<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1998
REGISTRATION NO. 333-41723
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
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.)
</TABLE>
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
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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 (2)
<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.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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(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 JANUARY 30, 1998
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 (the "Indenture") dated as of
September 22, 1997, between the Company and First Trust of New York, National
Association (the "Trustee" and the "Exchange Agent"). The Exchange Notes and the
Initial Notes are sometimes referred to collectively as the "Notes." Certain
capitalized terms used in this Prospectus are defined under the headings
"Description of Credit Facility" beginning on page 55 and "Description of the
Exchange Notes -- Certain Definitions" beginning on page 60.
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 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 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 of the
Initial Notes (the "Offering") 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 Notes are not guaranteed by any
Company subsidiary, and no subsidiary's stock is pledged as collateral for the
Notes.
The Exchange Notes will be unsubordinated indebtedness of the Company,
ranking equally ("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 in the second paragraph on the next page), 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
<PAGE>
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.............. 57
Certain United States Federal Tax
Considerations............................... 83
Plan of Distribution........................... 85
Legal Matters.................................. 86
Experts........................................ 86
Available Information.......................... 86
Glossary....................................... 87
Index to Financial Statements.................. F-1
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3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, THE NOTES THERETO AND THE OTHER FINANCIAL
DATA CONTAINED ELSEWHERE IN THIS PROSPECTUS. 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 RELATING TO THE EXCHANGE NOTES ARE
DEFINED UNDER THE HEADING "DESCRIPTION OF THE EXCHANGE NOTES -- CERTAIN
DEFINITIONS" BEGINNING ON PAGE 60. CERTAIN OTHER TERMS USED IN THIS PROSPECTUS
ARE DEFINED UNDER THE HEADING "DESCRIPTION OF CREDIT FACILITY" BEGINNING ON PAGE
55 AND IN THE "GLOSSARY" BEGINNING ON PAGE 87.
THE COMPANY
BTI believes that it 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 $149.9 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 $148.3
million and EBITDA of approximately $6.7 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.
4
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BTI's objective is to strengthen the market position it believes that it
holds 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. See "Risk Factors -- Significant Capital Requirements," " -- Ability
to Service Debt" and " -- Anticipated Future Negative Cash Flow After Capital
Expenditures." 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; however, BTI has no current
understanding, commitment or agreement with respect to any such transaction. 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,
5
<PAGE>
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, 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.
The Company'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 $35.3 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
<TABLE>
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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.
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
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
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 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 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 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 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 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
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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, there
will 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 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 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
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
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 pursuant to the Pledge Agreement pending
disbursement. The Notes are not guaranteed by any Company
subsidiary, and no subsidiary's stock is pledged as collateral for
the Notes. 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 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, 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."
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
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 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 $149,923,351 $106,237,643 $145,145,510 $148,271,741
Operating expenses:
Cost of services............. 54,424,983 68,199,125 90,820,467 90,236,755 62,884,645 101,238,476 102,724,266
Selling, general and
administrative expenses.... 33,671,250 44,732,343 53,791,036 54,924,909 40,688,329 43,753,394 45,173,007
----------- ------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses... 88,096,233 112,931,468 144,611,503 145,161,664 103,572,974 144,991,870 147,897,273
----------- ------------ ------------ ------------ ------------ ------------ ------------
Income from operations......... 3,451,530 1,605,238 4,169,313 4,761,687 2,664,669 153,640 374,468
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) (20,965,207)
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) $(23,175,207)
------------ ------------ ------------
------------ ------------ ------------
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) 7,044,372 9,410,711
Net cash used in investing
activities................... (4,529,987) (10,721,433) (8,222,677) (9,560,830) (5,487,329) (117,154,062) (117,778,785)
Net cash provided by (used in)
financing activities......... (1,700,868) 1,581,023 8,588,694 9,446,750 6,750,176 187,846,641 187,830,391
EBITDA(c)...................... 6,200,433 4,678,606 8,640,936 9,679,323 5,921,195 5,406,140 6,685,154
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 $ 99,829,161
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, amortization, other income and expense and non-cash
compensation expense recorded in accordance with APB No. 25. 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" 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 $(4.7) 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 $(23.2) 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
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. Although there can be no assurance, the Company
believes that the net proceeds from the Offering, together with cash on hand,
cash flow from operations and borrowings under the Credit Facility, will provide
sufficient funds to enable BTI to expand its business as currently planned. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
UNCERTAINTY OF ADDITIONAL FINANCING
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
14
<PAGE>
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" and " -- Restrictive Covenants."
Failure to generate or raise sufficient funds 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."
ABILITY TO SERVICE DEBT
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.
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,
including those discussed in "Risk Factors." See "Description of Credit
Facility" and "Description of the Notes -- Covenants."
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 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.
HIGH LEVERAGE
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.
15
<PAGE>
RESTRICTIVE COVENANTS
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. See "Description of the Exchange Notes -- Covenants."
HOLDING COMPANY STRUCTURE
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" and "Description of the Exchange Notes -- Ranking."
PRIORITY OF SECURED DEBT
The Notes are unsecured (except with respect to the Pledged Securities) and
therefore effectively subordinated to any secured indebtedness of the Company.
The Notes are not guaranteed by any Company subsidiary, and no subsidiary's
stock is pledged as collateral for the Notes. 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. See
"Description of the Exchange Notes -- Security" and " -- Ranking."
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
16
<PAGE>
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 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.
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<PAGE>
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.
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
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<PAGE>
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 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
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<PAGE>
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 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.
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.
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<PAGE>
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 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
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<PAGE>
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.
POTENTIAL CONFLICTS OF INTEREST WITH SOLE SHAREHOLDER
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 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
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.
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<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.
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<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
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------------------
Restricted cash................................................................................. $ 74,093,277
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------------------
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
----------- ----------- ----------- ------------ ------------ ------------
----------- ----------- ----------- ------------ ------------ ------------
Cash dividends declared per
common share(b)........... $ .07 $ .11 $ .13 $ .13 $ .10 $ .08 $ .08
----------- ----------- ----------- ------------ ------------ ------------ -------------
----------- ----------- ----------- ------------ ------------ ------------ -------------
OTHER 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) 7,044,372
Net cash used in investing
activities................ (1,031,241) (1,903,993) (4,529,987) (10,721,433) (8,222,677) (5,487,329) (117,154,062)
Net cash provided by (used
in) financing
activities................ (1,253,887) (2,929,915) (1,700,868) 1,581,023 8,588,694 6,750,176 187,846,641
EBITDA(c)................... 4,804,279 6,020,553 6,200,433 4,678,606 8,640,936 5,921,195 5,406,140
Ratio of earnings to fixed
charges(d)................ 6.4x 6.0x 3.3x 1.2x 1.8x 1.5x --
Customers................... 16,000 28,000 34,000 52,000 49,000 59,000
Sales offices............... 13 16 20 22 22 22
BALANCE SHEET DATA (AT
PERIOD END):
Working capital (deficit)... $ 717,309 $ 542,918 $(1,546,220) $ (5,182,319) $ 741,199 $ 2,315,053 $ 99,829,161
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
25
<PAGE>
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.
(b) From 1987 until September 1997, the Company was subject to taxation under
Subchapter S of the Internal Revenue Code of 1986, as amended. 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.
(c) EBITDA consists of income (loss) before interest, income taxes,
depreciation, amortization, other income and expense and non-cash
compensation expense recorded in accordance with APB No. 25. 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.
(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.
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 PROSPECTUS. THE COMPANY HAS INCLUDED EBITDA DATA IN THE FOLLOWING ANALYSIS
BECAUSE IT IS A MEASURE COMMONLY USED IN THE INDUSTRY. EBITDA REPRESENTS
EARNINGS BEFORE 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 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. 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 20.6% from $5.9 million for the nine months ended
September 30, 1996 to $5.4 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 $7.0 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, $10.7 million and $8.2
million for the years ended December 31, 1994, 1995, and 1996, respectively, and
$117.2 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 $35.3
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 $1.7 million for the year ended
December 31, 1994, and net cash provided by financing activities was $1.6
million and $8.6 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 $187.8 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 $1.6 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. The
Company believes that any such reimbursements will not have a material adverse
effect on the Company's financial condition or results of operations.
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 -- Restrictive
Covenants" and "Description of Credit Facility."
The Company expects to require significant capital for its 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 and currently
estimates that its aggregate capital requirements for the three years ending
December 31, 2001 will be approximately $95 million. 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. 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 expand the
Company's business as currently planned for the next 12 months and for the
long-term. 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 offerings, and subject to provisions in the Indenture requiring the
Company to maintain certain financial ratios in order to incur additional
indebtedness (see "Description of the Exchange Notes -- Covenants"), may include
debt financings. See "Risk Factors -- Anticipated Future Negative Cash Flow
After Capital Expenditures," " -- Significant Capital Requirements,"
" -- Uncertainty of Additional Financing," " -- High Leverage," " -- Ability to
Service Debt" and " -- 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 has disclosed the pro forma
effects of the new measurement criteria in its financial statements for the nine
months ended September 30, 1997 to reflect certain stock options granted under
the Company's 1997 Stock Plan during the quarter ended September 30, 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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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 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 on
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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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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
at the end of this paragraph) 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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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 HAND: BY MAIL:
First Trust of New York, National First Trust National
Association Association
100 Wall Street P.O. Box 64485
Suite 2000 St. Paul, Minnesota 55164-9549
New York, New York 10005
Attn: Corporate Trust Operations
BY OVERNIGHT COURIER: BY FACSIMILE:
First Trust National Association (612) 244-1537
Attn: Specialized Finance Attn: Specialized Finance
180 East Fifth Street Telephone: (800) 934-6802
St. Paul, Minnesota 55101
</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
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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.
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 believes that it 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 $149.9 million and
EBITDA of approximately $9.7 million for the year ended December 31, 1996, and
pro forma revenues of approximately $148.3 million and EBITDA of approximately
$6.7 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 the market position it believes that it
holds 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
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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
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
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Officer. These executives collectively have over 60 years of experience in the
telecommunications industry. See "Management."
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
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(including features such as voice and fax mail, voice-activated speed
dialing, conference calling and network voice messaging).
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
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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 Prospectus. As a result of the Telecommunications Act of 1996 and similar
state statures and regulatory proceedings, differences between the provision of
telecommunications services as a private carrier versus a non-dominant carrier
have significantly diminished. Therefore, the Company believes that, should laws
or regulatory
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interpretations change in the future to reclassify BTI's regulatory status,
compliance with such reclassification would not have a material adverse effect
on either the Company's results of operations or financial condition.
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.
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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
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.
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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 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.
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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,
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.
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 April 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 January 1998 and April 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 June 2004 and 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 until October 1996. 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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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.
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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.
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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 lease entered into in November 1995, were $28,000 and $343,000 in 1995
and 1996, respectively. This lease is a "dry" lease, which means that the
Company pays all costs of operation of the aircraft. 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 totaled $591,304 as of September 30, 1997 and consisted of a note
receivable for $553,144 and accounts receivable of $38,160. The September 30,
1997 total of $591,304 includes expenses of $176,803 and $366,126 were incurred
during the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively.
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. For
each shareholder, these distributions were $283,325 and $192,300 for the year
ended December 31, 1996 and the nine months ended September 30, 1997,
respectively. In addition, each of them was entitled to receive dividends in an
amount equal to $61,736 per month (the "Additional Dividends"). Each shareholder
received Additional Dividends of $740,835 and $600,898 during the year ended
December 31, 1996 and nine months ended September 30, 1997, respectively.
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. 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. The Company believes that any such reimbursements will
not have a material adverse effect on the Company's financial condition or
results of operations.
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).
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<PAGE>
DESCRIPTION OF CREDIT FACILITY
BTI has entered into an amended and restated loan agreement with General
Electric Capital Corporation ("GE Capital") 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.
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 (a) a floating rate equal to the Prime Rate, or (b) a fixed
rate equal to LIBOR for the interest period (30, 60 or 90 days) selected by BTI,
plus in each case a percentage rate which will fluctuate (based on BTI's Total
Debt to EBITDA Ratio) from 0.00% to 1.25% for borrowings at the Prime Rate and
from 1.75% to 3.00% for borrowings at LIBOR. For December 31, 1997, the Prime
Rate was 8.50%, and 30-, 60- and 90-day LIBOR were 5.72%, 5.75% and 5.81%,
respectively.
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 also requires BTI to comply with certain financial
tests and ratios to be determined as of specified measurement dates based on
quarterly and annual financial statement data. BTI is required to have: (i) a
Total Debt to EBITDA Ratio no greater than 6.75:1.0 at December 31, 1997 and
7.25:1.0 at March 31, 1998, with reductions for measurement dates thereafter;
(ii) minimum EBITDA of $9.4 million at December 31, 1997 and $9.0 million at
March 31, 1998, with increases for measurement dates thereafter, in each case
measured for the four consecutive fiscal quarters ending on the measurement
date; and (iii) capital expenditures not to exceed (a) $40.0 million for 1997,
(b) $100.0 million for 1998, plus any unused portion of the 1997 maximum, and
(c) for years after 1998, amounts to be set based on certain operating
performance criteria. In addition, the Company must have, on a consolidated
basis, a Consolidated Interest Coverage Ratio of at least 2.0:1.0 at December
31, 1997; 2.5:1.0 at March 31, 1998; 3.5:1.0 at June 30, 1998 and at the end of
each fiscal quarter thereafter through December 31, 2000; and 1.5:1.0 at the end
of each fiscal quarter thereafter.
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.
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As used in this section:
"Consolidated Interest Coverage Ratio" means, as of the end of any fiscal
quarter, the ratio of (a) Consolidated Interest Expense for the four consecutive
fiscal quarters ending on the last day of such fiscal quarter to (b) cumulative
EBITDA for such four consecutive quarters.
"Consolidated Interest Expense" means all interest paid or accrued by the
Company and BTI, without duplication, excluding amounts paid from proceeds from
the Pledged Securities held in escrow for payment of interest on the Notes.
"EBITDA" means (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 generally accepted accounting principles ("GAAP"), and (iii) an
amount equal to any payments with respect to the repurchase of certain stock
options from former employees, minus (iv) to the extent recognized in
determining such income, extraordinary gains, in accordance with GAAP.
"LIBOR" means the rate per annum equal to the offered rate on Eurodollar
deposits for the interest period (30, 60 or 90 days) selected by BTI, as quoted
by Telerate New Service on page 3750 which is the official British Bankers
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.
"Prime Rate" means 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, which rates normally appear daily in the "Money
Rates" column of THE WALL STREET JOURNAL.
"Total Debt" means, as of any date, the respective then outstanding and
unpaid balances of all indebtedness of BTI including, without limitation,
guarantees, guaranteed indebtedness and amounts drawn down under letters of
credit, but shall not include intercompany debt payable to the Company.
"Total Debt to EBITDA Ratio" means 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 12 consecutive fiscal month period ending on the last day of such
fiscal month.
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<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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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.
The Notes are not guaranteed by any Company subsidiary, and no subsidiary's
stock is pledged as collateral for the 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 interpretations of the
staff of the Commission, 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 staff of 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 staff of 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" and " -- 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 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. See "Description of Credit Facility."
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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.
"Substantially All" of the assets of a corporation has no established
definition under New York law, which governs the Indenture. Thus, for example,
if the Company were to engage in a transaction in which it disposed of less than
all of its assets, a question of interpretation could arise as to whether such
disposition was of "substantially all" of its assets. As a consequence, in such
an event the Company might not make an Offer to Purchase unless a Holder were to
convince the Company or a court of competent jurisdiction that the transaction
was a disposition of "substantially all" of the Company's assets.
"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
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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 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
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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 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.
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(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 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
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each case except to the extent such Net Cash Proceeds are used to Incur
Indebtedness pursuant to clause (viii) of the second paragraph under the
"Limitation on Indebtedness" covenant, PLUS (3) an amount equal to the net
reduction in Investments (other than reductions in Permitted Investments and
reductions in Investments made pursuant to clause (vi) of the second paragraph
of this "Limitation on Restricted Payments" covenant) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds is
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in 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
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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 "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.
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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 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
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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 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.
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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 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.
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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 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
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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 automatically 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. 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
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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, 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
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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 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
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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.
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").
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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.
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 Company has received the opinion of Wyrick Robbins Yates & Ponton LLP
(the "Tax Opinion") with respect to 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 and the Tax
Opinion are both 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. Neither the following summary nor the Tax Opinion is 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. Neither this
discussion nor the Tax Opinion purports 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
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<PAGE>
Exchange Notes or the Exchange Offer. Both this discussion and the Tax Opinion
are limited to investors who will hold the Initial Notes and the Exchange Notes
as capital assets and do 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.
The Tax Opinion, a copy of which has been filed as an Exhibit to the
Registration Statement of which this Prospectus forms a part, states that:
(i) The Initial Notes and the Exchange Notes will be treated as
indebtedness of the Company.
(ii) The exchange of the Initial Notes for Exchange Notes pursuant to the
Exchange Offer will not be treated as an "exchange" because the Exchange Notes
will 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 will
be treated as a continuation of the Initial Notes in the hands of such Holder.
Accordingly, there will 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 will
include the holding period of the Initial Notes exchanged for such Exchange
Notes.
(iii) 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.
(iv) 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 will equal the
Holder's tax basis in the Initial Note immediately prior to the exchange.
(v) 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.
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,
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<PAGE>
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 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
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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 of the charges prescribed by the Commission or, in
the case of certain such documents, by accessing the Commission's World Wide Web
site at http://www.sec.gov.
The Company is required by the terms of the Indenture to furnish the
Trustee with annual reports containing consolidated financial statements audited
by their independent public accountants and with quarterly reports containing
unaudited condensed consolidated financial statements for each of the first
three quarters of each fiscal year.
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GLOSSARY
ACCESS -- Telecommunications services that permit long distance carriers to
use local exchange facilities to originate and/or terminate long distance
service.
ACCESS CHARGES -- The fees paid by long distance carriers to local exchange
carriers for originating and terminating long distance calls on their local
network.
AT&T -- AT&T Corp.
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.
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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.
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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.
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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..................................................... -- -- 24,649,021
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............................................... 14,801,168 21,605,693 23,942,119
Accounts and notes receivable from related parties (Note 6)......... 210,202 567,984 591,304
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 24,036,990 129,296,959
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
Restricted cash, non-current.......................................... -- -- 49,444,256
----------- ----------- -------------
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 ($.10 per common share)........ -- -- -- (2,048,320) (2,048,320)
Net income............................... -- -- -- 2,605,899 2,605,899
Decrease in unrealized gains............. -- -- (79,740) -- (79,740)
-------- ---------- ---------- ------------ ----------------
Balance at December 31, 1996............... 73,336 326,684 2,345 1,972,033 2,374,398
Repurchase of shares (unaudited)......... (36,668) (326,684) -- (27,922,087) (28,285,439)
Compensation related to stock options
(unaudited)........................... -- 707,500 -- -- 707,500
Acquisition of Fiber South (unaudited)... -- -- (32,174,949) (32,174,949)
Dividends (unaudited) ($.08 per common
share)................................ -- -- -- (1,586,396) (1,586,396)
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 and notes receivable, including
related parties........................ (4,223,390) (1,177,441) (7,162,307) (5,367,954) (2,160,998)
Prepaid expenses......................... (726,166) 1,067,459 68,787 (19,145) (159,594)
Inventories.............................. (207,880) (775,743) (629,894) (328,475) 147,056
Accounts payable, accrued expenses and
unearned revenue....................... 5,508,308 6,304,419 (8,627) (669,870) 5,960,171
Lease allowance.......................... -- 474,898 321,781 258,509 (29,594)
Deferred taxes........................... -- -- -- -- 2,210,000
Deferred promotional discounts........... 429,211 -- -- -- --
----------- ------------ ------------- ------------- -------------
Net cash provided by (used in) operating
activities................................. 6,230,855 9,446,250 (175,347) (1,445,198) 7,044,372
INVESTING ACTIVITIES
Proceeds from disposals of property and
equipment.................................. -- -- 187,643 25,300 194,025
Purchases of marketable equity securities.... (95,371) (254,008) -- -- --
Sales of marketable equity securities........ -- 250,441 179,387 178,363 --
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....................... -- -- -- -- (35,280,900)
Line access fees............................. (808,368) (1,007,110) (588,856) (350,291) (569,198)
----------- ------------ ------------- ------------- -------------
Net cash used in investing activities........ (4,529,987) (10,721,433) (8,222,677) (5,487,329) (117,154,062)
FINANCING ACTIVITIES
Change in checks issued not yet presented for
payment.................................... 73,884 (104,614) -- -- --
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)
Increase in deferred financing costs and
other assets............................... -- (172,764) (670,448) (1,045,304) (9,317,645)
Reacquisition of common stock................ -- -- -- -- (28,285,439)
Dividends paid............................... (2,635,945) (2,611,282) (2,048,320) (1,677,903) (1,586,396)
----------- ------------ ------------- ------------- -------------
Net cash (used in) provided by financing
activities................................. (1,700,868) 1,581,023 8,588,694 6,750,176 187,846,641
(Decrease) increase in cash and cash
equivalents................................ -- 305,840 190,670 (182,351) 77,736,951
Cash at beginning of period.................. -- -- 305,840 305,840 496,510
----------- ------------ ------------- ------------- -------------
Cash at end of period........................ $ -- $ 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 as services are
performed. Because of the timing of the Company's billing cycles, at any point
in time certain services have been provided to customers which have not yet been
billed. This revenue, which has been earned but not yet billed to customers, is
included in accounts receivable. Accounts receivable included $2,998,707,
$2,869,997 and $6,374,833 in accrued revenue at December 31, 1995 and 1996 and
September 30, 1997, respectively.
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.
F-7
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
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 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.
LONG LIVED ASSETS
Upon indication of impairment, the Company's policy for assessing
impairment of long lived assets is to calculate the undiscounted projected
future cash flows of the asset expected to be generated over the remaining
useful life of the asset. This amount is compared to the carrying value of the
asset to determine if the asset is impaired. Based on the application of this
policy, no impairments were recognized during 1995 or 1996 or for the nine
months ended September 30, 1997.
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.
F-8
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
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.
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.
F-9
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. LEASES -- Continued
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.
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.
F-10
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY -- Continued
<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.
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.
F-11
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.
7. COMMON STOCK REPURCHASE AGREEMENT
In July 1992, the Company entered into an agreement with one of its
shareholders (the "Retiring Shareholder") to purchase the outstanding common
shares held by this shareholder's estate upon his death. The agreement was
amended in June 1996. Under the amended agreement, the Company may at its option
purchase the outstanding shares from the shareholder at any time. The purchase
price under the amended agreement was negotiated between the Company and the
Retiring Shareholder.
Pursuant to the agreement, 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. At December 31, 1995 and
1996, this amount was payable on demand. During September 1997, the note was
amended to include a 24-month repayment schedule.
8. STOCK OPTIONS
In 1994, the Company formalized the 1994 Stock Plan (the "1994 Plan").
Under the terms of the 1994 Plan, the Company committed to grant certain options
to an officer and two former employees of the Company effective at the time the
Company purchased the outstanding shares of the Retiring Shareholder. The
measurement date for compensation related to these options did 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 compensation expense of approximately $2.1
million in connection with the options at the measurement date. Since certain of
the employees to whom the options were committed were no longer employed by the
Company, the accrued compensation includes provisions for the estimated amounts
to be paid to these former employees in connection with their option commitments
for 333,260 shares as well as other accrued amounts. Also included in the $2.1
million is $707,500 in non-cash compensation expense representing the difference
in the fair value of the options and the exercise price at the date of grant for
options granted to an existing officer. The Company did not grant any options
under the 1994 Plan during the years ended December 31, 1995 and 1996.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value-based
method of accounting for an employee stock option or similar equity instrument.
However, it also allows an entity to continue to measure compensation cost for
those plans using the method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities electing to remain with the accounting methodology required by APB
Opinion No. 25 must make pro forma disclosures of net income (loss) and, if
presented, earnings (loss) per share as if the fair value-based method of
accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plan
under APB Opinion No. 25. In accordance with SFAS No. 123, the Company has
computed, for pro forma disclosure purposes, the value of all
F-12
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. STOCK OPTIONS -- Continued
options for shares of the Company's common stock granted to employees of the
Company using the minimum value option method and the following weighted average
assumptions in 1997:
<TABLE>
<S> <C>
Risk-free interest rate............................... 5.46%
Expected dividend yield............................... 0%
Expected lives........................................ 1.5 years
</TABLE>
The weighted average fair value of the 166,630 options granted at an
exercise price of $1.47 in 1997 was approximately $4.40 (this number of options
excludes the options to acquire 333,260 shares committed to former employees for
which the Company has provided for the estimated amounts to be paid to these
former employees in connection with the options). No options were forfeited or
exercised in 1997. The Company's pro forma information for the nine months ended
September 30, 1997 had the Company accounted for this plan in accordance with
SFAS No. 123 is as follows:
<TABLE>
<S> <C>
Pro forma net loss................................. $(4,174,532)
Pro forma loss per share........................... $ (.21)
</TABLE>
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>
F-13
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. INCOME TAXES -- Continued
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>
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. COMMITMENTS
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. Payments under the agreement will be
capitalized and amortized over the shorter of the useful life of the asset or
the term of the agreement.
F-14
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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. Pursuant to the
pledge agreement executed in connection with the issuance of the Notes, the
Company utilized $74.1 million of the loan proceeds to purchase a portfolio of
pledged securities that are being held as security for the payment of the first
six scheduled interest payments due on the Notes. The payments to be made in
1998, $24,649,021, represent the current portion of restricted cash in the
balance sheet and the remaining balance is included in restricted cash,
non-current.
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 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 under the terms of
the Common Stock Repurchase Agreement (See Note 7).
(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 $3.1 million in net
assets and a corresponding charge to equity of $32.2 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
Cost of services............................ 28,520 188,297 796,288 493,705 2,520,790
--------- ---------- ---------- ---------- ----------
Gross profit................................ 575,401 1,330,075 1,726,247 1,128,134 1,640,441
Other operating expenses.................... 116,079 145,170 164,095 102,773 321,062
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) 1,045,730
Other long-term liabilities......... -- -- -- -- 167,944
---------- ---------- ---------- ---------- ------------
Net cash (used in) provided by operating
activities............................. (37,801) 1,452,333 239,424 45,680 3,412,069
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
Sale of net assets to BTI Telecom
Corp................................... -- -- -- -- 35,250,900
Proceeds from long-term borrowings....... 2,500,000 1,905,000 1,535,000 1,046,949 650,000
Payments on long-term borrowings......... -- (25,908) (627,444) -- (5,936,648)
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 (1,061,980)
---------- ---------- ---------- ---------- ------------
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.
LONG LIVED ASSETS
Upon indication of impairment, the Company's policy for assessing
impairment of long lived assets is to calculate the undiscounted projected
future cash flows of the asset expected to be generated over the remaining
useful life of the asset. This amount is compared to the carrying value of the
asset to determine if the asset is impaired. Based on the application of this
policy, no impairments were recognized during 1995 or 1996 or for the nine
months ended September 30, 1997.
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.
F-21
<PAGE>
FIBERSOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
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., a related company, on September 22, 1997. The transaction was
effective on September 30, 1997. The results of operations of the company are
included herein from January 1, 1997 through the effective date of the
transaction. The results of operations of the Company from September 22, 1997 to
September 30, 1997 were not material in relation to the Company's results of
operations for the nine-month period taken as a whole.
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.
F-22
<PAGE>
FIBERSOUTH, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. LONG-TERM DEBT -- Continued
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>
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 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");
(iii) 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 (iv) 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 on January 1, 1996. 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 on January 1, 1996, 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) $149,923,351
Cost of services................................ 90,820,467 796,288 (1,380,000)(a) 90,236,755
------------ ---------- ------------ ------------
Gross profit.................................... 57,960,349 1,726,247 -- 59,686,596
Selling, general and administrative expenses.... 53,791,036 1,133,873 -- 54,924,909
------------ ---------- ------------ ------------
Income from operations.......................... 4,169,313 592,374 -- 4,761,687
Interest expense, net......................... 1,695,324 481,824 27,245,000(b) 27,762,707
(1,659,441)(c)
Gain on sale of marketable securities......... 131,910 -- -- 131,910
------------ ---------- ------------ ------------
Net income (loss)............................... $ 2,605,899 $ 110,550 $(25,585,559)(d) $(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 (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.
(c) Represents the elimination of the $1,177,617 of interest expense of BTI
under the Original Credit Facility 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 repaid in
connection with the FiberSouth Acquisition.
(d) 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) $148,271,741
Cost of services.................................. 101,238,476 2,520,790 (1,035,000)(a) 102,724,266
------------ ---------- ------------ ------------
Gross profit...................................... 43,907,034 1,640,441 -- 45,547,475
Selling, general and administrative expenses...... 43,753,394 1,419,613 -- 45,173,007
------------ ---------- ------------ ------------
Income from operations............................ 153,640 220,828 -- 374,468
Interest expense, net........................... 2,108,730 471,682 20,433,750(b) 21,339,675
(1,674,487)(c)
Income taxes.................................... 2,210,000 -- --(d) 2,210,000
------------ ---------- ------------ ------------
Net loss.......................................... $ (4,165,090) $ (250,854) $(18,759,263) $(23,175,207)
------------ ---------- ------------ ------------
------------ ---------- ------------ ------------
</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 (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.
(c) Represents the elimination of the $1,310,005 of interest expense related to
the debt of BTI under the Original Credit Facility 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 repaid in connection with the FiberSouth Acquisition.
(d) 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, as amended effective October 1, 1997.
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.
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>
- ---------------
* Previously filed.
(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 Amendment No. 2 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Raleigh, State of
North Carolina, on January 29, 1998.
BTI TELECOM CORP.
By: /s/_____PETER T. LOFTIN*_______
PETER T. LOFTIN
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to 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 Officer January 29, 1998
PETER T. LOFTIN and Director (Principal
Executive Officer)
/s/ R. MICHAEL NEWKIRK* President, Chief Operating Officer January 29, 1998
R. MICHAEL NEWKIRK and Director
/s/ BRIAN K. BRANSON Chief Financial Officer, Treasurer January 29, 1998
BRIAN K. BRANSON and Director (Principal
Financial and Accounting
Officer)
*By: /s/ BRIAN K. BRANSON Attorney-in-fact January 29, 1998
BRIAN K. BRANSON
</TABLE>
II-4
<PAGE>
INDEX TO 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, as amended effective
October 1, 1997.
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.
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>
- ---------------
* Previously filed.
EXHIBIT 8.1
January 29, 1998
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 the
Registration Statement on Form S-4 (File No. 333-41723), filed with the
Securities and Exchange Commission December 8, 1997, as amended on or
about the date hereof (the "Registration Statement").
The following opinion 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 opinion 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 required from the IRS on any tax matters relating to the
Exchange Notes or the Exchange Offer.
This opinion covers 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. This
opinion 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. This opinion 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 (including purchasers that acquired Initial Notes
other than at par) 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.
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:
(i) The Initial Notes and the Exchange Notes will be treated as
indebtedness of the Company.
(ii) The exchange of the Initial Notes for Exchange Notes pursuant to the
Exchange Offer will not be treated as an "exchange" because the Exchange Notes
will 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 will
be treated as a continuation of the Initial Notes in the hands of such Holder.
Accordingly, there will 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 will
include the holding period of the Initial Notes exchanged for such Exchange
Notes.
(iii) 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.
(iv) 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 will equal the
Holder's tax basis in the Initial Note immediately prior to the exchange.
(v) 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.
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
$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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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
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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.
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<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.
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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
<PAGE>
EXHIBIT A-1
[TO EXHIBIT 10.3]
PLEDGE AGREEMENT
FOR VALUE RECEIVED and in consideration of any loan, advance, extension
of credit or other financial accommodations now or hereafter made to BUSINESS
TELECOM, INC., a North Carolina corporation ("Pledgor"), by GENERAL ELECTRIC
CAPITAL CORPORATION, a New York corporation, and the other financial
institutions party from time to time (the "Lenders") to that certain Second
Amended and Restated Loan and Security Agreement, dated of even date herewith
(the "Loan Agreement;" capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to such terms in the Loan Agreement), by
and among Borrower, Lenders, and GENERAL ELECTRIC CAPITAL CORPORATION, as Agent
("Secured Party"), and to induce Lenders to make such extensions of credit or
financial accommodations to Pledgor, Pledgor does hereby convey and grant a
security interest to Secured Party, for itself and for the benefit of Lenders,
in accordance with the terms set forth below.
I. Definitions. When used in this agreement:
A. "Investment Account" shall mean that certain account at Morgan
Stanley & Co. Incorporated ("Morgan") in the name of Pledgor which Investment
Account is identified as No. _________. "Pledged Securities" shall mean all
monies, securities, stocks, bonds, warrants or other property held in, or for
credit to, the Investment Account.
B. "Obligor" shall mean Pledgor and each other individual or entity
primarily or secondarily, directly or indirectly, liable on or directly or
indirectly securing any of the Liabilities.
II. Grant of Security Interest. As security for the payment and performance of
the Liabilities, Pledgor hereby grants to Secured Party, for the benefit of
Lenders, a security interest in and security title to the Investment Account and
the Pledged Securities, together with (i) the certificate(s), if any, from time
to time representing such Pledged Securities accompanied by a power of attorney
concerning the Pledged Securities duly executed in blank by the Pledgor, and
(ii) subject to the rights of the Pledgor set forth in Section III, all
distributions (whether in cash, stock, warrants, options, or other securities),
cash, instruments or other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Securities; and hereby assigns, transfers, hypothecates and sets over to the
Secured Party all of the Pledgor's right, title and interest in and to the
Pledged Securities (and in and to the certificates or instruments evidencing the
items described in clauses (i) and (ii) above) to be held upon the terms and
conditions set forth in this Agreement. Pledgor agrees to deliver to the Pledgee
all certificates and instruments evidencing the items described in clause (ii)
above promptly upon Pledgor's receipt thereof. The Investment Account and the
Pledged Securities, together with all other securities in respect thereof and
moneys received in respect thereof and any proceeds of any of the foregoing, are
sometimes hereinafter called the "Collateral." For purposes of this Agreement,
"distribution" shall include, without limitation, any and all interest payable
in respect of the Pledged Securities on any other Collateral.
III. Distributions. Unless a Default shall have occurred and be continuing, all
cash distributions payable in respect of the Pledged Securities shall be paid to
Pledgor. The Secured Party or, upon
<PAGE>
Pledgor's direction, Morgan shall be entitled to receive directly, and to retain
as part of the Collateral, all other or additional securities or property
(excluding cash distributions) paid or distributed by way of distribution or
interest in respect of the Pledged Securities regardless of the reason.
IV. Pledgor's Representations, Warranties and Covenants. Pledgor hereby
warrants, represents, and covenants that:
A. Pledgor is the legal record and beneficial owner of, and has full
and absolute title to the Collateral presently existing, free of all security
interests, liens, hypothecations, change, option or other encumbrances or claims
whatsoever.
B. No financing statement, mortgage, notice of lien, deed of trust,
security agreement or any other agreement or instrument creating or giving
notice of an encumbrance or charge against any of the Collateral is in existence
or on file in any public office.
C. Pledgor will at all times hereafter keep the Collateral free of all
security interests, liens and claims whatsoever, other than the security
interest and security title granted herein.
D. Pledgor will, from time to time, on request of Secured Party,
execute such financing statements, statements of assignment, notices and other
documents and pay the costs of filing or recording the same in all public
offices deemed necessary by Secured Party and do such other acts as Secured
Party may request to establish and maintain a valid security interest in and
security title to the Collateral, including, without limitation, delivery to
Secured Party of any stock certificate, note, deed to secure debt, security
agreement, or other instrument issuable with respect to any of the Collateral.
In addition, Pledgor will take all actions reasonably requested by Secured Party
or Morgan to properly register the grant of the security interest hereunder on
the books and records of the issuer or any nominee holder of any uncertificated
securities included in the Pledge Securities.
E. Pledgor will not sell, pledge, transfer or otherwise dispose of any
of the Collateral or any interest therein.
F. Pledgor shall account fully and faithfully for and promptly pay or
turn over to Secured Party proceeds in whatever form received in disposition in
any manner of any of the Collateral, but nothing in this Agreement shall be
deemed to authorize any such disposition.
G. Pledgor shall at all times keep accurate and complete records of the
Collateral and its proceeds, and should any Collateral come into the possession
of Pledgor, he shall hold it in trust for Secured Party and keep it separate and
distinct from his other property.
H. All information now or hereafter furnished by Pledgor to Secured
Party relating in any way to the Collateral is and will be true and correct as
of the date furnished.
-2-
<PAGE>
V. Power of Attorney. Pledgor hereby grants to Secured Party, for the benefit of
Lenders, a power of attorney, which being coupled with an interest is
irrevocable while any of the Liabilities remain unpaid, whereby Pledgor
constitutes and appoints Secured Party, for the benefit of Lenders, or its
designee as Pledgor's true and lawful attorney-in-fact and agent, for Pledgor
and in his name, to vote any and all Pledged Securities which may be or become
Collateral at any and all meetings in which the owners of such securities are
entitled to vote, to waive notice of any such meeting, to take part in any
consent action in lieu of any such meeting, to execute any and all documents in
connection with said securities, to exercise any and all powers which may be
exercised by the owners of said securities and to accomplish such actions
necessary to transfer and reissue said securities in the name of Pledgor;
provided, however, that until Default Pledgor may exercise such powers as are
not prohibited herein in his own right. Pledgor hereby further grants to Secured
Party a power of attorney, which being coupled with an interest is irrevocable
while any of the Liabilities remain unpaid, whereby he constitutes Secured Party
or its designee as Pledgor's attorney-in-fact: to endorse Pledgor name upon any
notes, acceptances, checks, drafts, money orders and other remittances received
by Pledgor or Secured Party on account of the Collateral and to do all other
acts and things necessary to carry out this Agreement. Pledgor hereby waives
notice of presentment, protest and dishonor of any instrument so endorsed by
Secured Party. All acts of Secured Party as attorney-in-fact as so constituted
above are hereby authorized and ratified, and said attorney-in-fact or designee
shall not be liable for any acts of omission or commission, nor for any error of
judgment or mistake of fact or law, other than acts of gross negligence or
intentional misconduct.
VI. Secured Party's Rights and Remedies Upon Pledgor's Default. At the option of
Secured Party, immediately upon the occurrence of a Default, the Liabilities,
notwithstanding any provisions thereof, without demand or notice of any kind,
shall become immediately due and payable, and Secured Party may exercise from
time to time the rights and remedies available to it under the Uniform
Commercial Code and other applicable law, in equity, or under any agreement.
Without limiting the generality of the foregoing, the Secured Party may, or may
direct Morgan to, sell the Collateral, or any part thereof at any public or
private sale or at any broker's board or on any securities exchange, for cash,
upon credit or for future delivery, as the Secured Party shall deem appropriate.
Under applicable law, in the absence of an agreement to the contrary, the
Secured Party may be held to have certain general duties and obligations to
Pledgor, to make some effort towards obtaining a fair price even though the
obligations under the Loan Agreement may be discharged or reduced by proceeds of
a sale at a lesser price. Pledgor clearly understands that the Secured Party is
not to have any such general duty and obligation to Pledgor, and Pledgor will
not attempt to hold the Secured Party responsible for selling all or any part of
the Collateral at an adequate price even if the Secured Party shall accept the
first offer received or does not approach more than one possible purchaser. The
provisions of this Paragraph will apply notwithstanding the existence of a
public or private market upon which the quotation or sales prices may exceed
substantially the price at which the Secured Party sells. Pledgor agrees to pay
all costs of Secured Party of collection of the Liabilities and enforcement of
rights hereunder, including, without limitation, legal and court expenses and
also fifteen percent (15%) of the principal and interest of the Liabilities as
attorneys' fees, if collected by or through an attorney.
-3-
<PAGE>
VII. Consents. Pledgor hereby consents and agrees that Secured Party, for itself
and on behalf of Lenders, may from time to time, without notice to Pledgor:
A. Retain or obtain a security interest, lien, title or other interest
in any property, whether real, personal, mixed, tangible or intangible, to
secure any of the Liabilities, provided, however, that nothing contained in this
subparagraph A shall be construed or interpreted as granting Secured Party a
security interest, lien, title or other interest in any such property other than
the Collateral;
B. Retain or obtain the primary or secondary liability of any party or
parties with respect to any of the Liabilities;
C. Extend or renew for any period (whether or not longer than the
original period), alter, modify or exchange, any of the Liabilities, or any
right evidencing the Liabilities, or any of them;
D. Release, discharge, compromise, or enter into any accord and
satisfaction with respect to the Collateral, or any other security for the
Liabilities, any liability of Pledgor hereunder or any liability of any Obligor;
E. Release or surrender all or any part of the Collateral or any other
security for the Liabilities, with or without consideration, or exchange or
substitute for all or any part of the Collateral or any other security for the
Liabilities, any other security of like kind, or of any kind; and
F. Resort to or bring suit against Pledgor to enforce this Agreement
for the collection of any of the Liabilities or otherwise enforce its security
interest in the Collateral, whether or not Secured Party shall have resorted to
or brought suit against any other collateral or any other Obligor, and whether
or not Secured Party shall have exhausted its rights or remedies against any of
the foregoing.
VIII. Waivers. Pledgor hereby expressly waives:
A. Notice of acceptance of this instrument;
B. Notice of the existence or creation of all or any of the
Liabilities;
C. Notice of any default, nonpayment, partial payment, presentment,
demand, and all other notices whatsoever;
D. Any invalidity or disability in whole or in part at the time of his
acceptance or at any other time with respect to the Collateral or any part
thereof, as well as with respect to the liability of any Obligor;
-4-
<PAGE>
E. All diligence in collection or protection of or realization upon the
Collateral, the Liabilities, or any part thereof, any liability hereunder, any
liability of any Obligor, or any security for any of the foregoing; and
F. Any duty or obligation on the part of Secured Party or any Lender to
ascertain the extent or nature of all or any part of the Collateral, or any
other security for the Liabilities, or any insurance or other rights respecting
such security, or the liability of any Obligor, as well as any duty or
obligation on the part of Secured Party or any Lender to take any steps or
actions to safeguard, protect, deal with, handle, obtain or convey information
respecting, or otherwise follow in any manner, such security or any part
thereof, or such insurance, or other rights.
IX. Miscellaneous.
A. Notice. Except as otherwise provided herein, notices required or
permitted hereunder shall be deemed given when made in writing and deposited in
the U.S. mail, with first class postage prepaid and properly addressed, to the
addresses set forth below, or to such other address as one party hereto shall
have notified the other party pursuant hereto:
<TABLE>
<CAPTION>
<S> <C>
If to Secured Party, to: General Electric Capital Corporation, as Agent
3370 Peachtree Road, NE, Suite 600
Atlanta, Georgia 30326
Attn: Ms. Elaine L. Moore
If to Pledgor, to: Business Telecom, Inc.
4300 Six Forks Road
Raleigh, North Carolina 27609
Attn: Mr. Brian K. Branson, Chief Financial Officer
</TABLE>
If any notification of intended disposition of the Collateral or of any
other act by Secured Party is required by law and a specific time period is not
stated therein, such notification, if given in accordance with this section at
least five (5) days before such disposition or act, shall be deemed reasonable
and properly given.
B. Non-Waiver of Rights and Remedies. No delay or failure on the part
of Secured Party or any Lender in the exercise of any right or remedy shall
operate as a waiver thereof or of the exercise of any other right or remedy.
Time is of the essence of this Agreement.
C. Construction. This Agreement shall be governed by and construed in
and enforced in accordance with the laws of the State of Georgia. The terms
"security interest" and "security title" as used herein shall include, and
Secured Party, on behalf of the Lenders, shall have, all the rights, interests,
title, liens, claims and privileges that may be derived hereunder and under the
applicable law of the various states of the United States. Whenever possible,
each provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any
-5-
<PAGE>
provision of this Agreement shall be prohibited by or invalid under applicable
law, said provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Agreement.
D. Modification. This Agreement shall not be modified or amended except
in a writing signed by the parties hereto.
E. Survival of Representations. All representations, warranties,
covenants, and agreements contained herein or made in writing by Pledgor in
connection herewith shall survive the execution and delivery of this Agreement
and any and all other documents relating to or arising out of any of the
foregoing or any of the Liabilities.
F. Successors and Assigns. This Agreement shall bind and inure to the
benefit of the parties hereto, and their respective successors, legal
representatives, heirs and assigns.
IN WITNESS WHEREOF, Pledgor has executed this instrument under seal as
of this 22nd day of September, 1997.
ATTEST: PLEDGOR:
Business Telecom, Inc.
___________________________ By:_____________________________________
Secretary Its:____________________________________
[CORPORATE SEAL]
-6-
<PAGE>
ACKNOWLEDGMENT
Atlanta, Georgia
The foregoing Stock Pledge Agreement having been read and considered,
the undersigned acknowledges notice of its contents and effect, and for value
received, the undersigned further agrees to honor and abide by all the terms of
the foregoing to the extent that it is or may be affected in any manner
whatsoever by the exercise by Secured Party or any Lender of its rights as
granted by the foregoing and by applicable law. Without limiting the generality
of the foregoing, the undersigned agrees not to issue any capital stock in
addition to the capital stock pledged pursuant to the foregoing without the
prior written consent of Secured Party.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be
executed and its corporate seal to be affixed hereto as of this 22nd day of
September, 1997.
Business Telecom, Inc.
Attest:
___________________________ By:_______________________________
Secretary Its:_______________________________
[Corporate Seal]
-7-
<PAGE>
EXHIBIT A-2
[TO EXHIBIT 10.3]
FORM OF BORROWING
BASE CERTIFICATE
[Not drafted.]
<PAGE>
EXHIBIT B
[TO EXHIBIT 10.3]
BTITC PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT, dated as of September 22, 1997, is made by and
between BTI TELECOM CORP., a North Carolina corporation ("Pledgor"), and GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation, and the other Lenders (as
defined below) to that certain Second Amended and Restated Loan and Security
Agreement, dated as of even date herewith (the "Loan Agreement"), by and among
BUSINESS TELECOM, INC., a North Carolina corporation and wholly-owned subsidiary
of Pledgor, as Borrower, Lenders and GENERAL ELECTRIC CAPITAL CORPORATION, as
Agent ("Secured Party").
W I T N E S S E T H:
WHEREAS, Pledgor is the record and beneficial owner of one hundred
shares of the common stock (the "Pledged Securities") issued by BUSINESS
TELECOM, INC., a North Carolina corporation and wholly-owned subsidiary of
Pledgor ("Borrower"); and
WHEREAS, the Pledged Securities represent all of the issued and
outstanding shares of the capital stock (the "Stock") of Borrower;
WHEREAS, Borrower, Lenders and Agent have entered into the Loan
Agreement, pursuant to which Lenders have agreed to make certain loans to
Borrower (the "Loans"); and
WHEREAS, Pledgor is a shareholder of Borrower and, as such, will derive
substantial direct and indirect economic benefit from the making of the Loans;
and
WHEREAS, Pledgor has executed and delivered to Lenders that certain
Guaranty dated of even date herewith, pursuant to which Pledgor guarantees all
of Borrower's obligations under the Loan Agreement to the extent of the Pledged
Collateral (the "Guaranty"); and
WHEREAS, in connection with the making of the Loans under the Loan
Agreement and as security for the payment and performance of Borrower's
obligations under the Loan Agreement and Pledgor's obligations under the
Guaranty, Lenders are requiring that Pledgor shall have executed and delivered
this Pledge Agreement and granted the security interest contemplated hereby.
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, and to induce Lenders to make the Loans under the Loan
Agreement, it is agreed as follows:
1. Definitions. Unless otherwise defined herein, terms defined in the
Loan Agreement are used herein as therein defined, and the following shall have
(unless otherwise provided elsewhere in this Pledge Agreement) the following
respective meanings (such meanings being equally applicable to both the singular
and plural form of the terms defined):
<PAGE>
"Agreement" shall mean this Pledge Agreement, including all
amendments, modifications and supplements and any exhibits or schedules to any
of the foregoing, and shall refer to the Agreement as the same may be in effect
at the time such reference becomes operative.
"Bankruptcy Code" shall mean title 11, United States Code, as amended
from time to time, and any successor statute thereto.
"Pledged Collateral" shall have the meaning assigned to such term in
Section 2 hereof.
"Secured Obligations" shall have the meaning assigned to such term in
Section 3 hereof.
2. Pledge. Pledgor hereby pledges to Secured Party, for the benefit of
Lenders, and grants to Secured Party, for the benefit of Lenders, a security
interest in and lien upon the Pledged Securities and the certificates
representing the Pledged Securities, and all dividends, distributions, cash,
instruments and other property or proceeds from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of the Pledged Securities (collectively, the "Pledged Collateral").
3. Security for Obligations. This Agreement secures, and the Pledged
Collateral is security for, the prompt payment and performance of all
obligations of Borrower under the Loan Agreement, all obligations of Pledgor
under the Guaranty, and all obligations of Pledgor now or hereafter existing
(under this Agreement or otherwise), including without limitation all costs and
expenses of Secured Party for the benefit of Lenders or Lenders incurred in
connection with this Agreement (collectively, the "Secured Obligations").
4. Delivery of Pledged Collateral. All certificates representing or
evidencing the Pledged Securities shall be delivered to and held by Secured
Party on behalf of Lenders pursuant hereto and shall be accompanied by duly
executed instruments of transfer or assignment(s) in blank, all in form and
substance satisfactory to Secured Party. Secured Party shall have the right, at
any time after the occurrence and during the continuance of an Event of Default
in its discretion and without notice to Pledgor, to transfer to or to register
in the name of Secured Party or any of its nominees, subject to the terms of
this Agreement, any or all of the Pledged Securities. In addition, Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing Pledged Securities for certificates or instruments of
smaller or larger denominations.
5. Representations and Warranties. Pledgor represents and warrants to
Secured Party and Lenders that:
(a) Pledgor has the capacity and authority to execute, deliver
and perform this Agreement and the Loan Documents to which it is a
party and has the requisite capacity and authority and the legal right
to own, pledge, mortgage or otherwise encumber the Pledged Collateral.
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(b) Pledgor is, and at the time of delivery of the Pledged
Securities to Secured Party pursuant to Section 4 hereof will be, the
sole holder of record and the sole beneficial owner of the Pledged
Collateral free and clear of any Lien thereon or affecting the title
thereto except for the Lien created by this Agreement.
(c) The Pledged Securities included in the Pledged Collateral
constitute all of the issued and outstanding shares of Stock of the
issuer thereof. All of the Pledged Securities have been duly
authorized, validly issued and are fully paid and non-assessable and
there are no existing options, warrants or commitments of any kind or
nature or any outstanding securities or other instruments convertible
into shares of any class of Stock of any corporation, and no Stock of
any corporation is held in the treasury of such corporation.
(d) Pledgor has the right and requisite authority to pledge,
assign, transfer, deliver, deposit and set over the Pledged Collateral
to Secured Party as provided herein.
(e) None of the Pledged Securities has been issued or
transferred in violation of the securities registration, securities
disclosure or similar laws of any jurisdiction to which such issuance
or transfer may be subject. Pledgor's execution and delivery of this
Agreement and the pledge of the Pledged Collateral hereunder do not,
directly or indirectly, violate or result in a violation of any such
laws.
(f) None of the Pledged Securities included in the Pledged
Collateral is, as of the date of this Agreement, a "margin security,"
as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System and Pledgor shall, promptly
after learning thereof, notify Secured Party of any Pledged Collateral
which is or becomes a margin security and execute and deliver in favor
of Secured Party on behalf of Lenders, any and all instruments,
documents and agreements (including, but not limited to Forms U-1)
necessary to cause the pledge of such margin securities to comply with
all applicable laws, rules and regulations.
(g) No consent, approval, authorization or other order of any
Person and no consent, authorization, approval, or other action by, and
no notice to or filing with, any governmental departments, commissions,
boards, bureaus, agencies or other instrumentalities, domestic or
foreign, is required to be made or obtained by Pledgor either (i) for
the pledge of the Pledged Collateral pursuant to this Agreement or for
the execution, delivery or performance of this Agreement by Pledgor or
(ii) for the exercise by Secured Party of the voting or other rights
provided for in this Agreement or the remedies in respect of the
Pledged Collateral pursuant to this Agreement, except as may be
required in connection with such disposition by laws affecting the
offering and sale of securities generally.
(h) The pledge, assignment and delivery of the Pledged
Collateral pursuant to this Agreement will create a valid Lien on and a
perfected security interest in the Pledged Collateral pledged by
Pledgor, and the proceeds thereof, securing the payment of the Secured
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Obligations, subject to no other Lien or security interest.
(i) This Agreement has been duly executed and delivered by
Pledgor and constitutes a legal, valid and binding obligation of
Pledgor enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, or other
similar laws affecting the rights of creditors generally or by the
application of general equity principles.
The representations and warranties set forth in this Section 5 shall
survive the execution and delivery of this Agreement.
6. Covenants. Pledgor covenants and agrees that until the termination
of this Agreement in accordance with Section 13:
(a) Except as provided herein, without the prior written
consent of Secured Party, Pledgor will not sell, assign, transfer,
pledge, or otherwise encumber any of its rights in or to the Pledged
Collateral or any unpaid dividends or other distributions or payments
with respect thereto or grant a Lien on any thereof.
(b) Pledgor will, at its expense, promptly execute,
acknowledge and deliver all such instruments and take all such action
as Secured Party, for itself and on behalf of Lenders, from time to
time may request in order to ensure to Secured Party the benefits of
the Liens in and to the Pledged Collateral intended to be created by
this Agreement, including the filing of any necessary Uniform
Commercial Code financing statements, which may be filed by Secured
Party with or without the signature of Pledgor, and will cooperate with
Secured Party, at Pledgor's expense, in obtaining all necessary
approvals and making all necessary filings under federal or state law
in connection with such Liens or any sale or transfer of the Pledged
Collateral.
(c) Pledgor has and will defend the title to the Pledged
Collateral and the Liens of Secured Party on behalf of Lenders thereon
against the claim of any Person and will maintain and preserve such
Liens.
7. Pledgor's Rights. As long as no Default or Event of Default shall
have occurred and be continuing and until written notice shall be given to
Pledgor in accordance with Section 8 (a) hereof,
(a) Pledgor shall have the right, from time to time, to vote
and give consents with respect to the Pledged Collateral or any part
thereof for all purposes not inconsistent with the provisions of this
Agreement, the Loan Agreement, and any other agreement; provided,
however, that no vote shall be cast, and no consent shall be given or
action taken, which would have the effect of impairing the position or
interest of Secured Party or Lenders in respect of the Pledged
Collateral or which would authorize or effect (except as and to the
extent expressly permitted by the Loan Agreement): (i) the dissolution
or liquidation, in whole or in part, of Borrower, (ii) the
consolidation or merger of Borrower with any other
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Person, (iii) the sale, disposition or encumbrance of all or
substantially all of the assets of Borrower, (iv) any change in the
authorized number of shares, the stated capital or the authorized share
capital of Borrower or the issuance of any additional Stock of
Borrower, or (v) the alteration of the voting rights with respect to
the Stock of Borrower;
(b)(i) Pledgor shall be entitled, from time to time, to
collect and receive for its own use and shall not be required to pledge
pursuant to Section 2, all cash dividends paid in respect of the
Pledged Securities to the extent not in violation of the Loan Agreement
other than any and all (A) dividends paid or payable other than in cash
in respect of, and instruments and other property received, receivable
or otherwise distributed in respect of, or in exchange for, any Pledged
Collateral, (B) dividends and other distributions paid or payable in
cash in respect of any Pledged Collateral in connection with a partial
or total liquidation or dissolution, and (C) cash paid, payable or
otherwise distributed in redemption of, or in exchange for, any Pledged
Collateral; provided, however, that until actually paid all rights to
such distributions shall remain subject to the Lien created by this
Agreement; and
(ii) all dividends (other than such cash dividends as
are permitted to be paid to Pledgor in accordance with clause
(i) above) and all other distributions in respect of any of
the Pledged Securities, whenever paid or made, shall be
delivered to Secured Party to hold as Pledged Collateral and
shall, if recovered by Pledgor, be received in trust for the
benefit of Secured Party on behalf of Lenders, be segregated
from the other property or funds of Pledgor, and be forthwith
delivered to Secured Party as Pledged Collateral in the same
form as so received (with any necessary endorsement).
8. Defaults and Remedies.
(a) Upon the occurrence of an Event of Default and during the
continuation of such Event of Default, following written notice to
Pledgor, Secured Party (personally or through an agent) is hereby
authorized and empowered to transfer and register in its name or in the
name of its nominee the whole or any part of the Pledged Collateral, to
exchange certificates or instruments representing or evidencing Pledged
Securities for certificates or instruments of smaller or larger
denominations, to exercise the voting rights with respect thereto, to
collect and receive all cash dividends and other distributions made
thereon, to sell in one or more sales after five (5) days' notice of
the time and place of any public sale or of the time after which a
private sale is to take place (which notice Pledgor agrees is
commercially reasonable), but without any previous notice or
advertisement, the whole or any part of the Pledged Collateral and to
otherwise act with respect to the Pledged Collateral as though Secured
Party were the outright owner thereof; provided, however, Secured Party
shall not have any duty to exercise any such right or to preserve the
same and shall not be liable for any failure to do so or for any delay
in doing so. Any sale shall be made at a public or private sale at
Secured Party's place of business, or at any public building to be
named in the notice of sale, either for cash or upon credit or for
future delivery at such price as Secured Party
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may deem fair, and Secured Party may be the purchaser of the whole or
any part of the Pledged Collateral so sold and hold the same thereafter
in its own right free from any claim of Pledgor or any right of
redemption. Each sale shall be made to the highest bidder, but Secured
Party reserves the right to reject any and all bids at such sale which,
in its discretion, it shall deem inadequate. Demands of performance,
except as otherwise herein specifically provided for, notices of sale,
advertisements and the presence of property at sale are hereby waived
and any sale hereunder may be conducted by an auctioneer or any officer
or agent of Secured Party.
(b) If, at the original time or times appointed for the sale
of the whole or any part of the Pledged Collateral, the highest bid, if
there be but one sale, shall be inadequate to discharge in full all the
Secured Obligations, or if the Pledged Collateral be offered for sale
in lots, if at any of such sales, the highest bid for the lot offered
for sale would indicate to Secured Party, in its discretion, the
unlikelihood of the proceeds of the sales of the whole of the Pledged
Collateral being sufficient to discharge all the Secured Obligations,
Secured Party may, on one or more occasions and in its discretion,
postpone any of said sales by public announcement at the time of sale
or the time of previous postponement of sale, and no other notice of
such postponement or postponements of sale need be given, any other
notice being hereby waived; provided, however, that any sale or sales
made after such postponement shall be after five (5) days' notice to
Pledgor.
(c) In the event of any sales hereunder, Secured Party shall,
after deducting all costs or expenses of every kind (including
reasonable attorneys' fees and disbursements) for care, safekeeping,
collection, sale, delivery or otherwise, apply the residue of the
proceeds of the sales to the payment or reduction, either in whole or
in part, of the Secured Obligations in accordance with Section 9
hereof, returning the surplus, if any, to Pledgor.
(d) If, at any time when Secured Party in its sole discretion
determines, following the occurrence and during the continuance of an
Event of Default, that in connection with any actual or contemplated
exercise of its rights (when permitted under this Section 8) to sell
the whole or any part of the Pledged Collateral hereunder, it is
necessary or advisable to effect a public registration of all or part
of the Pledged Collateral pursuant to the Securities Act of 1933, as
amended (or any similar statute then in effect) (the "Act"), Pledgor
shall, in an expeditious manner, and to the extent Pledgor has
authority or the right, pursuant to agreements in effect as of the date
hereof, cause Borrower to:
(i) Prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement with
respect to the Pledged Collateral and use its best efforts to
cause such registration statement to become and remain
effective.
(ii) Prepare and file with the Commission such
amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to
comply with the provisions of the Act with respect to the sale
or other disposition of the Pledged
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Collateral covered by such registration statement whenever Secured
Party shall desire to sell or otherwise dispose of the Pledged
Collateral.
(iii) Furnish to Secured Party such numbers of copies
of a prospectus and a preliminary prospectus, in conformity
with the requirements of the Act, and such other documents as
Secured Party may request in order to facilitate the public
sale or other disposition of the Pledged Collateral by Secured
Party.
(iv) Use its best efforts to register or qualify the
Pledged Collateral covered by such registration statement
under such other securities or blue sky laws of such
jurisdictions within the United States and Puerto Rico as
Secured Party shall request, and do such other reasonable acts
and things as may be required of it to enable Secured Party to
consummate the public sale or other disposition in such
jurisdictions of the Pledged Collateral by Secured Party.
(v) Furnish, at the request of Secured Party, on the
date that the Pledged Collateral is delivered to the
underwriters for sale pursuant to such registration or, if the
security is not being sold through underwriters, on the date
that the registration statement with respect to such Pledged
Collateral becomes effective, (A) an opinion, dated such date,
of the independent counsel representing such registrant for
the purposes of such registration, addressed to the
underwriters, if any, and in the event the Pledged Collateral
is not being sold through underwriters, then to Secured Party,
in customary form and covering matters of the type customarily
covered in such legal opinions; and (B) a comfort letter,
dated such date, from the independent certified public
accountants of such registrant, addressed to the underwriters,
if any, and in the event the Pledged Collateral is not being
sold through underwriters, then to Secured Party, in a
customary form and covering matters of the type customarily
covered by such comfort letters and as the underwriters or
Secured Party shall reasonably request. The opinion of counsel
referred to above shall additionally cover such other legal
matters with respect to the registration in respect of which
such opinion is being given as Secured Party may reasonably
request. The letter referred to above from the independent
certified public accountants shall additionally cover such
other financial matters (including information as to the
period ending not more than five (5) Business Days prior to
the date of such letter) with respect to the registration in
respect of which such letter is being given as Secured Party
may reasonably request.
(vi) Otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders, as soon as reasonably
practicable, but not later than 18 months after the effective
date of the registration statement, an earnings statement
covering the period of at least 12 months beginning with the
first full month after the effective date of such registration
statement, which earnings statement shall satisfy the
provisions of Section 11 (a) of the Act.
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(e) If, at any time when Secured Party shall determine to
exercise its right to sell the whole or any part of the Pledged
Collateral hereunder, such Pledged Collateral or the part thereof to be
sold shall not, for any reason whatsoever, be effectively registered
under the Act, Secured Party may, in its discretion (subject only to
applicable requirements of law), sell such Pledged Collateral or part
thereof by private sale in such manner and under such circumstances as
Secured Party may deem necessary or advisable, but subject to the other
requirements of this Section 8, and shall not be required to effect
such registration or to cause the same to be effected. Without limiting
the generality of the foregoing, in any such event Secured Party in its
discretion (i) may, in accordance with applicable securities laws,
proceed to make such private sale notwithstanding that a registration
statement for the purpose of registering such Pledged Collateral or
part thereof could be or shall have been filed under said Act (or
similar statute), (ii) may approach and negotiate with a single
possible purchaser to effect such sale, and (iii) may restrict such
sale to a purchaser who will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to
the distribution or sale of such Pledged Collateral or part thereof. In
addition to a private sale as provided above in this Section 8, if any
of the Pledged Collateral shall not be freely distributable to the
public without registration under the Act (or similar statute) at the
time of any proposed sale pursuant to this Section 8, then Secured
Party shall not be required to effect such registration or cause the
same to be effected but, in its discretion (subject only to applicable
requirements of law), may require that any sale hereunder (including a
sale at auction) be conducted subject to restrictions (i) as to the
financial sophistication and ability of any Person permitted to bid or
purchase at any such sale, (ii) as to the content of legends to be
placed upon any certificates representing the Pledged Collateral sold
in such sale, including restrictions on future transfer thereof, (iii)
as to the representations required to be made by each Person bidding or
purchasing at such sale relating to that Person's access to financial
information about Borrower and such Person's intentions as to the
holding of the Pledged Collateral so sold for investment, for its own
account, and not with a view to the distribution thereof, and (iv) as
to such other matters as Secured Party may, in its discretion, deem
necessary or appropriate in order that such sale (notwithstanding any
failure so to register) may be effected in compliance with the Act and
all applicable state securities laws.
(f) Pledgor acknowledges that notwithstanding the legal
availability of a private sale or a sale subject to the restrictions
described above in paragraph 8(e), Secured Party may, in its
discretion, elect to register any or all the Pledged Collateral under
the Act (and any applicable state securities law) in accordance with
its rights hereunder. Pledgor, however, recognizes that Secured Party
may be unable to effect a public sale of any or all the Pledged
Collateral and may be compelled to resort to one or more private sales
thereof. Pledgor also acknowledges that any such private sale may
result in prices and other terms less favorable to the seller than if
such sale were a public sale. Secured Party shall be under no
obligation to delay a sale of any of the Pledged Collateral for the
period of time necessary to permit the registrant to register such
securities for public sale under the Act, or under applicable state
securities laws, even if Pledgor would agree to do so.
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(g) Pledgor agrees that following the occurrence and during
the continuance of an Event of Default it will not at any time plead,
claim or take the benefit of any appraisal, valuation, stay, extension,
moratorium or redemption law now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute
sale of the whole or any part of the Pledged Collateral or the
possession thereof by any purchaser at any sale hereunder, and Pledgor
waives the benefit of all such laws to the extent it lawfully may do
so. Pledgor agrees that it will not interfere with any right, power and
remedy of Secured Party provided for in this Agreement or now or
hereafter existing at law or in equity or by statute or otherwise, or
the exercise or beginning of the exercise by Secured Party of any one
or more of such rights, powers or remedies. No failure or delay on the
part of Secured Party to exercise any such right, power or remedy and
no notice or demand which may be given to or made upon Pledgor by
Secured Party with respect to any such remedies shall operate as a
waiver thereof, or limit or impair Secured Party's right to take any
action or to exercise any power or remedy hereunder, without notice or
demand, or prejudice its rights as against Pledgor in any respect.
(h) Pledgor further agrees that a breach of any of the
covenants contained in this Section 8 will cause irreparable injury to
Secured Party that Secured Party has no adequate remedy at law in
respect of such breach and, as a consequence, agrees that each and
every covenant contained in this Section 8 shall be specifically
enforceable against Pledgor, and Pledgor hereby waives and agrees not
to assert any defenses against an action for specific performance of
such covenants except for a defense that the Secured Obligations are
not then due and payable in accordance with the agreements and
instruments governing and evidencing such obligations.
9. Application of Proceeds. Any cash held by Secured Party as Pledged
Collateral and all cash proceeds received by Secured Party in respect of any
sale of, liquidation of, or other realization upon all or any part of the
Pledged Collateral shall be applied by Secured Party as follows:
first, to Secured Party in an amount sufficient to pay in full
the expenses of Secured Party in connection with such sale, disposition
or other realization, including all expenses, liabilities and advances
incurred or made by Secured Party in connection therewith, including,
without limitation, reasonable attorneys' fees;
second, to Secured Party in an amount equal to all Secured
Obligations which are then unpaid, in such order as Secured Party in
its discretion may elect; and
finally, after payment in full of all Secured Obligations, to
pay to Pledgor, or its successors or assigns, or to whomsoever may be
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct, any surplus then remaining from such proceeds.
10. Power of Attorney: Proxy.
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(a) Upon and after an Event of Default, Pledgor irrevocably
designates, makes, constitutes and appoints Secured Party (and all
Persons designated by Secured Party) as its true and lawful attorney
(and agent-in-fact) and Secured Party's agent, may, without notice to
Pledgor, and at such time or times thereafter as Secured Party or said
agent, in its discretion, may determine, in the name of Pledgor or
Secured Party (a) transfer the Pledged Collateral on the books of the
issuer thereof, with full power of substitution in the premises; (b)
endorse the name of Pledgor upon any checks, notes, acceptance, money
orders, certificates, drafts or other forms of payment of security that
come into Secured Party's possession; and (c) do all acts and things
necessary, in Secured Party's discretion, to fulfill the obligations of
Pledgor under this Agreement.
(b) Upon the occurrence and during the continuance of any
Event of Default hereunder, Secured Party or its nominee, without
notice or demand of any kind to Pledgor, shall have the sole and
exclusive right to exercise all voting powers pertaining to any and all
of the Pledged Collateral (and to give written consents in lieu of
voting thereon) and may exercise such power in such manner as Secured
Party in its sole discretion, shall determine. THIS PROXY IS COUPLED
WITH AN INTEREST AND IS IRREVOCABLE. The exercise by Secured Party of
any of its rights and remedies under this Section shall not be deemed a
disposition of Pledged Collateral under Article 9 of the Uniform
Commercial Code nor an acceptance by Secured Party of any of the
Pledged Collateral in satisfaction of any of the Obligations.
11. Waiver. No delay on Secured Party's part in exercising any power of
sale, Lien, option or other right hereunder, and no notice or demand which may
be given to or made upon Pledgor by Secured Party with respect to any power of
sale, Lien, option or other right hereunder, shall constitute a waiver thereof,
or limit or impair Secured Party's right to take any action or to exercise any
power of sale, Lien, option, or any other right hereunder, without notice or
demand, or prejudice Secured Party's rights as against Pledgor in any respect.
12. Assignment. Secured Party may assign, endorse or transfer any
instrument evidencing all or any part of the Secured Obligations as provided in,
and in accordance with, the Loan Agreement, and the holder of such instrument
shall be entitled to the benefits of this Agreement (upon assignment hereof and
of the Guaranty).
13. Termination. This Agreement shall terminate and be of no further
force or effect at such time as the principal, interest and all other amounts
owing under or in respect of the Loan Agreement shall be paid in full. Upon such
payment in full, Secured Party shall deliver to Pledgor the Pledged Collateral
at the time subject to this Agreement and then in Secured Party's possession or
control and all instruments of assignment executed in connection herewith, free
and clear of the Liens hereof and, except as otherwise provided herein, all of
Pledgor's obligations hereunder shall at such time terminate.
14. Lien Absolute. All rights of Secured Party hereunder, for itself
and on behalf of Lenders,
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and all obligations of Pledgor hereunder, shall be absolute and unconditional
irrespective of:
(a) any lack of validity or enforceability of the Loan
Agreement, the Notes, any other Loan Document or any other agreement or
instrument governing or evidencing any Secured Obligations or any of
Borrower's or any other obligor's obligations under the Loan Documents;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any part of the Secured Obligations or any
of Borrower's or any other obligor's obligations under the Loan
Documents, or any other amendment or waiver of or any consent to any
departure from the Loan Agreement, the Notes, any other Loan Document
or any other agreement or instrument governing or evidencing any
Secured Obligations or any of Borrower's or any other obligor's
obligations under the Loan Documents;
(c) any exchange, release or non-perfection of any other
collateral, or any release or amendment or waiver of or consent to
departure from any guarantee for all or any of the Secured Obligations
or any of Borrower's or any other obligor's obligations under the
Documents; or
(d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, Pledgor.
15. Release. Pledgor hereby waives notice of acceptance of this
Agreement, and also presentment, demand, protest and notice of dishonor of any
and all of the Secured Obligations or any of Borrower's obligations under the
Loan Documents, and promptness in commencing suit against any party hereto. or
liable hereon, and in giving any notice to or of making any claim or demand
hereunder upon Pledgor. No act or omission of any kind on Secured Party's part
shall in any event affect or impair this Agreement.
16. Reinstatement. This Agreement shall remain in full force and effect
and continue to be effective should any petition be filed by or against Pledgor
for liquidation or reorganization, should Pledgor become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Pledgor's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Secured Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Secured Obligations, whether as a
"voidable preference," "fraudulent conveyance," or otherwise, all as though such
payment or performance had not been made. In the event that any payment, or any
part thereof, is rescinded, reduced, restored or returned, the Secured
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
17. Miscellaneous. This Agreement shall be binding upon Pledgor and its
successors, heirs and assigns, and shall inure to the benefit of, and be
enforceable by, Secured Party and its successors
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and assigns, and shall be governed by, and construed and enforced in accordance
with, the internal laws in effect in the State of Georgia without giving effect
to principles of conflict of laws, and none of the terms or provisions of this
Agreement may be waived, altered, modified or amended except in writing duly
signed for and on behalf of Secured Party and Pledgor.
18. Severability. If for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or effect those portions of this
Agreement which are valid.
19. Notices. Notices hereunder shall be given and effective as set
forth in the Loan Agreement, addressed as follows:
If to Secured Party at:
GE Capital Commercial Finance
3379 Peachtree Street, NE
Suite 600
Atlanta, Georgia 30326
Attn: Elaine L. Moore
Senior Vice President
Facsimile Number: (404) 262-9032
If to Pledgor, at:
BTI Telecom Corp.
4300 Six Forks Road
Raleigh, North Carolina 27609
Attn: Brian Branson,
Chief Financial Officer
Fax No: (919) 510-7061
20. Section Titles. The Section titles 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.
21. Counterparts. This Agreement may be executed in any number of
counterparts, which shall, collectively and separately, constitute one
agreement.
22. Non-Recourse Obligation. NOTWITHSTANDING ANYTHING IN THIS
-----------------------
AGREEMENT TO THE CONTRARY, ANY CLAIM BASED ON OR IN RESPECT OF ANY
LIABILITY OF PLEDGOR HEREUNDER SHALL BE ENFORCED ONLY AGAINST THE
PLEDGED COLLATERAL AND NOT AGAINST ANY OTHER ASSETS, PROPERTIES OR
FUNDS OF PLEDGOR; PROVIDED, HOWEVER, THAT PLEDGOR SHALL NOT BE
EXONERATED OR EXCULPATED BY THIS SECTION 22 IN RESPECT OF FRAUD
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COMMITTED BY PLEDGOR OR IN RESPECT OF ANY LIABILITY OF PLEDGOR TO
SECURED PARTY WHICH LIABILITY WOULD HAVE EXISTED EVEN IN THE ABSENCE
OF THIS AGREEMENT.
IN WITNESS WHEREOF, this Pledge Agreement has been duly executed under
seal as of the date first written above.
BTI Telecom Corp.
Attest:
- --------------------------- By:_______________________________
Secretary Its:_______________________________
[Corporate Seal]
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<PAGE>
EXHIBIT C
[TO EXHIBIT 10.3]
10-1/2% SUBORDINATED PROMISSORY NOTE
due 2007
$169,031,722.90 September 22, 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 BTI
Telecom Corp., a North Carolina corporation (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 set forth
above, in immediately available funds, on September 15, 2007.
Interest Payment Dates: March 15 and September 15
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 Lender by its 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.
1. Principal and Interest.
The Maker will pay the principal of this Note on September 15, 2007.
The Maker promises to pay interest on the principal amount of this Note
on each Interest Payment Date, as set forth herein, at the rate per annum set
forth herein.
Interest will be payable semiannually 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
Lender's Senior Notes due 2007 (the "Senior 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 this Note 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.
<PAGE>
Interest on this Note will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from September 22,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Maker 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.
2. Method of Payment.
The Maker 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 Maker may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to the Lender at its address set forth above. If a
payment date is a date other than a Business Day at the 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. Indenture.
The Lender issued the Senior Notes under an Indenture dated as of
September 22, 1997 (the "Indenture"), among it, Maker and First Trust of New
York, National Association, as trustee (the "Trustee"). Capitalized terms herein
are used as defined in the Indenture unless otherwise indicated. Certain
provisions of the Senior Notes and the Indenture are referenced herein and made
a part hereof.
This Note is a general obligation of the Maker.
4. Optional Redemption.
This Note will be redeemable, at the Maker's option, in whole or in
part, at such time and upon such terms as the Senior Notes are redeemed pursuant
to Section 5, "Optional Redemption", of the Senior Notes and the related
provisions of the Indenture.
5. Repurchase upon Change of Control.
Upon the occurrence of a Change of Control of the Lender, the Lender
shall have the right to require the repurchase of this Note by the Maker in cash
to the extent and upon the terms that any Senior Notes are required to be
repurchased by the Lender pursuant to Section 7, "Repurchase upon Change of
Control", of the Senior Notes and the related provisions of the Indenture.
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<PAGE>
6. Discharge Prior to Redemption or Maturity.
If the Lender elects to deposit with the Trustee money or U.S.
Government Obligations sufficient to pay the then outstanding principal of,
premium, if any, and accrued and unpaid interest on the Senior Notes pursuant to
Section 12, "Discharge Prior to Redemption or Maturity", of the Senior Notes and
the related provisions of the Indenture, the Maker will pay the Lender such
amount hereunder.
7. Defaults and Remedies.
The Events of Default described in Section 16, "Defaults and Remedies",
of the Senior Notes and the related provisions of the Indenture shall constitute
Events of Default hereunder as if this Note were a Senior Note. The remedies
available to the Lender under this Note shall be the same as those provided the
Holders of the Senior Notes, as set forth in such Section of the Senior Notes
and the related provisions of the Indenture.
8. No Recourse Against Others.
No incorporator or any past, present or future partner, shareholder,
other equity holder, officer, director, employee or controlling person as such,
of the Maker or of any successor Person shall have any liability for any
obligation of the Maker under this Note or for any claim based on, in respect of
or by reason of, such obligations or their creation. The Lender by accepting
this Note waives and releases all such liability. The waiver and release are
part of the consideration of the issuance of this Note.
9. Miscellaneous.
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
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<PAGE>
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.
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.
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<PAGE>
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:_______________________________
5
<PAGE>
EXHIBIT C-1
[TO EXHIBIT 10.3]
COLLATERAL ASSIGNMENT OF
RIGHTS UNDER ASSET PURCHASE DOCUMENTS
This COLLATERAL ASSIGNMENT OF RIGHTS UNDER ASSET PURCHASE
DOCUMENTS (the "Assignment") is made and entered into this 22nd day of
September, 1997 by and between BUSINESS TELECOM, INC., a North Carolina
corporation ("BTI"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation ("GE Capital"), as agent (in such capacity "Agent"), on behalf of
itself and those certain other financial institutions from time to time party to
that certain Second Amended and Restated Loan Agreement of even date herewith
("Loan Agreement;" capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to those terms in the Loan Agreement)
and other Loan Documents.
WHEREAS, BTI has purchased the certain assets of FiberSouth, Inc.
("FiberSouth") pursuant to that certain Asset Purchase Agreement dated September
__, 1997 (the "Asset Purchase Agreement") between BTI and FiberSouth (the Asset
Purchase Agreement together with any and all documents executed in connection
therewith collectively referred to herein as the "Asset Purchase Documents");
and
WHEREAS, BTI, Agent and Lenders have entered into the Loan Agreement,
pursuant to which, among other things, Lenders have agreed to extend certain
financial accommodations to BTI and BTI has granted a security interest and
continuing lien to Agent, for the benefit of Lenders, in and on substantially
all of its assets, including, without limitation, BTI's right and remedies under
the Asset Purchase Documents; and
WHEREAS, Lenders have required, as a condition to consummating such
financial accommodations with BTI, that BTI assign to Agent, for the benefit of
Lenders, all of its rights and remedies with respect to the Asset Purchase
Documents;
NOW, THEREFORE, in consideration of the sum $10.00, the premises set
forth herein and for other good and valuable consideration, BTI agrees as
follows:
1. As additional security for the Obligations, BTI hereby assigns and
transfers to Agent, for the benefit of Lenders, all of its rights and remedies
with respect to the Asset Purchase Documents, including without limitation, its
rights and remedies related to the indemnification of BTI by FiberSouth.
2. Prior to the occurrence of an Event of Default under the Loan
Agreement, insofar as BTI may have any right, privilege or claim against
FiberSouth under the Asset Purchase Documents, BTI will use prudent business
judgment concerning its enforcement of such rights and will enforce the same
diligently and in good faith.
3. Effective from and after the occurrence of an Event of Default under
the Loan Agreement, BTI hereby irrevocably authorizes and empowers Agent or its
agent, for the benefit of Lenders, in Agent's sole discretion, to assert, either
directly or on behalf of BTI, any right, privilege
<PAGE>
or claim BTI may, from time to time, have against FiberSouth under the Asset
Purchase Documents as Agent may deem proper and to receive and collect any and
all monies resulting therefrom and to apply the same on account of any of the
Obligations.
4. BTI hereby irrevocably makes, constitutes and appoints Agent (and
all officers, employees and agents designated by Agent), for the benefit of
Lenders, as its true and lawful attorney (and agent-in-fact) for the purposes of
enabling Agent or its agent to assert and collect such claims to apply such
monies in the manner set forth hereinabove.
5. BTI shall keep Agent informed of all material facts bearing upon
BTI's rights and remedies under the Asset Purchase Documents, and BTI shall not
waive, amend, alter or modify any of its rights or remedies under the Asset
Purchase Documents in any material respect without the prior written consent of
Agent.
6. This Assignment shall be construed according to the laws and
decisions of the State of Georgia and shall be binding upon BTI and its
successors and assigns.
7. Notwithstanding the foregoing, BTI expressly acknowledges and agrees
that it shall remain liable under the Asset Purchase Documents to observe and
perform all of the conditions and obligations therein contained to be observed
and performed by it, and that neither this instrument, nor any action taken
pursuant hereto, shall cause Agent to be under any obligation or liability in
any respect whatsoever to any party to the Asset Purchase Documents for the
observance or performance of any of the representations, warranties, conditions,
covenants, agreement or terms therein contained.
IN WITNESS WHEREOF, this instrument has been signed and sealed as of
this 22nd day of September, 1997.
BUSINESS TELECOM, INC.
By: _________________________________
Title: _______________________________
2
<PAGE>
ACKNOWLEDGMENT AND AGREEMENT
The undersigned hereby acknowledges notice of and agrees to permit the
collateral assignment to General Electric Capital Corporation, As agent for the
benefit of the Lenders under the loan Agreement, by BTI of its rights and
remedies under that certain Asset Purchase Agreement, dated _____________, 1997,
between BTI and FiberSouth, Inc., together with all documents executed in
connection therewith (the "Asset Purchase Documents"), pursuant to the foregoing
Collateral Assignment of Rights Under Asset Purchase Documents, dated of even
date herewith, between BTI and Agent, notwithstanding any term of the Asset
Purchase Documents which may be to the contrary.
IN WITNESS WHEREOF, the undersigned has executed this Acknowledgment
and Agreement under seal this ___ day of September, 1997.
Attest: FIBERSOUTH, INC.
_________________________________ By:_________________________________
Secretary Title:______________________________
[CORPORATE SEAL]
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<PAGE>
EXHIBIT D
[TO EXHIBIT 10.3]
General Electric Capital Corporation,
as Agent under the Loan Agreement (herein defined)
3379 Peachtree Road, N.E., Suite 600
Atlanta, Georgia 30326
Attn: Ms. Elaine L. Moore
Re: AGREEMENT OF SUBORDINATION
Ladies and Gentlemen:
The undersigned, BTI Telecom Corp., a North Carolina corporation
("Creditor"), is a creditor of the undersigned, Business Telecom, Inc., a North
Carolina corporation ("Borrower"), whose Liabilities (meaning herein any
obligation of Borrower under any note, agreement, contract of suretyship,
guaranty or accommodation, claim or right of action, and any other obligation of
Borrower however and whenever created, arising or evidenced, whether direct or
indirect, through assignment from third parties, absolute, contingent, or
otherwise, now or hereafter existing, or due or to become due, including all
interest which accrues on any such obligation both before and after the filing
by or against Borrower of a petition under any chapter of Title 11 of the United
States Code, as amended (the "Bankruptcy Code"), together with all collection
costs and attorneys' fees) in favor of Creditor as of the date hereof aggregate
$169,031,722.90, are described on Schedule A attached hereto, and may in the
future increase (all such Liabilities of Borrower in favor of Creditor being
collectively referred to herein as the "Junior Claims").
You are the Agent under a Second Amended and Restated Loan Agreement
dated September 22, 1997 with Borrower (the "Loan Agreement"), pursuant to which
the Lenders (as defined therein) have extended to the Borrower a revolving
credit facility of up to Sixty Million Dollars ($60,000,000) upon the terms and
conditions set forth therein (all Obligations (as defined therein) of Borrower
being collectively referred to herein as the "Senior Claims"). Terms with
initial capital letters not otherwise defined herein shall have the respective
meanings ascribed to such terms in the Loan Agreement. Pursuant to Section 6.3
of the Loan Agreement, Borrower is not permitted to incur additional
indebtedness except for, inter alia, (i) the BTITC Subordinated Debt (as defined
therein), and then only upon your consent to the terms and conditions of the
BTITC Subordinated Debt; and (ii) regularly scheduled payments to Peter T.
Loftin of principal on the Loftin Subordinated Note, not to exceed $100,000 per
month, so long as at the time of payment no Default or Event of Default then
exists under this Agreement or any of the same would be caused by the making of
such payment. For value received, Creditor hereby subordinates and postpones the
Junior Claims to the Senior Claims, and Creditor agrees not to take any action
to enforce the Junior Claims, or in any manner interfere with your collection of
the Senior Claims, until the termination of this Agreement by you and the
payment in full in cash of the Senior Claims.
<PAGE>
Creditor hereby agrees to have entered on any and all instruments and
documents evidencing such Junior Claims such subordination legend as you may
request. In the event that a Junior Claim is not evidenced by a negotiable
instrument, Creditor hereby agrees that it will obtain an instrument or document
from Borrower evidencing such Junior Claim. In the event that any Junior Claim
is not evidenced by a document, it shall nevertheless be deemed subordinated by
virtue of this Agreement, on and under the terms of this Agreement.
Creditor hereby grants to you irrevocable authority in the place and
stead of Creditor and in the name of Creditor or in your name but for the use
and benefit of the Lenders, at any time or times, after any default under the
terms of any of the Senior Claims, in your discretion, to demand, collect,
compromise, file proofs of claim with respect to, receive (by way of dividends
or otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any and
all moneys so collected or received by you shall be retained indefeasibly by you
for application to the payment in full in cash of the Senior Claims then
outstanding; provided, however, that upon the termination of this Agreement by
you and the payment to you of moneys collected or received on account of Junior
Claims and on account of Senior Claims aggregating a cash amount equivalent to
all the matured and unmatured Senior Claims, you shall pay over to Creditor the
excess, if any, of all moneys so received or collected on the Junior Claims and
on the Senior Claims and transfer and assign the balance of the Junior Claims
and the Senior Claims which are still unpaid, and transfer, assign and deliver
to Creditor any and all instruments and documents, without any warranties of any
nature or type whatsoever in respect thereof (endorsed to Creditor without
recourse in the case of negotiable instruments) evidencing such Junior Claims
and Senior Claims. If you receive notice of any claim adverse to the rights or
interests of Creditor in and to either the Junior Claims or the Senior Claims,
or any moneys held by you in respect thereof, you shall be entitled to retain
any and all such moneys, and documents and instruments evidencing such Junior
Claims and Senior Claims without incurring any liability or debt to Creditor,
until the adjudication or final settlement of the rights of such claimant
against Creditor, and Creditor hereby agrees to indemnify and hold you harmless
for any and all liability and expenses incurred by you and arising from or
connected with the assertion of such claims.
Creditor further agrees that until the termination of this Agreement by
you and the payment in full in cash of the Senior Claims, Creditor will not
(except to the extent, but only to the extent, expressly provided hereinafter,
with respect to a Permitted Payment) otherwise accept from Borrower any payment
on account of, or any security for, any Junior Claim. In case Borrower shall
offer any payment on account of, or any security for, any Junior Claim, except
for a Permitted Payment, Creditor will direct that the same be made, or
delivered to you, and in the event of any moneys or security, other than a
Permitted Payment, coming into the hands of Creditor on account of any Junior
Claim from any source whatsoever, Creditor will receive the same solely as your
agent in trust for the Lenders and will immediately turn over to you the same,
in the form received. If Creditor shall fail to endorse any instrument for the
payment of money payable to Creditor or to Creditor's order, which has been
turned over to you, you are hereby irrevocably constituted and
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<PAGE>
appointed attorney-in-fact for Creditor with full power to make any such
endorsement, and with full power of substitution.
Creditor agrees that, without in any manner limiting the prohibition
contained herein against it taking any security for the Junior Claims, (a) any
lien, security interest or claim heretofore or hereafter granted to or retained
or reserved by Creditor in or on any property of Borrower constituting
collateral for the Senior Claims (the "Collateral"), shall be and remain junior,
inferior and subordinate to any lien, security interest or claim heretofore or
hereafter granted to or retained or reserved by you in or on the Collateral,
irrespective of the time or order of attachment or perfection of liens or
security interests in the Collateral, and (b) Creditor shall not take any action
to foreclose, realize upon or otherwise enforce any of its rights in respect of
the Collateral, whether by judicial action or otherwise, or in any manner
interfere with your interest in the Collateral, until the termination of this
Agreement by you and the payment in full in cash of the Senior Claims.
Creditor agrees that until the termination of this Agreement by you and
the payment in full in cash of the Senior Claims, it will not amend, modify or
otherwise alter any of the Junior Claims in any manner which increases the
principal amount thereof or the interest or interest rate payable thereon or
accelerates the scheduled dates of principal and interest payments thereon.
At your request, Creditor hereby further agrees (i) to make notations
on Creditor's books to the effect that any and all Junior Claims are subject to
the provisions of this Agreement, (ii) to give you, upon request from time to
time, reasonable access to Creditor's books and the right to make copies of
relevant portions of such books, and (iii) to furnish you, upon request from
time to time, with statements of any and all accounts between Creditor and
Borrower.
Creditor hereby represents to you that (i) Borrower is now indebted to
Creditor, without counterclaim, defense or offset on the Junior Claims described
in Schedule A, (ii) Creditor has not heretofore assigned, transferred, created a
security interest in, or otherwise encumbered such Junior Claims nor executed or
delivered any other instrument or document adversely affecting such Junior
Claims, (iii) such Junior Claims are not evidenced by or subject to any
instruments or documents except such as have been marked with such subordination
legend as you have requested, and (iv) Creditor is not insolvent within any
meaning of that term as of the date hereof. Creditor agrees with you and for the
benefit of the Lenders that Creditor will not assign, transfer, create a
security interest in, or otherwise encumber, or subordinate in favor of any
other creditor of Borrower, any Junior Claim and that any Junior Claim now or
hereafter existing will not be evidenced by or made subject to any instruments
or documents other than those which have been marked with such subordination
legend as you may have requested.
To the extent of the satisfaction of the Senior Claims, all moneys
received by you on account of any Junior Claims shall belong to you and shall be
retained indefeasibly by you for application to the payment of the Senior
Claims.
For value received, and to induce you to provide your consent with
respect to the incurrence of the Junior Claims evidenced by the Subordinated
Note as described above, which consent is
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<PAGE>
hereby given by you, Borrower agrees that, except as otherwise provided herein,
it will not pay or disburse any money or transfer any property to Creditor in
payment of any of the Junior Claims until the termination of this Agreement by
you and the payment in full in cash of the Senior Claims.
This Agreement is a continuing agreement and, unless you shall have
specifically consented in writing to its revocation, shall remain in full force
and effect in all respects until the payment in full in cash of the Senior
Claims and the termination of any and all financing arrangements between you and
Borrower. If, after the payment in full in cash of all Senior Claims, Borrower
thereafter becomes liable to you on account of any new Senior Claims, this
Agreement shall thereupon in all respects become effective with respect to any
such new Senior Claims without the necessity of any further act or understanding
by Borrower or you.
With or without notice to or further assent from Creditor, you may at
any time or times, either prior to or after any default on the part of Borrower
with respect to either the Junior Claims or the Senior Claims, subject in all
events to the terms of any and all financing arrangements between you and
Borrower: (a) advance or refuse to advance additional credit to Borrower, (b)
grant or refuse to grant any extension, renewal or change in or of the Senior
Claims or any thereof and waive or refuse to waive any default under any
thereof, and modify, rescind or waive (or refuse the same as to) any provision
of any related agreement or collateral undertaking, including, but not by way of
limitation, any provision relating to acceleration of maturity, (c) set off or
fail to set off any or all accrued balances or deposit balances or any part
thereof on your books in favor of Borrower and release or refuse to release the
same, (d) release, exchange, resort to, realize upon, or apply (or fail to do
any of the same with respect to) any security or any part thereof held by or
available to you for the Senior Claims, and (d) generally deal with Borrower in
such manner as you may see fit, consistent with the Loan Agreement, all without
impairing or affecting your rights and remedies under this Agreement. Each such
action and each such failure to act on your part shall be deemed to be in
reliance upon this Agreement. Creditor hereby waives notice of your acceptance
of this Agreement by you and of the effecting by you of any further loans or
extensions of credit to Borrower, and further waives notice of any default at
any time or times on the part of Borrower. This Agreement shall not be affected
or impaired by any extension, renewal, release, arrangement, or composition
which you may grant Borrower.
This Agreement revokes and supersedes any prior agreement of
subordination (if any) with respect to the Junior Claims which may have been
executed by Creditor in your favor; provided, however, that nothing contained
herein shall otherwise affect, modify or impair any other agreement between you
and Borrower or Creditor, including without limitation the Loan Agreement and
the BTITC Pledge Agreement and Guaranty (as defined in the Loan Agreement).
No delay or failure on your part in exercising any right or remedy
shall operate as a waiver thereof; and no single or partial exercise of any
right or remedy shall preclude other or further exercises thereof or the
exercise of any right or remedy; and no notice to or demand on Borrower or
Creditor shall be deemed a waiver of any obligation or duty of Borrower or
Creditor or of your right to take further action without notice or demand; nor
in any event shall any modification,
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alteration or waiver of any of the provisions hereof be effective unless in
writing and signed by your duly authorized representative and then only in the
specific instance for which given.
ALL PARTIES TO THIS AGREEMENT WAIVE TRIAL BY JURY IN ANY LITIGATION
ARISING OUT OF OR RELATING TO THE JUNIOR CLAIMS OR THIS AGREEMENT, AND CREDITOR
WAIVES ALL RIGHTS TO INTERPOSE THEREIN COUNTERCLAIM OR OFFSETS OF ANY KIND.
Your rights and privileges hereunder shall inure to the benefit of all
Lenders (as defined in the Loan Agreement), as well as their and your successors
and assigns, including without limitation any substitute or replacement Agent or
other person or entity providing financing to Borrower, and this Agreement shall
be binding upon the Creditor's and Borrower's respective successors and assigns.
Creditor and Borrower waive notice of assignment hereof.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws and decisions of the State of Georgia. Wherever
possible, each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be found, by a court of competent jurisdiction, to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement; provided,
however, in the event that you determine, in your sole discretion, that any such
partial invalidity or prohibition has materially and negatively affected your
rights or privileges hereunder, you may (but shall not be obligated to)
terminate this Agreement.
Notwithstanding anything to the contrary contained herein, Borrower may
make and Creditor may receive payments of interest on the Junior Claims if, but
only if, at the time of any such payment, such payment is a Permitted Payment
under and as defined in the Loan Agreement.
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IN WITNESS WHEREOF, Creditor and Borrower have executed this Agreement
under seal this 22nd day of September, 1997.
CREDITOR:
---------
BTI TELECOM CORP.
By:
-------------------
Title:
-----------------
BORROWER:
----------
BUSINESS TELECOM, INC.
By:
-----------------------
Title:
-----------------------
Acknowledged and Agreed:
GENERAL ELECTRIC CAPITAL CORPORATION, AGENT
By:
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Title:
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SCHEDULE A
[TO EXHIBIT D TO EXHIBIT 10.3]
$169,031,722.90 Subordinated Promissory Note dated as of September 22, 1997,
executed by Business Telecom, Inc. and payable to the order of BTI Telecom Corp.
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EXHIBIT D-1
[TO EXHIBIT 10.3]
GUARANTY
GUARANTY, dated as of September 22, 1997, made by the undersigned
("Guarantor"). Except as otherwise defined herein, terms used herein and defined
in the Loan Agreement (as hereinafter defined) shall be used herein as therein
defined.
W I T N E S S E T H:
WHEREAS, Business Telecom Inc., a North Carolina corporation and
wholly-owned subsidiary of Guarantor ("Borrower") is a party to that certain
Second Amended and Restated Loan Agreement, dated of even date herewith, among
Borrower, General Electric Capital Corporation and other financial institutions
party thereto from time to time (the "Lenders") and General Electric Capital
Corporation, as Agent (as modified, supplemented or amended from time to time,
the "Loan Agreement"; capitalized terms herein not otherwise defined shall have
the respective meanings assigned to such terms in the Loan Agreement), providing
for the making of Loans and the issuance of Letters of Credit as contemplated
therein (the Agent and the Lenders herein called the "Creditors");
WHEREAS, Guarantor owns 100% of the capital stock of Borrower;
WHEREAS, it is a condition to the making of Loans and the issuance of
Letters of Credit under the Loan Agreement that Guarantor shall have executed
and delivered this Guaranty; and
WHEREAS, Guarantor will obtain benefits from the incurrence of Loans by
Borrower and the issuance of Letters of Credit for the account of Borrower under
the Agreement and, accordingly, desires to execute this Guaranty in order to
satisfy the conditions described in the preceding paragraph and to induce
Lenders to make Loans to Borrower and to issue Letters of Credit for the account
of Borrower.
NOW, THEREFORE, in consideration of the foregoing and other benefits
accruing to Guarantor, the receipt and sufficiency of which are hereby
acknowledged, Guarantor hereby makes the following representations and
warranties to the Creditors and hereby covenants and agrees with each Creditor
as follows:
1. Guarantor irrevocably and unconditionally guarantees (i) the full
and prompt payment when due (whether at the stated maturity, by acceleration or
otherwise) of (x) the principal of and interest on the Revolving Credit Notes
issued by, and the Loans made to, Borrower under the Loan Agreement and all
reimbursement obligations and (y) all other Obligations owing by Borrower to the
Creditors under the Loan Agreement (including, without limitation, indemnities,
Fees and interest thereon) now existing or hereafter incurred under, arising out
of or in connection with the Loan Agreement or any other Loan Document and the
due performance and compliance with the terms of the Loan Documents by Borrower
(all such principal, interest, liabilities and obligations being herein
collectively called the ("Guaranteed Obligations"). Guarantor understands,
agrees and confirms that the Creditors may enforce this Guaranty up to the full
amount of the Guaranteed Obligations against Guarantor without proceeding
against Borrower, against any security for the
<PAGE>
Guaranteed Obligations, or under any other guaranty covering all or a portion of
the Guaranteed Obligations. All payments by Guarantor under this Guaranty shall
be made on the same basis as payments by the Borrower under the Loan Agreement.
2. Additionally, Guarantor, unconditionally and irrevocably, guarantees
the payment of any and all Guaranteed Obligations of Borrower to the Creditors
whether or not due or payable by such Borrower upon the occurrence in respect of
such Borrower of any of the events specified in Section 8.1(j) of the Loan
Agreement, and unconditionally and irrevocably promises to pay such Guaranteed
Obligations to the Creditors, on demand, in lawful money of the United States.
3. The liability of Guarantor hereunder is exclusive and independent of
any security for or other guaranty of the indebtedness of Borrower whether
executed by such Guarantor, any other guarantor or by any other party, and the
liability of Guarantor hereunder shall not be affected or impaired by (a) any
direction as to application of payment by Borrower or by any other party, (b)
any other continuing or other guaranty, undertaking or maximum liability of a
guarantor or of any other party as to the indebtedness of Borrower, (c) any
payment on or in reduction of any such other guaranty or undertaking, (d) any
dissolution, termination or increase, decrease or change in personnel by such
Borrower or (e) any payment made to any Creditor on the indebtedness which any
Creditor repays such Borrower pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
Guarantor waives any right to the deferral or modification of its obligations
hereunder by reason of any such proceeding.
4. The obligations of Guarantor hereunder are independent of the
obligations of any other guarantor or Borrower, and a separate action or actions
may be brought and prosecuted against Guarantor whether or not action is brought
against any other guarantor or Borrower and whether or not any other guarantor
or Borrower be joined in any such action or actions. Guarantor waives, to the
fullest extent permitted by law, the benefit of any statute of limitations
affecting its liability hereunder or the enforcement thereof. Any payment by
Borrower or other circumstance which operates to toll any statute of limitations
as to Borrower shall operate to toll the statute of limitations as to Guarantor.
5. Any Creditor may at any time and from time to time without the
consent of, or notice to Guarantor, without incurring responsibility to
Guarantor, without impairing or releasing the obligations of Guarantor
hereunder, upon or without any terms or conditions and in whole or in part:
(1) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew or alter, any of the Guaranteed
Obligations, any security thereof, or any liability incurred directly or
indirectly in respect thereof, and the guaranty herein made shall apply to the
Guaranteed Obligations as so changed, extended, renewed or altered;
(2) sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by whomsoever at
any time pledged or mortgaged to secure, or howsoever at any time pledged or
mortgaged to secure, or howsoever securing, the Guaranteed
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Obligations or any liabilities (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and/or any offset
there-against;
(3) exercise or refrain from exercising any rights against
Borrower or others or otherwise act or refrain from acting;
(4) settle or compromise any of the Guaranteed Obligations, any
security therefor or any liability (including any of those hereunder) incurred
directly or indirectly in respect thereof or hereof, and may subordinate the
payment of all or any part thereof to the payment of any liability (whether due
or not) of Borrower to creditors of Borrower;
(5) apply any sums by whomsoever paid or howsoever realized to
any liability or liabilities of Borrower to the Creditors regardless of what
liabilities of such Borrower remain unpaid;
(6) consent to or waive any breach of, or any act, omission or
default under, any of the Credit Documents or any of the instruments or
agreements referred to therein, or otherwise amend, modify or supplement any of
the Loan Documents or any of such other instruments or agreements; and/or
(7) act or fail to act in any manner referred to in this
Guaranty which may deprive Guarantor of its right to subrogation against
Borrower to recover full indemnity for any payments made pursuant to this
Guaranty.
6. No invalidity, irregularity or unenforceability of all or any part
of the Guaranteed Obligations or of any security thereof shall affect, impair or
be a defense to this Guaranty, and this Guaranty shall be primary, absolute and
unconditional notwithstanding the occurrence of any event or the existence of
any other circumstances which might constitute a legal or equitable discharge of
a surety or guarantor except payment in full of the Guaranteed Obligations.
7. This Guaranty is a continuing one and all liabilities to which it
applies or may apply under the terms hereof shall be conclusively presumed to
have been created in reliance hereon. No failure or delay on the part of any
Creditor in exercising any right, power or privilege hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
expressly specified are cumulative and not exclusive of any rights or remedies
which any Creditor would otherwise have. No notice to or demand on Guarantor in
any case shall entitle Guarantor to any other further notice or demand in
similar or other circumstances or constitute a waiver of the rights of any
Creditor to any other or further action in any circumstances without notice or
demand. It is not necessary for any Creditor to inquire into the capacity or
powers of Borrower or any Subsidiaries of Borrower or the officers, directors,
partners or agents acting or purporting to act on its behalf, and any
indebtedness made or created in reliance upon the professed exercise of such
powers shall be guaranteed hereunder.
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8. (a) Guarantor waives any right (except as shall be required by
applicable statute and cannot be waived) to require the Creditors to (i) proceed
against Borrower, any other guarantor or any other party, (ii) proceed against
or exhaust any security held from Borrower, any other guarantor or any other
party or (iii) pursue any other remedy in the Agent's or the Creditors' power
whatsoever. Guarantor waives any defense based on or arising out of any defense
of Borrower, any other guarantor or any other party other than payment in full
of the Guaranteed Obligations, including without limitation any defense based on
or arising out of the disability of Borrower, any other guarantor or any other
party, or the unenforceability of the Guaranteed Obligations or any part thereof
from any cause, or the cessation from any cause of the liability of Borrower
other than payment in full of the Guaranteed Obligations. The Creditors may, at
their election, foreclose on any security held by the Agent, or the other
Creditors by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Creditors may have against Borrower or any other party, or any security, without
affecting or impairing in any way the liability of Guarantor hereunder except to
the extent the Guaranteed Obligations have been paid in full. Guarantor waives
any defense arising out of any such election by the Creditors, even though such
election operates to impair or extinguish any right of reimbursement or
subrogation or other right or remedy of Guarantor against Borrower or any other
party or any security.
(b) Guarantor waives all presentments, demands for
performance, protests and notices, including without limitation notices of
nonperformance, notices of protest, notices of dishonor, notices of acceptance
of this Guaranty, and notices of the existence, creation or incurring of new or
additional indebtedness. Guarantor assumes all responsibility for being and
keeping itself informed of Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the Guaranteed
Obligations and the nature, scope and extent of the risks which Guarantor
assumes and incurs hereunder, and agrees that the Creditors shall have no duty
to advise Guarantor of information known to them regarding such circumstances or
risks.
(c) Except as otherwise provided in clause (d) below,
Guarantor hereby waives all rights of subrogation which it may at any time
otherwise have as a result of this Guaranty (whether contractual, under Section
509 of the Bankruptcy Code, or otherwise) to the claims of the Creditors against
Borrower or any other guarantor of the Guaranteed Obligations (collectively, the
"Other Parties") and all contractual, statutory or common law rights of
reimbursement, contribution or indemnity from any Other Party which it may at
any time otherwise have as a result of this Guaranty. Guarantor hereby further
waives any right to enforce any other remedy which the Creditors now have or may
hereafter have against any Other Party, any endorser or any other guarantor of
all or any part of the Guaranteed Obligations and any benefit of, and any right
to participate in, any security or collateral given to or for the benefit of the
Creditors to secure payment of the Guaranteed Obligations.
(d) Notwithstanding the provisions of the preceding clause
(c), (A) Guarantor shall have and be entitled to (i) all rights of subrogation
otherwise provided by law in respect of any
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payment it may make or be obligated to make under this Guaranty and (ii) all
claims (as defined in the Bankruptcy Code) it would have against any Other Party
in the absence of the preceding clause (c), and to assert and enforce same, and
(B) the provisions of clause (c) above shall be of no further force and effect,
in each case on and after, but at no time prior to, the earlier of (I) the date
(the "Subrogation Trigger Date") which is one year and one day after the date on
which all the Guaranteed Obligations owing to any of the Creditors have been
paid in full if and only if (i) no Default or Event of Default of the type
described in Section 8.01(j) of the Loan Agreement with respect to the
respective Other Party has existed at any time on and after the date of this
Guaranty to and including the Subrogation Trigger Date and (ii) the existence of
Guarantor's rights under this clause (d) would not make such Guarantor a
creditor (as defined in the Bankruptcy Code) of the respective Other Party in
any insolvency, bankruptcy, reorganization or similar proceeding commenced on or
prior to the Subrogation Trigger Date or (II) the effective date of any
amendment to Title 11 of the United States Code or of any decision of the United
States Supreme Court that in the sole opinion of the Agent provides, in effect,
that the status of Guarantor as an insider creditor of the respective Other
Party in property (including payments or grants of security interests by such
Other Party) to any Creditor to be subject to avoidance as a preference for a
longer period of time than if the Guaranteed Obligations of such Other Party had
not been guaranteed or otherwise secured by such Guarantor or its assets.
9. In order to induce the respective Creditors to extend credit as
contemplated by the agreements referred to above, Guarantor represents, warrants
and covenants that:
(1) Guarantor and each of its Subsidiaries (i) is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its incorporation and has the corporate power and authority
to own its property and assets and to transact the business in which it is
engaged and presently proposes to engage and (ii) is duly qualified and is
authorized to do business and is in good standing in all jurisdictions where the
failure to be so qualified would have a material adverse effect on the business,
property, assets, liabilities, condition (financial or otherwise) or prospects
of Borrower and its Subsidiaries taken as a whole.
(2) Guarantor has the corporate power and authority to
execute, deliver and carry out the terms and provisions of this Guaranty and has
taken all necessary corporate action to authorize the execution, delivery and
performance by it of this Guaranty. Guarantor has duly executed and delivered
this Guaranty, and this Guaranty constitutes the legal, valid and binding
obligations of Guarantor enforceable in accordance with its terms, except to the
extent that the enforceability hereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws generally affecting
creditors' rights and by equitable principles (regardless of whether enforcement
is sought in equity or at law).
(3) Neither the execution, delivery or performance by
Guarantor of this Guaranty, nor compliance by it with the terms and provisions
hereof, (i) will contravene in any material respect any applicable provision of
any law, statute, rule or regulation or any order, writ, injunction or decree of
any court or governmental instrumentality, (ii) will conflict or be inconsistent
with or result
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in any breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien upon any of the property or assets of
such Guarantor or any of its Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement, loan agreement or other
material agreement or instrument to which such Guarantor or any of its
Subsidiaries is a party or by which it or any of its property or assets is bound
or to which it may be subject, including, without limitation, the BTITC Senior
Notes or (iii) will violate any provision of the Articles of Incorporation or
By-Laws of Guarantor or any of its Subsidiaries.
(4) No order, consent, approval, license, authorization or
validation of, or filing, recording or registration with, or exemption by, any
governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of this Guaranty, or (ii) the legality, validity,
binding effect or enforceability of this Guaranty, except those which have been
obtained or made.
10. Guarantor covenants and agrees that on and after the date hereof
and until the Commitment Termination Date and until all Guaranteed Obligations
have been paid in full:
(1) Guarantor shall take, or will refrain from taking, as the
case may be, all actions that are necessary to be taken or not taken so that no
violation of any provision, covenant or agreement contained in Sections 4, 5 or
6 of the Loan Agreement, and so that no Event of Default, is caused by the
actions of Guarantor or any of its Subsidiaries.
(2) Immediately upon receipt by Guarantor of proceeds of any
asset disposition or any sale of Stock of any Subsidiary of Guarantor, Guarantor
shall cause to be transferred to Borrower (by way of capital contribution, a
loan which shall constitute Indebtedness under the BTITC Subordinated Note or in
another manner acceptable to Agent) for immediate application to all then
outstanding Loans, an amount equal to all such proceeds, net of all reasonable
legal and investment banking fees and expenses, title and recording tax
expenses, regulatory approvals and other reasonable and customary fees and
expenses incurred or agreed to be incurred, all foreign, federal, state and
local or other Taxes estimated to be payable currently, attributable thereto,
and the amount of any contractually required repayments of Indebtedness on such
assets or Stock.
(3) If Guarantor or any Subsidiary of Guarantor (other than
Borrower) issues Stock or any debt securities (including, without limitation,
the BTITC Senior Notes), Guarantor shall no later than the Business Day
following the date of receipt of the proceeds thereof cause to be transferred to
Borrower (by way of capital contribution a subordinated intercompany loan or in
another manner acceptable to Agent) for immediate application to all then
outstanding Loans, an amount equal to all such proceeds, net of underwriting
discounts and commissions and other reasonable costs paid to non-Affiliates in
connection therewith; provided, however, that in the case of the proceeds of the
BTITC Senior Notes, such application shall apply to such amounts other than the
Interest Reserve and the Fiber South Portion of Net Proceeds.
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(4) Guarantor 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. No Subsidiary of Guarantor shall make any payment to a
creditor of Guarantor in respect of any liability of Guarantor, and no bank
account of Guarantor shall be commingled with any bank account of any Subsidiary
of Guarantor. Any financial statements distributed to any creditors of Guarantor
shall, to the extent permitted by GAAP, clearly establish the corporate
separateness of Guarantor from Borrower and each of Guarantor's other
Subsidiaries (if any). Finally, neither Guarantor nor any Subsidiary of
Guarantor shall take any action, or conduct its affairs in a manner, which is
likely to result in the separate corporate existence of Guarantor from that of
Borrower or any other Subsidiary of Guarantor (if any) being ignored, or in the
assets and liabilities of Borrower or any other Subsidiary of Guarantor (if any)
being substantively consolidated with those of Guarantor in a bankruptcy,
reorganization or other insolvency proceedings.
11. Guarantor hereby agrees to pay all reasonable out-of-pocket costs
and expenses (x) of each Creditor in connection with the enforcement of this
Guaranty and, after an Event of Default shall have occurred and be continuing,
the protection of such Creditor's rights hereunder and (y) of the Agent in
connection with any amendment, waiver or consent relating hereto (including,
without limitation, the reasonable fees and disbursements of counsel (including
in-house counsel) employed by any of the Creditors or by the Agent, as the case
may be).
12. This Guaranty shall be binding upon Guarantor and its successors
and assigns and shall inure to the benefit of the Creditors and their successors
and assigns.
13. Neither this Guaranty nor any provision hereof may be changed,
waived, discharged or terminated except with the written consent of the Required
Lenders (or to the extent required by Section 11.1 of the Loan Agreement, with
the written consent of each Lender) and Guarantor.
14. Guarantor acknowledges that an executed (or conformed) copy of each
of the Loan Documents has been made available to its principal executive
officers and such officers are familiar with the contents thereof.
15. 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 an Event of Default, each Creditor is hereby
authorized at any time or from time to time, without notice to Guarantor or to
any other Person, any such notice being expressly waived, to set off and to
appropriate and apply any and all deposits (general or special) and any other
indebtedness at any time held or owing by such Creditor to or for the credit or
the account of Guarantor, against and on account of the obligations and
liabilities of such Guarantor to such Creditor under this Guaranty, irrespective
of whether or not such Creditor shall have made any demand hereunder and
although said obligations, liabilities, deposits or claims, or any of them,
shall be contingent or unmatured.
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16. All notices, requests, demands or other communications pursuant
hereto shall be deemed to have been duly given or made when delivered to the
Person to which such notice, request, demand or other communication is required
or permitted to be given or made under this Guaranty, addressed to such party
(i) in the case of any Creditor, as provided in the Loan Agreement, (ii) in the
case of Guarantor, at its address set forth opposite its signature below or in
any case at such other address as any of the Persons listed above may hereafter
notify the others in writing.
17. If claim is ever made upon any Creditor for repayment or recovery
of any amount or amounts received in payment or on account of any of the
Guaranteed Obligations and any of the aforesaid payees repays all or part of
said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property
or (b) any settlement or compromise of any such claim effected by such payee
with any such claimant (including Borrower), then and in such event Guarantor
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon Guarantor, notwithstanding any revocation hereof or other
instrument evidencing any liability of Borrower, and Guarantor shall be and
remain liable to the aforesaid payees hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by any such payee.
18. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF THE CREDITORS AND
OF THE UNDERSIGNED HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAW OF THE STATE OF GEORGIA APPLICABLE TO CONTRACTS MADE AND PERFORMED
IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.
GUARANTOR 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 GUARANTOR, AGENT AND CREDITORS PERTAINING TO THIS GUARANTY OR
ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATED TO
THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT AGENT,
CREDITORS AND GUARANTOR 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 CREDITORS 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 CREDITORS. GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GUARANTOR
HEREBY WAIVES ANY OBJECTION WHICH GUARANTOR 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
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APPROPRIATE BY SUCH COURT. GUARANTOR 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 GUARANTOR AT THE ADDRESS SET FORTH IN
SECTION 11.8 OF THE LOAN AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
COMPLETED UPON THE EARLIER OF GUARANTOR'S ACTUAL RECEIPT THEREOF OR THREE (3)
DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
19. 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, CREDITORS AND GUARANTOR ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH, THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS RELATED THERETO.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed
and delivered as of the date first above written.
BTI TELECOM CORP.
By:
-----------------------
Name:
Title:
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EXHIBIT E
[TO EXHIBIT 10.3]
General Electric Capital Corporation,
as Agent under the Loan Agreement (herein defined)
3379 Peachtree Road, N.E., Suite 600
Atlanta, Georgia 30326
Attn: Ms. Elaine L. Moore
Re: AGREEMENT OF SUBORDINATION
Ladies and Gentlemen:
The undersigned, Peter T. Loftin ("Loftin") holds stock in the
undersigned, Business Telecom, Inc., a North Carolina corporation ("Borrower"),
and has made and will continue to make certain loans or financial accommodations
to Borrower whose Liabilities (meaning herein any obligation of Borrower under
any note, agreement, contract of suretyship, guaranty or accommodation, claim or
right of action, and any other obligation of Borrower however and whenever
created, arising or evidenced, whether direct or indirect, through assignment
from third parties, absolute, contingent, or otherwise, now or hereafter
existing, or due or to become due, including all interest which accrues on any
such obligation both before and after the filing by or against Borrower of a
petition under any chapter of Title 11 of the United States Code, as amended
(the "Bankruptcy Code"), together with all collection costs and attorneys' fees)
in favor of Loftin as of the date hereof aggregate $1,930,493.00, plus accrued
interest, are described on Schedule A attached hereto, and may in the future
increase (all such Liabilities of Borrower in favor of Loftin being collectively
referred to herein as the "Junior Claims").
You are the Agent under a Second Amended and Restated Loan Agreement
dated September 22, 1997 with Borrower (the "Loan Agreement"), pursuant to which
the Lenders (as defined therein) have extended to the Borrower a revolving
credit facility of up to Sixty Million Dollars ($60,000,000) upon the terms and
conditions set forth therein (all Obligations (as defined therein) of Borrower
being collectively referred to herein as the "Senior Claims"). Terms with
initial capital letters not otherwise defined herein shall have the respective
meanings ascribed to such terms in the Loan Agreement. Pursuant to Section 6.3
of the Loan Agreement, Borrower is not permitted to incur additional
indebtedness except for, inter alia, (i) the BTITC Subordinated Debt (as defined
therein); and (ii) regularly scheduled payments to Peter T. Loftin of principal
on the Loftin Subordinated Note, not to exceed $100,000 per month, so long as at
the time of payment no Default or Event of Default then exists under this
Agreement or any of the same would be caused by the making of such payment, and
then only upon your consent to the terms and conditions of the BTITC
Subordinated Debt. For value received, Loftin hereby subordinates and postpones
the Junior Claims to the Senior Claims, and Loftin agrees not to take any action
to enforce the Junior Claims, or in any manner interfere with your collection of
the Senior Claims, until the termination of this Agreement by you and the
payment in full in cash of the Senior Claims.
Loftin hereby agrees to have entered on any and all instruments and
documents evidencing such Junior Claims such subordination legend as you may
request. In the event that a Junior Claim is not evidenced by a negotiable
instrument, Loftin hereby agrees that it will obtain an instrument or document
from Borrower evidencing such Junior Claim. In the event that any Junior Claim
is not
<PAGE>
evidenced by a document, it shall nevertheless be deemed subordinated by
virtue of this Agreement, on and under the terms of this Agreement.
Loftin hereby grants to you irrevocable authority in the place and
stead of Loftin and in the name of Loftin or in your name but for the use and
benefit of the Lenders, at any time or times, after any default under the terms
of any of the Senior Claims, in your discretion, to demand, collect, compromise,
file proofs of claim with respect to, receive (by way of dividends or otherwise)
and take any and all legal proceedings for the recovery of any and all moneys
due or to become due on account of the Junior Claims or any thereof, and to
vote, give consents and take any other steps with regard thereto. Any and all
moneys so collected or received by you shall be retained indefeasibly by you for
application to the payment in full in cash of the Senior Claims then
outstanding; provided, however, that upon the termination of this Agreement by
you and the payment to you of moneys collected or received on account of Junior
Claims and on account of Senior Claims aggregating a cash amount equivalent to
all the matured and unmatured Senior Claims, you shall pay over to Loftin the
excess, if any, of all moneys so received or collected on the Junior Claims and
on the Senior Claims and transfer and assign the balance of the Junior Claims
and the Senior Claims which are still unpaid, and transfer, assign and deliver
to Loftin any and all instruments and documents, without any warranties of any
nature or type whatsoever in respect thereof (endorsed to Loftin without
recourse in the case of negotiable instruments) evidencing such Junior Claims
and Senior Claims. If you receive notice of any claim adverse to the rights or
interests of Loftin in and to either the Junior Claims or the Senior Claims, or
any moneys held by you in respect thereof, you shall be entitled to retain any
and all such moneys, and documents and instruments evidencing such Junior Claims
and Senior Claims without incurring any liability or debt to Loftin, until the
adjudication or final settlement of the rights of such claimant against Loftin,
and Loftin hereby agrees to indemnify and hold you harmless for any and all
liability and expenses incurred by you and arising from or connected with the
assertion of such claims.
Loftin further agrees that until the termination of this Agreement by
you and the payment in full in cash of the Senior Claims, Loftin will not
otherwise (except to the extent of any Permitted Payment) accept from Borrower
any payment on account of, or any security for, any Junior Claim. In case
Borrower shall offer any payment on account of, or any security for, any Junior
Claim, Loftin will direct that the same be made, or delivered to you, and in the
event of any moneys or security, coming into the hands of Loftin on account of
any Junior Claim from any source whatsoever, Loftin will receive the same solely
as your agent in trust for the Lenders and will immediately turn over to you the
same, in the form received. If Loftin shall fail to endorse any instrument for
the payment of money payable to Loftin or to Loftin's order, which has been
turned over to you, you are hereby irrevocably constituted and appointed
attorney-in-fact for Loftin with full power to make any such endorsement, and
with full power of substitution.
Loftin agrees that, without in any manner limiting the prohibition
contained herein against it taking any security for the Junior Claims, (a) any
lien, security interest or claim heretofore or hereafter granted to or retained
or reserved by Loftin in or on any property of Borrower constituting collateral
for the Senior Claims (the "Collateral"), shall be and remain junior, inferior
and
2
<PAGE>
subordinate to any lien, security interest or claim heretofore or hereafter
granted to or retained or reserved by you in or on the Collateral, irrespective
of the time or order of attachment or perfection of liens or security interests
in the Collateral, and (b) Loftin shall not take any action to foreclose,
realize upon or otherwise enforce any of its rights in respect of the
Collateral, whether by judicial action or otherwise, or in any manner interfere
with your interest in the Collateral, until the termination of this Agreement by
you and the payment in full in cash of the Senior Claims.
Loftin agrees that until the termination of this Agreement by you and
the payment in full in cash of the Senior Claims, it will not amend, modify or
otherwise alter any of the Junior Claims in any manner which increases the
principal amount thereof or the interest or interest rate payable thereon or
accelerates the scheduled dates of principal and interest payments thereon.
At your request, Loftin hereby further agrees (i) to make notations on
Loftin's books to the effect that any and all Junior Claims are subject to the
provisions of this Agreement, (ii) to give you, upon request from time to time,
reasonable access to Loftin's books and the right to make copies of relevant
portions of such books, and (iii) to furnish you, upon request from time to
time, with statements of any and all accounts between Loftin and Borrower.
Loftin hereby represents to you that (i) Borrower is now indebted to
Loftin, without counterclaim, defense or offset on the Junior Claims described
in Schedule A, (ii) Loftin has not heretofore assigned, transferred, created a
security interest in, or otherwise encumbered such Junior Claims nor executed or
delivered any other instrument or document adversely affecting such Junior
Claims, (iii) such Junior Claims are not evidenced by or subject to any
instruments or documents except such as have been marked with such subordination
legend as you have requested, and (iv) Loftin is not insolvent within any
meaning of that term as of the date hereof. Loftin agrees with you and for the
benefit of the Lenders that Loftin will not assign, transfer, create a security
interest in, or otherwise encumber, or subordinate in favor of any other Loftin
of Borrower, any Junior Claim and that any Junior Claim now or hereafter
existing will not be evidenced by or made subject to any instruments or
documents other than those which have been marked with such subordination legend
as you may have requested.
To the extent of the satisfaction of the Senior Claims, all moneys
received by you on account of any Junior Claims shall belong to you and shall be
retained indefeasibly by you for application to the payment of the Senior
Claims.
For value received, and to induce you to provide your consent with
respect to the incurrence of the Junior Claims evidenced by the Subordinated
Note as described above, which consent is hereby given by you, Borrower agrees
that, except as otherwise provided herein, it will not pay or disburse any money
or transfer any property to Loftin in payment of any of the Junior Claims until
the termination of this Agreement by you and the payment in full in cash of the
Senior Claims.
This Agreement is a continuing agreement and, unless you shall have
specifically consented in writing to its revocation, shall remain in full force
and effect in all respects until the payment in
3
<PAGE>
full in cash of the Senior Claims and the termination of any and all financing
arrangements between you and Borrower. If, after the payment in full in cash of
all Senior Claims, Borrower thereafter becomes liable to you on account of any
new Senior Claims, this Agreement shall thereupon in all respects become
effective with respect to any such new Senior Claims without the necessity of
any further act or understanding by Borrower or you.
With or without notice to or further assent from Loftin, you may at any
time or times, either prior to or after any default on the part of Borrower with
respect to either the Junior Claims or the Senior Claims, subject in all events
to the terms of any and all financing arrangements between you and Borrower: (a)
advance or refuse to advance additional credit to Borrower, (b) grant or refuse
to grant any extension, renewal or change in or of the Senior Claims or any
thereof and waive or refuse to waive any default under any thereof, and modify,
rescind or waive (or refuse the same as to) any provision of any related
agreement or collateral undertaking, including, but not by way of limitation,
any provision relating to acceleration of maturity, (c) set off or fail to set
off any or all accrued balances or deposit balances or any part thereof on your
books in favor of Borrower and release or refuse to release the same, (d)
release, exchange, resort to, realize upon, or apply (or fail to do any of the
same with respect to) any security or any part thereof held by or available to
you for the Senior Claims, and (d) generally deal with Borrower in such manner
as you may see fit, consistent with the Loan Agreement, all without impairing or
affecting your rights and remedies under this Agreement. Each such action and
each such failure to act on your part shall be deemed to be in reliance upon
this Agreement. Loftin hereby waives notice of your acceptance of this Agreement
by you and of the effecting by you of any further loans or extensions of credit
to Borrower, and further waives notice of any default at any time or times on
the part of Borrower. This Agreement shall not be affected or impaired by any
extension, renewal, release, arrangement, or composition which you may grant
Borrower.
This Agreement revokes and supersedes any prior agreement of
subordination (if any) with respect to the Junior Claims which may have been
executed by Loftin in your favor; provided, however, that nothing contained
herein shall otherwise affect, modify or impair any other agreement between you
and Borrower or Loftin, including without limitation the Loan Agreement and the
BTITC Pledge Agreement and Guaranty (as defined in the Loan Agreement).
No delay or failure on your part in exercising any right or remedy
shall operate as a waiver thereof; and no single or partial exercise of any
right or remedy shall preclude other or further exercises thereof or the
exercise of any right or remedy; and no notice to or demand on Borrower or
Loftin shall be deemed a waiver of any obligation or duty of Borrower or Loftin
or of your right to take further action without notice or demand; nor in any
event shall any modification, alteration or waiver of any of the provisions
hereof be effective unless in writing and signed by your duly authorized
representative and then only in the specific instance for which given.
ALL PARTIES TO THIS AGREEMENT WAIVE TRIAL BY JURY IN ANY LITIGATION
ARISING OUT OF OR RELATING TO THE JUNIOR CLAIMS OR THIS
4
<PAGE>
AGREEMENT, AND Loftin WAIVES ALL RIGHTS TO INTERPOSE THEREIN COUNTERCLAIM
OR OFFSETS OF ANY KIND.
Your rights and privileges hereunder shall inure to the benefit of all
Lenders (as defined in the Loan Agreement), as well as their and your successors
and assigns, including without limitation any substitute or replacement Agent or
other person or entity providing financing to Borrower, and this Agreement shall
be binding upon the Loftin's and Borrower's respective successors and assigns.
Loftin and Borrower waive notice of assignment hereof.
This Agreement shall be governed by, and construed and enforced in
accordance with, the laws and decisions of the State of Georgia. Wherever
possible, each provision of this Agreement shall be interpreted in such a manner
as to be effective and valid under applicable law, but if any provision of this
Agreement shall be found, by a court of competent jurisdiction, to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement; provided,
however, in the event that you determine, in your sole discretion, that any such
partial invalidity or prohibition has materially and negatively affected your
rights or privileges hereunder, you may (but shall not be obligated to)
terminate this Agreement.
Notwithstanding anything to the contrary contained herein, Borrower may
make and Creditor may receive payments of interest on the Junior Claims if, but
only if, at the time of any such payment, such payment is a Permitted Payment
under and as defined in the Loan Agreement.
5
<PAGE>
IN WITNESS WHEREOF, Loftin and Borrower have executed this Agreement
under seal this 22nd day of September, 1997.
LOFTIN:
------
Peter T. Loftin
BORROWER:
--------
BUSINESS TELECOM, INC.
By:
------------------------------
Title:
------------------------------
Acknowledged and Agreed:
GENERAL ELECTRIC CAPITAL CORPORATION, AGENT
By:
------------------------------
Title:
---------------------------------
6
<PAGE>
SCHEDULE A
[TO EXHIBIT E TO EXHIBIT 10.3]
$1,930,493 Subordinated Promissory Note dated as of August 31, 1997, executed by
Business Telecom, Inc. and payable to the order of Peter T. Loftin.
7
<PAGE>
EXHIBIT F
[TO EXHIBIT 10.3]
PERFECTION CERTIFICATE
(UCC Financing Statements)
The undersigned Chief Financial Officer of Business Telecom, Inc., a
North Carolina corporation (the "Company"), hereby certifies, with reference to
that certain Second Amended and Restated Loan Agreement, dated as of September
22, 1997 (the "Loan Agreement; capitalized terms not defined herein shall have
the same meanings set forth in the Loan Agreement), among the Company, General
Electric Capital Corporation and the other financial institutions party thereto
from time to time, as Lenders, and General Electric Capital Corporation, as
Agent (the "Agent"), to the Agent as follows:
1. Names.
-----
(a) The exact corporate name of the Company as that name appears on its
Articles of Incorporation is as follows:
Business Telecom, Inc.
(b) The following is a list of all other names (including trade names
or similar appellations) used by the Company, or any other business or
organization to which the Company became the successor by merger, consolidation,
acquisition, change in form, nature or jurisdiction of organization or
otherwise, now or at any time during the past five years:
- BTI - BTITC
- Business Telecommunications Services - FiberSouth, Inc.
- BTI Telecommunications Services
(c) The following is the Company's federal employer identification
number:
56-1426866
(d) The following is the federal employer identification number for
FiberSouth:
56-1781022
2. Current Locations.
(a) The chief executive office of the Company is located at the
following address:
<PAGE>
Mailing Address County State
--------------- ------ ------
4300 Six Forks Road Wake North Carolina 27609
Suite 900
Raleigh
(b) The following are all other locations in the United States of
America in which the Company maintains any books or records relating to any of
the collateral consisting of accounts, contract rights, chattel paper, general
intangibles or mobile goods:
Mailing Address County State
- --------------- ------- ------
4300 Six Forks Road Wake North Carolina 27609
Suite 500
Raleigh
<TABLE>
<CAPTION>
(c) The following are all other places of business of the Company in
the United States of America:
Mailing Address County State
- -------------- ------- ------
<S> <C> <C>
5605 Seventy Seven Center Drive Mecklenberg North Carolina 28217
Suite 200
Charlotte
1701 Pinecroft Road Guilford North Carolina 27407
Suite 106
Greensboro
2200 South Charles Blvd. Pitt North Carolina 27858
Suite 215
Greenville
5041 New Centre Drive New Hanover North Carolina 28403
Suite 214
Wilmington
1117 Perimeter Center West Dekalb Georgia 30338
Suite N401
Atlanta
1111 Northshore Drive Knox Tennessee 37405
Suite N560
Knoxville
<PAGE>
<CAPTION>
Mailing Address County State
- -------------- ------- ------
<S> <C> <C>
3100 West End Avenue Davidson Tennessee 37203
Suite 670
Nashville
701 W. Cypress Creek Road Broward Florida 33309
Suite 304
1 Cypress Corp. Park
Ft. Lauderdale
6622 Southpoint Drive South Duval Florida 32216
Suite 450
Jacksonville
4350 W. Cypress Street Hillsboro Florida 33607
Suite 850
Tampa
1201 Main Street Dallas Texas 75202
Suite 1350
Dallas
201 S. Orange Orange Florida 32801
Suite 750
Orlando
5420 LBJ Freeway Dallas Texas
Two Lincoln Center
Suite 350
Dallas
800 Magnolia Avenue Orange Florida 32803
Suite 1650
Orlando
3140 Chapparal Drive Roanoke Virginia 24018
Suite 203
Roanoke
Atrium Store Richland South Carolina 29210
140 Stone Ridge Drive
Columbia
<PAGE>
<CAPTION>
Mailing Address County State
- -------------- ------- ------
<S> <C> <C>
555 N. Pleasantburg Drive Greenville South Carolina 29607
Suite 205
Greenville
5900 Core Drive Charleston South Carolina 29406-
Suite 402 6056
North Charleston
7501 Boulders View Drive Chesterfield Virginia 24018
Suite 105
Richmond
8500 Leesburg Pike Fairfax Virginia 22182
Suite 7400
Vienna
Expressway Corporate Commons None Virginia 23462
5555 Greenwich Road Independent City
Suite 106
Virginia Beach
2111-C Harrod Street Wake North Carolina 27609
Raleigh
55 Park Place Fulton Georgia 30303
Suite 350
Atlanta
105 H. Creekridge Road Guilford North Carolina 27402
South Elm Center
Greensboro
701 East Trade Street Mecklenberg North Carolina 28284
1st Floor, Suite C
Charlotte
550 Water Street Duval Florida 32202
Suite 206
Jacksonville
7 Airport Park Blvd Albany New York
Latham 12110
60 Hudson Street Manhattan New York
10th Floor 10013
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Mailing Address County State
- -------------- ------- ------
<S> <C> <C>
New York
5858 Westheimer Blvd Harris Texas
Suite 210 77057
Houston
2111-102 Harrod Street Wake North Carolina
Raleigh 27609
5400 South Miami Boulevard Wake North Carolina
Research Triangle Park 27703
100 Galleria Parkway* DeKalb Georgia
Suite 1020 30339
Atlanta Financial Center* DeKalb Georgia
3353 Peachtree Road 30326
#530 N. Tower
Atlanta
Atlanta Financial Center* DeKalb Georgia
3353 Peachtree Road 30326
#1160 N. Tower
Atlanta
</TABLE>
- --------------------
*Subleased
(d) The following are all other locations in the United States of
America where any of the Collateral consisting of inventory or equipment is
located:
<TABLE>
<CAPTION>
Mailing Address County State
- -------------- ------- ------
<S> <C> <C>
See 2(c) above.
Montreat-Anderson College, Inc. Buncombe North Carolina 28757
P. O. Box 1267
Montreat
Attn: Business Office
</TABLE>
(e) The following are the names and addresses of all persons or
entities other than the Company, such as lessees, consignees, bailees,
warehousemen or purchasers of chattel paper,
<PAGE>
which have possession or are intended to have possession of any of the
Collateral consisting of chattel paper or inventory:
Name Mailing Address County State
- ------ --------------- ------- ------
None.
<TABLE>
<CAPTION>
3. Prior Locations.
(a) Set forth below is the information required by subparagraphs (a),
(b) and (c) of paragraph 2 with respect to each location or place of business
previously maintained by the Company at any time during the past five years in a
state in which the Company has previously maintained a location or place of
business at any time during the past four months.
Mailing Address County State
- -------------- ------- ------
<S> <C> <C>
One West Park Square Buncombe North Carolina 28801
Suite 507
Asheville
2577 Ravenhill Drive Cumberland North Carolina 28303
Suite 2B
Fayetteville
5000 Falls of Neuse Road Wake North Carolina 27609
Suite 400
Post Office Box 150002
Raleigh
5000 Falls of Neuse Road Wake North Carolina 27609
Suite 400
Post Office Box 97965
Raleigh
5250 Seventy-Seven Center Mecklenberg North Carolina 28217
Drive, Suite 140
Charlotte
101 West 14th Street Pitt North Carolina 27834
Suite 12
Greenville
2030 Eastwood Road New Hanover North Carolina 28403
Suite 4
Wilmington
<PAGE>
<CAPTION>
Mailing Address County State
- -------------- ------- ------
<S> <C> <C>
1117 Perimeter Center West Dekalb Georgia 30338
Suite N117
Atlanta
Corporate Square II Charleston South Carolina 29418
Suite 205
4925 La Cross Road
North Charleston
2000 Center Point Road Richland South Carolina 29210
Suite 2100
Columbia
403 Woodlake Road Greenville South Carolina 29607
Suite 110
Greenville
</TABLE>
(b) Set forth below is the information required by subparagraphs (d)
and (e) of paragraph 2 with respect to each other location at which, or other
person or entity with which, any of the Collateral consisting of inventory or
equipment has been previously held at any time during the past four months:
Name Mailing Address County State
----- --------------- ------------
Inventory: None.
4. Unusual Transactions. Except for those purchases, acquisitions and other
transactions described on Schedule 4 attached hereto, all of the Collateral has
been originated by the Company in the ordinary course of the Company's business
or consists of goods which have been acquired by the Company in the ordinary
course from a person in the business of selling goods of that kind.
5. File Search Reports. Attached hereto as Schedule 5(A) is a true copy of a
file search report from the Uniform Commercial Code filing officer (or, if such
officer does not issue such reports, from an experienced Uniform Commercial Code
search organization acceptable to Agent) (i) in each jurisdiction identified in
paragraph 2 or 3 above with respect to each name set forth in paragraph 1 above,
and (ii) in each jurisdiction in which any of the transactions described in
Schedule 4 took place with respect to the legal name of the person from which
the Company purchased or otherwise acquired any of the Collateral. Attached
hereto as Schedule 5(B) is a true copy of each financing statement or other
filing identified in such file search reports.
6. UCC Filings. A duly signed financing statement on Form UCC-1 in form
acceptable to Agent and containing the description of the Collateral has been
duly filed in the Uniform Commercial Code filing office in each jurisdiction
identified in paragraph 2 hereof. Attached
<PAGE>
hereto as Schedule 6 is a true copy of each such filing duly acknowledged by the
filing officer.
7. Termination Statements. A duly signed termination statement on Form UCC-3 in
form acceptable to Agent will be filed in each applicable jurisdiction
identified in paragraph 2 hereof or on Schedule 5 hereto has been delivered to
Agent. Attached hereto as Schedule 7 is a true copy of each such filing duly
acknowledged by the filing officer and of each such release.
8. Schedule of Filing. Attached hereto as Schedule 8 is a schedule setting forth
filing information with respect to the filings described in paragraphs 6 and 7
above.
9. Filing Fees. All filing fees and taxes payable in connection with the filings
described in paragraphs 6 and 7 above have been paid.
IN WITNESS WHEREOF, we have hereunto signed this Perfection Certificate
as of September 22, 1997.
BUSINESS TELECOM, INC.
By:
Brian K. Branson, Chief Financial
Officer and Treasurer
<PAGE>
EXHIBIT G
[TO EXHIBIT 10.3]
SECOND AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$60,000,000.00 September 22, 1997
FOR VALUE RECEIVED, the undersigned, BUSINESS TELECOM, INC., a North
Carolina corporation ("Borrower"), HEREBY PROMISES TO PAY to the order of
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("Agent"), or its
assigns at Agent's offices in Atlanta, Georgia, or at such other place as the
holder of this Second Amended and Restated Revolving Credit Note (this
"Revolving Credit Note") may designate from time to time in writing, in lawful
money of the United States of America and in immediately available funds, the
amount of SIXTY MILLION DOLLARS ($60,000,000) or, if less, the aggregate unpaid
principal amount of all advances made pursuant to Section 1.2(a) of the Loan
Agreement (as hereinafter defined). All capitalized terms, unless otherwise
defined herein, shall have the respective meanings assigned to such terms in the
Loan Agreement.
This Revolving Credit Note is issued pursuant to that certain Second
Amended and Restated Loan Agreement of even date among Borrower, the Lenders a
party thereto from time to time and Agent, in its capacity as Agent and a Lender
(as amended, restated, supplemented or otherwise modified from time to time, the
"Loan Agreement"), and is entitled to the benefit and security of the Loan
Documents referred to therein, to which Loan Agreement reference is hereby made
for a statement of all of the terms and conditions under which the loans
evidenced hereby were made.
Borrower promises to pay the principal amount of the indebtedness
evidenced hereby in the amount and on the dates specified in the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount of this
Revolving Credit Note outstanding from the date hereof until such principal
amount is paid in full at such interest rates and at such times as are specified
in the Loan Agreement.
If any payment on this Revolving Credit Note 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.
Upon and after the occurrence of an Event of Default and the expiration
of all cure periods applicable thereto, this Revolving Credit Note may, as
provided in the Loan Agreement, and without demand, notice or legal process of
any kind, be declared, and immediately shall become, due and payable.
Demand, presentment, protest and notice of nonpayment and protest are
hereby waived by Borrower.
THIS REVOLVING CREDIT NOTE HAS BEEN EXECUTED, DELIVERED AND ACCEPTED AT
ATLANTA, GEORGIA, AND SHALL BE INTERPRETED, GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF
THE STATE OF GEORGIA.
BUSINESS TELECOM, INC.
By: _____________________________________
Brian K. Branson,
Chief Financial Officer and Treasurer
<PAGE>
EXHIBIT H
[TO EXHIBIT 10.3]
SECOND AMENDED AND RESTATED
SECURITY AGREEMENT
THIS SECOND AMENDED AND RESTATED SECURITY AGREEMENT (this
"Security Agreement"), dated as of September 22, 1997, is made by BUSINESS
TELECOM, INC., a North Carolina corporation having its chief executive office
and principal place of business at 4300 Six Forks Road, Raleigh, North Carolina
27609 ("Borrower"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a
corporation organized under the banking laws of the State of New York and having
an office at 3379 Peachtree Road, N.E., Suite 600, Atlanta, GA 30326, in its
capacity as Agent for Lenders ("Agent").
W I T N E S S E T H:
WHEREAS, Borrower, the lenders a party thereto from time to
time and Agent entered into that certain Second Amended and Restated Loan
Agreement, dated of even date herewith (as the same from time to time may be
amended, restated, supplemented or otherwise modified, the "Credit Agreement"),
whereby Lenders have agreed, among other things, to make a Revolving Credit
Loan, including Letter of Credit Obligations to Borrower (the Revolving Credit
Loan, the Letter of Credit Obligations and the Revolving Credit Advances made
thereunder being referred to herein as the "Loans"); and
WHEREAS, Lenders are willing to make the Loans as provided for
in the Credit Agreement, but only upon the condition, among others, that
Borrower shall have executed and delivered this Second Amended and Restated
Security Agreement in favor of Agent.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINED TERMS.
Unless otherwise defined herein, capitalized terms defined in Section
1.1 of the Credit Agreement are used herein as therein defined.
2. GRANT OF SECURITY INTEREST.
2.1 To secure the prompt and complete payment, performance and
observance of all of the Obligations, and to induce Lenders to enter into the
Credit Agreement and to make the Loans provided for therein in accordance with
the respective terms thereof, Borrower hereby grants to Agent, for itself and
for the benefit of Lenders, a security interest in all of Borrower's right,
title and interest in, to and under the following property, whether now owned or
owing, or hereafter acquired or arising (including, without limitation, under
any trade names, styles or
<PAGE>
divisions thereof), and whether owned, consigned or leased, wherever located
(all of which being hereinafter collectively referred to as the "Collateral"):
(a) all Accounts,
(b) all Chattel Paper,
(c) all Contracts,
(d) all Documents,
(e) all Equipment,
(f) all Inventory,
(g) all General Intangibles,
(h) all Instruments,
(i) the Lockbox Account, the Blocked Accounts, the Collection
Account, the Cash Collateral Account and all other deposit accounts of Borrower,
all cash deposited in any of the foregoing from time to time, any and all
investments of such funds held in the foregoing and all other money, cash or
cash equivalents including, without limitation, amounts on deposit with or held
by the OAN Clearing House,
(j) all Goods and other property, whether or not delivered,
(k) all documents of title, policies and certificates of
insurance, securities, chattel paper and other documents and instruments
evidencing or pertaining to any and all items of Collateral,
(l) the Customer List and all books, records, files,
correspondence, computer programs, tapes, discs, printouts and other computer
materials and records and related data processing software which contain
information identifying or pertaining to any of the Accounts, any Account Debtor
or the Customer List, or showing the amounts thereof or payments thereon or
otherwise necessary or helpful in the realization thereon or the collection
thereof,
(m) all cash deposited with Agent or any Lender or which Agent
or any Lender is entitled to retain or otherwise possess as collateral pursuant
to the provisions of this Agreement or any of the Collateral Documents or any
agreement relating to any Letters of Credit, and
(n) any and all products and Proceeds of the foregoing
(including, but not limited to, any claim to any item referred to in this
definition, and any claim against any third party for
2
<PAGE>
loss of, damage to or destruction of any or all of, the Collateral or for
proceeds payable under, or unearned premiums with respect to, policies of
insurance) in whatever form, including, but not limited to, cash, negotiable
instruments and other instruments for the payment of money, chattel paper,
security agreements and other documents.
2.2 In addition, to secure the prompt and complete payment, performance
and observance of the Obligations and in order to induce Agent and Lenders as
aforesaid, Borrower hereby grants to Agent, for itself and for the benefit of
Lenders, a security interest in all property of Borrower held by Agent or any
Lender including, without limitation, all property of every description now or
hereafter in the possession or custody of, or in transit to, Agent or any
Lender, for any purpose, including safekeeping, collection or pledge, for the
account of Borrower, or as to which Borrower may have any right or power.
3. LIMITATIONS ON AGENT'S AND LENDERS' OBLIGATIONS.
It is expressly agreed by Borrower that, notwithstanding anything
herein to the contrary, Borrower shall remain liable under each Contract to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder, and neither Agent nor any Lender shall have any
obligation or liability under any Contract by reason of or arising out of this
Security Agreement or the granting herein of a security interest therein or the
receipt by Agent or any Lender of any payment relating to any Contract pursuant
hereto, and neither Agent nor any Lender shall be required or obligated in any
manner to perform or fulfill any of the obligations of Borrower under or
pursuant to any Contract, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party under any Contract, or to present or file any
claim, or to take any action to collect or enforce any performance or the
payment of any amounts which may have been assigned to it or to which it may be
entitled at any time or times.
4. REPRESENTATIONS AND WARRANTIES.
Borrower hereby represents and warrants that:
4.1 Except for the security interest granted to Agent under this
Security Agreement and the other Permitted Liens, Borrower is the sole owner of
each item of the Collateral in which it purports to grant a security interest
hereunder, having good and marketable title thereto free and clear of any and
all Liens, security interests or other encumbrances.
4.2 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 (a) those filed by Borrower in favor of Agent pursuant to
this Security Agreement, or (b) those relating to other Permitted Liens.
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4.3 As a result of the filing of appropriate financing statements in
the jurisdictions listed in Schedule 3.22 to the Credit Agreement, this Security
Agreement is effective to create a valid and continuing Lien upon, and perfected
security interest in favor of Agent, for itself and for the benefit of Lenders,
in the Collateral with respect to which a security interest may be perfected by
filing pursuant to the UCC, which lien and security interest is prior to all
other Liens except those Liens specifically designated in Schedule 6.7 to the
Credit Agreement as being prior to Agent's Liens for the benefit of Agent and
Lenders as a matter of law, 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.
4.4 Schedule 3.23 to the Credit Agreement lists all Instruments of
Borrower. All action necessary or desirable to protect and perfect the Lien and
security interest of Agent in each item set forth in Schedule 3.23 to the Credit
Agreement, including, without limitation, the delivery of all originals thereof
to Agent, has been duly taken. The Lien and security interest of Agent, for the
benefit of Agent and Lenders, in the Collateral listed in Schedule 3.23 to the
Credit Agreement is prior to all other Liens except Permitted Liens that would
be prior to the Liens in favor of Agent as a matter of law, and is enforceable
as such against creditors of and purchasers from Borrower.
4.5 Borrower's chief executive office, principal place 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 locations of all of its records concerning the Collateral are set forth
in Schedule 3.2 to the Credit Agreement. Borrower shall not change its chief
executive office, principal place of business, corporate offices, warehouses or
Collateral locations set forth in Schedule 3.2 to the Credit Agreement, or the
location of its records concerning the Collateral without giving thirty (30)
days prior written notice thereof to Agent and taking all actions deemed
necessary or appropriate to continuously protect and perfect Agent's Liens for
the benefit of Agent and Lenders upon the Collateral.
4.6 With respect to any Account scheduled or listed on the Schedule of
Accounts or any other statement or report delivered to Agent pursuant to the
terms of this Security Agreement, the Credit Agreement, or any other Loan
Document, unless otherwise indicated in writing to Agent: (a) Agent, for itself
and for the benefit of Lenders, may rely upon all statements, representations or
warranties made by Borrower in any Schedule of Accounts or otherwise; (b) the
Accounts represent bona fide sales of Inventory 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 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 pursuant to the terms of this Security Agreement or the Credit Agreement
or on Borrower's books and records, and all invoices and statements which may be
delivered to Agent 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 to the
Credit
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Agreement; (e) there are no 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 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.
4.7 With respect to the Inventory and the Equipment scheduled or listed
on the Schedule of Inventory and the Schedule of Equipment, respectively, and
any other statement or report with respect thereto delivered to Agent pursuant
to the terms of this Security Agreement, the Credit Agreement, or any other Loan
Document, unless otherwise indicated in writing to Agent: (a) Agent, for itself
and for the benefit of Lenders, may rely upon all statements, representations or
warranties made in any Schedule of Inventory, or any Schedule of Equipment or
otherwise; (b) the Inventory and the Equipment are located at the locations set
forth in Paragraph 2(d) of the Perfection Certificate and during the four-month
period preceding the Closing Date, have not been located at any other location;
(c) Borrower has good, indefeasible and merchantable title to the Inventory and
the Equipment and neither the Inventory nor the Equipment is subject to any Lien
or security interest or document whatsoever except for the first priority,
perfected security interest granted to Agent, for the benefit of Agent and
Lenders, hereunder and Permitted Liens; (d) the Inventory is of good and
merchantable quality, free from any material defects; (e) neither the Inventory
nor the Equipment is subject to any licensing, patent, royalty, trademark, trade
name or copyright agreements with any third parties, other than licenses entered
into in the ordinary course of business which do not materially impair Agent's
security interest; (f) neither the completion of manufacture or the sale or
other disposition of the Inventory nor the sale or other disposition of the
Equipment by Agent, for itself and the benefit of Lenders, following an Event of
Default shall 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; (g) except as set forth in Paragraph 2(e)
of the Perfection Certificate or as notified in writing to Agent, neither the
Inventory nor the Equipment is stored with a bailee, warehouseman, consignee or
similar party; and (h) the Equipment does not comprise a part of Inventory and
it is being and has only been used by Borrower in its business and has not been
held for sale or lease.
4.8 The information set forth in the Perfection Certificate delivered
to Agent prior to the Closing Date is true, correct and complete. Prior to the
Closing Date, the Company shall furnish to Agent search reports from each UCC
filing office set forth in Schedule 3.22 to the Credit Agreement confirming the
filing information set forth in such Schedule.
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4.9 The Collateral is insured in accordance with the requirements of
the Credit Agreement.
5. COVENANTS.
Borrower covenants and agrees with Agent, for the benefit of Agent and
Lenders, that from and after the date of this Security Agreement and until the
Obligations are paid or otherwise satisfied in full:
5.1 Verification, Notification and Information.
(a) Agent shall have the right at any time and from time to
time, in the name of Agent or in the name of Borrower, (i) to communicate with
Account Debtors to verify the validity, amount or any other matter relating to
any Accounts by mail, telephone, telegraph or otherwise, (ii) to make physical
verifications and appraisals of the Inventory and other Collateral in any manner
and through any medium that Agent considers advisable, and (iii) to review,
audit and make extracts from all records and files related to any of the
Accounts, and Borrower agrees to furnish all such assistance and information as
Agent may require in connection with the foregoing.
(b) Agent, for the benefit of Agent and Lenders, may at any
time after the occurrence of a Default or an Event of Default in Agent's own
name or in the name of Borrower, and without prior notice to Borrower, (i)
communicate with Account Debtors, parties to Contracts, obligors in respect of
Chattel Paper and Instruments to verify with such Persons, to Agent's
satisfaction, the existence, amount and terms of any such Accounts, Contracts,
Instruments or Chattel Paper, (ii) notify Account Debtors, parties to Contracts,
and obligors in respect of Chattel Paper and Instruments that the Accounts and
the right, title and interest of Borrower in and under the Chattel Paper,
Contracts and Instruments have been assigned to Agent and that payments shall be
made directly to Agent and, upon such notification and at the expense of
Borrower, Agent may enforce collection of any such Accounts, or enforce
collection or performance with respect to any Chattel Paper, Contracts or
Instruments and adjust, settle or compromise the amount, payment or performance
thereof, in the same manner and to the same extent as Borrower might have done.
Upon the request of Agent, Borrower shall so notify such Account Debtors,
parties to Contracts, and obligors in respect of Chattel Paper and Instruments.
(c) Upon the occurrence and continuation of a Default or an
Event of Default and the expiration of applicable cure periods, Borrower, at its
own expense, shall cause the certified public accountant then engaged by
Borrower, to prepare and deliver to Agent and each Lender at any time and from
time to time, promptly upon Agent's request, the following reports: (a) a
reconciliation of all Accounts; (b) an aging of all Accounts; (c) trial
balances; and (d) test verifications of such Accounts as Agent may request.
Borrower, at its own expense, shall cause its independent certified public
accountants to deliver to Agent the results of any physical
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verifications of all or any portion of the Inventory and other Collateral made
or observed by such accountants when and if such verification is conducted.
5.2 Disputes, Returns and Adjustments.
(a) Borrower shall use commercially reasonable efforts to
cause to be collected from its Account Debtors, as and when due, any and all
amounts owing under or on account of each Account (including Accounts which are
delinquent, such Accounts to be collected in accordance with lawful collection
procedures) and shall apply forthwith upon receipt thereof all such amounts as
are so collected to the outstanding balance of such Account.
(b) In the event any amounts due and owing under any Account
for an amount in excess of $50,000 are in dispute between the Account Debtor and
Borrower, Borrower shall provide Agent with prompt written notice thereof.
(c) Borrower shall notify Agent promptly of all returns and
credits in excess of $50,000 in respect of any Account, which notice shall
specify the Account affected.
(d) Borrower shall perform and comply with, within all
required time periods, all obligations in respect of Accounts, Chattel Paper,
Contracts, Equipment, Fixtures, Licenses, Instruments and Documents, and all
other agreements constituting or giving rise to Collateral. Unless a Default or
an Event of Default has occurred and is continuing, Borrower may in the ordinary
course of business: (a) grant any extension of the time of payment of any of the
Accounts, Chattel Paper, Instruments or amounts due under any Contract; (b)
compromise or settle the same for less than the full amount thereof; (c)
release, in whole or in part, any Person liable for the payment thereof; or (d)
allow any credit or discount whatsoever thereon; provided, however, that no such
action results in a reduction of more than (i) $50,000 in the amount receivable
with respect to or under any one Account, Chattel Paper, Instrument or Contract
or $150,000 in the amount receivable with respect to all Accounts, Chattel
Paper, Instruments or Contracts of Borrower during any Fiscal Year (in each
case, excluding the allowance of credits or discounts generally available to
Account Debtors in the ordinary course of Borrower's business and appropriate
adjustments to the Accounts of Account Debtors in the ordinary course of
business), and (ii) Agent is promptly notified of the amount of such adjustments
and the Account(s) affected thereby.
5.3 Invoices.
(a) Borrower will not use any invoices other than invoices
substantially in the form delivered to Agent prior to the Closing Date without
giving Agent 45 days prior notice of the intended use of a different form of
invoice together with a copy of such different form.
(b) Upon the request of Agent, Borrower shall deliver to
Agent, at Borrower's expense, copies of customers' invoices or the equivalent,
original shipping and delivery receipts
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or other proof of delivery, customers' statements, the Customer List, the
original or a true photocopy of all documents, including, without limitation,
repayment histories and present status reports, relating to Accounts and such
other documents and information relating to the Accounts as Agent shall specify.
5.4 Delivery of Instruments. In the event any Account in an amount in
excess of $50,000 is, or Accounts in excess of $150,000 in the aggregate are at
any time evidenced by a promissory note, trade acceptance or any other
instrument for the payment of money or any other Instruments of Borrower
including, without limitation, debt or equity investments in other entities or
businesses exceed in the aggregate $200,000, Borrower will immediately
thereafter deliver such instrument to Agent, appropriately endorsed to Agent,
for itself and the benefit of Lenders, as Collateral for the Obligations or,
with respect to uncertificated securities, Agent shall deliver the notification
to financial intermediary evidencing Agent's security interest for the benefit
of Agent and Lenders in such instruments pursuant to Section 3.23 of the Credit
Agreement.
5.5 Sales of Inventory. All sales of Inventory will be made in
compliance with all requirements of Applicable Law.
5.6 Ownership and Defense of Title.
(a) Except for Agent's Liens and Permitted Liens, Borrower
shall at all times be the sole owner or lessee of each and every item of
Collateral and shall not create any lien on, or sell, lease, exchange, assign,
transfer, pledge, hypothecate, grant a security interest or security title in or
otherwise dispose of, any of the Collateral or any interest therein, except for
sales of Inventory in the ordinary course of business, for cash or on open
account or on terms of payment ordinarily extended to its customers, and except
for dispositions that are otherwise expressly permitted under this Security
Agreement or the other Loan Documents. The inclusion of "proceeds" of the
Collateral under the Security Interest shall not be deemed a consent by Agent to
any other sale or other disposition of any part or all of the Collateral.
(b) Borrower shall defend the right, title and interest of
Agent, for itself and the benefit of Lenders, in and to any of Borrower's rights
in, to and under the Collateral against the claims and demands of all Persons.
5.7 Insurance.
(a) In addition to the coverage required by Section 5.5 of the
Credit Agreement and any other Collateral Documents, Borrower shall at all times
maintain insurance on the Collateral against loss or damage by fire, theft,
burglary, pilferage, loss in transit and such other hazards as Agent shall
reasonably specify, in amounts and upon the terms and conditions and in
compliance with the standards as set forth in Section 5.5 of the Credit
Agreement and Schedule 3.19 to the Credit Agreement. Borrower will not use or
permit the Collateral to be used in violation of Applicable Law or in any manner
which might render inapplicable any insurance coverage.
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(b) Any proceeds of insurance referred to in this Section 5.7
which are paid to Agent for itself and the benefit of Lenders shall be, in its
sole discretion, either (i) applied to replace the damaged or destroyed
property, or (ii) distributed by Agent in the order of priority set forth in
Section 8.4 hereof.
5.8 Location of Offices and Collateral.
(a) Borrower will not change the location of its
chief executive office, principal place of business, corporate offices, any
warehouses and premises within which Collateral is stored or located, as set
forth in Schedule 3.2 to the Credit Agreement, or the place where it keeps its
books and records relating to the Collateral, or change its name, its identity
or corporate structure, without giving Agent thirty (30) days prior written
notice thereof and taking all actions necessary and appropriate to continuously
protect and perfect Agent's Liens and Security Interest in and upon the
Collateral.
(b) All Collateral including, without limitation, Equipment and
Inventory, other than Inventory in transit to any such location, will at all
times be kept by Borrower at the locations set forth in Paragraph 2 of the
Perfection Certificate and shall not, without the prior written consent of
Agent, be removed therefrom except pursuant to sales permitted under Section 6.8
of the Credit Agreement.
(c) If any Inventory is in the possession or control of any
warehouseman, bailee or any of Borrower's agents or processors, Borrower shall
notify such agents or processors of the Security Interest (and shall promptly
provide copies of any such notice to Agent) and, upon the occurrence of an Event
of Default, shall instruct them (and use reasonable efforts to cause them to
acknowledge such instruction) to hold all such Inventory, subject to the
instructions of Agent.
5.9 Records Relating to Collateral.
(a) Borrower will at all times (i) keep and maintain complete
and accurate records of Inventory on a basis consistent with past practices of
Borrower so as to permit comparison of Inventory records relating to different
time periods, itemizing and describing the kind, type and quantity of Inventory
and Borrower's cost therefor and a current price list for such Inventory, and
(ii) keep complete and accurate records of all other Collateral including,
without limitation, a record of any and all payments received and any and all
credits granted with respect thereto and all other dealings with Collateral.
(b) Borrower will prepare a physical listing of all Inventory
and all Equipment, wherever located, at least annually and provide such listings
to Agent promptly after completion thereof.
(c) Borrower shall maintain the confidentiality of the
Customer List and not
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disclose or permit the disclosure by any of its Affiliates, employees, or former
employees, agents or former agents or any other Person of all or any portion of
the Customer List.
(d) Borrower shall mark its books and records pertaining to
the Collateral to evidence this Agreement and the Liens and Security Interest
granted hereby. All Chattel Paper shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to the
security interest of General Electric Capital Corporation, as Agent, for the
benefit of Agent and certain Lenders." Upon the occurrence and during the
continuation of any Event of Default, and after the expiration of any cure
periods, Borrower shall deliver and turn over any such books and records to
Agent or to its representatives at any time on demand of Agent. Prior to the
occurrence of an Event of Default and upon reasonable notice from Agent,
Borrower shall permit any representative of Agent to inspect such books and
records and shall provide photocopies thereof to Agent as more specifically set
forth in Section 1.14 of the Credit Agreement.
5.10 Information and Reports.
(a) Schedule of Accounts. Borrower shall deliver to Agent (i)
on or before the Closing Date, a Summary Schedule of Accounts as of a date not
more than three Business Days prior to the Closing Date setting forth a detailed
aged trial balance of all of its then existing Accounts, specifying the name of
and the balance due from (and any rebate due to) each Account Debtor obligated
on an Account so listed, and (ii) no later than 10 days after the end of each
Fiscal Month of Borrower, a Summary Schedule of Accounts as of the last Business
Day of Borrower's immediately preceding Fiscal Month setting forth (A) a
detailed aged trial balance of all Borrower's then existing Accounts, specifying
the name of and the balance due from (and any rebate due to) each Account Debtor
obligated on an Account so listed, and (B) a reconciliation to the Summary
Schedule of Accounts delivered in respect of the next preceding accounting
month.
(b) Schedule of Inventory. Borrower shall deliver to Agent,
promptly upon the request of Agent, a Schedule of Inventory as of the last
Business Day of the immediately preceding Fiscal Month of Borrower, itemizing
and describing the kind, type, quantity and location of Inventory and the cost
thereof.
(c) Schedule of Equipment. Borrower shall deliver to Agent (i)
on or before the Closing Date and, thereafter, within thirty (30) days of the
end of each Fiscal Quarter during the term hereof, a Quarterly Schedule of
Equipment which sets forth the prior Fiscal Quarter's ending balance for
Equipment, a detailed listing of the Equipment additions and deletions during
the Fiscal Quarter and the ending balance for Equipment for the current Fiscal
Quarter, and (ii) within one hundred twenty (120) days of the end of each Fiscal
Year and at such other times as may be requested by Agent during the term
hereof, a Schedule of Equipment, describing each item of Equipment and the
location, cost and then current book value thereof.
(d) Notice of Diminution of Value. Borrower shall give prompt
notice to Agent
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of any matter or event which has resulted in, or may result in, the diminution
in excess of $150,000 in the value of any of its Collateral, except for any such
diminution in the value of any Accounts or Inventory in the ordinary course of
business which has been appropriately reserved against, as reflected in
financial statements previously delivered to Agent pursuant to Article 4 of the
Credit Agreement.
(e) Additional Information. Borrower shall, if so requested by
Agent, furnish to Agent as often as Agent reasonably requests, the schedules and
certificates described in this Section 5.10 (more or less often and on different
schedules than set forth in this Section 5.10), statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Agent may reasonably request, all in reasonable detail,
and Borrower shall advise Agent promptly, in reasonable detail, of (a) any
material Lien, other than as permitted pursuant to Section 6.7 of the Credit
Agreement, attaching to or asserted against any of the Collateral, (b) any
material change in the composition of the Collateral, and (c) the occurrence of
any other event which would have a Material Adverse Effect with respect to the
Collateral or Agent's Lien thereon.
5.11 Assignment of Claims Act. Upon the request of Agent, Borrower
shall execute any documents or instruments and shall take such steps or actions
reasonably required by Agent so that all monies due or to become due under any
contract with the United States of America, the District of Columbia or any
state, county, municipality or other domestic or foreign governmental entity, or
any department, agency or instrumentality thereof, will be assigned to Agent,
for itself and for the benefit of Lenders, and notice given thereof in
accordance with the requirements of the Assignment of Claims Act of 1940, as
amended, or any other laws, rules or regulations relating to the assignment of
any such contract and monies due to or to become due.
5.12 Equipment. Borrower shall maintain the Equipment in good condition
and repair, promptly inform Agent of any additions to or deletions from the
Equipment, shall not permit any such items to become a fixture to real estate or
an accession to other personal property and shall exercise proper custody over
all of the Equipment.
5.13 Borrower Remains Liable. Anything in the Loan Documents to the
contrary notwithstanding, (i) Borrower shall remain liable under the contracts
and agreements included in the Collateral to the extent set forth therein to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement and the Collateral Documents had not been executed, (ii) the
exercise by Agent, for itself and for the benefit of Lenders, of any of the
rights hereunder or under the other Collateral Documents shall not release
Borrower from any of its duties or obligations under the contracts and
agreements included in the Collateral, (iii) neither Agent nor any Lender shall
have any obligation or liability under the contracts and agreements included in
the Collateral by reason of this Security Agreement or the other Collateral
Documents or the granting herein of the Security Interest or the receipt by
Agent, for itself and Lenders, of any payment relating to any contract or
agreement included in the Collateral, and (iv) neither Agent nor any Lender
shall be obligated to perform any of the obligations or duties of Borrower
thereunder, to make any inquiry as to the nature or the sufficiency of any
payment received by it
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or the sufficiency of any performance by any party under any contract or
agreement included in the Collateral, to present or file any claim or to take
any action to collect or enforce any claim for payment assigned hereunder or to
which it may be entitled at any time or times.
5.14 Opinions of Counsel Regarding Collateral. Not more than six months
nor less than 30 days prior to each date on which Borrower proposes to take any
action contemplated by Section 5.8(a) hereof, Borrower shall give notice to
Agent of such proposed action, and, at Borrower's cost and expense, cause to be
delivered to Agent with such notice, an opinion of counsel, satisfactory to
Agent, to the effect that all financing statements and amendments or supplements
thereto, continuation statements and other documents required to be recorded or
filed in order to perfect and protect the Agent's security interests for the
benefit of Agent and Lenders for a period (and after giving effect to the
proposed action that is the subject of such notice), specified in such opinion,
against all creditors of and purchasers from Borrower have been filed in each
filing office necessary for such purpose and that all filing fees and taxes, if
any, payable in connection with such filings have been paid in full.
6. AGENT'S APPOINTMENT AS ATTORNEY-IN-FACT.
6.1 Borrower irrevocably constitutes and appoints Agent, for itself and
for the benefit of Lenders, and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Borrower and in the name of
Borrower or in its own name, from time to time in Agent's sole discretion, for
the purpose of carrying out the terms of this Security Agreement, to take any
and all appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Security Agreement pursuant to that certain Amended and Restated Power of
Attorney (the "Power of Attorney") executed by Borrower in favor of Agent,
substantially in the form of Exhibit I to the Credit Agreement, dated of even
date herewith.
6.2 Borrower hereby ratifies, to the extent permitted by law, all that
said attorneys shall lawfully do or cause to be done by virtue hereof. The Power
of Attorney described in this Section 6 is a power coupled with an interest and
shall be irrevocable until the Obligations are paid or otherwise satisfied in
full.
6.3 The powers conferred on Agent pursuant to the Power of Attorney are
solely to protect Agent's interests, for itself and for the benefit of Lenders,
in the Collateral and shall not impose any duty upon it to exercise any such
powers. Agent and Lenders shall be accountable only for amounts that Agent
actually receives as a result of the exercise of such powers and none of the
officers, directors, employees, agents or representatives or Agent or any Lender
shall be responsible to Borrower for any act or failure to act, except for their
own gross negligence or willful misconduct.
6.4 Borrower also authorizes Agent, for itself and for the benefit of
Lenders, at any
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time and from time to time, (a) to communicate in its own name with any party to
any Contract with regard to the assignment of the right, title and interest of
Borrower in and under the Contracts and other matters relating thereto, and (b)
to execute, in connection with the sale provided for in Section 8 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.
7. PERFORMANCE BY AGENT OF BORROWER'S OBLIGATIONS.
If Borrower fails to perform or comply with any of its agreements
contained herein or in any other of the Loan Documents and Agent, for itself and
for the benefit of Lenders and as provided for by the terms of this Security
Agreement or any other Loan Documents, shall itself perform or comply, or
otherwise cause performance of or compliance with such agreement, the reasonable
expenses (including attorneys' fees) of Agent incurred in connection with such
performance or compliance, together with interest thereon at the rate then in
effect in respect of the Loan, shall be payable by Borrower to Agent on demand
and shall constitute Obligations secured hereby.
8. REMEDIES; RIGHTS UPON DEFAULT.
8.1 If any Default or Event of Default shall occur and be continuing
beyond the expiration of all cure periods applicable thereto, Agent may
exercise, in addition to all other rights and remedies granted to it under this
Security Agreement, the Credit Agreement, the other Loan Documents and under any
other instrument or agreement securing, evidencing or relating to the
Obligations, all rights and remedies of a secured party under the UCC. Without
limiting the generality of the foregoing, Borrower expressly agrees that in any
such event Agent, 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 Agent's 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 or any Lender shall have
the right upon any such public sale or sales and, to the extent permitted by
law, upon any such private sale or sales, to purchase for the benefit of Agent
and 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 shall have the right to conduct such sales on Borrower's premises
or elsewhere and shall have the right to use Borrower's premises without charge
for such sales for such time or times as Agent deems necessary or advisable.
13
<PAGE>
Borrower further agrees, at Agent's request, to assemble the Collateral
and make it available to Agent 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 shall have the right to
use or operate the 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. Agent shall have no 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, seek the appointment of a receiver or keeper to take
possession of Collateral and to enforce any of Agent's remedies (for the benefit
of Agent and 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 8.4 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 or any Lender arising out of the
repossession, retention or sale of the Collateral except such as arise out of
the gross negligence or willful misconduct of such Agent or such Lender.
Borrower agrees that five (5) days prior notice by Agent 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 is entitled, Borrower also
being liable for any attorneys' fees incurred by Agent or any Lender to collect
such deficiency.
8.2 Borrower agrees to pay any and all costs of Agent, including,
without limitation, reasonable attorneys' fees in an amount not to exceed 15% of
the amount of the Obligations then owing by Borrower to Agent or any Lender;
incurred in connection with the enforcement of any of its rights and remedies
hereunder.
8.3 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 Security
Agreement or any Collateral.
8.4 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:
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;
14
<PAGE>
second, to Agent, for the benefit of Lenders, in an
amount equal to the then due and unpaid accrued interest, fees and
prepayment fees, if any, on the Obligations;
third, to Agent, for the benefit of Lenders, in an
amount equal to any other Obligations or amounts owed, if any, in
connection with the Obligations;
fourth, to Agent, for the benefit of 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.
9. LIMITATION ON AGENT'S DUTY IN RESPECT OF COLLATERAL.
Agent and each Lender shall use reasonable care with respect to the
Collateral in its possession or under its control. Neither Agent nor any Lender
shall have any other duty as to any Collateral in its possession or control or
in the possession or control of any agent or nominee of Agent or such Lender, or
any income thereon or as to the preservation of rights against prior parties or
any other rights pertaining thereto. Upon request of Borrower, Agent shall
account for any monies received by Agent or any Lender in respect of any
foreclosure on or disposition of the Collateral.
10. REINSTATEMENT.
This Security Agreement shall remain in full force and effect and
continue to be effective should any petition be filed by or against Borrower for
liquidation or reorganization, should Borrower become insolvent or make an
assignment for the benefit of creditors or should a receiver or trustee be
appointed for all or any significant part of Borrower's assets, and shall
continue to be effective or be reinstated, as the case may be, if at any time
payment and performance of the Obligations, or any part thereof, is, pursuant to
applicable law, rescinded or reduced in amount, or must otherwise be restored or
returned by any obligee of the Obligations, whether as a "voidable preference,"
"fraudulent transfer" or otherwise, all as though such payment or performance
had not been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned, the Obligations shall be reinstated
and deemed reduced only by such amount paid and not so rescinded, reduced,
restored or returned.
11. 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 any of the parties by any
other party, or whenever either of the parties desires to give or serve upon any
communication with respect to this Security Agreement, each such notice,
15
<PAGE>
demand, request, consent, approval, declaration or other communication shall be
in writing and given in the manner provided for in Section 11.8 of the Credit
Agreement.
12. SEVERABILITY.
Any provision of this Security Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. This Security Agreement is to be read, construed and applied
together with the Credit Agreement and the other Loan Documents which, taken
together, set forth the complete understanding and agreement of Lenders, Agent
and Borrower with respect to the matters referred to herein and therein.
13. NO WAIVER; CUMULATIVE REMEDIES.
Neither Agent nor any Lender shall, by any act, delay, omission or
otherwise, be deemed to have waived any of its rights or remedies hereunder, and
no waiver shall be valid unless in writing, signed by Agent and then only to the
extent therein set forth. A waiver by Agent of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
Agent would otherwise have had on any future occasion. No failure to exercise,
nor any delay in exercising, on the part of Agent or any Lender, any right,
power or privilege hereunder, shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or future exercise thereof or the exercise of any other right, power
or privilege. The rights and remedies hereunder provided are cumulative and may
be exercised singly or concurrently, and are not exclusive of any rights and
remedies provided by law. None of the terms or provisions of this Security
Agreement may be waived, altered, modified or amended except by a written
instrument duly executed by Agent and Borrower.
14. LIMITATION BY LAW.
All rights, remedies and powers provided in this Security Agreement may
be exercised only to the extent that the exercise thereof does not violate any
applicable provision of law, and all the provisions of this Security Agreement
are intended to be subject to all applicable mandatory provisions of law that
may be controlling and to be limited to the extent necessary so that they do not
render this Security Agreement invalid, unenforceable, in whole or in part, or
not entitled to be recorded, registered, or filed under the provisions of any
applicable law.
15. TERMINATION OF THIS SECURITY AGREEMENT.
Subject to Section 10 hereof, this Security Agreement shall terminate
upon the Termination Date.
16
<PAGE>
16. SUCCESSORS AND ASSIGNS.
(a) This Security Agreement and all obligations of Borrower
hereunder shall be binding upon the successors and assigns of Borrower and,
together with the rights and remedies of Agent hereunder, shall inure to the
benefit of Agent, for the benefit of Agent and Lenders, all future holders of
any instrument evidencing any of the Obligations and their respective successors
and assigns. No sales of participations, other sales, assignments, transfers
or other dispositions of any agreement governing or instrument evidencing the
Obligations or any portion thereof or interest therein shall in any manner
affect the security interest granted to Agent, for the benefit of Agent and
Lenders, hereunder. Borrower may not assign, sell or otherwise transfer an
interest in this Security Agreement.
(b) Notwithstanding anything to the contrary contained herein,
unless a Default or an Event of Default has occurred and is continuing, Agent
shall from time to time execute and deliver, upon the written request of
Borrower, any and all instruments, certificates or other documents, in the form
so requested, necessary or appropriate in the judgment of Borrower to permit
Borrower to continue to exploit, license, use, enjoy and protect the Patents and
Trademarks.
17. AMENDMENTS
Neither this Security Agreement nor any provision hereof may be
changed, waived, discharged or terminated orally, but only in writing signed by
Borrower and Agent.
18. COUNTERPARTS
This Security 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.
19. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN
ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE,
THIS SECURITY 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
17
<PAGE>
TO THIS SECURITY AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT, THE CREDIT 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
PROVIDED FURTHER, THAT NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR
OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY
OTHER JURISDICTION 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.
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 SCHEDULE 11.8 TO THE CREDIT
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 UNITED
STATES MAIL, PROPER POSTAGE PREPAID.
20. MUTUAL 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 THE PARTIES ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
SECURITY AGREEMENT, THE CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR
THE TRANSACTION THERETO.
21. BENEFIT OF LENDERS.
18
<PAGE>
All Liens granted or contemplated hereby shall be for the benefit of
Agent and Lenders, and all proceeds or payments realized from collateral in
accordance herewith shall be applied to the Obligations in accordance with the
terms of the Credit Agreement.
19
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Second Amended
and Restated Security Agreement to be executed and delivered by its duly
authorized officer on the date first set forth above.
Business Telecom, Inc.
By: ______________________________________
Name:
Title:
ACCEPTED AS OF September 22, 1997
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender under the Second Amended and Restated
Loan Agreement dated September 22, 1997
By: ____________________________
Name: Elaine L. Moore
Title: Senior Vice President and Manager Commercial Finance,
as Duly Authorized Signatory
20
<PAGE>
EXHIBIT I
[TO EXHIBIT 10.3]
FORM OF SOLVENCY CERTIFICATE
[Not drafted.]
<PAGE>
EXHIBIT J
[TO EXHIBIT 10.3]
FORM OF NOTICE OF REVOLVING CREDIT ADVANCE
[Not drafted.]
<PAGE>
EXHIBIT J-1
[TO EXHIBIT 10.3]
FORM OF NOTICE OF CONVERSION/CONTINUATION
[Not drafted.]
<PAGE>
EXHIBIT K
[TO EXHIBIT 10.3]
FORM OF OFFICER'S CERTIFICATE
[Not drafted.]
<PAGE>
EXHIBIT L
[TO EXHIBIT 10.3]
FORM OF SECRETARY'S CERTIFICATE
[Not drafted.]
<PAGE>
EXHIBIT M
[TO EXHIBIT 10.3]
FORM OF ASSIGNMENT AGREEMENT
[Not drafted.]
<PAGE>
EXHIBIT N
[TO EXHIBIT 10.3]
FORM OF OPINION OF COUNSEL TO BORROWER
[Not drafted.]
<PAGE>
EXHIBIT O
[TO EXHIBIT 10.3]
AMENDED AND RESTATED POWER OF ATTORNEY
(a) Business Telecom, Inc., a North Carolina
corporation ("Borrower"), hereby irrevocably constitutes and appoints General
Electric Capital Corporation, a New York corporation, in its capacity as Agent
and on behalf of Lenders ("Agent"), and any officer, employee or agent thereof
designated by Agent, with full power of substitution, as Borrower's true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Agent's discretion, for the purpose of carrying out the terms of that
certain Second Amended and Restated Loan Agreement, dated as of September 22,
1997 by and between Borrower, the Lenders a party thereto from time to time and
Agent (the "Agreement"; capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to such terms in the Agreement) and all
other Loan Documents executed in connection therewith, to take any and all
appropriate action and to execute and deliver any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
the Agreement and the other Loan Documents; provided, that Lender furnish notice
to Borrower one day prior to taking any such action or promptly thereafter if
prior notice of such action is not possible or in the reasonable determination
of Lender not prudent or such action without notice is necessary for the
preservation of the Collateral or Lender's security interest therein and,
without limiting the generality of the foregoing, Borrower hereby grants to
Agent, for the benefit of Lenders, the power and right, without notice to or
assent by Borrower, and at any time, to do the following:
(i) in the name of Borrower, in its own
name or otherwise, take possession of, endorse and receive payment of any
checks, drafts, notes, acceptances, or other Instruments for the payment of
monies due under any Collateral;
(ii) continue any insurance existing
pursuant to the terms of the Agreement, and pay all or any part of the premiums
therefor and the costs thereof; and
(iii) receive payment of any and all
monies, claims, and other amounts due or to become due at any time arising out
of or in respect of any Collateral.
(b) Borrower hereby irrevocably constitutes any
appoints Agent, for the benefit of Lenders, and any officer or agent thereof,
with full power of substitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of Borrower and in
the name of Borrower or in its own name, from time to time in Agent's sole
discretion, for the purpose of carrying out the terms of the Agreement, to take
any and all appropriate action and to execute and deliver any and all documents
and instruments which may be necessary or desirable to accomplish the purposes
of the Agreement and, without limiting the generality of the foregoing, Borrower
hereby grants to Agent, for the benefit of Lenders, the power and right, on
behalf of Borrower, without notice to or assent by Borrower, upon the occurrence
and during the continuation of a Default or an Event of Default (as those terms
are defined in the Agreement) and the expiration of all cure periods applicable
thereto to do the following:
<PAGE>
(i) ask, demand, collect, receive and give
acquittances and receipts for any and all money due or to become due under any
Collateral;
(ii) pay or discharge any taxes, liens,
security interests, or other encumbrances levied or placed on or threatened
against the Collateral;
(iii) effect any repairs or obtain any
insurance called for by the terms of the Agreement and pay all or any part of
the premiums therefor and costs thereof;
(iv) direct any party liable for any
payment under or in respect of any of the Collateral to make payment of any and
all monies due or to become due thereunder, directly to Agent or as Agent shall
direct;
(v) sign and endorse any invoices, freight
or express bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, and notices in connection with accounts and
other documents constituting or related to the Collateral;
(vi) settle, compromise or adjust any suit,
action, or proceeding described above and, in connection therewith, give such
discharges or releases as Agent may deem appropriate;
(vii) file any claim or take or commence
any other action or proceeding in any court of law or equity or otherwise deemed
appropriate by Agent for the purpose of collecting any and all such monies due
under any Collateral whenever payable;
(viii) commence and prosecute any suits,
actions or proceedings of law or equity in any court of competent jurisdiction
to collect the Collateral or any part thereof and to enforce any other right in
respect of any Collateral;
(ix) defend any suit, action or proceeding
brought against Borrower with respect to any Collateral if Borrower does not
defend such suit, action or proceeding or if Agent believes that Borrower is not
pursuing such defense in a manner that will maximize the recovery with respect
to such Collateral;
(x) license or, to the extent permitted by
an applicable license, sublicense, whether general, specific or otherwise and
whether on an exclusive or non-exclusive basis, any Patent or Trademark
throughout the world on such terms and conditions and in such manner as Agent
shall, in its sole discretion, determine; and
(xi) sell, transfer, pledge, make any
agreement with respect to, or otherwise deal with any of the Collateral as fully
and completely as though Agent were the absolute owner thereof for all purposes,
and to do, at Agent's option and Borrower's
2
<PAGE>
expense, at any time or from time to time, all acts and other things that Agent
reasonably deems necessary to perfect, preserve, or realize upon the Collateral
and Agent's Liens therein in order to effect the intent of the Agreement, all as
fully and effectively as Borrower might do.
(c) Borrower hereby ratifies, to the extent permitted
by law, all that said attorneys shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted pursuant to this Amended and Restated
Power of Attorney is a power coupled with an interest and shall be irrevocable
until the Obligations are paid or otherwise satisfied in full.
(d) The powers conferred on Agent hereunder are
solely to protect Agent's interests, for the benefit of Lenders, in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Agent shall be accountable only for amounts that it actually receives as a
result of the exercise of such powers and none of it officers, directors,
employees, agents or representatives shall be responsible to Borrower for any
act or failure to act, except for their own gross negligence or willful
misconduct.
(e) Borrower also authorizes Agent, at any time and
from time to time, (a) to communicate in its own name with any party to any
Contract with regard to the assignment of the right, title and interest of
Borrower in and under the Contracts and other matters relating thereto, and (b)
to execute, in connection with the sale provided for in Section 8 of the
Agreement, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
IN WITNESS WHEREOF, the undersigned has executed this Amended and
Restated Power of Attorney under seal this 22nd day of September, 1997.
BUSINESS TELECOM, INC.
By:____________________________________
Brian K. Branson,
Chief Financial Officer and Treasurer
3
<PAGE>
POWER OF ATTORNEY
(a) Business Telecom, Inc., a North Carolina
corporation ("Pledgor"), hereby irrevocably constitutes and appoints General
Electric Capital Corporation, a New York corporation, in its capacity as Agent
and on behalf of Lenders ("Attorney"), and any officer, employee or agent
designated by Attorney, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Pledgor and in the name of Pledgor or in its own name, from time to
time in Attorney's discretion, for the purpose of carrying out the terms of that
certain Pledge Agreement, dated September 22, 1997 by and between Pledgor and
Attorney as Secured Party (the "Agreement"; capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Pledge Agreement) to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of the Pledge Agreement; provided, that
Attorney furnish notice to Pledgor one day prior to taking any such action or
promptly thereafter if prior notice of such action is not possible or in the
reasonable determination of Attorney not prudent or such action without notice
is necessary for the preservation of the Collateral or Attorney's security
interest therein, and, without limiting the generality of the foregoing, Pledgor
hereby grants to Attorney, for the benefit of Lenders, the power and right, on
behalf of Pledgor, and at any time, do the following:
(i) in the name of Pledgor, in its own name
or otherwise endorse Pledgor's name upon any checks, drafts, notes, acceptances,
money orders and other remittances received by Pledgor or Secured Party on
account of the Collateral; and
(ii) do all other acts and things necessary
to carry out the Pledge Agreement.
(b) Pledgor hereby irrevocably constitutes
any appoints Attorney, for the benefit of Lenders, and any officer or Attorney
thereof, with full power of substitution, as its true and lawful
attorney-in-fact with full irrevocable power and authority in the place and
stead of Pledgor and in the name of Pledgor or in its own name, from time to
time in Attorney's sole discretion, for the purpose of carrying out the terms of
the Pledge Agreement, to take any and all appropriate action and to execute and
deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of the Agreement and, without limiting the
generality of the foregoing, Pledgor hereby grants to Attorney, for the benefit
of Lenders, the power and right, on behalf of Pledgor, without notice to or
assent by Pledgor, upon the occurrence and during the continuation of a Default
or an Event of Default (as those terms are defined in the Agreement) and the
expiration of all cure periods applicable thereto to do the following:
(i) vote any and all Pledged Securities
which may be or become Collateral at any and all meetings in which the
owners of such securities are entitled to CORPMT/84219 vote, to waive
notice of any such meeting, to take part in any consent action in lieu
of any such meeting, to execute any and all documents in connection
with said securities, to
<PAGE>
exercise any and all powers which may be exercised by the owners of
said securities and to accomplish such actions necessary to transfer
and reissue said securities in the name of Pledgor; provided, however,
that until Default, Pledgor may exercise such powers as are not
prohibited herein in its own right.
(ii) pay or discharge any taxes, liens,
security interests, or other encumbrances levied or placed on or
threatened against the Pledged Securities;
(iii) direct any party liable for any
payment under or in respect of any of the Pledged Securities to make
payment of any and all monies due or to become due thereunder, directly
to Attorney or as Attorney shall direct;
(iv) sign and endorse any invoices, express
bills, drafts against debtors, assignments, verifications, and notices
in connection with accounts and other documents constituting or related
to the Pledged Securities;
(v) settle, compromise or adjust any suit,
action, or proceeding described above and, in connection therewith,
give such discharges or releases as Attorney may deem appropriate;
(vi) file any claim or take or commence any
other action or proceeding in any court of law or equity or otherwise
deemed appropriate by Attorney for the purpose of collecting any and
all such monies due under the Pledged Securities whenever payable;
(vii) commence and prosecute any suits,
actions or proceedings of law or equity in any court of competent
jurisdiction to enforce any other right in respect of the Pledged
Securities;
(viii) defend any suit, action or proceeding
brought against Pledgor with respect to the Pledged Securities if
Pledgor does not defend such suit, action or proceeding or if Attorney
believes that Pledgor is not pursuing such defense in a manner that
will maximize the recovery with respect to the Pledged Securities;
(ix) sell, transfer, pledge, make any
agreement with respect to, or otherwise deal with any of the Pledged
Securities as fully and completely as though Attorney were the absolute
owner thereof for all purposes, and to do, at Attorney's option and
Pledgor's expense, at any time or from time to time, all acts and other
things that Attorney reasonably deems necessary to perfect, preserve,
or realize upon the Pledged Securities and Attorney's Liens therein in
order to effect the intent of the Agreement, all as fully and
effectively as Pledgor might do.
(c) Pledgor hereby authorizes and ratifies,
to the extent permitted by
2
<PAGE>
law, all that said attorneys shall lawfully do or cause to be done by
virtue hereof and waives notice of presentment, protest and dishonor of
any instrument endorsed by Attorney pursuant to this Agreement or in
connection with the transactions contemplated by the Pledge Agreement.
The power of attorney granted pursuant to this Power of Attorney is a
power coupled with an interest and shall be irrevocable while any of
the Liabilities remain unpaid.
(d) The powers conferred on Attorney hereunder are
solely to protect Attorney's interests, for the benefit of Lenders, in
the Pledged Securities and shall not impose any duty upon it to
exercise any such powers. Attorney shall be accountable only for
amounts that it actually receives as a result of the exercise of such
powers and none of it officers, directors, employees, Attorneys or
representatives shall be responsible to Pledgor for any act or failure
to act, except for their own gross negligence or intentional
misconduct.
IN WITNESS WHEREOF, the undersigned has executed this Power of
Attorney under seal this 22nd day of September, 1997.
BUSINESS TELECOM, INC.
By:____________________________________
Brian K. Branson,
Chief Financial Officer and Treasurer
3
<PAGE>
SCHEDULE 1.1(a)
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
MPUCS
Previously provided.
[NOTE: The foregoing is the complete text of this Schedule.]
<PAGE>
SCHEDULE 1.1(b)
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
LOFTIN NOTES
Shareholder Note payable to Peter T. Loftin in the principal amount of
$1,930,493.00 as of August 31, 1997 bearing interest at prime and payable over
24 months following the Share Repurchase.
<PAGE>
SCHEDULE 1.1(c)
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
BTITC INDEBTEDNESS
$250,000,000 10-1/2% Senior Notes due 2007
SCHEDULE 3.2
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
LOCATIONS AND CORPORATE OR OTHER NAMES
None, except:
- Business Telecom, Inc.
- BTI
- Business Telecommunications Services
- BTI Telecommunications Services
- BTI Telecom Corp.
- FiberSouth, Inc.
Locations:
Current Locations:
BTI - Corporate
Mailing Address County State
4300 Six Forks Road Wake North Carolina 27609
Suite 500
Raleigh
5605 Seventy Seven Center Drive Mecklenberg North Carolina 28217
Suite 200
Charlotte
1701 Pinecroft Road Guilford North Carolina 27407
Suite 106
Greensboro
2200 South Charles Blvd. Pitt North Carolina 27858
Suite 215
Greenville
5041 New Center Drive New Hanover North Carolina 28406
Suite 214
Wilmington
<PAGE>
1117 Perimeter Center West DeKalb Georgia 30338
Suite N401
Atlanta
5420 LBJ Freeway Dallas Texas
Two Lincoln Center
Suite 350
800 Magnolia Avenue Orange Florida 32803
Suite 1650
Orlando
3140 Chapparal Drive Roanoke Virginia 24018
Suite 203
Roanoke
Atrium Store Richland South Carolina 29210
140 Stone Ridge Drive
Columbia
555 N. Pleasantburg Drive Greenville South Carolina 29607
Suite 205
Greenville
5900 Core Drive Charleston South Carolina 29406
Suite 402
North Charleston
7501 Boulders View Drive Chesterfield Virginia 24108
Suite 105
Richmond
8500 Leesburg Pike Fairfax Virginia 24018
Suite 7400
Vienna
Expressway Corporate Commons None Virginia 23462
5555 Greenwich Road
Independent City
Suite 106
Virginia Beach
1111 Northshore Drive Knox Tennessee 37405
Suite N560
<PAGE>
Knoxville
3100 West End Avenue Davidson Tennessee 37203
Suite 670
Nashville
701 W. Cypress Creek Road Broward Florida 33309
Suite 304
1 Cypress Corp. Park
Ft. Lauderdale
6622 Southpoint Drive South Duval Florida 32216
Suite 450
Jacksonville
4350 W. Cypress Street Hillsboro Florida 33607
Suite 850
Tampa
1201 Main Street Dallas Texas 75202
Suite 1350
Dallas
201 S. Orange Orange Florida 32801
Suite 750
Orlando
2111-C Harrod Street Wake North Carolina 27609
Raleigh
55 Park Place Fulton Georgia 30303
Suite 350
Atlanta
105-H Creekridge Road Guilford North Carolina 27406
South Elm Center
Greensboro
701 East Trade Street Mecklenburg North Carolina 28284
Suite C
Charlotte
550 Water Street Duval Florida 32202
#206
<PAGE>
Jacksonville
Airport Park Blvd. Latham New York 12110
Albany
60 Hudson Street Manhattan New York
10th Floor 10013
New York
5858 Westheimer Blvd. Harris Texas
Suite 210 77057
Houston
2111-102 Harrod Street Wake North Carolina 27609
Raleigh
5400 South Miami Blvd. Wake County North Carolina
Research Triangle Park 27703
Prior Locations:
Mailing Address County State
One West Park Square Buncombe North Carolina 28801
Suite 507
Asheville
2577 Ravenhill Drive Cumberland North Carolina 28303
Suite 2B
Fayetteville
5000 Falls of Neuse Road Wake North Carolina 27609
Suite 400
Post Office Box 150002
Raleigh
5000 Falls of Neuse Road Wake North Carolina 27609
Suite 400
Post Office Box 97965
Raleigh
5250 Seventy-Seven Center Dr. Mecklenberg North Carolina 28217
Suite 140
Charlotte
<PAGE>
101 West 14th Street Pitt North Carolina 27834
Suite 12
Greenville
2030 Eastwood Road New Hanover North Carolina 28403
Suite 4
Wilmington
1117 Perimeter Center West Dekalb Georgia 30338
Suite N117
Atlanta
Corporate Square II Charleston South Carolina 29418
Suite 205
4925 La Cross Road
North Charleston
2000 Center Point Road Richland South Carolina 29210
Suite 2100
Columbia
403 Woodlake Road Greenville South Carolina 29607
Suite 210
Greenville
<PAGE>
SCHEDULE 3.4
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
FINANCIAL STATEMENTS AND PROJECTIONS
Previously provided.
[NOTE: The foregoing is the complete text of this Schedule.]
<PAGE>
SCHEDULE 3.6
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
REAL ESTATE AND LEASES
None, except:
- - Office Lease Agreement by and between YCP Galleria, L.P., and Business
Telecom, Inc., dated September 29, 1995.
- - Lease, as amended, by and between RBC Corporation and Business
Telecommunications, Inc., dated May 13, 1994.
- - Agreement of Lease - Office Building, as amended, by and between The
Travelers Insurance Company and Business Telecom, Incorporated, dated
December 14, 1992. (Amendment with Pericen Limited Partnership)
- - 55 Park Place Office Lease by and between Mara-Met Venture and Business
Telecom, Inc., dated August 31, 1993. (3/26/96 Amendment also included)
- - Lease Agreement by and between H.M.S. II and BTI, dated October 19, 1992.
- - Lease Agreement by and between Magnolia Associates, Ltd. and BTI, dated
September 18, 1995.
- - Lease Agreement by and between JMB Group Trust III and BTI, dated June 1,
1996.
- - Lease Agreement by and between RREEF USA Fund II and BTI, dated December
22, 1995.
- - Lease Agreement by and between Metropolitan Life Insurance Company and
BTI, dated October 16, 1995.
- - Lease Agreement, as amended, by and between 77 Center Investors II and
Business Telecom, Incorporated, dated August 19, 1988.
- - Lease Agreement by and between Hudson Telegraph Associates and Business
Telecom, Inc., dated December 12, 1996.
<PAGE>
SCHEDULE 3.8
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
LABOR MATTERS
None, except:
The Borrower has employment obligations to H. A. Charlton, as President of
FiberSouth, Inc., as set forth in the Employment Agreement provided to Agent.
<PAGE>
SCHEDULE 3.9
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
VENTURES, SUBSIDIARIES AND AFFILIATES;
OUTSTANDING STOCK AND INDEBTEDNESS
I. Subsidiaries, Joint Ventures, Partnerships and Affiliates:
None, except:
<TABLE>
<CAPTION>
<S> <C>
BTI: BTITC:
Fiber South, Inc. - Affiliate Fiber South, Inc. - Affiliate
ComSouth Cable International, Inc. - Affiliate ComSouth Cable International, Inc. -
Affiliate
Cat and Mouse Enterprises, Inc. - Affiliate Cat and Mouse Enterprises, Inc. - Affiliate
Loftin Co. - Affiliate Loftin Co. - Affiliate
International Communications Corporation International Communications Corporation
BTI Telecom Corp. Business Telecom, Inc.
</TABLE>
Mr. Loftin & Mr. Andrews own a variety of other companies and ventures,
none of which have material transactions with BTI [or BTITC].
II. Issued and Outstanding Stock of Borrower:
None, except: A. Authorized: 200,000 shares
B. Outstanding: 36,668 Peter Loftin (to be
exchanged pursuant to BTITC
Transaction) 36,668 Alex
Andrews (to be repurchased
pursuant to Stock Purchase)
C. Treasury Shares: 36,668
III. Outstanding Indebtedness of Borrower:
None, except:
GE Capital Revolving Credit Facility with principal balance of $7,590,000
as of August 31, 1997.
GE Capital Term Loan Credit Facility with principal balance of $9,750,000
as of August 31 1997.
GE Capital CAPEX Credit Facility with principal balance of $6,390,000 as of
<PAGE>
August 31, 1997.
GE Capital Sale/Leaseback with principal balance of $92,300.00 as of August
31, 1997.
Miscellaneous SNB vehicle loans with an aggregate principal balance of
$11,400.00 as of August 31, 1997.
Newcourt Financial software financing with a principal balance of
$22,700.00 as of August 31, 1997.
Loftin Note
Former Employee Indebtedness
IV. A. Andrews Agreement: Stock Purchase Option and Put Option Agreement,
dated July 2, 1992, among Business Telecom, Inc., Peter T. Loftin and
A.B. Andrews.
B. In 1994, BTI formalized the 1994 Stock Plan (the "1994 Plan"), subject
to shareholder approval, whereby 1,833 shares of Common Stock were reserved
for future issuance under the 1994 Plan. BTI has committed to grant options
to purchase 1,833 shares at an exercise price of $400 per share, subject to
future revision, under the 1994 Plan to a certain officer and two former
employees of BTI at the time that BTI 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. At that time a material charge for compensation
expense, which BTI estimates will be approximately $2 million, will result.
In connection with the 1994 Plan, in March 1995 BTI set up a Senior
Executive Bonus Plan (the "Bonus Plan"), subject to shareholder approval.
The Bonus Plan provides that Senior Executive Officers of BTI 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 BTI achieved either its budgeted gross revenue
or net income targets as approved from year to year by the Board of
Directors.
C. Escrow Agreement entered into August 28, 1997, between Business Telecom,
Inc. and A.B. Andrews.
D. Stock Redemption and Option Cancellation Agreement dated August 20, 1997,
between FiberSouth, Inc., Business Telecom, Inc. and Kimberly Chapman.
E. 1997 Stock Option Plan
V. Dividends
The following dividends were paid out to Shareholders during the 1996 fiscal
year:
$1,024,158 - Paid to Peter T. Loftin
<PAGE>
$1,024,158 - Paid to Alex B. Andrews
<PAGE>
SCHEDULE 3.12
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
TAX MATTERS
BTI's 1994 and 1995 Tax years are currently under examination by the U.S.
Internal Revenue Service for income and excise tax purposes. Field work is in
progress. As of the Closing Date, no proposed adjustment had been issued.
<PAGE>
SCHEDULE 3.13
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
ERISA PLANS
None, except:
Business Telecom, Inc. Employee Benefit Welfare Plan (Plan #501)
Business Telecom, Inc. 401(k) Plan (Plan #001)
Business Telecom, Inc. Flexible Benefits Plan (Plan #502)
Consolidated Group (Acct. #B618547) - FiberSouth, Inc. Health Benefit Plan
<PAGE>
SCHEDULE 3.14
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
LITIGATION
1. Business Telecom, Inc. v. Telesystems International, Inc., Wake County,
North Carolina, Superior Court File N. 96 CVS 4186. On April 29, 1996,
Business Telecom, Inc. ("BTI") filed suit in Wake County Superior Court
seeking damages in excess of $512,928.05 from Telesystems International,
Inc. ("Telesystems") for breach of a contract between the parties whereby
BTI provided valuable telecommunication services to Telesystems. Defendant
Telesystems filed a Motion to Dismiss on the grounds that the Court lacked
person jurisdiction over it. by Order dated October 28, 1996, the Superior
Court judge denied Telesystem's Motion to Dismiss. Telesystems appealed to
the North Carolina Court of Appeals, Tenth District. The parties filed
briefs on this jurisdictional issue and the Court of Appeals heard the
case, without oral argument, on September 17, 1997. It may be several
months before the Court of Appeals issues its written opinion and decision.
2. Lesli O'Meara-Reeves v. Business Telecom, Inc., United Sttes District Court
for the Middle District of North Carolina Case Number 2:97CV00366. On
October 7, 1996, Lesli-Meara-Reeves, a former employee of Business Telecom,
Inc. ("BTI"), filed a charge of employment discrimination with the Raleigh
Area office of the Equal Employment Opportunity Commission ("EEOC"). On
January 2, 1997, the EEOC closed its file on the charge stating it was
unable to conclude that the information obtained established violations. On
April 23, 1997, Ms. Meara-Reeves filed suit seeking damages in excess of
$100,000.00, based upon employment discrimination, sexual harassment,
wrongful discharge and intentional infliction of emotional distress. BTI
filed an Answer denying the material allegations of the Complaint, because
Ms. O'Meara-Reeves was discharged for cause. Ms. O'Meara-Reeves requested
to be re-employed by BTI and made two (2) settlement offers, the most
recent being for $75,000.00 The Court appointed a mediator, and the parties
currently are scheduling mediation, possibly for November or December 1997.
3. Michael Butchko v. BTI Telecommunications, filed with the Fairfax County
Virginia Human Rights Commission Case #97225EE/EEOC Case #100970792. On
June 12, 1997, Micahel Butchko, a former employee of BTI, filed a charge of
employment discrimination with the Fairfax County, Virginia Humna Rights
Commission ("HRC") and the EEOC. On September 4, 1997, BTI was informed
that an extension of time was granted to respond to Mr. Butchko's charge
based on the fact that Mr. Butchko's attorney contacted BTI's Virginia
counsel to discuss possible settlement of the matter.
<PAGE>
4. Geri Seidman v. Business Telecom, Inc., filed in the United States District
Court, Southern District of Florida, Case No. 97-6783-CIV. On August 22,
1996, Geri Seidman, a former employee of BTI, filed a charge of employment
discrimination with the Miami District Office of the EEOC. On March 31,
1997, the EEOC issued its notice of termination of its processing of the
charge. On June 30, 1997, Ms. Seidman filed suit seeking damages in excess
of $75,000.00 based upon employment discriminatio, wrongful discharge,
violation of the Equal Pay Act, and breach of contract. On September 16,
1997, BTI filed an Answer denying the material allegations of the Complaint
because Ms. Seidman was discharged for cause.
5. The Company is being audited by the IRS.
<PAGE>
SCHEDULE 3.15
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
BROKERS
Ernst & Young, LLP
Morgan Stanley Dean Witter
Merrill Lynch & Co.
Wachovia Bank, N.A.
<PAGE>
SCHEDULE 3.16
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
PATENTS, SERVICE MARKS, TRADEMARKS, COPYRIGHTS AND LICENSES
None, except:
Service Mark: Academic Edge
<PAGE>
SCHEDULE 3.18
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
HAZARDOUS MATERIALS
None, except:
Batteries are located at the switch sites (Note: Per the Wake County Fire
Marshall, the level of materials is not sufficient to require the posting of
hazardous materials warning signs).
<PAGE>
SCHEDULE 3.19
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
INSURANCE POLICIES
PART II. Coverage Requirements. The insurance policies maintained by Borrower
shall provide for, without limitation, the following insurance coverage:
(a) "Special Causes of Loss" physical damage insurance on all of Borrower's
tangible real and personal property and assets, wherever located, including
without limitation, Collateral located at premises not owned or leased by
Borrower and covers, without limitation, fire and extended coverage, boiler and
machinery coverage, flood, earthquake, environmental, liquids, theft, burglary,
explosion, collapse, and all other hazards and risks ordinarily insured against
by owners or users of such properties in similar businesses. All policies of
insurance on such real and personal property contain an endorsement, in form and
substance acceptable to Agent, showing loss payable to Agent (Form 438 BFU or
its equivalent) and extra expense and business interruption endorsements. Such
endorsement, or an independent instrument furnished to Agent, provides that the
insurance companies will give Agent at least thirty (30) days prior written
notice before any such policy or policies of insurance shall be altered or
canceled and that no act or default of Borrower or any other Person shall affect
the right of Agent to recover under such policy or policies of insurance in case
of loss or damage;
(b) comprehensive general liability insurance on an "occurrence basis" (unless
such insurance cannot be reasonably obtained at commercially reasonable rates,
in which case such insurance shall be on a "claims made" basis) against claims
for personal injury, bodily injury and property damage with a minimum limit of
$1,000,000.00 per occurrence and $2,000,000.00 in the aggregate. Such coverage
includes, without limitation, premises/operations, broad form contractual
liability, underground, explosion and collapse hazard, independent contractors,
broad form property coverage, products and completed operations liability;
(c) statutory limits of worker's compensation insurance which includes
employee's occupational disease and employer's liability in the amount of
$500,000 for each accident or occurrence;
(d) automobile liability insurance for all owned, non-owned or hired
automobiles against claims for personal injury, bodily injury and property
damage with a minimum combined single limit of $1,000,000 per occurrence and no
aggregate limit;
(e) umbrella insurance of $9,000,000 per occurrence and $9,000,000 in the
aggregate (FiberSouth umbrella insurance of $5,000,000 per occurrence and
$5,000,000 in the aggregate); and
<PAGE>
(f) Business Interruption insurance in the amount of $32,249,600.
All of such policies shall be in full force and effect and in form and with
insurers recognized as adequate by Agent, shall name Agent as loss payee and
provide coverage of such risks and for such amounts as is customarily maintained
for businesses of the scope and size of Borrower's and as otherwise acceptable
to Agent. Each insurance policy shall contain clauses which provide that (i) all
proceeds thereunder shall be payable to Agent, (ii) such policy and loss payable
clauses may be canceled, amended or terminated only upon at least 30 days prior
written notice to Agent, and (iii) Agent's interest under such policy shall not
be invalidated by any act or omission to act of, or any breach of warranty by
the insured, or by any change in the title, ownership or possession of the
insured property, or by the use of the property for purposes more hazardous than
is permitted in such policy. Borrower shall deliver to Agent a certificate of
insurance that evidences the existence of each policy of insurance, payment of
all premiums therefor and compliance with all provisions of this Agreement.
PART II. Insurance
Company is required to provide a Certificate evidencing insurance.
<PAGE>
SCHEDULE 3.20
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
BANKS AND DEPOSIT AND DISBURSEMENT ACCOUNTS
None, except:
Name, Address &
Telephone Number
of Bank Name on Account Type of Account
BTI
Branch Banking & Business Telecom, Deposit/Disbursement
Trust Co. Inc.
5424 Six Forks Road Disbursement
Raleigh, NC 27609 Disbursement
(919) 856-3120 Deposit
First Citizens Bank Business Telecom, Deposit
P.O. Box 27131 Inc.
Raleigh, NC 27611
(800) 323-4732
First Union National Business Telecom, Lockbox
Bank Inc.
P.O. Box 96026
Charlotte, NC 28296-0026
(800) 222-3862
FiberSouth
NationsBank FiberSouth, Inc. Deposit/Disbursement
P.O. Box 27287 Disbursement
Raleigh, NC 27611
<PAGE>
SCHEDULE 3.21
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
MATERIAL AGREEMENTS
None, except:
Customer Agreements
Attached are BTI's standard customer term agreements. These are the only
customer agreements that exist other than those with our carrier customers. Due
to the large number of BTI customers, no detailed list is attached of customers
with usage $150,000 per month. However, attached is an analysis of BTI's top
ten customers, carrier and non-carrier, which indicates that no single customer
has a material level of concentration.
- - MCI Carrier Agreement by and between MCI Telecommunications Corporation and
Associated Communications Companies of America, dated February 1, 1994.
- - Reseller Services Agreement by and between Allnet Communication Services,
Inc. and Business Telecom, Inc., dated June 23, 1992.
- - Network Lease Agreement by and between Fiber South, Inc. and Business
Telecom, Inc., dated November 10, 1994.
- - Long Distance Service Agreement, as amended, by and between ACC Long
Distance Corp. and Business Telecom, Inc., dated April 24, 1991.
- - Carrier Agreement by and between Cable & Wireless Communications, Inc. and
Business Telecom, Inc., dated November 1, 1993.
- - Carrier Service Description by and between Consolidated Network, Inc. and
Business Telecom, Inc., dated August 16,1993.
- - Carrier Direct Service Agreement by and between Consolidated Network, Inc.
and Business Telecom, Inc., dated July 28, 1993.
- - Switch Termination Agreement by and between IDB World Communications, Inc.
and Business Telecom, Inc., dated April 26, 1993.
<PAGE>
- - Trade Agreement by and between Long Distance Savers, Inc. and BTI, dated
April 29, 1993.
- - Service Agreement by and between Locate Telephone Company and BTI
Telecommunications, dated April 12, 1994.
- - Carrier Services Agreement, as amended, by and between NTC, Incorporated and
BTI, dated August 2, 1991.
- - RCI/BTI, Switched Service Agreement by and between RCI Corporation and
Business Telecom, Inc., dated .
- - Carrier Volume Ultra 800 Agreement by and between Sprint Communications
Company L.P. and Business Telecom, Inc., dated August 10, 1993.
- - Service Agreement by and between Business Telecom, Inc. and Total-Tel USA,
dated June 3, 1994.
- - Reciprocal Telecommunications Agreement by and between U.S. Long Distance,
Inc. and Business Telecom, Inc., dated July 27, 1993.
- - Carrier Service Agreement by and between West Coast Telecommunications, Inc.
and Business Telecom, Inc., dated July 28,1992.
- - Equipment Lease/Note by and between Business Telecom, Inc. and General
Electric Capital Corporation, dated December 31, 1993.
- - Vehicle Lease by and between Business Telecom, Inc. and SNB, dated June 24,
1994.
- - Vehicle Lease by and between Business Telecom, Inc. and SNB, dated December
17, 1994.
- - Vehicle Lease by and between Business Telecom, Inc. and SNB, dated December
17, 1994.
- - Vehicle Lease by and between Business Telecom, Inc. and SNB, dated November
22, 1994.
- - Vehicle Lease by and between Business Telecom, Inc. and SNB, dated May 25,
1995.
- - Billing and Related Services Agreement by and between OAN Services, Inc. and
Business Telecom, Inc., dated April 23, 1992.
- - Aircraft Lease Agreement by and between Cat & Mouse Enterprises, Inc. and
Business Telecom, Inc., dated September 29, 1995.
- - Master Equipment Lease, as amended, by and between General Electric Capital
<PAGE>
Computer Leasing Corporation and BTI Telecommunications Services, dated
November 15, 1994.
- - Agreement for Billing and Related Services (as amended) between Business
Telecommunications, Inc. and Electronic Data Systems Corporation dated July
31, 1992.
- - National Reseller Agreement between Paging Network of Dallas/Fort Worth,
Inc. and BTI, dated August 24, 1994.
- - Conference Services Reseller Contract between Conference Source
International and BTI, dated February 4, 1997.
- - Service Agreement between Interactive Communications International and BTI,
dated January 3, 1995.
- - Telecommunications Services Agreement between Worldcom Network Services,
Inc. and Associated Communications Companies of America (and BTI as a
"Member"), dated September 1, 1995.
- - Carrier Service Agreement between Cherry Communications Incorporated and
Business Telecom, Incorporated, dated December 26, 1995.
- - Amended Service Agreement between Consolidated Communications, Inc. and
Business Telecom, Inc. dated August 11, 1993.
- - Carrier Service Agreement between Cincinnati Bell Long Distance and Business
Telecom, Inc. dated March 23, 1995.
- - Carrier Service Agreement between BN1 Telecommunications, Inc. and Business
Telecom, Inc. dated March 12, 1996.
- - Carrier Services Agreement between Startec, Inc. and Business Telecom, Inc.
dated February 12, 1996.
- - Carrier Service Agreement between Star Vending, Inc. and BTI, dated October
3, 1995.
- - Carrier Services Agreement between Phone One, Inc. and BTI, dated August 23,
1995.
- - Master Capacity Lease between Interstate FiberNet and Associated
Communications Companies of America (and BTI as a "Member"), dated November
20, 1995.
- - Operator Services Agreement between Consolidated Communications Operator
Services and Business Telecom, Inc., dated July 1, 1993.
- - Switched Access Services Agreement between IGG Access Services, Inc. and
BTI, dated
<PAGE>
April 6, 1995.
- - Service Agreement between LCI International and Business Telecom, Inc. dated
December 21, 1993.
- - Dedicated Termination Agreement by and between Athena International, L.L.C.
and Business Telecom, Inc., dated April 30, 1997.
- - Telecommunications Services Agreement between AT&T Corp. and Associated
Communications Companies of America (and BTI as a "Member"), dated July 1,
1997.
- - Service Agreement, as amended, by and between DeltaCom, Inc. (formerly known
as Southern Interexchange Services, Inc.) and Business Telecom, Inc., dated
June 20, 1992.
- - International Telecom Services Agreement by and between Direct Net
Telecommunications and Business Telecom, Inc., dated June 3, 1996.
- - International Carrier Voice Service Agreement by and between FaciliCom
International, L.L.C. and Business Telecom, Inc., dated May 19, 1997.
- - Service Agreement by and between Eastern Telecom, Inc. d/b/a Interquest and
Business Telecom, Inc., dated August 17, 1993.
- - Digital Service Agreement by and between IXC Carrier, Inc. and Business
Telecom, Inc., dated July 22, 1996.
- - Wholesale Service Agreement by and between Legacy Communication Corporation
and Business Telecom, Inc., dated April 30, 1997.
- - Telecommunication Services Agreement by and between MFS Intelenet, Inc. and
Business Telecom, Inc., dated April 1, 1996.
- - Telecommunications Agreement by and between NTS Communications, Inc. and
Business Telecom, Inc., dated July 15, 1996.
- - International Message Telephone Service Agreement by and between Pacific
Gateway Exchange, Inc. and Business Telecom, Inc., dated November 1, 1996.
- - National Reseller Agreement by and between Paging Network of Dallas/Fort
Worth, Inc. and Business Telecom, Inc., dated August 24, 1997.
- - Carrier Service Agreement by and between Primus Telecommunications, Inc. and
Business
<PAGE>
Telecom Inc., dated March 11, 1997.
- - Lata Transport Agreement by and between SNET Diversified Group, Inc. and
Business Telecom, Inc. dated March 19, 1996.
- - Telecom Service Agreement by and between Teleglobe USA, Inc. and Business
Telecom, Inc., dated August 6, 1997.
- - Reseller Agreement by and between Total Network Services and Business
Telecom, Inc., dated August 12, 1997.
- - Lata Transport Agreement by and between Transaction Network Services and
Business Telecom, Inc., dated January 2, 1996.
- - Customer Service Agreement for Local Termination by and between US Lec of
NC, L.L.C. and Business Telecom, Inc., dated May 1, 1997.
- - Carrier Service Agreement by and between US Wats, Inc. and Business Telecom,
Inc., dated April 29, 1996.
- - Network Services Agreement by and between UUNet Technologies, Inc. and
Business Telecom, Inc., dated November 7, 1996.
- - Switched Services Agreement by and between Communication Telesystems
International d/b/a WorldxChange Communication and Business Telecom, Inc.,
dated October 27, 1995.
- - Facilities Management Agreement by and between Ikon Management Services and
Business Telecom, Inc., dated November 12, 1996.
- - Standard Form of Agreement Between Owner and Contractor, the owner being
Business Telecom, Inc., and the contractor being McCann, Inc., dated
February 24, 1997.
- - Memorandum of Understanding between the City of Raleigh and Business
Telecom, Inc., dated March 18, 1997.
- - Fiber Optics License Agreement between Duke Net Communications, inc. and
FiberSouth, Inc. dated April ___, 1997.
- - License Agreement between Carolina Power and Light Company and FiberSouth,
Inc. dated January 16, 1995.
Other Agreements
Certain leases associated with real property, which are identified in Schedule
3.6 would be considered material under the definitions provided in Section 3.21.
BTI's agreement with Mr. Andrews regarding the Redemption is also attached.
<PAGE>
ComSouth: BTI is owed approximately $330,000 for advances in connection with
certain rights granted to BTI and is expected to advance an additional $240,000
in exchange for certain
Mr. Richard Brown has been granted an option to purchase shares in BTI which
option is subject to being repurchased by BTI upon valuation by the parties.
There is no agreement as to valuation at this time.
<PAGE>
SCHEDULE 3.22
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
UCC FILING LOCATIONS
See Perfection Certificate, Exhibit G, Sections 5 and 6.
<PAGE>
SCHEDULE 3.23
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
INSTRUMENTS OF BORROWER
None, except:
BTI
STOCK PORTFOLIO STATEMENT
AS OF JULY 31, 1997
SHARES
------
INTERMEDIA COMM 50
WORLDCOM INC. 100
US LONG DISTANCE CORP. 50
TOTAL-TEL USA COMM. 100
EQUALNET HOLDING CORP 50
FRONTIER CORP 50
BILLING INFO CONCEPTS 50
------
450
<PAGE>
SCHEDULE 6.4
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
AFFILIATE AND EMPLOYEE LOANS,
TRANSACTIONS AND EMPLOYMENT
AGREEMENTS
None, except:
1) BTI will at certain times provide non-material advances to its employees.
2) BTI has in-force commercially reasonable employment agreements and incentive
compensation agreements with its employees. Compensation agreements include base
salaries, fringe benefits, bonus programs and distributions.
3) Currently ComSouth, an affiliate, leases office furniture from BTI. In
addition, BTI funds ComSouth's payroll on a monthly basis equaling approximately
$6,000.00 per month. BTI will terminate monthly payments in exchange for a
one-time advance of $240,000.00.
4) BTI and Fiber South have two agreements in effect. The first is a Network
Lease Agreement, dated November 4, 1994, whereby Fiber South provides connection
of various bandwidth between BTI and its customers and between BTI and its
interstate fiber providers. This is a seven year agreement at a minimum fixed
price of $115,000 per month, a copy of which is attached hereto. The second
agreement is a management contract, a copy of which is also attached hereto.
Under this contract BTI provides management, administrative, and technical
services. Management and Administrative services are billed as a percent of
total Fiber South revenue. Technical services are charged on an hourly basis at
a market rate.
5) BTI has entered into an Aircraft Lease Agreement, dated September 29, 1995 to
lease a corporate jet from Cat & Mouse Enterprises, Inc. for approximately
$30,000 per month plus related expenses.
6) BTI has employment obligations to H.A. Charlton, as President of FiberSouth,
Inc., as set forth in the Employment Agreement provided to Agent.
<PAGE>
SCHEDULE 6.5
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
CHANGES IN BUSINESS
None.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 6.7
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
LIENS
Secured Party Jurisdiction File Number Date Filed
- -------------- ------------- -------------- ----------
<S> <C> <C> <C>
MOS Scale International Ltd. Leasing NC S/S 862283 2/19/92
General Electric Capital Corporation NC S/S 0916985 8/19/92
General Electric Capital Corporation NC S/S 0957842 1/12/93
GE Capital Corporation NC S/S 0976621 3/10/93
GE Capital Corporation NC S/S 1009097 6/22/93
Southern National Leasing Corp. NC S/S 1019603 7/27/93
Southern National Leasing Corp. NC S/S 1049876 11/9/93
Southern National Leasing Corp. NC S/S 1049877 11/9/93
General Electric Capital Corporation NC S/S 1063251 12/29/93
Southern National Leasing Corp. NC S/S 1067669 1/12/94
Southern National Leasing Corp. NC S/S 1067670 1/12/94
Pitney Bowes Credit Corporation NC S/S 1146320 9/19/94
Southern National Leasing Corporation NC S/S 1151739 10/4/94
General Electric Capital Computer
Leasing Corporation NC S/S 1173288 12/13/94
General Electric Capital Computer
Leasing Corporation NC S/S 1176201 12/22/94
<PAGE>
<CAPTION>
Secured Party Jurisdiction File Number Date Filed
- -------------- ------------- -------------- ----------
<S> <C> <C> <C>
General Electric Capital Computer
Leasing Corporation NC S/S 1198551 12/28/95
Southern National Leasing Corporation Wake Co., NC 93-01528 11/15/93
Southern National Leasing Corporation Wake Co., NC 93-12703 7/27/93
Southern National Leasing Corporation NC S/S 1005349 6/10/93
Southern National Leasing Corporation Wake Co., NC 93-11594 6/10/93
Southern National Leasing Corporation Wake Co., NC 94-06441 10/4/94
Southern National Leasing Corporation Wake Co., NC 94-00227 1/12/94
Southern National Leasing Corporation Wake Co., NC 94-00226 1/12/94
General Electric Capital Corporation Wake Co., NC 92-05101 8/18/92
General Electric Capital Corporation Wake Co., NC 92-05102 8/18/92
General Electric Capital Corporation NC S/S 916986 8/19/92
General Electric Capital Corporation Wake Co., NC 93-11895 6/22/93
General Electric Capital Corporation Wake Co., NC 95-15213 9/26/95
General Electric Capital Corporation NC S/S 1266959 9/26/95
General Electric Capital Corporation NC S/S 976621 3/10/93
General Electric Capital Corporation Wake Co., NC 95-09950 3/6/95
General Electric Capital Corporation Wake Co., NC 94-08287 12/22/94
General Electric Capital Corporation Wake Co., NC 94-08113 12/14/94
Cat & Mouse Enterprises, Inc. Wake Co., NC 95-15416 10/3/95
Cat & Mouse Enterprises, Inc. NC S/S 1269398 10/3/95
<PAGE>
Secured Party Jurisdiction File Number Date Filed
- -------------- ------------- -------------- ----------
Cat & Mouse Enterprises, Inc. Fulton Co., GA 060199514787 8/3/95
General Electric Capital Corporation Wake Co., NC 93-08249 1/12/93
General Electric Capital Corporation Wake Co., NC 93-15947 12/29/93
Southern National Leasing Corp. Fulton Co., GA 795016 7/1/93
General Electric Capital Corporation Fulton Co., GA 804764 1/21/94
Southern National Leasing Corp. Fulton Co., GA 806214 2/11/94
Southern National Leasing Corp. Fulton Co., GA 806215 2/11/94
Southern National Leasing Corp. Fulton Co., GA 820662 11/17/94
Southern National Leasing Corp. Wake Co., NC 93-15028 11/15/93
Southern National Leasing Corp. Wake Co., NC 93-15027 11/15/93
Sprint Carolina Telephone Wake Co., NC 93-002331 4/11/96
Sprint Carolina Telephone Wake Co., NC 93-002332 4/11/96
Sprint Carolina Telephone Wake Co., NC 93-002333 4/11/96
Sprint Carolina Telephone Wake Co., NC 93-002334 4/11/96
</TABLE>
<PAGE>
SCHEDULE 11.7
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
AUTHORIZED SIGNATURES
Name/Position
Peter T. Loftin
Chief Executive Officer
R. Michael Newkirk
President and Chief Operating Officer
Anthony M. Copeland
Vice President, Secretary and General
Counsel
Brian K. Branson
Chief Financial Officer and Treasurer
Ronald W. Speight
Controller
<PAGE>
SCHEDULE 11.8
to [EXHIBIT 10.3,]
SECOND AMENDED AND RESTATED
LOAN AGREEMENT
Dated as of September 22, 1997
NOTICE TO LENDERS
[NOTE: The foregoing is the complete text of this Schedule.]
<PAGE>
ANNEX A
[TO EXHIBIT 10.3]
CASH MANAGEMENT SYSTEM
[Not drafted.]
ANNEX A - ATTACHMENT I
[TO EXHIBIT 10.3]
LETTER RE LOCKBOX AGREEMENT
September ___, 1997
First Union National Bank of North Carolina
301 South College Street
Charlotte, North Carolina 28288-0630
Re: Business Telecom, Inc. - Lockbox Agreement
Gentlemen:
Reference is made to the Lockbox (as defined below) into which certain
monies, instruments and other properties are deposited from time to time and
deposit account no. _____________ (the "Lockbox Account") maintained with you by
Business Telecom, Inc. (the "Borrower") pursuant to that certain Lockbox
Agreement dated July 10, 1996 (the "Lockbox Agreement"). Capitalized terms used
herein and not otherwise defined shall have the meanings ascribed to such terms
in the Lockbox Agreement. The Lockbox Agreement was entered into in connection
with the execution of that certain Amended and Restated Loan Agreement dated as
of June 21, 1996 between Borrower and General Electric Capital Corporation ("GE
Capital") as secured party and lender, whereby the Borrower granted to GE
Capital, as secured party and lender, a security interest in certain property of
the Borrower, including the Account Collateral.
This letter (a) serves as notice to you that Borrower has entered into
that certain Second Amended and Restated Loan Agreement, dated September 22,
1997, between Borrower and GE Capital and the other financial institutions party
thereto from time to time as lenders (the "Lenders") and GE Capital as agent to
the Lenders (the "Agent") (the "Second Amended and Restated Loan Agreement"),
whereby the Borrower has granted to Agent, for the benefit of the Lenders, a
security interest in certain property of the Borrower, including the Account
Collateral, and has granted to Agent the right to exercise its rights under the
Lockbox Agreement in connection with the Second Amended and Restated Loan
Agreement; and (b) confirms that the respective rights and obligations of the
parties to the Lockbox remain in full force and effect and that, except as
provided in (a) above, the rights and obligations of the parties are in no way
affected by the execution and delivery of the Second Amended and Restated Loan
Agreement, nor the transactions contemplated thereby.
This notice may be executed in one or more counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
We would appreciate it if you could acknowledge receipt of this notice
by executing the enclosed copy of this letter and returning it to us.
<PAGE>
First Union National Bank
of North Carolina
September ___, 1997
Page 2
Very truly yours,
BUSINESS TELECOM, INC.
By:______________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent under the Second Amended and Restated
Loan Agreement
By:______________________________
Name:
Title:
Acknowledged and Agreed this ___ day
of ____________, 1997
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: _____________________________
Name:
Title:
2
<PAGE>
ANNEX A - ATTACHMENT II
[TO EXHIBIT 10.3]
BLOCKED ACCOUNT LETTER
----------------------
September __, 1997
Branch Banking & Trust Co.
5424 Six Forks Road
Raleigh, NC 27609
Re: Business Telecom, Inc. - Blocked Account Agreement
Gentlemen:
Reference is made to account number ___________ and any other account
that may be established by Business Telecom, Inc. ("Borrower") into which
certain monies, instruments and other properties are or may be deposited from
time to time (the "Blocked Accounts") maintained or that may be maintained with
you by Borrower pursuant to that certain Letter Agreement dated July 10, 1996
between you, Borrower, and General Electric Capital Corporation ("GE Capital")
(the "Letter Agreement"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Account Agreement.
The Letter Agreement was entered into in connection with the execution of that
certain Amended and Restated Loan Agreement dated as of June 21, 1996 between
Borrower and GE Capital as secured party and lender, whereby the Borrower
granted to GE Capital, as secured party and lender, a security interest in
certain property of the Borrower, including the Account Collateral.
This letter (a) serves as notice to you that Borrower has entered into
that certain Second Amended and Restated Loan Agreement, dated September 22,
1997, among Borrower, GE Capital and the other financial institutions party
thereto from time to time as lenders (the "Lenders"), and GE Capital as agent to
the Lenders (the "Agent") (the "Second Amended and Restated Loan Agreement"),
whereby the Borrower has granted to GE Capital, in its capacity as Agent for the
benefit of the Lenders, a security interest in certain property of the Borrower,
including the Account Collateral, and has granted to Agent the right to exercise
its rights under the Letter Agreement in connection with the Second Amended and
Restated Loan Agreement; and (b) confirms that the respective rights and
obligations of the parties to the Letter Agreement remain in full force and
effect and that, except as provided in (a) above, the rights and obligations of
the parties are in no way affected by the execution and delivery of the Second
Amended and Restated Loan Agreement, nor the transactions contemplated thereby.
This notice may be executed in one or more counterparts, each of which
when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument.
<PAGE>
We would appreciate it if you could acknowledge receipt of this notice
by executing the enclosed copy of this letter and returning it to us.
.
Very truly yours,
BUSINESS TELECOM, INC.
By:______________________________
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
By:______________________________
Name:
Title:
Acknowledged and agreed to
as of the date first above written:
BRANCH BANKING & TRUST CO.
By:____________________________
Name:
Title:
<PAGE>
ANNEX A - ATTACHMENT III
[TO EXHIBIT 10.3]
FORM OF NOTICE TO ACCOUNT DEBTORS
[Not drafted.]
<PAGE>
ANNEX A - ATTACHMENT IV
[TO EXHIBIT 10.3]
FORM OF CLEARING HOUSE AGREEMENT
[Not drafted.]
<PAGE>
ANNEX B
[TO EXHIBIT 10.3]
SCHEDULE OF DOCUMENTS
[Not drafted.]
ANNEX C
[TO EXHIBIT 10.3]
LETTERS OF CREDIT
[Not drafted.]
ANNEX A
[TO EXHIBIT 10.3]
LENDERS' WIRE TRANSFER INFORMATION
[Not drafted.]
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,
2
<PAGE>
(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
3
<PAGE>
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.
4
<PAGE>
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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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.
28
<PAGE>
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
<PAGE>
(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.
30
<PAGE>
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>
SCHEDULE I [TO LEASE, EXHIBIT 10.8]
[Superseded by Schedule I to Amendment
No. One to Lease included herewith.]
EXHIBIT A [TO LEASE, EXHIBIT 10.8]
Legal Description of the Land
BEGINNING at the point of intersection of the eastern edge of the right
of way of Six Forks Road (said right of way being 80 feet in width)
with the northern edge of the right of way of Dartmouth Street (said
right of way being 60 feet in width); thence with said right of way of
Six Forks Road in a northerly direction along a curve to the right with
a radius of 3,779.72 feet a distance of 446.41 feet to the point of
intersection of said right of way with the southern edge of the right
of way of Lassiter Mill Road (said right of way being 60 feet in
width); thence with said right of way of Lassiter Mill Road North 74
degrees 40 minutes East 522.32 feet to a point, the northwest corner of
Lot 3, Block B, Section 1 of Farrior Hills according to a map recorded
in Book of Maps 1955, Page 125 of the Wake County Registry; thence with
the western property lines of Lots 3, 2 and 1, Block B of Farrior Hills
South 16 degrees 20 minutes East 404.80 feet to a point in the northern
edge of the right of way of Dartmouth Street; thence with said right of
way of Dartmouth Street South 73 degrees 34 minutes West 68 feet, in a
westerly direction along a curve to the left with a radius of 3,322.86
feet a distance of 296.75 feet, and South 68 degrees 27 minutes West
130.38 feet to the point of Beginning, and being part of the land shown
on plat of survey entitled "Property of North Hills, Inc., Raleigh,
N.C." dated April 22, 1969 prepared by John A. Edwards & Company. Said
land is also shown on a map of Section 1 of Farrior Hills recorded in
Book of Maps 1955, Page 125 of the Wake County Registry.
TOGETHER WITH the following tract of land on which Landlord has been
granted an easement for vehicular traffic and parking of automobiles pursuant to
the terms of that certain Ground Lease dated May 1, 1969 between North Hills,
Inc., as landlord and Landlord, as tenant:
BEGINNING at the point of intersection of the eastern edge of the right
of way of Six Forks Road (said right of way being 80 feet in width)
with the southern edge of the right of way of Dartmouth Street (said
right of way being 60 feet in width); thence with said right of way of
Dartmouth Street North 68 degrees 27 minutes East 131.67 feet, in an
easterly direction along a curve to the right with a radius of 3,262.86
feet a distance of 291.40 feet and North 73 degrees 34 minutes East 73
feet to a point, the northwest corner of Lot 5, Block C, Section 1 of
Farrior Hills according to a map recorded in Book of Maps 1955, Page
125 of the Wake County Registry; thence with the western property line
of Lot 5 of Farrior Hills South 16 degrees 25 minutes East 150 feet to
a point, a comer of Lot 4, Block C; thence with the property line of
said Lot 4 South 38 degrees 28 minutes West 126.6 feet to a point;
thence South 68 degrees 04 minutes West 350.04 feet to a point in the
eastern edge of the right of way of Six Forks Road; thence with said
right of way of Six Forks Road in a northerly direction along a curve
to the right with a radius of 3,779.72 feet a distance of 235.61 feet
to the point of BEGINNING, and being part of the land shown on plat of
survey entitled "Property of North Hills, Inc., Raleigh, N.C." dated
April 22, 1969, prepared by John A. Edwards & Company. Said land is
also shown on a map of Section 1 of Farrior Hills recorded in Book of
Maps 1955, Page 125 of the Wake County Registry.
<PAGE>
EXHIBIT B AND B-1 [TO LEASE, EXHIBIT 10.8]
DESCRIPTION OF THE DEMISED PREMISES
[Floor plans depicting location of common areas (elevator and stair vestibules,
restrooms and telephone, electrical and mechanical) and tenant areas (shown as
open office space) on the fifth, sixth and ninth floors of the BTI Building.]
<PAGE>
EXHIBIT C [TO LEASE, EXHIBIT 10.8]
TENANT'S UPFITTING REQUIREMENTS
[Not drafted.]
<PAGE>
EXHIBIT C-l [TO LEASE, EXHIBIT 10.8]
Base Building Items
Reference is hereby made to the Index of Drawings (Landscaping,
Architectural, Structural, Mechanical, Plumbing, Fire Protection and Electrical)
for 4300 Six Forks Road dated March 17, 1994, as the same may be amended from
time to time. In addition, the Base Building Items shall also include window
blinds and common area/elevator lobby finishes as well as the following:
1. Ceiling grid and installed ceiling tiles;
2. HVAC system, distribution ducts, grills and sensors as set
forth in the Index of Drawings;
3. Building standard light bulbs and fixtures (1 fixture per 90
rsf);
4. Electrical panels and breakers per floor as set forth in the
Index of Drawings;
5. Drywall on columns, core walls and exterior walls. Tape and
bedded ready for finishes;
6. Sprinkler system as set forth in the Index of Drawings; and
7. Core doors.
<PAGE>
EXHIBIT D
Attached To and Made Part Of
Amended and Restated
Lease Dated _______________
Made Between
RBC CORPORATION
AND
BUSINESS TELECOMMUNICATIONS, INC. [EXHIBIT 10.8]
SUPPLEMENTAL AGREEMENT
THIS SUPPLEMENTAL AGREEMENT is made by and between RBC CORPORATION, as
Landlord, and BUSINESS TELECOMMUNICATIONS, INC., as Tenant, to confirm the
following:
1. The Building and the Demised Premises and other improvements
required to be constructed and finished by the Landlord in accordance with the
teens of the Lease have been satisfactorily completed by the Landlord and
accepted by the Tenant, subject to the completion of punch list items identified
on the attachment hereto.
2. The Demised Premises have been delivered to and accepted by the
Tenant.
3. The Commencement Date of the Lease is the ___ day of , 19_,
and the Expiration Date is the ___ day of , 19_.
4. The Demised Premises consist of _____ square feet of rentable area
in the Building. (as shown on Revised Exhibit C attached hereto, which
supersedes Exhibit C to the Lease).
5. Annual Minimum Rent and Monthly Rent to be inserted in Schedule I
are as follows:
===================== ============================== ======================
Lease Year Annual Minimum Rent Monthly Rent
- --------------------- ------------------------------ ----------------------
- --------------------- ------------------------------ ----------------------
===================== ============================== ======================
<PAGE>
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto as of this ____ day of , 19__.
LANDLORD:
RBC CORPORATION (SEAL)
By:______________________________
Its:__________________________
TENANT:
BUSINESS TELECOMMUNICATIONS, INC.
(SEAL)
By:______________________________
Its:__________________________
2
<PAGE>
EXHIBIT E [TO LEASE, EXHIBIT 10.8]
Landlord agrees to provide exclusive exterior signage to Tenant. Tenant shall
have the right to place any signage (including size, color, location, and letter
style) it desires as long as it complies with all City of Raleigh Sign
Ordinances.
<PAGE>
AMENDMENT ONE TO LEASE AGREEMENT [, EXHIBIT 10.8]
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
<PAGE>
SCHEDULE I (Revised March 1, 1995)
To Lease between
RBC Corporation, Landlord,
and Business Telecommunications, Inc., Tenant
Dated as of May 13, 1994, as Amended [, EXHIBIT 10.8]
1. NAME OF TENANT: (Article I, Section 1.01)
Business Telecommunications, Inc.
2. TYPE OF ORGANIZATION: (Article I, Section 1.01) (Partnership,
Corporation, etc.)
North Carolina Corporation
3. DEMISED PREMISES: (Article II, Section 2.01)
Floor Rentable SF
----- -----------
2nd 26,219
5th 14,312
6th 14,312
9th 15,077
4. PURPOSE: (Article III, Section 3.01)
Tenant shall use and occupy the Demised Premises for general commercial
office purposes.
5. COMMENCEMENT DATE: (Article IV, Section 4.01)
The Commencement Date for the initial term of this Lease shall be
January 1, 1995.
6. EXPIRATION DATE: (Article IV, Section 4.02)
The Expiration Date of the initial term of this Lease shall be April
30, 2005, subject to the Additional Provision G hereof.
7. NUMBER OF MONTHS OF TERM: (Article IV, Section 4.02)
The number of months of the initial term of this Lease shall be one
hundred twenty-four months.
<PAGE>
8. OPTION PERIOD: (Article IV, Section 4.07)
The Option Period shall be one five year period to begin on the date
immediately following the Expiration Dale.
9. RENTABLE AREA; ANNUAL MINIMUM RENT: (Article l1, Section 2.01, Article
V, Section 5.01)
<TABLE>
<CAPTION>
TIME PERIODS ANNUAL MINIMUM RENT FOR SQUARE FOOTAGES (l) (2) (3)
43,701 sq. ft. 6,299 sq. ft. 19,920 sq. ft
5, 6 & 9 (2nd Floor) (2nd Floor)
<S> <C> <C> <C>
Jan. 1-31, 1995 Free Rent N/A N/A
Feb. 1-28, 1995 Free Rent N/A N/A
Mar. 1-31, 1995 Free Rent No Rent - Planning No Rent - Planning
April 1-30, 1995 Free Rent No Rent - Planning No Rent - Planning
May 1-31, 1995 $16.30 No Rent- Construction No Rent - Construction
June 1-30, 1995 $16.30 No Rent - Construction No Rent - Construction
July 1-31, 1995 $16.30 No Rent - Construction No Rent - Construction
Aug. 1-31, 1995 $16.30 Free Rent Free Rent
Sept. 1-30, 1995 $16.30 Free Rent Free Rent
Oct. 1-31, 1995 $16.30 Free Rent Free Rent
Nov. 1-3O, 1995 $16.30 Free Rent Free Rent
Dec. 1-31, 1995 $16.30 $16.30 Free Rent
Jan. 1, 1996 - $16.30 $16.30 Free Rent
Jan. 31, 1997
Feb. 1, 1997 - $16.30 $16.30 $16.30
April 30, 2005
OPTION PERIOD To be Negotiated To be Negotiated To be Negotiated
May 1, 2005 -
Apr. 30, 2010
</TABLE>
(1) The Annual Minimum Rent will be calculated based upon the per
square foot rental rate set forth above (the "Base Rate") multiplied
times the rentable square feet in the Demised Premises and shall be
subject to adjustment based upon the terms of this Lease.
(2) Anything to the contrary contained herein notwithstanding, (1)
Tenant shall be required to pay Annual Minimum Rent and additional rent
during the period from May 1, 1995 through April 30, 1996 on only
71.5622% of the portions of the Demised Premises located on the fifth,
sixth and ninth floors of the Building; and (2) Tenant shall be
required to pay Annual Minimum Rent and additional rent during the
first forty-eight (48) months following the free rent period related to
6,299 square feet of space on the second floor on only the following
portions of such space: December 1, 1995 through November 30, 1996 -
65% of the 6,299 rentable square feet; December 1, 1996 through
November 30, 1997 -
2
<PAGE>
75% of the 6,299 rentable square feet; December 1, 1997 through
November 30, 1998 - 85% of the 6,299 rentable square feet; and December
1, 1998 through November 30, 1999 - 95% of the 6,299 rentable square
feet.
(3) During the initial term of this Lease, the rental rate per square
foot (the "Base Rate") utilized to calculate the Annual Minimum Rent as
set forth above shall be adjusted annually as of the first day of each
calendar year commencing with January 1, 1996 to reflect any increase
(but not any decrease) in the numerical level of the Consumer Price
Index for all 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") determined as follows: The Base Rate
shall be multiplied times a fraction, the numerator of which shall be
the numerical level of the Index for the monthly period ending next
prior to the commencement of such calendar year and the denominator of
which shall be the numerical level of the Index as published for
December 31, 1994. The product so derived shall become the adjusted
Base Rate which shall be utilized to calculate the Annual Minimum Rent
to be paid by Tenant until the next adjustment hereunder. In the event
the Index is not available in time to make the computation on any
anniversary date, the rental adjustment will be made retroactively to
such anniversary date at such time as the Index is available. If the
base for the Index is so changed that 1982-84 prices are no longer
taken as representing 100, an appropriate adjustment will be applied to
the published indices so as to relate 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 the rental adjustment. Anything to the
contrary contained herein notwithstanding, in no event shall the Base
Rate be increased by more than (i) three percent (3.0%) per annum
calculated on a cumulative basis from December 31, 1994; or (ii) four
percent (4.0%) from the previous year.
10. MONTHLY RENT: (Article V, Section 5.01).\
Monthly installments of Annual Minimum Rent shall be calculated for the Demised
Premises based upon one-twelfth (1/12) of the Annual Minimum Rent due for the
applicable calendar year as shown in Item 9, subject to the adjustments called
for by the terms of the Lease; provided, however, that if any portion of the
Demised Premises is subject to a "No Rent" or "Free Rent" period for any portion
of the applicable calendar year, monthly installments of Annual Minimum Rent for
such space (i) shall not be included in calculating monthly installments of
Annual Minimum Rent for the balance of the Demised Premises; (ii) shall not be
due until the month that Annual Minimum Rent first becomes due on such space;
and (iii) shall be appropriately prorated and fractionalized based upon the
remaining months in the calendar year (with percentage free rent deemed to
create to a "Free Rent" period for the percentage of space as to which rent is
not due).
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11. BASE AMOUNT: (Article V, Section 5.02)
The Base Amount, for purposes of Operating Expenses, shall be the
actual Operating Expenses for calendar year 1995 as set forth in the
Lease divided by 162,820 rentable square feet.
The Tax Base Amount, for purposes of Real Estate Taxes, shall be the
actual Real Estate Taxes for calendar year 1995 (after adjustment for
full valuation of the Building after renovation is completed but
excluding any millage increase in 1995) as set forth in the Lease
divided by 162,820 rentable square feet.
In the event there is more than 5 % of the Total Rentable Area
unoccupied during 1995, the actual Operating Expenses and Real Estate
Taxes for such year shall be calculated based upon expenses
attributable to an assumed occupancy of 95 % of the Total Rentable Area
pursuant to the terms of Section 5.02 of the Lease.
THESE BASE AMOUNTS ARE INCLUDED IN THE ANNUAL MINIMUM RENT AND TENANT
SHALL ONLY BE LIABLE FOR ITS PRO RATA SHARE OF OPERATING EXPENSES AND
TAXES IN EXCESS THEREOF.
12. TOTAL RENTABLE AREA: (Article V, Section 5.02)
The Building contains 162,820 square feet of rentable space.
13. INITIAL OPERATING EXPENSE INSTALLMENT PAYMENT: (Article V, Section
5.02(a))
None
14. SECURITY DEPOSIT: (Article V, Section 5.09)
None
15. NOTICE ADDRESS FOR TENANT: (Article XVIII, Section 18.01)
Principal Place of Business: Raleigh, North Carolina
Mailing Address: BTI Corporate Center
Suite 900
Raleigh, NC 27615
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With Copy To: Larry E. Robbins, Esquire
Wyrick Robbins Yates & Ponton
Suite 300
4101 Lake Boone Trail
Raleigh, NC 27607
16. NOTICE ADDRESS FOR LANDLORD: (Article XVIII, Section 18.01)
Principal Place of Business: Raleigh, North Carolina
Mailing Address: RBC Corporation
c/o Southwind, Ltd.
Post Office Box 7547
Columbia, South Carolina 29202
17. ADDITIONAL BROKER: (Article XXVI, Section 26.01)
Capital Associates
18. NUMBER OF PARKING SPACES: (Article XXIX, Section 29.01)
During the initial term of this Lease, at no cost to Tenant other than the
payment of Annual Minimum Rent and additional rent due hereunder, Tenant shall
be entitled to the exclusive use of four parking spaces per 1,000 rentable
square feet of space contained in the Demised Premises; provided, however, that
Tenant shall not be entitled to the use of parking spaces related to the 19,920
rentable square feet located on the second floor of the Building until Tenant
actually occupies such space. Six (6) of such spaces shall be located in the
covered parking facility adjacent to the Building and any remaining spaces shall
be located in the parking facilities located on the Land and on the parcel of
land adjacent to the Land, with such spaces to be divided equally between the
parcel upon which the Building is located and the adjacent parcel. Additionally,
in the event Tenant reasonably requires additional parking spaces during the
last five years of the initial term of this Lease, Landlord shall provide Tenant
with such additional spaces limited to a maximum number of spaces provided to
Tenant hereunder equal to 4.5 spaces per 1,000 square feet of rentable space
contained in the Demised Premises total. All fractions shall be rounded to the
lowest whole number. All such parking spaces shall be designated by Landlord,
from time to time.
19. ADDITIONAL PROVISIONS: (Article XXXI, Section 31.01)
A. In addition to the "Base Building" items set forth in Exhibit
C-1, Landlord has expended or will expend at Tenant's
direction for the 43,701 square feet located on the fifth,
sixth and ninth floors of the Building, a total of
$1,272,319.00 for Tenant upfittings. In addition, Landlord, at
its sole cost and expense, provided sheet rock and
preparations for finishes for the columns and perimeters
located within the Demised Premises on such floors, a
staircase, with no finishes, connecting the fifth
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and sixth floors of the Demised Premises, and carpet on the
fire stairs located between the fifth and sixth floors of the
Building. Tenant acknowledges and agrees that the upfitting
with respect to the fifth, sixth and ninth floors of the
Demised Premises has been completed to the satisfaction of the
Tenant (with the exception of outstanding punch list items).
In addition to the "Base Building" items set forth in Exhibit
C-1, Landlord will provide Tenant with an allowance for the
upfitting of the portions of the Demised Premises located on
the second floor of the Building, limited to $19.00 per
rentable square foot with respect to 6,299 rentable square
feet of space located on the second floor and limited to
$24.00 per rentable square foot with respect to the remaining
19,920 rentable square feet of space located on the second
floor. Landlord shall pay to Tenant, in cash, on or about
October 1, 1995, any portion of the upfitting allowance for
the second floor not then utilized by Tenant for the upfitting
of the second floor. After such payment, Tenant shall, at its
sole cost and expense, be responsible for any additional
upfitting on the second floor of the Building, and any such
work shall be subject to the terms and conditions of Article
XVI of this Lease.
B. Tenant will cooperate in good faith with Landlord to make
available a long distance telephone program to other tenants
in the Building desiring to utilize said program; provided,
however, that this Additional Provision C shall in no way
require Landlord or any tenants in the Building to utilize
said program.
C. So long as Tenant leases 100% of the office space located on
the fifth, sixth and ninth floors of the Building, the
Building shall be known as the "BTI Corporate Center" and
Tenant shall have the exclusive exterior signage rights
related to the Building pursuant to the provisions of Section
7.05(o) and Exhibit E of this Lease; provided, however, that
in the event Tenant fails to lease such space, Landlord shall
have the option to change the name of the Building and to
terminate Tenant's exterior signage rights upon written notice
to Tenant. In the event Tenant's exterior signage rights are
terminated, upon request, Tenant, at its sole cost and
expense, shall remove all exterior signs from the Building and
repair any damage done to the Building in connection with such
removal. Should Tenant fail to do so, Landlord may perform
such acts, and Tenant shall pay reasonable costs and expenses
thereof to Landlord as additional rent upon demand.
D. Landlord shall pay the initial $1,000 initiation deposit of up
to six (6) individual designees of Tenant who join The
Cardinal Club located at 150 Fayetteville Street Mall,
Raleigh, North Carolina; provided, however, that such
designees must join The Cardinal Club on or before the
Commencement Date of this Lease in order to receive the
benefits stipulated in this Additional Provision.
E. Landlord shall construct an exercise room (the "Exercise
Room") in the Building at a location designated by Landlord
for use by the Building's tenants and their
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respective employees. Tenant shall pay to Landlord each month,
as additional rent, its pro rata portion of the rent related
to the Exercise Room.
F. Tenant shall have the option to cancel one floor of the
Demised Premises (but not less than a whole floor) on April
30, 2000 upon 180 days prior written notice to Landlord;
provided, however, that Tenant shall pay to Landlord, on or
before the effective date of cancellation, a termination fee
equal to the unamortized portion (calculated on a straight
line basis as of a date 9 months after the effective date of
such cancellation) of the sum of the upfitting allowance
provided by Landlord to Tenant related to such space, plus the
leasing commissions paid by Landlord related to such space,
plus the next nine months of Annual Minimum Rent related to
such space which would have been due but for such
cancellation. In the event Tenant exercises this right to
cancel a portion of the Demised Premises from the Lease, any
future options, rights of first refusal or any other covenants
contained in the Lease related to Tenant's use and occupancy
of additional space (including, without limitation, the rights
provided by Section 4.07, Section 4.08 and Additional
Provision G) shall terminate and be rendered null and void.
G. On May 1, 1998, Landlord shall notify Tenant of any space in
the Building not then occupied or subject to an option or
right of first refusal (the "Available Space"), and Tenant
shall have ten (10) business days to notify Landlord of its
desire to lease all or any portion of the Available Space. In
the event Tenant does provide Landlord with such notice, rent
on the Additional Space subject to Tenant's notice shall
commence ninety (90) days after the date Landlord delivers
such Additional Space to Tenant free from other tenants and
occupants, and such Additional 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 such Additional Space shall be
limited to $15.00 per rentable square foot contained therein.
In the event Tenant does not provide such notice to Landlord,
Landlord shall be free to lease all the Additional Space to
third parties until such time as it receives written notice
from Tenant of Tenant's need for additional space in the
Building, whereupon the same procedure shall apply as to all
space not then leased or subject to a binding lease commitment
from the Landlord. As other space subsequently becomes
available in the Building by reason of a tenant's lease
termination or otherwise, the same procedure shall be
followed, and Tenant shall have the same rights to lease such
space pursuant to terms and conditions set forth in this
Additional Provision.
7
<PAGE>
EXHIBIT B [TO AMENDMENT ONE TO LEASE, EXHIBIT 10.8]
[Floor plan depicting office space on second floor of BTI Building and showing
location of offices and common areas (restrooms, elevator and stairway
vestibules and telephone, mechanical and electrical) within such space.]
<PAGE>
AMENDMENT TWO TO LEASE AGREEMENT [, EXHIBIT 10.8]
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.
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<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 THREE TO LEASE AGREEMENT [, EXHIBIT 10.8]
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
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<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.
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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]
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<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>
EXHIBIT A [TO AMENDMENT NO. 3 TO LEASE, EXHIBIT 10.8]
[Floor plan for proposed first floor of BTI Building depicting 34,888 square
feet of office space and showing location of offices and common areas
(restrooms, elevator and stairway vestibules and telephone, mechanical and
electrical) within such space.]
<PAGE>
EXHIBIT B [TO AMENDMENT NO. 3 TO LEASE, EXHIBIT 10.8]
[Floor plan showing location of approximately 8,912 square feet of office space
on the second floor of 4300 Six Forks Road, Raleigh, North Carolina, to be
vacated by Tenant and returned to Landlord.]
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 2 to the Registration Statement (Form S-4 No. 333-41723) 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
January 29, 1998
