- --------------------------------------------------------------------------------
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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997* OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------------- to -------------------
Commission file number (None yet assigned)
BTI Telecom Corp.
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of
incorporation or organization)
4300 Six Forks Road, Suite 500, Raleigh, North Carolina
(Address of principal executive offices)
56-2047220
(I.R.S. Employer
Identification No.)
27609
(Zip Code)
Registrant's telephone number, including area code: 800-849-9100
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
- ---------
* NOTE: This is a "Special Financial Report" filed within 90 days after the
effective date of the registrant's registration statement on Form S-4 (File
No. 333-41723) and furnishing financial statements, pursuant to Rule 15d-2
promulgated under the Securities Exchange Act of 1934.
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<PAGE>
Index to the Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Auditors .......................................................... 1
Consolidated Balance Sheets as of December 31, 1996 and 1997 ............................ 2
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1996 and
1997.................................................................................... 3
Consolidated Statements of Shareholder's Equity (Deficit) for the Years Ended December
31, 1995, 1996 and 1997 ............................................................... 4
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997................................................................................... 5
Notes to Consolidated Financial Statements .............................................. 6
Financial Statement Schedules:
For the three years ended December 31, 1997
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDER
BTI TELECOM CORP.
We have audited the accompanying consolidated balance sheets of BTI
Telecom Corp. as of December 31, 1996 and 1997, and the related consolidated
statements of operations, shareholder's equity (deficit) and cash flows for
each of the three years in the period ended December 31, 1997. 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, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Raleigh, North Carolina
February 17, 1998
1
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1997
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................................ $ 496,510 $ 67,002,177
Restricted cash .................................................................. 458,583 25,015,828
Marketable equity securities ..................................................... 7,791 6,408
Accounts receivable, less allowance of $3,034,000 and $4,825,000 at December 31,
1996 and 1997, respectively ..................................................... 21,605,693 22,064,782
Accounts and notes receivable from related parties (Note 6) ...................... 567,984 645,401
Accrued interest income .......................................................... -- 951,696
Prepaid expenses ................................................................. 404,368 737,820
Inventories ...................................................................... 719,027 296,679
Deposits ......................................................................... 235,617 309,543
------------- -------------
Total current assets ............................................................... 24,495,573 117,030,334
Equipment, furniture and fixtures (Note 3):
Data processing equipment ........................................................ 5,281,764 6,682,826
Telephone service equipment ...................................................... 22,682,446 31,559,657
Fiber optic network .............................................................. -- 7,550,265
Paging equipment ................................................................. 1,417,571 1,687,425
Office furnishings and equipment ................................................. 2,736,666 3,071,359
Leasehold improvements ........................................................... 1,951,446 2,936,663
Vehicles ......................................................................... 245,015 255,547
Construction in progress ......................................................... -- 10,153,937
------------- -------------
34,314,908 63,897,679
Accumulated depreciation and amortization ........................................ (12,816,841) (19,320,513)
------------- -------------
21,498,067 44,577,166
Other assets:
Line access fees ................................................................. 5,160,212 5,847,404
Deferred financing costs ......................................................... 906,065 10,408,694
Other ............................................................................ 39,556 316,644
------------- -------------
6,105,833 16,572,742
Accumulated amortization ......................................................... (3,417,081) (4,656,476)
------------- -------------
2,688,752 11,916,266
Restricted cash, non-current ....................................................... -- 50,026,010
------------- -------------
Total assets ....................................................................... $ 48,682,392 $ 223,549,776
============= =============
Liabilities and shareholder's equity (deficit)
Current liabilities:
Accounts payable ................................................................. $ 21,053,413 $ 27,630,850
Accrued expenses and other payables .............................................. 2,510,686 2,835,550
Accrued interest ................................................................. 132,649 7,232,341
Unearned revenue ................................................................. 726,660 1,023,777
Shareholder notes payable (Note 7) ............................................... 1,938,408 944,176
Lease allowance, current ......................................................... 89,316 93,852
Current portion of capital lease obligations (Note 3) ............................ 382,893 80,906
Current portion of long-term debt (Note 4) ....................................... 850,052 --
Deferred income taxes ............................................................ -- 348,000
------------- -------------
Total current liabilities .......................................................... 27,684,077 40,189,452
Capital lease obligations, less current portion (Note 3) ........................... 95,635 6,397
Long-term debt, less current portion (Note 4) ...................................... 17,820,919 --
Senior notes (Notes 4,11) .......................................................... -- 250,000,000
Shareholder notes payable, less current portion .................................... -- 762,507
Lease allowance, less current portion .............................................. 707,363 651,449
Accrued compensation expense ....................................................... -- 1,289,029
Noncurrent deferred income taxes ................................................... -- 225,436
Shareholder's equity (deficit):
Common Stock, no par value, authorized 100,000,000 shares, issued and outstanding
20,000,000 shares at December 31, 1996 and 10,000,000 at December 31, 1997 ...... 73,336 36,668
Additional paid-in-capital ....................................................... 326,684 738,110
Unrealized gain on equity securities ............................................. 2,345 962
Retained earnings (deficit) ...................................................... 1,972,033 (70,350,234)
------------- -------------
Total shareholder's equity (deficit) ............................................... 2,374,398 (69,574,494)
------------- -------------
Total liabilities and shareholder's equity (deficit) ............................... $ 48,682,392 $ 223,549,776
============= =============
</TABLE>
See accompanying notes.
2
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1996 1997
--------------- --------------- -----------------
<S> <C> <C> <C>
Revenue .............................................. $114,492,804 $148,776,991 194,948,686
Cost of services ..................................... 68,199,125 90,820,467 139,030,129
------------ ------------ -----------
Gross profit ......................................... 46,293,679 57,956,524 55,918,557
Selling, general and administrative expenses ......... 44,732,343 53,791,036 60,131,452
------------ ------------ -----------
Income (loss) from operations ........................ 1,561,336 4,165,488 (4,212,895)
Other income (expense):
Interest expense ................................... (1,296,707) (1,695,324) (8,805,115)
Interest income .................................... 43,902 3,825 2,379,175
Gain on sale of marketable securities .............. 62,298 131,910 --
------------ ------------ -----------
Net income (loss) .................................... $ 370,829 $ 2,605,899 $ (10,638,835)
============ ============ =============
Basic and diluted earnings (loss) per share .......... $ .02 $ .13 $ (.62)
Unaudited pro forma income tax information (Note 9):
Pro forma net income ................................. $ 215,081 $ 1,511,421
============ ============
Pro forma earnings per share ......................... $ .01 $ .08
============ ============
Weighted average shares outstanding .................. 20,000,000 20,000,000 17,260,274
============ ============ =============
</TABLE>
See accompanying notes.
3
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Additional Unrealized Total
Common Paid-In Investment Retained Shareholder's
Stock Capital Gains Earnings (Deficit) Equity (Deficit)
------------ ------------ ------------ -------------------- -----------------
<S> <C> <C> <C> <C> <C>
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 ..................... (36,668) (326,684) -- (27,922,087) (28,285,439)
Compensation related to stock
options ................................. -- 738,110 -- -- 738,110
Acquisition of Fiber South ............... -- -- (32,174,949) (32,174,949)
Dividends ($.08 per common share)......... -- -- -- (1,586,396) (1,586,396)
Net loss ................................. -- -- -- (10,638,835) (10,638,835)
Decrease in unrealized gains ............. -- -- (1,383) -- (1,383)
--------- ---------- --------- ------------- -------------
Balance at December 31, 1997 ............... $ 36,668 $ 738,110 $ 962 $ (70,350,234) $ (69,574,494)
========= ========== ========= ============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
BTI TELECOM CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1995 1996 1997
--------------- --------------- -----------------
<S> <C> <C> <C>
Operating activities
Net income (loss) .................................................. $ 370,829 $ 2,605,899 $ (10,638,835)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation ...................................................... 2,402,736 4,101,249 5,427,078
Amortization ...................................................... 670,632 370,374 1,185,998
Loss (gain) on disposal of fixed assets ........................... 15,471 682 (2,164)
Non-cash compensation expense related to stock options ............ -- -- 738,110
Deferred interest expense on shareholder note ..................... 92,990 156,709 (231,725)
Changes in operating assets and liabilities:
Accounts and notes receivable, including related parties ......... (1,177,441) (7,162,307) (337,758)
Accrued interest income .......................................... -- -- (951,696)
Prepaid expenses ................................................. 1,067,459 68,787 94,335
Inventories ...................................................... (775,743) (629,894) 422,348
Accounts payable, accrued expenses and unearned revenue .......... 6,304,419 449,956 4,167,622
Lease allowance .................................................. 474,898 321,781 (51,378)
Accrued interest expense ......................................... -- -- 7,099,692
Accrued compensation expense ..................................... -- -- 1,289,029
------------- ------------ --------------
Net cash provided by operating activities .......................... 9,446,250 283,236 8,210,656
Investing activities
Proceeds from disposals of property and equipment .................. -- 187,643 294,659
Purchases of marketable equity securities .......................... (254,008) -- --
Sales of marketable equity securities .............................. 250,441 179,387 --
Change in restricted cash .......................................... -- (458,583) (74,583,255)
Purchases of equipment, furniture and fixtures ..................... (9,710,756) (8,000,851) (23,085,382)
Purchase of FiberSouth assets ...................................... -- -- (35,185,916)
Line access fees ................................................... (1,007,110) (588,856) (687,192)
------------- ------------ --------------
Net cash used in investing activities .............................. (10,721,433) (8,681,260) (133,247,086)
Financing activities
Change in checks issued not yet presented for payment .............. (104,614) -- --
Proceeds from shareholder's notes payable .......................... 556,846 370,417 --
Payments on line-of-credit borrowings .............................. (500,000) -- --
Payments on short-term borrowings .................................. (700,000) -- --
Net proceeds (payments) on long-term borrowings .................... 9,537,266 11,626,761 (18,670,971)
Proceeds from Senior notes ......................................... -- -- 250,000,000
Payments on capital leases ......................................... (4,424,429) (689,716) (391,225)
Increase in deferred financing costs and other assets .............. (172,764) (670,448) (9,523,872)
Reacquisition of common stock ...................................... -- -- (28,285,439)
Dividends paid ..................................................... (2,611,282) (2,048,320) (1,586,396)
------------- ------------ --------------
Net cash provided by financing activities .......................... 1,581,023 8,588,694 191,542,097
Increase in cash and cash equivalents .............................. 305,840 190,670 66,505,667
Cash and cash equivalents at beginning of period ................... -- 305,840 496,510
------------- ------------ --------------
Cash and cash equivalents at end of period ......................... $ 305,840 $ 496,510 $ 67,002,177
============= ============ ==============
Supplemental disclosure of cash flow information
Cash paid for interest ............................................. $ 1,171,000 $ 1,480,000 $ 1,705,423
Cash paid for income taxes ......................................... $ -- $ -- $ --
============= ============ ==============
Supplemental schedule of noncash investing and financing activities
Transfer of paging equipment from inventory to equipment ........... $ 339,573 $ 554,917 $ 401,812
============= ============ ==============
Capital lease obligations incurred (Note 3) ........................ $ 102,592 $ -- $ --
============= ============ ==============
</TABLE>
See accompanying notes.
5
<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 through Business Telecom, Inc. 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 shareholder's equity for available-for-sale
securities and are reported in earnings for trading securities. In 1996 and
1997, the Company's marketable equity securities were classified as
available-for-sale and carried at fair market value.
Income Taxes
Prior to the Company's reorganization during 1997, the Company had 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 were passed through directly to the shareholders, rather than being
taxed at the corporate level.
In conjunction with the September 1997 reorganization, the Company
converted from an S Corporation to a C Corporation and is now subject to
federal and state income tax laws.
Revenue Recognition
Revenue for telecommunications services is recognized as services are
performed. Due to 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,
amounts to $2,869,997 and $5,437,089 at December 31, 1996 and 1997
respectively, and is included in accounts receivable.
6
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
Equipment, Furniture and Fixtures
Equipment, furniture and fixtures are stated on the basis of cost, which
is being amortized over the estimated useful lives of the assets principally by
the straight-line method for financial reporting purposes and accelerated
methods for tax purposes.
To more accurately match the depreciable useful lives with actual economic
lives, during 1996 the Company changed the estimated average useful lives used
to compute depreciation for some of its leasehold improvements 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 1996 or 1997.
Line Access Fees, Deferred Financing Costs 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.
Deferred financing costs consist primarily of debt issuance costs, loan
origination fees and related financing costs amortized ratably over the life of
the loan (see Note 4).
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 and $485,000 in direct
response advertising costs in 1996 and 1997, respectively, of which
approximately $172,000 and $181,000 remained unamortized at December 31, 1996
and 1997, respectively. The costs are amortized into expense over the estimated
future benefit period. The remaining costs of advertising are expensed as
incurred. The Company expensed $170,825, $600,553 and $1,116,338 in advertising
costs during 1995, 1996 and 1997, respectively.
Basic and Diluted Earnings (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share" ("SFAS 128") which replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. Earnings per share information for all periods presented has
been restated to conform to the
7
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES -- Continued
Requirements of SFAS 128. At December 31, 1995 and 1996 the Company had no stock
options, warrants, or convertible securities outstanding. At December 31, 1997,
the Company had 186,628 stock options outstanding which are considered
anti-dilutive due to the Company's net loss for the year ended December 31,
1997 and therefore have not been included in the computation. The Company had
no warrants or convertible securities outstanding at December 31, 1997.
Impact of Recently Issued Accounting Standard
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and Statement No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"), which are both effective for
fiscal years beginning after December 15, 1997. SFAS 130 addresses reporting
amounts of other comprehensive income and SFAS 131 addresses reporting segment
information. The Company does not believe that the adoption of these new
standards will have a material impact on its financial statements.
Reclassifications
Certain amounts in the December 31, 1995 and 1996 financial statements
have been reclassified to conform to the December 31, 1997 presentation. These
reclassifications had no material effect on net income or shareholders' equity
as previously reported.
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.
The Company's exposure to credit loss in the event that payment is not received
from a customer is equal to the outstanding accounts receivable balance from
the customer. As of December 31, 1997, 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, 1997. The following table sets forth certain
information about the Company's allowance for doubtful accounts for the years
ended December 31, 1995, 1996 and 1997:
<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, 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
========== ========== =========== ==========
Year ended December 31, 1997:
Allowance for doubtful accounts ......... $3,034,000 $4,362,000 ($ 2,571,000) $4,825,000
========== ========== =========== ==========
</TABLE>
3. LEASES
Prior to 1996, the Company acquired certain telephone equipment, furniture
and fixtures under capital lease agreements which expire at various times
through 1999. At the end of the lease terms, the Company has the option to
purchase the equipment for a nominal amount.
8
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
3. LEASES -- Continued
Equipment, furniture and fixtures includes the following amounts for
capital leases:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997
------------- -----------
<S> <C> <C>
Equipment, furniture and fixtures ......... $2,193,419 $370,626
Less allowance for amortization ........... 1,189,230 328,855
---------- --------
$1,004,189 $ 41,771
========== ========
</TABLE>
Amortization of capital leases is included in amortization expense.
Future minimum lease payments, by year and in the aggregate, under capital
leases with remaining terms of one year or more consisted of the following at
December 31, 1997:
<TABLE>
<S> <C>
1998 .................................. $ 84,689
1999 .................................. 6,441
---------
Total minimum lease payments .......... 91,130
Amounts representing interest ......... (3,827)
---------
87,303
Current portion ....................... (80,906)
---------
$ 6,397
=========
</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 for the year ending December 31, 1995 and $343,000 for
the years ending December 31, 1996 and 1997. Amounts related to the lease which
are included in the payment horizon categories below are $343,000 per year for
1998 through 1999 and $285,000 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>
1998 ............... $ 3,142,912
1999 ............... 2,961,630
2000 ............... 2,651,693
2001 ............... 2,064,467
2002 ............... 2,001,851
Thereafter ......... 5,135,518
-----------
$17,958,071
===========
</TABLE>
Total rent expense was $2,841,242, $3,913,850 and $4,076,520 (including
facilities rents of $55,000, $65,000 and $60,000, respectively, paid to a
related party) in 1995, 1996 and 1997, respectively.
9
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY
At December 31, 1996 and 1997, long-term debt outstanding consisted of the
following amounts:
<TABLE>
<CAPTION>
1996 1997
------------- --------------
<S> <C> <C>
Revolving credit facility for borrowings up to $20,000,000, due June 2001 ...... $ 3,770,239 --
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 --
Unsecured 10 1/2% senior notes due 2007, interest payable semiannually
commencing March 15, 1998 .................................................... -- 250,000,000
----------- -----------
18,670,971 250,000,000
Less current portion ........................................................... 850,052 --
----------- -----------
$17,820,919 $250,000,000
=========== ============
</TABLE>
The Company's revolving credit facility, term loan, and capital
expenditures facility described above are owed to one lender, are secured by
substantially all of the Company's assets and bear interest, at the Company's
option, either at the 30-day LIBOR rate (5.53% at December 31, 1996) or the
bank's prime rate (8.25% at December 31, 1996), in each case plus an applicable
"margin" which varies between the ranges specified below based on the Company's
financial position as measured by defined ratios.
<TABLE>
<CAPTION>
30-Day Prime
LIBOR Plus Plus
---------------- ---------------
<S> <C> <C>
Revolving Credit Facility ............. 1.50% -- 2.75% 0.00% -- 1.25%
Term Loan ............................. 2.00% -- 3.25% 0.50% -- 1.75%
Capital Expenditures Facility ......... 2.50% -- 3.75% 1.00% -- 2.25%
</TABLE>
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.
In 1997, the Company amended and restated its existing credit facility to
provide a $60,000,000 revolving credit facility to be used for working capital
and other purposes. Borrowings under the credit facility bear interest, at the
Company's option, either at the 30, 60 or 90 day LIBOR rate (5.72%, 5.75% and
5.81%, respectively, at December 31, 1997) or the prime rate (8.50% at December
31, 1997), plus an applicable "margin" which varies based on the Company's
financial position as measured by defined ratios from 0.00% -- 1.25% for
borrowings at the prime rate and from 1.75% -- 3.00% for borrowings at LIBOR.
The company is also required to pay a fee of 0.25% per annum on the unused
commitment. At December 31, 1997, no amounts were outstanding under this credit
facility. The loans restrict the Company from declaring or paying dividends
under circumstances specified in the agreements. The loans also contain various
financial covenants with which the Company must comply on a quarterly basis. As
of December 31, 1997, the Company would not have been in compliance with certain
of these covenants had the lender not granted waivers of such covenants
extending through March 31, 1998.
10
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
4. LONG-TERM DEBT AND REVOLVING CREDIT FACILITY -- Continued
Principal maturities of the above indebtedness during each of the
following five years are as follows:
<TABLE>
<S> <C>
1998 ........................ $ --
1999 ........................ --
2000 ........................ --
2001 ........................ --
2002 ........................ --
2003 and thereafter ......... 250,000,000
------------
$250,000,000
============
</TABLE>
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, 1997. 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 $12,000,000. At December 31, 1997, the Company had $626,288 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 1999, 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 1997. The Company matched 25% of employee contributions in 1995 and
50% of employee contributions in 1996 and 1997, up to 6% of each employee's
salary. Employer contributions for the years ended December 31, 1995, 1996 and
1997 were $120,309, $251,512 and $231,924, respectively. Plan administrative
expenses incurred by the Company for the years ended December 31, 1995, 1996
and 1997 were approximately $22,200, $20,400 and $20,000, 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 $63,837, $65,989 and
$15,044 in 1995, 1996 and 1997, respectively.
6. RELATED PARTY TRANSACTIONS
The Company has historically funded certain operating expenses of two
entities with common ownership. Accounts receivable from these entities
included $567,984 and $645,401 at December 31, 1996 and 1997, respectively. In
1996 and up until the date of acquisition in 1997, the Company paid
approximately $1.4 million and $1.0 million to FiberSouth, Inc., a Company
related through common ownership, for local access services.
11
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
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. In 1997, the Company exercised its option to
purchase the stockholder's outstanding shares (See Note 11).
Pursuant to the agreement, the Company was 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 $1,938,408 and $1,706,683 balance in shareholder notes
payable at December 31, 1996 and 1997, 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, 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")
which will terminate in March 2005, unless sooner terminated by the Board of
Directors. The 1994 Plan provided that an aggregate of 499,890 of the Company's
authorized shares be reserved for future issuance. In the case of initial
grants, the exercise price and vesting terms will be fixed by the compensation
committee on the date of grant. The 1994 Plan permits the grant of options for
a term of up to 10 years. 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 166,630 options granted to an existing officer. These options
vested immediately upon issuance. The Company did not grant any options under
the 1994 Plan during the years ended December 31, 1995 and 1996.
In 1997, the Company established the 1997 Stock Plan (the "1997 Plan")
which will terminate in August 2007, unless sooner terminated by the Board of
Directors, for the purpose of attracting and retaining certain key employees of
the Company. The 1997 Plan provided that an aggregate of 500,000 of the
Company's authorized shares be reserved for future issuance. In the case of
initial grants, the exercise price and vesting terms will be fixed by the
compensation committee on the date of grant. The 1997 Plan permits the grant of
options for a term of up to ten years. The Company granted 19,998 options under
the 1997 Plan during the year ended December 31, 1997 of which 16,665 vest over
24 months and 3,333 vested immediately upon issuance. Accordingly, the Company
recognized non-cash compensation expense of approximately $30,600 representing
the difference in the fair value of the options and the exercise price at the
date of grant.
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
12
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
8. STOCK OPTIONS -- Continued
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 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 Company's pro forma information for the year ended December 31, 1997
had the Company accounted for this plan in accordance with SFAS No. 123 is as
follows:
<TABLE>
<S> <C>
Pro forma net loss ................. $ (10,648,581)
Pro forma loss per share ........... $ (.62)
</TABLE>
Stock option activity under each of these plans for the year ended
December 31, 1997 was as follows:
<TABLE>
<CAPTION>
1994 Plan 1997 Plan
------------------------ ------------------------
Number Option Number Option
of Shares Price of Shares Price
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Options outstanding at December 31, 1996 ................. -- -- -- --
Granted ................................................. 166,630 $ 1.47 19,998 $ 0.01
Exercised ............................................... -- -- -- --
Canceled ................................................ -- -- -- --
------- ------ ------ ------
Options outstanding at December 31, 1997 ................. 166,630 $ 1.47 19,998 $ 0.01
======= ====== ====== ======
Options exercisable at December 31, 1997 ................. 166,630 $ 1.47 5,416 $ 0.01
======= ====== ====== ======
Options available for grant at December 31, 1997 ......... 333,260 480,002
======= =======
</TABLE>
The weighted-average remaining contractual life of options outstanding as
of December 31, 1997 is 7.5 years. The weighted-average exercise price of
options granted during 1997 and outstanding as of December 31, 1997 is $1.31.
The exercise price was less than the market price on the date of grant for all
options issued.
The weighted average fair value of the 186,628 options granted in 1997 was
approximately $4.54 (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). At December 31, 1997, the Company has reserved 999,890
shares of common stock for future issuance related to the stock option plans.
9. INCOME TAXES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standard No. 109 ("SFAS 109"), "Accounting for Income Taxes," in
February 1992. As a result 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 twelve months ended December 31, 1997.
At December 31, 1997, the Company had a net operating loss carryforward of
approximately $6.9 million for income tax purposes which will begin to expire
in the year 2012.
13
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
9. INCOME TAXES -- Continued
The tax effects of temporary differences at December 31, 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 ................ $1,437,000
Line install fees ......................... 744,000
FiberSouth asset purchase ................. 555,436
Accrual to cash conversion ................ 10,000
----------
Total deferred tax liabilities .......... 2,746,436
Deferred tax assets:
Stock options ............................. 660,000
Group insurance reserve ................... 69,000
Net operating loss carryforward ........... 2,770,000
----------
Total deferred tax assets ............... 3,499,000
Less: valuation allowance ............... 1,326,000
----------
Net deferred tax liabilities ............ $ 573,436
==========
</TABLE>
The following unaudited pro forma income tax information is presented in
accordance with SFAS 109 as if the Company had been a C Corporation subject to
federal and state income taxes throughout all periods presented. 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 year
ended December 31, 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1995 1996
----------- -------------
<S> <C> <C>
Earnings before pro forma adjustments ..................................... $370,829 $2,605,899
Pro forma statement:
Provision for income taxes to increase tax expense to estimated effective
rate of 42% ............................................................ 155,748 1,094,478
-------- ----------
Pro forma net income .................................................... $215,081 $1,511,421
======== ==========
</TABLE>
10. COMMITMENTS
The Company has signed a commitment 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 was paid in December 1997. Payments under the agreement
are capitalized and amortized over the shorter of the useful life of the asset
or the term of the agreement.
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 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
14
<PAGE>
BTI TELECOM CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
11. ISSUANCE OF SENIOR NOTES AND RELATED TRANSACTIONS -- Continued
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, $25,015,828, represent the current
portion of restricted cash in the balance sheet and the remaining balance is
included in restricted cash, non-current.
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 December 31, 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 year ended December 31,
1997.
(iv) The Company converted from an S corporation to a C corporation subject to
income tax (the "Reorganization").
(v) The Company's Board of Directors approved an increase in the number of no
par value common stock authorized from 200,000 to 100,000,000. The Board
of Directors also authorized 10,000,000 shares $0.01 par value preferred
stock. As of December 31, 1997, there were no shares of preferred stock
outstanding.
12. SIGNIFICANT CUSTOMER
During 1997 one customer accounted for approximately 12% of consolidated
revenue.
13. SUBSEQUENT EVENT
In January 1998, the Company exchanged all of its 10 1/2% Notes
outstanding in $1,000 principal amounts ("Initial Notes") for $250 million in
$1,000 principal amounts of Exchange Notes ("Exchange Notes"). The Exchange
Notes have been registered under the Securities Act of 1933, as amended, and
are identical in all material respects to the terms of the Initial Notes for
which they were exchanged, except for certain transfer restrictions and
registration rights relating to the Initial Notes.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
BTI TELECOM CORP.
Date: May 7, 1998 By: /S/ PETER T. LOFTIN
----------------------------
Peter T. Loftin,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------- ------------
<S> <C> <C>
/S/ PETER T. LOFTIN Chairman, Chief Executive May 7, 1998
- ------------------------------------- Officer (Principal Executive
Peter T. Loftin Officer) and Director
/S/ BRIAN K. BRANSON Chief Financial Officer May 7, 1998
- ------------------------------------- (Principal Financial and
Brian K. Branson Accounting Officer) and
Director
/S/ THOMAS F. DARDEN Director May 7, 1998
- -------------------------------------
Thomas F. Darden
/S/ WILLIAM M. MOORE, JR. Director May 7, 1998
- -------------------------------------
William M. Moore, Jr.
/S/ R. MICHAEL NEWKIRK Director May 7, 1998
- -------------------------------------
R. Michael Newkirk
/S/ PAUL J. RIZZO Director May 7, 1998
- -------------------------------------
Paul J. Rizzo
</TABLE>
<PAGE>
BTI TELECOM CORP.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ----------------------------------------------------------------------------------------------------
<S> <C>
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., as amended.
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.
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.
10.9 + IRU Agreement dated October 31, 1997, between QWEST Communications Corporation and
Business Telecom, Inc.
10.10 Letter Agreement, dated May 6, 1998, between General Electric Capital Corporation and Business
Telecom, Inc.
10.11 Amendment Four to Lease Agreement, dated March 27, 1998, between RBC Corporation and
Business Telecom, Inc.
21.1 Subsidiaries of BTI Telecom Corp.
27.1 Financial Data Schedule for the Year Ended December 31, 1997.
</TABLE>
- ----------
* Filed as an exhibit to the Registration Statement on Form S-4 (File No.
333-41723).
+ Confidential treatment requested.
Exhibit 3.2
BYLAWS
OF
BTI TELECOM CORP.
ARTICLE I
OFFICES
Section 1. Principal Office. The principal office of the
corporation shall be located at such place as the
Board of Directors may fix from time to time.
Section 2. Registered Office. The registered office of the
corporation required by law to be maintained in the
State of North Carolina may be, but need not be,
identical with the principal office.
Section 3. Other Offices. The corporation may have offices at
such other places, either within or without the State
of North Carolina, as the Board of Directors may
designate or as the affairs of the corporation may
require from time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All meetings of shareholders shall
be held at the principal office of the corporation,
or at such other place, whether within or without the
State of North Carolina, as shall be designated in
the notice of the meeting or agreed upon by the Board
of Directors.
Section 2. Annual Meeting. The annual meeting of shareholders
shall be held during the fourth full month following
the end of the corporation's fiscal year at a time
and on any day (except Saturday, Sunday or a legal
holiday) in that month as determined by the Board of
Directors for the purpose of electing directors of
the corporation and for the transaction of such other
business as may be properly brought before the
meeting.
Section 3. Substitute Annual Meetings. If the annual meeting
shall not be held on the day designated by these
Bylaws, a substitute annual meeting may be called
<PAGE>
in accordance with the provisions of Section 4 of
this Article II. A meeting so called shall be
designated and treated for all purposes as the annual
meeting.
Section 4. Special Meetings. Special meetings of the
shareholders may be called at any time by the
Chairman of the Board, President, Secretary or Board
of Directors of the corporation, or by any
shareholder pursuant to the written request of the
holders of not less than one-tenth (1/10th) of all
shares entitled to vote at the meeting.
Section 5. Notice of Meetings. Written or printed notice stating
the time and place of the meeting shall be delivered
not less than ten (10) nor more than sixty (60) days
before the date of any shareholders' meeting, either
personally or by telegraph, teletype or other form of
wire or wireless communication, or by facsimile, by
or at the direction of the Chairman of the Board, the
President, the Secretary or other person calling the
meeting, to each shareholder of record entitled to
vote at such meeting; provided that such notice must
be given to all shareholders with respect to any
meeting at which a merger, share exchange, sale of
assets other than in the regular course of business
or voluntary dissolution is to be considered and in
such other instances as required by law. If mailed,
such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the
shareholder at his address as it appears on the
record of shareholders of the corporation, with
postage thereon prepaid.
In the case of a special meeting, the notice of
meeting shall specifically state the purpose or
purposes for which the meeting is called; but, in the
case of an annual or substitute annual meeting, the
notice of meeting need not specifically state the
business to be transacted thereat unless such a
statement is required by the provisions of the North
Carolina Business Corporation Act.
When a meeting is adjourned to a different date, time
or place, notice need not be given of the new date,
time or place if the new date, time or place is
announced at the meeting before adjournment. If,
however, a new record date for the adjourned meeting
2
<PAGE>
is fixed, notice of the adjourned meeting will be
given to all persons who are shareholders as of the
new record date in accordance with this Section 5.
Section 6. Waiver of Notice. Any shareholder may waive notice of
any meeting. The waiver must be in writing, signed by
the shareholder and delivered to the corporation for
inclusion in the minutes or filing with the corporate
records. A shareholder's attendance at a meeting (a)
waives objection to lack of notice or defective
notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the
meeting or transacting business at the meeting; and
(b) waives objection to consideration of a particular
matter at the meeting that is not within the purpose
or purposes described in the meeting notice, unless
the shareholder objects to considering the matter
before it is voted upon.
Section 7. Shareholder Lists. Before each meeting of
shareholders, the Secretary of the corporation shall
prepare an alphabetical list of the shareholders
entitled to notice of such meeting. The list shall be
arranged by voting group (and within each voting
group by class or series of shares) and show the
address and number of shares held by each
shareholder. The list shall be kept on file at the
principal office of the corporation, or at a place
identified in the meeting notice in the city where
the meeting will be held, for the period beginning
two business days after notice of the meeting is
given and continuing through the meeting, and shall
be subject to inspection by any shareholder at any
time during regular business hours. This list shall
also be produced and kept open at the time and place
of the meeting and shall be subject to inspection by
any shareholder during the meeting or any adjournment
thereof.
Section 8. Quorum. A majority of the outstanding shares of the
corporation entitled to vote, represented in person
or by proxy, shall be required for, and shall
constitute a quorum at all meetings of shareholders.
Shares entitled to vote as a separate voting group
may take action on a matter only if a quorum of those
shares exists; a majority of the votes entitled to be
cast on the matter by the voting group constitutes a
quorum of that voting group. The shareholders present
at a duly
3
<PAGE>
organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
In the absence of a quorum at the opening of any
meeting of shareholders, such meeting may be
adjourned from time to time by a vote of a majority
of the shares voting on the motion to adjourn; and at
any adjourned meeting at which a quorum is present,
any business may be transacted that might have been
transacted at the original meeting.
Section 9. Organization. Each meeting of shareholders shall be
presided over by the Chairman of the Board, and in
his absence or at his request by the President, and
in their absence or at their request by any person
selected to preside by vote of the holders of a
majority of the shares present and entitled to vote
at the meeting. The Secretary, or in his absence or
at his request, any person designated by the person
presiding at the meeting, shall act as secretary of
the meeting.
Section 10. Proxies. Shares may be voted either in person or by
one or more agents authorized by a written proxy
executed by the shareholder or by his duly authorized
attorney-in-fact. A proxy is not valid after the
expiration of eleven months from the date of its
execution, unless the person executing it specifies
therein the length of time for which it is to
continue in force, or limits its use to a particular
meeting. Any proxy shall be revocable by the
shareholder unless the written appointment expressly
and conspicuously provides that it is irrevocable and
the appointment is coupled with an interest as
required by law.
Section 11. Voting of Shares. Subject to the provisions of
Section 4 of Article III and the corporation's
Articles of Incorporation, each outstanding share
entitled to vote shall be entitled to one vote on
each matter submitted to a vote at a meeting of
shareholders. All shares entitled to vote shall be
counted together collectively on a matter as provided
by the Articles of Incorporation or by the North
Carolina Business Corporation Act shall constitute a
single voting group. Additional required voting
groups shall be determined in accordance with the
Articles of Incorporation and
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these Bylaws of this corporation and the North
Carolina Business Corporation Act.
Except in the election of directors as governed by
the provisions of Section 3 of Article III, the vote
of a majority of the shares voted on any matter at a
meeting of shareholders at which a quorum is present
shall be the act of the shareholders on that matter,
unless the vote of a greater number is required by
law or by the Articles of Incorporation or Bylaws of
this corporation. Further, except in the election of
directors, action on a matter by a voting group shall
be approved if the votes cast within the voting group
favoring the action exceed the votes cast opposing
the action, unless the vote by a greater number is
required by law or by the Articles of Incorporation
or Bylaws of this corporation. Corporate action on
such matters shall be taken only when approved by
each and every voting group entitled to vote as a
separate voting group on such matters as provided by
the Articles of Incorporation or Bylaws of this
corporation or by the North Carolina Business
Corporation Act.
Voting on all matters except the election of
directors shall be by voice vote or by a show of
hands unless the holders of one-tenth (1/10th) of the
shares represented at the meeting shall, prior to the
voting on any matter, demand a ballot vote on that
particular matter. Abstentions shall not be treated
as negative votes.
Shares of the corporation's stock are not entitled to
vote if they are owned, directly or indirectly, by a
second corporation and the corporation owns, directly
or indirectly, a majority of the shares entitled to
vote for directors of the second corporation, except
that shares held in a fiduciary capacity, including
the corporation's own shares, may be voted.
Section 12. Informal Action by Shareholders. Any action that is
required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if one or
more written consents, describing the action so
taken, shall be signed by all of the persons who
would be entitled to vote upon such action at a
meeting, and delivered to the corporation for
inclusion in the minutes or filing
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with the corporate records. Such consent shall have
the same force and effect as a unanimous vote of
shareholders. Any shareholder may retract his consent
until the last shareholder entitled to vote has
signed the appropriate written consent and all
consents have been delivered to the Secretary of the
corporation. When notice of a proposed action is
required to be given to nonvoting shareholders as
provided in Section 5 of Article II of these Bylaws,
the corporation shall give the nonvoting shareholders
notice at least ten (10) days before action is taken
in lieu of a meeting by unanimous consent of the
voting shareholders. Such notice to nonvoting
shareholders shall contain or be accompanied by any
material that would have been required to be sent to
the nonvoting shareholders in a notice of meeting at
which the proposed action would have been submitted
to the shareholders for action.
Section 13. Inspectors of Election.
(a) Appointment of Inspectors of Election. In advance
of any meeting of shareholders, the Board of
Directors may appoint any persons, other than
nominees for office, as inspectors of election to act
at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, the
chairman of any such meeting may appoint inspectors
of election at the meeting. The number of inspectors
shall be either one or three. In case any person
appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by
appointment by the Board of Directors in advance of
the meeting or at the meeting by the person acting as
chairman.
(b) Duties of Inspectors. The inspectors of election
shall determine the number of shares outstanding and
the voting power of each, the shares represented at
the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, receive
votes, ballots or consents, hear and determine all
challenges and questions in any way arising in
connection with the right to vote, count and tabulate
all votes or consents, determine the result and do
such acts as may be proper to conduct the election or
vote with fairness to all shareholders. The
inspectors of election shall perform their duties
impartially, in good faith, to
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the best of their ability and as expeditiously as is
practical.
(c) Vote of Inspectors. If there are three inspectors
of election, the decision, act or certificate of a
majority shall be effective in all respects as the
decision, act or certificate of all.
(d) Report of Inspectors. On a request of the
chairman of the meeting, the inspectors shall make a
report in writing of any challenge or question or
matter determined by them and shall execute a
certificate of any fact found by them. Any report or
certificate made by them shall be a prima facie
evidence of the facts stated therein.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. All corporate powers shall be
exercised by or under the authority of, and the
business and affairs of the corporation managed under
the direction of, its Board of Directors or by such
executive or other committees as the Board may
establish pursuant to these Bylaws.
Section 2. Number and Qualifications. The number of directors
constituting the initial Board of Directors shall be
not less than five (5) nor more than ten (10) as may
be fixed or changed from time to time, within the
minimum and maximum, by the shareholders or by the
Board of Directors. Directors need not be residents
of the State of North Carolina or shareholders of the
corporation.
Section 3. Election of Directors. Except as provided in Section
6 of this Article III, the directors shall be elected
at the annual meeting of shareholders; and those
persons who receive the highest number of votes shall
be deemed to have been elected. Every shareholder
entitled to vote at an election of directors shall
have the right to vote the number of shares standing
of record in his name for as many persons as there
are directors to be elected and for whose election he
has a right to vote, or, if cumulative voting rights
have been provided for in the corporation's Articles
of Incorporation, to cumulate his vote by giving one
candidate as many
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votes as the number of such directors multiplied by
the number of his shares shall equal, or by
distributing such votes on the same principle among
any number of such candidates. This right of
cumulative voting, if available to the shareholders,
shall not be exercised unless (a) the meeting notice
or proxy statement accompanying the notice states
conspicuously that shareholders are entitled to
cumulate their votes, or (b) a shareholder or proxy
holder who has the right to cumulate his votes
announces in open meeting, before the voting for the
directors starts, his intention so to vote
cumulatively; and if such announcement is made, the
chair shall declare that all shares entitled to vote
have the right to vote cumulatively and shall
announce the number of shares present in person and
by proxy and shall thereupon grant a recess of not
less than one nor more than four hours, as he shall
determine, or of such other period of time as is
unanimously then agreed upon.
Section 4. Term of Directors. Each initial director shall hold
office until the first shareholders' meeting at which
directors are elected, or until such director's
death, resignation or removal. The terms of every
other director shall expire at the next annual
shareholders' meeting following a director's election
or upon such director's death, resignation or
removal. The term of a director elected to fill a
vacancy expires at the next shareholders' meeting at
which directors are elected. Despite the expiration
of a director's term, such director shall continue to
serve until a qualified successor shall be elected. A
decrease in the number of directors does not shorten
an incumbent director's term.
Section 5. Removal. Any director may be removed at any time with
or without cause by a vote of the shareholders if the
number or votes cast to remove such director exceeds
the number of votes cast not to remove him. However,
if cumulative voting is authorized, a director shall
not be removed when the number of shares voting
against the proposal for removal would be sufficient
to elect a director if such shares were voted
cumulatively at an annual election. If a director is
elected by a voting group of shareholders, only the
shareholders of that voting group may participate in
the vote to
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remove him. If any directors are so removed, new
directors may be elected at the same meeting. A
director may not be removed by the shareholders at a
meeting unless the notice of the meeting states that
the purpose, or one of the purposes, of the meeting,
is removal of the director.
Section 6. Vacancies. Any vacancy occurring in the Board of
Directors, including, without limitation, a vacancy
resulting from an increase in the number of directors
or from the failure by the shareholders to elect the
full authorized number of directors, may be filled by
the shareholders or the Board of Directors, whichever
group shall act first. If the directors remaining in
office do not constitute a quorum of the Board, the
directors may fill the vacancy by the affirmative
vote of a majority of the remaining directors.
Section 7. Chairman of the Board. There may be a Chairman of the
Board of Directors elected by the directors from
their number at any meeting of the Board. The
Chairman shall preside at all meetings of the Board
of Directors and perform such other duties as may be
directed by the Board. He shall be an ex officio
member of all committees. He shall make a report in
writing at the annual meeting of the Board of
Directors stating the condition of the corporation
and shall make such suggestions and recommendations
as he shall deem proper for the best interests of the
corporation. He shall appoint delegates and
representatives to the organizations with which the
corporation is affiliated. He shall have the power to
call the regular and any special meetings of the
Board of Directors. Until a Chairman is elected, the
President of the corporation shall preside at the
meetings of the Board of Directors and shareholders.
Section 8. Compensation. The Board of Directors, in its
discretion, may compensate directors for their
services as such and may provide for the payment of
all expenses incurred by directors in attending
regular and special meetings of the Board or of the
Executive Committee. Nothing herein contained,
however, shall be construed to preclude any director
from serving the corporation in any other capacity
and receiving compensation therefor.
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Section 9. Executive Committees. The Board of Directors, by
resolution adopted by a majority of the number of
directors in office when the action is taken or, if
greater, the number of directors required to take
action pursuant to Section 6 of Article IV, may
designate two or more directors to constitute an
Executive Committee and other committees, each of
which, to the extent authorized by law and provided
in such resolution, shall have and may exercise all
of the authority of the Board of Directors in the
management of the corporation. Each committee member
serves at the pleasure of the Board of Directors. The
provisions in these Bylaws that govern meetings,
action without meetings, notice and waiver of notice,
and quorum and voting requirements of the Board of
Directors apply to committees established by the
Board.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Regular Meetings. A regular meeting of the Board
of Directors shall be held immediately after, and at
the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may
provide, by resolution, the time and place, either
within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the
Chairman of the Board of Directors, if any, by the
President or any two directors. Such meetings may be
held either within or without the State of North
Carolina, as fixed by the person or persons calling
the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of
Directors may be held without notice.
The person or persons calling a special meeting of
the Board of Directors shall, at least two days
before the meeting, give notice thereof by any usual
means of communication. Such notice need not specify
the purpose for which the meeting is called.
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Section 4. Waiver of Notice. Any director may waive notice of
any meeting. The waiver must be in writing, signed by
the director entitled to the notice and delivered to
the corporation for inclusion in the minutes or
filing with the corporate records. A director's
attendance at or participation in a meeting shall
constitute a waiver of notice of such meeting, unless
the director at the beginning of the meeting (or
promptly on arrival) objects to holding the meeting
or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the
meeting.
Section 5. Quorum. A majority of the directors fixed by these
Bylaws shall be required for, and shall constitute, a
quorum for the transaction of business at any meeting
of the Board of Directors unless the Articles of
Incorporation or these Bylaws provide otherwise.
Section 6. Manner of Acting. Except as otherwise provided in the
Articles of Incorporation or these Bylaws, the act of
the majority of the directors present at a meeting at
which a quorum is present shall be the act of the
Board of Directors.
Section 7. Presumption of Assent. A director of the corporation
who is present at a meeting of the Board of Directors
or a committee of the Board of Directors when
corporate action is taken is deemed to have assented
to the action taken unless (a) he objects at the
beginning of the meeting (or promptly upon his
arrival) to holding it or transacting business at the
meeting, or (b) his dissent or abstention from the
action taken is entered in the minutes of the
meeting, or (c) he files written notice of his
dissent or abstention with the presiding officer of
the meeting before its adjournment or with the
corporation immediately after the adjournment. Such
right to dissent shall not apply to a director who
voted in favor of such action.
Section 8. Action Without Meeting. Action required or permitted
to be taken at a meeting of the Board of Directors
may be taken without a meeting if the action is taken
by all members of the Board. The action must be
evidenced by one or more written consents signed by
each director before or after such action, describing
the action taken, and
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included in the minutes or filed with the corporate
records. Such action will become effective when the
last director signs the consent, unless the consent
specifies a different date.
Section 9. Conference Telephone Meetings. Any one or more
directors or members of a committee may participate
in a meeting of the Board of Directors or committee
by means of a conference telephone or similar
communications device that allows all persons
participating in the meeting to hear each other, and
such participation in a meeting shall be deemed
presence in person at such meeting.
ARTICLE V
OFFICERS
Section 1. Officers of the Corporation. The officers of the
corporation shall consist of a Chairman of the Board,
President, a Secretary, a Treasurer and such
Vice-Presidents, Assistant Secretaries, Assistant
Treasurers, and other officers (including Controllers
and Assistant Controllers) as the Board of Directors
may from time to time elect. Any two or more offices
may be held by the same person, but no officer may
act in more than one capacity where action of two or
more officers is required.
Section 2. Appointment and Term. The officers of the corporation
shall be appointed by the Board of Directors and each
officer shall hold office until his death,
resignation, retirement, removal, disqualification,
or his successor shall have been appointed and
qualified.
Section 3. Removal. Any officer or agent elected or appointed
by the Board of Directors may be removed by the Board
at any time with or without cause; but such removal
shall be without prejudice to the contract rights, if
any, of the person so removed.
Section 4. Resignation. An officer may resign at any time by
communicating his resignation to the corporation,
orally or in writing. A resignation is effective when
communicated unless it specifies in writing a later
effective date. If a resignation is made effective at
a later date that is accepted by the corporation, the
Board of Directors may fill the pending vacancy
before the effective date if the
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Board provides that the successor does not take
office until the effective date. An officer's
resignation does not affect the corporation's
contract rights, if any, with the officer.
Section 5. Compensation of Officers. The compensation of all
officers of the corporation shall be fixed by the
Board of Directors and no officer shall serve the
corporation in any other capacity and receive
compensation therefor unless such additional
compensation be authorized by the Board of Directors.
Section 6. Chairman of the Board. Unless otherwise specified by
resolution of the Board, the Chairman of the Board
shall be the Chief Executive Officer of the
corporation (and may be identified as such in his
title) and, subject to the direction and control of
the Board of Directors, shall supervise and control
the management of the corporation. The Chairman of
the Board shall, when present, preside at all
meetings of the directors and shareholders and, in
general, shall perform all duties incident to the
office of Chairman of the Board and such other duties
as may be prescribed from time to time by the Board
of Directors.
Section 7. President. Unless otherwise specified by resolution
of the Board, the President shall be the Chief
Operating Officer of the corporation and, subject to
the control of the Board of Directors, shall in
general supervise and control all of the business and
affairs of the corporation. He shall, in the absence
of the Chairman of the Board, preside at all meetings
of the shareholders. He shall sign, with the
Secretary, an Assistant Secretary, or any other
proper officer of the corporation thereunto
authorized by the Board of Directors, certificates
for shares of the corporation, any deeds, mortgages,
bonds, contracts, or other instruments that the Board
of Directors has authorized to be executed, except in
cases where the signing and execution thereof shall
be expressly delegated by the Board of Directors or
by these Bylaws to some other officer or agent of the
corporation, or shall be required by law to be,
otherwise signed or executed; and, in general, he
shall perform all duties incident to the office of
President and such other duties as may be
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prescribed by the Board of Directors from time to
time.
Section 8. Vice-Presidents. In the absence of the President or
in the event of his death, inability or refusal to
act, the Vice-Presidents in the order of their length
of service as such, unless otherwise determined by
the Board of Directors, shall perform the duties of
the President, and when so acting shall have all the
powers of and be subject to all the restrictions upon
the President. Any Vice-President may sign, with the
Secretary or an Assistant Secretary, certificates of
shares of the corporation; and shall perform such
other duties as from time to time may be assigned to
him by the President or Board of Directors. The Board
of Directors may designate one or more
Vice-Presidents to be responsible for certain
functions, including, without limitation, Marketing,
Finance, Manufacturing and Personnel.
Section 9. Secretary. The Secretary shall: (a) keep the minutes
of the meetings of shareholders, of the Board of
Directors and of all Executive Committees in one or
more books provided for that purpose; (b) see that
all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c)
be custodian of the corporate records and of the seal
of the corporation and see that the seal of the
corporation is affixed to all documents the execution
of which on behalf of the corporation under its seal
is duly authorized; (d) keep a register of the post
office address of each shareholder which shall be
furnished to the Secretary by such shareholder; (e)
sign with the President, or a Vice-President,
certificates for shares of the corporation, the
issuance of which shall have been authorized by
resolution of the Board of Directors; (f) maintain
and have general charge of the stock transfer books
of the corporation; (g) prepare or cause to be
prepared shareholder lists prior to each meeting of
shareholders as required by law; (h) attest the
signature or certify the incumbency or signature of
any officer of the corporation; and (i) in general
perform all duties incident to the office of
Secretary and such other duties as from time to time
may be assigned to him by the President or by the
Board of Directors.
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Section 10. Assistant Secretaries. In the absence of the
Secretary or in the event of his death, inability or
refusal to act, the Assistant Secretaries in the
order of their lengths of service as Assistant
Secretaries, unless otherwise determined by the Board
of Directors, shall perform the duties of the
Secretary, and when so acting shall have all the
powers of and be subject to all the restrictions upon
the Secretary. They shall perform such other duties
as may be assigned to them by the Secretary, by the
President, or by the Board of Directors. Any
Assistant Secretary may sign, with the President or a
Vice-President, certificates for shares of the
corporation.
Section 11. Treasurer. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and
securities of the corporation; receive and give
receipts for monies due and payable to the
corporation from any source whatsoever, and deposit
all such monies in the name of the corporation in
such depositories as shall be selected in accordance
with the provisions of Section 4 of Article VI of
these Bylaws; (b) maintain appropriate accounting
records as required by law; (c) prepare, or cause to
be prepared, annual financial statements of the
corporation that include a balance sheet as of the
end of the fiscal year and an income and cash flow
statement for that year, which statements, or a
written notice of their availability, shall be mailed
to each shareholder within One Hundred Twenty (120)
days after the end of such fiscal year; and (d) in
general perform all of the duties incident to the
office of Treasurer and such other duties as from
time to time may be assigned to him by the President
or by the Board of Directors, or by these Bylaws.
Section 12. Assistant Treasurers. In the absence of the
Treasurer or in the event of his death, inability or
refusal to act, the Assistant Treasurers in the order
of their length of service as such, unless otherwise
determined by the Board of Directors, shall perform
the duties of the Treasurer, and when so acting shall
have all the powers of and be subject to all the
restrictions upon the Treasurer. They shall perform
such other duties as may be
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assigned to them by the Treasurer, by the President,
or by the Board of Directors.
Section 13. Controller and Assistant Controllers. The Controller,
if one has been appointed, shall have charge of the
accounting affairs of the corporation and shall have
such other powers and perform such other duties as
the Board of Directors shall designate. Each
Assistant Controller shall have such powers and
perform such duties as may be assigned by the Board
of Directors and the Assistant Controller shall
exercise the powers of the Controller during that
officer's absence or inability to act.
Section 14. Delegation of Duties of Officers. In case of the
absence of any officer of the corporation or for any
other reason that the Board may deem sufficient, the
Board may delegate the powers or duties of such
officer to any other officer or to any director for
the time being provided a majority of the entire
Board of Directors concurs herein.
Section 15. Bonds. The Board of Directors may by resolution,
require any or all officers, agents or employees of
the corporation to give bond to the corporation, with
sufficient sureties, conditioned on the faithful
performance of the duties of their respective offices
or positions, and to comply with such other
conditions as may from time to time be required by
the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into
any contract or execute and deliver any instrument in
the name of and on behalf of the corporation, and
such authority may be general or confined to specific
instances. Any resolution of the Board of Directors
authorizing the execution of documents by the proper
officers of the corporation or by the officers
generally shall be deemed to authorize such execution
by the Chairman of the Board, the President, any
Vice-President, or the Treasurer, or any other
officer if such execution is generally within the
scope of the duties of his
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office. The Board of Directors may by resolution
authorize such execution by means of one or more
facsimile signatures.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidence of indebtedness shall be
issued in its name unless authorized by a resolution
of the Board of Directors. Such authority may be
general or confined to specific instances.
Section 3. Checks and Drafts. All checks, drafts or other
orders for the payment of money issued in the name of
the corporation shall be signed by such officer or
officers, agent or agents of the corporation and in
such manner as shall from time to time be determined
by resolution of the Board of Directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the
credit of the corporation in such depositories as the
Board of Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. The Board of Directors may
authorize the issuance of some or all of the shares
of the corporation's classes or series without
issuing certificates to represent such shares. If
shares are represented by certificates, the
certificates shall be in such form as required by law
and shall be determined by the Board of Directors.
Certificates shall be signed (either manually or in
facsimile) by the Chairman of the Board, President or
a Vice-President and by the Secretary or Treasurer or
an Assistant Secretary or an Assistant Treasurer. The
signatures of any such officers upon a certificate
may be facsimiles or may be engraved or printed. In
case any officer who has signed or whose facsimile or
other signature has been placed upon such certificate
shall have ceased to be such officer before such
certificate is issued, it may be issued by the
corporation with the same effect as if he were such
officer at the date of its issue. All certificates
for shares shall be consecutively numbered or
otherwise identified and entered into the stock
transfer books of the corporation. When shares are
represented by certificates, the corporation shall
issue and deliver to each shareholder to whom such
shares have been issued or transferred, certificates
representing the shares owned by him. When shares are
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not represented by certificates, then within a
reasonable time after the issuance or transfer of
such shares, the corporation shall send the
shareholder to whom such shares have been issued or
transferred a written statement of the information
required by law to be on certificates.
Section 2. Stock Transfer Books. The corporation shall keep a
book or set of books, to be known as the stock
transfer books of the corporation, containing the
name of each shareholder of record, together with
such shareholder's address and the number and class
or series of shares held by him. Transfer of shares
shall be made only on the stock transfer books of the
corporation by the holder of record thereof or by his
legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney
thereunto authorized by power of attorney duly
executed and filed with the Secretary, and on
surrender for cancellation of the certificate for
such shares (if the shares are represented by
certificates). All certificates surrendered for
transfer (if the shares are represented by
certificates) shall be cancelled before new
certificates (or written statements in lieu thereof)
for the transferred shares shall be issued or
delivered to the shareholder.
Section 3. Restrictions on Transfer.
(a) If the corporation has elected Subchapter S
status under Section 1362 of the Internal Revenue
Code of 1986, as amended, no shareholder or
involuntary transferee shall dispose of or transfer
any shares of the corporation that he now owns or may
hereafter acquire if such disposition or transfer
would result in the termination of such Subchapter S
status, unless such disposition or transfer is
consented to by all shareholders of the corporation.
Any such disposition or transfer that does not comply
with the terms of this section shall be void and have
no legal force or effect and shall not be recognized
on the share transfer books of the corporation as
effective.
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(b) If the corporation has elected Subchapter S
status under Section 1362 of the Code, every
certificate representing shares of the corporation
shall bear a legend prominently displayed that notes
the restrictions on transfer contained in these
Bylaws.
(c) The restrictions contained in this Section 3
shall automatically terminate on the effectiveness of
the corporation's initial registration statement for
a public offering of its securities.
Section 4. Fixing Record Date. The Board of Directors may fix a
future date as the record date for one or more voting
groups in order to determine the shareholders
entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled
to receive payment of any distribution, or in order
to make a determination of shareholders for any other
proper purpose. Such record date may not be more than
seventy (70) days before the meeting or date on which
the particular action requiring such determination of
shareholders is to be taken. A determination of
shareholders entitled to notice of or to vote at a
shareholders' meeting is effective for any
adjournment of the meeting unless the Board of
Directors fixes a new record date for the adjourned
meeting, which it must do if the meeting is adjourned
to a date more than One Hundred Twenty (120) days
after the date fixed for the original meeting.
If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to
receive payment of a distribution, the close of
business on the day before the first notice of the
meeting is delivered to shareholders or the date on
which the resolution of the Board of Directors
declaring such distribution is adopted, as the case
may be, shall be the record date for such
determination of shareholders.
Section 5. Lost or Destroyed Certificate. The Board of Directors
may direct a new certificate to be issued in place of
any certificate theretofore issued by the corporation
claimed to have been lost, destroyed or wrongfully
taken, upon receipt of an affidavit of such fact from
the person claiming the certificate of stock to have
been lost or
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destroyed. When authorizing such issue of a new
certificate, the Board of Directors shall require
that the owner of such lost or destroyed certificate,
or his legal representative, give the corporation a
bond in such sum as the Board may direct as indemnity
against any claim that may be made against the
corporation with respect to the certificate claimed
to have been lost or destroyed, except where the
Board of Directors by resolution finds that in the
judgment of the directors the circumstances justify
omission of a bond.
Section 6. Holder of Record. Except as otherwise required by
law, the corporation may treat as absolute owner of
shares the person in whose name the shares stand of
record on its books just as if that person had full
competency, capacity and authority to exercise all
rights of ownership irrespective of any knowledge or
notice to the contrary or any description indicating
a representative, pledge or other fiduciary relation
or any reference to any other instrument or to the
rights of any other person appearing upon its record
or upon the share certificate except that any person
furnishing to the corporation proof of his
appointment as a fiduciary shall be treated as if he
were a holder of record of its shares.
Section 7. Shares Held By Nominees.
(a) The corporation shall recognize the beneficial
owner of shares registered in the name of a nominee
as the owner and shareholder of such shares for
certain purposes if the nominee in whose name such
shares are registered files with the Secretary of the
corporation a written certificate in a form
prescribed by the corporation, signed by the nominee
and indicating the following: (1) the name, address
and taxpayer identification number of the nominee;
(2) the name, address and taxpayer identification
number of the beneficial owner; (3) the number and
class or series of shares registered in the name of
the nominee as to which the beneficial owner shall be
recognized as the shareholder; and (4) the purposes
for which the beneficial owner shall be recognized as
the shareholder.
(b) The purposes for which the corporation shall
recognize a beneficial owner as the shareholder may
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include the following: (1) receiving notice of,
voting at and otherwise participating in
shareholders' meetings; (2) executing consents with
respect to the shares; (3) exercising dissenters'
rights under Article 13 of the North Carolina
Business Corporation Act; (4) receiving distributions
and share dividends with respect to the shares; (5)
exercising inspection rights; (6) receiving reports,
financial statements, proxy statements and other
communications from the corporation; (7) making any
demand upon the corporation required or permitted by
law; and (8) exercising any other rights or receiving
any other benefits of a shareholder with respect to
the shares.
(c) The certificate shall be effective ten (10)
business days after its receipt by the corporation
and until it is changed by the nominee, unless the
certificate specifies a later effective time or an
earlier termination date.
(d) If the certificate affects less than all of the
shares registered in the name of the nominee, the
corporation may require the shares affected by the
certificate to be registered separately on the books
of the corporation and be represented by a share
certificate that bears a conspicuous legend stating
that there is a nominee certificate in effect with
respect to the shares represented by that share
certificate.
Section 8. Acquisition by Corporation of its Own Shares. The
corporation may acquire its own shares and shares so
acquired shall constitute authorized but unissued
shares. Unless otherwise prohibited by the Articles
of Incorporation, the corporation may reissue such
shares. If reissue is prohibited, the Articles of
Incorporation shall be amended to reduce the number
of authorized shares by the number of shares so
acquired. Such required amendment may be adopted by
the Board of Directors without shareholder action.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Distributions. The Board of Directors may from time
to time authorize, and the corporation may
21
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make distributions to its shareholders pursuant to
law and subject to the provisions of its Articles of
Incorporation.
Section 2. Seal. The corporate seal of the corporation shall
consist of two concentric circles between which is
the name of the corporation and in the center of
which is inscribed CORPORATE SEAL; and such seal, as
impressed on the margin hereof, is hereby adopted as
the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall
be fixed by the Board of Directors.
Section 4. Amendments. Except as otherwise provided herein and
by law, these Bylaws may be amended or repealed and
new bylaws may be adopted by the affirmative vote of
a majority of the directors then holding office at
any regular or special meeting of the Board of
Directors.
No bylaw adopted or amended or repealed by the
shareholders shall be readopted, amended or repealed
by the Board of Directors, unless the Articles of
Incorporation or a bylaw adopted by the shareholders
authorizes the Board of Directors to adopt, amend or
repeal that particular bylaw or the Bylaws generally.
Section 5. Salary and Other Compensation. Any payments made to
an officer of the corporation such as salary,
commission, bonus, interest, rent or entertainment
expense incurred by him, that shall be disallowed in
whole or in part as a deductible expense by the
Internal Revenue Service, shall be reimbursed by such
officer of the corporation to the full extent of such
disallowance.
Section 6. Indemnification. Any person who at any time serves or
has served as a director or officer of the
corporation or in such capacity at the request of the
corporation or officer of the corporation,
partnership, joint venture, trust or other
enterprise, shall have a right to be indemnified by
the corporation to the fullest extent permitted by
law against (a) reasonable expenses, including
attorneys' fees, actually and necessarily incurred by
him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative or investigative
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(and any appeal therein), and whether or not brought
by or on behalf of the corporation, seeking to hold
him liable by reason of the fact that he is or was
acting in such capacity, and (b) reasonable payments
made by him in satisfaction of any judgment, money
decree, fine, penalty or settlement for which he may
have become liable in any such action, suit or
proceeding.
The Board of Directors of the corporation shall take
all such action as may be necessary and appropriate
to authorize the corporation to pay the
indemnification required by this bylaw, including
without limitation, to the extent needed, making a
good faith evaluation of the manner in which the
claimant for indemnity acted and of the reasonable
amount of indemnity due him and giving notice to, and
obtaining approval by, the shareholders of the
corporation.
Any person who at any time after the adoption of this
bylaw serves or has served in any of the aforesaid
capacities for or on behalf of the corporation shall
be deemed to be doing or to have done so in reliance
upon, and as consideration for, the right of
indemnification provided herein. Such right shall
inure to the benefit of the legal representatives of
any such person and shall not be exclusive of any
other rights to which such person may be entitled
apart from the provision of this bylaw.
Section 7. Advance Payment of Expenses. The corporation shall
(upon receipt of an undertaking by or on behalf of
the director or officer involved to repay the
expenses described herein unless it shall ultimately
be determined that he is entitled to be indemnified
by the corporation against such expenses) pay
expenses (including attorneys' fees) incurred by such
director, officer, employee or agent in defending any
threatened, pending or completed action, suit or
proceeding and any appeal therein whether civil,
criminal, administrative, investigative or
arbitrative and whether formal or informal or
appearing as a witness at a time when he has not been
named as a defendant or a respondent with respect
thereto in advance of the final disposition of such
proceeding.
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Section 8. Directors and Officers Liability Insurance. The Board
of Directors may cause the corporation to purchase
and maintain "Directors and Officers Liability
Insurance" for the benefit of any person who is or
was serving as a director, officer, employee or agent
of this corporation or for the benefit of any person
who is or was serving at the request of this
corporation as a director, officer, employee, or
agent of another corporation, partnership, joint
venture, trust or other enterprise. This insurance
may cover any liability incurred by such person in
any capacity arising out of this status as such even
if the corporation would not otherwise have the power
to indemnify him against that liability.
Section 9. Effective Date of Notice. Except as provided in
Section 5 of Article II, written notice shall be
effective at the earliest of the following: (1) when
received; (2) five days after its deposit in the
United States mail, as evidenced by the postmark, if
mailed with postage thereon prepaid and correctly
addressed; or (3) on the date shown on the return
receipt, if sent by registered or certified mail,
return receipt requested and the receipt is signed by
or on behalf of the addressee.
Section 10. Corporate Records. Any records maintained by the
corporation in the regular course of its business,
including its stock ledger, books of account and
minute books, may be kept on or be in the form of
punch cards, magnetic tape, photographs,
microphotographs or any other information storage
device; provided that the records so kept can be
converted into clearly legible form within a
reasonable time. The corporation shall so convert any
records so kept upon the request of any person
entitled to inspect the same. The corporation shall
maintain at its principal office the following
records: (1) Articles of Incorporation or Restated
Articles of Incorporation and all amendments thereto;
(2) Bylaws or restated Bylaws and all amendments
thereto; (3) resolutions by the Board of Directors
creating classes or series of shares and affixing
rights, preferences or limitations to shares; (4)
minutes of all shareholder meetings or action taken
without a meeting for the past three years; (5) all
written communications to shareholders for the past
three years, including financial statements; and (6)
the
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corporation's most recent annual report filed with
the North Carolina Secretary of State.
Section 11. Amendments to Articles of Incorporation. To the
extent permitted by law, the Board of Directors may
amend the Articles of Incorporation without
shareholder approval to (1) delete the initial
directors' names and addresses; (2) change the
initial registered agent or office in any state in
which it is qualified to do business, provided such
change is on file with the applicable Secretary of
State; (3) change each issued and unissued share of
an outstanding class into a greater number of whole
shares, provided that class is the corporation's only
outstanding share class; (4) change the corporate
name by substituting "corporation," "incorporated,"
"company," "limited" or the abbreviations therefor
for a similar word or abbreviation or by adding,
deleting or changing a geographic designation in the
name; (5) make any other change expressly permitted
by the North Carolina Business Corporation Act to be
made without shareholder action. All other amendments
to the Articles of Incorporation must be approved by
the appropriate voting group or groups as required by
law.
25
IRU AGREEMENT
THIS INDEFEASIBLE RIGHT OF USE AGREEMENT ("IRU Agreement") is made and
entered into as of October 31, 1997 by and between QWEST COMMUNICATIONS
CORPORATION, a Delaware corporation ("QWEST"), and BUSINESS TELECOM, INC. a
North Carolina corporation ("BTI").
RECITALS
A. QWEST is planning to construct a fiber optic communication system as
set forth on Exhibit A-1 hereto (the "QWEST System").
B. BTI desires to be granted the right to use certain optical fibers in
the QWEST System between each of the city pairs identified in Section 1.02 below
as the "Segments."
C. QWEST desires to grant BTI an indefeasible right to use certain
fibers and associated property in the QWEST System, all upon the terms and
conditions set forth below.
D. Each defined term shall have the meaning set forth in this IRU
Agreement where such term is first used, or, if no meaning is so set forth, the
meaning ascribed to such term in the Glossary of Terms which is attached hereto
and incorporated herein by this reference.
Accordingly, in consideration of the mutual promises set forth below,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereby agree as follows:
ARTICLE 1.
GRANT OF IRU
1.01 Effective as of the effective date described in Section 6.01
below, for each particular Segment (as defined in Section 1.02 below) delivered
by QWEST to BTI hereunder and with respect to which an Acceptance Date (as
defined in Section 4.02 below) has occurred, QWEST hereby grants to BTI, and BTI
hereby purchases from QWEST:
(a) an Indefeasible Right of Use in, for the purposes
described herein, [ ] to [ ] "Dark Fibers", to be specifically identified, in
the QWEST System between the city pairs and in the amounts identified on Exhibit
A-2, and
(b) an associated and nonexclusive Indefeasible Right of Use,
for the purposes described herein, in the tangible and intangible property
needed for the use of such Dark Fibers as Dark Fibers, including, but not
limited to, the associated conduit and QWEST's rights in all Underlying Rights
and,
(c) to the extent provided in Article 7 herein, associated
Regeneration Facilities, but in any event excluding any electronic or optronic
equipment (all of the above collectively, the "Associated Property"), for the
Term respecting such Segment, and all on the
<PAGE>
terms and subject to the covenants and conditions set forth herein
(collectively, the "IRUs"). The Dark Fibers subject to the IRUs are referred to
collectively as the "BTI Fibers."
1.02 The Segments included in this IRU Agreement, the number of BTI
Fibers in each Segment and the Estimated Delivery Date for each Segment is set
forth on Exhibit A-2 attached hereto.
1.03 QWEST agrees that If our (4)] of the BTI Fibers on all Segments
will be assigned so that [ ] fibers are allocated to one buffer tube in the
QWEST cable and the other [ ] are allocated to a separate buffer tube. In the
Segments where QWEST is providing BTI with [ ] fibers, the split between the
buffer tubes will be [ ] fibers in one tube and [ ] fibers in a separate tube;
in Segments where QWEST is granting [ ] fibers, the split will be [ ] fibers in
one tube and [ ] fibers in a separate tube.
1.04 BTI shall have an option to elect to purchase additional IRUs in [
] Dark Fibers, to be specifically identified, in additional segments on the
QWEST System (the "Additional Fibers") on the same price and terms as this IRU
Agreement, provided that BTI notifies QWEST of its election to exercise this
option prior to the date on which QWEST orders the fiber for the particular
Additional Segment in which BTI desires to be granted an IRU. QWEST will provide
BTI with a schedule of fiber order dates within 60 days after execution of this
IRU Agreement and any updates thereto on a timely basis as made by QWEST. This
option will include segments between [ ] in the event QWEST elects to construct
such segments (the "Unannounced Segments"). QWEST will provide notification to
BTI within 60 days in the event it elects to construct any of the Unannounced
Segments.
ARTICLE 2.
CONSIDERATION FOR GRANT
2.01 In consideration of the grant of the IRUs hereunder by QWEST to
BTI, BTI agrees to pay to QWEST an IRU fee (the "IRU Fee") of $[ ] per [route
mile] for [four (4)] fibers; $[ ] per [ ] for [ ] fibers; and $[ ] per [ ] for [
] fibers for the mileage for the Segments set forth on Exhibit A-2, payable in
accordance with the payment schedule set forth below:
(a) (1) [ ]% on [ ]
(2) [ ]% upon [ ]
(3) [ ]% upon [ ]
(4) [ ]% upon [ ]
(5) [ ]% upon [ ]
(6) [ ]% upon [ ]
(b) For purposes of determining the occurrence of the
construction milestones triggering payment obligations hereunder, the following
shall apply:
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(1) Commencement of construction of a Segment shall
mean the establishment of a field office followed promptly by mobilization of
either in-house crews or the subcontract of a construction manager.
(2) Completion of conduit installation shall mean the
completion of installation of the conduit system for the Segment, with handholes
and manholes, ready for cable pulling.
(3) Completion of fiber cable placement shall mean
the fiber cable is either pulled into the conduit or completely installed in
Aerial Installation, but without splicing. In the event of aerial construction,
the IRU Fee installment otherwise due upon completion of conduit installation
shall be due and payable at the same time as the installment due upon completion
of fiber cable placement.
(4) Completion of fiber splicing and Civil
Construction shall mean all fibers are spliced and ready for testing and civil
facilities are ready for the customer to occupy and install their equipment.
2.02 In addition to the amounts payable under Section 2.01, BTI shall
be responsible to pay directly or reimburse QWEST for the pass-through expenses
required to be paid pursuant to Article 15.
2.03 All payments to QWEST set forth in this Article 2 shall be made by
wire transfer of immediately available funds to the account or accounts
designated by QWEST. With the exception of the initial deposit due and payable
on [ ], QWEST will fax or send by overnight delivery each invoice for payments
of the IRU Fee. BTI will pay such invoiced amounts for receipt by QWEST within
sixty (60) days after receipt of such invoice by BTI.
2.04 If BTI fails to make any payment under this IRU Agreement when
due, such amount shall accrue interest from the date such payment is due until
paid, including accrued interest compounded monthly, at an annual rate equal to
[ ]%of the prime rate of interest published by The Wall Street Journal on the
date any such payment is due or, if lower, the highest percentage allowed by
Colorado law, but in no event shall the interest payable under this paragraph
exceed [ ]%.
ARTICLE 3.
CONSTRUCTION OF THE QWEST SYSTEM
3.01 QWEST shall, at QWEST's sole cost and expense, be responsible for
and shall effect the design, engineering, installation, and construction of
those portions of the QWEST System not already constructed as of the date hereof
in accordance with the construction specifications set forth in Exhibit B,
industry standards and practices, and applicable Underlying Rights Requirements
(as defined in Section 11.01). All fibers included in the BTI Fibers shall be
Lucent Technologies True Wave and shall meet or exceed the fiber specifications
set forth in Exhibit D. QWEST may use alternative types of fiber equivalent to
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the aforementioned fiber; provided that (a) prior to any such use, QWEST meets
with BTI (and BTI hereby agrees to so meet) to, cooperatively and in good faith,
jointly evaluate the use of any such fiber and (b) thereafter, BTI approves the
use of such fiber, which approval shall not be unreasonably withheld or delayed.
3.02 Subject to extension for delays described in Article 20, QWEST
shall use reasonable commercial efforts to complete at QWEST's sole cost and
expense, all construction, installation, and satisfactory Fiber Acceptance
Testing (as defined in Section 4.01) of each of the Segments, including the
provision of such Regeneration Facilities on such Segment as are required to be
provided pursuant to Section 7.02, by the applicable Estimated Delivery Date
respecting such Segment.
3.03 BTI shall have the right, upon written request, to inspect the
construction, installation, splicing and testing of the BTI Fibers during the
course and at the time of the relevant design, construction and installation
period as may be reasonably permitted by QWEST for the purpose of verifying
conformity with the Construction Specifications set forth on Exhibit B. Upon
BTI's written request, QWEST shall make available for inspection by BTI, at
QWEST's offices, copies of all information, documents, IRU Agreements, reports,
permits, drawings and specifications generated, obtained or acquired by QWEST in
performing its duties pursuant to this Article 3 that in QWEST's determination
are material to the grant of the IRUs to BTI, including, without limitation, the
Underlying Rights to the extent that the terms of each such document or the
legal restrictions applicable to such information or document permits disclosure
and further as may be redacted to protect disclosure of confidential business
and proprietary terms.
ARTICLE 4.
ACCEPTANCE AND TESTING OF BTI FIBERS
4.01 QWEST shall test all BTI Fibers in accordance with the procedures
specified in Exhibit C ("Fiber Acceptance Testing") to verify that the BTI
Fibers are installed and operational in accordance with the specifications
described in Exhibit C. Fiber Acceptance Testing shall progress span by span
along each Segment as cable splicing progresses, so that test results may be
reviewed in a timely manner. QWEST shall provide BTI reasonable advance notice,
but in no event less than five (5) days, of the date and time of each Fiber
Acceptance Testing such that BTI shall have the opportunity to have a person or
persons present to observe QWEST's Fiber Acceptance Testing. When QWEST has
determined that the results of the Fiber Acceptance Testing with respect to a
particular span show that the BTI Fibers so tested are installed and operating
in conformity with the applicable specifications set forth in Exhibit C, QWEST
shall promptly provide BTI with a copy of such test results.
4.02 When QWEST gives written notice to BTI that the test results of
the Fiber Acceptance Testing are within the parameters of the specifications in
Exhibits C ("Fiber Acceptance Testing") and D ("Fiber Specifications") with
respect to an entire Segment, BTI shall provide QWEST with a written notice
accepting (or rejecting by specifying the defect or failure in the Fiber
Acceptance Testing that is the basis for such rejection) the BTI Fibers. If
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BTI fails to notify QWEST of its acceptance or rejection of the final test
results with respect to the BTI Fibers comprising a Segment within ten (10) days
after BTI's receipt of notice of such test results, BTI shall be deemed to have
accepted such Segment. The date of such notice of acceptance (or deemed
acceptance) of all BTI Fibers for each Segment shall be the "Acceptance Date"
for such Segment. In the event of any good faith rejection by BTI, QWEST shall
take such action reasonably necessary and as expeditiously as practicable to
correct or cure such defect or failure.
ARTICLE 5.
DOCUMENTATION
5.01 Not later than ninety (90) days after the Acceptance Date for each
Segment, QWEST shall provide BTI with the following documentation:
(a) As-built drawings for such Segment in accordance with the
requirements described in Exhibit B ("As-Builts").
(b) Technical specifications of the optical fiber cable,
associated splices and other associated equipment placed in that Segment.
ARTICLE 6.
TERM
6.01 The grant of the IRUs hereunder with respect to each Segment shall
become effective on the first day when both (a) the Acceptance Date with respect
to that Segment has occurred and (b) QWEST has received payment in full of the
IRU Fee with respect to such Segment in accordance with Article 2. Subject to
the provisions of Article 10, such grant shall terminate at the end of the
economically useful life of the BTI Fibers. The period of each such grant
respecting each such Segment and IRU is herein defined as the "Term."
6.02 In the event that BTI at any time determines that the BTI Fibers
comprising any Segment have reached the end of their economically useful life or
otherwise desires to not retain the IRU in such Segment, BTI shall have the
right to abandon the IRU with respect to such Segment by written notice to
QWEST. If, at any time after the last year of the Minimum Period (as defined in
Section 10.02 below), with respect to any Segment, BTI fails to use any of the
BTI Fibers comprising such Segment for any period of thirty (30) consecutive
days (except to the extent that such non-use is as a result of any of the events
described in Article 20 or as a result of QWEST System maintenance, restoration,
relocation, or reconfiguration or as a result of the failure of QWEST to observe
and perform the terms of this IRU Agreement), QWEST shall provide notice to BTI
requesting a statement of intent to use. In the event BTI fails to respond
within ten (10) days indicating its intent to resume use of the BTI Fibers
within 30 days, BTI shall be deemed to have determined that the BTI Fibers
comprising such Segment have reached the end of their economic life and,
accordingly, has abandoned the BTI Fibers comprising such Segment. Upon any such
notice of abandonment or acknowledgment of abandonment, the Term shall expire
with respect to such Segment and all rights to the Segment and the use of such
Segment shall revert to QWEST without reimbursement of any fees or
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other payments previously made with respect thereto, and from and after such
time BTI shall have no further rights or obligations hereunder with respect to
such Segment (subject to the provisions of Article 19).
6.03 It is understood and agreed that Qwest must and does maintain
legal title to the entire Qwest System subject to the IRU hereunder.
Notwithstanding the foregoing, it is understood and agreed as between the
parties that the grant of the IRUs hereunder shall be treated for accounting and
federal and all applicable state and local tax purposes as the sale and purchase
of the BTI Fibers and the Associated Property subject thereto, and that on or
after the Acceptance Date with respect to each Segment, BTI shall be treated as
the owner of the BTI Fibers and the Associated Property comprising such Segment
for such purposes. The parties agree to file their respective income tax
returns, property tax returns, and other returns and reports for their
respective Impositions on such basis and, except as otherwise required by law,
not to take any positions inconsistent therewith.
6.04 This IRU Agreement shall terminate on the date when all the Terms
of all Segments delivered hereunder shall have expired; provided that, those
provisions of this IRU Agreement which expressly state that they survive such
termination, shall survive.
ARTICLE 7.
NETWORK ACCESS; REGENERATION FACILITIES
7.01 (a) QWEST shall provide BTI with access to, and BTI shall have the
right to connect, at BTI's sole cost and expense, its telecommunications system
with, the BTI Fibers at various network access points on the QWEST System right
of way in each of the endpoint cities and intermediate point cities along the
route of each Segment and at such additional access point locations along the
QWEST System right of way as may be requested by BTI and agreed to by QWEST
(each such access point being referred to as a "Connecting Point"). The specific
locations of each such Connecting Point shall be as mutually reasonably agreed
upon by the parties, subject to the Underlying Rights Requirements and QWEST
obtaining other required permits, authorizations and approvals. Any such
connection will be performed by QWEST, at BTI's sole cost and expense, in
accordance with QWEST's applicable specifications and operating procedures.
QWEST will provide additional handholes, where feasible, in strategic positions
as agreed to by BTI and QWEST at a cost of $[ ] per handhole.
(b) BTI shall pay QWEST's Costs for each such connection
within thirty (30) days of the date of BTI's receipt of QWEST's invoice
therefor. In order to schedule a connection of this type, BTI shall request and
coordinate such work not less than ninety (90) days in advance of the date the
connection is requested to be completed. Such work will be restricted to a
Planned System Work Period, unless otherwise agreed to in writing for specific
projects. Subject to all applicable Underlying Rights Requirements, BTI shall
also be provided reasonable access by QWEST to any Connecting Point at all
times. BTI shall have no limitations on the types of electronics or technologies
employed to utilize the BTI Fibers, subject to mutually agreeable safety
procedures and so long as, in QWEST's sole
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<PAGE>
determination, such electronics or technologies do not interfere with the use of
or present a risk of damage to any portion of the QWEST System including
Regeneration Facilities.
(c) QWEST may route the BTI Fibers through QWEST's separate
terminal, endlink, POP or Regeneration Facilities at its sole discretion and
QWEST is responsible for all costs and expenses associated therewith.
7.02 Exhibit E sets forth the sites along the QWEST System right of way
at which regeneration facilities currently are located or are to be installed in
accordance with the Specifications set forth on Exhibit F which BTI desires to
share with QWEST (collectively, the "Regeneration Facilities"). Subject to (a)
the availability of adequate and sufficient Underlying Rights, space, power, and
right of way access, and (b) the receipt of all requisite permits, approvals and
authorizations, QWEST shall make [ ] square feet in the Regeneration Facilities
and [ ] square feet in POP facilities available to BTI. All shared Regeneration
Facilities shall be subject to the provisions of this IRU Agreement, and in
particular Section 8.04 with respect to sharing of operating Costs thereof BTI
shall pay QWEST the sum of $[ ] per Regeneration Facility and $[ ] per POP
facility. In the event BTI elects not to share space in the Regeneration and/or
POP Facilities on the basis provided above, and requests a lesser amount of
space, QWEST agrees to negotiate with BTI for rack space in such sites at
mutually agreeable prices. Should BTI elect to provide its own regeneration
facilities, QWEST agrees to assist BTI in obtaining a right of way location
within the area included in QWEST's Underlying Rights if requested by BTI, and
to the extent feasible at no additional charge by QWEST.
ARTICLE 8.
OPERATIONS
8.01 Subject to the provisions of the IRU Agreement, in particular
Articles 10 and 11, each party shall have fill and complete control and
responsibility for determining any network and service configuration or designs,
routing configurations, regrooming, rearrangement or consolidation of channels
or circuits and all related functions with regard to the use of that party's
Dark Fiber.
8.02 BTI acknowledges and agrees that QWEST is not obligated to supply
to BTI any optronics or electronics or optical or electrical equipment, all of
which are the sole responsibility of BTI; nor is QWEST responsible for
performing any work other than as specified in this IRU Agreement or for
providing other facilities, including without limitation, generators, batteries,
air conditioners, fire protection and monitoring and testing equipment, unless
specified herein.
8.03 Upon not less than one hundred twenty (120) days' written notice
from QWEST to BTI, QWEST may, subject to BTI's prior written approval (which
approval shall not be unreasonably delayed or withheld) substitute for the BTI
Fibers on the QWEST System, or any Segment or Segments comprising a portion of
said QWEST System, an equal number of alternative fibers along the same or an
alternative route; provided that in any such event, such substitution (a) shall
be without unreasonable interruption of service and use by BTI, (b) shall
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be effected at the sole cost of QWEST, including, without limitation, all
disconnect and reconnect costs, fees and expenses, (c) shall be constructed and
tested in accordance with the specifications and drawings set forth in Exhibits
B and C, and incorporate fiber meeting the specifications set forth in Exhibit
D, and (d) shall not adversely affect the use, operation or performance of BTI's
network or business, or change any Connecting Points or endpoints of any
Segment.
8.04 BTI shall reimburse QWEST for BTI's proportionate share of all
operating costs incurred by QWEST in connection with the Regeneration Facilities
(or alternatively requested POP or terminal facilities) provided pursuant to
Section 7.02, including its proportionate share of any monthly lease costs for
any such facilities and/or underlying property that QWEST leases (including, to
the extent included in such lease costs, base rent, maintenance, insurance,
security and taxes), maintenance of such facilities, and all power and utility
fees and charges. BTI's proportionate share of such operating costs, including a
proportionate share of common area costs, shall be the ratio that the floor
space provided to BTI in any such facility (including a proportionate share of
the common area) bears to (a) in the case of lease costs, the total space in
such facility, and (b) in the case of all other costs (including common area
costs), the total utilized space in such facility. QWEST shall submit invoices
to BTI on a quarterly basis for BTI's pro rata share of such operating costs
during the preceding three months.
ARTICLE 9.
MAINTENANCE AND REPAIR OF THE QWEST SYSTEM
9.01 From and after the Acceptance Date with respect to each Segment,
the maintenance of the QWEST System comprising such Segment shall be provided in
accordance with the maintenance fees, requirements and procedures set forth in
Exhibit G hereto.
ARTICLE 10.
PERMITS: UNDERLYING RIGHTS; RELOCATIONS
10.01 QWEST shall obtain on or before the Acceptance Date with respect
to each Segment to be delivered hereunder, any and all rights-of way, easements,
licenses and other IRU Agreements relating to the grant of rights and interests
in and/or access to the real property underlying the QWEST System (collectively,
the "Underlying Rights") and such other rights, licenses, permits,
authorizations, and approvals (including without limitation, any necessary
local, state, federal or tribal authorizations and environmental permits) that
are necessary in order to permit QWEST to grant the IRUs, and otherwise to
perform its obligations hereunder, in accordance with the terms and conditions
hereof.
10.02 QWEST shall either require that the initial stated term of each
such Underlying Right be for a period that does not expire, in accordance with
its ordinary terms, prior to the last day of the Minimum Period (as hereinafter
defined with respect to each Segment) or, if the initial stated term of any such
Underlying Right expires, in accordance with its ordinary terms, on a date
earlier than the last day of the Minimum Period, QWEST shall, at its cost,
exercise any renewal rights thereunder, or otherwise acquire such extensions,
additions and/or replacements as may be necessary, in order to cause the stated
term thereof to be continued
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until a date that is not earlier than the last day of the Minimum Period. The
"Minimum Period" shall be, with respect to each Segment, the period from the
date on which construction of such Segment commences until the twenty-fifth
anniversary of such date. In the event, at the end of the Minimum Period, QWEST
elects not to renew an Underlying Right, BTI shall have a right of first refusal
with respect to any renewal, extension or replacement of such Underlying Right
agreement.
10.03 Upon the expiration or termination of any Underlying Right that
is necessary in order to grant, continue or maintain an IRU granted hereunder in
accordance with the terms and conditions hereof, and so long as QWEST shall have
fully observed and performed its obligations under this Article 10 with respect
thereto, the Term of the IRUs hereunder with respect to any Segment or Segments
affected thereby shall automatically expire upon such expiration or termination
of the Underlying Right.
10.04 If, after the Acceptance Date with respect to a Segment, QWEST
reasonably determines in good faith, or is required by a third party with legal
authority to so require (including, without limitation, the grantor of an
Underlying Right), or if BTI agrees to relocate any portion of such Segment,
including any of the facilities used or required in providing the IRUs in such
Segment hereunder, QWEST shall proceed with such relocation, and shall have the
right, in good faith, to reasonably determine the extent of, the timing of, and
methods to be used for such relocation; provided that (a) any such relocation
shall be constructed and tested in accordance with the specifications and
drawings set forth in Exhibits B and C, and incorporate fiber meeting the
specifications set forth in Exhibit D and (b) if the relocation is at QWEST's
determination, it shall not adversely affect the operations, performance,
connection points with BTI's network or endpoints of any Segment included in the
QWEST System.
10.05 BTI shall reimburse QWEST for its proportionate share of the
Costs of such relocation of the portion of the Segment so relocated as follows:
(a) if the affected portion of the Segment includes any
conduit other than the conduit housing the BTI Fibers for which QWEST is
responsible for relocation Costs, the total Costs of relocation of the conduits
(i.e., relocation of the conduits only without regard to whether the conduits
contain fibers) shall be allocated based on the overall number of conduits
relocated; and
(b) such Costs allocated to the conduit carrying the BTI
Fibers plus the Costs specifically associated with the relocation of the fiber
(i.e., relocation of the fiber only without regard to relocation of conduit)
shall be further allocated to BTI based on BTI's proportionate share of (1) all
Costs of fiber acquisitions, splicing and testing, prorated based on the total
fiber count in the affected Cable, as so relocated, and (2) all other Costs
associated with the relocation of the conduit housing the affected Cable,
prorated based on the total number of owners (including QWEST) and holders of
IRUs or equivalent interests (including long-term lessees) (each, an "Interest
Holder") in the affected Cable, as so relocated.
QWEST shall deliver to BTI updated As-Builts with respect to the
relocated Segment not later than ninety (90) days following the completion of
such relocation.
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ARTICLE 11.
USE OF QWEST SYSTEM
11.01 The requirements, restrictions, and/or limitations upon BTI's
right to use the BTI Fibers and Associated Property as provided and permitted
under this IRU Agreement imposed under, and associated safety, operational and
other rules and regulations imposed in connection with, the Underlying Rights
are referred to collectively as the "Underlying Rights Requirements."
11.02 BTI represents, warrants and covenants that it will use the BTI
Fibers and Associated Property in compliance with and subject to the Underlying
Rights Requirements and all applicable government codes, ordinances, laws, rules
and regulations.
11.03 The IRUs granted hereunder shall include the right at BTI's cost
to install additional equipment, or replace existing equipment, in the facility
space provided to BTI pursuant to Article 7, subject to the provisions of
Article 7 and the Underlying Rights Requirements.
11.04 QWEST agrees and acknowledges that it has no right to use the BTI
Fibers during the Term hereof, and that, from and after the effective date of
the grant of each IRU hereunder, QWEST shall keep the BTI Fibers and BTI's IRU
in the Associated Property granted hereunder (other than any Associated Property
as to which QWEST shall have provided to BTI a nondisturbance IRU Agreement
substantially to the effect as described in the next sentence) free from (a) any
liens of any third party attributable to QWEST, and (b) any rights or claims of
any third party attributable to QWEST, as and to the extent required pursuant to
Article 10 hereof. As provided in the previous sentence, QWEST shall obtain from
any entity in favor of which QWEST in its discretion shall have granted after
the date hereof a security interest or lien on all or part of such Segment a
written nondisturbance IRU Agreement substantially to the effect that such
lienholder acknowledges BTI's rights and interests in and to the BTI Fibers, the
Associated Property and the IRUs hereunder and agrees that the same shall not be
diminished, disturbed, impaired or interfered with in any adverse respect by
such lienholder.
11.05 Subject to the provisions of Article 22 and this Article 11, BTI
may use the BTI Fibers, the Associated Property and the IRUs for any lawful
telecommunications purpose. BTI agrees and acknowledges that it has no right to
use any of the fibers, other than the BTI Fibers, included in the Cable or
otherwise incorporated in the QWEST System, and that BTI shall keep any and all
of the QWEST System, other than the IRU granted to BTI in the BTI Fibers and
BTI's interest in Associated Property (provided BTI shall have provided QWEST a
nondisturbance IRU Agreement substantially to the effect that any lienholder of
such interest acknowledges QWEST's and other present or future participants'
interests and rights in and to the Associated Property and agrees that the same
shall not be diminished, disturbed, impaired or interfered with in any adverse
respect by- such lienholder) free from any liens, rights or claims of any third
party attributable to BTI.
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11.06 BTI and QWEST shall promptly notify each other of any matters
pertaining to, or the occurrence (or impending occurrence) of, any event which
would be reasonably likely to give rise to any damage or impending damage to or
loss of the QWEST System that are known to such party.
11.07 BTI shall not use the BTI Fibers in a way which physically
interferes in any way with or adversely affects the use of the fibers or Cable
of any other person using the QWEST System, it being expressly acknowledged that
the QWEST System includes or will include other participants, including QWEST
and other owners and holders of Dark Fiber IRUs or other interests and
telecommunication system operations. QWEST shall not use any other fibers in the
QWEST System in a way which physically interferes with or adversely affects the
use of the BTI Fibers, and shall obtain a similar IRU Agreement from any person
that acquires the right to use fibers in the QWEST System after the date hereof.
11.08 BTI and QWEST each agree to cooperate with and support the other
in complying with any requirements applicable to their respective rights and
obligations hereunder by any governmental or regulatory agency or authority.
ARTICLE 12.
INDEMNIFICATION
12.01 Subject to the provisions of Articles 13 and 18, QWEST hereby
agrees to indemnify, defend, protect and hold harmless BTI and its employees,
officers and directors, from and against, and assumes liability for:
(a) Any injury, loss or damage to any person (including BTI),
tangible property or facilities of any person or entity (including reasonable
attorneys' fees and costs) to the extent arising out of or resulting from the
acts or omissions, negligent or otherwise, of QWEST, its officers, employees,
servants, affiliates, agents, contractors, licensees, invitees or vendors
arising out of or in connection with a default (other than a default caused by a
failure of BTI to perform or comply with its obligations hereunder) by QWEST in
the performance of its obligations or breach of its representations under this
IRU Agreement; and
(b) Any claims, liabilities or damages, including reasonable
attorneys' fees and costs, arising out of any violation by QWEST of any
regulation, rule, statute or court order of any local, state or federal
governmental agency, court or body in connection with the performance of its
obligations under this IRU Agreement.
12.02 Subject to the provisions of Articles 13 and 18, BTI hereby
agrees to indemnify, defend, protect and hold harmless QWEST, and its employees,
officers and directors, from and against, and assumes liability for:
(a) Any injury, loss or damage to any person (including
QWEST), tangible property or facilities of any person or entity (including
reasonable attorneys' fees and costs) to the extent arising out of or resulting
from the acts or omissions, negligent or otherwise, of BTI, its officers,
employees, servants, affiliates, agents, contractors, licensees, invitees or
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vendors arising out of or in connection with a default (other than a default
caused by a failure of QWEST to perform or comply with its obligations
hereunder) by BTI in the performance of its obligations or breach of its
representations under this IRU Agreement; and
(b) Any claims, liabilities or damages, including reasonable
attorneys' fees and costs, arising out of any violation by BTI of any
regulation, rule, statute or court order of any local, state or federal
governmental agency, court or body in connection with its use of the IRUs and/o
the BTI Fibers and Associated Property hereunder.
12.03 The parties hereby expressly recognize and agree that each
party's said obligation to indemnify, defend, protect and save the other
harmless is not a material obligation to the continuing performance of the
parties' other obligations, if any, hereunder. In the event that a party shall
fail for any reason to so indemnify, defend, protect and save the other
harmless, the injured party hereby expressly recognizes that its sole remedy in
such event shall be to seek a remedy under Article 21 against the other party
for its damages as a result of the other party's failure to indemnify, defend,
protect and save harmless. The obligations of the parties under this Article 12
shall survive the expiration or termination of this IRU Agreement.
12.04 Nothing contained herein shall operate as a limitation on the
right of either party hereto to bring an action for damages against any third
party, including indirect, special or consequential damages, based on any acts
or omissions of such third party as such acts or omissions may affect the
construction, operation or use of the BTI Fibers or the QWEST System, except as
may be limited by Underlying Rights Requirements; provided, however, that each
party hereto shall assign such rights or claims, execute such documents and do
whatever else may be reasonably necessary to enable the other party to pursue
any such action against such third party.
ARTICLE 13.
LIABILITY
13.01 Notwithstanding any provision of this IRU Agreement to the
contrary, neither party shall be liable to the other party for any special,
incidental, indirect, punitive or consequential damages, whether foreseeable or
not, arising out of, or in connection with such party's failure to perform its
respective obligations or breach of its respective representations hereunder,
including, but not limited to, damage or loss of property or equipment, loss of
profits or revenue, cost of capital, cost of replacement services (whether
arising out of transmission interruptions or problems, any interruption or
degradation of service or otherwise), or claims of customers, in each case
whether occasioned by any construction, reconstruction, relocation, repair or
maintenance performed by, or failed to be performed by, the other party or any
other cause whatsoever, including breach of contract, breach of warranty,
negligence, or strict liability, all claims with respect to which such special,
incidental, indirect, punitive or consequential damages are hereby specifically
waived.
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ARTICLE 14.
INSURANCE
14.01 During the construction period with respect to any Segment, and
until the Acceptance Date with respect thereto, QWEST shall procure and maintain
in force the following insurance coverage from companies lawfully approved to do
business in the state where the construction will be performed:
(a) not less than $5,000,000 combined single-limit liability
insurance, on an occurrence basis, for personal injury and property damage,
including, without limitation, injury or damage arising from the operation of
vehicles or equipment and liability for completed operations;
(b) workers' compensation insurance in amounts required by
applicable law and employers' liability insurance with a limit of at least
$1,000,000 per occurrence;
(c) automobile liability insurance covering death or injury to
any person or persons, or damage to property arising from the operation of
vehicles or equipment, with limits of not less than $2,000,000 per occurrence;
and
(d) any other insurance coverages required pursuant to QWEST's
right of way IRU Agreements with railroads or other third parties.
QWEST shall require its subcontractors who are engaged in connection
with the construction of the QWEST System to maintain insurance in the types and
amounts as would be obtained by a prudent person to provide adequate protection
against loss. In all circumstances, QWEST shall require its subcontractors to
carry a minimum of $1,000,000 in commercial general liability.
14.02 Following the Acceptance Date with respect to each Segment, and
throughout the remaining term of the IRU with respect to such Segment, each
party shall procure and maintain in force, at its own expense:
(a) not less than $5,000,000 combined single limit liability
insurance, on an occurrence basis, for personal injury and property damage,
including, without limitation, injury or damage arising from the operation of
vehicles or equipment and liability for completed operations;
(b) workers' compensation insurance in amounts required by
applicable law and employers' liability insurance with a limit of at least
$1,000,000 per occurrence;
(c) automobile liability insurance covering death or injury to
any person or persons, or damage to property arising from the operation of
vehicles or equipment, with limits of not less than $2,000,000 per occurrence;
and
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(d) any other insurance coverages specifically required of
such party pursuant to QWEST's right of way IRU Agreements with railroads or
other third parties.
14.03 Both parties expressly acknowledge that a party shall be deemed
to be in compliance with the provisions of this Article 14 if it maintains an
approved self insurance program providing for a retention of up to $1,000,000.
If either party provides any of the foregoing coverages on a claims-made basis,
such policy or policies shall be for at least a three-year extended reporting or
discovery period. Unless otherwise agreed, BTI's and QWEST's insurance policies
shall be obtained with companies rated "A" or better by Best's Key Rating Guide
and each party shall provide the other with an insurance certificate confirming
compliance with this requirement for each policy providing such required
coverage.
14.04 In the event either party fails to obtain the required insurance
and a claim is made or suffered, such party shall indemnify and hold harmless
the other party from any and all claims for which the required insurance would
have provided coverage. Further, in the event of any such failure which
continues after seven (7) days' written notice thereof by the other party, such
other party may, but shall not be obligated to, obtain such insurance and will
have the right to be reimbursed for the cost of such insurance by the party
failing to obtain such insurance.
14.05 In the event coverage is denied or reimbursement of a properly
presented claim is disputed by the carrier for insurance provided above, the
party carrying such coverage shall make good-faith efforts to pursue such claim
with its carrier.
14.06 BTI and QWEST shall obtain from the insurance companies providing
the coverages required by this IRU Agreement the permission of such insurers to
allow BTI or QWEST to waive all rights of subrogation and BTI and QWEST do
hereby waive all rights of said insurance companies to subrogation against the
other, its parent corporation, affiliates, subsidiaries, assignees, officers,
directors, and employees or any other party entitled to indemnity under this IRU
Agreement.
ARTICLE 15.
TAXES. FEES AND OTHER GOVERNMENTAL IMPOSITIONS
15.01 The parties acknowledge and agree that it is their mutual
objective and intent to (a) minimize, to the extent feasible, the aggregate
Impositions payable with respect to the QWEST System and (b) share such
Impositions according to their respective interests in the QWEST System, and
that they will cooperate with each other and coordinate their mutual efforts to
achieve such objectives in accordance with the provisions of this Article 15.
15.02 QWEST shall be responsible for and shall timely pay any and all
Impositions with respect to the construction or operation of the QWEST System
which Impositions are (a) imposed or assessed prior to the Acceptance Date or
(b) imposed or assessed (regardless of the time) with respect to the QWEST
System in exchange for the approval of construction in the original IRU
Agreement which resulted in the granting of an interest in public property or a
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public right of way relating to the QWEST System. Notwithstanding the foregoing
obligations, QWEST shall have the right to challenge any such Impositions so
long as the challenge of such Impositions does not materially, adversely affect
the title, rights or property to be delivered to BTI pursuant hereto.
15.03 Except as to Impositions described in 15.02(b), following the
Acceptance Date, QWEST shall timely pay any and all Impositions imposed upon or
with respect to the QWEST System to the extent such Impositions may not feasibly
be separately assessed or imposed upon or against the respective ownership
interests of QWEST and BTI in the QWEST System; Provided upon receipt of a
notice of any such Imposition, QWEST shall promptly notify BTI of such
Imposition and following payment of such Imposition by QWEST, BTI shall promptly
reimburse QWEST for its proportionate share of such Imposition, which share
shall be determined (a) to the extent possible, based upon the manner and
methodology used by the particular authority imposing such Impositions (e.g., on
the cost of the relative property interests, historic or projected revenue
derived therefrom, or any combination thereof) or (b) if the same cannot be so
determined then based on the relative number of BTI Fibers in the affected
portion of the QWEST System compared to the total number of fibers in the
affected portion of the QWEST System during the relevant tax period. Any
reimbursement made under this Section 15.03 shall be in an amount that, after
deductions of all Impositions required to be paid by QWEST in respect of the
receipt or accrual of such reimbursement and after consideration of any
deduction to which QWEST may be entitled with respect to the payment or accrual
of the Impositions which have been reimbursed, shall be equal to the amount
otherwise required to be paid by QWEST hereunder.
15.04 Notwithstanding any provision herein to the contrary, QWEST shall
have the right to contest any Imposition described in Section 15.03, above
(including by non-payment of such Imposition). The out-of-pocket costs and
expenses (including reasonable attorneys' fees) incurred by QWEST in any such
contest shall be shared by QWEST and BTI in the same proportion as to which the
parties would have shared in such Impositions, as they were originally assessed.
Any refunds or credits resulting from a contest brought pursuant to this Section
15.04 shall be divided between QWEST and BTI in the same proportion as to which
such refunded or credited Impositions were borne by QWEST and BTI. In any such
event, QWEST shall provide timely notice of such challenge to BTI.
15.05 Except as to Impositions described in Section 15.02(b), following
the Acceptance Date QWEST and BTI, respectively, shall be separately responsible
for any and all Impositions (a) expressly or implicitly imposed upon, based
upon, or otherwise measured by the gross receipts, gross income, net receipts or
net income received by or accrued to such party due to its respective ownership
or use of the QWEST System and/or the BTI Fibers, or (b) which have been
separately assessed or imposed upon the respective ownership interest of such
party in the QWEST System and/or the BTI Fibers. If the BTI Fibers are the only
fibers located in the Cable from the point where the Cable leaves the QWEST
System right of way to a BTI POP, BTI shall be solely responsible for any and
all Impositions imposed on or with respect to such portion of the QWEST System.
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15.06 Notwithstanding any provision herein to the contrary, BTI shall
have the right to protest by appropriate proceedings any Imposition described in
Section 15.05 above. In such event, BTI shall indemnify and hold QWEST harmless
from any expense, legal action or cost, including reasonable attorneys' fees,
resulting from BTI's exercise of its rights hereunder. In the event of any
refund, rebate, reduction or abatement to BTI of any such Imposition imposed
upon and/or paid by BTI, BTI shall be entitled to receive the entire benefit of
such refund, rebate, reduction or abatement attributable to BTI's use of the
QWEST System. In the event BTI has exhausted all its rights of appeal in
protesting any Imposition and has failed to obtain the relief sought in such
proceedings or appeals ("Finally Determined Taxes and Fees"), BTI and QWEST may
jointly agree at a cost to be shared proportionately based on respective fiber
count (with the consent and participation of the other Interest Holders in the
affected portion of the QWEST System) to relocate a portion of the QWEST System
so as to bypass the jurisdiction which had imposed or assessed such Finally
Determined Taxes and Fees. If BTI and QWEST do not determine to relocate the
affected portion of the QWEST System, BTI shall have the right to terminate its
use of the BTI Fibers in the affected portion of the QWEST System. Such
termination shall be effective on the date specified by BTI in a notice of
termination, which date shall be at least ninety (90) days after the notice.
Upon such termination, the IRU in the affected portion of the QWEST System shall
immediately terminate, and the BTI Fibers in the affected portion of the QWEST
System shall thereupon revert to QWEST without reimbursement of any of the IRU
Fee or other payments previously made with respect thereto.
15.07 Notwithstanding the provisions of Section 15.06, with respect to
any Impositions relating to the QWEST System which are imposed upon both QWEST
and BTI (or both of their respective interests therein), QWEST, at its option
and at its own expense, shall have the right to direct and manage any such
contest; subject, however, to reasonable and appropriate consultation with BTI
which hereby agrees to cooperate with QWEST in any such contest. The right of
QWEST to contest any Imposition pursuant to this Section 15.07 shall be
contingent upon reasonable and appropriate assurances that any such contest will
not adversely affect the title, property or rights of BTI hereunder or the
title, property or right of QWEST in the QWEST System.
15.08 QWEST and BTI agree to cooperate fully in the preparation of any
returns or reports relating to the Impositions. QWEST and BTI further
acknowledge and agree that the provisions of this Article 15 are intended to
allocate the Impositions expected to be assessed against or imposed upon the
parties with respect to the QWEST System based upon the procedures and methods
of computation by which Impositions generally have been assessed and imposed to
date, and that material changes in the procedures and methods of computation by
which such assessments are assessed and imposed could significantly alter the
fundamental economic assumptions underlying the transactions hereunder to the
parties. Accordingly, the parties agree that, if in the future the procedures or
methods of computation by which Impositions are assessed or imposed against the
parties change materially from the procedures or methods of computation by which
they are imposed as of the date hereof, (e.g., by the imposition or assessment
of a right of way fee that is in substance a "tax" because it substantially
exceeds the fair market value of the right of way rights) the parties will
negotiate
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in good faith an amendment to the provisions of this Article 15 in order to
preserve, to the extent reasonably possible, the economic intent and effect of
this Article 15 as of the date hereof
ARTICLE 16.
NOTICE
16.01 Unless otherwise provided herein, all notices and communications
concerning this IRU Agreement shall be addressed to the other party as follows:
If to QWEST: QWEST Communications Corporation
Attention: President
555 Seventeenth Street
Denver, Colorado 80202
Telephone No.: (303)291-1400
with a copy to: QWEST Communications Corporation
Attention: Director - Contracts Administration
555 Seventeenth Street
Denver, Colorado 80202
Telephone No.: (303) 291-1400
If to BTI: BUSINESS TELECOM, INC.
Attention: President
4300 Six Forks Road
Raleigh, North Carolina 27609
Telephone No.:
with a copy to: BUSINESS TELECOM, INC.
Attention: General Counsel
4300 Six Forks Road
Raleigh, North Carolina 27609
Telephone No.: (919) 510-7006
or at such other address as either party may designated from time to time in
writing to the other party.
16.02 Unless otherwise provided herein, notices shall be hand
delivered, sent by registered or certified U.S. mail, postage prepaid, or by
commercial overnight delivery service, or transmitted by facsimile, and shall be
deemed served or delivered to the addressee or its office when received at the
address for notice specified above when hand delivered, upon confirmation of
sending when sent by fax, on the day after being sent when sent by overnight
delivery service, or three (3) days after deposit in the mail when sent by U.S.
mail.
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ARTICLE 17.
CONFIDENTIALITY
17.01 (a) QWEST and BTI hereby agree that if either party provides (or,
prior to the execution hereof, has provided) confidential or proprietary
information to the other party ("Proprietary Information"), such Proprietary
Information shall be held in confidence, and the receiving party shall afford
such Proprietary Information the same care and protection as it affords
generally to its own confidential and proprietary information (which in any case
shall be not less than reasonable care) in order to avoid disclosure to or
unauthorized use by any third party.
(b) As used herein, Proprietary Information shall mean any and
all technical or business information furnished, in whatever form or medium, or
disclosed by QWEST to BTI including, but not limited to, product or service
specifications, prototypes, computer programs, models, drawings, marketing
plans, financial data, and personnel statistics.
(c) All Proprietary Information, unless otherwise specified in
writing, shall remain the property of the disclosing party, shall be used by the
receiving party only for the intended purpose, and such written Proprietary
Information, including all copies thereof, shall be returned to the disclosing
party or destroyed after the receiving party's need for it has expired or upon
the request of the disclosing party. Proprietary Information shall not be
reproduced except to the extent necessary to accomplish the purpose and intent
of tins IRU Agreement, or as otherwise may be permitted in writing by the
disclosing party.
17.02 The foregoing provisions of Section 17.01 shall not apply to any
Proprietary Information which (a) becomes publicly available other than through
the recipient; (b) is required to be disclosed by a governmental or judicial
law, order, rule or regulation; (c) is independently developed by the disclosing
party; (d) becomes available to the disclosing party without restriction from a
third party; or (e) becomes relevant to the settlement of any dispute or
enforcement of either party's rights under this IRU Agreement in accordance with
the provisions of this IRU Agreement, in which case appropriate protective
measures shall be taken to preserve the confidentiality of such Proprietary
Information as fully as possible within the confines of such settlement or
enforcement process. If any Proprietary Information is required to be disclosed
pursuant to the foregoing clause (b), the party required to make such disclosure
shall promptly inform the other party of the requirements of such disclosure.
17.03 Nothing herein shall be construed as granting any right or
license under any copyrights, inventions, or patents now or hereafter owned or
controlled by QWEST.
17.04 Notwithstanding Sections 17.01 and 17.02 of this Article, either
party may disclose Proprietary Information to its employees, agents, and legal,
financial, and accounting advisors and provides (including its lenders and other
financials) to the extent necessary or appropriate in connection with the
negotiation and/or performance of this IRU Agreement or its obtaining of
financing, provided that each such party is notified of the confidential and
proprietary nature of such Proprietary Information and is subject to or agrees
to be bound by similar restrictions on its use and disclosure.
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17.05 The provisions of this Article shall survive expiration or
lamination of this IRU Agreement.
ARTICLE 18.
DEFAULT
18.01 With respect to all payments required to be made by BTI
hereunder, including, without limitation, payment of the IRU Fee and all other
amounts payable by BTI hereunder, if BTI fails to make a payment by the date due
and payable hereunder and after written notice and a right to cure for a period
of thirty (30) days, from and after such date, (a) such unpaid amount shall bear
interest until paid at a rate equal to the rate set forth in Article 2 and (b)
if such payment is due with respect to a Segment on or prior to the Acceptance
Date of such Segment, the Estimated Delivery Date for such Segment shall be
extended by a number of days equal to the number of days that elapse from the
date such payment is due until paid. In the event any amount or amounts due and
payable hereunder remain unpaid for a period of thirty (30) days after
expiration of the cure period set forth above, then QWEST may, in its sole and
absolute discretion and in addition to its other rights and remedies hereunder,
terminate any and all of its obligations hereunder with respect to any Segment
or Segments as to which the Acceptance Date has not yet occurred or the grant of
the IRU with respect to which has not yet become effective, and to apply any and
all amounts previously paid by BTI hereunder with respect to such Segment or
Segments toward the payment of any other amounts then or thereafter payable by
BTI hereunder.
With respect to all of its other obligations hereunder, if BTI fails to
perform a nonpayment obligation and such failure shall continue for a period of
thirty (30) days after QWEST shall have given BTI written notice of such
failure, BTI shall be in default hereunder unless BTI shall have cured such
failure or such failure is otherwise waived in writing by QWEST within such
thirty (30) days; provided, however, that where such failure cannot reasonably
be cured within such 30-day period, if BTI shall proceed promptly to cure the
same and prosecute such cure with due diligence, the time for curing such
failure shall be extended for such period of time as may be necessary to
complete such cure; and provided further that if BTI certifies in good faith to
QWEST in writing that a non-payment failure has been cured, such failure shall
be deemed to be cured unless QWEST otherwise notifies BTI in writing within
fifteen (15) days of receipt of such notice from BTI.
BTI shall be in default hereunder (a) automatically upon the making by
BTI or Parent of a general assignment for the benefit of its creditors, the
filing by BTI or Parent of a voluntary petition in bankruptcy or the filing by
BTI or Parent of any petition or answer seeking, consenting to, or acquiescing
in reorganization, arrangement, adjustment, composition, liquidation,
dissolution, or similar relief; or (b) one hundred twenty (120) days after the
filing of an involuntary petition in bankruptcy or other insolvency protection
against BTI or Parent which is not dismissed within such one hundred twenty
(120) days.
Except as otherwise provided in this Section 18.01, upon any default by
BTI, after written notice thereof from QWEST, QWEST may (a) take such action as
it determines, in its
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sole discretion, to be necessary to correct the default and, subject to Section
13.01, recover from BTI its reasonable costs incurred in correcting such
default, and (b) pursue any legal remedies it may have under applicable law or
principles of equity relating to such default, including specific performance.
18.02 With respect to its obligation to complete the construction,
installation and satisfactory Fiber Acceptance Testing by the Estimated Delivery
Date for a particular Segment pursuant to Section 3.02, QWEST shall be in
default under this Agreement if the Acceptance Date with respect to any Segment
has not occurred within one hundred twenty (120) days after the Estimated
Delivery Date (a "Delivery Default").
[ ].
With respect to QWEST's other obligations hereunder, in the event that
QWEST shall fail to perform an obligation and such failure shall continue for a
period of thirty (30) days after BTI shall have given QWEST written notice of
such failure, QWEST shall be in default hereunder unless QWEST shall have cured
such failure or such failure is otherwise waived in writing by BTI within such
thirty (30) days; provided however, that where such failure cannot reasonably be
cured within such 30-day period, if QWEST shall proceed promptly to cure the
same and prosecute such cure with due diligence, the time for curing such
failure shall be extended for such period of time as may be necessary to
complete such cure; and provided further, that if QWEST certifies in good faith
to BTI in writing that failure has been cured, such failure shall be deemed to
be cured unless BTI otherwise notifies QWEST in writing within fifteen (15) days
of receipt of such notice from QWEST. QWEST shall be in default hereunder (a)
automatically upon the making by QWEST of a general assignment for the benefit
of its creditors, the filing by QWEST of a voluntary petition in bankruptcy or
the filing by QWEST of any petition -or answer seeking, consenting to, or
acquiescing in reorganization, arrangement, adjustment, composition,
liquidation, dissolution, or similar relief, or (b) one hundred twenty (120)
days after the involuntary filing of a petition in bankruptcy or other
insolvency protection against QWEST which is not dismissed within such 120-day
period.
Except as otherwise provided in this Section 18.02, upon any default by
QWEST, after notice thereof from BTI, BTI may (a) take such action as it
determines, in its sole discretion, to be necessary to correct the default, and,
subject to Section 13.01, recover from QWEST its reasonable costs in correcting
such default, and (b) pursue any legal remedies it may have under applicable law
or principles of equity relating to such default including specific performance.
ARTICLE 19.
TERMINATION
19.01 This IRU Agreement automatically shall terminate with respect to
a Segment upon the expiration or termination of the Term of the IRU respecting
such Segment pursuant to Article 6 or Section 18.02 hereof.
19.02 Upon the expiration or termination of this IRU Agreement with
respect to a Segment, the IRU in such Segment shall immediately terminate and
all rights of BTI to use the QWEST System, the BTI Fibers, the Associated
Property or any part thereof relating to such
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Segment, shall cease and QWEST shall owe BTI no additional duties or
consideration with respect to such Segment. Promptly thereupon, BTI shall remove
all of BTI's electronics, equipment, and other BTI property from such Segment
and any related QWEST facilities at its sole cost, under QWEST's supervision
(which supervision shall be without cost to BTI.
19.03 Notwithstanding the foregoing, no termination or expiration of
this IRU Agreement shall affect the rights or obligations of any party hereto
(a) with respect to any then existing defaults or the obligation to make any
payment hereunder for services rendered prior to the date of termination or
expiration or (b) pursuant to Article 12, Article 13, Article 15 or Article 17
herein, which shall survive the expiration or termination hereof
ARTICLE 20.
FORCE MAJEURE
20.01 Neither party shall be in default under this IRU Agreement if and
to the extent that any failure or delay in such party's performance of one or
more of its obligations hereunder is caused by any of the following conditions,
and such party's performance of such obligation or obligations shall be excused
and extended for and during the period of any such delay: act of God; fire;
flood, any failures, shortages or unavailability of fiber, Cable or other
material, or other delay in delivery of such not resulting from the responsible
party's failure to timely place orders therefor (it being expressly acknowledged
that the Cable being acquired for and installed in the QWEST System and that
will include the BTI Fibers must include higher fiber counts than necessary
solely for the BTI Fibers in order to permit completion of the entire QWEST
System); lack of or delay in transportation; government codes, ordinances, laws,
rules, regulations or restrictions; war or civil disorder, strikes or other
labor disputes; failure of a third party to grant or recognize an Underlying
Right (provided that QWEST has made timely and reasonable commercial efforts to
obtain the same), or any other cause beyond the reasonable control of such
party. The party claiming relief under this Article shall notify the other in
writing of the existence of the event relied on and the cessation or termination
of said event, and the party claiming relief shall exercise reasonable
commercial efforts to minimize the time of any such delay.
ARTICLE 21.
DISPUTE RESOLUTION
21.01 Except as provided in Sections 18.01 and 18.02, if the parties
are unable to resolve any disagreement or dispute arising under or related to
this IRU Agreement, including without limitation, the failure to agree upon any
item requiring a mutual IRU Agreement of the parties hereunder, they shall
resolve the disagreement or dispute by arbitration as prescribed in this
Section. The Federal Arbitration Act, 9 U.S.C.
Sections 1-15, not state law, shall govern the arbitrability of all claims.
21.02 A single arbitrator engaged in the practice of law who is
knowledgeable about the subject matter of this IRU Agreement shall conduct the
arbitration under the then current rules of the American Arbitration Association
(the "AAA"). The arbitrator shall be selected in accordance with AAA procedures
from a list of qualified people maintained by the AAA. The
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arbitration shall be conducted in the regional AAA office in Denver, Colorado,
and all expedited procedures prescribed by the AAA rules shall apply.
21.03 There shall be no discovery other than the exchange of
information which is provided to the arbitrator by the parties. The arbitrator
shall have authority only to award compensatory damages and shall not have
authority to award punitive damages, other noncompensatory damages or any other
form of relief; the parties hereby waive all rights to any claims for relief
other than compensatory damages. The arbitrators' fees and other costs of the
arbitration shall be borne by the party against whom the award is rendered,
except as the arbitrator may otherwise provide in a written opinion.
21.04 If any party files a judicial or administrative action asserting
claims subject to arbitration as prescribed herein, and another party
successfully stays such action or compels arbitration of said claims, the party
filing said action shall pay the other party's costs and expenses incurred in
seeking such stay or compelling arbitration, including reasonable attorneys'
fees.
ARTICLE 22.
ASSIGNMENT AND DARK FIBER TRANSFERS
22.01 Except as provided below, QWEST shall not assign, encumber or
otherwise transfer this IRU Agreement or all or any portion of its rights or
obligations hereunder to any other party without the prior written consent of
BTI, which consent will not be unreasonably withheld or delayed. Notwithstanding
the foregoing, and subject to the provisions of this Article, QWEST shall have
the right, without BTI's consent, to (a) subcontract any of its construction or
maintenance obligations hereunder, or (b) assign or otherwise transfer this IRU
Agreement in whole or in part (1) as collateral to any institutional lender to
QWEST (or institutional lender to any permitted transferee or assignee of QWEST)
subject to the prior rights and obligations of the parties hereunder, (2)to any
parent, subsidiary or affiliate of QWEST, (3)to any person, firm or corporation
which shall control, be under the control of or be under common control with
QWEST, or (4) any corporation or other entity into which QWEST may be merged or
consolidated or which purchases all or substantially all of the stock or assets
of QWEST; provided that the assignee or transferee in any such circumstance
shall continue to be subject to all of the provisions of this IRU Agreement,
including without limitation, this Section 22.01 (except that any lender
referred to in clause (b) (1) above shall not incur any obligations under this
IRU Agreement nor shall it be restricted from exercising any right of
enforcement or foreclosure with respect to any related security interest or
lien, so long as the purchase in foreclosure is subject to the provisions of
this IRU Agreement, including, without limitation, this Section 22.01); and
provided further that promptly following any such assignment or transfer, QWEST
shall give BTI written notice identifying the assignee or transferee. In the
event of any permitted partial assignment of any rights hereunder, QWEST shall
remain the sole point of contact with BTI. No permitted partial or complete
assignment shall release or discharge QWEST from its duties and obligations
hereunder.
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22.02 Except as provided in this Section 22.02 and the following
Section 22.03, BTI shall not assign, encumber or otherwise transfer this IRU
Agreement or all or any portion of its rights or obligations hereunder to any
other party without the prior written consent of QWEST, which consent will not
be unreasonably withheld or delayed. Subject to the provisions of Section 22.03
(which provision shall be binding upon any permitted assignee or transferee
hereunder), BTI shall have the right, without QWEST's consent, to assign or
otherwise transfer this IRU Agreement in whole or in part (a) as collateral to
any institutional lender to BTI (or institutional lender to any permitted
transferee or assignee of BTI subject to the prior rights and obligations of the
parties hereunder, (b) to any parent, subsidiary or affiliate of BTI, (c) to any
person, firm or corporation which shall control, be under the control of or be
under common control with BTI, or (d) any other corporation or other entity into
which BTI may be merged or consolidated or which purchases all or substantially
all of the stock or assets of BTI; provided that the assignee or transferee in
any such circumstance shall continue to be subject to all of the provisions of
this IRU Agreement, including without limitation this Section 22.02 and the
following Section 22.03 (except that any lender referred to in clause (a) above
shall not incur any obligations under this IRU Agreement, nor shall it be
restricted from exercising any right of enforcement or foreclosure with respect
to any related security interest or lien, so long as the purchaser in
foreclosure is subject to the provisions of this IRU Agreement, including,
without limitation, this Section 22.02 and the following Section 22.03); and
provided further that in any of circumstances described in clauses (b), (c) or
(d) all of the payment obligations of BTI hereunder for the remainder of the
Term shall be paid in full as a condition to such transfer or assignment; and
Provided further that promptly following any such assignment or transfer, BTI
shall give QWEST written notice identifying the assignee or transferee. In the
event of any permitted partial assignment of any rights hereunder, BTI shall
remain the sole party and point of contact with QWEST hereunder. No permitted
partial or complete assignment shall release or discharge BTI from its duties
and obligations hereunder.
22.03 Notwithstanding the provisions of Article 11, except as expressly
permitted in Section 22.02(a)-(d), inclusive, without the prior written consent
of QWEST, which consent may be withheld in QWEST's sole discretion, until a
period of [ ] years from the Acceptance Date shall have occurred with respect to
any Segment delivered hereunder, BTI shall not sell, assign, lease, grant an IRU
with respect to, exchange, encumber, or otherwise in any manner transfer or make
available in any manner to any third party the ownership, right to use, or use
of, or access in any manna to, any of BTI's rights in the whole and discrete BTI
Fibers comprising such Segment as Dark Fibers (any of the foregoing, a
"Restricted Transaction") (or engage in substantive discussions or negotiations
with respect to a Restricted Transaction), or otherwise engage in a similar
transaction with respect to any BTI Fibers comprising such Segment in a manner
designed or intended to circumvent the foregoing limitations. Notwithstanding
this restriction, BTI is permitted at any time during the [ ] years restricted
period to exchange [ ] BTI Fibers on Segment 20B between [ ] in a transaction
with a non-telecommunications entity or any entity which is not engaged in the
resale of telecommunication services.
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22.04 This IRU Agreement and each of the parties, respective rights and
obligations under this IRU Agreement, shall be binding upon and shall inure to
the benefit of the parties hereto and each of their respective permitted
successors and assigns.
ARTICLE 23.
REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENTS
23.01 Each party represents and warrants that:
(a) it has the full right and authority to enter into,
execute, deliver and perform its obligations under this IRU Agreement;
(b) this IRU Agreement constitutes a legal, valid and binding
obligation enforceable against such party in accordance with its terms, subject
to bankruptcy, insolvency, creditors' rights and general equitable principles;
and
(c) its execution of and performance under this IRU Agreement
shall not violate any applicable existing regulations, rules, statutes or court
orders of any local, state or federal government agency, court or body.
23.02 QWEST represents and warrants that the Segments of the QWEST
System that it constructs pursuant hereto shall be constructed substantially and
in all material respects in accordance with the specifications set forth in
Exhibit B hereto; Provided that BTI's sole rights and remedies with respect to
any failure to so construct shall be:
(a) to inspect the construction, installation and splicing,
and participate in the acceptance testing, of the BTI Fibers incorporated in
each such Segment, during the course and at the time of the relevant
construction, installation and testing periods for each Segment, as provided in
Articles 3 and 4,
(b) if, during the course of such construction, installation
and testing any material deviation from the specifications set forth in Exhibit
B is discovered, the construction or installation of the affected portion of the
Segment shall be repaired to such specification by QWEST at QWEST's sole cost
and expense, and
(c) if, at any time prior to the date that is twelve (12)
months after the Acceptance Date, BTI shall notify QWEST in writing of its
discovery of a material deviation from the specifications set forth in Exhibit B
with respect to any such Segment (which notice shall be given within thirty (30)
days of such discovery) the construction or installation of the affected portion
of such Segment shall be repaired to such specification by QWEST at QWEST's sole
cost and expense. For purposes hereof, "material deviation" means a deviation
which is reasonably likely to have a material adverse affect on the operation or
performance of the BTI Fibers affected thereby.
23.03 EXCEPT AS SET FORTH 1N THE FOREGOING PARAGRAPH 23.02, QWEST MAKES
NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
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BTI FIBERS OR THE SEGMENTS DELIVERABLE HEREUNDER, INCLUDING ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE, AND ALL SUCH WARRANTIES ARE
HEREBY EXPRESSLY DISCLAIMED.
23.04 The parties acknowledge and agree that on and after the relevant
Acceptance Date BTI's sole rights and remedies with respect to any defect in or
failure of the BTI Fibers to perform in accordance with the applicable vendor's
or manufacturer's specifications with respect to the BTI Fibers shall be limited
to the particular vendor's or manufacturer's warranty with respect thereto,
which warranty, to the extent permitted by the terms thereof, shall be assigned
to BTI upon its request. In the event any maintenance or repairs to the QWEST
System are required as a result of a breach of any warranty made by any
manufacturers, contractors or vendors, unless BTI shall elect to pursue such
remedies itself, QWEST shall pursue all remedies against such manufacturers,
contractors or vendors on behalf of BTI, and QWEST shall reimburse BTI's costs
for any maintenance BTI has incurred as a result of any such breach of warranty
to the extent the manufacturer, contractor or vendor has paid such costs.
ARTICLE 24.
GENERAL
24.01 Waiver. The failure of either party hereto to enforce any of the
provisions of this IRU Agreement, or the waiver thereof in any instance, shall
not be construed as a general waiver or relinquishment on its part of any such
provision, but the same shall nevertheless be and remain in full force and
effect.
24.02 Governing Law. This IRU Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Colorado, without
reference to its choice of law principles. Any litigation based hereon, or
arising out of or in connection with a default by either party in the
performance of its obligations hereunder, shall be brought and maintained
exclusively in the courts of the State of Colorado or in the United States
District Court in Denver, Colorado, and each party hereby irrevocable submits to
the jurisdiction of such courts for the purpose of any such litigation and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with such litigation.
24.03 Rules of Construction. The captions or headings in this IRU
Agreement are strictly for convenience and shall not be considered in
interpreting this IRU Agreement or as amplifying or limiting any of its content.
Words in this IRU Agreement which import the singular connotation shall be
interpreted as plural, and words which import the plural connotation shall be
interpreted as singular, as the identity of the parties or objects referred to
may require.
(a) Unless expressly defined herein, words having well known
technical or trade meanings shall be so construed. All listing of items shall
not be taken to be exclusive, but shall include other items, whether similar or
dissimilar to those listed, as the context reasonably requires.
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(b) Except as set forth to the contrary herein, any right or
remedy of BTI or QWEST shall be cumulative and without prejudice to any other
right or remedy, whether contained herein or not.
(c) This IRU Agreement has been fully negotiated between and
jointly drafted by the parties.
(d) All actions, activities, consents, approvals and other
undertakings of the parties in this IRU Agreement shall be performed in a
reasonable and timely manner. Except as specifically set forth herein, for the
purpose of this IRU Agreement the standards and practices of performance within
the telecommunications industry in the relevant market shall be the measure of a
party's performance.
24.04 Entire IRU Agreement. This IRU Agreement constitutes the entire
and final IRU Agreement and understanding between the parties with respect to
the subject matter hereof and supersedes all prior IRU Agreements relating to
the subject matter hereof, which are of no further force or effect. The Exhibits
referred to herein are integral parts hereof and are hereby made a part of this
IRU Agreement. To the extent that any of the provisions of any Exhibit hereto
are inconsistent with the express terms of this IRU Agreement, the terms of this
IRU Agreement shall prevail. This IRU Agreement may only be modified or
supplemented by an instrument in writing executed by a duly authorized
representative of each party and delivered to the party relying on the writing.
24.05 No Personal Liability. Each action or claim against any party
arising under or relating to this IRU Agreement shall be made only against such
party as a corporation, and any liability relating thereto shall be enforceable
only against the corporate assets of such party. No party shall seek to pierce
the corporate veil or otherwise seek to impose any liability relating to, or
arising from, this IRU Agreement against any shareholder, employee, officer or
director of the other party. Each of such persons is an intended beneficiary of
the mutual promises set forth in this Article and shall be entitled to enforce
the obligations of this Article.
24.06 Relationship of the Parties. The relationship between BTI and
QWEST shall not be that of partners, agents, or joint venturers for one another,
and nothing contained in this IRU Agreement shall be deemed to constitute a
partnership or agency IRU Agreement between them for any purposes, including,
but not limited to federal income tax purposes. BTI and QWEST, in performing any
of their obligations hereunder, shall be independent contractors or independent
parties and shall discharge their contractual obligations at their own risk
subject, however, to the terms and conditions hereof.
24.07 Severability. If any term, covenant or condition contained herein
is, to any extent, held invalid or unenforceable in any respect under the laws
governing this IRU Agreement, the remainder of this IRU Agreement shall not be
affected thereby, and each term, covenant or condition of this IRU Agreement
shall be valid and enforceable to the fullest extent permitted by law.
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24.08 Counterparts. This IRU Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one and the same
instrument.
In confirmation of their consent and agreement to the terms and
conditions contained in this IRU Agreement and intending to be legally bound
hereby, the parties have executed this IRU Agreement as of the date first above
written.
QWEST COMMUNICATIONS CORPORATION, a Delaware corporation
By: _____________________________________________________
Name:____________________________________________________
Title:___________________________________________________
BUSINESS TELECOM, INC., a North Carolina corporation
By: _____________________________________________________
Name:____________________________________________________
Title:___________________________________________________
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GLOSSARY OF TERMS
The following terms shall have the stated definitions in this IRU
Agreement.
(a) "Acceptance Date" has the meaning ascribed to it in
Section 4.02.
(b) "Aerial Construction" shall mean the attachment of the
Cable to bridges, overpasses or similar structures.
(c) "Cable" when used herein as defined term means the fiber
optic cable and the fibers contained therein, and associated splicing
connections, splice boxes, and vaults to be installed by QWEST as part of the
QWEST System. When not a defined term, cable shall mean the fiber optic cable
and the fibers contained therein.
(d) "Civil Construction" when used herein shall mean the
construction of regeneration facilities, buildings and similar structures as
part of the construction of the Qwest System.
(e) "Costs" when used herein as a defined term means actual,
direct costs paid or payable in accordance with the established accounting
procedures generally used by QWEST and which it utilizes in billing third
parties for reimbursable projects which costs shall include, without limitation,
the following: (1) internal labor costs, including wages and salaries, and
benefits and overhead allocable to such labor costs (with the overhead
allocation percentage equal to thirty percent (30%)), and (2) other direct costs
and out-of-pocket expenses on a pass-through basis (e.g., equipment, materials,
supplies, contract services, etc.).
(f) "Dark Fiber" means fiber provided without electronics or
optronics, and which is not "lit" or activated; provided that such fiber may be
used in any manner and for any purpose permitted under Article 11.
(g) "Estimated Delivery Date" means, with respect to each
Segment of the QWEST System to be delivered hereunder, the date set forth in
Section 1.02 hereto with respect to such Segment, as any such date may be
extended for and during (1) the period of any delay described in Article 20
and/or (2) the period of any payment default pursuant to Section 18.01 with
respect to any Segment.
(h) "Impositions" means all taxes, fees, levies, imposts,
duties, charges or withholdings of any nature (including, without limitation,
franchise, license and permit fees), together with any penalties, fines or
interest thereon arising out of the transactions contemplated by this IRU
Agreement and/or imposed upon the QWEST System by any federal, state or local
government or other public taxing authority.
(i) "Indefeasible Right of Use" or "IRU" means (1) an
exclusive, indefeasible right of use, for the purposes described herein, in the
BTI Fibers,-as granted in Article 2, and (2) an associated non-exclusive,
indefeasible right of use, for the purposes described herein, in the Associated
Property, provided that the IRUs granted hereunder do not
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provide BTI with any ownership interest in or other rights to physical access
to, control of, modification of, encumbrance in any manner of, or other use of
the QWEST System except as expressly set forth herein.
(j) "Minimum Period" is as defined in Section 6.02.
(k) "POP" means the BTI point of presence at locations along
the QWEST System route.
(l) "PSWP" means Planned System Work Period, which is a
prearranged period of time reserved for performing certain work on the QWEST
System that may potentially impact traffic. Generally, this will be restricted
to weekends, avoiding the first and last weekend of each month and high-traffic
weekends. The PSWP shall be agreed upon pursuant to Exhibit G.
(m) "Term" is as defined in Section 6.01.
(n) "Underlying Rights" are as defined in Section 10.01.
(o) "Underlying Rights Requirements" are defined in Section
11.01.
(p) When used herein in connection with a covenant of a party
to this IRU Agreement "reasonable commercial efforts" shall not obligate such
party, unless otherwise specifically required by the operative covenant, to make
unreimbursed expenditures (other than costs or expenditures that would have been
required of such party in the absence of the requirements of such covenant) that
are material in amount, in light of the circumstances to which the requirement
to use reasonable commercial efforts applies.
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Exhibit 10.10
May 6, 1998
Business Telecom, Inc.
4300 Six Forks Road
Raleigh, North Carolina 27609
Attention: Mr. Brian Branson
Chief Financial Officer
Re: Loans Extended by General Electric Capital Corporation
("GECC") to Business Telecom, Inc. ("Borrower")
Gentlemen:
Reference is hereby made to that certain Second Amended and Restated
Loan Agreement, dated as of September 22, 1997, between GECC, in its capacity as
lender and agent, and Borrower (as the same has been amended from time to time,
the "Loan Agreement"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to such terms in the Loan Agreement.
Borrower has requested, pursuant to that certain letter from BTI to GECC, a
waiver by GECC of certain Events of Default currently existing under the terms
of the Loan Documents. Specifically, Borrower has requested GECC to waive the
Events of Default arising out of those sections of the Loan Documents identified
on Exhibit A hereto.
GECC is willing to, and hereby does, waive the specific Events of
Default resulting directly from the actions specified in Exhibit A; provided,
that such waiver by GECC shall relate solely to Events of Default occurring on
or prior to March 31, 1998 and shall in no way prevent GECC from exercising its
remedies related to any Event of Default occurring after such date (whether
related to the Sections of the Loan Agreement listed in Exhibit A or otherwise);
provided, further, that these waivers shall become effective and binding on the
parties hereto immediately upon the execution and delivery hereof, subject to
(a) the receipt of GECC of the deliverables described in Items F and G of
Exhibit B hereto and (b) the failure of Borrower to fulfill any of the
requirements described in Items A, B, C, D
<PAGE>
or E of Exhibit B within the applicable time periods (each of which shall only
be deemed satisfied upon fulfillment by Borrower, to the satisfaction of GECC in
its sole discretion, of each and every such condition subsequent):
As a material inducement to GECC to grant the waivers set forth herein,
Borrower hereby (i) restates, reaffirms, ratifies and renews in all material
respects at and as of the date of this letter, each and every representation,
warranty, covenant, release, indemnification and agreement heretofore made by
Borrower under or in connection with the Loan Agreement and the other Loan
Documents; (ii) acknowledges and agrees that, except as expressly amended by the
First Amendment to the Second Amended and Restated Loan Agreement or by the
waivers granted hereby, the Loan Agreement remains in full force and effect in
accordance with its terms, and there are no other amendments, modifications or
waivers of or relating to the Loan Agreement and (iii) acknowledges and agrees
that nothing set forth herein shall prevent GECC from requiring strict
compliance from and after the periods covered by this letter by Borrower with
the terms of the Loan Agreement and each other Loan Document.
Sincerely,
GENERAL ELECTRIC
CAPITAL CORPORATION, as Agent
By: ______________________________
Its: _____________________________
Agreed to and Accepted this 6th day of May, 1998:
BUSINESS TELECOM, INC.
By: _______________________
Its: _______________________
Exhibit 10.11
AMENDMENT FOUR TO LEASE AGREEMENT
THIS AMENDMENT FOUR TO LEASE AGREEMENT (this "Amendment"), made and
entered into as of the 27th day of March, 1998, by and between RBC CORPORATION
("Landlord") and BUSINESS TELECOM, INC. (referred to in the Lease (defined
below) as Business Telecommunication, Inc. ("Tenant");
WITNESSETH THAT:
WHEREAS, Landlord and Tenant entered into that certain Lease dated May
13, 1994, as amended by that certain Amendment One to Lease Agreement dated as
of March 1, 1995 (the "First Amendment"), as further amended by that certain
Amendment Two to Lease Agreement dated November 30, 1995 (the "Second
Amendment") and letter agreement of even date therewith (the "Modified Option"),
as further amended by that certain Amendment Three to Lease Agreement dated May
15, 1997 (the "Third Amendment") (the Lease, the First Amendment, the Second
Amendment, the Modified Option and the Third Amendment being collectively
hereinafter referred to as the "Lease") for certain premises consisting of
approximately 81,887 rentable square feet of office space (the "Demised
Premises") in the building at 4300 Six Forks Road, Raleigh, North Carolina (the
"Building");
WHEREAS, Landlord has agreed to lease additional premises to Tenant and
Tenant has agreed to lease such additional premises from Landlord; and
WHEREAS, Landlord and Tenant desire to evidence such expansion of the
Demised Premises and to amend certain other terms and conditions of the Lease
and evidence their agreements and other matters by means of this Amendment;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt, adequacy and
sufficiency of which are hereby acknowledged, the Lease is hereby amended and
the parties hereto do hereby agree as follows:
1. Paragraph 3 of the Third Amendment provides that Tenant shall
vacate and return to Landlord approximately 8,912 rentable
square feet of space on the second floor and being more
particularly described therein as the "Released Space" (and
referred to in this Amendment as the "Expansion Space") as of
January 1, 1998 (the "Effective Date"). As of the Effective
Date, Paragraph 3 of the Third Amendment shall be deleted from
the Lease and Landlord agrees to lease to Tenant and Tenant
agrees to lease from Landlord the Expansion Space upon the
following terms and conditions:
a. The Expansion Space shall be added as part of the
Demised Premises for all purposes, except as
otherwise expressly provided herein, as of the
Effective Date. Annual Minimum Rent and additional
rent with respect to the Expansion Space shall
commence as provided in Section 1(e) below.. The Base
Amount and Tax Base Amount applicable to the
Expansion Space shall be those amounts currently in
place for the balance of the Demised Premises
(excluding the first floor area).
<PAGE>
b. All references in this Lease for purposes of
determining Tenant's percentage of the Building shall
include the Expansion Space for purposes of
calculating such percentage or pro rata portion. As
of the Effective Date, the Demised Premises shall
contain 90,799 rentable square feet of space.
c. Annual Minimum Rent with respect to the Expansion
Space only shall be $19.50 per rentable square foot
commencing as provided in Section 1(e) below, subject
to escalations as set forth in the Lease; provided,
however, that in place of all Annual Minimum Rent
(Base Rent) increase limitations of any nature
otherwise set forth in the Lease, Annual Minimum Rent
for the Expansion Space shall not be increased by
more than six percent (6%) per annum calculated on an
annual basis from the previous year; and provided
further, that the increases in Annual Minimum Rent
for the Expansion Space to go into effect as of
January 1 of each calendar year shall be calculated
based on the percentage increases in the Index (using
the Index for December of the year immediately prior
to each January 1 as the numerator and the Index for
December of 1997 as the denominator) applied only to
$14.66, which is the $19.50 Annual Minimum Rent less
the Base Amount ($3.85) and Tax Base Amount ($0.99)
applicable to the Expansion Space, multiplied times
the rentable square feet in the Expansion Space.
d. Tenant hereby accepts the Expansion Space "AS IS" and
acknowledges and agrees Landlord shall have no
obligation to construct any tenant improvements in
the Expansion Space or make any alterations or
additions thereto.
e. Irrespective of the Effective Date for the Expansion
Space, Tenant shall be entitled to four (4) months
free rent, with obligations as to Annual Minimum Rent
and additional rent to commence as of May 1, 1998.
f. Landlord shall deliver to Tenant within five (5) days
from the full execution of this Amendment the sum of
$166,990.44 representing sums due Tenant with respect
to the Expansion Space after adjustments agreed upon
by Landlord and Tenant.
2. Landlord and Tenant agree that the escalations called for by
Section 9, Note 3 of Schedule I (Revised March 1, 1995)
attached to the First Amendment establishes Annual Minimum
Rent for the Demised Premises (excluding portions located on
the First Floor and Second Floor) at $17.49 per rentable
square foot effective January 1, 1998. No escalations are
applicable to those portions of the Demised Premises located
on the First Floor or the Expansion Space for calendar year
1998. For 1999 and future years, Landlord shall notify Tenant
in writing of all escalations in Annual Minimum Rent for all
portions of the Demised Premises by no later than April 15 of
the applicable year. In the event of any failure to so notify
Tenant, Landlord shall not be entitled to recover any
escalation in Annual Minimum Rent for any month prior to the
first full month after the escalation notice is actually given
in writing by
<PAGE>
Landlord to Tenant.
3. All capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in the Lease.
4. This Amendment represents the entire agreement between the
parties hereto. Landlord and Tenant agree that there are no
collateral or oral agreements or understandings between them
with respect to the Demised Premises or the Building. This
Amendment supersedes all prior negotiations, agreements,
letters or other statements with respect to the Expansion
Space.
5. Simultaneously with the execution of this Amendment, the
parties shall execute the attached Memorandum of Lease and
cause the same to promptly be recorded with the Wake County,
North Carolina Register of Deeds.
EXCEPT AS expressly amended and modified hereby, the Lease shall
otherwise remain in full force and effect, the parties hereto hereby ratifying
and confirming the same. To the extent of any inconsistency between the Lease
and this Amendment, the terms of this Amendment shall control.
IN WITNESS WHEREOF, the undersigned parties have duly executed this
Amendment as of the day and year first above written.
TENANT: LANDLORD:
BUSINESS TELECOM, INC. RBC CORPORATION
(referred to in the Lease as Business
Telecommunications, Inc.)
By:__________________________________ By:_________________________________
Title:_____________________________ Title:____________________________
<PAGE>
SECOND FLOOR PAYMENT ADJUSTMENTS
$ 225,000.00 Agreed Adjustment for second floor
($ 48,503.43) Pass Through Amounts and/or Base Rent Increases not timely
billed
($ 57,928.00) Four Months Free Rent (8,912 x $19.50 ) 12 x 4)
$ 48,421.87 (1) Refund for Rent Paid
$ 166,990.44 (2) Net Due BTI
============
(1) Rent paid for January, February, March and April on the 8,912 square
foot Expansion Space by Tenant (8,912 x 16.30 ) 12 x 4) being refunded.
(2) Landlord agrees that $6,420.16 representing an interest dispute
regarding the First Floor Upfit, may be applied to after hours HVAC
charges.
EXHIBIT 21.1
Subsidiaries of BTI Telecom Corp.
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---------------------------------------- ------------------------------
<S> <C>
Business Telecom, Inc. North Carolina
Business Telecom of Virginia, Inc. Virginia
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001050524
<NAME> BTI Telecom Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 89,502
<SECURITIES> 6
<RECEIVABLES> 26,890
<ALLOWANCES> 4,825
<INVENTORY> 297
<CURRENT-ASSETS> 114,514
<PP&E> 63,898
<DEPRECIATION> (19,321)
<TOTAL-ASSETS> 221,034
<CURRENT-LIABILITIES> 37,674
<BONDS> 250,000
0
0
<COMMON> 37
<OTHER-SE> (69,611)
<TOTAL-LIABILITY-AND-EQUITY> 221,034
<SALES> 0
<TOTAL-REVENUES> 194,801
<CGS> 0
<TOTAL-COSTS> 199,161
<OTHER-EXPENSES> (2,527)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,805
<INCOME-PRETAX> (10,639)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,639)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,639)
<EPS-PRIMARY> (0.62)
<EPS-DILUTED> (0.62)
</TABLE>
