUE ON SUCH SUBORDINATED
INDEBTEDNESS OTHER THAN TO EXTEND SUCH DATES; (C) CHANGE ANY DEFAULT OR EVENT OF
DEFAULT OTHER THAN TO DELETE OR MAKE LESS RESTRICTIVE ANY DEFAULT PROVISION
THEREIN, OR ADD ANY COVENANT WITH RESPECT TO SUCH SUBORDINATED INDEBTEDNESS; (D)
CHANGE THE REDEMPTION OR PREPAYMENT PROVISIONS OF SUCH SUBORDINATED INDEBTEDNESS
OTHER THAN TO EXTEND THE DATES THEREOF OR TO REDUCE THE PREMIUMS PAYABLE IN
CONNECTION THEREWITH; (E) GRANT ANY SECURITY OR COLLATERAL TO SECURE PAYMENT OF
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SUCH SUBORDINATED INDEBTEDNESS; OR (F) CHANGE OR AMEND ANY OTHER TERM IF SUCH
CHANGE OR AMENDMENT WOULD MATERIALLY INCREASE THE OBLIGATIONS OF THE OBLIGOR OR
CONFER ADDITIONAL MATERIAL RIGHTS TO HOLDER OF SUCH SUBORDINATED INDEBTEDNESS IN
A MANNER ADVERSE TO BORROWER, AGENT OR ANY LENDER.
6.19 INTENTIONALLY OMITTEDERROR! BOOKMARK NOT DEFINED..
6.20 CERTAIN LICENSES, AGREEMENTS AND OPERATING AUTHORITY.
BORROWER SHALL NOT TERMINATE, NOR FAIL TO MAINTAIN THE EFFECTIVENESS OF OR ITS
RIGHTS UNDER, ANY OF THE FOLLOWING: (A) ANY LICENSE NECESSARY OR MATERIAL TO THE
CONDUCT OF THAT PORTION OF BORROWER'S BUSINESS WITHIN THE GEOGRAPHIC AREA
COMPREHENDED BY SUCH LICENSE, (B) ANY CERTIFICATE OF CONVENIENCE OR NECESSITY,
OR ANY OTHER SIMILAR OPERATING AUTHORITY GRANTED, AND NECESSARY OR MATERIAL TO
THE CONDUCT OF THAT PORTION OF BORROWER'S BUSINESS WITHIN THE GEOGRAPHIC AREA
SUBJECT TO REGULATORY OVERSIGHT (IN ANY DEGREE), BY ANY GOVERNMENTAL AUTHORITY
OR (C) ANY CONTRACT UNDER WHICH THE BORROWER HAS ACCESS TO, OR THE RIGHT TO USE,
ANY PORTION OF A FIBER OPTIC NETWORK UTILIZED FOR TELEPHONY, FACSIMILE OR DATA
TRANSMISSION, UNLESS (I) BORROWER HAS DETERMINED TO CEASE ITS OPERATIONS IN SUCH
GEOGRAPHIC AREA, OR (II) BORROWER'S OPERATIONS IN SUCH GEOGRAPHIC AREA NO LONGER
REQUIRE ANY SUCH LICENSE, CERTIFICATE OR CONTRACT.
6.7. TERM
7.1 TERMINATION. THE FINANCING ARRANGEMENT CONTEMPLATED HEREBY
SHALL BE IN EFFECT UNTIL THE COMMITMENT TERMINATION DATE; PROVIDED, THAT IN THE
EVENT OF A PREPAYMENT OF ANY PART OF THE OBLIGATIONS PRIOR TO THE COMMITMENT
TERMINATION DATE WITH FUNDS BORROWED FROM ANY PERSON OTHER THAN LENDERS,
PURSUANT TO THIS AGREEMENT, THE LOANS SHALL IMMEDIATELY BECOME DUE AND PAYABLE
IN FULL, IN CASH, AND BORROWER SHALL PAY TO AGENT FOR THE ACCOUNT OF LENDERS, IN
FULL, IN IMMEDIATELY AVAILABLE FUNDS, ALL CURRENT AND LIQUIDATED OBLIGATIONS
ARISING UNDER ANY OF THE LOAN DOCUMENTS, FURNISH THE CASH COLLATERAL OR
SUBSTITUTE LETTERS OF CREDIT FOR ANY OUTSTANDING LETTER OF CREDIT OBLIGATIONS IN
ACCORDANCE WITH Section 1.5 HEREOF, AND PAY ALL OTHER OBLIGATIONS IN A MANNER
SATISFACTORY TO LENDER.
7.2 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING
ARRANGEMENT. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED FOR IN THE LOAN DOCUMENTS,
NO TERMINATION OR CANCELLATION (REGARDLESS OF CAUSE OR PROCEDURE) OF ANY
FINANCING ARRANGEMENT UNDER THIS AGREEMENT SHALL IN ANY WAY AFFECT OR IMPAIR THE
OBLIGATIONS, DUTIES, INDEMNITIES, AND LIABILITIES OF BORROWER OR ANY SUBSIDIARY
OF BORROWER, OR THE RIGHTS OF LENDERS RELATING TO ANY UNPAID OBLIGATION, DUE OR
NOT DUE, LIQUIDATED, CONTINGENT OR UNLIQUIDATED OR ANY TRANSACTION OR EVENT
OCCURRING PRIOR TO SUCH TERMINATION, OR ANY TRANSACTION OR EVENT, THE
PERFORMANCE OF WHICH IS NOT REQUIRED UNTIL AFTER THE COMMITMENT TERMINATION
DATE. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN OR IN ANY OTHER LOAN
DOCUMENT, ALL UNDERTAKINGS, AGREEMENTS, COVENANTS, WARRANTIES AND
REPRESENTATIONS OF OR BINDING UPON BORROWER OR ANY SUBSIDIARY OF BORROWER, AND
ALL RIGHTS OF AGENT AND LENDERS, ALL AS CONTAINED IN THE LOAN DOCUMENTS SHALL
NOT TERMINATE OR EXPIRE, BUT RATHER SHALL SURVIVE SUCH TERMINATION OR
CANCELLATION AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL
OF
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THE OBLIGATIONS HAVE BEEN INDEFEASIBLY PAID IN FULL IN ACCORDANCE WITH THE
TERMS OF THE AGREEMENTS CREATING SUCH OBLIGATIONS. 7.
8.8. EVENTS OF DEFAULT: RIGHTS AND REMEDIES
8.1 EVENTS OF DEFAULT. THE OCCURRENCE OF ANY ONE OR MORE OF THE
FOLLOWING EVENTS (REGARDLESS OF THE REASON THEREFOR) SHALL CONSTITUTE AN "EVENT
OF DEFAULT" HEREUNDER:
( ) Borrower shall fail to make any payment in respect of
any Obligations hereunder or under any of the other Loan Documents when due and
payable or declared due and payable, including, without limitation, any payment
of principal of, or interest or fees on, any of the Loans or the Letter of
Credit Obligations; or
(a) Borrower shall fail or neglect to perform, keep or
observe any of the provisions of SECTION 6, including, without limitation, any
of the provisions set forth in Annex A and SECTION 6.11; or
(b) A default or Event of Default shall have occurred
under the BTITC Guaranty or the BTITC Pledge Agreement; or
(c) A default or event of default shall have occurred
under the Indenture or related documents executed and delivered in connection
with the issuance of the BTITC Senior Notes; or
(d) Borrower or Guarantor shall fail or neglect to
perform, keep or observe any term or provision of this Agreement (other than any
such term or provision referred to in paragraphs (a) or (b) above) or of any of
the other Loan Documents, and the same shall remain unremedied for a period of
ten (10) days; or
(e) Borrower, any Subsidiary of Borrower or BTITC shall
default under any other agreement, document or instrument to which it is a
party, or by which any such Person or its property is bound, including, without
limitation, (x) that certain Aircraft Lease Agreement dated September 29, 1995
between Cat and Mouse Enterprises, Inc. and Borrower or (y) the Former Employee
Indebtedness, and such default (i) involves the failure to make any payment,
whether of principal, interest or otherwise, and whether due by scheduled
maturity, required prepayment, acceleration, demand or otherwise, in respect of
any Indebtedness of such Person or obligation of such Person to make any payment
required thereunder in an aggregate amount exceeding $300,000, or (ii) causes
(or permits any holder of such Indebtedness or a trustee to cause) such
Indebtedness, or a portion thereof in an aggregate amount exceeding $300,000 to
become due prior to its stated maturity or prior to its regularly scheduled
dates of payment, or (iii) causes any of the Subordinated Indebtedness to become
due and payable, or (iv) could, in the reasonable judgment of Agent, result in a
Material Adverse Effect; or
(f) any representation or warranty herein or in any other
Loan Document or in any written statement pursuant thereto or hereto, any
report, financial statement or
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certificate made or delivered to Agent or Lenders by Borrower or BTITC, shall be
untrue or incorrect, as of the date when made or deemed made (including, without
limitation, those made or deemed made pursuant to SECTION 2.2); or
(g) any of the assets of Borrower or any Subsidiary of
Borrower shall be attached, seized, levied upon or subjected to a writ or
distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors of such Person, and shall
remain unstayed or undismissed for sixty (60) consecutive days; or any Person
other than Borrower shall apply for the appointment of a receiver, trustee or
custodian for any of Borrower's assets (or those of any Subsidiary of Borrower),
and shall remain unstayed or undismissed for sixty (60) consecutive days; or
Borrower or any Subsidiary of Borrower shall have concealed, removed or
permitted to be concealed or removed, any part of its property with intent to
hinder, delay or defraud its creditors or any of them or made or suffered a
transfer of any of its property or the incurring of an obligation which may be
fraudulent under any bankruptcy, fraudulent transfer or other similar law; or
(h) a case or proceeding shall have been commenced against
Borrower or any Subsidiary of Borrower in a court having competent jurisdiction
seeking a decree or order (i) under Title 11 of the United States Bankruptcy
Code, as now constituted or hereafter amended, or any other applicable Federal,
state or foreign bankruptcy or other similar law, (ii) appointing a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official) of
such Person or of any substantial part of its properties, or (iii) ordering the
winding up or liquidation of the affairs of any such Person and such case or
proceeding shall remain undismissed or unstayed for sixty (60) consecutive days
or such court shall enter a decree or order granting the relief sought in such
case or proceeding; or
(i) Borrower or any Subsidiary of Borrower shall (i) file
a petition seeking relief under Title 11 of the United States Bankruptcy Code,
as now constituted or hereafter amended, or any other applicable Federal, state
or foreign bankruptcy or other similar law, (ii) consent to the institution of
proceedings thereunder or to the filing of any such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee or sequestrator (or similar official) of any such Person or of
any substantial part of its properties, (iii) fail generally to pay its debts as
such debts become due, or (iv) take any corporate action in furtherance of any
such action; or
(j) a final judgment or judgments (after the expiration of
all times to appeal therefrom) for the payment of money in excess of $300,000 in
the aggregate shall be rendered against Borrower or any Subsidiary of Borrower,
unless the same shall be (i) fully covered by insurance in accordance with
SECTION 5.5, or (ii) vacated, stayed, bonded or discharged within a period of
fifteen (15) days from the date of such judgment; or
(k) any provision of any Collateral Document, after
delivery thereof pursuant to SECTION 2.1, shall for any reason cease to be
valid, binding and enforceable in accordance with its terms, or any security
interest created under any Collateral Document shall
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cease to be a valid and perfected security interest or Lien having the first
priority in any of the Collateral purported to be covered thereby.
8.2 REMEDIES.
(a) If any Default or Event of Default shall have occurred
and be continuing, beyond the expiration of any cure periods applicable thereto,
(i) the rates of interest applicable to the Loans and the fee applicable to the
Letter of Credit Obligations shall automatically increase to the Default Rate,
as provided in SECTIONS 1.8(E) and 1.9(C), (ii) Lenders' obligation to make
further Advances and to incur additional Letter of Credit Obligations shall
terminate, and (iii) Lender may seek the approval of and by any Governmental
Authority whose consent may be necessary or desirable with respect to the
exercise of any remedy under the BTITC Pledge Agreement (whether with respect to
a then current Default or Event of Default or otherwise).
(b) In addition, if any Event of Default shall have
occurred and be continuing, beyond the expiration of any cure periods applicable
thereto, Agent may, without notice and at the direction of the Required Lenders
in their sole discretion, take any one or more of the following actions: (i)
declare all or any portion of the Obligations to be forthwith due and payable,
including, without limitation, contingent liabilities with respect to Letter of
Credit Obligations, whereupon such Obligations shall become and be due and
payable PROVIDED, that upon the occurrence of an Event of Default specified in
SECTIONS 8.1 (F), (G), (H) OR (J), the Obligations shall become immediately due
and payable without declaration, notice or demand by Agent; (ii) require that
all Letter of Credit Obligations be fully cash collateralized; or (iii) exercise
any of the rights and remedies provided to Agent or Lenders under the Loan
Documents or at law or equity, including, without limitation, all rights and
remedies provided to a secured party under the Code. Without limiting the
generality of the foregoing, Borrower expressly agrees that in any such event
Agent on behalf of the Lenders, without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Borrower or any other Person
(all and each of which demands, advertisements and notices are hereby expressly
waived to the maximum extent permitted by the UCC and other applicable law), may
forthwith enter upon the premises of Borrower where any Collateral is located
through self-help, without judicial process, without first obtaining a final
judgment or giving Borrower notice and opportunity for a hearing on Lenders'
claim or action, and without paying rent to Borrower, and collect, receive,
assemble, process, appropriate and realize upon the Collateral, or any part
thereof, and may forthwith sell, lease, assign, give an option or options to
purchase, or sell or otherwise dispose of and deliver said Collateral (or
contract to do so), or any part thereof, in one or more parcels at public or
private sale or sales, at any exchange at such prices as it may deem best, for
cash or on credit or for future delivery without assumption of any credit risk.
Agent shall have the right upon any such public sale or sales and, to the extent
permitted by law, upon any such private sale or sales, to purchase for the
benefit of Lenders the whole or any part of said Collateral so sold, free of any
right or equity of redemption, which equity of redemption Borrower hereby
releases. Such sales may be adjourned and continued from time to time with or
without notice. Agent on behalf of the Lenders shall have the right to conduct
such sales on Borrower's premises or
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elsewhere and shall have the right to use Borrower's premises without charge for
such sales for such time or times as Agent deems reasonably necessary or
advisable.
(c) Borrower further agrees, at Agent's request, to
assemble the Collateral and make it available to Agent on behalf of the Lenders
at places which Agent shall reasonably select, whether at Borrower's premises or
elsewhere. Until Agent is able to effect a sale, lease, or other disposition of
Collateral, Agent on behalf of the Lenders shall have the right to use or
operate Collateral or any part thereof to the extent that it deems appropriate
for the purpose of preserving Collateral or its value or for any other purpose
deemed appropriate by Agent. Neither Agent nor any Lender shall have any
obligation to Borrower to maintain or preserve the rights of Borrower as against
third parties with respect to Collateral while Collateral is in the possession
of Agent. Agent may, if it so elects at the direction of the Required Lenders in
their sole discretion, seek the appointment of a receiver or keeper to take
possession of Collateral and to enforce any of Agent's remedies on behalf of the
Lenders with respect to such appointment without prior notice or hearing. Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, as provided in SECTION 8.2(F) hereof,
Borrower remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by Agent of any other amount required by any provision of law,
including, but not limited to, Section 9-504(1)(c) of the UCC (but only after
Agent has received what Agent considers reasonable proof of a subordinate
party's security interest), need Agent account for the surplus, if any, to
Borrower. To the maximum extent permitted by applicable law, Borrower waives all
claims, damages, and demands against Agent and Lenders arising out of the
repossession, retention or sale of Collateral except such as arise out of the
gross negligence or willful misconduct of such party. Borrower agrees that five
(5) days prior notice by Agent or any Lender to Borrower of the time and place
of any public sale or of the time after which a private sale may take place is
reasonable notification of such matters. Borrower shall remain liable for any
deficiency if the proceeds of any sale or disposition of the Collateral are
insufficient to pay all amounts to which Agent and Lenders are entitled,
Borrower also being liable for any attorneys' fees incurred by Agent and Lenders
to collect such deficiency.
(d) Borrower agrees to pay any and all costs of Agent and
Lenders, including, without limitation, attorneys' fees in an amount not to
exceed 15% of the amount then owing by Borrower to Agent and Lenders incurred in
connection with the enforcement of any of its rights and remedies hereunder.
(e) Except as otherwise specifically provided herein,
Borrower hereby waives presentment, demand, protest or any notice (to the
maximum extent permitted by applicable law) of any kind in connection with this
Agreement, any of the other Loan Documents or any Collateral.
(f) The Proceeds of any sale, disposition or other
realization upon all or any part of the Collateral shall be distributed by Agent
upon receipt, in the following order of priorities:
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first, to Agent in an amount sufficient to pay in
full the reasonable expenses of Agent in connection with such sale, disposition
or other realization, including, but not limited to, all expenses, liabilities
and advances incurred or made by Agent in connection therewith, including, but
not limited to, attorney's fees in an amount not to exceed 15% of the aggregate
amount then owing by Borrower to Agent and Lenders;
second, to Lenders in an amount equal to the then
due and unpaid accrued interest, fees and prepayment fees, if any, on the
Obligations;
third, to Lenders in an amount equal to any other
Obligations or amounts owed, if any, in connection with the Obligations;
fourth, to Lenders in an amount equal to any
other Obligations which are then unpaid; and
finally, upon payment in full of all of the
Obligations, to Borrower or its representatives or to whomsoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction may
direct.
8.3 WAIVERS BY BORROWER. EXCEPT AS OTHERWISE PROVIDED FOR IN THIS
AGREEMENT AND APPLICABLE LAW TO THE FULL EXTENT PERMITTED BY APPLICABLE LAW,
BORROWER WAIVES: (A) PRESENTMENT, DEMAND AND PROTEST, AND NOTICE OF PRESENTMENT,
DISHONOR, INTENT TO ACCELERATE, ACCELERATION, PROTEST, DEFAULT, NONPAYMENT,
MATURITY, RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL
LOAN DOCUMENTS, NOTES, COMMERCIAL PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS,
INSTRUMENTS, CHATTEL PAPER AND GUARANTIES AT ANY TIME HELD BY AGENT OR ANY
LENDER ON WHICH BORROWER MAY IN ANY WAY BE LIABLE, AND HEREBY RATIFIES AND
CONFIRMS WHATEVER AGENT OR LENDERS MAY DO IN THIS REGARD; (B) ALL RIGHTS TO
NOTICE AND A HEARING PRIOR TO AGENT'S TAKING POSSESSION OR CONTROL OF, OR TO
AGENT'S REPLEVY, ATTACHMENT OR LEVY UPON, THE COLLATERAL OR ANY BOND OR SECURITY
WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT TO EXERCISE ANY OF
ITS REMEDIES; AND (C) THE BENEFIT OF ALL VALUATION, APPRAISAL AND EXEMPTION
LAWS. BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS CHOICE
WITH RESPECT TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
EVIDENCED HEREBY AND THEREBY.
9. SUCCESSORS AND ASSIGNS
This Agreement and the other Loan Documents shall be binding on
and shall inure to the benefit of Borrower, Agent, Lenders, and their respective
successors and assigns, except as otherwise provided herein or therein. Borrower
may not assign, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the other Loan Documents without
the prior express written consent of Lenders. Any such purported assignment,
transfer, hypothecation or other conveyance by Borrower without the prior
express written consent of Lenders shall be void. The terms and provisions of
this Agreement and the other Loan Documents are for the purpose of defining the
relative rights and obligations of Borrower, Agent and Lenders with respect to
the transactions contemplated hereby and, except as
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expressly set forth in SECTION 1.13 hereof, there shall be no third party
beneficiaries of any of the terms and provisions of this Agreement or any of the
other Loan Documents.
10. ASSIGNMENT AND PARTICIPATIONS; AGENT
10.1 ASSIGNMENT AND PARTICIPATIONS.
(a) Borrower consents to any Lender's assignment of,
and/or sale of participations in, at any time or times, the Loan Documents,
Loans, Letter of Credit Obligations and any Commitment or of any portion thereof
or interest therein, including any Lender's rights, title, interests, remedies,
powers or duties thereunder, whether evidenced by a writing or not. Any
assignment by a Lender shall (i) require the consent of Agent (which shall not
be unreasonably withheld or delayed) and the execution of an assignment
agreement (an "Assignment Agreement") substantially in the form attached hereto
as Exhibit M and otherwise in form and substance satisfactory to, and
acknowledged by, Agent; (ii) be conditioned on such assignee Lender representing
to the assigning Lender and Agent that it is purchasing the applicable Loans to
be assigned to it for its own account, for investment purposes and not with a
view to the distribution thereof; (iii) if a partial assignment, be in an amount
at least equal to $5,000,000 and, after giving effect to any such partial
assignment, the assigning Lender shall have retained Commitments in an amount at
least equal to $5,000,000; and (iv) include a payment to Agent of an assignment
fee of $3,500. In the case of an assignment by a Lender under this SECTION 10.1,
the assignee shall have, to the extent of such assignment, the same rights,
benefits and obligations as it would if it were a Lender hereunder. The
assigning Lender shall be relieved of its obligations hereunder with respect to
its Commitments or assigned portion thereof from and after the date of such
assignment. Borrower hereby acknowledges and agrees that any assignment will
give rise to a direct obligation of Borrower to the assignee and that the
assignee shall be considered to be a "Lender." In all instances, each Lender's
liability to make Loans hereunder shall be several and not joint and shall be
limited to such Lender's Commitment Percentage. In the event Agent or any Lender
assigns or otherwise transfers all or any part of a Revolving Credit Note, Agent
or any such Lender shall so notify Borrower and Borrower shall, upon the request
of Agent or such Lender, execute new Revolving Credit Notes in exchange for the
Revolving Credit Notes being assigned. Notwithstanding the foregoing provisions
of this SECTION 10.1(A), any Lender may at any time pledge or assign all or any
portion of such Lender's rights under this Agreement and the other Loan
Documents to a Federal Reserve Bank; PROVIDED, however, that no such pledge or
assignment shall release such Lender from such Lender's obligations hereunder or
under any other Loan Document.
(b) Any participation by a Lender of all or any part of
its Commitments shall be in an amount at least equal to $5,000,000, and with the
understanding that all amounts payable by Borrowers hereunder shall be
determined as if that Lender had not sold such participation, and that the
holder of any such participation shall not be entitled to require such Lender to
take or omit to take any action hereunder except actions directly affecting (i)
any reduction in the principal amount of, or interest rate or Fees payable with
respect to, any Loan in which such holder participates, (ii) any extension of
the final maturity date of any Loan in which such holder participates, and (iii)
any release of all or substantially all of the Collateral (other
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than in accordance with the terms of this Agreement, the Collateral Documents or
the other Loan Documents). Solely for purposes of SECTIONS 1.13, 1.15, 1.16 AND
10.7, Borrower acknowledges and agrees that a participation shall give rise to a
direct obligation of Borrowers to the participant and the participant shall be
considered to be a "Lender." Except as set forth in the preceding sentence
Borrower shall not have any obligation or duty to any participant. Neither Agent
nor any Lender (other than the Lender selling a participation) shall have any
duty to any participant and may continue to deal solely with the Lender selling
a participation as if no such sale had occurred.
(c) Except as expressly provided in this SECTION 10.1, no
Lender shall, as between Borrower and that Lender, or Agent and that Lender, be
relieved of any of its obligations hereunder as a result of any sale,
assignment, transfer or negotiation of, or granting of participation in, all or
any part of the Loans, the Revolving Credit Notes or other Obligations owed to
such Lender.
(d) Borrower shall assist any Lender permitted to sell
assignments or participations under this SECTION 10.1 as reasonably required to
enable the assigning or selling Lender to effect any such assignment or
participation, including the execution and delivery of any and all agreements,
notes and other documents and instruments as shall be requested and, if
requested by Agent, the preparation of informational materials for, and the
participation of management in meetings with, potential assignees or
participants. Borrower shall certify the correctness, completeness and accuracy
of all descriptions of Borrower and its affairs contained in any selling
materials provided by them and all other information provided by them and
included in such materials.
(e) A Lender may furnish any information concerning
Borrower in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants); PROVIDED, the
recipient of any material non-public information concerning Borrower shall agree
to treat such information as confidential.
(f) So long as no Event of Default shall have occurred and
be continuing, no Lender shall assign or sell participations in any portion of
its Loans or Commitment to a potential Lender or participant, if, as of the date
of the proposed assignment or sale, the assignee Lender or participant would be
subject to capital adequacy or similar requirements, increased costs, an
inability to fund LIBOR Advances, or withholding taxes.
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10.2 AGENT'S RELIANCE ETC. NEITHER AGENT NOR ANY OF ITS AFFILIATES
NOR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, AGENTS OR EMPLOYEES SHALL BE
LIABLE FOR ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY IT OR THEM UNDER OR IN
CONNECTION WITH THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, EXCEPT FOR DAMAGES
SOLELY CAUSED BY ITS OR THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION. WITHOUT LIMITATION OF
THE GENERALITY OF THE FOREGOING, AGENT: (A) MAY TREAT THE PAYEE OF ANY REVOLVING
CREDIT NOTE AS THE HOLDER THEREOF UNTIL AGENT RECEIVES WRITTEN NOTICE OF THE
ASSIGNMENT OR TRANSFER THEREOF SIGNED BY SUCH PAYEE AND IN FORM SATISFACTORY TO
AGENT; (B) MAY CONSULT WITH LEGAL COUNSEL, 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 THE OTHER
LOAN DOCUMENTS; (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 THE OTHER LOAN DOCUMENTS ON THE PART OF BORROWER, BTITC OR ANY OF
THEIR AFFILIATES OR TO INSPECT THE COLLATERAL (INCLUDING THE BOOKS AND RECORDS)
OF BORROWER; (E) SHALL NOT BE RESPONSIBLE TO ANY LENDER FOR THE DUE EXECUTION,
LEGALITY, VALIDITY, ENFORCEABILITY, GENUINENESS, SUFFICIENCY OR VALUE OF THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY OTHER INSTRUMENT OR DOCUMENT
FURNISHED PURSUANT HERETO OR THERETO; AND (F) SHALL INCUR NO LIABILITY UNDER OR
IN RESPECT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS BY ACTING UPON ANY
NOTICE, CONSENT, CERTIFICATE OR OTHER INSTRUMENT OR WRITING (WHICH MAY BE BY
TELECOPY, TELEGRAM, CABLE OR TELEX) BELIEVED BY IT TO BE GENUINE AND SIGNED OR
SENT BY THE PROPER PARTY OR PARTIES.
10.3 GE CAPITAL AND AFFILIATESERROR! BOOKMARK NOT DEFINED.. WITH
RESPECT TO ITS COMMITMENTS HEREUNDER, GE CAPITAL SHALL HAVE THE SAME RIGHTS AND
POWERS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AS ANY OTHER LENDER AND
MAY EXERCISE THE SAME AS THOUGH IT WERE NOT AGENT; AND THE TERM "LENDER" OR
"LENDERS" SHALL, UNLESS OTHERWISE EXPRESSLY INDICATED, INCLUDE GE CAPITAL IN ITS
INDIVIDUAL CAPACITY. GE CAPITAL AND ITS AFFILIATES MAY LEND MONEY TO, INVEST IN,
AND GENERALLY ENGAGE IN ANY KIND OF BUSINESS WITH, BORROWER, BTITC OR ANY OF
THEIR AFFILIATES AND ANY PERSON WHO MAY DO BUSINESS WITH OR OWN SECURITIES OF
ANY SUCH PARTY, ALL AS IF GE CAPITAL WERE NOT AGENT AND WITHOUT ANY DUTY TO
ACCOUNT THEREFOR TO LENDERS. GE CAPITAL AND ITS AFFILIATES MAY ACCEPT FEES AND
OTHER CONSIDERATION FROM BORROWER, BTITC OR ANY OF THEIR AFFILIATES FOR SERVICES
IN CONNECTION WITH THIS AGREEMENT OR OTHERWISE WITHOUT HAVING TO ACCOUNT FOR THE
SAME TO LENDERS. EACH LENDER ACKNOWLEDGES THE POTENTIAL CONFLICT OF INTEREST
BETWEEN GE CAPITAL AS A LENDER HOLDING DISPROPORTIONATE INTERESTS IN THE LOANS
AND GE CAPITAL AS AGENT.
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10.4 LENDER CREDIT DECISION. EACH LENDER ACKNOWLEDGES THAT IT HAS,
INDEPENDENTLY AND WITHOUT RELIANCE UPON AGENT OR ANY OTHER LENDER AND BASED ON
SUCH DOCUMENTS AND INFORMATION AS IT HAS DEEMED APPROPRIATE, MADE ITS OWN CREDIT
AND FINANCIAL ANALYSIS OF BORROWER AND ITS OWN DECISION TO ENTER INTO THIS
AGREEMENT. EACH LENDER ALSO ACKNOWLEDGES THAT IT WILL, INDEPENDENTLY AND WITHOUT
RELIANCE UPON AGENT OR ANY OTHER LENDER AND BASED ON SUCH DOCUMENTS AND
INFORMATION AS IT SHALL DEEM APPROPRIATE AT THE TIME, CONTINUE TO MAKE ITS OWN
CREDIT DECISIONS IN TAKING OR NOT TAKING ACTION UNDER THIS AGREEMENT. EACH
LENDER ACKNOWLEDGES THE POTENTIAL CONFLICT OF INTEREST OF EACH OTHER LENDER AS A
RESULT OF LENDERS HOLDING DISPROPORTIONATE INTERESTS IN THE LOANS, AND EXPRESSLY
CONSENTS TO, AND WAIVES ANY CLAIM BASED UPON, SUCH CONFLICT OF INTEREST.
10.5 INDEMNIFICATION. LENDERS AGREE TO INDEMNIFY AGENT (TO THE
EXTENT NOT REIMBURSED BY BORROWER AND WITHOUT LIMITING THE OBLIGATIONS OF
BORROWER HEREUNDER), RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT
PERCENTAGES, 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 AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT OR ANY ACTION TAKEN OR OMITTED BY AGENT IN CONNECTION
THEREWITH; 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 SOLELY FROM AGENT'S GROSS
NEGLIGENCE OR WILFUL MISCONDUCT AS FINALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION. WITHOUT LIMITING THE FOREGOING, EACH LENDER AGREES TO REIMBURSE
AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES
(INCLUDING COUNSEL FEES) INCURRED BY AGENT IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT AND EACH
OTHER LOAN DOCUMENT, TO THE EXTENT THAT AGENT IS NOT REIMBURSED FOR SUCH
EXPENSES BY BORROWERS.
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10.6 SUCCESSOR AGENT. AGENT MAY RESIGN AT ANY TIME BY GIVING NOT
LESS THAN THIRTY (30) DAYS' PRIOR WRITTEN NOTICE THEREOF TO LENDERS AND
BORROWER. UPON ANY SUCH RESIGNATION, THE REQUIRED LENDERS SHALL HAVE THE RIGHT
TO APPOINT A SUCCESSOR AGENT. IF NO SUCCESSOR AGENT SHALL HAVE BEEN SO APPOINTED
BY THE REQUIRED LENDERS AND SHALL HAVE ACCEPTED SUCH APPOINTMENT WITHIN 30 DAYS
AFTER THE RESIGNING AGENT'S GIVING NOTICE OF RESIGNATION, THEN THE RESIGNING
AGENT MAY, ON BEHALF OF LENDERS, APPOINT A SUCCESSOR AGENT, WHICH SHALL BE A
LENDER, IF A LENDER IS WILLING TO ACCEPT SUCH APPOINTMENT, OR OTHERWISE SHALL BE
A COMMERCIAL BANK OR FINANCIAL INSTITUTION OR A SUBSIDIARY OF A COMMERCIAL BANK
OR FINANCIAL INSTITUTION IF SUCH COMMERCIAL BANK OR FINANCIAL INSTITUTION IS
ORGANIZED UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR OF ANY STATE THEREOF
AND HAS A COMBINED CAPITAL AND SURPLUS OF AT LEAST $300,000,000. IF NO SUCCESSOR
AGENT HAS BEEN APPOINTED PURSUANT TO THE FOREGOING, BY THE THIRTIETH (30TH) DAY
AFTER THE DATE SUCH NOTICE OF RESIGNATION WAS GIVEN BY THE RESIGNING AGENT, SUCH
RESIGNATION SHALL BECOME EFFECTIVE AND THE REQUIRED LENDERS SHALL THEREAFTER
PERFORM ALL THE DUTIES OF AGENT HEREUNDER UNTIL SUCH TIME, IF ANY, AS THE
REQUIRED LENDERS APPOINT A SUCCESSOR AGENT AS PROVIDED ABOVE. ANY SUCCESSOR
AGENT APPOINTED BY REQUIRED LENDERS HEREUNDER SHALL BE SUBJECT TO THE APPROVAL
OF BORROWER, SUCH APPROVAL NOT TO BE UNREASONABLY WITHHELD OR DELAYED; PROVIDED
THAT SUCH APPROVAL SHALL NOT BE REQUIRED IF A DEFAULT OR AN EVENT OF DEFAULT
SHALL HAVE OCCURRED AND BE CONTINUING. UPON THE ACCEPTANCE OF ANY APPOINTMENT AS
AGENT HEREUNDER BY A SUCCESSOR AGENT, SUCH SUCCESSOR AGENT SHALL SUCCEED TO AND
BECOME VESTED WITH ALL THE RIGHTS, POWERS, PRIVILEGES AND DUTIES OF THE
RESIGNING AGENT. UPON THE EARLIER OF THE ACCEPTANCE OF ANY APPOINTMENT AS AGENT
HEREUNDER BY A SUCCESSOR AGENT OR THE EFFECTIVE DATE OF THE RESIGNING AGENT'S
RESIGNATION, THE RESIGNING AGENT SHALL BE DISCHARGED FROM ITS DUTIES AND
OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, EXCEPT THAT ANY
INDEMNITY RIGHTS OR OTHER RIGHTS IN FAVOR OF SUCH RESIGNING AGENT SHALL
CONTINUE. AFTER ANY RESIGNING AGENT'S RESIGNATION HEREUNDER, THE PROVISIONS OF
THIS Section 10 SHALL INURE TO ITS BENEFIT AS TO ANY ACTIONS TAKEN OR OMITTED TO
BE TAKEN BY IT WHILE IT WAS AGENT UNDER THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. AGENT MAY BE REMOVED AT THE WRITTEN DIRECTION OF THE HOLDERS (OTHER
THAN AGENT) OF TWO-THIRDS OR MORE OF THE COMMITMENTS (EXCLUDING AGENT'S
COMMITMENT); PROVIDED THAT IN SO DOING, SUCH LENDERS SHALL BE DEEMED TO HAVE
WAIVED AND RELEASED ANY AND ALL CLAIMS THEY MAY HAVE AGAINST AGENT.
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10.7 SETOFF AND SHARING OF PAYMENTSERROR! BOOKMARK NOT DEFINED..
IN ADDITION TO ANY RIGHTS NOW OR HEREAFTER GRANTED UNDER APPLICABLE LAW AND NOT
BY WAY OF LIMITATION OF ANY SUCH RIGHTS, UPON THE OCCURRENCE AND DURING THE
CONTINUANCE OF ANY EVENT OF DEFAULT, EACH LENDER AND EACH HOLDER OF ANY
REVOLVING CREDIT NOTE IS HEREBY AUTHORIZED AT ANY TIME OR FROM TIME TO TIME,
WITHOUT NOTICE TO BORROWER OR TO ANY OTHER PERSON, ANY SUCH NOTICE BEING HEREBY
EXPRESSLY WAIVED, TO SET OFF AND TO APPROPRIATE AND TO APPLY ANY AND ALL
BALANCES HELD BY IT AT ANY OF ITS OFFICES FOR THE ACCOUNT OF BORROWER
(REGARDLESS OF WHETHER SUCH BALANCES ARE THEN DUE TO BORROWER) AND ANY OTHER
PROPERTIES OR ASSETS ANY TIME HELD OR OWING BY THAT LENDER OR THAT HOLDER TO OR
FOR THE CREDIT OR FOR THE ACCOUNT OF BORROWER AGAINST AND ON ACCOUNT OF ANY OF
THE OBLIGATIONS WHICH ARE NOT PAID WHEN DUE. ANY LENDER OR HOLDER OF ANY
REVOLVING CREDIT NOTE EXERCISING A RIGHT TO SET OFF OR OTHERWISE RECEIVING ANY
PAYMENT ON ACCOUNT OF THE OBLIGATIONS IN EXCESS OF ITS COMMITMENT PERCENTAGE
SHALL PURCHASE FOR CASH (AND THE OTHER LENDERS OR HOLDERS SHALL SELL) SUCH
PARTICIPATIONS IN EACH SUCH OTHER LENDER'S OR HOLDER'S COMMITMENT PERCENTAGE OF
THE OBLIGATIONS AS WOULD BE NECESSARY TO CAUSE SUCH LENDER TO SHARE THE AMOUNT
SO SET OFF OR OTHERWISE RECEIVED WITH EACH OTHER LENDER OR HOLDER IN ACCORDANCE
WITH THEIR RESPECTIVE COMMITMENT PERCENTAGE. BORROWER AGREES, TO THE FULLEST
EXTENT PERMITTED BY LAW, THAT (A) ANY LENDER OR HOLDER MAY EXERCISE ITS RIGHT TO
SET OFF WITH RESPECT TO AMOUNTS IN EXCESS OF ITS COMMITMENT PERCENTAGE OF THE
OBLIGATIONS AND MAY SELL PARTICIPATIONS IN SUCH AMOUNT SO SET OFF TO OTHER
LENDERS AND HOLDERS AND (B) ANY LENDER OR HOLDERS SO PURCHASING A PARTICIPATION
IN THE LOANS MADE OR OTHER OBLIGATIONS HELD BY OTHER LENDERS OR HOLDERS MAY
EXERCISE ALL RIGHTS OF SET-OFF, BANKERS' LIEN, COUNTERCLAIM OR SIMILAR RIGHTS
WITH RESPECT TO SUCH PARTICIPATION AS FULLY AS IF SUCH LENDER OR HOLDER WERE A
DIRECT HOLDER OF THE LOANS AND THE OTHER OBLIGATIONS IN THE AMOUNT OF SUCH
PARTICIPATION. NOTWITHSTANDING THE FOREGOING, IF ALL OR ANY PORTION OF THE
SETOFF AMOUNT OR PAYMENT OTHERWISE RECEIVED IS THEREAFTER RECOVERED FROM THE
LENDER THAT HAS EXERCISED THE RIGHT OF SET-OFF, THE PURCHASE OF PARTICIPATIONS
BY THAT LENDER SHALL BE RESCINDED AND THE PURCHASE PRICE RESTORED WITHOUT
INTEREST.
10.8 ADVANCES; PAYMENTS; NON-FUNDING LENDERS; INFORMATION;
ACTIONS IN CONCERT.
(a) Advances, Payments.
(i) Each Lender shall make the amount of such
Lender's Commitment Percentage of each Revolving Credit Advance available to
Agent in same day funds by wire transfer to Agent's account as set forth in
Annex D not later than 3:30 p.m. (Atlanta time) on the requested funding date,
in the case of an Index Rate Advance and not later than 11:00 a.m. (Atlanta
time) on the requested funding date in the case of a LIBOR Advance. After
receipt of such wire transfers (or, in the Agent's sole discretion, before
receipt of such wire transfers), subject to the terms hereof, Agent shall make
the requested Revolving Credit Advance to the Borrower. All payments by each
Lender shall be made without setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each
calendar week or more frequently as aggregate cumulative payments in excess of
$2,000,000 are received with
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respect to the Loans (each, a "Settlement Date"), Agent will advise each Lender
by telephone, or telecopy of the amount of such Lender's Commitment Percentage
of principal, interest and Fees paid for the benefit of Lenders with respect to
each applicable Loan. Provided that such Lender has made all payments required
to be made by it and has purchased all participations required to be purchased
by it under this Agreement and the other Loan Documents as of such Settlement
Date, Agent will pay to each Lender such Lender's Commitment Percentage of
principal, interest and Fees paid by Borrowers since the previous Settlement
Date for the benefit of that Lender on the Loans held by it. Such payments shall
be made by wire transfer to such Lender's account (as specified by such Lender
in the applicable Assignment Agreement) not later than 2:00 p.m. (Atlanta time)
on the next Business Day following each Settlement Date.
(b) Availability of Lender's Commitment Percentage. Agent
may assume that each Revolving Lender will make its Commitment Percentage of
each Revolving Credit Advance available to Agent on each funding date. If such
Commitment Percentage is not, in fact, paid to Agent by such Lender when due,
Agent will be entitled to recover such amount on demand from such Lender without
set-off, counterclaim or deduction of any kind. If any Lender fails to pay the
amount of its Commitment Percentage forthwith upon Agent's demand, Agent shall
promptly notify Borrower and Borrower shall immediately repay such amount to
Agent. Nothing in this SECTION 10.8(B) or elsewhere in this Agreement or the
other Loan Documents shall be deemed to require Agent to advance funds on behalf
of any Lender or to relieve any Lender from its obligation to fulfill its
Commitments hereunder or to prejudice any rights that Borrower may have against
any Lender as a result of any default by such Lender hereunder. To the extent
that Agent advances funds to Borrower on behalf of any Lender and is not
reimbursed therefor on the same Business Day as such Advance is made, Agent
shall be entitled to retain for its account all interest accrued on such Advance
until reimbursed by the applicable Lender.
(c) Return of Payments.
(i) If Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has been or
will be received by Agent from Borrower and such related payment is not received
by Agent, then Agent will be entitled to recover such amount from such Lender on
demand without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any
amount received by Agent under this Agreement must be returned to Borrower or
paid to any other Person pursuant to any insolvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement or any other Loan
Document, Agent will not be required to distribute any portion thereof to any
Lender. In addition, each Lender will repay to Agent on demand any portion of
such amount that Agent has distributed to such Lender, together with interest at
such rate, if any, as Agent is required to pay to Borrower or such other Person,
without set-off, counterclaim or deduction of any kind.
(d) Funding Lenders. The failure of any Lender (such
Revolving Lender, a "Non-Funding Lender") to make any Revolving Credit Advance
or to purchase any
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participation to be made or purchased by it on the date specified therefor shall
not relieve any other Lender (each such other Revolving Lender, an "Other
Lender") of its obligations to make such Advance or purchase such participation
on such date, but neither any other Lender nor Agent shall be responsible for
the failure of any Non-Funding Lender to make an Advance to be made, or to
purchase a participation to be purchased, by such Non-Funding Lender, and no
Non-Funding Lender shall have any obligation to Agent or any other Lender for
the failure by such Non-Funding Lender. Notwithstanding anything set forth
herein to the contrary, a Non-Funding Lender shall not have any voting or
consent rights under or with respect to any Loan Document or constitute a
"Lender" (or be included in the calculation of "Required Lenders" hereunder) for
any voting or consent rights under or with respect to any Loan Document.
(e) Dissemination of Information. Agent will use
reasonable efforts to provide Lenders with any notice of Default or Event of
Default received by Agent from, or delivered by Agent to, Borrower or any other
party to any other Loan Document, with notice of any Event of Default of which
Agent has actually become aware and with notice of any action taken by Agent
following any Event of Default; PROVIDED, HOWEVER, Agent shall not be liable to
any Lender for any failure to do so, except to the extent that such failure is
attributable solely to Agent's gross negligence or willful misconduct as finally
determined by a court of competent jurisdiction.
(f) Actions in Concert. Anything in this Agreement to the
contrary notwithstanding, each Lender hereby agrees with each other Lender that
no Lender shall take any action to protect or enforce its rights arising out of
this Agreement or the Revolving Credit Notes (including exercising any rights of
set-off) without first obtaining the prior written consent of Agent or Required
Lenders, it being the intent of Lenders that any such action to protect or
enforce rights under this Agreement and the Revolving Credit Notes shall be
taken in concert and at the direction or with the consent of Agent.
11. ERROR! BOOKMARK NOT DEFINED. MISCELLANEOUS
11.1 ERROR! BOOKMARK NOT DEFINED. COMPLETE AGREEMENT; MODIFICATION
OF AGREEMENT.
(a) This Agreement and the other Loan Documents constitute
the complete agreement between the parties with respect to the subject matter
hereof and thereof, supersede all prior agreements, commitments, understandings
or inducements (oral or written, expressed or implied), and may not be modified,
altered or amended except as provided in this SECTION 11.1. Except as set forth
in SUBSECTION (B) below, any term, covenant, agreement or condition of this
Agreement or any of the Loan Documents may be amended or waived, and any
departure therefrom may be consented to by the Required Lenders, if, but only
if, such amendment, waiver or consent is in writing signed by the Agent or
Required Lenders (if applicable) and, in the case of an amendment (other than an
amendment described in SUBSECTION (D) below), by Borrower, and in any such
event, the failure to observe, perform or discharge any such term, covenant,
agreement
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or condition (whether such amendment is executed or such waiver or consent is
given before or after such failure) shall not be construed as a breach of such
term, covenant, agreement or condition or as a Default or an Event of Default.
Unless otherwise specified in such waiver or consent, a waiver or consent given
hereunder shall be effective only in the specific instance and for the specific
purpose for which given. In the event that any such waiver or amendment is
requested by Borrower, Agent and Lenders may require and charge a fee in
connection therewith and consideration thereof in such amount as shall be
determined by Agent and the Required Lenders in their discretion.
(b) No amendment, modification, termination or waiver of
or consent with respect to any provision of this Agreement which waives
compliance with the conditions precedent set forth in SECTION 2.2 to the making
of any Loan or the incurrence of any Letter of Credit Obligations shall be
effective unless the same shall be in writing and signed by Agent, Lenders and
Borrower. Notwithstanding anything contained in this Agreement to the contrary,
no waiver or consent with respect to any Default (if in connection therewith
Agent or Lenders, as the case may be, have exercised its or their right to
suspend the making or incurrence of further Advances or Letter of Credit
Obligations or any Event of Default shall be effective for purposes of the
conditions precedent to the making of Loans or the incurrence of Letter of
Credit Obligations set forth in SECTION 2.2 unless the same shall be in writing
and signed by Agent.
(c) No amendment, modification, termination or waiver
shall, unless in writing and signed by Agent and each Lender directly affected
thereby, do any of the following: (i) increase the principal amount of any
Lender's Commitment (which action shall be deemed to directly affect all
Lenders): (ii) reduce the principal of, rate of interest on or Fees payable with
respect to any Loan or Letter of Credit Obligations of any affected Lender;
(iii) extend the final maturity date of any Loan of any affected Lender; (iv)
waive, forgive, defer, extend or postpone any payment of interest or Fees as to
any affected Lender; (v) release any Guaranty or, except as otherwise permitted
herein or in the other Loan Documents, permit Borrower to sell or otherwise
dispose of any Collateral with a value exceeding $5,000,000 in the aggregate
(which action shall be deemed to directly affect all Lenders); (vi) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Loans which shall be required for Lenders or any of them to take any action
hereunder; and (vii) amend or waive this SECTION 11.1 or the definitions of the
term "Required Lenders" insofar as such definition affects the substance of this
SECTION 11.1. Furthermore, no amendment, modification, termination or waiver
affecting the rights or duties of Agent under this Agreement or any other Loan
Document shall be effective unless in writing and signed by Agent, in addition
to Lenders required hereinabove to take such action. Each amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which it was given. No amendment,
modification, termination or waiver shall be required for Agent to take
additional Collateral pursuant to any Loan Document. No amendment, modification,
termination or waiver of any provision of any Revolving Credit Note shall be
effective without the written concurrence of the holder of that Revolving Credit
Note. No notice to or demand on Borrower in any case shall entitle Borrower or
any party to any other Loan Document to any other or further notice or demand in
similar or other circumstances. Any amendment, modification, termination, waiver
or consent effected in accordance with this SECTION 11.1 shall be binding upon
each holder of the Revolving Credit Notes at the time outstanding and each
future holder of the Revolving Credit Notes.
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(d) If, in connection with any proposed amendment,
modification, waiver or termination (a "Proposed Change"): (i) requiring the
consent of all affected Lenders, the consent of Required Lenders is obtained,
but the consent of other Lenders whose consent is required is not obtained (any
such Lender whose consent is not obtained as described in this clause (i) and in
clause (ii) below being referred to as a "Non-Consenting Lender") , or (ii)
requiring the consent of Required Lenders, the consent of Lenders holding 51% or
more of the aggregate Commitments is obtained, but the consent of Required
Lenders is not obtained, then, so long as Agent is not a Non-Consenting Lender,
at Borrower's request, Agent or a Person acceptable to Agent shall have the
right with Agent's consent and in Agent's sole discretion (but shall have no
obligation) to purchase from such Non-Consenting Lenders, and such
Non-Consenting Lenders agree that they shall, upon Agent's request, sell and
assign to Agent or such Person, all of the Commitments of such Non-Consenting
Lender for an amount equal to the principal balance of all Loans held by the
Non-Consenting Lender and all accrued interest and Fees with respect thereto
through the date of sale, such purchase and sale to be consummated pursuant to
an executed Assignment Agreement.
(e) The making of Loans hereunder by Lenders during the
existence of a Default or Event of Default shall not be deemed to constitute a
waiver of such Default or Event of Default.
(f) Notwithstanding any provision of this Agreement or the
other Loan Documents to the contrary, no consent, written or otherwise, of
Borrower shall be necessary or required in connection with any amendment to
ARTICLE 10 or SECTION 1.2.
11.2 FEES AND EXPENSES. BORROWER SHALL REIMBURSE AGENT FOR ALL
REASONABLE OUT-OF-POCKET EXPENSES INCURRED BY AGENT OR, FOLLOWING AN EVENT OF
DEFAULT, ANY LENDER, IN CONNECTION WITH (A) THE PREPARATION, NEGOTIATION,
EXECUTION, DELIVERY, ADMINISTRATION, ENFORCEMENT AND PERFORMANCE OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS (INCLUDING THE FEES AND EXPENSES OF ITS
COUNSEL, ADVISORS, CONSULTANTS AND AUDITORS RETAINED IN CONNECTION WITH THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY
AND THEREBY AND ADVICE IN CONNECTION HEREWITH AND THEREWITH), AND (B) WIRE
TRANSFERS TO THE ACCOUNT OF BORROWER. BORROWER SHALL REIMBURSE AGENT (AND EACH
OF THE LENDERS WITH RESPECT TO CLAUSES (C) AND (D) BELOW) FOR ALL FEES, COSTS
AND EXPENSES, INCLUDING, WITHOUT LIMITATION, THE FEES, COSTS AND EXPENSES OF ITS
COUNSEL OR OTHER ADVISORS (INCLUDING ENVIRONMENTAL AND MANAGEMENT CONSULTANTS)
FOR ADVICE, ASSISTANCE, OR OTHER REPRESENTATION IN CONNECTION WITH:
(a) the forwarding to Borrower or any other Person on
behalf of Borrower by Agent of the proceeds of any Revolving Credit Advances;
(b) any amendment, modification or waiver of, or consent
with respect to, any of the Loan Documents or advice in connection with the
administration of the loans made pursuant hereto or its rights hereunder or
thereunder;
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(c) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Agent, any Lender, Borrower or any other Person)
in any way relating to the Collateral, any of the Loan Documents or any other
agreements to be executed or delivered in connection herewith or therewith,
whether as a party, witness, or otherwise, including, without limitation, any
litigation, contest, dispute, suit, case, proceeding or action, and any appeal
or review thereof, in connection with a case commenced by or against Borrower or
any other Person that may be obligated to Agent or any Lender by virtue of the
Loan Documents;
(d) any attempt to enforce any rights of Agent or Lenders
against Borrower or any other Person that may be obligated to Agent or Lenders
by virtue of any of the Loan Documents including any such litigation, contest,
dispute, suit, proceeding or action arising in connection with any work-out or
restructuring of the Loans during the pendency of one or more Events of Default;
PROVIDED that in the case of reimbursement of counsel for Lenders other than
Agent, such reimbursement shall be limited to one counsel for all such Lenders;
(e) any work-out or restructuring of the Loans during the
pendency of one or more Events of Default including any such attempt to enforce
any such remedies in the course of any work-out or restructuring of the Loans
during the pendency of one or more Events of Default; provided that in the case
of reimbursement of counsel for Lenders other than Agent, such reimbursement
shall be limited to one counsel for all such Lenders
(f) any effort (i) to evaluate, observe or assess Borrower
or its affairs, and (ii) to verify, protect, evaluate, assess, appraise,
collect, sell, liquidate or otherwise dispose of the Collateral, including any
and all of Agent's and Lenders' fees and expenses relating to Agents and
Lenders' rights under SECTION 1.13 hereof and any attorneys' and other
professional and service providers' fees arising from any of the foregoing
services (including those in connection with any appellate proceedings), and all
expenses, costs, charges and other fees incurred by such counsel and others in
any way or respect arising in connection with or relating to any of the events
or actions described in this SECTION 11.2 or attempts to enforce this SECTION
11.2 shall be payable on demand by Borrower to Agent.
93
<PAGE>
11.3 NO WAIVER. AGENT'S OR ANY LENDER'S FAILURE, AT ANY TIME OR
TIMES, TO REQUIRE STRICT PERFORMANCE BY BORROWER, BTITC OR ANY SUBSIDIARY OF
BORROWER OF ANY PROVISION OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL
NOT WAIVE, AFFECT OR DIMINISH ANY RIGHT OF AGENT OR ANY LENDER THEREAFTER TO
DEMAND STRICT COMPLIANCE AND PERFORMANCE THEREWITH. ANY SUSPENSION OR WAIVER OF
A DEFAULT OR EVENT OF DEFAULT UNDER THE LOAN DOCUMENTS SHALL NOT SUSPEND, WAIVE
OR AFFECT ANY OTHER DEFAULT OR EVENT OF DEFAULT UNDER ANY LOAN DOCUMENT WHETHER
THE SAME IS PRIOR OR SUBSEQUENT THERETO AND WHETHER OF THE SAME OR OF A
DIFFERENT TYPE. NONE OF THE UNDERTAKINGS, AGREEMENTS, WARRANTIES, COVENANTS AND
REPRESENTATIONS OF BORROWER, BTITC OR ANY SUBSIDIARY OF BORROWER CONTAINED IN
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND NO DEFAULT OR EVENT OF DEFAULT BY
BORROWER, BTITC OR ANY SUBSIDIARY OF BORROWER UNDER THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT SHALL BE DEEMED TO HAVE BEEN SUSPENDED OR WAIVED BY AGENT OR ANY
LENDER, UNLESS SUCH WAIVER OR SUSPENSION IS BY AN INSTRUMENT IN WRITING SIGNED
BY AN OFFICER OF OR OTHER AUTHORIZED EMPLOYEE OF AGENT OR ANY LENDER AND
DIRECTED TO BORROWER SPECIFYING SUCH SUSPENSION OR WAIVER.
11.4 REMEDIES. AGENT'S AND LENDERS' RIGHTS AND REMEDIES UNDER THIS
AGREEMENT SHALL BE CUMULATIVE AND NONEXCLUSIVE OF ANY OTHER RIGHTS AND REMEDIES
WHICH AGENT AND LENDERS MAY HAVE UNDER ANY OTHER AGREEMENT, INCLUDING, WITHOUT
LIMITATION, ANY OTHER LOAN DOCUMENT, BY OPERATION OF LAW OR OTHERWISE. RECOURSE
TO THE COLLATERAL SHALL NOT BE REQUIRED.
11.5 SEVERABILITY. WHEREVER POSSIBLE, EACH PROVISION OF THIS
AGREEMENT SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER
APPLICABLE LAW, BUT IF ANY PROVISION OF THIS AGREEMENT SHALL BE PROHIBITED BY OR
INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT
OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH
PROVISION OR THE REMAINING PROVISIONS OF THIS AGREEMENT.
11.6 CONFLICT OF TERMS. EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT BY SPECIFIC REFERENCE TO THE APPLICABLE
PROVISIONS OF THIS AGREEMENT, IF ANY PROVISION CONTAINED IN THIS AGREEMENT IS IN
CONFLICT WITH, OR INCONSISTENT WITH, ANY PROVISION IN ANY OTHER LOAN DOCUMENT,
THE PROVISION CONTAINED IN THIS AGREEMENT SHALL GOVERN AND CONTROL.
11.7 AUTHORIZED SIGNATURE. UNTIL AGENT SHALL BE NOTIFIED BY
BORROWER TO THE CONTRARY, THE SIGNATURE UPON ANY DOCUMENT OR INSTRUMENT
DELIVERED PURSUANT HERETO AND BELIEVED BY AGENT OR ANY OF AGENT'S OFFICERS,
AGENTS, OR EMPLOYEES TO BE THAT OF AN OFFICER OR AUTHORIZED EMPLOYEE OF BORROWER
LISTED IN SCHEDULE 11.7 SHALL BIND BORROWER AND BE DEEMED TO BE THE ACT OF
BORROWER AFFIXED PURSUANT TO AND IN ACCORDANCE WITH RESOLUTIONS DULY ADOPTED BY
BORROWER'S BOARD OF DIRECTORS, AND AGENT SHALL BE ENTITLED TO ASSUME THE
AUTHORITY OF EACH SIGNATURE AND AUTHORITY OF THE PERSON WHOSE SIGNATURE IT IS OR
APPEARS TO BE UNLESS THE PERSON ACTING IN RELIANCE OF SUCH SIGNATURE SHALL HAVE
ACTUAL KNOWLEDGE OF THE FACT THAT SUCH SIGNATURE IS FALSE OR THE PERSON WHOSE
SIGNATURE OR PURPORTED SIGNATURE IS PRESENTED IS WITHOUT AUTHORITY.
94
<PAGE>
11.8 NOTICES. EXCEPT AS OTHERWISE PROVIDED HEREIN, WHENEVER IT IS
PROVIDED HEREIN THAT ANY NOTICE, DEMAND, REQUEST, CONSENT, APPROVAL, DECLARATION
OR OTHER COMMUNICATION SHALL OR MAY BE GIVEN TO OR SERVED UPON EITHER OF THE
PARTIES BY THE OTHER PARTY, OR WHENEVER EITHER OF THE PARTIES DESIRES TO GIVE OR
SERVE UPON THE OTHER PARTY ANY COMMUNICATION WITH RESPECT TO THIS AGREEMENT,
EACH SUCH NOTICE, DEMAND, REQUEST, CONSENT, APPROVAL, DECLARATION OR OTHER
COMMUNICATION SHALL BE IN WRITING AND SHALL BE DEEMED TO HAVE BEEN VALIDLY
SERVED, GIVEN OR DELIVERED (A) UPON THE EARLIER OF ACTUAL RECEIPT AND TWO (2)
DAYS AFTER DEPOSIT IN THE UNITED STATES MAIL, REGISTERED OR CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, WITH PROPER POSTAGE PREPAID, (B) UPON TRANSMISSION,
WHEN SENT BY TELECOPY OR OTHER SIMILAR FACSIMILE TRANSMISSION (WITH SUCH
TELECOPY OR FACSIMILE PROMPTLY CONFIRMED BY DELIVERY OF A COPY BY PERSONAL
DELIVERY OR UNITED STATES MAIL AS OTHERWISE PROVIDED IN THIS Section 11.8), (C)
ONE (1) BUSINESS DAY AFTER DEPOSIT WITH A REPUTABLE OVERNIGHT COURIER WITH ALL
CHARGES PREPAID, OR (D) WHEN DELIVERED, IF HAND-DELIVERED BY MESSENGER, ALL OF
WHICH SHALL BE ADDRESSED TO THE PARTY TO BE NOTIFIED AND SENT TO THE ADDRESS OR
FACSIMILE NUMBER AS FOLLOWS:
(a) If to GE Capital, as Agent, at:
General Electric Capital Corporation
3379 Peachtree Road, N.E.
Suite 600
Atlanta, GA 30326
Attention: Elaine L. Moore
Fax No: (404) 262-9032
With copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, CT 06927-5100
Attention: Legal Counsel
Fax No: (203) 316-7810
and
Smith, Gambrell & Russell
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: Bruce W. Moorhead, Jr., Esq.
John R. Schneider, Esq.
Fax No: (404) 815-3509
95
<PAGE>
(b) If to Borrower, at:
Business Telecom, Inc.
4300 Six Forks Road
Raleigh, North Carolina 27609
Attention: Mr. Brian Branson, Director of Finance
Fax No: (919) 510-7061
With copies to:
Wyrick, Robbins, Yates & Ponton, L.L.P.
4101 Lake Boone Trail
Suite 300
Raleigh, North Carolina 27607
Attention: Larry Robbins, Esq.
Fax No: (919) 781-4865
(c) If to a Lender, at the address of such Lender set
forth on the signature page set forth below or as provided in Schedule 11.8
hereto, or to such other address (or facsimile number) as may be substituted by
notice given as herein provided. The giving of any notice required hereunder may
be waived in writing by the party entitled to receive such notice. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than Borrower or Lender)
designated in this SECTION 11.8 to receive copies shall in no way adversely
affect the effectiveness of such notice, demand, request, consent, approval,
declaration or other communication.
(d) Agent hereby designates its office located at 3379
Peachtree Road, N.E., Suite 600, Atlanta, Georgia 30326 or any subsequent office
which shall have been specified for such purpose by written notice to Borrower,
as the office to which payments due are to be made and at which Loans will be
disbursed.
11.9 EFFECT ON COMMITMENT LETTER. BORROWER ACKNOWLEDGES AND AGREES
THAT THE EXECUTION AND DELIVERY OF THIS AGREEMENT BY GE CAPITAL SATISFIES IN
FULL, ALL OBLIGATIONS OF GE CAPITAL UNDER THE COMMITMENT LETTER.
11.10 SECTION TITLES. THE SECTION TITLES AND TABLE OF CONTENTS
CONTAINED IN THIS AGREEMENT ARE AND SHALL BE WITHOUT SUBSTANTIVE MEANING OR
CONTENT OF ANY KIND WHATSOEVER AND ARE NOT A PART OF THE AGREEMENT BETWEEN THE
PARTIES HERETO.
11.11 COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN ANY NUMBER
OF SEPARATE COUNTERPARTS, EACH OF WHICH SHALL, COLLECTIVELY AND SEPARATELY,
CONSTITUTE ONE AGREEMENT.
96
<PAGE>
11.12 TIME OF THE ESSENCEERROR! BOOKMARK NOT DEFINED.. TIME IS OF
THE ESSENCE OF THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS.
11.13 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING, WITHOUT LIMITATION, ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES
OF AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS
LOCATED IN GEORGIA SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN BORROWER, AGENT AND LENDERS PERTAINING TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT
AGENT, LENDERS AND BORROWER ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF GEORGIA; AND FURTHER PROVIDED,
THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDERS OR
AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION
TO COLLECT THE OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
AGENT OR LENDERS. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND BORROWER
HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE BASED UPON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE
GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH
COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND
OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED
MAIL ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH IN SECTION 11.8 OF THIS
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID.
97
<PAGE>
11.14 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED
BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT
THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE,
TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE BETWEEN AGENT, LENDERS AND BORROWER ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
98
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed under
seal as of the date first written above.
BORROWER:
BUSINESS TELECOM, INC.
By:_______________________________________
Brian K. Branson
Chief Financial Officer
AGENT:
GENERAL ELECTRIC CAPITAL CORPORATION
By:_______________________________________
Elaine L. Moore
Senior Vice President, as duly authorized
LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION
Commitment: $60,000,000.00
By:_______________________________________
Elaine L. Moore
Senior Vice President, as duly authorized
3379 Peachtree Road, N.E.
Suite 600
Atlanta, GA 30326
99
Exhibit 10.4
FUTURE ADVANCE PROMISSORY NOTE
June 30, 1997
$553,144.00 Raleigh, North Carolina
For value received, the undersigned, ComSouth Cable International, Inc.,
a North Carolina corporation the "Maker") hereby promises to pay to the order of
Business Telecom, Inc., a North Carolina corporation with an address of 4300 Six
Forks Road, Raleigh, North Carolina 27604(the "Lender"), at such address or at
such other place, or to such other party, as the holder of this Note may from
time to time designate in writing, in lawful currency of the United States, the
principal sum of Five Hundred Fifty-Three Thousand One Hundred Forty Four and
NO/100 dollars ($553,144.00), or such amount as shall be advanced hereunder and
remain unpaid, in immediately available funds, together with interest at the
rate provided below from the date of any advance made hereunder until paid in
full as provided herein. Interest shall accrue on the unpaid principal balance
of this Note as provided below. The principal balance of this Note and all
interest accruing thereon shall be payable as follows:
1. Interest. Interest shall accrue on any outstanding balance under this
Note at the prime rate per annum as announced from time to time in the Wall
Street Journal (the "Prime Rate").
2. Repayment Terms. Maker shall repay upon demand any advance of
principal hereunder the full amount of such principal advanced as well as all
interest accrued on such principal advanced.
3. Advances. Advances under this Note shall be subject to the following
terms and conditions:
(a) Maker shall request any advance in writing;
(b) in its sole and absolute discretion, Lender may refuse
to make any advance hereunder based upon Lender's
assessment of the condition of Maker's business and
financial solvency at the time of such request for any
advance;
(c) all advances, at the time made, shall be noted on
Schedule A of this Note and shall be initialed by Maker.
If not sooner paid, the entire unpaid principal balance together with
all accrued and unpaid interest and all other fees, costs and charges due
hereunder, if any, shall be due and payable.
This Note may be prepaid in whole or in part at any time without premium
or penalty.
If any installment shall become overdue for a period in excess of
fifteen (15) days a "late charge" of four cents for
<PAGE>
each dollar ($1.00) so overdue may be charged by the holder hereof for the
purpose of defraying the expenses incident to handling such delinquent payment.
If this Note is placed in the hands of an attorney for collection, whether suit
be brought or not, Maker shall pay on demand reasonable attorneys' fees and
expenses in addition to any other amount due hereunder.
During any period of time this Note is in default, this Note shall bear
interest at the rate of five percent (5%) per annum in excess of the interest
rate set forth above, or the maximum contract rate permitted by law, whichever
is less, until paid.
Should Maker fail to make timely payments of accrued interest under this
Note, all such accrued interest remaining unpaid shall be added to the
outstanding principal hereunder, and such accrued interest shall bear interest.
The aforesaid provision does not waive any rights of the holder hereof to pursue
all of its rights and remedies against Maker for a default or event of default
in failing to make timely payments of interest.
This Note is subject to the express condition that at no time shall
Maker be obligated or required to pay interest hereunder at a rate which could
subject Lender to either civil or criminal liability as a result of being in
excess of the maximum contract rate which is permitted by law. If, by the terms
of this Note, Maker is at any time required or obligated to pay interest at a
rate in excess of such rate, the maximum contract rate of interest under this
Note shall be deemed to be immediately reduced to such maximum contract rate and
interest payable hereunder shall be computed at such maximum contract rate and
the portion of all prior interest payments in excess of such maximum contract
rate shall be applied and shall be deemed to have been payments in reduction of
the principal balance of this Note.
All parties to this Note, whether principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, notice of protest and
notice of dishonor, and further waive any rights which they may have to require
Lender to proceed against any other person or property, agree that without
notice to any party and without affecting any party's liability, Lender, at any
time or times, may grant extensions of the time for payment or other
modification of this Note, and may add or release any party primarily or
secondarily liable and agree that Lender may apply all monies made available to
it from the disposition of any security for this Note either to this Note or to
any other obligation of any of the parties to Lender, as Lender may elect from
time to time.
The failure of Lender to exercise any right or remedy provided hereunder
or available at law shall not be a waiver or release of such rights or remedies
or the right to exercise any right or remedy at another time.
<PAGE>
In the event any one or more of the provisions contained in this Note,
or any other document or instrument executed in connection herewith shall, for
any reason, be held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other
provision of this Note, or any other such document or instrument, and this Note,
and such other document or instrument shall be construed as if such invalid,
illegal, or unenforceable provision had not been contained herein or therein.
This Note may not be changed orally, but only by an agreement in writing
signed by the parties against whom enforcement of any waiver, change,
modification or discharge is sought.
All notices, demands or requests required or permitted under the terms
of this Note to be given by or to the Maker or the Lender (a) shall be in
writing, and (b) unless and until otherwise specified in a written notice
actually received by the respective parties or any of them, shall be sent to the
parties at their addresses set forth above.
This Note shall be construed in accordance with the laws of the State of
North Carolina.
The representative of Maker subscribing below represents that he has
full power, authority and legal right to execute and deliver this Note on behalf
of Maker and that the debt hereunder constitutes a valid and binding obligation
of Maker.
IN WITNESS WHEREOF, Maker has duly executed this Note under seal as of
the day and year first above written.
ComSouth Cable International, Inc.
By: ________________________________
Name: ________________________________
Title: ________________________________
<PAGE>
SCHEDULE A
ADVANCES
AMOUNT DATE DATE DUE INITIALS
Exhibit 10.5
SUBORDINATED PROMISSORY NOTE
$1,930,493 August 31, 1997
Raleigh, North Carolina
For value received, the undersigned, Business Telecom, Inc., a North
Carolina corporation, (the "Maker"), hereby promises to pay to the order of
Peter T. Loftin, (the "Lender"), with an address of 4300 Six Forks Road,
Raleigh, North Carolina or at such other place, or to such other party as the
holder of this Note may from time to time designate in writing, in lawful
currency of the United States, the principal sum of one million, nine hundred
and thirty thousand, four hundred ninety three and 00/100 dollars ($1,930,493),
in immediately available funds, together with interest at the rate provided
below from and after the date hereof. Interest shall accrue on the unpaid
principal balance of this Note at the prime rate as announced from time to time
in the Wall Street Journal ("Prime Rate") from and after the date hereof. It is
understood and agreed that additional amounts may be advanced by the holder
hereof as provided in the instruments, if any, securing this Note and such
advances will be added to the principal of this Note and will accrue interest at
the above specified rate of interest from the date of advance until paid. The
principal balance of this Note and all interest accruing thereon shall be
payable as follows:
Principal and accrued interest shall be due and payable in twenty-four
(24) monthly installments in amounts indicated on the amortization schedule
attached as Schedule A, commencing on the date one month following the date of
the consummation of BTI's repurchase of shares of BTI Common Stock held by A.B.
Andrews pursuant to the Stock Purchase Option and Put Option Agreement dated
July 1, 1992, as amended, among the Maker, the Lender and A.B. Andrews (the
"Share Repurchase Date") and continuing thereafter on the same day of each
succeeding month thereafter with the last monthly installment being due and
payable on September 22, 1999.
This Note may be prepaid in whole or in part at any time without premium
or penalty. The Lender by his acceptance hereof agrees that the payment
obligations hereunder are expressly subordinated pursuant to that certain
Agreement of Subordination between the Lender and General Electric Capital
Corporation, as Agent under the Loan Agreement (defined therein), dated
September 22, 1997.
In the event the undersigned defaults in payment of any installment as
the same becomes due, and such default is not cured within ten (10) days after
receipt of written notice to the undersigned, then in either such event the
holder of this Note may without further notice, declare the remainder of the
principal sum of this Note, together with all interest accrued thereon, at once
due and payable and may exercise any and all other remedies available on account
of a default hereunder. Failure to exercise the option of acceleration of
maturity shall
<PAGE>
not constitute a waiver of the right to exercise the same at any
other time.
During any period of time this Note is in default, this Note shall bear
interest at the Prime Rate plus five percent (5%) per annum, or the maximum
contract rate permitted by law, whichever is less, until paid.
Upon default, the holder of this Note may employ an attorney to enforce
the holder's rights and remedies and the maker, principal, surety, guarantor and
endorsers of this Note hereby agree to pay to the holder reasonable attorneys'
fees not exceeding a sum equal to fifteen percent (15%) of the outstanding
balance owing on said Note, plus all other reasonable expenses incurred by the
holder in exercising any of the holder's right and remedies upon default.
This Note is subject to the express condition that at no time shall
Maker be obligated or required to pay interest hereunder at a rate which could
subject Lender to either civil or criminal liability as a result of being in
excess of the maximum contract rate which is permitted by law. If, by the terms
of this Note, Maker is at any time required or obligated to pay interest at a
rate in excess of such rate, the maximum contract rate of interest under this
Note shall be deemed to be immediately reduced to such maximum contract rate and
interest payable hereunder shall be computed at such maximum contract rate and
the portion of all prior interest payments in excess of such maximum contract
rate shall be applied and shall be deemed to have been payments in reduction of
the principal balance of this Note.
All parties to this Note, whether principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, notice of protest and
notice of dishonor, and further waive any rights which they may have to require
Lender to proceed against any other person or property, agree that without
notice to any party and without affecting any party's liability, Lender, at any
time or times, may grant extensions of the time for payment or other indulgences
to any party or permit the renewal, amendment or modification of this Note, and
may add or release any party primarily or secondarily liable and agree that
Lender may apply all monies made available to it from the disposition of any
security for this Note either to this Note or to any other obligation of any of
the parties to Lender, as Lender may elect from time to time.
The failure of Lender to exercise any right or remedy provided hereunder
or available at law shall not be a waiver or release of such rights or remedies
or the right to exercise any right or remedy at another time.
2
<PAGE>
In the event any one or more of the provisions contained in this Note,
or any other document or instrument executed in connection herewith shall, for
any reason, be held to be invalid, illegal, or unenforceable in any respect,
such invalidity, illegality, or unenforceability shall not affect any other
provision of this Note, or any other such document or instrument, and this Note,
and such other document or instrument shall be construed as if such invalid,
illegal, or unenforceable provision had not been contained herein or therein.
Notwithstanding anything contained herein to the contrary, in the event any one
or more of the provisions contained in this Note, or any other document or
instrument executed in connection herewith shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect and materially affect Maker's
obligation to pay the indebtedness evidenced hereby or any security therefor,
Lender shall have the option to declare the entire principal sum hereof and
accrued but unpaid interest thereon to be then immediately due and payable.
This Note may not be changed orally, but only by an agreement in
writing signed by the parties against whom enforcement of any waiver, change,
modification or discharge is sought.
All notices, demands or requests required or permitted under the terms
of this Note to be given by or to the Maker or the Lender (a) shall be in
writing, and (b) unless and until otherwise specified in a written notice
actually received by the respective parties or any of them, shall be sent to the
parties at their addresses set forth above.
This Note shall be construed in accordance with the laws of the State of
North Carolina.
IN WITNESS WHEREOF, Maker has duly executed this Note under seal
effective as of the date first above written.
Business Telecom, Inc.
By:__________________________________
Name:________________________________
Title:_______________________________
3
<PAGE>
Schedule A
5
EXHIBIT 10.6(a)
December 4, 1997
OVERNIGHT COURIER
Herman [Butch] A. Charlton
17671 Addison Road, # 1506
Dallas, Texas 75287
Dear Butch:
This letter confirms our conversation of Tuesday, March 25, 1997 in which we
agreed to the following in connection with FiberSouth, Inc.'s employment offer
to you dated March 20, 1997 [the "Offer"]:
Section 1, Commencement of Employment, is revised to state that you
will assume the position of President of FiberSouth, Inc. ["FSI"] no
later than April 21, 1997.
Section 4.2.1., Signing Bonus, is revised to provide that the bonus
will be payable in two [2] equal installments.
Other than these revisions, all other terms and conditions of the Offer
remain unchanged and are acknowledged and accepted by you.
Please do not hesitate to call us for any assistance with the relocation
process.
Sincerely,
Anthony M. Copeland
Vice President/General Counsel
/spb
<PAGE>
EXHIBIT 10.6 (b)
(LOGO FIBERSOUTH
COMMUNICATIONS GOES HERE)
March 20, 1997
OVERNIGHT COURIER
Butch Charlton
17671 Addison Road, # 1506
Dallas, Texas 75287
Dear Mr. Charlton:
I am pleased to offer you the position of President of FiberSouth, Inc. The
following outlines the details of what we discussed:
1. Commencement of Employment: On or before, but no later than April 15,
1997 you will assume the position of President of FiberSouth, Inc.
["FSI"] at the FSI corporate office in Raleigh, North Carolina.
2. Term of Employment: FSI and you agree that your initial term of
employment shall be for two [2] years from the first day of your
employment ["Initial Term"], subject, however, to prior termination of
your employment as provided below. Except as provided below, the
Initial Term may be extended from year to year, and your compensation
shall be reviewed by FSI annually at the end of each fiscal year.
3. Stock in FSI: Subject to the FSI Board of Directors entering into a
recapitalization of FSI, you shall receive stock in FSI equal to the
then appraised value of One Hundred Thousand Dollars [$100,000.00]. Any
FSI stock given to you prior to a public offering shall revert back to
FSI upon termination of your employment with FSI, at a cost to FSI not
to exceed the then appraised value.
4. Compensation:
4.1. Base Salary: For performance of your duties during the first
two [2] years as President of FSI, FSI shall pay as salary to
you the base amount of One Hundred Seventy-Five Thousand
Dollars [$175,000.00] per year during the Initial Term. This
base salary shall be payable in equal installments from the
date of employment in accordance with FSI's normal payroll
periods.
4.2. Bonuses:
4.2.1. Signing Bonus: FSI will pay to you a signing bonus in
the total amount of Twenty Thousand Dollars
[$20,000.00]. This signing bonus shall be payable in
four [4] equal installments, [in checks separate from
the base salary installment checks], less appropriate
withholding and deductions, from the date of
employment at FSI's normal payroll periods.
4.2.2. First Year Bonus: FSI shall pay you a guarantied
bonus in the total amount of Fifty Thousand Dollars
[$50,000.00], at the conclusion of the first year of
employment, subject to the terms and conditions of
employment set forth below.
<PAGE>
Butch Charlton
Page 2
March 20, 1997
This first year bonus shall be paid in one [1]
installment, less appropriate withholding and
deductions.
5. Benefits:
5.1. Vesting: You shall be fully vested in all FSI pension and
retirement plans in effect as of the date of employment.
5.2. Vacation: You shall be entitled to a three [3] week vacation
each year. Entitlement to vacation pay in lieu of vacation and
waiver of vacation time not used shall be in accordance with
FSI's normal personnel policies and procedures.
5.3. Group Health, Life Insurance and Disability Benefits: FSI
shall provide you participation in medical accident and
health, income continuation and life insurance programs as are
generally available to other employees of FSI.
6. Relocation Assistance:
6.1. Moving Expenses: FSI agrees to reimburse you for all
reasonable moving expenses which have received prior written
approval.
6.2. Housing Expenses: FSI shall reimburse you for temporary
housing in Raleigh for a period of time not to exceed three
[3] months from the first day of employment.
7. Termination:
7.1. If your employment is terminated prior to the completion of
any term for any of the reasons specified below, you shall be
entitled to the salary you earned prior to the termination
date, computed pro rata up to and including that date, but you
shall be entitled to no further compensation or bonuses of any
type. Further, your rights to any stock and/or stock options,
if any, shall terminate.
7.2. FSI shall have the right to terminate your employment upon the
occurrence of any one or more of the following events:
7.2.1. Falsification of FSI documents and records, including
but not limited to financial/revenue reports of all
types, employment applications, time sheets, or sales
agreements;
7.2.2. Revealing proprietary FSI or customer account
information to unauthorized FSI or non-FSI personnel,
except as may otherwise be required by law;
7.2.3. Reporting to work under the influence of any
controlled substance, or the use of any controlled
substance on FSI property, except for alcohol
provided by or on behalf of FSI at FSI-sponsored
events;
7.2.4. Misuse, misappropriation or unauthorized removal of
FSI property or the property of any FSI personnel;
<PAGE>
Butch Charlton
Page 3
March 20, 1997
7.2.5. The making of a bona fide charge of discrimination or
sexual harassment by another employee of FSI, or by
another attendee while at a FSI-sponsored event, or
at any event as a representative of FSI;
7.2.6. Verbal or written communications that contain:
7.2.7. Language or material that may be offensive or
disruptive, including but not limited to:
(bullet) sexual comments or images;
(bullet) racial slurs or dialects;
(bullet) gender-specific comments; or
(bullet) comments that would or could offend someone
on the basis of age, religious beliefs,
national origin or disability.
7.2.8. Immoral or indecent conduct on FSI property,
at a FSI-sponsored event, or while acting as a
representative of FSI;
7.2.9. Willful acts which may result in danger or injury to
personnel or damage to FSI property or product, or
the property of FSI personnel;
We look forward to working with you. Please do not hesitate to call me
if you have any questions.
Sincerely,
/s/ Anthony M. Copeland
Anthony M. Copeland
Vice President/General Counsel
/spb
INTERCONNECTION AGREEMENT
BETWEEN
BUSINESS TELECOM, INC. (BTI) COMMUNICATIONS
AND
BELLSOUTH
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
I. RECITALS AND PRINCIPLES..................................................................................1
II. SCOPE OF THE AGREEMENT...................................................................................2
III. DEFINITIONS..............................................................................................2
IV. ACCESS TO UNBUNDLED NETWORK ELEMENTS.....................................................................2
A. General Requirements................................................................................2
B. Interconnection with Network Elements...............................................................3
C. Order Processing....................................................................................5
D. Conversion of Exchange Service to Network Elements..................................................6
E. Service Quality.....................................................................................7
F. Network Information Exchange........................................................................8
G. Maintenance and Trouble Resolution..................................................................8
H. Billing for Network Elements.......................................................................10
I. Addition of Network Elements.......................................................................10
V. LOCAL TRAFFIC INTERCONNECTION ARRANGEMENTS..............................................................11
A. Types of Local Traffic to Be Exchanged.............................................................11
B. Designated Points of Interconnection...............................................................11
C. Facilities for Local Interconnection...............................................................13
D. Trunking and Signaling.............................................................................14
E. Network Management.................................................................................17
F. Local Number Assignment............................................................................18
G. Cross-Connection to Other Collocators..............................................................18
VI. LOCAL TRAFFIC EXCHANGE..................................................................................19
A. Exchange of Traffic................................................................................19
B. Compensation.......................................................................................19
C. Transit Traffic....................................................................................19
VII. MEET-POINT BILLING ARRANGEMENTS.........................................................................19
A. Applicability of OBF Guidelines....................................................................20
B. Meet-Point Interconnection.........................................................................20
C. Tariffs............................................................................................21
D. Billing and Data exchange..........................................................................21
E. Toll Free IXC Traffic..............................................................................23
F. MPB Billing Percentages............................................................................23
G. Special Arrangements...............................................................................23
VIII. TOLL TRAFFIC INTERCONNECTION............................................................................24
IX. NUMBER RESOURCE ARRANGEMENTS............................................................................24
X. ACCESS TO POLES, DUCTS, CONDUIT AND RIGHTS OF WAY.......................................................25
XI. ANCILLARY SERVICES AND PLATFORM ARRANGEMENTS............................................................26
A. 800 Traffic........................................................................................26
<PAGE>
B. 911/E-911..........................................................................................26
C. Provision of Operator Services.....................................................................28
D. Transfer of Service Announcements..................................................................28
E. Coordinated Repair Calls...........................................................................28
F. Busy Line Verification and Interrupt...............................................................29
G. Directory Assistance (DA)..........................................................................29
H. Directory Listings and Directory Distribution......................................................30
I. Access to Signaling and Signaling Databases........................................................30
XII. TELEPHONE NUMBER PORTABILITY ARRANGEMENTS...............................................................31
XIII. DISCONNECTION OF CUSTOMERS..............................................................................33
XIV. RESALE OF BELLSOUTH LOCAL EXCHANGE SERVICES.............................................................34
XV. RESPONSIBILITIES OF THE PARTIES.........................................................................34
XVI. NETWORK DESIGN AND MANAGEMENT...........................................................................36
XVII. TERM....................................................................................................36
XVIII. IMPLEMENTATION OF AGREEMENT.............................................................................37
XIX. UNIVERSAL SERVICE.......................................................................................37
XX. FORCE MAJEURE...........................................................................................37
XXI. LIABILITY AND INDEMNIFICATION...........................................................................38
XXII. DEFAULT.................................................................................................40
XXIII. NONDISCLOSURE...........................................................................................40
XXIV. ARBITRATION.............................................................................................41
XXV. WAIVERS.................................................................................................42
XXVI. GOVERNING LAW...........................................................................................42
XXVII. ARM'S LENGTH NEGOTIATIONS...............................................................................42
XXIII. NOTICES.................................................................................................42
XXIX. ENTIRE AGREEMENT........................................................................................43
XXX. COUNTERPARTS............................................................................................43
ii
<PAGE>
ATTACHMENT A (Operating Subsidiaries of BTI, Inc.)
ATTACHMENT B (Definitions)
ATTACHMENT C-1 (Collocation Rates)
ATTACHMENT C-2 (Unbundled Exchange Access Loops)
ATTACHMENT C-3 (Loop Channelization)
ATTACHMENT C-4 (Unbundled Exchange Ports)
ATTACHMENT C-5 (Signaling Rates)
ATTACHMENT C-6 (LIDB Storage)
ATTACHMENT C-7 (LIDB Validation)
ATTACHMENT C-8 (Directory Listings)
ATTACHMENT C-9 (911 Access)
ATTACHMENT C-10 (Operator Call Processing Access Service)
ATTACHMENT C-11 (Directory Assistance Access Service)
ATTACHMENT C-12 (CMDS Hosting)
ATTACHMENT C-13 (Non-Sent Paid Report System)
ATTACHMENT D (SPNP-RCF Interim Costs)
ATTACHMENT E (SPNP-DID Interim Rates)
ATTACHMENT F (Blanket Agency Agreement)
</TABLE>
iii
<PAGE>
INTERCONNECTION AGREEMENT
BETWEEN
BUSINESS TELECOM, INC. (BTI)
AND BELLSOUTH COMMUNICATIONS
Pursuant to this Interconnection Agreement (Agreement) Business
Telecom, Inc. (BTI) on behalf of its local exchange operating subsidiaries
identified on Attachment A as it shall be amended from time to time
(collectively BTI ) and BellSouth Telecommunications Inc. (BellSouth)
(collectively "the Parties" ) agree to extend certain interconnection
arrangements to one another within each LATA in which they both operate. This
Agreement is an integrated package that reflects a balancing of interests
critical to the Parties which the Parties believe is not inconsistent with
Sections 251, 252 and 271 of the Telecommunications Act of 1996.
I. RECITALS AND PRINCIPLES
WHEREAS, BellSouth is an incumbent local exchange telecommunications
company (ILEC) authorized to provide telecommunications services in the states
of Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina and Tennessee; and
WHEREAS, BTI is a competitive local exchange telecommunications company
(CLEC) which is authorized or plans to become authorized to provide local
telecommunications services in the states of Alabama, Florida, Georgia,
Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, and Tennessee;
and
WHEREAS, the interconnection and interoperability of the Parties'
respective local networks is required to facilitate the introduction of local
exchange service competition and fulfill the objectives of the
Telecommunications Act of 1996 (Telecommunications Act); and
WHEREAS, universal connectivity and interoperability between competing
telecommunications carriers is necessary for the termination of traffic on each
carrier's network; and
WHEREAS, the Parties intend that BellSouth should unbundle certain
basic network elements and make them available for purchase by BTI; and
WHEREAS, the Parties agree that this Agreement shall be filed with the
appropriate state commissions in compliance with Section 252 of the
Telecommunications Act;
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, BTI and BellSouth hereby covenant and agree as
follows:
<PAGE>
II. SCOPE OF THE AGREEMENT
This Agreement will govern the interconnection and resale arrangements
between the Parties to facilitate the interconnection of their facilities and
the connection of local and interexchange traffic in the states of Alabama,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina, and Tennessee. This agreement will further govern the unbundling of
BellSouth network elements in the same states. The Agreement will be filed for
approval of the agreed terms with state commissions in each of the states listed
above. BTI will petition for state commission arbitration of the unresolved
issues referred to herein. Upon conclusion of such state commission arbitration
proceedings, the Agreement will be amended to reflect the decided issues and
filed for approval consistent with the terms of Section 252(e) of the
Telecommunications Act.
III. DEFINITIONS
The definitions contained in Attachment B are intended to define and
govern how the terms included therein are used in this Agreement. However,
except as provided herein, the inclusion or exclusion of any particular
definition is not intended by either party to limit, or to define technical
interface, reliability, throughput and operational characteristic of elements
identified herein, as well as physical and logical interface standards utilized,
unless otherwise specifically provided herein, are according to generally
accepted industry standards as defined by the ITU (ISO/CCITT), ANSI, or the
Network Management Forum, whichever is more specific. Where standards are not
yet fully defined, the Parties agree to take reasonable steps to insure that
interface designs are modularized and retrofitable to any pending standard at
the least cost to the interconnecting Parties.
IV. ACCESS TO UNBUNDLED NETWORK ELEMENTS
BellSouth shall unbundle network elements used in the provision of a
telecommunications service and offer them for resale to BTI as provided
hereafter. BTI shall be entitled to request, and BellSouth shall provide, access
to any such unbundled network element(s). BellSouth shall unbundle such network
elements where technically feasible, and separately price and offer those
elements such that BTI will be able to lease and interconnect to provided
network elements with any facilities and services that BTI may itself provide or
obtain from other telecommunications carriers, in order to offer
telecommunications services to other telecommunications carriers and end users.
Such network elements shall be offered as provided hereafter.
A. General Requirements
A.1 The Parties hereto mutually understand and agree that the array of
network elements is steadily evolving and expanding. The initial set of network
elements and attendant services to be made available by BellSouth hereunder is
included as Attachment C hereto. Network elements will be provided subject to
the rules, terms and conditions expressed in this
2
<PAGE>
Article and in Attachment C. It is understood, however and mutually agreed that
either Party may add network elements to the listing contained in Attachment C
as the BellSouth network changes or additional network elements are identified.
It is especially acknowledged, without limitation, that the list of network
elements may be expanded by either Party to include network elements identified
in relevant FCC or state commission regulations or orders, or made available by
BellSouth to other telecommunications carriers pursuant to other interconnection
agreements. The addition or inclusion of additional network elements shall be
made in accordance with subsection IV.I hereof.
A.2 Without limitation BellSouth agrees to provide BTI access to all
network elements identified in Attachment C hereto. Wherever technically
feasible, interconnection shall be offered at the line and/or trunk side of each
discrete network element. It is agreed that interconnection will be made
available by BellSouth to BTI at any technically feasible point. BellSouth must
implement physical and logical interconnection points consistent with generally
accepted industry standards.
A.3 Initial pricing of network elements is included in Attachment C
hereto, provided the Parties hereby agree that BTI will petition for state
commission arbitration to establish initial pricing of both nonrecurring and
recurring charges applicable to the provision of unbundled loops, cross
connections, loop channelization, unbundled ports, and associated facilities,
and services. In addition, the initial pricing may be revised by mutual
agreement or at BTI's election pursuant to Article XXII hereof.
A.4 It is agreed that BTI may combine network elements purchased
hereunder as required to provide any local toll or access service. If BTI
recombines network elements to mirror existing retail service, as defined by the
applicable state commission, the resale rate shall apply.
B. Interconnection with Network Elements
B.1 Interconnection shall be achieved via any or all of the methods
specified in Section C.I "Facilities for Local Interconnection".
B.2 At BTI's discretion each unbundled loop or port element shall be
delivered to the BTI collocation arrangement over an individual 2-wire hand-off,
in multiples of 24 over a digital DS-I hand-off in any combination or order BTI
may specify, in multiples of 672 over a digital DS-3 hand-off in any combination
or order BTI may specify or through other technically feasible and economically
comparable hand-off arrangements requested by BTI. Economically comparable as
used in this section refers to an economically comparable effect upon BTI and is
not meant to ensure an equivalent revenue stream or contribution level to
BellSouth.
B.3 BellSouth will permit BTI to collocate DLC systems in conjunction
with collocation arrangements BTI maintains at a BellSouth wire center, for the
purpose of interconnecting to unbundled loop elements. BTI will have the option
of purchasing BellSouth unbundled transport (at any transmission level) between
placed equipment and the BTI network.
3
<PAGE>
B.4 BTI shall access BellSouth's unbundled loops via collocation at the
BellSouth wire center where those elements exist. Each loop or port shall be
delivered to BTI's collocation by means of a cross connection.
B.5 BellSouth shall provide BTI access to its unbundled loops at each
of BellSouth's Wire Centers. In addition, if BTI requests one or more loops
serviced by Integrated Digital Loop Carrier or Remote Switching technology
deployed as a loop concentrator, BellSouth, shall where available, move the
requested loop(s) to a spare, existing physical loop. If, however, no spans
physical loop is available, BellSouth shall within seventy-two (72) hours of
BTI's request notify BTI of the lack of available facilities. BTI may then, at
its discretion, make a network element request for BellSouth to provide the
unbundled loop through the demultiplexing of the integrated digitized loop(s).
B.6 Where BellSouth utilizes digital loop carrier (DLC) technology to
provision the loop element of an unbundled exchange service to an end user
customer who subsequently determines to assign the loop element to BTI and
receive Exchange Service from BTI via such loop BellSouth shall deliver such
loop to BTI on an unintegrated basis pursuant to BTI's chosen hand-off
architecture without a degradation of end user service or feature availability
B.7 Except as otherwise specified herein, all dedicated transport-based
features, functions, service attributes, grades-of-service, install, maintenance
and repair intervals which apply to BellSouth's bundled local exchange service
shall apply to unbundled loops.
B.8 Except as otherwise specified herein, all switch-based features,
functions, service attributes, grades-of-service, and install, maintenance, and
repair intervals which apply to BellSouth's bundled local exchange service shall
apply to unbundled ports.
B.9 BellSouth will permit any customer to convert its bundled local
service to an unbundled element or service and assign such unbundled element or
service to BTI with no penalties, rollover, termination or conversion charges to
BTI or the customer, except as specifically provided in Attachment C-2 hereto or
pursuant to the terms of a specific customer service agreement, if BellSouth
waives like charges and penalties for any other telecommunications carrier,
(unless superseded by government action).
B.10 BellSouth will permit BTI to collocate remote switching modules
and associated equipment in conjunction with collocation arrangements BTI
maintains at a BellSouth wire center, for the purpose of interconnecting to
unbundled loop or link elements.
B.11 When available to any other telecommunications carrier or other
customer, BellSouth shall provide BTI with an appropriate on-line electronic
file transfer arrangement by which BTI may place, verify, and receive
confirmation on orders for unbundled elements, and issue and track
trouble-ticket and repair requests associated with unbundled elements. In the
interim, batch file arrangements specified in BellSouth's current Facilities
Based Carrier Operating Guide (FBOG) shall apply. BellSouth shall provide BTI
with the ability to order any defined network element using OBF or other
mutually agreed upon ordering/provisioning codes.
4
<PAGE>
B.12 It is expressly agreed that interconnection will be afforded
equally regardless of the transmission medium selected by the interconnector
i.e., digital or analog loops, conditioned circuits, ISDN, SONET, wherever
present in BellSouth's network, so that networks and applications can evolve
unencumbered by the available degree of interconnectivity.
B.13 Wherever technically feasible it is expressly agreed and
understood that BellSouth will provide interconnection on the line side and/or
trunk side of each unbundled Network Element. Where interconnection is ordered
to the line side of a Network Element, interconnection shall be on a hardwired
(not software driven) basis.
B.14 BellSouth shall develop a process to identity the carrier for each
unbundled loop and establish automated intercompany referral and/or call
hand-off processes. In addition, BellSouth will not in any way hinder BTI from
deploying modem DLC 'equipment (TR303) throughout the unbundled loop/transport
network.
C. Order Processing
C.1 BTI shall place orders for unbundled loops (and other network
elements) through completion and submission of the Service Order form specified
in the FBOG. The installation time intervals which shall apply thereto are as
expressed in subsection IV.D hereafter.
C.2 Order processing for unbundled loops shall be mechanized in a form
consistent with industry standards. If made available by BellSouth to any other
telecommunications carrier, automated interfaces shall be provided in a
centralized operations support systems database for installation scheduling,
confirmation of circuit assignments and completion confirmation.
C.3 Particular combinations of elements hereafter referred to as
combinations, identified and described by BTI can be ordered and provisioned as
combinations, and not require the enumeration of each element within that
combination in each provisioning order, consistent with OBF or other mutually
agreed upon procedures.
C.4 Appropriate ordering/provisioning codes will be established for
each identified combination consistent with OBF or other mutually agreed upon
procedures.
C.5 When combinations are ordered where the elements are currently
interconnected and functional those elements will remain interconnected and
functional (except for the integrated SLC).
C.6 When the open network access platform is available, BellSouth will
provide BTI with the ability to have the BellSouth end office AIN triggers
initiated via an appropriate service order from BTI.
C.7 BTI and BellSouth will negotiate in good faith to create a mutually
acceptable standard service order/disconnect order format, consistent with OBF
or other mutually agreed upon procedures.
5
<PAGE>
C.8 BellSouth shall exercise best efforts to provide BTI with the "real
time" ability to schedule installation appointments with the customer on-line
and access to BellSouth's schedule availability beginning in the second calendar
quarter of 1997. In the interim BellSouth will make best efforts to install
unbundled loops and other network elements by the Customer Desired Due Date
(CDDD) where facilities permit. Service requests with shorter intervals than
normal intervals or those that require out-of-hours provisioning may be subject
to additional charges.
C.9 When available to any other telecommunications carrier or other
customer, BellSouth shall provide "real time" response for firm order
confirmation, due date availability/scheduling dispatch required or not,
identify line option availability by Local Service Office (LSO) (such as digital
copper, copper analog, ISDN) completion with all service order and time and cost
related fees, rejections/errors on service order data element(s) jeopardizes
against the due date, missed appointments, additional order charges
(construction charges), order status, validate street address detail, and
electronic notification of the local line options that were provisioned. This
applies to all types of service orders and all network elements.
C.10 BellSouth will provide to BTI escalation procedures for ordering
and provisioning. If an expedite is requested by BTI on the customer's behalf,
normal expedite charges shall apply.
D. Conversion of Exchange Service to Network Elements
D.1 Installation intervals for service established via unbundled loops
will be handled in the same time frame as BellSouth provides services to its own
customers, as measured from the date upon which BellSouth receives the order to
the date of customer delivery.
D.2 BellSouth will make best effort to install unbundled loops and
other network elements by the Customer Desired Due Date (CDDD) where facilities
exist. Service requests with a shorter than standard interval or that require
out-of-hours provisioning may be subject to additional charges.
D.3 On each unbundled network element order in a wire center, BTI and
BellSouth will agree on a cutover time at least 48 hours before that cutover
time. The cut over time will be defined as a 60-minute window within which both
the BTI and BellSouth personnel will make telephone contact to complete the cut
over.
D.4 Within the appointed 60-minute cut over time, the BTI contact will
call the BellSouth contact designated to perform cross-connection work and when
the BellSouth contact is reached in that interval, such work will be promptly
performed.
D.5 If the BTI contact fails to call or is not ready within the
appointed interval and if BTI has not called to reschedule the work at least
eight (8) hours prior to the start of the interval, BellSouth and BTI will
reschedule the work order.
6
<PAGE>
D.6 If the BellSouth contact is not available or not available at any
time during the 60-minute interval, BTI and BellSouth will reschedule.
D.7 The standard time expected from disconnection of a live Exchange
Service to the connection of the unbundled element to the BTI collocation
arrangement is 15 minutes.
D.8 If unusual or unexpected circumstances prolong or extend the time
required to accomplish the coordinated cut-over the Party responsible for such
circumstances is responsible for the reasonable labor charges of the other
Party. Delays caused by the customer are the responsibility of BTI.
D.9 If BTI has ordered Service Provider Number Portability (SPNP) as
part of an unbundled loop installation BellSouth will coordinate implementation
of SPNP with the loop installation.
D.10 If BellSouth provides in practice shorter scheduling lead times
and/or cutover windows than those specified in this section for the same
services for other carriers, it will do the same for BTI.
E. Service Quality
E.1 At a minimum, the service quality of leased network elements should
match that of BellSouth's own elements and conform to all Bellcore and ANSI
requirements applicable to the type of service being provided. In addition,
BellSouth will provide maintenance services on network elements purchased by BTI
which are timely, consistent and at parity with that provided when such elements
are used for its own purposes.
E.2 Maintenance support shall be available 7 days a week, 24 hours a
day. Provisioning support shall be available at the same times at which
BellSouth installs its own bundled local exchange services.
E.3 Installation and service intervals shall be the same as when
BellSouth provisions such network elements for use by itself, its affiliates or
its own retail customers.
E.4 In facility and power outage situations, BellSouth agrees to
provide network elements leased by BTI the same priority for maintenance and
restoration as similar elements used by BellSouth for itself or its affiliates.
E.5 The Parties agree that all interconnection arrangements and
services will at a minimum be subject to technical standards which are equal to
those that BellSouth affords to itself, other LECs, or other telecommunications
carriers. This must at a minimum include parity in:
o Port features
o Treatment during overflow/congestion conditions
o Equipment/interface protection
7
<PAGE>
o Power redundancy
o Sufficient spare facilities to ensure provisioning,
repair performance and availability
o Mediation functions
o Standard interfaces
o Control over switch traffic parameters in a mutually
agreed upon method
o Access to integrated test functionality in a mutually
agreed upon method
o Real time access to performance monitoring and alarm
data, if BellSouth providing it to itself or any other
telecommunications provider.
F. Network Information Exchange
F.1 BellSouth shall provide BTI with information sufficient to
determine an end user's existing service and feature configurations.
F.2 BellSouth agrees to provide BTI with detailed design layout records
(DLR) for unbundled loops and circuits.
F.3 BellSouth shall provide information to BTI on a continuing basis
required to keep BTI apprised of engineering changes associated with BellSouth's
network elements and its deployment of new technologies.
F.4 BellSouth shall provide BTI with a detailed description of the
criteria and procedures used for handling facility and power outages.
F.5 Where permitted by law BellSouth will make available to BTI
electronic (magnetic tape and/or diskette) and hard copies of its Master Street
Address Guide (MSAG) and any regular updates thereof.
F.6 BellSouth will provide BTI with access to a listing and description
of all services and features available down to street address detail, including:
Type of Class 5 switch by CLLI, line features availability by LSO, and service
availability by LSO as well as the data elements required by BellSouth to
provision all such services and features.
G. Maintenance and Trouble Resolution
G.1 BellSouth shall provide automated interfaces to BTI for field
dispatch scheduling, status of repairs and confirmation of repair completion.
The mean time to repair unbundled loops shall be equivalent to the mean time to
repair reported by BellSouth for its retail customers.
G.2 Service centers shall be established by both Parties to handle
service issues, escalations, resolution of billing issues and other
administrative problems. Automated interfaces (such as the carrier gateway)
shall be provided into a centralized customer support systems databases for
access to services and features purchased by BTI from BellSouth.
8
<PAGE>
G.3 The Parties agree to establish a real time automated industry
standard electronic interface (EBI) to perform the following functions:
o Trouble Entry
o Obtain Trouble Report Status
o Obtain Estimated Time To Repair (ETTR) and ILEC Ticket
Number
o Trouble Escalation
o Network Surveillance - Performance Monitoring (i.e.
proactive notification of "auto detects" on network
outages)
G.4 The Parties agree to adopt a process for the efficient management
of misdirected service calls.
G.5 BellSouth will establish and staff a Maintenance Center to act as
BTI's single point of contact for all maintenance functions which will operate
on a 24 hour a day, 7 days a week basis.
G.6 All trouble shooting will be performed by BellSouth and BellSouth
will be responsible for the reported trouble until tanned back to BTI.
G.7 The Parties agree to establish an escalation process for resolving
maintenance troubles.
G.8 BellSouth shall perform Mechanized Loop Tests (Quick Test) at the
request of BTI while BTI is on line.
G.9 BellSouth shall provide progress status reports sufficient to
enable BTI to provide end user customers with detailed information and an
estimated time to repair (ETTR).
G.10 BellSouth will close all trouble reports with BTI. BTI will close
all trouble reports with the end user.
G.11 BellSouth will not undertake any work at an end user's request for
which BTI would be charged without obtaining the prior approval of BTI. This
includes authorizations by BTI if a dispatch is required to the customer
premises as well as verification of actual work completed.
G.12 All Auto/Subscriber Line Tests (ALIT/SLIT) tests performed on BTI
customers that result in a failure will be reported to BTI.
G.13 BTI will coordinate dispatches to the customer premise. This
includes redispatches for customer access not available.
G.14 BellSouth will ensure that all applicable alarm systems that
support BTI customers are operational and the supporting databases are accurate
so that equipment that is in alarm will
9
<PAGE>
be properly identified. BellSouth will respond to BTI customer alarms consistent
with how and when they respond to alarms for their own customers.
G.15 Nondiscriminatory emergency restoration and disaster recovery
plans will be developed consistent with TSR essential line procedures. The plans
should outline methods for the restoration of each central office in the local
network provider territory as well as contain site specific restoration
alternatives which can be implemented based on the magnitude of the disaster.
Each plan should incorporate at a minimum the following elements:
a. A BellSouth single point of contact which shall be:
o Responsible for notification of the BTI work center
o Responsible for the initiation of BellSouth's restoration
plan
o Responsible for status and problem resolution during the
entire restoration process
b. A restoration equipment dispatch plan which will establish a:
o Documented procedure on how equipment will be dispatched to
the restoration site
o Estimated maximum time for the restoration equipment to
arrive on site
c. Prior notification with the option to influence the decision
of any scheduled maintenance activity performed by the local
supplier that may be service affecting to BTI local customers
(i.e. cable throws power tests etc.).
H. Billing for Network Elements
H.1 BellSouth will bill all unbundled elements and associated services
purchased by BTI (either directly or by previous assignment by a customer) on no
more than two (2) consolidated statements per Point of Interconnection (POI)
with sufficient billing detail to enable BTI to reasonably audit such charges.
H.2 Invoices must be presented monthly in a Carrier Access Billing
Systems (CABS) and/or Customer Record Information System (CRIS) format in order
to facilitate standard industry auditing practices. BTI and BellSouth will agree
on the flow and format of CARE records for correct provisioning and billing to
IXC's.
I. Addition of Network Elements
BTI may request that BellSouth allow purchase and interconnection of
additional Network Elements (including, without limitation, sub-loop unbundling
and databases not otherwise discussed herein) at any time by making a demand in
writing including a proposed revised Attachment C. BellSouth will respond in
writing within thirty (30) days of receipt of such a request, and either accept
or reject the service request. BellSouth may not refuse to make the requested
Network Element available if its availability is required by FCC or state
commission requirements, the Network Element is provided to any other
telecommunications carrier or
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interconnection is technically feasible and failure to obtain access to such
Network Element might impair the ability of BTI to provide telecommunications
services. Pricing of such additional elements shall be provided within
forty-five (45) days of receipt of the request for service and shall be in
accordance with the requirements of 47 U.S.C. ss. 252(d)(1). BellSouth will
exercise best efforts to accomplish actual interconnection and provision of
service within ninety (90) days of receipt of the service request.
V. LOCAL TRAFFIC INTERCONNECTION ARRANGEMENTS
A. Types of Local Traffic to Be Exchanged
The Parties agree to provide the necessary facilities and equipment to
allow for the exchange of the following types of traffic between BellSouth and
BTI:
A.1 Local Exchange: Local traffic to be terminated on each party's
local network so that customers of either party have the ability to reach
customers of the other party without the use of access codes.
A.2 Exchange Access: The offering of access to telephone exchange
services or facilities-based origination and termination of intraLATA or
interLATA toll services.
A.3 IXC Transit: BellSouth shall provide intermediary network access
service between BTI and any IXC for the purpose of completing interLATA or
intraLATA toll traffic.
A.4 Other Transit Functions: The Parties shall provide intermediary
tandem switching and transport services for the other Party's s connection of
its end user to a local end user of other CLECs, other ILECs, and wireless
telecommunications providers which are connected to such Party's network.
A.5 Intelligent Network and Network Surveillance: BellSouth shall
provide open logical interconnection points to an AIN/IN interface in their
network. BellSouth must also provide access to monitoring, surveillance, and
other fraud control functions in its network.
A.6 Other Services: BellSouth shall provide connection and call routing
for 911, directory assistance and operator assistance services.
B. Designated Points of Interconnection
The Parties shall designate Points of Interconnection (POIs) on each
other's networks. BTI shall at a minimum designate a POI at each BellSouth
access tandem serving the local calling area of the exchanges being served by
BTI. BTI may designate additional POIs within a BellSouth local calling area and
BellSouth will not unreasonably refuse to interconnect at each such designated
POI. BellSouth may designate a POI at one or more of BTI's local switching
centers within each LATA in which BTI is providing local service. If no BTI
local switching
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center is located within such LATA, the Parties will arrange a POI at a mutually
agreed point within such LATA. BTI will not unreasonably refuse to interconnect
at a POI designated by BellSouth.
B.1 Interconnection will be available at any technically feasible point
that is used in the transmission of voice, data or other types of traffic.
B.2 Reciprocal connectivity shall be established at each and every
BellSouth access tandem within the local calling area BTI desires to serve for
interconnection to those end offices that subtend the access tandem. At it's
discretion, BTI may elect to interconnect directly at any BellSouth end offices
for interconnection to end users served by that end office. Such interconnecting
facilities shall conform, at a minimum, to the telecommunications industry
standard of DS-I pursuant to Bellcore Standard No. TR-NWT-00499. Signal transfer
point, Signaling System 7 (SS7) connectivity is required at each interconnection
point where available. BellSouth will provide out-of-band signaling using Common
Channel Signaling Access Capability where technically and economically feasible,
in accordance with the technical specifications set forth in the BellSouth
Guidelines to Technical Publication TR-TSV000905. The Parties agree that their
facilities shall provide the necessary on-hook, off-hook answer and disconnect
supervision and shall hand off calling party number ID where technically
feasible.
B.3 In accordance with Section V.C hereafter, collocation arrangements
will be established which are suitable for use in BTI/BellSouth local
interconnection and BTI access to unbundled BellSouth network components.
Allowable collocation equipment includes transmission and concentrating
equipment.
B.4 In accordance with Section V.D hereafter, the Parties agree to
establish trunk groups such that each Party provides a reciprocal of each trunk
group established by the other Party. The Parties agree to install efficient and
sufficient facilities to carry traffic (1) to route calls originating on its
network and terminating on the other carrier's network to its POI, and (2) to
route calls originating on the other local exchange carrier's network, but
terminating on its network from that carrier's POI, and will work cooperatively
to ensure such. Notwithstanding the foregoing, each Party may construct its
network, including the interconnecting facilities, to achieve optimum cost
effectiveness and network efficiency.
B.5 Each Party shall be responsible for routing calls to the POI for
termination via the other's facilities. Each Party shall bear its own costs
related to installation at the POI. BTI may establish POIs on the BellSouth
network via a negotiated expanded interconnection arrangement or via leased
transport between the BTI network and the BellSouth access tandem. BellSouth may
establish POIs on the BTI network via an expanded interconnection arrangement at
the BTI local switching center or via leased transport between an BTI expanded
interconnect arrangement and an BTI local switching center.
B.6 Either Party may use the POI for the interconnection of other types
of services, such as toll services, subject to the applicable rates for such
interconnection.
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B.7 BellSouth may not impose any restrictions on traffic types
delivered to or from the POI(s). Notwithstanding the foregoing, the Parties
hereto agree that no interexchange access services traffic will be exchanged as
local traffic hereunder.
B.8 Once traffic is delivered to the POI, it is the terminating
carrier's responsibility to terminate the traffic to its end users. Calls should
be terminated using the same network, ensuring the same quality of service, as
the carrier provides its own customers.
B.9 There will be no re-arrangement, reconfiguration, disconnect, or
other non-recurring fees associated with the initial reconfiguration of each
carrier's traffic exchange arrangements upon execution of this agreement.
B.10 BellSouth will absorb any applicable nonrecurring charges incurred
by BTI as a result of network redesigns/reconfigurations initiated by BellSouth
to its own network.
C. Facilities for Local Interconnection
C.1 The Parties agree that there are four appropriate methods of
interconnecting facilities: (1) virtual collocation where physical collocation
is not practical for technical reasons, because of space limitations or at the
option of the Party requesting interconnection; (2) physical collocation; and
(3) interconnection purchase of facilities from either party by the other party
and (4) mid fiber meet. Rates and charges for collocation are set forth in
Attachment C-1 hereto and applicable provisions of BellSouth's access service
tariffs.
C.2 Each Party hereto at its election shall have the sole right and
discretion to specify any one of the following methods for interconnection at
the POI:
a. a meet in a manhole or other appropriate junction point inside,
near to, or just outside the wire center designated as the POI
in which case the Party requesting interconnection shall
additionally have the sole right and discretion to effect such
meet by leasing from a third party, fiber facilities into the
POI meet junction point (i.e.,. virtual collocation);
b. a collocation facility which it maintains at the other Party's
POI wire center (i.e., physical collocation);
c. a collocation facility maintained at the POI wire center by a
third party with whom the Party requesting interconnection has
contracted for such purpose; or
d. a digital transport facility(ies) leased from the other Party
hereto under the most favorable contract or tariff terms
offered, where such facility(ies) extends to the POI from some
second point designated by the Party requesting interconnection.
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The Party requesting interconnection may, upon 60 days advance written notice to
the other Party, change from one of the interconnection methods specified above
to another of the networks specified above. A mutually acceptable certified
vendor for the installation of physical collocation equipment can be employed by
the Party making the change to implement such changes, in which case no
conversion or rollover charges will be assessed by the other party.
C.3 Existing BTI special access collocation arrangements with BellSouth
shall be available for use by BTI in the provision of switched services
hereunder at no additional charge to BTI.
C.4 BTI may at its option replace current virtual collocation
arrangements at any location with physical collocation arrangements. The Parties
agree that no termination penalties or liabilities will apply to the termination
of existing virtual collocation arrangements. A certified vendor for the
installation of physical collocation equipment can be employed by the Party
making the change to implement such a replacement, in which case no conversion,
installation or non-recurring charges will be assessed by the other Party.
D. Trunking and Signaling
D.1 a. The Party receiving traffic for termination can elect to
receive the traffic in one of two ways: (a) over separate
trunks for local and non-local; or (b) on combined trunks;
provided that separate trunk groups shall be utilized where
the delivering party is unable to furnish an auditable
percent local usage (PLU) factor to the party receiving the
traffic on a quarterly basis.
b. If direct end office bunking with combined trunks is used,
the Parties will work cooperatively to develop a procedure
for accurately determining the amount of interLATA access
traffic for proper application of switched access charges.
D.2 Trunking shall be available to any switching center designated by
either carrier: including end offices, access tandems, 911 routing switches,
directory assistance/operator services switches, or any other feasible point in
the network. The Parties shall have the option for either one-way or two-way
bunking. Directionality in this case refers to the traffic flowing between two
networks, not to the logical or physical configuration of the trunk. All trunks
should be configured two-way for testing purposes only.
D.3 Trunking can be established to tandems or end offices or a
combination as mutually agreed. Normally, bunking will be at the DS- 1 level. On
a trunk group specific basis, the Parties may agree to establish bunking at
higher (e.g., DS-3) levels. Initial bunking will be established between the BTI
local switching centers and the BellSouth access tandems. The Parties will
utilize direct end office bunking under the following conditions:
a. BellSouth tandem exhaust - If a BellSouth access tandem to
which BTI is interconnected is unable to, or is forecasted to
be unable to, support
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additional traffic loads for any period of time, the Parties
will mutually agree on an end office bunking plan that will
alleviate the tandem capacity shortage and ensure completion
of traffic between BTI and BellSouth subscribers.
b. Traffic volumes - The Parties shall install and retain end
office bunking sufficient to handle actual or reasonably
forecast traffic volumes, whichever is greater, between an
BTI local switching center and a BellSouth end office where
traffic between such points exceeds or is forecast to exceed
125,000 minutes of local traffic per month. The Parties will
install additional capacity between such points when overflow
traffic between the BTI switching center BellSouth access
tandem exceeds or is forecast to exceed 125,000 minutes of
local traffic per month.
c. Mutual agreement - The Parties may install direct end office
bunking upon mutual agreement in the absence of conditions
(a) or (b) above and agreement will not unreasonably be
withheld.
D.4 The Parties will provide Common Channel Signaling (CCS) to one
another, where and as available, at no charge, in conjunction with all POI trunk
groups. The Parties will cooperate in the exchange of Transaction Capabilities
Application Part (TCAP)) messages to facilitate full interoperability of
CCS-based features between their respective networks, including all CLASS
features and functions, to the extent each carrier offers such features and
functions to its own end users. All CCS signaling parameters will be provided
including calling party number (CPN), originating line information (OLI) calling
party category, charge number, etc. All privacy indicators will be honored.
Where available, network signaling information such as Carrier Identification
Parameter (CCS platform) and CIC/OZZ information (non-CCS environment) will be
provided wherever such information is needed for call routing or billing. The
Parties will follow all Ordering and Billing Forum (OBF) adopted standards
pertaining to CIC/OZZ codes. Where CCS is not available, inband multi-frequency
(MF) wink start E&M channel associated signaling will be provided. Such MF
arrangements will require a separate trunk group between BTI's switch and one
specified BellSouth switch.
D.5 BTI shall establish CCS interconnection with BellSouth signal
transfer provider.
D.6 BTI may opt at any time to terminate to BellSouth some or all local
exchange traffic and intraLATA toll traffic originating on its network, together
with switched access traffic, via Feature Group A, B, C or D Switched Access
services which BTI may otherwise purchase from BellSouth, subject to the rates,
terms and conditions specified in BellSouth's applicable switched access
tariffs. At no time shall BTI be required to route outbound traffic via
facilities for which a full retail or end user toll charge would be assessed
when parallel FG-A, FG-B, FG-C, or FG-D routing, or routing via a different
carrier exists which is capable of carrying and completing said traffic at more
favorable rates.
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D.7 The Parties will cooperate to jointly plan for the deployment of
intercompany 64 Kbps per second clear channel capability.
D.8 Service arrangements hereunder shall be engineered to an objective,
consistent P.01 or better grade of service at the peak busy hour.
D.9 The Parties shall periodically exchange technical descriptions and
trunk/traffic forecasts of their interconnection and traffic requirements in
sufficient detail to assure traffic completion to and from all customers within
the appropriate calling areas.
D.10 BellSouth shall deliver intraLATA traffic originating from its
subscribers and terminating to BTI's subscribers via a trunk group using
facilities leased from BTI on mutually agreeable terms.
D.11 BellSouth will provide interconnection to and from intelligent
network, signaling, monitoring, surveillance and fraud control points.
D.12 BellSouth shall provide and implement all mandatory industry
standard SS7 parameters as well as procedures that are defined in the applicable
Bellcore standards, even if today's services do not specifically require these
features. These functions shall include:
a. All functions of the ISUP, TCAP, SCCP, and MTP as specified
in relevant Bellcore specifications.
b. All functions of the OMAP, including MTP Routing Verification
Test (MRVT) and SCCP Routing Verification Test (SRVT).
D.13 BellSouth shall provide a signaling link which consists of a 56
Kbps transmission path or other rates as defined by ANSI standards between BTI
designated Signaling Points of Interconnection (SPOIs), satisfying an
appropriate requirement for physical diversity.
D.14 The Parties shall meet or exceed SS7 performance objectives as
described in Bellcore TR-905 section 7, and MTP and SCCP performance as
specified by ANSI.
D.15 Either Party shall have the option for Multi-Frequency (MF)
signaling, but only when either party does not have the technical capability to
provide SS7 facilities.
D.16 Other Signaling Requirements:
a. CIP shall be provided (CIC within the SS7 call set-up
signaling protocol) at tariffed charges.
b. All mandatory SS7 signaling parameters must be provided
including Calling Party Number (CPN). All privacy indicators
must be honored.
c. The Parties must provide Signaling System 7 (SS7) to one
another.
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E. Network Management
E.1 The Parties agree to work cooperatively to install and maintain
reliable interconnected telecommunications networks, including but not limited
to, the exchange of appropriate information concerning network changes that
affect services to the other Party, maintenance contact numbers and escalation
procedures.
E.2 The interconnection of all networks will be based upon accepted
industry/national guidelines for transmission standards and traffic blocking
criteria.
E.3 The Parties will work cooperatively to apply sound network
management principles by invoking appropriate network management controls (e.g.,
call gapping) to alleviate or prevent network congestion.
E.4 The Parties will cooperate to determine the performance of their
respective networks and will implement joint management controls to further
overall service integrity.
E.5 The Parties will jointly develop and agree on a Joint
Interconnection Grooming Plan prescribing standards to ensure that traffic
exchanged over the POI trunk groups experiences a consistent P.01 or better
grade of service peak busy hour, and other appropriate, relevant
industry-accepted quality, reliability and availability standards. Such plan
shall also include mutually agreed upon standards for the configuration of
segregated POI trunk groups. In addition, the plan shall also include standards
and procedures for notification of trunk disconnections and discoveries of trunk
disconnections. Neither Party shall be expected to maintain active status for a
trunk disconnected by the other Party for an extended or indefinite period of
time. The Parties will use their best collective good faith efforts to complete
and agree on a Joint Interconnection Grooming Plan within 90 days following
execution of this agreement.
E.6 BellSouth will establish and adhere to industry standard intervals
for the delivery of FOCs, DLRs and facilities. Such intervals need to ensure
that facilities are provisioned in time frames and according to standards that
meet or exceed those that BellSouth provides to itself for its own network and
end users. Intervals should not exceed the Customer Designated Date (CDD).
E.7 Upon request, BellSouth will provide BTI with access to the
BellSouth maintenance and trouble report systems including the following systems
and/or functionality:
o Trouble reporting/dispatch capability - access must be
real time.
o Repair status/confirmation; maintenance/trouble report
systems
o Planned/unplanned outage reports (where available to any
other telecommunications carrier)
E.8 Each Party has the duty to alert the other to any network events
that can result or has resulted in service interruption, blocked calls, or
changes in network performance, on a real time basis.
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E.9 BellSouth will adopt any multi-ILEC trouble management procedures
and escalation processes developed by the NOF.
E.10 The Parties will work cooperatively to plan and implement
coordinated repair procedures for the local interconnection trunks and
facilities to ensure trouble reports are resolved in a timely and appropriate
manner.
E.11 The Parties will provide each other with a trouble reporting
number that is readily accessible and available 24 hours a day, 7 days a week.
In addition, the Parties will provide each other test-line numbers and access to
test lines.
E.12 The quality of interconnection services should be no less than
that provided by BellSouth for its own services.
E.13 Installation and restoration of interconnection circuits by
BellSouth for BTI will be given equal priority as is given by BellSouth to
similar services performed by BellSouth for any other telecommunications
carrier.
E.14 The time interval for installation of POIs by BellSouth will be
negotiated on an ICB basis, subject to an agreement that installation of such
POIs will be completed within a target of sixty (60) calendar days.
E.15 Completion confirmation shall be provided to ensure that all
necessary translation work is completed on newly installed facilities.
E.16 The Parties shall periodically exchange technical descriptions and
forecasts of their interconnection and traffic requirements in sufficient detail
to assure traffic completion to and from all customers within the appropriate
calling areas.
E.17 BellSouth will provide and update an electronic copy of their
Switch Network ID Database with a complete list of features and functions by
switch, i.e., NPA/NXXs, rate centers, etc.
F. Local Number Assignment
BTI will assign telephone numbers to its customers using at least one
NXX per BellSouth tariffed local exchange metropolitan area; provided, that
sufficient quantities of numbering resources are made available to BTI.
G. Cross-Connection to Other Collocators
Where one Party collocates in the wire center of the other Party, the
Party operating the wire center shall allow the Party collocated at the wire
center to directly interconnect to any other entity which maintains a
collocation facility at that same wire center. The Party operating the wire
center shall enable such interconnection by effecting a cross-connection between
those
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collocation facilities, as jointly directed by the Party collocated at the wire
center and the other collocated entity. For each such cross-connection, the
Party operating the wire center shall charge the otherwise applicable standard
tariff or contract special access cross-connect rate to the collocated Party. No
other charges shall apply for such cross-connection. BTI reserves its right to
petition for state commission arbitration of the pricing of such
cross-connections.
VI. LOCAL TRAFFIC EXCHANGE
A. Exchange of Traffic
The Parties agree for the purpose of this Agreement only that local
interconnection is defined as the delivery of local traffic to be terminated on
each party's local network so that customers of either party have the ability to
reach customers of the other party, without the use of any access code or delay
in the processing of the call. The Parties further agree that the exchange of
traffic on BellSouth's Extended Area Service (EAS) shall be considered local
traffic and compensation for the termination of such traffic shall be pursuant
to the terms of this section.
B. Compensation
With the exception of the local traffic specifically identified in
subsection (C), each party agrees to terminate local traffic originated and
routed to it by the other party. The Parties agree that BellSouth will track the
usage for both companies for the period of the Agreement. BellSouth will provide
copies of such usage reports to BTI on a monthly basis. For purposes of this
Agreement, the Parties agree that there will be no cash compensation exchanged
by the parties during the term of this Agreement unless the difference in
minutes of use for terminating local traffic exceeds 3 million minutes per state
on a monthly basis. In such an event, the Parties will thereafter negotiate the
specifics of a traffic exchange agreement which will apply on a going-forward
basis.
C. Transit Traffic
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 BTI; (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 $0.002 per
minute charge. However, BellSouth agrees that BTI may cross-connect directly to
such third Parties at the POI. In such an event, tariffed cross-connection
nonrecurring charges will apply, and no transmitting charge will apply.
VII. MEET-POINT BILLING ARRANGEMENTS
Both Parties hereto provide interexchange access transport services to
IXCs and other access service customers. Pursuant to the terms of this
Agreement, BTI will interconnect at
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selected BellSouth switches of its choosing for the purposes of providing
certain Switched Access Services. On such occasions, a portion of the access
transport service will be provided by each of the Parties hereto. This section
establishes arrangements intended to enable each of the Parties hereto to serve
and bill their mutual Switched Access Service customers, on an accurate and
timely basis. The arrangements discussed in this section apply to the provision
of both interLATA and intraLATA Switched Access Services. It is understood and
agreed that BTI is not obligated to provide any of its Switched Access
Service(s) through any specific access tandem switch or access tandem provider,
and may at its sole discretion, with due notice to those affected, modify its
serving arrangements on its own initiative.
A. Applicability of OBF Guidelines
Meet-point billing (MPB) arrangements shall be established between the
Parties to enable BTI to provide, at its option, Switched Access Services to
third Parties via specified LEC switches, in accordance with the Meet-Point
Billing guidelines adopted by and contained in the Ordering and Billing Forum's
MECAB and MECOD documents, except as modified herein. These arrangements are
intended to be used to provide Switched Access Service that originates and/or
terminates on an BTI-provided Exchange Service, where the transport component of
the Switched Access Service is routed through specified BellSouth switches.
B. Meet-Point Interconnection
B.1 The Parties shall establish MPB arrangements in each LATA or
locality where switched services are provided by BTI, between the
correspondingly identified Rating PointlSwitch pairs. BellSouth shall provide
homing/subtending access tandem arrangements through the same (or a closely
proximate) switching entity used for access services to BellSouth's end users.
This does not foreclose the possibility that other mutually agreeable
arrangements may be utilized by mutual agreement of the Parties where
appropriate.
B.2 At BTI's discretion, interconnection for the MPB arrangement shall
be established at the POI as described hereafter, at a collocation facility
maintained by BTI or an affiliate of BTI at specified BellSouth switches, or at
any point mutually agreed to by the Parties, consistent with the terms and
conditions herein.
B.3 Two-way meet point trunks which are separate from the local
interconnection trunk groups will be established to enable BTI and BellSouth to
provide Exchange Access Services to IXCs via a BellSouth Central Office. No
Party shall charge the other any amount for any meet point facilities unless one
Party is ordering trunks from the other.
B.4 Common Channel Signaling (CCS) shall be utilized in conjunction
with meet-point billing arrangements to the extent such signaling is technically
compatible with and economically reasonable to provide through the BellSouth
switch, except that MF signaling shall be used on a separate trunk group for
originating FGD access to Exchange Access Customers that uses the MF
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FGD signaling protocol. The Parties may establish CCIS interconnection either
directly or through a third party.
B.5 BTI may establish CCS interconnections either directly or through a
third party. The Parties will exchange TCAP messages to facilitate full
interoperability of CCIS-based features between their respective networks,
including all CLASS features and functions to its own end users. The Parties
will provide all CCIS signaling, Billing Number, originating line information
(OLI) and any other such similar service. For terminating FGD, BellSouth pass
CPN if it receives CPN from FGD carriers. All privacy indicators will be
honored. Where available, network signaling information, such as Transit Network
Selection (TNS) parameter (CCIS platform) and OZZ/CIC information (non-CCIS
environment) will be provided whenever such information is needed for call
routing or billing. The Parties will follow all OBF adopted standards pertaining
to TNS and OZZ/CIC codes.
B.6 All originating Toll Free Service calls for which BellSouth
performs the Service Switching Point (SSP) function (e.g., performs the database
query) shall be delivered by BTI using GR-394 format over a trunk group
designated for Toll Free Service. Carrier Code "0110" and Circuit Code of "08"
shall be used for all such calls. In the event BTI becomes a toll free service
provider, BellSouth shall deliver traffic using the GR-394 format over a trunk
group designated for Toll Free Service.
B.7 All originating Toll Free Service calls for which BTI performs the
SSP function, if delivered to BellSouth, shall be delivered by BTI using GR 394
format over the meet point trunk group for calls destined to IXCs, or shall be
delivered by BTI using GR-3 17 format over the Local Interconnection Trunk Group
for calls destined to end offices that directly subtend BellSouth access
tandems.
B.8 Originating Feature Group B calls shall be delivered to BellSouth's
tandem using the interLATA trunk groups.
C. Tariffs
BTI and BellSouth will use their best reasonable efforts, individually
and collectively, to maintain provisions in their respective federal and state
access tariffs sufficient to reflect this MPB arrangement, including appropriate
MPB percentages consistent with applicable industry standard practice and in
accordance with Section VII.F hereafter.
D. Billing and Data exchange
D.1 Each Party shall implement the "Multiple Bill/Multiple Tariff"
option in order to bill an IXC for the portion of the jointly provided
telecommunications service provided by that Party. For all traffic carried over
the MPB arrangement, each Party shall only bill the rate elements identified for
it in this Agreement. For transport elements subject to billing percentages,
each Party shall utilize the billing percentages discussed in Section III.C
preceding
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and Section VII.F hereafter. The actual rate values for each element shall be
the rates contained in that Party's own effective federal and state access
tariffs. The Parties shall utilize complementary monthly billing periods for
meet-point billing.
D.2 BellSouth may charge the IXC for use of the entrance facility, the
tandem switching and the mutually agreed portion of non-interconnection
transport charges. BellSouth will not include an element for the Residual
Interconnection Charge (RIC) and BTI will be entitled to bill and collect the
appropriate RIC and/or any other applicable rate elements.
D.3 Each party will provide to the other access records sufficient to
billing to the IXCs. Records shall be provided in the Exchange Message Record
format, Bellcore Standard BR 010-200-010, as amended.
D.4 BellSouth shall provide to BTI the billing name, billing address,
and CIC of the IXCs and copies of relevant IXC Access Service Requests (ASRs),
in order to comply with the MPB notification process as outlined in the MECAB
document, on an electronic medium basis using the EMR format.
D.5 BellSouth shall provide BTI, on a daily basis, switched access
detail usage data (EMR Category 1101XX records) on magnetic tape or via
electronic file transfer using EMR format, for calls from IXCs that have
transmitted BellSouth's tandems and terminated to BTI's center(s).
D.6 BTI shall provide BellSouth, on a monthly basis, switched access
summary usage data (EMR Category 11 50XX records) on magnetic tape or via
electronic file transfer using EMR format, for calls to IXCs which originate at
BTI's switching center(s).
D.7 The Parties will exchange test files to support the initial
implementation of the meet point billing processes provided for in this
Agreement. Exchange of test data will commence one week after AMA certification
begins. These data shall be actual recorded usage records.
D.8 Each Party shall coordinate and exchange the billing account
reference (BAR) and billing account cross reference (BACR) numbers for the MPB
Service. Each Party shall notify the other if the level of billing or other
BAR/BACK elements change, resulting in a new BAR/BACK number.
D.9 If access usage data is not processed and delivered by either Party
and sent to the other in a timely manner and in turn such other Party is unable
to bill the IXC, the delivering Party will be held liable for the amount of lost
billing.
D.10 Errors may be discovered by BTI, the IXC or BellSouth. Both
BellSouth and BTI agree to provide the other Party with notification of any
discovered errors within seven (7) business days of the discovery. In the event
of a loss of data, both Parties shall cooperate to
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reconstruct the lost data and if such reconstruction is not possible, shall
accept a reasonable estimate of the lost data based upon three (3) to twelve
(12) months of prior usage data.
D.11 The Parties shall not charge one another for the services rendered
or information provided pursuant to this Section VII of this Agreement.
E. Toll Free IXC Traffic
MPB will apply for all traffic bearing the 800, 888, or any other
non-geographic NPA which may be likewise designated for such traffic in the
future, where the responsible party is an IXC. In those situations where the
responsible party for such traffic is a LEC, full switched access rates will
apply.
F. MPB Billing Percentages
The MPB billing percentage for each BTI Rating Point shall be
calculated according to the following formulas:
In any service jointly provided by BellSouth and BTI for which meet
point billing arrangements are adopted, the meet point billing percentages shall
be based on the relative distances (I.E., airline mileage) between the meet
point and the two rating points as follows:
a b
----- -----
BTI percentage = (a+b) BellSouth percentage = (a+b)
where "a" is the airline mileage between the relevant BTI rating point (E.G.,
serving switch) and the meet point and "b" is the airline mileage between the
BellSouth rating point and the meet point.
G. Special Arrangements
G.1 In a few instances, the involvement of yet a third provider of
switched access may be needed for particular traffic. For purposes of customer
billing, when three or more LECs are involved in the transmission of a
particular message, the intermediate carriers will have no rating point, and the
relevant mileage measurement is between the two end points.
G.2 In the case of IXC traffic terminating to BTI ported numbers, the
Parties will, unless IXC actual minutes of use can be measured, account for
access revenue on a state-by-state basis by using verifiable BellSouth/BTI
interstate and intrastate minutes of use reported on the applicable ARMIS report
at the total IXC access rates applicable to BellSouth less the BellSouth/BTI
meet point access minutes at the meet point billing access rates applicable to
BellSouth, with no other subtractions.
G.3 If either Party provides intermediary functions for network access
service connection between an IXC and another Party, each Party will provide
their own network access
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services to the IXC on a meet-point basis. The meet-point billing arrangement
will be through the multiple bill. Each Party will bill its own network access
services rates to the IXC with the exception of the residual interconnection
charge. Each Party shall bill 50% of its residual interconnection charges in
such case.
VIII. TOLL TRAFFIC INTERCONNECTION
A. The delivery of interexchange toll traffic by a Party to the other
Party shall be reciprocal and compensation will be mutual. For terminating its
toll traffic on the other Party's network, each Party will pay the other Party's
tariffed terminating switched access rate, inclusive of the interconnection
charge and the carrier common line rate elements of the switched access rate.
The Parties agree that their terminating switched rate shall be the rate in
effect when the traffic is terminated.
B. For originating and terminating interexchange toll traffic, each
Party shall pay the other Party's tariffed switched network access service rate
elements. 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 BTI is the BellSouth end-user's presubscribed
interexchange carrier or if the BellSouth end user uses BTI as an interexchange
carrier on a 10XXX basis, BellSouth will charge BTI the appropriate tariff
charges for originating network access services. If BellSouth is serving as the
BTI end user's presubscribed interexchange carrier or if the BTI end user uses
BellSouth as an interexchange carrier on a 10XXX basis, BTI will charge
BellSouth the appropriate BellSouth tariff charges for originating network
access services.
IX. NUMBER RESOURCE ARRANGEMENTS
A. Nothing in this Agreement shall be construed to in any manner limit
or otherwise adversely impact either Party's right to request and be assigned
any North American Numbering Plan (NANP) number resources including, but not
limited to, central office (NXX) codes pursuant to the Central Office Code
Assignment Guidelines (last published by the Industry Numbering Committee (INC)
as INC 95-0407-008, Revision 417195, formerly ICCF 93-0729-010), or to
independently, and in a technically compatible manner, establish and publish in
any and all switched telecommunications industry routing and rating databases,
by tariff or otherwise, Rate Centers Rating Points, destination switching
entity/office and routing/tandem information corresponding to such N codes.
B. During any period under this Agreement in which it serves as the
NANP administrator for its territory, BellSouth shall ensure that BTI has
nondiscriminatory access to telephone numbers for assignment to its telephone
exchange service customers, and will assist BTI in applying for NXX codes for
its use in providing local exchange services. BellSouth shall provide numbering
resources pursuant to the Bellcore Guidelines Regarding Number Assignment. BTI
agrees that it will complete the NXX code application in accordance with
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Industry Carriers Compatibility Forum, Central Office Code Assignment
Guidelines, ICCF 93-0729-010.
C. If during the term of this Agreement BellSouth is no longer the NANP
administrator, the Parties agree to comply with the guidelines, plan or rules
adopted pursuant to 47 U.S.C. ss. 251(e).
D. It shall be the responsibility of each Party to program and update
its switches and network systems pursuant to the local exchange routing guide
(LERG) and other switched telecommunications industry guidelines to recognize
and route traffic to the other Party's assigned NXX codes using that Party's
preferred routing at all times. Neither Party shall impose any fees or charges
whatsoever on the other Party for such activities, except as expressly defined
in this Agreement.
E. Each Party shall be responsible for notifying its customers of any
changes in dialing arrangements due to NPA exhaustion. Neither party shall be
obligated to adopt the specific end user dialing plan of the other.
F. Administration and assignments of numbers will be moved to a neutral
third party in the future. In the interim, while BellSouth is still
administering numbering, the following will apply:
1. BellSouth will assign NXXs to BTI on a nondiscriminatory basis
and on the same basis as to itself.
2. Testing and loading of BTI's NXXs' should be the same as
BellSouth's own.
3. BellSouth shall not discriminate in the allocation of the number
and types of NXXs assigned to BTI.
4. BellSouth will load NXXs according to industry guidelines,
including the terminating LATA in which the NXXs/rate centers are
located.
5. BellSouth will supply BTI with copies of its Local Calling Area
Boundary Guide including all updates thereto.
X. ACCESS TO POLES, DUCTS, CONDUIT AND RIGHTS OF WAY
A. BellSouth agrees to provide to BTI, pursuant to 47 U.S.C. ss. 224,
as amended by the Telecommunications Act nondiscriminatory access to any pole,
duct, conduit, and right-of-way owned or controlled by Bell South. The Parties
agree to negotiate in good faith to establish rates, terms and conditions
applicable to BTI's access to poles, ducts, conduit and right-of-way owned and
controlled by BellSouth, and modify, if necessary, existing arrangements
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by October I, 1996, in a manner consistent with the requirements of the
Telecommunications Act.
XI. ANCILLARY SERVICES AND PLATFORM ARRANGEMENTS
A. 800 Traffic
A.1 BellSouth agrees to compensate BTI, pursuant to BTI's published
originating switched access charges, including the database query charge, for
the origination of 800 and 888 traffic (combined "800") terminated to BellSouth
.
A.2 BTI will provide to BellSouth the appropriate records necessary for
BellSouth to bill BellSouth's intraLATA 800 customers. The records provided by
BTI will be in a standard EMR format for a fee paid by BellSouth to BTI, of
$0.015 per record.
A.3 If BTI provides 800 services to its end users during the term of
this Agreement, it agrees to compensate BellSouth, pursuant to BellSouth's
originating switched access charges, including the database query charge, for
the origination of 800 traffic terminated to BTI. BellSouth agrees to provide
BTI the appropriate records for BTI to bill its 800 customers. The records
provided will be in a standard EMR format for a fee, paid by BTI to BellSouth,
of $0.015 per record.
A.4 If during the term of this Agreement, BellSouth is permitted to
provide interLATA 800 services, BellSouth will compensate BTI for the
origination of such traffic in accordance with the above.
A.5 If BTI utilizes BellSouth's 800 database for query purposes only,
the rates and charges shall be as set forth in the applicable BellSouth Access
Services Tariff, as said tariff is amended from time to time during the term of
this Agreement.
A.6 Should BTI require 800 access ten digit screening service from
BellSouth, it shall have signaling transfer points connecting directly to
BellSouth's local or signaling transfer point for service control point database
query information. BTI shall utilize SS7 Signaling links, ports and usage from
BellSouth's interstate access services Tariff. 800 access ten digit screening
service is an originating service that is provided via 800 switched access
service trunk groups from BellSouth's SSP equipped end office or access tandem
providing an IXC identification function and delivery of call to the IXC based
on the dialed ten digit number. The rates and charges for said services shall be
as set forth in the applicable BellSouth access services tariff as said tariff
is amended from time to time during the term of this Agreement.
B. 911/E-911
B.1 The Parties agree to interconnect with each other to provide Basic
911 and E-911 emergency calling services consistent with the terms of Attachment
C-9 hereto.
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B.2 For Basic 911 service, BellSouth will provide to BTI a list
consisting of each municipality in each state that subscribes to Basic 911
service. The list will also provide, if known, the E-911 conversion date for
each municipality and, for network routing purposes, a ten-digit directory
number representing the appropriate emergency answering position for each
municipality subscribing to 911. BTI will arrange to accept 911 calls from its
end users in municipalities that subscribe to Basic 911 service and translate
the 911 call to the appropriate 10-digit directory number as stated on the list
provided by BellSouth. BTI will route that call to BellSouth at the appropriate
tandem or end office . When a municipality converts to E-911 service, BTI shall
discontinue the Basic 91 1 procedures and begin the E-911 procedures, set forth
in subsection B.4 below.
B.3 For E-911 service, BTI shall install a minimum of two dedicated
trunks originating from BTI's serving wire center and terminating to the
appropriate E-911 tandem. The dedicated trunks shall be, at minimum, DSO level
trunks configured either as a 2 wire analog interface or as part of a digital
(1.544 Mb/s) interface. Either configuration shall use CAMA type signaling with
MF pulsing that will deliver automatic number identification (ANI) with the
voice portion of the call. If the user interface is digital, MF pulses, as well
as other AC signals, shall be encoded per the U-255 Law convention. BTI will
provide BellSouth daily updates to the E-911 database.
B.4 If a municipality has converted to E-911 service, BTI will forward
911 calls to the appropriate E-911 tandem, along with ANI, based upon the
current E-911 end office to tandem homing arrangement as provided by BellSouth.
If the E-911 tandem trunks are not available, BTI will alternatively route the
call to a designated 7 digit local number residing in the appropriate PSAP. This
call will be transported over BellSouth's interoffice network and will not carry
the ANI of the calling party.
B.5 BellSouth will provide BTI with an electronic interface from which
BTI may input and update subscriber records in the E-911 database.
BellSouth shall also provide BTI with an automated interface to access
its Automatic Location Identification (ALI) database.
B.6 BellSouth and BTI agree that the practices and procedures contained
in the E-911 Local Exchange Carrier Guide For Facility-Based Providers (LEC
Carrier Guide) shall determine the appropriate procedures and practices of the
Parties as to the provision of 911/E-911 Access. The LEC Carrier Guide shall at
a minimum include, or BellSouth shall separately provide, 911 database update
procedures and 91 1 trunk restoration procedures.
B.7 If BTI requires transport to the BellSouth 911 tandem, BTI may, at
BTI's option, purchase such transport from BellSouth at rates set forth in
either BellSouth's intrastate switched access services tariff or intrastate
special access services tariff.
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B.8 BellSouth and BTI will cooperatively arrange meetings to answer any
technical questions that municipal or county coordinators may have regarding the
911/E-911 portions of this Agreement.
B.9 Where BellSouth is responsible for maintenance of the E-911
database and can be compensated for maintaining BTI's information by the
municipality, BellSouth shall seek such compensation. BellSouth may seek
compensation for its costs from BTI only if and to the extent BellSouth is
unable to obtain such compensation from the municipality.
B.10 Nothing herein shall be construed to prevent BTI from opting to
route Basic 911 and E-911 calls to an alternative emergency call service bureau,
to provide such services itself, or to route such calls directly to a Public
Safety Answering Point (PSAP).
C. Provision of Operator Services
C.1 BellSouth will offer to BTI Operator Call Processing Access Service
BLV/BLVI Service and Directory Assistance Access Services. Rates, terms and
conditions are set forth in section VI.F for BLV/BLVI Service, Attachment C- 11
for Directory Assistance Access Services, and Attachment C-10 for Operator Call
Processing Access Services. Each such attachment is incorporated herein by this
reference.
C.2 BellSouth also will offer to BTI CMDS Hosting and the Non Sent Paid
Report System pursuant to the terms and conditions set forth in Attachment C-12
and Attachment C-13, incorporated herein by this reference.
D. Transfer of Service Announcements
When an end user customer changes from BellSouth to BTI, or from BTI to
BellSouth, and does not retain its original telephone number, the Party formerly
providing service to the end user will provide a transfer of service
announcement on the abandoned telephone number. Each Party will provide this
referral service at no charge to the other Party. This announcement will provide
details on the new number to be dialed to reach this customer.
E. Coordinated Repair Calls
BTI and BellSouth will employ the following procedures for handling
misdirected repair calls:
E.1 BTI and BellSouth will educate their respective customers as to the
correct telephone numbers to call in order to access their respective repair
bureaus.
E.2 To the extent the correct provider can be determined, misdirected
repair calls will be referred to the proper provider of local exchange service
in a courteous manner, at no charge, and the end user will be provided the
correct contact telephone number. In responding to repair
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calls, neither Party shall make disparaging remarks about each other, nor shall
they use these repair calls as the basis for internal referrals or to solicit
customers to market services. Either Party shall respond with accurate
information in answering customer questions.
E.3 BTI and BellSouth shall provide their respective repair contact
numbers to one another on a reciprocal basis.
F. Busy Line Verification and Interrupt
1. Description
a. Each Party shall establish procedures whereby its operator
bureau will coordinate with the operator bureau of the other
Party in order to provide Busy Line Verification (BLV) and
Busy Line Verification and Interrupt (BLVI) services on calls
between their respective end users.
b. BTI will route BLV and BLVI traffic to the BellSouth access
tandem.
F.2 Compensation
Each Party shall charge the other Party for BLV and BLVI at the
effective rates contained in BellSouth's applicable Local Interconnection
Services Tariff (s).
G. Directory Assistance (DA)
G.1 Description
At BTI's request, BellSouth will:
a. Provide to BTI, over TOPS trunks, unbranded (or BTI-branded,
where available) directory assistance service which is
comparable in every way to the directory assistance service
BellSouth makes available to interexchange carriers.
b. In conjunction with subparagraph (a) above, provide caller
optional directory assistance call completion service which
is comparable in every way to the directory assistance call
completion service BellSouth generally makes available TO ITS
end users, to the extent BellSouth generally offers such
service TO ITS end users.
c. BellSouth will provide BTI operators on-line access to
BellSouth's DA database.
G.2 Compensation
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Initial rates, terms and conditions for DA Services shall be as
provided in Attachment C-11 hereto.
H. Directory Listings and Directory Distribution
H.1 Subject to the execution of an agreement between BellSouth's
affiliate, BellSouth Advertising and Publishing Co. (BAPCO), and BTI in a form
substantially similar to that attached as Attachment C-8, (1) BTI's customers'
primary listings shall be included in the appropriate white page (resident and
business) listings or alphabetical directories, as well as the directory
assistance database, (2) BTI's business subscribers' listings will be included
in all appropriate yellow pages or classified directories, and (3) copies of
directories shall be delivered to BTI's customers: all without charge.
H.2 BellSouth shall provide BTI with a magnetic tape or computer disk
containing the proper format to employ in submitting directory listings and
daily updates. BTI shall provide BellSouth with its directory listings and daily
updates to those listings (including new, changed and deleted listings) in a
mutually acceptable format. BellSouth shall include BTI's customers in the
directory assistance database associated with the areas in which BTI provides
exchange services within the same time frame as BellSouth includes its own
customers in such databases.
H.3 BellSouth and its Affiliates will afford BTI's directory listings
information the same level of confidentiality which BellSouth affords its own
directory listing information, and BellSouth shall ensue that access to BTI's
customer proprietary confidential directory information will be limited solely
to those employees who immediately supervise or are directly involved in the
processing and publishing of listings and directory delivery. BellSouth will not
use BTI's directory listings for the marketing of BellSouth's telecommunications
services.
I. Access to Signaling and Signaling Databases
I.1 BellSouth will offer to BTI use of its SS7 signaling network and
signaling databases on an unbundled basis at the rates included in Attachment
C-5 hereto Signaling functionality will be available with both A-link and Blink
connectivity.
I.2 BellSouth agrees to input NXX assigned to BTI into the Local
Exchange Routing Guide (LERG).
I.3 BellSouth will enter BTI line information into its Line Information
Database (LIDB) pursuant to the terms and conditions contained in Attachment C-6
hereto, incorporated herein by this reference. Entry of line information into
LIDB will enable BTI's end users to participate or not participate in alternate
billing arrangements such as collect or third number billed calls.
I.4 BellSouth will provide BTI with access to LIDB for call and card
validation purposes pursuant to an Agreement substantially in the form of
Attachment C-7 hereto, as amended hereafter to include unbundled local loops.
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I.5 If BTI utilizes BellSouth's 800 database for query purposes only
applicable BellSouth tariffed rates will apply.
XII. TELEPHONE NUMBER PORTABILITY ARRANGEMENTS
A. The Parties agree to provide interim Service Provider Number
Portability (SPNP) on a reciprocal basis between their networks to enable their
end user customers to utilize telephone numbers associated with an Exchange
Service provided by one Party, in conjunction with an Exchange Service provided
by the other Party, upon the coordinated or simultaneous termination of the
first Exchange Service and activation of the second Exchange Service. The
Parties shall provide reciprocal SPNP immediately upon execution of this
Agreement via remote call forwarding (RCF) or Direct Inward Dialing (DID). SPNP
shall operate as follows:
A.1 An end user customer of Party A elects to become an end user
customer of Party B. The end user customer elects to utilize the original
telephone number(s) corresponding to the Exchange Service(s) it previously
received from Party A, in conjunction with the Exchange Service(s) it will now
receive from Party B. Upon receipt of a service order assigning the number to
Party B, Party A will implement an arrangement whereby all calls to the original
telephone number(s) will be forwarded to a new telephone number(s) designated by
Party B within the same access where the original NXX code is used. Party A will
route the forwarded traffic to Party B over the appropriate trunk groups, as if
the call had originated on Party A's network.
A.2 Party B will become the customer of record for the original Party A
telephone numbers subject to the SPNP arrangements. Party A will provide Party B
a single consolidated master billing statement for all collect, calling card,
and third-number billed calls associated with those numbers with subaccount
detail by retained number. Such billing statement shall be delivered via either
electronic data transfer, daily magnetic tape, or monthly magnetic tape (for
which option there shall be no charge). Party A shall provide to Party B the EMR
detail records associated with the calls on the master billing statement.
A.3 Party A will cancel line-based calling cards and will, as directed
by Party B, update its Line Information Database (LIDB) listings for retained
numbers, subject to RCF, and restrict or cancel calling cards associated with
those forwarded numbers, as directed by Party B, subject to execution of an LIDB
storage agreement in substantially the form attached hereto.
A.4 Within two (2) business days of receiving notification from the end
user customer, Party B shall notify Party A of the customer's termination of
service with Party B and shall further notify Party A as to that customer's
instructions regarding its telephone number(s). Party A will reinstate service
to that customer, cancel the SPNP arrangements for that customer's telephone
number(s), or redirect the SPNP arrangement pursuant to the customer's
instructions at that time.
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B. SPNP-RCF is a telecommunications service whereby a call dialed to an
SPNP-RCF equipped telephone number is automatically forwarded to an assigned
seven or ten digit telephone number, within the local calling area as defined in
Section A3 of the BellSouth General Subscriber Service Tariff. The
forwarded-to-number is specified by BTI or BellSouth, as appropriate. Where
technologically feasible, the forwarding party will provide identification of
the originating telephone number, via SS7 signaling, to the receiving party.
Neither party guarantees, however, identification of the originating telephone
number to the SPNP-RCF end user. SPNP-RCF provides a single call path for the
forwarding of no more than one simultaneous call to the receiving party's
specified forwarded-to number. Additional call paths for the forwarding of
multiple simultaneous calls are available on a per path basis and are in
addition to the rate for SPNP-RCF service.
C. The Parties shall provide RCF arrangements to each other at
identical monthly rates. Recurring charges shall not exceed the actual cost of
providing the service. There shall be no SPNP-RCF non-recurring charges. Until
otherwise verified by reliable cost studies, actual cost for recurring charges
are as stipulated in Attachment D hereto. The Parties agree that Article XXII of
this Agreement shall apply to the rates, terms, and conditions for SPNP-RCF
arrangements.
D. SPNP-DID service provides trunk side access to end office switches
for direct inward dialing to the other Party's premises equipment from the
telecommunications network to lines associated with the other Party's switching
equipment and must be provided on all trunks in a group arranged for inward
service. A SPNP-DID trunk termination provided with SS7 signaling only, applies
for each trunk voice grade equivalent. In addition, direct facilities are
required from the end office where a ported number resides to the end office
serving the ported end user customer. Transport mileage will be calculated as
the airline distance between the end office where the number is ported and the
POI using the V&H coordinate method. SPNP-DID must be established with a minimum
configuration of two channels and one unassigned telephone member per switch,
per arrangement for control purposes. Transport facilities arranged for SPNP-DID
may not be mixed with any other type of trunk group, with no outgoing calls
placed over said facilities. SPNP-DID will be provided only where such
facilities are available and where the switching equipment of the ordering party
is properly equipped. Where SPNP-DID service is required from more than one wire
center or from separate trunk groups within the same wire centers such service
provided from each wire center or each trunk group within the same wire center
shall be considered a separate service. Only customer dialed sent paid calls
will be completed to the first number of a SPNP-DID number group, however, there
are no restrictions on calls completed to other numbers of a SPNP-DID number
group.
E. The Parties hereby agree to negotiate in good faith to establish the
recurring and non-recurring charges, if any, for SPNP-DID. For this purpose
BellSouth shall provide BTI with its relevant cost studies, subject to
applicable non-disclosure obligations. The Parties agree that Article XXII of
this Agreement shall apply to the rates, terms, and conditions of SPNP-DID
arrangements. Until such permanent charges are established the Parties agree
that the rates contained in Attachment E hereof (hereinafter the "Interim
SPNP-DID Rates") will apply.
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F. Each Party is responsible for obtaining authorization from the end
user for the handling of the disconnection of the end user's service, the
provision of new local service and the provision of SPNP services. Each Party is
responsible for coordinating the provision of service with the other to assure
that its switch is capable of accepting SPNP ported traffic. Each Party is
responsible for providing equipment and facilities that are compatible with the
other's service parameters, interfaces, equipment, and facilities and is
required to provide sufficient terminating facilities and services at the
terminating end of an SPNP call to adequately handle all traffic to that
location and is solely responsible to ensure that its facilities, equipment, and
services do not interfere with or impair any facility, equipment, or service of
the other Party or any of its end users.
G. Each Party is responsible for providing an appropriate intercept
announcement service for any telephone numbers subscribed to SPNP services for
which it is not presently providing local exchange service or terminating to an
end user Where either Party chooses to disconnect or terminate any SPNP service,
that Party is responsible for designating the preferred standard type of
announcement to be provided.
H. Each Party will be the other Party's single point of contact for ad
repair calls on behalf of each Party's end user. Each Party reserves the right
to contact the other Party's customers if deemed necessary for maintenance
purposes.
I. The Parties will migrate from RCF or DID to Permanent Number
Portability (PNP) as soon as practically possible, without interruption of
service (to the degree possible) to their respective customers.
J. Under either an SPNP or PNP arrangement, BTI and BellSouth will
implement a process to coordinate Telephone Numbers Portability (TNP) cut-overs
with Unbundled loop conversions (as described in Section IV of this Agreement).
K. The quality of service of calls to ported numbers should be
identical to the quality of service of the calls to non-ported numbers.
L. If the FCC or a state commission issues regulations pursuant to 47
U.S.C. ss. 251 to require number portability in a manner or at rates different
than that provided pursuant to this subsection, the Parties agree to revise this
Agreement as necessary to fully comply with those requirements.
XIII. DISCONNECTION OF CUSTOMERS
A. BellSouth shall accept any requests from BTI to disconnect the
service of an existing BellSouth end user, except for BellSouth public and
semipublic telephone service which service is subject to effective contracts
with location providers. BellSouth will not require end user confirmation prior
to disconnecting the end user's service. BellSouth will accept a request
directly from an end user for conversion of the end user's service from BTI to
BellSouth or will
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accept a request from another CLEC for conversion of the SPNP service associated
with an end user's service charge from BTI to the CLEC. BellSouth will notify
BTI that such a request has been processed. This Article shall be subject to
Section 258(a) and (b) of the Telecommunications Act which prohibits illegal
changes of carrier selections and assesses liability for such changes and any
change of service verification procedures which may be promulgated by the FCC.
BTI and BellSouth shall each execute a blanket letter of authorization for each
state substantially in the form attached as Attachment F hereto with respect to
customer disconnections. The Parties shall each be entitled to adopt their own
internal processes for verification of customer authorization of disconnection
of service; provided, however, that such processes shall comply with applicable
state and federal law and until superseded shall be deemed adequate for purposes
of this Agreement if such processes comply with FCC guidelines applicable to
Presubscribed Interexchange Carriers (PIC) changes.
B. If either Party determines that an unauthorized change in local
service provider has occurred, such Party shall reestablish service with the
appropriate local service provider as requested by the end user and will assess
the other Party an Unauthorized Change Charge of $19.41 per line. The
appropriate nonrecurring charges to reestablish the customer's service with the
appropriate local service provider will also be assessed to the other Party
because of the unauthorized change. These charges shall be adjusted if such
Party provides satisfactory proof of authorization.
C. If BellSouth accepts an order placed by itself or another CLEC (or
local reseller) to disconnect the SPNP to an BTI end user, BellSouth shall
notify BTI of the change within three (3) days thereof.
XIV. RESALE OF BELLSOUTH LOCAL EXCHANGE SERVICES
BellSouth hereby agrees that BTI may at any time during the term of
this Agreement elect to resell BellSouth's local exchange services under the
terms and conditions of any local services resale agreement reached between
BellSouth and any other telecommunications carrier. BTI may select any such
resale agreement at any time prior to the expiration of this Agreement.
XV. RESPONSIBILITIES OF THE PARTIES
A. BellSouth and BTI agree to treat each other fairly,
non-discriminatorily and equally for all items included in this Agreement or
related to the support of items included in this Agreement.
B. BTI and BellSouth will work cooperatively to minimize fraud
associated with third-number billed calls, calling card calls, or any other
services related to this Agreement. The Parties fraud minimization procedures
are to be cost effective and implemented so as not to unduly burden or harm one
Party as compared to the other.
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C. BTI and BellSouth agree to promptly exchange all necessary records
for the proper billing of all traffic.
D. BTI and BellSouth will review engineering requirements on a
quarterly basis and establish forecasts for trunk utilization, POI trunks, MPB
arrangements, E-911, EISCC facility requirements, quantities of DNCF, loops and
other services provided under this Agreement. New trunk groups will be
implemented as dictated by engineering requirements for both BellSouth and BTI.
BellSouth and BTI are required to provide each other the proper call information
(e.g., originated call party number and destination Call party number) to enable
each company to bill in a complete and timely manner.
E. The Parties will cooperate by exchanging technical information in
order to identify and explore potential solutions to enable BTI to establish
unique rate centers, or to assign a single NXX code across multiple rate
centers.
F. BTI and BellSouth will work jointly and cooperatively in developing
and implementing common manual and/or electronic interfaces (including, for
example, data elements, data format, and data transmission) from which to place
service orders and trouble reports involving the provision of loops, DNCF,
directory assistance, directory listings, E-91 1, and other services included in
this Agreement. To the extent reasonable, BTI and BellSouth will utilize the
standards established by industry forum, such as OBF.
G. BellSouth will support BTI requests related to central office (N=)
code administration and assignments in an effective and timely manner. BTI and
BellSouth will comply with code administration requirements as prescribed by the
FCC, the state commissions, and accepted industry guidelines.
H. BellSouth shall not impose a cross-connect fee on BTI where BTI
accesses 911 or E-911, reciprocal traffic exchange trunks, and network platform
services, through a collocation arrangement at the BellSouth Wire Center.
I. Notwithstanding any other provision of this Agreement, it is
mutually understood and agreed that both Parties hereto reserve the right to
establish each of the following, consistent with generally accepted industry
standards.
1. Rate centers (location and area within)
2. Points of interchange (including meet points)
3. Switching entity designation and supporting data (including
inbound route choice)
a. end office
b. homing/homed to tandem
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4. Association of routing point(s) with end offices, POIs, etc.
5. Published rate center and locality designations.
XVI. NETWORK DESIGN AND MANAGEMENT
A. The Parties agree to work cooperatively to install and maintain
reliable interconnected telecommunications networks, including but not limited
to, maintenance contact numbers and escalation procedures. BellSouth agrees to
provide public notice of changes in the information necessary for the
transmission and routing of services using its local exchange facilities or
networks, as well as of any other changes that would affect the interoperability
of those facilities and networks.
B. The interconnection of all networks will be based upon accepted
industry/national guidelines for transmission standards and traffic blocking
criteria.
C. The Parties will work cooperatively to apply sound network
management principles by invoking appropriate network management controls to
alleviate or prevent network congestion.
D. For network expansion, the Parties agree to review engineering
requirements on a quarterly basis and establish forecasts for trunk utilization.
New trunk groups will be added as reasonably warranted.
E. BTI and BellSouth will exchange appropriate information (e.g.,
maintenance contact numbers, network intonation, information required to comply
with law enforcement and other security agencies of the Government) to achieve
desired reliability. In addition, BTI and BellSouth will cooperatively plan and
implement coordinated repair procedures to ensure customer trouble reports are
resolved in a timely and appropriate manner.
XVII. TERM
A. The term of this Agreement shall be two years, beginning
January 2, 1997.
B. The Parties agree that by no later than January 2, 1998, they shall
commence negotiations with regard to the terms, conditions, and prices of local
interconnection to be effective beginning January 2, 1999.
C. If, within 90 days of commencing the negotiation referred to in
Section XVII.B above, the Parties are unable to satisfactorily negotiate new
local interconnection terms, conditions, and prices, either Party may petition
the state commission to establish appropriate local interconnection arrangements
pursuant to 47 U.S.C. 252. The Parties agree that, in such event, they shall
encourage the Commission to issue its order regarding the appropriate local
interconnection arrangements no later than July 1, 1998. The Parties further
agree that in the
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event the Commission does not issue its order prior to July 1, 1998 or if the
Parties continue beyond January 2, 1999 to negotiate the local interconnection
arrangements without Commission intervention, the terms, conditions, and prices
ultimately ordered by the Commission, or negotiated by the Parties, will be
effective retroactive to January 2, 1999. Until the revised local
interconnection arrangements become effective, the Parties shall continue to
exchange traffic pursuant to the terms and conditions of this Agreement.
D. The Parties agree that (I ) if the FCC or a state commission or
other state or local body having jurisdiction over the subject manner of this
Agreement 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 promulgated, or (2) if an FCC or state commission order or
requirement has the effect of preempting any term of this Agreement, then in the
event of the occurrence of (1) or (2) the Parties shall immediately commence
good faith negotiations to conform this Agreement with 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 state 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.
XVIII. IMPLEMENTATION OF AGREEMENT
The Parties agree that within 30 days of the execution of this
Agreement they will adopt a schedule for the implementation of this Agreement.
The schedule shall state with specificity, ordering, testing, and full
operational time frames. The implementation shall be attached to this Agreement
as an addendum and specifically incorporated herein by this reference.
XIX. UNIVERSAL SERVICE
The Parties acknowledge that BellSouth will guarantee the provision of
universal service as the carrier-of-last-resort throughout its territory in
Florida until January 1, 1998 without contribution from BTI.
XX. FORCE MAJEURE
Neither Party shall be responsible for delays or failures in
performance resulting from acts or occurrences beyond the reasonable control of
such Party, regardless of whether such delays or failures in performance were
foreseen or foreseeable as of the date of this Agreement including, without
limitation: fire, explosion, power failure, acts of God, war, revolution, civil
commotion, or acts of public enemies; any law, order, regulation, ordinance or
requirement of any government or legal body; or labor unrest, including, without
limitation strikes, slowdowns, picketing, or boycotts; or delays caused by the
other Party or by other service or equipment vendors; or any other circumstances
beyond the Party's reasonable control. In such event
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the Party affected shall, upon giving prompt notice to the other Party, be
excused from such performance on a day-today basis to the extent of such
interference (and the other Party shall likewise be excused from performance of
its obligations on a day-for-day basis to the extent such Party's obligations
relate to the performance so interfered with). The affected Party shall use its
best efforts to avoid or remove the cause of nonperformance and both Parties
shall proceed to perform with dispatch once the causes are removed or cease.
XXI. LIABILITY AND INDEMNIFICATION
A. Liability Cap
1. With respect to any claim or suit, whether based in contract,
tort or any other theory of legal liability, by BTI, any BTI
customer or by any other person or entity, for damages associated
with any of the services provided by BellSouth pursuant to or in
connection with this Agreement, including but not limited to the
installation, provision, preemption, termination, maintenance,
repair or restoration of service, and subject to the provisions
of the remainder of this Article, BellSouth's liability shall be
limited to an amount equal to the proportionate charge for the
service provided pursuant to this Agreement for the period during
which the service was affected. Notwithstanding the foregoing,
claims for damages by BTI, any BTI customer or any other person
or entity resulting from the gross negligence or willful
misconduct of BellSouth and claims for damages by BTI resulting
from the failure of BellSouth to honor in one or more material
respects any one or more of the material provisions of this
Agreement shall not be subject to such limitation of liability.
2. With respect to any claim or suit, whether based in contract,
tort or any other theory of legal liability, by BellSouth, any
BellSouth customer or by any other person or entity, for damages
associated with any of the services provided by BTI pursuant to
or in connection with this Agreement, including but not limited
to the installation, provision, preemption, termination,
maintenance, repair or restoration of service, and subject to the
provisions of the remainder of this Article, BTI's liability
shall be limited to an amount equal to the proportionate charge
for the service provided pursuant to this Agreement for the
period during which the service was affected. Notwithstanding the
foregoing, claims for damages by BellSouth, any BellSouth
customer or any other person or entity resulting from the gross
negligence or willful misconduct of BTI and claims for damages by
BellSouth resulting from the failure of BTI to honor in one or
more material respects any one or more of the material provisions
of this Agreement shall not be subject to such limitation of
liability.
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B. Neither Party shall be liable for any act or omission of any other
telecommunications company to the extent such other telecommunications company
provides a portion of a service.
C. Neither Party shall be liable for damages to the other Party's
terminal location, POI or the other Party's customers' premises resulting from
the furnishing of a service, including but not limited to the installation and
removal of equipment and associated wiring, except to the extent the damage is
caused by such Party's gross negligence or willful misconduct.
D. Notwithstanding subsection A, the Party providing services under
this Agreement, its affiliates and its parent company shall be indemnified,
defended and held harmless by the Party receiving such services against any
claim, loss, or damage arising from the receiving Party's use of the services
provided under this Agreement, involving: (1) claims for libel, slander,
invasion of privacy, or copyright infringement arising from the content of the
receiving Party's own communications; (2) any claim, loss, or damage claimed by
the receiving Party's customer(s) arising from such customer's use of any
service including 911/E-911 that the customer has obtained from the receiving
Party and that the receiving Party has obtained from the supplying Party under
this Agreement or; (3) all other claims arising out of an act or omission of the
receiving Party in the course of using services provided pursuant to this
Agreement. Notwithstanding the foregoing to the extent that a claim, loss, or
damage is caused by the gross negligence or willful misconduct of a supplying
Party, the receiving Party shall have no obligation to indemnify, defined and
hold harmless the supplying Party hereunder.
E . Neither Party guarantees or makes any warranty with respect to its
services when used in an explosive atmosphere. Notwithstanding subsection A,
each Party shall be indemnified, defended and held harmless by the other Party
or the other Party's customer from any and all claims by any person relating to
the other Party or the other Party's customer's use of services so provided.
F. No license under patents (other than the limited license to use in
the course of using a service provided pursuant to this Agreement) is granted by
one Party to the other or shall be implied or arise by estoppel, with respect to
any service offered pursuant to this Agreement. Notwithstanding subsection A,
the Party providing a service pursuant to this Agreement will defend the Party
receiving such service against claims of patent infringement arising solely from
the use by the receiving Party of such service and will indemnify the receiving
Party for any damages awarded based solely on such claims. Such indemnification
shall not, however, extend to claims for patent infringement to the extent the
alleged infringement results from:
1. Modification of the service by someone other than the providing
Party and/or its subcontractors, where there would be no such
infringement or violation in the absence of such modification; or
2. The combination, operation, or use of the service with any
product, data or apparatus not provided by the providing Party
and/or its subcontractors, where there would be no such
infringement or
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violation in the absence of such combination, operation or use.
G. Promptly after receipt of notice of any claim or the commencement of
any action for which a Party may seek indemnification pursuant to this Article
XXI, such Party (Indemnified Party) shall promptly give written notice to the
other Party (the Indemnifying Party) of such claim or action, but the failure to
so notify the Indemnifying Party shall not relieve the Indemnified Party of any
liability it may have to the Indemnified Party except to the extent the
Indemnifying Party has actually been prejudiced thereby. The Indemnifying Party
shall be obligated to assume the defense of such claim, at its own expense. The
Indemnified Party shall cooperate with the Indemnifying Party's reasonable
requests for assistance or Information relating to such claim, at the
Indemnifying Party's expense. The Indemnified Party shall have the right to
participate in the investigation and defense of such claim or action, with
separate counsel chosen and paid for by the Indemnified Party.
XXII. DEFAULT
If either Party defaults in the payments of any amount due hereunder,
or if either Party violates any other provision of this Agreement, and such
default or violation shall continue for thirty (30) days after written notice
thereof, the other Party may terminate this Agreement forthwith by written
instrument. The failure of either Party to enforce any of the provisions of this
Agreement or the waiver thereof in any instance shall not be construed as a
general waiver or relinquishment of its part of any such provision, but the same
shall, nevertheless, be and remain in full force and effect.
XXIII. NONDISCLOSURE
A. All information, including but not limited to specifications,
microfilm, photocopies, magnetic disks, magnetic tapes, drawings, sketches,
models, samples, tools, technical information, data, employee records, maps,
financial reports, and market data, (i) furnished by one Party to the other
Party dealing with customer specific, facility specific, or usage specific
information, other than customer information communicated for the purpose of
publication or directory database inclusion, or (ii) in written, graphic,
electromagnetic, or other tangible form and market at the time of delivery as
"Confidential" or "Proprietary," or (iii) communicated orally and declared to
the receiving Party within ten ( 10) days after delivery, to be "Confidential"
or "Proprietary" (collectively referred to as "Proprietary Information"), shall
remain the property of the disclosing Party.
B. Upon request by the disclosing Party, the receiving Party shall
return all tangible copies of Proprietary Information, whether written, graphic
or otherwise, except that the receiving Party may retain one copy for archival
purposes.
C. Each Party shall keep all of the other Party's Proprietary
Information confidential and shall use the other Party's Proprietary Information
only for performing the covenants
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"contained in the Agreement. Neither Party shall use the other Party's
Proprietary Information for any other purpose except upon such terms and
conditions as may be agreed upon between the Parties in writing.
D. Unless otherwise agreed, the obligations of confidentiality and
non-use set forth in this Agreement do not apply to such Proprietary Information
as:
1. was at the time of receipt already known to the receiving Party
free of any obligation to keep it confidential evidenced by
written records prepared prior to delivery by the disclosing
Party; or
2. is or becomes publicly known through no wrongful act of the
receiving Party; or
3. is rightfully received from a third person having no direct or
indirect secrecy or confidentially obligated to the disclosing
Party with respect to such information; or
4. is independently developed by an employee, agent, or contractor
of the receiving Party which individual is not involved in any
manner with the provision of services pursuant to the Agreement
and does not have any direct or indirect access to the
Proprietary Information; or
5. is disclosed to a third person by the disclosing Party without
similar restrictions on such third person's rights; or
6. is approved for release by written authorization of the
disclosing Party; or
7. is required to be made public by the receiving Party pursuant to
applicable law or regulation provided that the receiving Party
shall give sufficient notice of the requirement to the disclosing
Party to enable the disclosing Party to seek protective orders.
E. Effective Date. Notwithstanding any other provision of this
Agreement, the Proprietary Information provisions of this Agreement shall apply
to all information furnished by either Party to the other in furtherance of the
purpose of this Agreement, even if furnished before the date of this Agreement.
The obligation to that information as confidential shall survive the termination
of this Agreement.
XXIV. ARBITRATION
A. Any controversy or claim arising out of, or relating to, this
Contract or the breach thereof shall be settled by arbitration, in accordance
with the rules then obtaining, of the American Arbitration Association, and
judgment upon the award rendered may by entered in any court having jurisdiction
of the controversy or claim. As an express condition precedent to any
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legal or equitable action or proceeding in the event of disputes or
controversies as to the amount of loss or damage arising out of this Contract,
such disputes or controversies shall first be submitted to the arbitration of
two persons, one chosen by each Party, who shall jointly select a third person.
Provided, however, that nothing contained herein shall preclude either Party
from filing any complaint or other request for action or relief with the FCC or
the appropriate state commission, including any appeals thereof. The Party which
does not prevail shall pay all reasonable costs of the arbitration or other
formal complaint proceeding, including reasonable attorney's fees and other
legal expenses of the prevailing Party.
B. Nothing herein shall preclude BTI from seeking state commission
arbitration, pursuant to Section 252 of the Telecommunications Act, of issues
upon which the Parties hereto were unable to reach agreement during the
negotiations hereof. The Parties acknowledge that they were unable to reach
agreement on the rates applicable to unbundled local loops, associated cross
connections, local loop multiplexing and switch ports, and that these issues
will be submitted for resolution by the state commissions through arbitration.
BellSouth hereby waives any right to contest BTI's ability to seek state
commission and/or FCC review of such unresolved issues.
XXV. 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.
XXVI. GOVERNING LAW
This Agreement shall be governed by, construed and enforced in
accordance with applicable federal law and the laws of the State in which the
arrangements are implemented.
XXVII. 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.
XXIII. NOTICES
Any notices required by or concerning this Agreement shall be sent via
facsimile and overnight courier to the Parties at the addresses shown below:
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Anthony Copeland
Vice President & General Counsel
BTI Telecom, Inc.
4300 Six Forks Road, Suite 500
Raleigh, North Carolina 27609
CLEC Account Manager
BellSouth Telecommunications, Inc.
South E4E1
3535 Colonnade Parkway
Birmingham, Alabama 35243
Each Party shall inform the other of any changes in the above addresses.
XXIX. ENTIRE AGREEMENT
This Agreement and its Attachments, incorporated herein by this
reference, set 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.
XXX. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of
which when executed and delivered shall be deemed an original and all such
counterparts shall constitute one and the same instrument. Signatures
transmitted by the Parties by facsimile shall have the same effect as original
signatures as of the date transmitted by the executing Party.
Signatures on Following Page
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed by their respective duly authorized representatives.
BUSINESS TELECOM, INC. BELLSOUTH TELECOMMUNICATIONS, INC.
By:______________________________________ By:________________________________
Anthony Copeland / Vice President Jerry Hendrix / Director
General Counsel
Date:____________________________________ Date:______________________________
STATE OF NORTH CAROLINA )
) LEASE
COUNTY OF WAKE )
ARTICLE I. PARTIES
1.01. THIS LEASE made and entered into to be effective as of the___ day
of May, 1994, between RBC CORPORATION ("Landlord") and BUSINESS
TELECOMMUNICATIONS, INC. ("Tenant").
W I T N E S S E T H
ARTICLE II. DEMISED PREMISES
2.01. Landlord leases to Tenant and Tenant leases from Landlord certain
office space (hereinafter called the "Demised Premises") in a nine-story office
building currently being renovated (the "Building") situated on certain land
more particularly described by metes and bounds in Exhibit A attached hereto
(the "Land") leased by Landlord at 4300 Six Forks Road in Raleigh, North
Carolina. The Demised Premises consists of the square feet of rentable area in
the Building disclosed on Schedule I attached to this Lease and made a part
hereof (hereinafter called "Schedule I"), all of said space being shown on
Exhibit B attached hereto. All calculations of the rentable area of the Demised
Premises and the Building shall be made in accordance with the BOMA Standard of
Measuring Floor Area of Office Buildings (reprinted in August, 1990). Rentable
square feet for any tenant space which constitutes all of the available office
space on any floor in the Building shall be as set forth in Exhibit B-l attached
hereto. Landlord, at its expense, shall provide Tenant with the Base Building
items set forth on Exhibit C-l
2.02. The Demised Premises consist of the unfinished interior office
space in the Building. Landlord, at its expense, shall provide Tenant with the
"Base Building" items set forth on Exhibit C-l. Landlord, at Tenant's cost,
shall also install the items and perform the work (collectively "upfitting")
specified in the plans and upfitting requirements set forth in Exhibit C;
however, Landlord shall provide Tenant with an upfitting allowance to subsidize
Tenant's upfitting cost as specified in Schedule I. All work shall be performed
in accordance with the provisions of Article XVI
2.03. Prior to occupancy of the Demised Premises by the Tenant,
Landlord and Tenant shall enter into a supplement of this Lease in the forth
attached hereto as Exhibit D setting forth the exact measurements of the Demised
Premises calculated as provided hereinabove, the Commencement Date and
Expiration Date of the term of this Lease as provided in Article IV and the
exact amount of the Annual Minimum Rent (hereinafter defined) and monthly
installments of minimum rent required in accordance with Article V herein, with
such terms, conditions and provisions being consistent with the terms set forth
in this Lease as of the date hereof.
2.04. Exhibits A, B, B-l, C, C-l and D and Schedule I mentioned above
and Exhibit E mentioned hereafter are attached hereto and incorporated herein by
this reference.
<PAGE>
ARTICLE III. USE
3.01. Tenant shall use and occupy the Demised Premises solely for the
purpose set forth in Schedule I; however, activities conducted within the
Demised Premises shall bc limited to activities generally conducted in
firstclass office buildings in the immediate vicinity of the Building as
reasonably determined by Landlord.
3.02. If any governmental license or permit, other than a governmental
license or permit required for occupancy, shall be required for the proper and
lawful conduct of Tenant's business in the Demised Premises, or any part
thereof, and if failure to secure such license or permit would in any way affect
Landlord's operation of the Building, Tenant, at its expense, shall duly procure
and thereafter maintain such license or permit and submit the same to inspection
by Landlord. Tenant shall at all times comply with the terms and conditions of
each such license or permit.
3.03. Tenant and its employees, invitees, licensees and agents shall
have the right of reasonable ingress to and egress from the Demised Premises
through use of the public entrances, exits, hallways and lobby areas of the
Building located on the first and second floors and the elevator and stairwell
system of the Building twenty-four hours per day, seven days per week (with
appropriate building security measures permitted after normal working hours and
on non-business days); the right of reasonable use of all halls, toilets, and
sanitary facilities on all floors of the Building on which the Demised Premises
are located; and the right of reasonable use of all other general common
facilities located in or about the Building, including sidewalks, areas for
general Building deliveries, and other common appurtenances to the Building.
ARTICLE IV. TERM AND POSSESSION
4.01. Subject to Section 4.02 hereof, the term of this Lease shall
begin OD the date set forth as the "Commencement Date" shown on Schedule I and
end at midnight on the date set forth as the "Expiration Date" shown on Schedule
I.
4 02. Notwithstanding the Commencement Date and Expiration Date set
forth in Section 4 01 hereof. if the Demised Premises are not substantially
ready for occupancy on the Commencement Date specified herein, the Commencement
Date of the term of this Lease shall be the date Tenant is tendered possession
of the Demised Premises ready for occupancy in accordance with Section 4.03
hereof, or the date Tenant takes possession of the Demised Premises, whichever
date is earlier; provided, however, the Commencement Date shall not occur until
all necessary applicable governmental permits and approvals required for
occupancy have been issued and a copy delivered to Tenant. Irrespective of the
foregoing, the Commencement Date shall not occur prior to November 15, 1994,
unless Tenant occupies the Demised Premises for the conduct of its business.
Landlord shall use its good faith efforts to cause the Commencement Date for the
fifth, sixth and ninth floors of the Demised Premisesto occur on November 15,
1994, or as soon thereafter as reasonably practical subject to events or
circumstances beyond the reasonable control of Landlord. Anything to the
contrary contained herein notwithstanding, with respect to the fifth, sixth and
ninth floors of the Demised Premises,
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(i) on or before June 30, 1994, Tenant shall provide Landlord with final,
approved pricing documents related to the upfitting of the Demised Premises
(including, without limitation, space plans showing electrical outlets,
telephone jacks, final wall locations and finish parameters); and (ii) on or
before July 31, 1994, Tenant shall provide Landlord with final, approved plans
and specifications and permit drawings released for construction related to the
upfitting of the Demised Premises. In the event Tenant timely complies with the
requirements of the preceding sentence and the Demised Premises are not ready
for reasonable occupancy by Tenant by November 14, 1994, Landlord shall
reimburse Tenant for any actual, out-of pocket loss, cost, expense and/or
damages (including reasonable attorney's fees) incurred by Tenant due to the
delayed delivery of the Demised Premises; provided, however, that (i) Landlord
shall not be liable for damages with respect to delays caused by unavailability
or delay in delivery of any specialty of custom items required by Tenant; and
(iii) if Tenant fails to meet the deadlines referenced in the preceding
sentence, the November IS, 1994 date for delivery of the Demised Premises shall
be delayed by the number of working days corresponding to the number of days by
which Tenant is tardy in complying with such requirements.
Landlord shall keep Tenant advised as to the progress of construction
of the Building and the improvements to be made in the Demised Premises so that
Tenant can properly plan its relocation into the Building. In the event Tenant
desires to move into the Building in phases, Landlord shall prioritize
completion of the Demised Premises to the extent that Landlord's overall
construction activities are not disrupted. If the Commencement Date is the first
day of a calendar month, the term of this Lease shall expire at midnight on the
last day of the calendar month which corresponds to the 'Number of Months of the
Term of the Lease. shown on Schedule 1. If the Commencement Date is not the
first day of a calendar month, the term of this Lease shall expire as if the
Commencement Date was the first day of the next succeeding month.
4.03. The Demised Premises shall be deemed ready for Tenant's occupancy
when (i) upfitting of the Demised Premises has been completed substantially in
accordance with Exhibit C and the Demised Premises are made available to Tenant
for reasonable use; (ii) public entrances and exits, parking (as required
hereunder) and the elevator and stairwell system, heating, air-conditioning and
ventilation system, electrical system, restrooms and hallways serving the
Demised Premises are substantially completed, and (iii) all governmental
permits, certificates or approvals necessary for Tenant's lawful occupancy of
the Demised Premises have been issued. The Demised Premises shall not be deemed
unready or incomplete if only minor or insubstantial details of construction,
decoration or mechanical adjustments remain to be completed. Irrespective of the
foregoing, in the event delays are caused by reason of Tenant's failure to
provide approvals of the plans and specifications for the upfitting within a
reasonable period of time or other reasons within Tenant's control (e.g. delays
in delivery of specialty or custom items required by Tenant), then the
"Commencement Date" shall be deemed to have occurred when the Commencement Date
would have occurred had delays not been caused by Tenant. Upon substantial
completion of the Demised Premises and prior to Tenant's occupancy of the
Demised Premises, Landlord and Tenant shall conduct a walk-through inspection of
the Demised Premises and shall agree on a so-called "punch list" which shall
contain items which remain to be done and which Landlord, by signing such punch
list, shall agree to complete or to perform
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within thirty (30) days of the date of the walk-through inspection (subject to
availability of specialty or custom items required by Tenant).
4.04. If Tenant shall remain in possession of the Demised Premises
after the expiration of either the original term of this Lease or of any
extended term without Landlord's consent it shall not be deemed or construed to
be a renewal or extension of this Lease but shall only operate to create a
month-to-month tenancy at the then existing rental rate, and said month-to-month
tenancy may be terminated by Landlord at the end of any month upon 30 days prior
written notice to Tenant.
4.05. Tenant's entry into, and taking possession of, the Demised
Premises shall constitute Tenant's acknowledgment that to its knowledge the
Demised Premises are in good and tenantable condition at the beginning of the
term hereof, subject to completion of punch list items and subject to any
obligations of Landlord to correct any defects in the construction or
workmanship in the Base Building items and, if Landlord performs the work
related to the upfitting of the Demised Premises, the upfitting of the Demised
Premises.
4.06. Tenant shall not be liable for the payment of rent until Landlord
delivers possession in accordance with Section 4.03 hereof.
4.07. Tenant shall have the option to extend the term of this Lease-for
the additional Option Period(s) as set forth in Schedule I, by providing written
notice of extension to Landlord of its election to extend the term, such notice
to be given at least one hundred twenty (120) days prior to the expiration of
the then-current term. During each Option Period(s), the Annual Minimum Rent for
the Demised Premises shall be as specified in Schedule I. For purposes of this
Lease, the term "Market Rate" or "Market" shall mean the annual minimum rent
established by Landlord to reflect Landlord's estimate of the annual minimum
rent which could reasonably be expected from a third party if the Demised
Premises were released for the Option Period; however, the annual minimum rent
so established shall not exceed the annual minimum rent then generally being
quoted by Landlord to prospective tenants for comparable tenant space in the
Building, and if no comparable tenant space is then being leased in the
Building, the annual minimum rent so established shall not exceed the annual
minimum rent then being quoted by landlords for new tenants for comparable
tenant space in first-class, high-rise office buildings in the vicinity of the
Building(in each case as adjusted to allow for a Base Amount and Tax Base Amount
equivalent to that specified in Schedule D. For purposes of the foregoing
definition, all references as to the quotation of annual minimum rent shall mean
the rent quoted for a term comparable to the Option Period to the fullest extent
possible. In the event, Tenant exercises its option to extend the term of this
Lease pursuant to this Section 4.07, at the request of Tenant, Landlord, at its
sole cost, shall cause the Demised Premises to be recarpeted and painted and new
wallcoverings to be installed with all such reupfittings to be of the
substantially same standard and quality as the original upfitting of the Demised
Premises pursuant to Exhibit C attached hereto. In written request of Tenant,
Landlord-shall advise Tenant as to the Annual Minimum Rent which will be
applicable for each Option Period; however, Landlord shall-not be obligated to
provide a written quotation to Tenant regarding any Option Period sooner than
one year prior to the expiration of the then current term of this Lease.
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4.08. Tenant shall have .the option to lease the fourth floor of the
Building (the "Option Space") at the end of the fifth lease year and at the end
of each lease year thereafter upon one hundred eighty (180) days prior written
notice to Landlord. Rent for the Option Space shall commence on the date the
Landlord delivers the Option Space to the Tenant free from other tenants and
occupants. The Option Space shall be leased on the same terms and conditions as
all other portions of the Demised Premises as provided herein; provided,
however, that Tenant's upfitting allowance related to the Option Space shall be
limited to S18.00 per rentable square foot for any space which has not been
upfitted previously add S 7.50 per rentable square foot for arty space which has
been previously upfitted, with both allowances subject to adjustment based upon
any percentage increase in the numerical level of the Consumer Price Index for
Urban Consumers - South, All Items (base year 1982-84= 100) as published by the
Bureau of Labor Statistics of the U.S. Department of Labor (the "Index");
provided, however, that such allowances shall not increase more than three
percent (3.0%) per annum (calculated on a cumulative basis) from December 31,
1994. If the base for the Index is changed so that 1982-84 prices &re no longer
taken as representing 100, an appropriate adjustment will be applied to the
published indices so as to rate them to the aforesaid base in which 1982-84
prices are taken as representing 100. In the event the Index is discontinued,
such other substantially similar government index or publication as chosen by
Landlord and Tenant for a reasonable replacement shall be used for such
adjustment.
Landlord shall not be prohibited from leasing space or providing other
options for space on the fourth floor of the Building for periods which conflict
with Tenant's expansion option. Notwithstanding anything mentioned above, the
actual delivery date of the Option Space may vary up to one hundred eighty (180)
days based upon obligations to the existing tenant(s). Additionally, Tenant will
act reasonably and in good faith to phase its occupancy requirements so as to
promote orderly vacating of the Option Space. Tenant shall pay rent on the
Option Space upon occupancy by Tenant and only for the portion of the Option
Space so occupied.
4.09. In addition to the option granted to Tenant pursuant to Section
4.08 hereunder, if, during the initial term or any in effect Option Period,
Tenant notifies the Landlord in writing of its need for additional space, the
Landlord will then notify Tenant in writing at least ninety (90) days before
additional space becomes available in the Building, and the Tenant shall have an
option, exercisable by written notice to the Landlord within thirty (30) days
after receipt of the Landlord's notice, to lease all or a portion (so long as
the remaining portion, in Landlord's reasonable opinion, is of such size and is
so configured as to constitute marketable and leasable space) of this additional
space at the same rate and on the same terms and conditions as the Demised
Premises. The provisions of Section 4.08 with respect to the commencement of
rent shall apply equally to the additional space leased by Tenant pursuant to
the provisions of this Section 4.09.
ARTICLE V. RENT AND ADJUSTMENTS TO RENT
5.01. Except as otherwise expressly provided herein, during the term of
this Lease, Tenant shall pay to Landlord, in equal monthly installments in
advance, the "Annual Minimum Rent" specified in Schedule 1, which rental is
based upon the total square feet of rentable area
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contained in the Demised Premises. Subject to Additional Provisions A and B of
Schedule I of this Lease, all monthly installments shall be due and payable on
the first day of each calendar month without any abatement, deduction or set off
whatsoever during the term of this Lease, except that the first monthly
installment shall be due and payable upon commencement of the term of the Lease;
however, if the Commencement Date falls on a day other than the first day of a
calendar month, the minimum rent for the period from the Commencement Date
through the last day of such month shall be calculated by dividing the Annual
Minimum Rent for the first lease year by 365 and multiplying the quotient by the
number of days from the Commencement Date to the last day of such month.
5.02. Subject to Additional Provision B of Schedule 1, for each
calendar year or portion thereof during the term of this Lease, Tenant also
covenants and agrees to pay to Landlord, in the manner hereafter specified as
additional rent, (i) Tenant's pro rata portion of the Operating Expenses
(hereafter defined) which exceeds the Base Amount (hereafter defined) multiplied
times the Total Rentable Area (hereafter defined) and (ii) Tenant's pro rata
portion of the Real Estate Taxes (hereafter defined) which exceed the Tax Base
Amount (hereafter defined) multiplied times the Total Rentable Area.
Except as set forth in Schedule 1, within ninety (90) days of the end
of each calendar year, Landlord shall provide Tenant with an itemized statement
as to the additional rent due from Tenant, which shall be calculated by stating
the total Operating Expenses and Total Real Estate Taxes for the calendar year,
dividing these amounts by the Total Rentable Area, subtracting the Base Amount
and the Tax Base Amount, respectively from the foregoing quotients, and
multiplying the differences by the number of square feet of rentable area in the
Demised Premises, or by the average daily space if the term of this Lease
commenced or ended during such calendar year or the size of the Demised Premises
changed during the calendar year. "Average daily space" as used in the preceding
sentence means the square footage calculated by adding the number of square feet
of rentable area in the Demised Premises for each day of the calendar year
during which the term of this Lease was in effect and dividing the sum by the
number of days in the calendar year. The statement shall also reflect the
installment payments of additional rent received by Landlord from Tenant as
described hereinbelow and indicate the amount (if any) due from the Tenant,
which amount shall be due and payable within thirty (30) days of the delivery of
the statement to Tenant. If a credit is due Tenant, such credit shall be applied
against future payments of Annual Minimum Rent or additional rent due from
Tenant so long as this Lease remains in effect, and if this Lease is no longer
in effect, remitted by Landlord to Tenant within thirty (30) days of delivery of
the statement to Tenant Landlord shall keep detailed books and records
accurately reflecting the cost of all items related to the calculation of
Operating Expenses and Real Estate Taxes as provided herein and shall provide
reasonable documentation upon the written request of Tenant as to the
calculation of the same. Such books and records shall be available for
reasonable inspection by Tenant during normal business hours at Landlord's
principal place of business or such other location as such books and records are
kept for a period of three (3) years after each statement as to the additional
rent due from Tenant is provided by Landlord.
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Subject to Additional Provisions A and B of Schedule I, during the term
of this Lease, Tenant shall pay to Landlord monthly installments of additional
rent as follows:
(a) On the first day of each month through the month in which the
Tenant receives the first annual statement referred to hereinabove, Tenant shall
pay to Landlord the Initial Operating Expense Installment Payment set forth in
Schedule I; and (b) On the first day of each full month following receipt of
each annual statement referred to hereinabove until receipt of the annual
statement for the next succeeding calendar year, Tenant shall pay to Landlord
one-twelfth (1/12) of the additional rent due as provided above with regard to
the Demised Premises for the calendar year referred to in such annual statement
(without adjustment based on average daily space for partial occupancy by
Tenant). The terms Base Amount,. Tax Base Amount. and Total Rentable Area. shall
have the meanings set forth in Schedule I
The term Real Estate Taxes shall mean all ad valorem real or personal
property taxes and use and occupancy taxes (excluding income taxes) related to
the land and the Building For the purpose of this Lease a tax assessment, levy
or charge (excluding income taxes) based wholly or partially as a capital levy
or otherwise on the rents received by Landlord, or a license fee measured by the
rent payable by Tenant to Landlord, or any other such additional or substitute
tax, assessment, levy, imposition or charge (excluding income taxes) as the part
thereof so measured or based shall be deemed to be included within the term
"Real Estate Taxes".
The term "Operating Expenses" shall mean all direct expenses, costs and
charges incurred by Landlord for the operation, maintenance and repair (.repair.
as used in connection with operating expenses shall not include alterations or
other capital expenditures as defined by GAAP] made by Landlord) of the land and
the Building (as a first-class office building) and shall include, but not be
limited to, the following:
(a) "Labor Costs" (hereinafter defined) for the services of the
following classes of employees performing services required in connection with
the operation, repair and maintenance of the Land and the Building:
(i) the Building superintendent, his assistants and the clerical staff
attached to the Building superintendent's office;
(ii) window cleaners and miscellaneous handymen;
(iii) cleaners and janitors employed in and about the Building for the
performance of services;
(iv) landscaping contractors;
(v) watchmen and persons engaged in patrolling and protecting the Land
and the Building;
(vi) carpenters, engineers, mechanics, electricians and plumbers
engaged in the operation, repair and maintenance of any part of the Building,
the plazas and sidewalks around the Land and
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the Building and the heating, air-conditioning, ventilating, plumbing,
electrical and elevator systems of the Building; and
(vii) personnel engaged exclusively in supervision of any of the
persons mentioned above.
(b) The cost of materials and supplies used in the operation, repair
and maintenance of the Land and the Building;
(c) The cost of replacement for tools and equipment used in the
operation, repair and maintenance of the Building;
(d) The amounts paid to managing agents for the Building, if any,
employed by Landlord (but the amount of management fees which Landlord includes
in Operating Expenses shall not exceed 3 % of the gross rental income related to
the Building), or for reasonable legal, accounting or other professional fees
(necessarily incurred in connection with the operation of the Building);
(e) Amounts charged to Landlord by contractors for services, materials
and supplies furnished in connection with the operation, repair and maintenance
of any part of the Building, and the Land, and the heating, air-conditioning,
ventilating, plumbing, electrical, elevator and other systems of the Land and
the Building;
(f) Amounts charged to Landlord by contractors for window cleaning, and
cleaning and janitorial services in and about the Land and the Building;
(g) Premiums paid by Landlord for All Risk Insurance for the Building,
including, without limitation, fire insurance, with such extended coverage,
vandalism, and malicious mischief coverage, and rent insurance coverage, of the
type and character usually earned by landlords of similar first-class buildings
and premiums paid for comprehensive general public liability insurance against
claims for bodily injury, death or property damage, and if carried by Landlord,
boiler and machinery insurance and war risk insurance, and such other insurance
as may from time to time be reasonably required by Landlord to protect Landlord
against other insurable hazards, which at the time are commonly insured against
in the case of premises similar to the Building;
(h) Water charges and sewer rents;
(i) The cost of utilities necessary for the operation, maintenance and
repair of the Land and the Building;
(j) The cost of electricity (including without limitation, fuel
adjustment charges, but excluding any amounts billed directly to tenants of the
Building) used to operate lighting fixtures, power appliances, machinery,
heating, ventilation and air-conditioning equipment and all equipment used in
connection with the operation, maintenance and repair of the Building and the
offices therein located; and
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(k) The cost of all taxes related to the operation, maintenance and
repair of the land and the Building, excluding Real Estate Taxes.
Operating Expenses shall be "net only," and for that purpose shall be
reduced by the amounts of any supplier reimbursement, credit, recoupment,
discount, credit reduction, or allowance received by Landlord in connection with
such expenses and shall exclude all tenant specific pass through items (e.g.
after hours HVAC). Anything to the contrary contained in this Lease
notwithstanding, to the extent that there is more than five (5%) percent of the
Total Rentable Area unoccupied during any calendar year, Operating Expenses
shall he calculated based upon expenses attributable to an assumed occupancy of
ninety-five (95 %) percent of the Total Rentable Area.
"Labor Costs" for purposes of calculating Operating Expenses shall mean
all expenses incurred by Landlord or on Landlord's behalf which shall be
directly related to employment of personnel for the Land and the Building,
including amounts incurred for wages, salaries and other compensation for
services, payroll, social security, unemployment and other similar taxes,
workmen's compensation insurance, disability benefits, pensions,
hospitalization, retirement plans and group insurance, uniforms and working
clothes and the cleaning thereof, and expenses imposed on or on behalf of the
Landlord pursuant to any collective bargaining agreement. In the event any
personnel do not devote their full time and attention to matters related to the
Building, all of the foregoing costs shall be appropriately prorated.
The following items shall be excluded from Operating Expenses:
(a) Labor Costs in respect of individual partners of Landlord or if a
partner or a successor of Landlord be a corporation, then in respect of officers
and executives of such partner or successor Landlord;
(b) Any insurance premium to the extent that Landlord is reimbursed for
such premium;
(c) The cost of any items for which Landlord is reimbursed by insurance
or otherwise compensated;
(d) The cost of any additions to the Building subsequent to the date of
original construction or any alterations or refurbishing of space leased to
other tenants of the Building;
(e) The cost of any maintenance or repair of interior improvements of
any tenant space (exclusive of normal janitorial services and replacement of the
Building standard items, e.g., light bulbs);
(f) Cost of any work or service performed for any tenant (including
Tenant) at such tenant's cost;
(g) Cost of installing, operating, and maintaining any specialty
service such as an observatory, broadcasting facility, retail store, sundry
shop, food service, newsstand, or
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concession, but only to the extent such costs exceed those which normally would
be expected to be incurred had such space been general office space;
(h) Cost of correcting defects in construction;
(i) Salaries of officers and executives of Landlord or any affiliated
entity;
(j) Cost of any items for which Landlord is reimbursed by insurance,
condemnation, or otherwise;
(k) Cost of any repair in accordance with Article X111, entitled
'Damage or Destruction', of this Lease;
(1) Interest on debt or amortization payments on any note or mortgage
and rental under any groundlease or other underlying lease;
(m) Any real estate brokerage commissions or other cost incurred in
procuring tenants or any fee in lieu of such commission;
(n) = and elevators, and rental payments floor equipment not used in
the operation or maintenance of the Building;
(o) Any expenses for repairs or maintenance which are covered by
warranties and service contracts, to the extent such maintenance and repairs are
made at no cost to landlord; and
(p) Legal expenses arising out of the construction of the improvements
on the Land or the enforcement of the provisions of any lease affecting the Land
or the Building, including this Lease.
If the Landlord is not furnishing any particular work or service (the
cost of which if performed by the Landlord would constitute an Operating
Expense) to a tenant who has undertaken to perform such work or service in lieu
of the performance thereof by Landlord, Operating Expenses shall be deemed for
the purposes of this section to be adjusted by an amount equal to the additional
Operating Expense which would reasonably have been incurred during such period
by the Landlord if it had at its own expense furnished such work or service to
such tenant.
5.03. Tenant shall, during each Tax Year, pay all taxes (if any)
assessed against improvements to the Demised Premises in excess of the generally
prevailing standard of improvements to office space in the Building. Tenant
agrees on request to furnish to Landlord, a list of the permanent leasehold
improvements not taxed as personal property owned by Tenant, together with the
cost thereof, and Tenant agrees to pay, when due, to Landlord, as additional
rent, an amount equal to the taxes assessed (if any) against such extraordinary
leasehold improvements, computed on the basis of the appraised value of such
improvements as determined by the taxing authority, adjusted to establish the
assessed value utilized by such taxing authority, multiplied by the rate of
taxation against real property for such Tax Year.
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5.04. All sums payable hereunder by Tenant, or which are at the expense
of Tenant, are deemed and considered to be rent, and, if not paid, Landlord
shall have with respect thereto and the rights and remedies provided for herein
and by law for the non-payment of rent.
5.05. Rent and all sums payable hereunder by Tenant to Landlord or by
Landlord to Tenant shall be paid promptly as and when the same shall become due
and payable without notice or demand except as expressly provided herein, and
without abatement, deduction or set off to such person or persons and at such
place as Landlord may from time to time designate in writing. Unless otherwise
specified, all sums due hereunder shall be remitted to the "Notice Address" of
the party to receive such payments, as set forth in Schedule I.
5.06. If this Lease terminates other than at the end of a calendar
year, the additional rent (if any) attributable to Operating Expenses and Real
Estate Taxes for the year during which the Lease terminates shall be prorated,
using the average daily space concept as defined in Section 5.02 and shall he
paid on demand by Tenant or any overage remitted to Tenant, as the case may be,
even though the term may have expired before the demand is made. Landlord may
make a reasonable estimate based on actual expenses of any sums to become due
under this clause (net of any such expenses paid by Tenant for such period) and
may make a written demand therefor at any time during the last two (2) months of
a term which is about to expire. Tenant shall pay the amount of said estimate
(net of any such expenses paid by Tenant for such period) or Landlord shall pay
to Tenant, subject to adjustment upwards or downwards, when all information
necessary for a final calculation shall be available.
5.07. In the event that any documentary stamp tax, or tax levied on the
rental, leasing or letting of the Demised Premises (excluding income taxes),
whether local, state, or federal, is required to be paid due to the recording
hereof, the cost thereof shall be borne by Tenant.
5.08. Any payment by Tenant or receipt by Landlord of a lesser amount
than the monthly rent stipulated in this Lease shall be deemed a payment on
account of the earliest rent due, and no endorsement or statement on any check
or on any letter accompanying any check or payment as rent shall be deemed an
accord and satisfaction and Landlord may accept such check or payment without
prejudice to its right to recover the balance of the rent or to pursue any other
remedy provided for in this Lease.
5.09. As security for Tenant's faithful performance of all of Tenant's
obligations hereunder and for Tenant's payment of any damages to which Landlord
may bc entitled, Tenant has herewith deposited with Landlord the "Security
Deposit" set forth in Schedule 1, to be returned within thirty (30) days after
the expiration or termination of this Lease if Tenant has performed all of
Tenant's obligations under this Lease. Landlord shall be entitled to intermingle
such deposit with its own funds and to use such sum for any purpose as it may
determine. The Security Deposit shall be deemed the property of Landlord, and
Tenant shall not be entitled to any interest on said deposit.
5.10. Anything to the contrary contained in this Lease notwithstanding,
in the event any payment of Rent or Additional Rent is more than fifteen (15)
days past due, an administrative charge equal to five (5%) percent of such past
due sum shall be due and payable by Tenant to
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Landlord, upon written demand. In addition, any sum more than thirty (30) days
past due shall bear interest at a per annum rate equal to the Prime Rate quoted
in The Wall Street Journal from time to time plus 200 basis points (or the
highest lawful rate allowable if less than such rate) until paid in full, with
said interest to be due and payable by Tenant to Landlord upon written demand.
ARTICLE VI. LANDLORD'S SERVICES
6.01. Landlord shall:
(a) maintain in reasonable condition and repair the roof, foundation,
structure, infrastructure, utilities, HVAC, other Building operating systems,
exterior and common areas of the Building;
(b) furnish reasonable amounts of heat and air-conditioning (.HVAC.) to
the Demised Premises from 8:00 a.m. until 6:00 p.m. on Monday through Friday
except holidays, and on Saturdays from 9:00 a.m. until 2:00 p.m. upon request.
After hours HVAC shall be provided by Landlord upon request of Tenant, so long
as all costs of providing such after hours service, as reasonably estimated by
Landlord, are borne by Tenant. Irrespective of the foregoing, as to each whole
floor occupied by Tenant, in lieu of Saturday HVAC hours, Tenant shall be
provided with three hundred (300) free hours of HVAC service per year (pro rated
for the first and last lease years) at such times as Tenant may request;
however, there shall be no carry over of any unused free hours from one calendar
year to the next. Chilled fluid lines shall be available in the Building to
permit Tenant to obtain supplemental air conditioning on a twenty-four (24) hour
basis, but Tenant shall be responsible for all installation and energy costs
associated therewith;
(c) provide sufficient elevator service for reasonable access to the
Demised Premises;
(d) furnish reasonable janitorial services for the Demised Premises;
(e) furnish a reasonable amount of electricity for normal office use in
the Demised Premises; however, Landlord's agreement to furnish electricity does
not include electricity for electrical equipment requiring voltage greater than
that supplied by the Building's standard receptacle circuits unless Landlord's
prior written consent is obtained, which consent shall not unreasonably be
withheld so long as Tenant is responsible for all costs of installation and
which consent shall be deemed to have been granted if such requirement is
contained in Exhibits! C or C-l of this Lease;
(f) furnish in the first floor lobby of the Building a directory of the
firm or business names of tenants of the Building: and
(g) provide access to hookups to any public or private right-of-ways
adjacent to the Land for utilities or other communications systems available to
Landlord or Tenant and accessible by Tenant by air or underground at Tenant's
sole cost and expense
6.02. If Landlord defaults in the performance or observance of any
provision of Paragraph 6.01 (except to the extent permitted under Paragraph
6.04), Tenant shall give
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Landlord notice specifying in what manner Landlord has defaulted and if such
default shall not be cured by Landlord within the period of time provided for
elsewhere in this Lease, and otherwise within thirty (30) consecutive days after
the delivery of such notice (except that if such default cannot be cured within
said thirty (30) day period, this period shall be extended for a reasonable
additional time, provided that Landlord commences to cure such default within
the thirty (30) day period and proceeds diligently thereafter to effect such
cure), Tenant may terminate this Lease or pursue any other remedy available at
law or in equity to Tenant; provided, however, that if the Demised Premises is
not supplied with utilities required pursuant to the terms of this Lease due to
circumstances within the control of Landlord for a period in excess of 24 hours
after of receipt by Landlord of Tenant's verbal notice of such failure, Tenant
may terminate this Lease or pursue any other remedy available at law or in
equity. No such termination shall relieve Landlord of its obligations under the
Lease, and such obligations shall survive any such termination. No action on the
part of Tenant shall limit or prejudice the right of Tenant to obtain the
maximum amount of damages allowed by any statute or rule of law related to any
such default by Landlord.
6.03. If, in Landlord's opinion, any Tenant shall:
(a) use any utility, including but not limited to electricity or water,
in an excessive, extravagant or unreasonable manner, Landlord may install meters
measuring the quantity of such utility used in the Demised Premises and Tenant,
on demand, shall pay Landlord (i) all costs incident to said installation and
necessary appurtenances thereto and (ii) additional rent equal to the cost of
the utility used at rates equal to the rate that the supplying utility company
with its own equipment would then charge Tenant for such service. If this method
of furnishing utilities to Tenant is utilized, an adjustment will be made to
Operating Expenses under Section 5.02 to reflect Tenant's payment of its own
utilities in such a manner as to avoid requiring Tenant to pay more than the
excess utilities and its ratable share of normal utilities usage included in
Operating Expenses; and
(b) require removal of refuse and rubbish in larger quantities or more
often than is reasonable in the rendering of janitorial service, Tenant on
demand shall pay the removal cost to Landlord.
(c) No action will be taken by Landlord under Section 6.03(a) or
6.03(b) without notice provided to Tenant and Tenant having the same opportunity
to cure as provided to Tenant pursuant to Article XIX of this Lease.
6.04. Landlord reserves the right, without liability or responsibility
to Tenant and without reduction or deduction of rent, to suspend or stop on a
temporary basis and without unreasonable hardship to Tenant in the conduct of
its business in the Demised Premises, from time to time, service of heating,
air-conditioning, elevator, plumbing, electrical or any other system or service
required to be furnished or rendered under the terms of this Lease, when such
shall become necessary due to accident, emergency, strike, repairs, alterations,
improvements, replacements, or any other cause, including laws, orders, or
regulations of any federal, state or municipal authority or inability of
Landlord to obtain electricity, or other suitable fuel.
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6.05. Landlord shall not be responsible for any maintenance or repair
of tenant upfitting of the Demised Premises (exclusive of janitorial services
and/or repair or replacement of the Base Building standard items, e.g., light
bulbs).
ARTICLE VII. MISCELLANEOUS COVENANTS OF TENANT
7.01. Tenant shall promptly correct any violation of and comply with
all applicable local, state and federal laws, ordinances, notices, permits, or
statements of occupancy, requirements, orders and regulations, now or hereafter
in effect, with respect to Tenant's conduct or use of the Demised Premises, an<l
on demand, pay to Landlord, as additional rent, any and all increases in
premiums on insurance (hazard and liability) now or hereafter carried by
Landlord on the Demised Premises, the Land or the Building, which increases are
directly caused in any way by the occupancy of Tenant or by breach of any of the
provisions of this Lease.
7.02. Tenant shall use its best efforts to:
(a) use every reasonable precaution against fire, or other casualty;
(b) give to Landlord prompt written notice of any accident, fire,
casualty or damage occurring on or to the Demised Premises, and of any defects
in the Landlord's apparatus in the Demised Premises;
(c) request Landlord to repair or replace all of Landlord's electric
lamps and lights, bulbs and tubes in standard building electrical fixtures in
the Demised Premises, as from time to time shall be necessary; and
(d) lock all doors and turn out all lights in the Demised Premises
before leaving such unoccupied.
7.03. Tenant shall, within ten (10) days after request therefor by
Landlord, deliver to Landlord in recordable form a certificate to such person as
Landlord may designate certifying (if such be the case) any and all matters
reasonably related to Tenant's possession or use of the Demised Premises or the
terms thereof, including, without limitation, that this Lease is in full Force
and effect and that there are no defaults by Landlord or set-offs by Tenant
hereunder (or stating those claimed by Tenant) and the date to which rent is
paid.
7.04. Tenant shall furnish Landlord with the name of an employee or
agent who shall contact Landlord with regard to any problems, notices,
complaints, or the like, and who shall have the authority to request
expenditures for which Tenant is liable.
7.05. Tenant shall not, without the express prior written consent and
approval of Landlord, with consent once given not being deemed further consent,
(a) Occupy the Demised Premises in any manner or for any purpose except as
permitted in this Lease;
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(b) Assign, sublease, mortgage, or pledge this Lease or any other
interest in this Lease, or underlet or sublet the Demised Premises or any
portion thereof or any right or privilege appurtenant thereto, nor permit the
occupancy or use of any part thereof by any other person, firm or corporation
nor enter into any agreement or arrangement which has as its effect or intent
the circumvention of the foregoing prohibitions without the written consent of
Landlord first had and obtained, which consent shall be given only in accordance
with Section 25.03 hereof; provided, however, that Landlord's consent shall not
be required with respect to any assignment of the Lease or sublease of any
portion of the Demised Premises to an entity controlling, controlled by or under
common control with Tenant;
(c) Make any alterations, improvements or additions to the Demised
Premises except as permitted and provided in Article XVI hereof;
(d) Use or operate any equipment or machinery which as result of noise,
vibration, heat output or otherwise is harmful in any material respect to the
Land or the Building or disturbing in any material respect to tenants occupying
other parts thereof;
(e) Place any weights in any portion of the Building beyond the safe
carrying capacity of the structure (as determined by Landlord in its sole
discretion);
(f) Allow the production in part or whole of any commodity. Coffee and
soft drinks dispensers, microwave ovens and vending materials may be utilized by
Tenant in limited areas.
(g) Do or suffer to be done, any act, matter or thing on the Demised
Premises, the Land or the Building whereby insurance in force shall become void
or suspended, which would result in insurance companies of good standing to
insure the same:
(h) Permit any unreasonable odor, noise, sound or vibration which, in
Landlord's reasonable judgment, materially impairs the use of any part of the
Land or the Building or materially interferes with the business or occupancy of
any other tenant, or makes or permits any unreasonable disturbance of any kind
in the Building, or materially disturbs the business in the Building, or
occupancy of any other tenant;
(i) Obstruct any sidewalks, halls, passageways, elevators or stairways
in the Building or the Land or any other part thereof used in common with
Landlord, the various tenants and their invitees (hereinafter called "common
areas"), or use the same for any purpose other than egress and ingress to and
from the Demised Premises;
(j) Use or permit any of the toilet rooms, water closets, sinks, or
other apparatus or systems to be used for any purpose other than for which
constructed, or permit any sweepings, rubbish, rags, ashes, chemicals, or refuse
or other unsuitable substances to be thrown or placed therein with the expense
of any damage caused by a violation of this provision being borne by Tenant;
(k) Use or store in the Demised Premises any substance other than those
typically used or stored in commercial office settings similar to the Demised
Premises having an offensive odor or
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considered "hazardous" by any responsible insurance company, including without
limitation, any substance which is explosive, highly combustible or unusually
volatile;
(l) Enter upon the roof of the Building except in accord with the terms
of this Lease;
(m) Use electricity in the Demised Premises in excess of the capacity
of any of the electrical conductors and equipment in or otherwise serving the
Demised Premises, or add to or alter the electrical system servicing the Demised
Premises;
(n) Attach any awnings, antennae or other projection to the roof or
outside walls of the Demised Premises or the Building; provided, however, that
Tenant, at its expense, shall have the right to locate an antenna and
communications system at a location reasonably suitable to Landlord on the roof
of the Building (in such event the portion of the roof of the Building on which
the communications system is located shall be deemed a portion but not rentable
square footage of the Demised Premises); provided, however, that, (i) prior to
the installation of such antenna or communications system, Tenant must present a
detailed set of plans and specifications of said system for Landlord's approval,
which approval shall not be unreasonably withheld; (ii) any activities
undertaken by Tenant with respect to the communications system shall be subject
to the reasonable supervision and control of Landlord; and (iii) the
installation of any such system shall be subject to the term of Article 16
hereof. Landlord shall not install, nor shall it permit other parties to
install, communications equipment on the roof of the Building which unreasonably
interferes with the communications system of Tenant. Landlord acknowledges that
the covenants of Landlord in the preceding paragraph are material to the
inducement of Tenant to enter into this Lease.
(o) Inscribe, paint, affix, erect, make, maintain or attach to any part
of the Demised Premises, the Land or the Building, including the windows and
doors, any sign, television viewer or projection or representation or
advertisement or notice of any kind, other than an appropriate sign or marker
indicating the firm name of Tenant to be approved in writing by Landlord which
may be placed at the entrance to the Demised Premises, but may not be visible
from any location outside the Building or visible from the lobby of the
Building, and any appropriate signs Tenant may choose to locate within the
Demised Premises (except on the inside surface of windows), and no loud speaker
system or any other form of sound or audio transmission system or apparatus
which may be heard outside the Demised Premises or interfere with the Building's
electrical systems shall be used in or at the Demised Premises or the Building;
provided, however, that in accordance with the plans and specifications and at
the location, place and manner set forth in Exhibit E attached hereto, during
the initial term and any in-effect Option Period of this Lease, so long as
Tenant continues to lease 100% of the space located on the fifth, sixth and
ninth floors of the Building, Tenant shall have the exclusive exterior signage
rights to the Building, but all such exterior signage shall be subject to all
rules, laws, ordinances or regulations of any governmental entity having
jurisdiction over the Land, Building or such signage; provided, further,
however, that Landlord shall provide Tenant with a $10,000 signage allowance for
costs and expenses related to such sign, but Tenant shall be responsible for all
expenses in excess of $10,000 incurred in connection with the purchase,
installation, maintenance, removal and operation of such sign, including without
limitation all reasonable
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costs of repairs to the Building as deemed reasonably necessary by Landlord in
connection with removal of such signs;
(p) Keep any animals in or about the Demised premises or other portions
of the Building except seeing eye dogs accompanying the visually impaired;
(q) Park any vehicles in reserved areas or obstruct any parking space,
driveway, or other access area adjacent to the Building without the permission
of Landlord; or
(r) Burn any article within or on the premises of the Building (except
the smoking of tobacco if permitted by applicable laws, rules and regulations).
***
ARTICLE VIII. RIGHTS OF LANDLORD
8.01. Landlord shall have the right, but shall be under no obligation,
to do the following things (at any time or times and from time to time) in or
about the Demised Premises and the Land or toe Building;
(a) Discontinue any facility or service not required for the operation
of a first-class office building unless expressly covenanted for herein;
(b) Prevent access to the Building by any person except emergency
personnel necessary to protect and preserve Tenant's property during any
invasion, mob, riot, public excitement, threat to the safety or security of the
Building or other commotion, explosion, fire or any casualty by closing the
doors or otherwise;
(c) During other than business hours, refuse access to the Building to
any person unless such person seeking admission (i) is properly identified and
(ii) produces a key to the Demised Premises;
(d) Reasonably prescribe the hours and the method and manner in which
any merchandise, furniture or heavy or bulky object shall be brought in or taken
out of the Building and limit and prescribe the weight, size and proper position
thereof in such a manner as to avoid interfering with elevator service during
business hours;
(e) Subject to the provisions of Section 7.05(o) install, place upon or
affix to the roof or exterior walls of the Demised Premises and/or the Building,
equipment signs, displays, antennae and any other object or structure;
(f) Make alterations or additions to the Building or build improvements
adjoining the Building so long as such alterations or additions do not
materially impair Tenant's reasonable use of the Demised Premises or violate any
provisions of this Lease;
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(g) Change the arrangement and/or location, or regulate the use, of all
entrances, passageways, doorways, corridors and any other common areas in the
Land or the Building, whether or not connecting with any street, sidewalk,
transportation facility, concourse, garage, or any other building, and of all
elevators, stairs, toilets, and public conveniences which are not within the
Demised Premises so long as such alterations or additions do not materially
impair Tenant's reasonable use of the Demised Premises or violate any provision
of this Lease;
(h) Change the name of the Building in accordance with the provisions
of Additional Provision E of Schedule I of this Lease;
(i) Maintain (with right of changes) elevator service that is wholly or
in part automatic or manually operated; and
(j) Enter and go upon the Demised Premises for the purpose of doing any
of the following things:
(i) inspect the Demised Premises and make repairs, alterations and
additions thereto and to the Building and run wires, lines, pipes, utility
systems or appurtenances thereto above the ceiling and take material as required
into, upon and through the Demised Premises, all as reasonably required for the
safety, improvement, preservation or restoration of the Building, or the Demised
Premises, or for the safety or convenience of the present or future occupants
thereof; provided, however, that except for emergencies Landlord shall exercise
good faith efforts to cause such work to be performed after regular business
hours;
(ii) exhibit the Demised Premises to prospective tenants at any time
within 180 days of the expiration of the term of this Lease, or prospective
purchasers and anyone else having an interest or prospective interest therein;
and
(iii) take possession and alter, renovate and redecorate at any time
within one month prior to the expiration of this Lease if Tenant has removed all
of Tenant's property.
ARTICLE IX. COVENANT OF QUIET ENJOYMENT
9.01. Landlord warrants that (a) it has the power and authority to
enter into this Lease; (b) so long as Tenant performs every obligation of Tenant
under this Lease, Tenant shall quietly enjoy the Demised Premises without
hindrance by Landlord or anyone claiming by, under, through, or by operation of
law on behalf of or in lieu of Landlord, subject, however, to all the provisions
of this Lease; (c) it owns the Building; and (d) the lease agreement under which
Landlord leases the Land is for a term greater than the initial term and any
Option Period granted in this Lease.
ARTICLE X. INDEMNIFICATION FOR CLAIMS MADE BY THIRD PARTIES,
INSURANCE AND WAIVER OF SUBROGATION
10.01. Tenant agrees to indemnify and save Landlord harmless from any
and all liabilities, claims, damages, losses, litigation, expenses and counsel
fees with respect to bodily
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injury to third parties or damage to property of third parties, arising out of
the use and occupancy of the Demised Premises by Tenant based upon Tenant's
negligence or other wrongful conduct. Landlord agrees to indemnify and hold
Tenant harmless from any and all liabilities, claims, losses, litigation,
expenses, and counsel fees with respect to personal injury to third parties or
damage to property of third parties, arising out of the use and operation of the
Land and the Building by Landlord, based upon Landlord's negligence or other
wrongful conduct. In no ovens shall either of the aforementioned indemnification
provisions be construed to indemnify a party against its own negligence or
willful or intentional acts.
10.02. Landlord and Tenant shall each maintain and pay for sufficient
public liability insurance to cover the indemnification contained in Section
10.01 herein, in companies reasonably acceptable to the other, naming Landlord,
Landlord's managing agent and Tenant as the insured, as their interest may
appear, with minimum limits of $1,000,000 per person and S2,000,000 for each
accident or occurrence for bodily injury or death, and $1,000,000 for property
damage and umbrella coverage in the amount of s2,000,000. In addition to the
foregoing, prior to Tenant's offering alcoholic beverages for consumption in any
portion of the Demised Premises, Tenant shall acquire host liquor liability
coverage in amounts deemed reasonably sufficient by Landlord. Each party shall
deposit a certificate as to insurance coverage with Landlord together with
evidence that (a) the policy will not be cancelled without at least thirty (30)
days prior written notice to such party and (b) no act or omission of Tenant
will invalidate the interest of any other insured under said insurance.
10.03. Landlord shall maintain reasonable amounts of fire and extended
coverage insurance on the Building and Tenant shall maintain reasonable amounts
of fire and extended coverage insurance on all Tenants' improvements and
personal property located in the Demised Premises. Landlord and Tenant hereby
release the other from any and all liability or responsibility to the other or
anyone claiming through or under them by way of subrogation or otherwise for any
loss or damage to property covered by any insurance then in force, even if such
loss or damage shall have been caused by the fault or negligence of the other
party, or anyone from whom such party may be responsible; however, this release
shall be applicable and in force and effect only with respect to any loss or
damage occurring during such time as the policy or policies of insurance
covering said loss shall contain a clause or endorsement to the effect that this
release shall not adversely affect or impair said insurance or prejudice the
right of the insured to recover thereunder. Landlord and Tenant shall each have
such clause in its fire and extended coverage insurance policies if available
without extra charge, and if there be a charge, shall notify the other party,
who shall have the right to require such clause upon payment of such extra
charge.
ARTICLE XI. WAIVER OF PROPERTY DAMAGE CLAIMS
11.01. Anything to the contrary contained in this Lease
notwithstanding, so long as any party to this Lease is not guilty of gross
negligence, recklessness or willful misconduct, such party and its agents,
servants and employees shall not be liable for, and each party hereby releases
the other and its agents, servants and employees from 811 claims for loss of or
damage to property (including loss from interruption of business, loss of rents,
income or profits or
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financial loss of any other nature) sustained as a result of any fire, accident,
occurrence or condition in or upon the Demised Premises, the Land and the
Building, including but not limited to such claims for loss of or damage to
property resulting from (i) any defect in or failure of plumbing, heating,
air-conditioning equipment, elevators, electric wiring or installation thereof,
water pipes, stairs, railings or walks on or about the Demised Premises, the
Land or the Building; (ii) any equipment or appurtenances becoming out of
repair; (iii) the bursting, leaking or running of any tank, washstand, water
closet, water pipe, drain or any other pipe or tank in, upon or about the Land,
the Building, or the Demised Premises; (iv) the backing up of any sewer pipe or
downspout; (v) the escape of hot water; (vi) water, snow or fee being upon or
coming through the roof or any other place upon or Dear the Building or premises
or otherwise; (vii) the &fling of any fixture; (viii) broken glass; (ix) any act
or omission of co-tenants or other occupants of the Building or adjoining or
contiguous property or buildings; or (x) any act or omission of parties other
than a party hereto, its agents, servants or employees. This Article shall not
relieve either Landlord or Tenant from performance of or liability for their
respective obligations under this Lease.
ARTICLE XII. CONDEMNATION
12.01. Tenant hereby waives any injury, loss or damage, or claim
therefor against Landlord resulting from any exercise of power of eminent domain
affecting all or any part of the Demised Premises or the air rights, the Land,
or the Building, except that Tenant reserves against the condemning authority
Tenant's right to, and claim for, any damages for the interruption of Tenant's
business, Tenant's moving expenses and for the taking of Tenant's personal
property and/or fixtures so long as Tenant's claim against the condemning
authority in no way diminishes or reduces any award, judgment, or settlement
receivable by Landlord. All awards by the condemning authority for the taking of
air rights, the Land, or the Building shall belong exclusively to the Landlord.
12.02. The Tenant will be entitled to terminate this Lease if a part of
the Demised Premises is taken as a result of the exercise of the power of
eminent domain and such a taking results in the inability of Tenant to conduct
its normal business activities, as determined in good faith by the Tenant
exercising its reasonable judgment, or reduces the rentable area contained in
(he Demised Premises by more than fifty percent (50%) or reduces the number of
parking spaces provided to Tenant pursuant to Article XXIX hereof. If the
aforementioned conditions are met, Tenant may, by giving written notice to
Landlord sixty (60) days after the date of taking, terminate this Lease as of a
date (to be set forth in said notice) not earlier than thirty (30) days after
the date of the notice; provided, however, that with respect to loss of parking
spaces, this Lease shall not terminate if landlord provides Tenant with a number
of substitute spaces equal to the spaces taken within a reasonable proximity of
the Building within 15 days of receipt of such notice. Rent shall be apportioned
as of the termination date or as of the date the right to possession vests in
the condemning authority, whichever first occurs. If only a part of the Demised
Premises shall be so taken, and this Lease is not terminated as hereinafter
provided, the tent shall be abated in proportion to the area so taken, as of the
date the right to possession vests in the condemning authority.
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12.03. A temporary taking as a result of the power of eminent domain
shall not result in a termination of this Lease unless the period of such
temporary taking is reasonably expected to exceed 90 days; however, such 90 day
period can be extended to not more than 180 days so long as temporary
alternative office space or parking can be located which will permit Tenant to
continue to engage in normal business activities pending recovering ,:~
possession of the Demised Premises. Rent shall abate during the period of any
temporary taking as to all portions of the Demised Premises or parking so taken,
with Landlord entitled to all governmental compensation related to rent.
12.04. In the event any part of the Building shall be taken as a result
of the exercise of a power of eminent domain (whether or not the Demised
Premises shall be affected) and Landlord determines that the remainder of the
Building does not constitute an economically feasible operating unit, upon
written notice to Tenant given within sixty (60) days after the date of taking,
Landlord may terminate this Lease as of a date (to be set forth in said notice)
not earlier than thirty (30) days after the date of the notice; rent shall be
apportioned as of the termination date or as of the date the right to possession
vests in the condemning authority, whichever first occurs.
ARTICLE XIII. DAMAGE OR DESTRUCTION
13.01. If the Demised Premises are damaged by the elements or fire or
other casualty and this Lease is not terminated under Section 13.02 herein,
Landlord shall promptly repair the damage, and restore and rebuild the Building
and/or the Demised Premises, at its expense, with reasonable dispatch after
notice to it of the damage or destruction; however, Landlord shall not be
required to repair or replace any of Tenant's property and the rent shall not be
abated unless the Demised Premises are thereby rendered untenantable in whole or
in part; if rendered untenantable only in part, the Annual Minimum Rent and
additional rent shall be abated in proportion to the pan of the Demised Premises
rendered untenantable; if rendered wholly untenantable, the entire Annual
Minimum Rent and additional rent shall be abated
13.02. If the Demised Premises cannot be rendered tenantable, in
Landlord's and Tenant's reasonable opinion, within one hundred eighty (180) days
after any occurrence referenced in Section 13.01, either party may terminate
this Lease as of the date of the occurrence by the giving of written notice to
the other party within sixty (60) days after the occurrence and in which case
the Annual Minimum Rent and additional rent shall be adjusted as of the
occurrence date, and Landlord need not repair or restore. In addition, if the
Building, in Landlord's reasonable opinion, shall be so damaged by the elements
or fire or other casualty, that it is economically undesirable to return the
Building to its prior condition and Landlord elects not to repair, Landlord
shall have the right, by written notice to Tenant to Section 13.01) and, in such
event, this Lease shall end as of the date of such notice and the rent shall be
adjusted accordingly.
ARTICLE XIV. SUBORDINATION TO LANDLORD'S DOCUMENTS OF POSSESSION
AND MORTGAGES
14.01. Landlord covenants and warrants that Landlord has the right to
enter into this Lease and that the rights granted hereunder to Tenant, and the
exercise thereof in accordance
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with the provisions of the Lease, will not violate any of Landlord's financing
documents or documents of possession related to the Land or the Building or
constitute a default thereunder.
14.02. Tenant acknowledges that this Lease and Tenant's rights
hereunder are subject and subordinate to Landlord's documents of possession and
liens (whether currently existing or hereafter arising) securing any financing
of Landlord. Landlord shall exercise its good faith efforts to obtain a
non-disturbance agreement related to this Lease from any such financing source.
14.03. At the request of Landlord, Tenant shall enter into an
attornment agreement whereby Tenant agrees to attorn to any party holding an
interest in the Land or Building and to recognize such party as landlord for the
balance of the term of this Lease so long as such agreement obligates such party
not to disturb the possession of Tenant if Tenant performs the obligations
imposed upon Tenant under the terms and conditions of this Lease, except that
such party shall not:
(a) be liable for any previous act or omission of Landlord under this
Lease;
(b) be subject to any offset which shall have theretofore accrued to
Tenant against Landlord; or
(c) be bound by any modification of this Lease Dot expressly provided
for in this Lease, or by any previous prepayment of more than one month's fixed
rent, unless such modification or prepayment shall have been expressly approved
in writing by such party.
ARTICLE XV. RULES AND REGULATIONS
15.01. Rules and regulations dealing with the use of the Land and the
Building (including all tenant space) and reasonable additions, alterations or
modifications of said rules and regulations may from time to time be made by
Landlord; however, the same shall not conflict with any provisions of this Lease
and shall amendments thereto, shall be effective and become a pan of this Lease
thirty (30) days after written notice thereof is given to Tenant. Tenant agrees
that Tenant and Tenant's employees and other persons under its control will be
bound thereby.
15.02. Landlord shall not be liable to Tenant for violation of any rule
or regulation by any other tenant or its employees, agents or visitors but shall
use reasonable efforts to prevent violations which affect the peaceful and quiet
enjoyment of the Demised Premises by Tenant. In the case of any conflict or
inconsistency between the provisions of the Lease and any of the rules and
regulations as originally promulgated or as changed, the provisions of the Lease
shall control.
ARTICLE XVI. ALTERATIONS AND SERVICES BY TENANT AND TRADE FIXTURES
16.01. Tenant shall Dot do any work in or about the Demised Premises or
make any alterations or additions to the Demised Premises without the prior
written consent of Landlord, which consent will not be unreasonably withheld or
delayed. All such work to which Landlord
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consents shall be performed and installed at Tenant's sole cost and expense in
accordance with plans and specifications to be supplied by Tenant, which plans
and the contractors, sub-contractors and all suppliers of labor or material,
shall in all instances first be subject to Landlord's approval, which approval
will not be unreasonably withheld or delayed. Tenant shall require all
contractors, subcontractors and any other personnel performing work in or
providing services to the Demised Premises to utilize the service elevator for
ingress to and egress from the Demised Premises and to comply with any rules and
regulations promulgated by Landlord to prevent damage to the Building or to
otherwise provide for the orderly operation of the Building. During the work,
Tenant shall maintain such insurance as Landlord may reasonably require for the
benefit of Landlord or such other parties with insurable interests as Landlord
shall designate including workmen's compensation and general liability
insurance, evidence of which Tenant will furnish to Landlord before any work
under this Article is commenced. Tenant, at its expense, shall obtain all
necessary governmental permits and certificates for the commencement and
prosecution of Tenant's alterations to be performed in compliance therewith and
with all applicable laws and requirements of public authorities, and with all
applicable requirements of insurance bodies. If any of Tenant's alterations
shall involve the removal of any fixtures, equipment or other property in the
Demised Premises which are not Tenant's property, such fixtures, equipment or
other property shall be promptly replaced at Tenant's expense, with new
fixtures, equipment or other property (as the case may be) of like quality and
at least equal value unless Landlord shall other vise expressly consent in
writing.
16.02. Tenant, at its expense and with diligence and dispatch shall
procure the cancellation or discharge of all notices of violation arising from
or otherwise connected with Tenant's alterations which shall be issued by the
then public authority having or asserting jurisdiction. Tenant shall defend,
indemnify and save harmless Landlord against any and all mechanics' and other
liens filed in connection with Tenant's alterations, including the liens of any
conditional sales, or chattel mortgages upon or financing statements or security
agreements affecting any materials, fixtures, or articles so installed in and
constituting part of the Demised Premises and against all costs, expenses and
liabilities incurred in connection with any such lien, conditional sale or
chattel mortgage or financing statement or security agreement or any action or
proceeding brought thereon. Tenant, at its expense, shall procure the
satisfaction or discharge of or appropriately bond-off all such liens within
thirty (30) days after Landlord makes written demand therefor.
16.03. Except as waived in Section 16.04 below, any alterations,
improvements or additions made by Tenant which are deemed to be fixtures
permanently attached to the Building shall remain upon the Demised Premises at
the expiration or earlier termination of this Lease and shall become the
property of Landlord unless prior to the termination of this Lease, or upon
default by Tenant in the terms of this Lease, Landlord gives Tenant written
notice to remove the same, in which event Tenant shall remove the same and
restore the Demised Premises to the same good order and condition in which they
were at the time of delivery of possession to Tenant, normal wear and tear
excepted. Should Tenant fail to do this, Landlord may do it, and Tenant shall
pay reasonable costs and expenses thereof to Landlord as additional rent upon
demand.
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16.04. All trade fixtures and equipment installed by Tenant without
expense to Landlord shall remain the property of Tenant and shall be removed on
or before the termination date of this Lease but may not be removed without
Landlord's express written consent at any time when Tenant is in default under
any provision of this Lease. At Landlord's option, any trade fixtures or
equipment not removed on or before sixty (60) days after the Lease termination
date may, at the option of Landlord, he deemed abandoned property and shall
either become Landlord's property, or Landlord may remove and dispose of them
and in such event Tenant, upon demand, shall pay reasonable costs and expenses
thereof to Landlord as additional rent upon demand. Tenant shall promptly
restore the Demised Premises to substantially their original order and condition
upon removal of trade fixtures and equipment, normal wear and tear excepted, and
shall repair or pay reasonable cost of repairing any damage to the Demised
Premises or the Building resulting from such removal.
ARTICLE XVII. PERFORMANCE OF TENANT'S COVENANTS
17.01. Except for the payment of rent, which shall be payable when due,
Tenant shall perform all agreements on its part to be performed and upon failure
of Tenant to so perform and without waiving any rights Landlord may have,
Landlord may notify Tenant of such failure and Tenant shall perform the same
promptly upon receipt of such notice of non-performance; if Tenant does not
perform such acts and agreements within thirty (30) business days after delivery
of such notice (or if it cannot reasonably be completed within thirty (30)
business days, begin within such period and thereafter proceed to completion
with due diligence) Landlord, at its option, may perform for Tenant and in so
doing Landlord shall have the right to cause its agents, employees and
contractors to enter upon the Demised Premises without liability to Tenant for
any loss or damage resulting therefrom (other than damages resulting from gross
negligence of Landlord or Landlord's duly appointed agents); and Tenant shall
pay reasonable costs and expenses of such performance to Landlord as additional
rent upon demand.
ARTICLE XVIII. NOTICES
18.01. Any notice or demand given under this Lease shall be in writing
and hand-delivered or forwarded by certified mail with return receipt requested,
postage prepaid. If notice or demand is given to Tenant, it shall . be addressed
to Tenant at the Notice Address set forth in Schedule 1, or to such other
address as Tenant may from time to time designate by written notice to Landlord.
Any notice or demand given under this Lease to Tenant by Landlord shall be
deemed given when hand delivered or mailed by Landlord in accordance with the
terms hereof. If notice or demand is given to Landlord, it shall be addressed to
Landlord at the Notice Address set forth in Schedule I or to such other address
as Landlord may from time to time designate by written notice to Tenant, with a
copy to:
Southwind, Ltd.
Post Office Box 7547
Columbia, South Carolina 29201.
Any notice or demand given under this Lease to Landlord by Tenant shall
be deemed. given when given in accordance with the terms hereof and received by
Landlord.
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ARTICLE XIX. EVENTS OF DEFAULT
19.01. Each of the following shall constitute an event of default
hereunder with the term "Tenant" including any person, firm or corporation in
possession of any portion of the Demised Premises:
(a) Tenant failing to take possession of the Demised Premises within
fifteen (15) days after possession is tendered ready for occupancy in accordance
with the provisions of this Lease;
(b) Tenant using the Demised Premises for some purpose other than the
use permitted under this Lease;
(c) Any of the following, either before or after the commencement of
the Lease term: the filing under the United States Bankruptcy Act or any law of
like import by or against Tenant of a petition for adjudication as a bankrupt or
insolvent, or for reorganization or appointment of a receiver or trustee of
Tenant's property, an assignment for the benefit of creditors, or the taking
possession of Tenant's property by any governmental officer or agency pursuant
to statutory authority for the dissolution or liquidation of Tenant;
(d) Tenant failing to pay when due any installment of Annual Minimum
Rent or additional rent herein required to be paid by Tenant within fifteen (15)
days of the due date or any other amount within thirty (30) days of written
notice of such amount being due;
(e) Tenant failing to perform any other covenant or condition of this
Lease within thirty (30) days after written notice and demand; or, if the
performance requires more than thirty (30) days to complete, failing to begin
performance within thirty (30) days and completing diligently thereafter;
(g) Tenant mortgaging or assigning this Lease or subletting the Demised
Premises other than in accordance with the provisions of this Lease or upon the
passing to any person, firm or corporation other than Tenant, by operation of
law or otherwise, any interest in this Lease or the estate created hereby,
except as expressly ,permitted herein.
ARTICLE XX. RIGHTS OF LANDLORD UPON DEFAULT BY TENANT
20.01. In the event of the occurrence of an event of default hereunder,
the Landlord, at its option, may:
(a) Terminate this Lease, whereupon the Tenant shall peacefully
surrender the Demised Premises to the Landlord, and the Landlord may reenter the
Demised Premises and repossess them by force, summary proceedings, ejectment or
otherwise, and may dispossess the Tenant and all other persons and property from
the Demised Premises without being liable for soy loss or damages therefor and
with Tenant waiving any right of redemption, and may have, hold, and enjoy the
Demised Premises and the right to receive all rental income therefrom. At any
time after any such expiration, the Landlord may relet the Demised Premises or
any part thereof, in the name of the Landlord or otherwise, for such term (which
may be greater or less than the
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period which would otherwise have constituted the balance of the term of this
Lease) and on such conditions (which may include concessions or free rent) as
the Landlord, in its sole discretion, may determine, and may collect and receive
the rent therefor. The Landlord shall in no way be responsible or liable for any
failure to relet the Demised Premises or any part thereof, or for any failure to
collect any rent due upon any such reletting. No such termination shall relieve
the Tenant of its liability and obligations under this Lease, and such liability
and obligations shall survive any such termination. Whether or not the Demised
Premises or any part thereof shall have been relet, the Tenant shall pay to the
Landlord the Annual Minimum Rent and additional rent required to be paid by the
Tenant up to the time of such termination, and thereafter the Tenant, until the
end of what would have been the term of this Lease in the absence of such
termination, shall be liable to the Landlord for and shall pay to the Landlord
on the days on which the Annual Minimum Rent and additional rent would have been
payable under this Lease if it were still in effect, as and for liquidated and
agreed current damages for the Tenant's default, the equivalent of the amount of
the Annual Minimum Rent and additional rent which would be payable under this
Lease by the Tenant if this Lease were still in effect less the net proceeds of
any reletting effected as set out hereinabove, if any, after deducting all the
Landlord's expenses in connection with such reletting, including, without
limitation, all repossession costs, commissions, legal expenses, reasonable
attorney's fees, alteration costs, and expenses of preparation for such
reletting; provided, however, that any deduction with respect to alteration
costs related to a reletting shall be limited to the unamortized portion of
Tenant's upfitting in the Demised Premises (utilizing the initial term of this
Lease as the amortization period);
(b) Recover from the Tenant, on demand, whether or not the Landlord
shall have collected any monthly deficiency, as and for liquidated and agreed
final damages for the Tenant's default, an amount equal to any deficiency
between the Annual Minimum Rent and additional rent reserved hereunder for the
unexpired portion of the Lease term ant the then fair and reasonable rental
value of the premises for the same period as the same comes due. Nothing herein
contained shall limit or prejudice the right of the Landlord to prove and obtain
as liquidated damages by reason of such termination an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings, in which, such damages are to be proved, whether or
not such amount be greater, equal to, or less than the amount of the deficiency
referred to above; and
(c) Pursue all other remedies available to Landlord under applicable
law.
20.02. No termination of this Lease nor taking or recovering possession
of the Demised Premises, shall deprive Landlord of any remedies or actions
against Tenant for Annual Minimum Rent and additional rent or for damages for
the material breach of any material covenant herein contained, nor shall the
bringing of any such action for Annual Minimum Rent and additional rent or
breach of such covenant, nor the resort to any other remedy herein provided for
the recovery of Annual Minimum Rent and additional rent or damages for such
breach be construed as a waiver of the right to insist upon the forfeiture and
to obtain possession in the manner herein provided.
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<PAGE>
20.03. Nothing in this Lease shall require Landlord to give any notice
prior to the commencement of any summary dispossess proceeding for nonpayment of
Annual Minimum Rent and additional rent or a plenary action for the recovery of
Annual Minimum Rent and additional rent on account of any default in the payment
of any rent payable under this Lease.
20.04. If this Lease or possession of the Demised Premises is
terminated under this Article, in addition to and notwithstanding any other
covenant or provision in this Lease, the following covenants shall apply:
(a) The Demised Premises shall be in substantially the same condition
as that in which the Tenant has agreed to surrender then to the Landlord at the
expiration of the term hereof;
(b) Tenant shall perform any covenant contained in this Lease for the
making of any improvement, alteration or betterment on the Demised Premises, or
for restoring or rebuilding any part thereof; and
(c) In the event of the breach of either subparagraph (a) or (b) of
this Section 20.04, Landlord shall be entitled to recover from Tenant, as
liquidated damages therefor, all costs of performing such obligations.
20.05. If Tenant is in default in the payment of any rent due and until
such default shall have been cured, Tenant hereby assigns to Landlord all
subleases and subtenancies now or hereafter to be made of the Demised Premises
or any portion thereof, as well as all rents, deposits, and monies incident
thereto which are or may become payable to Tenant. From and after any such
default and until such default is cured, any such sublease or subtenancy may not
be cancelled or modified without the written consent of Landlord, and any
violation hereof shall constitute an immediate default under the terms of such
sublease or subtenancies. Irrespective of the foregoing, Landlord shall be
entitled at its sole and absolute option to cancel and terminate any such
sublease or subtenancy upon the termination of this Lease or at any time
thereafter unless otherwise expressly agreed by Landlord in writing.
20.06. In case Landlord or Tenant shall retain an attorney to enforce
the provisions of this Lease or because of the breach of any warranty,
representation or covenant herein contained, and if such suit shall result in a
settlement or judgment in favor of either party, the losing party shall pay to
the prevailing party all expenses incurred therefor, including a reasonable
attorney's fee and any court costs.
20.07. Upon termination of this Lease or the eviction or Tenant from
the Demised Premises as a result of a default by Tenant under the terms of this
Lease, Landlord shall endeavor to relet the Demised Premises for the remainder
of the then current term of this Lease to reduce the liability of Tenant to
Landlord for Annual Minimum Rent and additional rent as otherwise specified
herein; provided, however, that it is expressly agreed between the parties that
Landlord shall have no obligation whatsoever to relet the Demised Premises or
otherwise mitigate damages except as follows:(a) Landlord shall be obligated to
relet the Demised Premises only to a financially responsible third party which
engages in a reputable business that is normally
27
<PAGE>
conducted in first class office buildings and is reasonably compatible with the
businesses then being conducted by other tenants in the Building;
(b) The reletting shall not result in the violation by Landlord of any
terms or provisions imposed upon Landlord under any then existing leases with
tenants in the Building;
(c) Landlord may relet the Demised Premises for a longer or shorter
period than the balance of the term of this Lease but shall not be obligated to
relet the Demised Premises for a term of more than twenty-four (24) months
unless the rent which the new tenant agrees to pay equals or exceeds the lesser
of (i) the then current Market Rate; or (ii) the Annual Minimum Rent and
additional rent due under the terms of this Lease; and
(d) Landlord shall not be obligated to subdivide the Demised Premises
for purposes of reletting to the extent that any such subdividing results in the
creation of office space which is not leasable on an on-going basis 'as
commercial office space because of size, location, configuration or upfitting.
All expenses incurred in connection with any reletting, including
without limitation, brokerage fees, legal fees, upfitting allowances (subject to
the provisions of Section 20.01(a) related to deduction of alteration costs) and
tenant concessions of any other nature, shall be deducted from the rent
otherwise received in connection with the reletting and only the net amount
shall be credited against the Tenant's obligations to Landlord.
ARTICLE XXI. CUSTOM AND USAGE
21.01. The parties hereto shall have the right at all times to enforce
the covenants and conditions of this Lease in strict compliance with the terms
hereof despite any conduct or custom on the part of a party in refraining from
so doing at any time or times, and despite any contrary law, usage or custom or
any failure by a party to enforce its rights at any time or times.
ARTICLE XXII. SCOPE AND INTERPRETATION OF AGREEMENT
22.01. This Lease is the only agreement between the parties hereto
pertaining to the Demised Premises, and all negotiations and oral agreements
acceptable to the parties are included herein. The laws of the State in which
the Land and the Building are located shall govern the validity, interpretation,
performance and enforcement of this Lease.
ARTICLE XXIII. CAPTIONS AND TERMS
23.01. Any headings preceding the text of the several articles,
sections and subsections hereof are inserted solely for convenience of reference
and shall not constitute a part of this Lease, nor shall they affect its
meaning, construction or effect.
23.02. The term 'lease year' shall refer to the consecutive twelve (12)
month periods comprising the term of this Lease commencing with the first full
month after the Commencement Date occurs.
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23.03. The words 'herein., 'hereunder' and 'hereby' are words of
similar import when used in this Lease, and shall refer to this Lease in its
entirety unless the context clearly requires otherwise.
ARTICLE XXIV. SEVERABILITY
24.01. If any provision of this Lease is held to be invalid, the
remaining provisions shall not be affected thereby but shall continue in full
force and effect.
ARTICLE XXV. PARTIES, SUCCESSORS AND ASSIGNS
25.01. The term 'Tenant. shall refer to each and every person or party
mentioned as a Tenant herein including subtenants and assignees, be the same one
or more. If there shall be more than one Tenant, they shall be bound jointly and
severally by all the terms, covenants, and agreements of this Lease.
25.02. The term "Landlord" as used in this Lease refers only to the
owner for the time being of Landlord's estate in the Land or the Building, with
any subsequent owner succeeding to all the rights and interests of Landlord
under this Lease as of the effective date of the relevant transfer. Upon such
transfer Tenant shall be notified in writing by Landlord all sums due from
Tenant hereunder from and after the date of receipt of such notice shall be
remitted as instructed from time to time by the successor Landlord. Landlord
shall be and is hereby relieved from any breach of covenants or obligations of
Landlord hereunder arising or occurring after the date of transfer of Landlord's
estate in the Demised Premises or the Building, but only if the transferee shall
have assumed and agreed to carry out all covenants and obligations of Landlord
hereunder during such time as said transferee shall own or hold Landlord's
estate or interest in the Demised Premises or the Building. The provisions of
this Article XXV shall apply to each successive transfer of Landlord's interest
or estate. The liability of the Landlord under this Lease shall be and is hereby
limited to Landlord's interest in the Demised Premises and the Building of which
it is a part, and no other asset of Landlord shall be affected by reason of any
liability which Landlord may have to Tenant or to any other person by reason of
this Lease, the execution thereof, or the acquisition of Landlord's interest.
25.03. Landlord shall not unreasonably withhold or delay its consent to
the assignment of this Lease to one or more assignees, or the subletting of all
or part of the Demised Premises to one or more subtenants, provided that:
(a) Tenant delivers to Landlord an assumption of this Lease, duly
executed by the assignee or subtenant, or a copy of the assignment or sublease
agreement in which such assumption is set forth;
(b) Tenant- shall remain liable under this Lease despite such
assignment or sublease unless Landlord has the opportunity to review the
financial information related to assignee or sublessee as reasonably requested
by Landlord and Landlord determines, in its sold discretion, that such assignee
or sublessee is at least as creditworthy as Tenant;
29
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(c) The proposed assignee or subtenant engages in a reputable business
normally conducted in first class office space which is reasonably compatible
with other tenants in the Building; and
(d) All other conditions of this Lease are satisfied.
25.04. Subject to the provisions of 25.02 and 25.03 hereof, all rights,
obligations and liabilities hereupon given to or imposed upon the respective
parties hereto shall extend to and bind the several and respective heirs,
executors, administrators, successors, subtenants and assigns of said parties.
ARTICLE XXVI. BROKERS
26.01. Landlord and Tenant represent that they have not dealt with any
broker in connection with this Lease other than the "Additional Broker" set
forth in Schedule I and Southwind, Ltd. Landlord and Tenant each covenant and
agree to pay and hold harmless and indemnify the other from and against any and
all costs, expenses, including reasonable attorneys' fees, or liabilities for
any compensation, commission or charge claimed by any other broker or agent with
whom such party has had any dealings or negotiations with respect to this Lease
or the negotiation thereof.
ARTICLE XXVII. COUNTERPARTS
27.01. This Lease has been executed in several counterparts, all of
which constitute one and the same instrument. This Lease shall not be binding
and in effect until at least one counterpart, duly executed by Landlord and
Tenant, has been delivered to each party hereto.
ARTICLE XXVIII. MEMORANDUM OF LEASE
28.01. This Lease shall not be recorded; however, upon the request of
either party, the parties shall execute a memorandum or short form of this Lease
for recording purposes containing the names of the parties, a description of the
Demised Premises, the term and any possible extensions of this Lease, the dates
hereof, and any options and rights of first refusal hereunder, but in no event
shall such document contain any reference to the amounts of rents or other
payments provided for hereunder. The requesting party shall pay all costs of
preparation and recording of such memorandum.
ARTICLE XXIX. PARKING
29.01. Landlord shall provide Tenant parking spaces on the terms and
conditions set forth in Schedule I. Landlord acknowledges that parking
availability on the terms and conditions set forth in Schedule I is a material
inducement to Tenant's execution of this Lease. In the event Landlord fails to
provide such parking to Tenant, Tenant shall have the right to exercise all
remedies granted to Tenant pursuant to Section 6.02 of the Lease.
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ARTICLE XXX. ADDITIONAL PROVISIONS
30.01. SCHEDULE AND EXHIBITS. It is further agreed that those
additional sections appearing in Schedule I are incorporated herein by reference
as if fully set forth herein and constitute a part of this Lease. Each Schedule
and Exhibit shall be initialed by the parties. Any Schedule or Exhibit not
attached hereto when this Lease is executed shall be initialed and attached
hereto as soon after execution as reasonably is possible. All Schedules are
deemed to be a part of this Lease and control to the extent the same are
inconsistent with the text of this Lease.
IN WITNESS WHEREOF, the parties have caused these presents to be duly
executed as a sealed instrument as of the day sad year first above written.
LANDLORD:
RBC CORPORATION (SEAL)
By: _____________________________________________________
Its:_________________________________________________
TENANT:
BUSINESS TELECOMMUNICATIONS, INC. (SEAL)
By: _____________________________________________________
Its:_________________________________________________
31
<PAGE>
AMENDMENT THREE TO LEASE AGREEMENT
This Amendment Three to Lease Agreement (this "Agreement") made and
entered into this 15 day of May, 1997 (the "Date of this Agreement") by and
between RBC CORPORATION ("Landlord") and BUSINESS TELECOMMUNICATIONS, INC.
("Tenant").
INTRODUCTION
Landlord and Tenant are parties to that certain lease dated May 13,
1994, as amended and modified (collectively the "Lease"), whereby Tenant leases
certain office space ~n that certain multi-story office building (the
"Building") located at 4300 Six Forks Road, Raleigh, North Carolina. Landlord
and Tenant now which to enter into this Agreement to, among other things, add
certain space on the first floor of the Building to the Demised Premises and
release certain space on the second floor of the Building. All capitalized terms
not otherwise defined herein shall have their respective meanings set forth in
the Lease.
NOW THEREFORE, for and in consideration of the mutual promises set
forth herein and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties do hereby amend the Lease as
follows:
1. NEW SPACE. As of the Date of this Agreement, Landlord shall deliver
and Tenant shall accept 20,879 rentable square feet comprising a portion of the
first floor of the Building and more particularly set forth on Exhibit A
attached hereto (the "New Space"), as a portion of the Demised Premises;
provided that Tenant's acceptance of the New Space is conditioned upon
reasonable evidence that the overall air quality of the New Space, including
without limitation moisture and humidity levels, is of equal quality to the
remainder of the Demised Premises. As
<PAGE>
of March 1, 1998 (the "Start Date"), Tenant shall commence paying Rent on the
New Space at the Rental Rate of 514 50 per rentable square foot subject to all
escalations and expense pass throughs set forth in the Lease; provided that in
no event shall the Rental Rate for the New Space be increased by more than six
percent (6%) per annum calculated on a cumulative basis from the previous year;
provided further that said Rental Rate increase for the New Space shall be
calculated based on the net rent for the previous year which shall be the Rental
Rate of $14.50 per rentable square foot minus the actual Operating Expenses and
Real Estate Taxes for calendar year 1998.
2. BASE AMOUNT. With regard solely to the New Space, the Base Amount
and Tax Base Amount, for purposes of Operating Expenses and Real Estate Taxes,
shall be the actual Operating Expenses and Real Estate Taxes for calendar year
1998 as set forth in the Lease divided by 162,820 rentable square feet.
3. RELEASE OF SPACE. As of January 1, 1998, Tenant shall vacate and
return to Landlord, in the manner set forth in the Lease, approximately 8,912
rentable square feet on the second floor of the Building which space is more
particularly set forth on Exhibit B attached hereto, which space shall as of
January 1, 1998 be deleted from the Demises Premises. Tenant shall nor be liable
for any termination fees, leasing commissions or any unamortized portion of the
upfitting allowance with regard to the Released Space and shall additionally not
be liable for any costs incurred in connection with thc construction of demising
walls for the purpose of separating the Released Space. Tenant shall fully
cooperate with Landlord with regard to any reconfiguration of the Released
Space. Tenant's obligation to pay rent for the Released Space
2
<PAGE>
shall cease as of December 31, 1997.. Tenant shall retain all future options,
fights of first refusal on Released Space as amended herein.
4. UPFITTING ALLOWANCE. Landlord shall provide Tenant with an allowance
for upfitting the New Space, limited to $37.5() rentable .square foot contained
in thc New Space, which allowance shall satisfy all of Landlord's upfitting
obligations under thc Lease with respect to the New Space, except as provided in
Section 1, relating to air quality, and Section 7, Access/Security of this
Agreement. The total upfitting allowance shall be paid by Landlord to Tenant
within thirty (30) days of the Date of this Agreement.
5. RIGHT OF FIRST REFUSAL. As of the Date of this Agreement, Tenant's
existing Right of First Refusal, as contained in that certain Amendment Two to
Lease Agreement, shall be amended so that Tenant shall have fifteen (l5) rather
than thirty (30) days in which to consent to lease subject space.
6. AFTER HOURS HVAC. Landlord shall forgive Tenant's after hours HVAC
expenses through February 28, 1997. As of March 1, 1997, Tenant shall only be
liable for such after hours HVAC charges that include electrical costs and shall
not be liable for any charges relating to the depreciation of HVAC equipment.
Landlord shall provide Tenant with the cost of the 1996 HVAC electrical costs
within thirty (30) days of this Agreement.
7. TENANT PARKING. Tenant shall be allocated seven (7) marked reserved
parking spaces in the Building parking area in lieu and in substitution for all
parking allocated under the Lease.
3
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8. ACCESS/SECURITY. Landlord shall, at its sole cost, develop and
implement a plan, which plan shall be mutually agreed upon by Landlord and
Tenant prior to implementation, to improve the access and security features of
the Building's mechanical access system and the Building loading dock area.
All terms and conditions of the Lease, except as amended hereby, shall
remain in full force and effect.
[SIGNATURE PAGE ATTACHED]
4
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have caused these presents to
be executed and their seals affixed hereto as of the day and year first written
above.
LANDLORD:
RBC CORPORATION
BY: FIRST UNION NATIONAL BANK
ITS: AUTHORIZED AGENT (SEAL)
By:____________________________________
It:____________________________________
TENANT:
BUSINESS TELECOMMUNICATIONS, INC.
(SEAL)
By:___________________________________
Its:__________________________________
5
<PAGE>
AMENDMENT TWO TO LEASE AGREEMENT
This Amendment Two to Lease Agreement (this "Agreement") made and
entered into this 30th day of November, 195 by and between RBC CORPORATION
("Landlord") and BUSINESS TELECOMMUNICATIONS, INC. ("Tenant").
INTRODUCTION
Landlord and Tenant are parties to that certain lease dated May 13,
1994, as amended March 1, 1995 (collectively the "Lease"), whereby Tenant leases
certain office space in that certain multi-story office building (the
"Building") located at 4300 Six Forks Road, Raleigh, North Carolina. All
capitalized terms not otherwise defined herein shall have their respective
meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the release by BTI of its rights
under an option dated March 28, 1995, the parties do hereby amend the Lease by
adding to Schedule I the following additional provisions:
1. RIGHT OF FIRST REFUSAL. Prior to entering into any future
contractual arrangements for vacant space in the Building, or agreeing to the
expansion of any existing space or extension of the term of any lease currently
in existence (including the granting of renewal and expansion options), Landlord
shall notify Tenant, in writing, of the proposed contractual arrangement, by
forwarding to Tenant a copy of the proposed term sheet for the space being
considered by the proposed tenant, including a description of the tenant space
involved therein, proposed delivery date, rental rate, upfitting allowance and
term upon which Landlord desires to offer the subject
<PAGE>
space to the designated third party. Upon receipt of such notice, Tenant shall
have thirty (30) days to consent to lease the subject space on the disclosed
terms and conditions by providing notice of such election to Landlord. If notice
of election is not given, then Landlord shall be free to contract for the
subject space with the designated third party on terms and conditions
substantially the same as those set forth in the notice to Tenant; provided,
however, that if after negotiations with the designated third party for the
subject space the proposed contractual arrangement is changed so as not to be
substantially the same in any respect as set forth in the notice to Tenant,
Landlord shall so notify Tenant, in writing, and Tenant shall have ten (10) days
from the delivery of such written notice in which to reconsider its decision as
to the leasing of the subject space. In the event that any such designated space
is not leased to the designated third party within ninety (90) days of the date
upon which Tenant declines to lease such space, the Right of First Refusal in
favor of Tenant for any full space shall continue thereafter in full force and
effect.
2. FIRST FLOOR LEASES. Landlord shall enter into no lease for space on
the First Floor of the Building which includes an extension, renewal or other
opportunity to extend such Lease in excess of a base term of five years and
shall notify Tenant in writing of the expiration date upon execution of any such
lease. Upon expiration of any such initial five year term for First Floor
leases, BTI shall during the term of its lease, including any options, renewal,
or extension, have the option to expand the Demised Premises to include such
First Floor Space. This option shall be exercised by Tenant by providing written
notice of exercise to Landlord at least 180 days prior to expiration of the then
current lease.
2
<PAGE>
All terms and conditions of the Lease, except as amended hereby, shall
remain in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused these presents to
be executed and their seals affixed hereto as of the day and year first written
above.
WITNESSES: LANDLORD:
RBC CORPORATION (SEAL)
________________________ By:________________________________
Its:_______________________________
TENANT:
BUSINESS TELECOMMUNICATION, INC.
(SEAL)
_________________________ By:________________________________
Its:________________________________
.
3
<PAGE>
AMENDMENT ONE TO LEASE AGREEMENT
This Amendment One to Lease Agreement (this "Amendment") is entered
into to be effective as of the 1st day of March, 1995, by and between RBC
Corporation ("Landlord") and Business Telecommunications, Inc. ("Tenant").
INTRODUCTION
Landlord and Tenant previously entered into that certain Lease (the
"Lease") dated May 13, 1994, whereby Landlord leased to Tenant, and Tenant
leased from Landlord, approximately 43,701 rentable square feet of space (the
"Demised Premises") on the fifth (14,312 rsf), sixth (14,312 rsf) and ninth
(15,077 rsf) floors of that certain nine-story office building (the "Building")
located at 4300 Six Forks Road, Raleigh, North Carolina. Additionally, Tenant
had certain rights to occupy 6,299 rentable square feet of space on the second
floor of the Building subject to certain preleasing conditions. Landlord and
Tenant desire to modify certain terms of the Lease related to the original
Demised Premises and to provide for the leasing of the second floor of the
Building by Tenant on the terms and conditions set forth herein. All capitalized
terms not otherwise defined herein shall have the respective meanings set forth
in the Lease.
NOW, THEREFORE, for and in consideration of the mutual promises set
forth herein and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties do hereby amend the Lease as
follows:
1. The first and last sentence of Section 4.07 of the Lease are deleted
in their entirety, and the following is substituted in lieu of the first
sentence thereof:
4.07 Tenant shall have the option to extend the term of
this Lease for the additional Option Period(s) set
forth in Schedule I. In this regard, Landlord and
Tenant shall commence discussions related to Tenant's
exercise of such option to extend the term on or
before May 1, 2001 and shall negotiate in good faith
for a period not to exceed one year related to the
extension of the term of this Lease by Tenant.
Negotiations shall be completed and Tenant's option
to extend the term of the Lease shall be exercised,
if at all, prior to May 1, 2002.
2. Section 4.08 of the Lease is deleted in its entirety, and the
following is substituted in lieu thereof:
4.08 Tenant shall have the option to lease certain office
space located on the fourth floor of the Building
(the "Option Space") pursuant to the terms set forth
herein. Landlord shall be entitled to enter into one
or more leases for all or any portion of the Option
Space so long as termination date for such lease(s)
is no later than September 30, 2000. Upon entering
into lease(s) with third parties for the Option
Space, or any portion thereof,
<PAGE>
Landlord shall notify Tenant ion writing of the
expiration date(s) of such lease(s) and the
portion(s) of the Option Space which is subject to
such lease(s). Tenant shall have the option to lease
the portion of the Option Space subject to a third
party lease upon the termination of such lease (by
expiration of the term or otherwise) by providing at
least 180 days prior written notice to Landlord. In
the event Tenant does not exercise this option, the
option related to the portion of the Option Space
subject to the lease then terminated shall be
rendered null and void. In the event Tenant does
exercise the option to lease the space subject to a
then terminated lease, the portion of the Option
Space shall be leased on the same terms and
conditions as all other portions of the Demised
Premises as provided in the Lease; provided,
however, that (i) Tenant shall have 90 days after
Landlord delivers such space to Tenant free and
clear of all other tenants and occupants to upfit
the same; (ii) Tenant shall pay no monthly
installments of Annual Minimum Rent or additional
rent related to such space for a period of four (4)
months following the 90-day upfit period; and (iii)
Tenant's upfitting allowance related to such space
shall be limited to $15.00 per rentable square foot
contained therein. If any portion of the Option
Space has not been leased and upfitted, Tenant shall
have the option to lease such space effective on
September 30, 2000 upon 180 days prior written
notice to Landlord upon the rent, terms and
conditions set forth above.
3. Section 7.05(o) is amended by deleting the last five lines thereof
and substituting the following:
building or such signage; provided, further, however,
that Tenant shall be responsible for all expenses
incurred in connection with the purchase,
installation, maintenance, operation and removal of
such sign.
4. On March 1, 1995 Landlord shall deliver the second floor of the
Building to Tenant, free of other tenants and occupants, as a portion of the
Demised Premises. Tenant shall have 60 days thereafter to finalize the design,
construction drawings and pricing related to the upfitting for the second floor
and 90 days thereafter to upfit the second floor. Landlord and Tenant
acknowledge and agree that Tenant initially will complete the upfitting related
to the 6,299 square feet of space located on the second floor and may complete
only a portion of the upfitting on the remaining 19,920 square feet of space
located on the second floor. Confirmation of the leasing of the second floor of
the Building to Tenant shall be accomplished by deleting Schedule I of the Lease
in its entirety, and substituting in place thereof Schedule I (Revised March 1,
1995) attached hereto.
5. Effective as of March 1, 1995, the floor plan of the second floor of
the Building attached hereto as Exhibit B is deemed to be included within
Exhibit B of the Lease.
2
<PAGE>
6. All terms and conditions of the Lease, except as modified hereby
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused these presents to be duly
executed as a sealed instrument as of the day and year first above written.
LANDLORD
RBC CORPORATION (SEAL)
By: Southwind, Ltd.
Its: Managing Agent
By: Edward R. Bagwell
-----------------------------------
Its: President
TENANT
BUSINESS TELECOMMUNICATIONS, INC.
(SEAL)
By: _______________________________________
Its. _________________________________
3
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EXHIBIT 11.1
BTI TELECOM CORP.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT SHARE INFORMATION; UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
TWELVE MONTHS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1997 1996
------------ ----------- ----------- --------- ----------
PRIMARY EARNINGS PER COMMON SHARE
Net earnings (loss) applicable to common stock................... $ 2,606 $ 371 $ 2,702 $ 1,298 $ (4,165)
------------ ----------- ----------- ----------- -------------
------------ ----------- ----------- ----------- -------------
Primary average shares outstanding............................... 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000
------------ ----------- ----------- ------------ -------------
------------ ----------- ----------- ------------ -------------
Earnings (loss) per common share................................. $ .13 $ .02 $ .13 $ .04 $ (.21)
------------ ----------- ----------- ------------ -------------
------------ ----------- ----------- ------------ -------------
FULLY DILUTED EARNINGS PER COMMON SHARE
------------ ----------- -----------
Net earnings (loss) applicable to common stock................... $ 2,606 $ 371 $ 2,702 $ 1,298 $ (4,165)
------------ ----------- ----------- ------------ -----------
------------ ----------- ----------- ------------ -----------
Primary average shares outstanding............................... 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000
Increase in shares outstanding................................... - - - - -
------------ ----------- ----------- ----------- -----------
Fully diluted average shares outstanding......................... 20,000,000 20,000,000 20,000,000 20,000,000 20,000,000
------------ ----------- ----------- ----------- -----------
------------ ----------- ----------- ----------- -----------
</TABLE>
- ---------------
<PAGE>
EXHIBIT 12.1
BTI TELECOM CORP.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
FORMA PRO
NINE NINE MONTHS FORMA
MONTHS ENDED YEAR
ENDED SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------- DECEMBER 31, ----------------------------------
1997 1997 1996 1996 1996 1995 1994 1993
-------- ------ ------ --------- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before taxes...................... (20,992) (1,955) 1,298 (22,869) 2,606 371 2,702 3,697
Less interest capitalized to inventories during
the period.................................... - - - - - - - -
-------- ------ ------ --------- ------ ------ ------ -------
Adjusted income (loss) before taxes............. (20,992) (1,955) 1,298 (22,869) 2,606 371 2,702 3,697
-------- ------ ------ --------- ------ ------ ------ -------
Fixed Charges:
Other interest expense........................ 21,340 2,109 1,367 27,763 1,695 1,297 750 464
Amortization of financing costs............... 923 278 75 - 99 25 16 15
Rental expense(1)............................. 980 980 978 1,339 1,305 947 410 264
-------- ------ ------ --------- ------ ------ ------ -------
Total fixed charges............................. 23,243 3,367 2,420 29,102 3,099 2,269 1,176 743
-------- ------ ------ --------- ------ ------ ------ -------
Earnings........................................ 2,251 1,412 3,718 6,233 5,705 2,640 3,878 4,440
-------- ------ ------ --------- ------ ------ ------ -------
Ratio (shortfall) of earnings to fixed charges.. - - 1.5x - 1.8x 1.2x 3.3x 6.0x
-------- ------ ------ --------- ------ ------ ------ -------
-------- ------ ------ --------- ------ ------ ------ -------
<CAPTION>
1992
------
<S> <C>
Income (loss) before taxes...................... 3,066
Less interest capitalized to inventories during
the period.................................... -
------
Adjusted income (loss) before taxes............. 3,066
------
Fixed Charges:
Other interest expense........................ 357
Amortization of financing costs............... 6
Rental expense(1)............................. 206
------
Total fixed charges............................. 569
------
Earnings........................................ 3,635
------
Ratio (shortfall) of earnings to fixed charges.. 6.4x
------
------
</TABLE>
- ---------------
(1) 15% of rental expense related to operating losses representing an
appropriate interest factor.
<PAGE>
<PAGE>
EXHIBIT 21.1
BTI TELECOM CORP.
LIST OF SUBSIDIARIES
Business Telecom, Inc., a North Carolina corporation
EXHBIIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement dated December 5, 1997 and related Prospectus of BTI
Telecom Corp., for the offer to exchange its 10 1/2 Senior Notes due 2007 and
to the inclusion herein of our reports dated February 21, 1997, with respect to
the financial statements of BTI Telecom Corp. and FiberSouth, Inc. as of
December 31, 1996 and 1995 and for the three years in the period ended
December 31, 1996.
/s/ Ernst & Young LLP
Raleigh, North Carolina
December 5, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM T - 1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305 (b) (2) _________
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
13-3781471
(I. R. S. Employer
Identification No.)
100 Wall Street, New York, NY 10005
(Address of principal executive offices) (Zip Code)
For information, contact:
Dennis Calabrese, President
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, NY 10005
Telephone: (212) 361-2506
BTI TELECOM CORP.
(Exact name of obligor as specified in its charter)
North Carolina 56-2047220
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
4300 Six Forks Road
Raleigh, NC 27609
(Address of principal executive offices) (Zip Code)
DEBT SECURITIES
<PAGE>
Item 1. General Information.
Furnish the following information as to the trustee - -
(a) Name and address of each examining or supervising authority to
which it is subject.
Name Address
Comptroller of the Currency Washington, D. C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
Item 16. List of Exhibits.
Exhibit 1. Articles of Association of First Trust of New York,
National Association, incorporated herein by reference to
Exhibit 1 of Form T-1, Registration No. 33-83774.
Exhibit 2. Certificate of Authority to Commence Business for First
Trust of New York, National Association, incorporated
herein by reference to Exhibit 2 of Form T-1, Registration
No. 33-83774.
Exhibit 3. Authorization of the Trustee to exercise corporate trust
powers for First Trust of New York, National Association,
incorporated herein by reference to Exhibit 3 of Form T-1,
Registration No. 33-83774.
Exhibit 4. By-Laws of First Trust of New York, National Association,
incorporated herein by reference to Exhibit 4 of Form T-1
Registration No. 333-34113.
Exhibit 5. Not applicable.
Exhibit 6. Consent of First Trust of New York, National Association,
required by Section 321(b) of the Act, incorporated herein
by reference to Exhibit 6 of Form T-1, Registration No.
33-83774.
Exhibit 7. Report of Condition of First Trust of New York, National
Association, as of the close of business on September 30,
1997, published pursuant to law or the requirements of its
supervising or examining authority.
<PAGE>
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of
1939, as amended, the trustee, First Trust of New York, National Association, a
national banking association organized and existing under the laws of the United
States, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 4th day of December, 1997.
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
/s/ Catherine F. Donohue
By: ------------------------
Catherine F. Donohue
Vice President
<PAGE>
Exhibit 7
First Trust of New York, National Association
Statement of Financial Condition
As of 9/30/97
($000's)
9/30/97
---------
Assets
Cash and Due From Depository Institutions $36,355
Federal Reserve Stock 3,467
Fixed Assets 753
Intangible Assets 76,047
Other Assets 5,619
---------
Total Assets $122,241
=========
Liabilities
Other Liabilities 7,592
---------
Total Liabilities 7,592
Equity
Common and Preferred Stock 1,000
Surplus 120,932
Undivided Profits (7,283)
---------
Total Equity Capital 114,649
Total Liabilities and Equity Capital $122,241
=========
To the best of the undersigned's determination, as of this date the above
financial information is true and correct.
First Trust of New York, National Association
By: /s/ Catherine F. Donohue
------------------------
Vice President
Date: December 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> 496,510 152,326,738
<SECURITIES> 7,791 7,791
<RECEIVABLES> 21,769,696 21,916,590
<ALLOWANCES> 3,034,000 3,758,000
<INVENTORY> 719,027 571,971
<CURRENT-ASSETS> 24,036,990 178,741,215
<PP&E> 34,314,908 48,694,863
<DEPRECIATION> 12,816,841 18,464,826
<TOTAL-ASSETS> 48,223,809 221,493,450
<CURRENT-LIABILITIES> 23,295,791 29,467,798
<BONDS> 22,457,985 251,006,100
0 0
0 0
<COMMON> 73,336 36,668
<OTHER-SE> 2,301,062 (63,166,644)
<TOTAL-LIABILITY-AND-EQUITY> 48,223,809 221,493,450
<SALES> 0 0
<TOTAL-REVENUES> 148,780,816 145,145,510
<CGS> 0 0
<TOTAL-COSTS> 90,820,467 101,238,476
<OTHER-EXPENSES> 53,791,036 43,753,394
<LOSS-PROVISION> 3,440,000 2,808,000
<INTEREST-EXPENSE> 1,695,324 2,108,730
<INCOME-PRETAX> 2,605,899 (1,955,090)
<INCOME-TAX> 0 2,210,000
<INCOME-CONTINUING> 2,605,899 (4,165,090)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,605,899 (4,165,090)
<EPS-PRIMARY> .08 (.21)
<EPS-DILUTED> .08 (.21)
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
BTI TELECOM CORP.
OFFER TO EXCHANGE ITS
10 1/2% SENIOR NOTES DUE 2007
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
FOR ANY AND ALL OF ITS OUTSTANDING 10 1/2% SENIOR NOTES DUE 2007
PURSUANT TO THE PROSPECTUS
DATED , 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
The Exchange Agent for the Exchange Offer is:
First Trust of New York, National Association
For information by telephone:
(212) 361-2894
By registered or certified mail,
by hand or overnight delivery:
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, New York 10005
Attn: Glenn Andersen
Facsimile transmissions:
(For Eligible Institutions only)
(212) 809-5459
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt of the Prospectus dated
, 1998 (the "Prospectus") of BTI Telecom Corp. (the "Company")
and this Letter of Transmittal, which together constitute the Company's offer
(the "Exchange Offer") to exchange $1,000 principal amount of its 10 1/2% Senior
Notes Due 2007 (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for each $1,000
principal amount of its outstanding 10 1/2% Senior Notes Due 2007 (the "Initial
Notes"). The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term shall mean the latest date and time to
which the Exchange Offer is extended. Capitalized terms used but not defined
herein have the meaning given to them in the Prospectus.
This Letter of Transmittal is to be completed by holders of Initial Notes
either if Initial Notes are to be forwarded herewith or if tenders of Initial
Notes are to be made by book-entry transfer to an account maintained by First
Trust of New York, National Association (the "Exchange Agent") at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth under the caption "The Exchange Offer -- Procedures for Tendering" in
the Prospectus.
<PAGE>
Holders of Initial Notes who cannot deliver required documents to the
Exchange Agent on or prior to the Expiration Date or who cannot complete the
procedures for book-entry transfer on a timely basis, must tender their Initial
Notes according to the guaranteed delivery procedures set forth under the
caption "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS SHOULD COMPLETE THIS BOX:
Senior Notes Tendered
(Attach Additional List if Necessary)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
IF BLANK,
PLEASE PRINT
NAME AND
ADDRESS OF
REGISTERED
HOLDER AS IT Name: ________________________________________
APPEARS ON
THE 10 1/2% Address:________________________________________
SENIOR
NOTES ________________________________________
("INITIAL
NOTES").
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Aggregate Principal
Principal Amount
Amount of Tendered
Certificate Senior (If less than Total Amount
Number(s)* Notes all)** Tendered
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
* Need not be completed by book-entry holders.
** Initial Notes may be tendered in whole or in part in integral multiples of
$1,000. All Initial Notes held shall be deemed tendered unless a lesser
number is specified in this column.
2
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
DEPOSITORY TRUST COMPANY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution ______________________________________________
The Depository Trust Company Account Number ________________________________
Transaction Code Number ____________________________________________________
[] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED
DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) ________________________________________________
Window Ticket Number (if any) _______________________________________________
Date of Execution of Notice of Guaranteed Delivery __________________________
Name of Institution which Guaranteed Delivery _______________________________
If Guaranteed Delivered is to be made By Book-Entry Transfer:
Name of Tendering Institution _______________________________________________
The Depository Trust Company Account Number _________________________________
Transaction Code Number _____________________________________________________
[] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED INITIAL NOTES
ARE TO BE RETURNED BY CREDITING THE DEPOSITORY TRUST COMPANY ACCOUNT NUMBER
SET FORTH ABOVE.
[] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE INITIAL NOTES FOR ITS
OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: _______________________________________________________________________
Address: ____________________________________________________________________
3
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the Initial
Notes indicated above. Subject to, and effective upon, the acceptance for
exchange of such Initial Notes tendered hereby, the undersigned hereby
exchanges, assigns and transfers to, or upon the order of, the Company all
right, title and interest in and to such Notes as are being tendered hereby,
including all rights to accrued and unpaid interest thereon as of the Expiration
Date. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent the true and lawful agent and attorney-in-fact of the undersigned (with
full knowledge that said Exchange Agent acts as the agent of the Company in
connection with the Exchange Offer) to cause the Initial Notes to be assigned,
transferred and exchanged. The undersigned represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Initial
Notes and to acquire Exchange Notes issuable upon the exchange of such tendered
Initial Notes, and that when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Initial Notes, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim.
The undersigned represents to the the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, (ii) neither the undersigned nor any such other
person is participating in, intends to participate in, or has an arrangement or
understanding with any person to participate in, the distribution of such
Exchange Notes and (iii) the undersigned is not an "affiliate," as defined in
Rule 405 of the Securities Act of 1933, as amended, of the Company. If the
undersigned or the person receiving the Exchange Notes covered hereby is a
broker-dealer that is receiving the Exchange Notes for its own account in
exchange for Initial Notes that were acquired as a result of market-making
activities or other trading activities, the undersigned acknowledges that it or
such other person will deliver a prospectus in connection with any resale of
such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The undersigned and any
such other person acknowledge that, if they are participating in the Exchange
Offer for the purpose of distributing the Exchange Notes, (i) they cannot rely
on the position of the staff of the Securities and Exchange Commission
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989),
Morgan Stanley & Co., Inc. (available June 5, 1991) or similar no-action letters
and, in the absence of an exemption therefrom, must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
the resale transaction and (ii) failure to comply with such requirements in such
instance could result in the undersigned or any such other person incurring
liability under the Securities Act for which such persons are not indemnified by
the Company. If the undersigned or the person receiving the Exchange Notes
covered by this letter is an affiliate (as defined under Rule 405 of the
Securities Act) of the Company or the Guarantors, the undersigned represents to
the Company that the undersigned understands and acknowledges that such Exchange
Notes may not be offered for resale, resold or otherwise transferred by the
undersigned or such other person without registration under the Securities Act
or an exemption therefrom.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Notes or transfer ownership of such Notes on the account books
maintained by a book-entry transfer facility. The undersigned further agrees
that acceptance of any tendered Notes by the Company and the issuance of
Exchange Notes in exchange therefor shall constitute performance in full by the
Company of their obligations under the Registration Rights Agreement and that
the Company shall have no further obligations or liabilities thereunder for the
registration of the Initial Notes or the Exchange Notes.
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer -- Certain Conditions to the
Exchange Offer". The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company), as more particularly
set forth in the Prospectus, the Company may not be required to exchange any of
the Notes tendered hereby and, in such event, the Notes not exchanged will be
returned to the undersigned at the address shown below the signature of the
undersigned.
All authority herein conferred or agreed to be conferred shall survive the
dissolution, liquidation, death or incapacity of the undersigned and every
obligation of the undersigned hereunder shall be binding upon the heirs,
4
<PAGE>
personal representatives, successors and assigns of the undersigned. Tendered
Notes may be withdrawn at any time prior to the Expiration Date.
Unless otherwise indicated in the box entitled "Special Registration
Instructions" or the box entitled "Special Delivery Instruction" in this Letter
of Transmittal, certificates for all Exchange Notes delivered in exchange for
tendered Notes, and any Initial Notes delivered herewith but not exchanged, will
be registered in the name of the undersigned and shall be delivered to the
undersigned at the address shown below the signature of the undersigned. If an
Exchange Note is to be issued to a person other than the person(s) signing this
Letter of Transmittal, or if the Exchange Note is to be mailed to someone other
than the person(s) signing this Letter of Transmittal or to the person(s)
signing this Letter of Transmittal at an address different than the address
shown on this Letter of Transmittal, the appropriate boxes of this Letter of
Transmittal should be completed. If Notes are surrendered by Holder(s) that have
completed either the box entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (defined in Instruction 4).
5
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Instructions 4 and 5)
To be completed ONLY if Exchange Notes are to be issued in the name of someone
other than the registered holder of the Initial Notes whose name(s) appear(s)
above.
Issue:
[] Exchange Notes to:
[] Initial Notes not tendered to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
_________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4 and 5)
To be completed ONLY if Exchange Notes are to be sent to someone other than the
registered holder of the Initial Notes whose name(s) appear(s) above, or to the
registered holder(s) at an address other than that shown above.
Mail:
[] Exchange Notes to:
[] Initial not tendered to:
Name: __________________________________________________________________________
(Please Print)
Address: _______________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Taxpayer Identification or Social Security No.)
- --------------------------------------------------------------------------------
6
<PAGE>
REGISTERED HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 4 AND 5)
(Please Also Complete Substitute
Form W-9 Below)
(Note: Signature(s) must be
guaranteed if required by
Instruction 4)
________________________________________________________________________________
________________________________________________________________________________
(Signature(s) of Holder(s))
Date: ____________________________________________________________________, 1997
Name(s) ________________________________________________________________________
________________________________________________________________________
(Please Print)
Area Code(s) and Telephone Number:
________________________________________________________________________________
________________________________________________________________________________
(Tax Identification or Social Security Number)
Must be signed by registered Holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Initial Notes hereby tendered or on a security position
listing, or by any person(s) authorized to become the registered holder(s) by
endorsements and documents transmitted herewith (including such opinions of
counsel, certificates and other information as may be required by the Company or
the Trustee for the Initial Notes to comply with the restrictions on transfer
applicable to the Initial Notes). If signature is by an attorney-in-fact,
executor, administrator, trustee, guardian, officer of a corporation or another
acting in a fiduciary capacity or representative capacity, please set forth the
signer's full title. See Instruction 4.
MEDALLION
GUARANTEE OF SIGNATURE(S)
(IF REQUIRED BY INSTRUCTION 4)
________________________________________________________________________________
(Authorized Signature)
Name: __________________________________________________________________________
(Please Print)
Date: ____________________________________________________________________, 1997
Capacity or Title: _____________________________________________________________
Name of Firm: __________________________________________________________________
Address: _______________________________________________________________________
_______________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number:
________________________________________________________________________________
7
<PAGE>
TO BE COMPLETED BY ALL
TENDERING SECURITY HOLDERS
(SEE INSTRUCTION 11)
PAYER'S NAME: BTI TELECOM CORP.
<TABLE>
<S> <C> <C>
SUBSTITUTE PART I -- PLEASE PROVIDE YOUR TIN IN THE TIN_____________
FORM W-9 BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW. Social Security #
CERTIFICATION -- UNDER THE PENALTIES OF PERJURY, I CERTIFY OR
THAT (1) the number shown on this form is my correct
taxpayer identification number (or I am waiting for a number
to be issued to me), (2) I am not subject to backup
withholding either because (i) I am exempt from backup
withholding, (ii) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup
withholding as a result of a failure to report all interest
or dividends, or (iii) the IRS has notified me that I am no
longer subject to backup withholding, and (3) any other
information provided on this form is true and correct.
</TABLE>
<TABLE>
<S> <C>
DEPARTMENT OF THE TREASURY PART II
INTERNAL Employer Identification
REVENUE Number
SERVICE Awaiting
TIN []
</TABLE>
------------------------------------------------------------
PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) AND CERTIFICATION
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO
THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR
CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR
ADDITIONAL DETAILS.
<TABLE>
<S> <C> <C>
Signature Date:
You must cross out item
(iii) in Part (2) above if
you have been notified by
the IRS that you are
subject to backup
withholding because of
under reporting interest
or dividends on your tax
return and you have not
been notified by the IRS
that you are no longer
subject to backup
withholding.
</TABLE>
8
<PAGE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me pursuant to the Exchange Offer shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
Signature : ___________________________________________________ Date : ________
9
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES. All physically
delivered Initial Notes or confirmation of any book-entry transfer to the
Exchange Agent's account at a book-entry transfer facility of Initial Notes
tendered by book-entry transfer, as well as a properly completed and duly
executed copy of this Letter of Transmittal or facsimile thereof, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at any of its addresses set forth herein on or prior to the
Expiration Date. The method of delivery of this Letter of Transmittal, the
Initial Notes and any other required documents is at the election and risk of
the holder of the Initial Notes, and except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
If such delivery is by mail, it is suggested that registered mail with return
receipt requested, properly insured, be used.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Initial Notes, by execution of this Letter of
Transmittal (or facsimile thereof), shall waive any right to receive notice of
the acceptance of the Notes for exchange.
Delivery to an address other than as set forth herein, or instructions via
a facsimile number other than the one set forth herein, will not constitute a
valid delivery.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Initial
Notes, but whose Initial Notes are not immediately available and thus cannot
deliver their Initial Notes, the Letter of Transmittal or any other required
documents to the Exchange Agent (or comply with the procedures for book-entry
transfer) prior to the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust issuer having an office or correspondent
in the United States or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Initial Notes, the
registration number(s) of such Initial Notes and the principal amount of
Initial Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within three New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the Initial Notes (or a confirmation of book-entry transfer
of such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility) and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as all tendered Initial Notes in proper form
for transfer (or a confirmation of book-entry transfer of such Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility) and all
other documents required by the Letter of Transmittal, are received by the
Exchange Agent within three New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders of Initial Notes who wish to tender their Initial Notes
according to the guaranteed delivery procedures set forth above. Any holder who
wishes to tender Initial Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Notes prior to the Expiration Date. Failure
to complete the guaranteed delivery procedures outlined above will not, of
itself, affect the validity or effect a revocation of any Letter of Transmittal
form properly completed and executed by a holder who attempted to use the
guaranteed delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS. If less than the entire principal amount
of Initial Notes evidenced by a submitted certificate is tendered, the tendering
holder should fill in the principal amount tendered in the column entitled
"Principal Amount Tendered" of the box entitled "Senior Notes Tendered Hereby."
A newly issued Initial Note for the principal amount of Initial Notes submitted
but not tendered will be sent to such holder as soon as
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<PAGE>
practicable after the Expiration Date. All Initial Notes delivered to the
Exchange Agent will be deemed to have been tendered in full unless otherwise
indicated.
Initial Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date, after which tenders of Initial Notes are
irrevocable. To be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Initial Notes to be withdrawn (the "Depositor"), (ii) identify the Initial
Notes to be withdrawn (including the registration number(s) and principal amount
of such Notes, or, in the case of Initial Notes transferred by book-entry
transfer, the name and number of the account at the Book-Entry Transfer Facility
to be credited), (iii) be signed by the holder of the Initial Notes in the same
manner as the original signature on this Letter of Transmittal (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Initial Notes register the
transfer of such Notes into the name of the person withdrawing the tender and
(iv) specify the name in which any such notes are to be registered, if different
from that of the holder. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Initial Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no Exchange Notes will be issued with respect thereto
unless the Initial Notes so withdrawn are validly retendered. Any Initial Notes
which have been tendered but which are not accepted for exchange, will be
returned to the holder thereof without cost to such holder as soon as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the Initial Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the certificates
without alternation or enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the owner of the Initial Notes.
If any of the Initial Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Initial Notes registered in different names are tendered, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Notes.
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be medallion guaranteed by an Eligible Institution unless the
Initial Notes tendered hereby are tendered (i) by a registered holder who has
not completed the box entitled "Special Registration Instructions" or "Special
Delivery Instructions" on this Letter of Transmittal or (ii) for the account of
an Eligible Institution.
If this Letter of Transmittal is signed by the registered holder or holders
of Initial Notes (which term, for the purposes described herein, shall include a
participant in the Book-Entry Transfer Facility whose name appears on a security
listing as the owner of the Initial Notes) listed and tendered hereby, no
endorsements of the tendered Initial Notes or separate written instruments of
transfer or exchange are required. In any other case, the registered holder (or
acting holder) must either properly endorse the Initial Notes or transmit
properly completed bond powers with this Letter of Transmittal (in either case,
executed exactly as the name(s) of the registered holder(s) appear(s) on the
Initial Notes, and, with respect to a participant in the Book-Entry Transfer
Facility whose name appears on a security position listing as the owner of
Initial Notes, exactly as the name of the participant appears on such security
position listing), with the signature on the Initial Notes or bond power
medallion guaranteed by an Eligible Institution (except where the Initial Notes
are tendered for the account of an Eligible Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Issuer of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. If Exchange Notes are to
be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, tendering holders of Initial Notes should indicate, in the applicable
box, the name and address (or account at the Book-Entry Transfer
11
<PAGE>
Facility) in which the Exchange Notes or substitute Initial Notes for principal
amounts not tendered or not accepted for exchange are to be issued (or
deposited), if different from the names and addresses or accounts of the person
signing this Letter of Transmittal. In the case of issuance in a different name,
the employer identification number or social security number of the person named
must also be indicated and the tendering holder should complete the applicable
box.
If no instructions are given, the Exchange Notes (and any Initial Notes not
tendered or not accepted) will be issued in the name of and sent to the acting
holder of the Initial Notes or deposited at such holder's account at the
Book-Entry Transfer Facility.
6. TRANSFER TAXES. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Initial Notes to it or its order
pursuant to the Exchange Offer. If a transfer tax is imposed for any other
reason other than the transfer of Initial Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other person) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exception
therefrom is not submitted herewith, the amount of such transfer taxes will be
collected from the tendering holder by the Exchange Agent.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Initial Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS. The Company reserves the right, in its reasonable
judgment, to waive, in whole or in part, any of the conditions to the Exchange
Offer set forth in the Prospectus.
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any holder whose Initial
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions. This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, stolen or destroyed Initial Notes have been followed.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent
at the address and telephone number(s) set forth above.
10. VALIDITY AND FORM. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Initial Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Initial Notes not properly tendered or any Initial Notes the Company's
acceptance of which may, in the opinion of counsel for the Company, be unlawful.
The Company also reserves the right, in its reasonable judgment, to waive any
defects, irregularities or conditions of tender as to particular Initial Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Initial Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Initial Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Initial Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering holder as soon as
practicable following the Expiration Date.
11. BACKUP WITHHOLDING; FORM W-9. Under U.S. federal income tax law, a
holder whose tendered Initial Notes are accepted for exchange is required to
provide the Exchange Agent with such holder's correct taxpayer identification
number ("TIN") on Form W-9. If the Exchange Agent is not provided with the
correct TIN, the Internal Revenue Service (the "IRS") may subject the holder or
other payee to a $50 penalty. In addition, payments to such holders or other
payees with respect to Initial Notes exchanged pursuant to the Exchange Offer
may be subject to 31% backup withholding.
If the tendering holder has not been issued a TIN and has applied for a TIN
or intends to apply for a TIN in the near future, the holder or other payee must
also complete the Certificate of Awaiting Taxpayer Identification Number in
order to avoid backup withholding. Notwithstanding that the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a
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<PAGE>
properly certified TIN is provided to the Exchange Agent. The Exchange Agent
will retain such amounts withheld during the 60-day period following the date of
the Form W-9. If the holder furnishes the Exchange Agent with its TIN within 60
days after the date of the Form W-9, the amounts retained during the 60-day
period will be remitted to the holder and no further amounts shall be retained
or withheld from payments made to the holder thereafter. If, however, the holder
has not provided the Exchange Agent with its TIN within such 60-day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Initial Notes or of the last transferee appearing on the transfers attached
to, or endorsed on, the Initial Notes. If the Initial Notes are registered in
more than one name or are not in the name of the actual owner, consult the
Instructions to Form W-9 for additional guidance on which number to report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Form W-9, and write "exempt" on the face thereof, to avoid
possible erroneous backup withholding. A foreign person may qualify as an exempt
recipient by submitting a properly completed IRS Form W-8, signed under
penalties of perjury, attesting to that holder's exempt status. Please consult
the Instructions to Form W-9 for additional guidance on which holders are exempt
from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER WITH
NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS)
OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR
PRIOR TO THE EXPIRATION DATE.
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<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
10 1/2% SENIOR NOTES DUE 2007
IN EXCHANGE FOR
10 1/2% SENIOR NOTES DUE 2007
OF
BTI TELECOM CORP.
Registered holders of outstanding 10 1/2% Senior Notes Due 2007 (the
"Initial Notes") who wish to tender their Initial Notes in exchange for a like
principal amount of 10 1/2% Senior Notes Due 2007 which have been registered
under the Securities Act of 1933, as amended (the "Exchange Notes"), and whose
Initial Notes are not immediately available or who cannot deliver their Initial
Notes and Letter of Transmittal (and any other documents required by the Letter
of Transmittal) to First Trust of New York, National Association (the "Exchange
Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery
or one substantially equivalent hereto. This Notice of Guaranteed Delivery may
be delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent. See the section captioned "The Exchange Offer -- Procedures for
Tendering" in the Prospectus.
The Exchange Agent for the Exchange Offer is:
First Trust of New York, National Association
For information by telephone:
(212) 361-2894
By registered or certified mail or
by hand or overnight delivery:
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, New York 10005
Attn: Glenn Andersen
Facsimile transmissions:
(For Eligible Institutions only)
(212) 809-5459
Delivery of this Notice to an address other than as set forth above or
transmission of instructions via a facsimile transmission to a number other than
set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to medallion guarantee
signatures. If a signature on a Letter of Transmittal is required to be
medallion guaranteed by an Eligible Institution under the instructions thereto,
such medallion signature guarantee must appear in the applicable space provided
on the Letter of Transmittal for Medallion Guarantee of Signatures.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Initial Notes
indicated below, upon the terms and subject to the conditions contained in the
Prospectus dated 1998 of BTI Telecom Corp. (the "Prospectus"), receipt
of which is hereby acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<CAPTION>
NAME AND ADDRESS OF REGISTERED
HOLDER AS IT CERTIFICATE PRINCIPAL
APPEARS ON 10 1/2% SENIOR NUMBER(S) OF INITIAL AMOUNT OF
NOTES DUE 2007, NOTES TRANSMITTED INITIAL NOTES
("INITIAL NOTES") (IF AVAILABLE) TRANSMITTED
- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
- ---------------------------------- ---------------------------------- ----------------------------------
- ---------------------------------- ---------------------------------- ----------------------------------
- ---------------------------------- ---------------------------------- ----------------------------------
- ---------------------------------- ---------------------------------- ----------------------------------
</TABLE>
THE FOLLOWING MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR MEDALLION SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, hereby guarantees to deliver to
the Exchange Agent at one of its addresses set forth above, the Initial Notes,
together with a properly completed and duly executed Letter of Transmittal
within three New York Stock Exchange, Inc. trading days after the date of
execution of this Notice of Guaranteed Delivery.
<TABLE>
<S> <C>
Name of Firm: (Authorized Signature)
Address: Title:
Name:
(Zip Code)
</TABLE>
Area Code and Telephone Number: ________________________________________________
Date: _____________________________________________
NOTE: DO NOT SEND CERTIFICATES FOR INITIAL NOTES WITH THIS NOTICE OF GUARANTEED
DELIVERY. CERTIFICATES FOR INITIAL NOTES SHOULD BE SENT ONLY WITH YOUR
LETTER OF TRANSMITTAL.
