<PAGE>
Filed with the Securities and Exchange Commission on May 11, 2000
Registration No.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------
MADISON RIVER CAPITAL, LLC
Delaware 4813 56-2156823
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
103 South Fifth Street
Mebane, North Carolina 27302
(919) 563-1500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
MADISON RIVER FINANCE CORP.
Delaware 4813 56-2183107
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
103 South Fifth Street
Mebane, North Carolina 27302
(919) 563-1500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------
Paul H. Sunu Copy to:
Chief Financial Officer and Secretary Gary P. Cullen, Esq.
--Madison River Capital, LLC Skadden, Arps, Slate, Meagher & Flom
Chief Financial Officer and Secretary-- (Illinois)
Madison River Finance Corp. 333 W. Wacker Dr.
103 South Fifth Street Chicago, Illinois 60606
Mebane, North Carolina 27302
(919) 563-1500
(Name, address, including zip code, and
telephone
number, including area code, of agent
for service)
---------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
Proposed
Proposed Maximum
Maximum Aggregate Amount of
Title of Each Class Amount to be Offering Price Offering Price Registration
of Securities to be Registered Registered Per Unit (1) (1) Fee
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<S> <C> <C> <C> <C>
Series B 13 1/4% Senior Notes due 2010 .... $200,000,000 100% $200,000,000 $52,800 (2)
- ------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated pursuant to Rule 457 solely for the purpose of calculating the
registration fee.
(2) Pursuant to Rule 457(f)(2), the registration fee has been calculated using
the book value of the securities being registered.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
WILL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT WILL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
WILL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
EXPLANATORY NOTE
This registration statement covers the registration of an aggregate
principal amount of $200,000,000 of 13 1/4% Series B Senior Notes due 2010 of
Madison River Capital, LLC and Madison River Finance Corp., which will have
been registered under the Securities Act pursuant to a registration statement
of which this prospectus is a part, that may be exchanged for equal principal
amounts of Madison River's outstanding 13 1/4% Series A Senior Notes due 2010.
This registration statement also covers the registration of the exchange notes
for resale by Goldman, Sachs & Co. in market-making transactions. The complete
prospectus relating to the exchange offer follows immediately after this
explanatory note. Following the exchange offer prospectus are some pages of the
prospectus relating solely to these market-making transactions, including an
alternate outside front cover page, an additional risk factor entitled "Risk
Factors--Related to the Notes--You may find it difficult to sell your exchange
notes" to be used instead of the section entitled "Risk Factors Related to the
Exchange Offer," an alternate section entitled "Use of Proceeds," an alternate
section entitled "Plan of Distribution" and an alternate back cover page. In
addition, the market-making prospectus will not include the following captions,
or the information set forth under these captions, in the exchange offer
prospectus: "Summary--The Exchange Offer," "The Exchange Offer" and "Important
United States Federal Tax Considerations." All other sections of the exchange
offer prospectus will be included in the market-making prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these notes until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these notes, and it is not soliciting an offer to buy these +
+notes in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion, dated May 11, 2000
PROSPECTUS
[LOGO]
Madison River Capital, LLC
Madison River Finance Corp.
Exchange Offer for
$200,000,000
13 1/4% Senior Notes Due 2010
-----------
Terms of the Exchange Offer
. The exchange offer . We will not receive any
expires at 5:00 p.m., proceeds from the
New York City time, on exchange offer.
, 2000,
unless we extend the
expiration date.
. Your exchange of
outstanding notes will
not be a taxable
exchange for U.S.
federal income tax
purposes.
. We will exchange all
outstanding notes that
you validly tender and
do not validly
withdraw.
. The terms of the
exchange notes and the
outstanding notes are
substantially
identical, except for
transfer restrictions,
registration rights and
liquidated damages that
apply to the
outstanding notes.
. You may withdraw
tenders of outstanding
notes any time prior to
the expiration of the
exchange offer.
. The exchange offer is
not subject to any
condition, other than
that it not violate
applicable law or any
applicable
interpretation of the
staff of the Securities
and Exchange
Commission.
. There is no existing
market for the exchange
notes, and we do not
currently intend to
apply for their listing
on any securities
exchange.
-----------
For a discussion of factors that you should consider before exchanging your
outstanding notes, see "Risk Factors" beginning on page 11.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these notes or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
-----------
, 2000
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
As a result of this exchange offer, we will become subject to the
informational requirements of the Securities Exchange Act of 1934. As a result,
we will be required to file annual, quarterly and special reports and other
information with the Securities and Exchange Commission. You may read and copy
any of these reports, statements and other information that we may file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call 1-800-SEC-0330 for further information on the
public reference rooms. Our filings will also be available to the public from
commercial document retrieval services and at the web site maintained by the
SEC at http://www.sec.gov. The indenture governing the notes requires us to
file reports and other information required to be filed under the Exchange Act
with the SEC and provide such information to you, upon request, regardless of
whether we are subject to the reporting requirements of the Exchange Act.
We have filed a registration statement on Form S-4 to register with the SEC
the exchange notes to be issued in exchange for the outstanding notes. This
prospectus is part of that registration statement. As allowed by the SEC's
rules, this prospectus does not contain all of the information you can find in
the registration statement or the exhibits to the registration statement.
Statements contained in this prospectus concerning the provisions of documents
are not necessarily summaries of all provisions of those documents. If we have
filed any other document as an exhibit to the registration statement, you
should read the exhibit for a more complete understanding of the document or
matter.
FORWARD-LOOKING STATEMENTS
The statements, other than statements of historical fact, included in this
prospectus are forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking terminology such as "may,"
"will," "expect," "intend," "estimate," "anticipate," "plan," "seek" or
"believe." We believe that the expectations reflected in such forward-looking
statements are accurate. However, we cannot assure you that such expectations
will occur. Our actual future performance could differ materially from such
statements. Factors that could cause such or contribute to such differences
include, but are not limited to:
. the uncertainties and potential delays associated with integrating the
operations of Gulf Coast Services and Coastal Communications;
. the uncertainties and potential delays associated with our planned
expansion into competitive local service;
. the passage of legislation or court decisions adversely affecting the
telecommunications industry;
. our ability to repay our outstanding indebtedness;
. competition in the telecommunications industry; and
. the advent of new technology.
You should not unduly rely on these forward-looking statements, which speak
only as of the date of this prospectus. Except as required by law, we are not
obligated to publicly release any revisions to these forward-looking statements
to reflect events or circumstances occurring after the date of this prospectus
or to reflect the occurrence of unanticipated events. Important factors that
could cause our actual results to differ materially from our expectations are
discussed under "Risk Factors" and elsewhere in this prospectus. All subsequent
written and oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by the
statements in those sections.
i
<PAGE>
MARKET AND INDUSTRY DATA
Market data used throughout this prospectus was obtained from internal
Madison River surveys and industry surveys and publications. Industry surveys
and publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but there can be no
assurance as to the accuracy and completeness of the information. We have not
independently verified the market data. Similarly, internal Madison River
surveys, while believed to be reliable, have not been verified by any
independent sources.
ii
<PAGE>
SUMMARY
The following summary is intended to highlight certain information contained
elsewhere in this prospectus. This summary is not intended to be a complete
statement of all material facts of the offering and is qualified in its
entirety by the more detailed information and historical and pro forma
financial information, including the notes relating to that information,
appearing elsewhere in this prospectus. Madison River Finance Corp., a wholly
owned subsidiary of Madison River Capital, LLC, has only nominal assets, does
not conduct any operations and has been formed solely to act as co-issuer of
the notes. For convenience, throughout this prospectus, the words "Madison
River," "we," "us," "our" or similar words refer to Madison River Capital, LLC,
Madison River Finance Corp. and all of their subsidiaries except where the
context otherwise requires. "Madison River Capital" refers solely to Madison
River Capital, LLC and "Madison River Finance" refers to Madison River Finance
Corp. References in this document to the acquisition of "Coastal
Communications" refer to the acquisition of Coastal Utilities, Inc. and its
subsidiary by Madison River which took place on March 30, 2000.
About Madison River
We are an established and rapidly growing provider of integrated
communications services and solutions that focuses on markets in the Gulf
Coast, Mid-Atlantic and Midwest regions of the United States. Our integrated
service offering to business and residential customers includes voice, high
speed data, fiber transport and Internet access. We currently operate in North
Carolina, Alabama, Illinois and Georgia. We have a reputation for delivering
high quality services and being highly responsive to our customers, which we
and our predecessors have established as providers of communications services
and solutions in these markets for over fifty years. As of March 31, 2000, we
served approximately 193,000 access lines. For the year ended December 31,
1999, we would have generated $166.9 million in revenue on a pro forma basis
after giving effect to the acquisitions of Gulf Coast Services and Coastal
Communications as if they were consummated on January 1, 1999.
We are growing our customer base of businesses and residential multiple
dwelling units around our regional centers and along our 2,200 route-mile fiber
optic network by building on our established customer base, strong local
presence, state of the art technology and experienced local sales and operating
professionals. From our switches and our fiber transport networks, we are able
to address over 2.3 million access lines in attractive secondary markets such
as Greensboro, Raleigh-Durham, Mobile and Peoria. In order to further expand
the services available to our existing customers and to attract new customers,
we are aggressively developing high speed broadband service offerings utilizing
advanced bandwidth enhancing technologies such as asynchronous transfer mode,
or ATM, digital subscriber line, or DSL, and fiber optic networks. The number
of access lines we serve has increased faster than industry averages.
Our customer base is comprised of approximately 54,000 business and 139,000
residential access lines, 43,000 long distance customers and 27,000 Internet
access customers. Our network platform includes eight Nortel DMS digital
switches, one Siemens digital switch and five Nortel ATM switches. We currently
have interconnection agreements with BellSouth, GTE and Ameritech. We have been
certified as a Competitive Local Exchange Carrier (CLEC) in four states. In
addition, we have been certified as an Incumbent Local Exchange Carrier (ILEC)
in four states, and are qualified to provide long distance services in ten
states. Our 2,200 route-mile fiber optic network serves as the backbone to
allow us to offer competitive data and voice transport and Internet access
services to our existing and future customers and, we believe will also provide
revenue opportunities from providing transport services to other carriers.
1
<PAGE>
Our equity holders are affiliates of Madison Dearborn Partners, Goldman,
Sachs & Co. and Providence Equity Partners and certain members of our
management. We have grown since our formation in 1996 through the acquisition
of four local telephone companies (ILECs) and fiber transport assets in our
current regions of operation.
Recent Developments.
On January 18, 2000, the member of Madison River Capital resolved to
contribute up to an additional $24.0 million in equity to Madison River Capital
from time to time as requested; however, the member of Madison River Capital is
not legally obligated to make such contribution.
On March 30, 2000, Coastal Communications, Inc., a subsidiary of Madison
River Capital, LLC, consummated the acquisition of 100% of the outstanding
stock of Coastal Utilities, Inc. and its wholly owned subsidiary, Coastal Long
Distance Services, Inc. Subsequent to completion of the acquisition, Coastal
Utilities became a wholly owned subsidiary of Coastal Communications. Purchase
accounting has been used to account for the acquisition.
Located in Hinesville, Georgia, approximately 23 miles southwest of
Savannah, Coastal Utilities is a rural local exchange carrier providing service
to Liberty County, Long County and Bryan County, including the cities of
Hinesville, Richmond Hills, Keller, Midway, Flemington, Allenhurst,
Walthorville and the Fort Stewart Military Reservation. Coastal Utilities
serves approximately 41,000 access lines and provides local exchange service,
custom calling features, long distance, dial-up Internet service, and customer
premise equipment, sales and services. For the year ended December 31, 1999,
Coastal Utilities had revenues of $36.8 million. As of March 31, 2000,
approximately 190 people were employed by Coastal Utilities.
Coastal Communications paid Daniel M. Bryant, G. Allan Bryant and The
Michael E. Bryant Life Trust $130.0 million in cash for all of the outstanding
stock of Coastal Utilities, pending post-closing adjustments. In addition,
Daniel M. Bryant, G. Allan Bryant and The Michael E. Bryant Life Trust received
Series A non-voting common stock and Series B non-voting common stock of
Coastal Communications in the face amount of $10.0 million and $5.0 million,
respectively. The Series A and Series B non-voting common stock have put and
call features exercisable by the holders and Coastal Communications. Based on
the put and call features, the holders of Series B non-voting common stock have
the right to put their shares for $35.0 million, and we have until April 2002
to repurchase the stock. The holders of Series A non-voting common stock may
put their shares to Coastal Communications in December 2005 for $17.7 million.
If the Series B shares are not put or called and repurchased in 2002, the
holders may put or we may call the stock pursuant to the terms of a
shareholders agreement.
To finance the acquisition, Coastal Utilities entered into secured term
facilities for $118.7 million and a revolving line of credit for $10.0 million
with the Rural Telephone Finance Cooperative. The term facilities are composed
of a $108.7 million, fifteen year facility and a $10.0 million, interest only,
five year facility. The term facilities and the line of credit bear interest at
the RTFC base rate plus 50 basis points and 100 basis points for term loans and
revolving lines of credit, respectively, with the right to convert the fifteen
year facility, at our option under certain circumstances, into a fixed rate.
Coastal Utilities converted the $108.7 million facility to a fixed rate of 8.5%
per annum through April 2005. Madison River Capital provided the remaining
required capital for the acquisition from its available cash. See "Description
of Other Indebtedness."
Our principal executive offices are located at 103 South Fifth Street,
Mebane, North Carolina 27302, and our telephone number at that address is (919)
563-1500.
2
<PAGE>
The Exchange Offer
On February 17, 2000, we privately placed $200.0 million of 13 1/4% senior
notes due 2010. We sold the outstanding notes to the following initial
purchasers:
. Goldman, Sachs & Co.,
. Bear, Stearns & Co. Inc.,
. Chase Securities Inc. and
. Morgan Stanley & Co. Incorporated.
These initial purchasers then sold the outstanding notes to institutional
investors.
Simultaneously with the private placement, we entered into a registration
rights agreement with the initial purchasers of the outstanding notes. Under
the registration rights agreement, we must deliver this prospectus to you and
must complete this exchange offer on or before [ . ], 2000. If this exchange
offer does not take place on or before [ . ], 2000, we must pay liquidated
damages to the holders of the outstanding notes until this exchange offer is
completed.
You may exchange your outstanding notes for exchange notes, which have
substantially identical terms. The exchange offer satisfies your rights under
the registration rights agreement. After the exchange offer is completed, you
will not be entitled to any exchange or registration rights with respect to
your outstanding notes, except under limited circumstances.
<TABLE>
<C> <S>
The Exchange Offer............... We are offering to exchange $200.0 million
principal amount of 13 1/4% senior exchange
notes which have been registered under the
Securities Act, for your outstanding 13
1/4% senior notes.
To exchange your outstanding notes, you
must properly tender them, and we must
accept them. We will exchange all
outstanding notes that you validly tender
and do not validly withdraw.
Resales.......................... We believe that you can offer for resale,
resell and otherwise transfer the exchange
notes without complying with the
registration and prospectus delivery
requirements of the Securities Act if:
. you acquire the exchange notes in the
ordinary course of your business;
. you are not participating, do not intend
to participate, and have no arrangement
or understanding with any person to
participate, in the distribution of the
exchange notes; and
. you are not an "affiliate" of ours, as
defined in Rule 405 of the Securities
Act.
By executing the letter of transmittal, or
by agreeing to the terms of the letter of
transmittal, you represent to us that you
satisfy each of these conditions. If you do
not satisfy any of these conditions and you
transfer any exchange note without
delivering a proper prospectus or without
qualifying for a registration exemption,
you may incur liability under the
Securities Act. We do not assume this
liability nor will we indemnify you against
this liability.
</TABLE>
3
<PAGE>
<TABLE>
<C> <S>
If a broker-dealer acquires exchange notes
for its own account in exchange for
outstanding notes, and it acquired the
outstanding notes through market-making or
other trading activities, the broker-dealer
must acknowledge that it will deliver a
proper prospectus when any exchange notes
are transferred. A broker-dealer may use
this prospectus for an offer to resell,
resale or other retransfer of the exchange
notes.
Expiration Date; Withdrawal The exchange offer expires at, and you may
Rights.......................... withdraw your tender of outstanding notes
at any time before, 5:00 p.m., New York
City time, on [ . ], 2000 unless we extend
the expiration date.
Procedures for Tendering
Outstanding Notes............... We issued the outstanding notes as global
securities.
When we issued the outstanding notes, we
deposited them with Norwest Bank Minnesota,
National Association, as custodian. Norwest
Bank issued a certificateless depositary
interest in the outstanding notes, which
represents a 100% interest in the
outstanding notes, to The Depository Trust
Corporation (DTC). Beneficial interests in
the outstanding notes, which direct or
indirect participants in DTC hold through
the certificateless depositary interest,
are shown on records that DTC maintains in
book-entry form.
If you wish to accept the exchange offer,
you must take the following steps, unless
you use an agent's message in connection
with a book-entry transfer:
. complete and sign the letter of
transmittal or a facsimile thereof, in
accordance with the instructions
contained in this prospectus and the
letter of the transmittal, and
. mail or deliver the letter of
transmittal, together with the
outstanding notes and any other required
documents, to the appropriate exchange
agent at the addresses set forth in this
prospectus and in the letter of
transmittal.
You must deliver these documents before
5:00 p.m., New York City time, on the
expiration date.
Do not send letters of transmittal and
certificates representing outstanding notes
to us or to DTC. Send these documents only
to the appropriate exchange agent.
Special Procedures for Beneficial
Owners.......................... If:
. you beneficially own outstanding notes,
. these notes are registered in the name of
a broker, dealer, commercial bank, trust
company or other nominee, and
</TABLE>
4
<PAGE>
<TABLE>
<C> <S>
. you wish to tender your outstanding notes
in the exchange offer,
please contact the registered holder as
soon as possible and instruct it to tender
on your behalf and comply with our
instructions set forth elsewhere in this
prospectus.
Guaranteed Delivery Procedures If you wish to tender your outstanding
for Outstanding Notes........... notes, and:
. time will not permit you to deliver the
required documents to the appropriate
exchange agent by the expiration date, or
. you cannot complete the procedure for
book-entry transfer on time, or
. you cannot deliver certificates for
registered notes on time,
you may tender your outstanding notes
pursuant to the procedures described in the
section entitled "The Exchange Offer" under
the heading "Procedures for Tendering
Outstanding Notes--Guaranteed Delivery."
Appraisal or Dissenters' Rights.. You do not have any appraisal or
dissenters' rights in the exchange offer.
If you do not tender your outstanding notes
or we reject your tender, you will not be
entitled to any further registration rights
under the registration rights agreement,
except under limited circumstances.
However, your notes will remain outstanding
and entitled to the benefits of the
indenture.
U.S. Federal Income Tax Your exchange of outstanding notes for
Considerations.................. exchange notes is not a taxable exchange
for United States federal income tax
purposes. You will not recognize any
taxable gain or loss or any interest income
as a result of the exchange.
Use of Proceeds.................. We will not receive any proceeds from the
exchange of notes pursuant to the exchange
offer.
Exchange Agent................... Norwest Bank Minnesota, National
Association is serving as the exchange
agent for the outstanding notes in the
exchange offer. The address, telephone
number and facsimile number of the exchange
agent are listed in the section of this
prospectus entitled "The Exchange Offer"
under the heading "Exchange Agent" and in
the letter of transmittal.
</TABLE>
5
<PAGE>
Summary of the Exchange Notes
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes, except that the exchange notes will be registered
under the Securities Act. As a result, the exchange notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damage provisions contained in the outstanding notes. The exchange
notes represent the same debt as the outstanding notes. Both the outstanding
notes and the exchange notes are governed by the same indenture, and the
indenture is governed by New York law.
<TABLE>
<C> <S>
Issuers.......................... Madison River Capital, LLC and Madison
River Finance Corp.
Total Amount of Notes Offered.... $200.0 million in principal amount of 13
1/4% Senior Notes due 2010.
Maturity......................... March 1, 2010.
Interest......................... Annual rate -- 13 1/4%.
Payment frequency -- every six months on
March 1 and September 1.
First payment -- September 1, 2000.
Ranking.......................... The exchange notes will:
. be unsecured senior obligations of
Madison River;
. rank senior to any future subordinated
indebtedness which expressly provides
that it will be subordinated to the
exchange notes;
. rank equal in right of payment with all
of our existing and future
unsubordinated, unsecured debts.
. rank junior to all our secured debt, to
the extent of the value of the assets
securing the debt; and
. also rank behind all existing and future
third-party indebtedness (including any
credit facilities) and other liabilities
of Madison River's subsidiaries.
As of December 31, 1999, on a pro forma
basis for the issuance of the outstanding
notes, the application of the proceeds from
the issuance and giving effect to the
acquisition of Coastal Communications:
. Madison River Capital would have had no
other indebtedness; and
. the exchange notes would have been
effectively subordinated to liabilities
and obligations of Madison River
Capital's subsidiaries of $480.9 million.
</TABLE>
6
<PAGE>
<TABLE>
<C> <S>
Optional Redemption.............. On or after March 1, 2005, we may redeem
some or all of the exchange notes at any
time at the redemption prices listed in the
"Description of the Exchange Notes" section
under the heading "Optional Redemption."
Before March 1, 2003, we may redeem up to
35% of the exchange notes with the proceeds
of certain public equity offerings by, or
strategic investments in, Madison River
Capital or its direct parent at the price
listed in the "Description of the Exchange
Notes" section under the heading "Optional
Redemption."
Mandatory Offer to Repurchase.... If we sell assets under certain
circumstances, or upon certain change of
control events, we must offer to repurchase
the exchange notes at the prices listed in
the "Description of the Exchange Notes"
section under the heading "Repurchase at
the Option of Holders."
Basic Covenants of Indenture..... The indenture, among other things,
restricts our ability and the ability of
our subsidiaries to:
. incur additional indebtedness;
. pay dividends on, redeem or repurchase
our member interests;
. make various investments;
. create certain liens or use assets as
security in other transactions;
. sell certain assets or utilize certain
asset sale proceeds;
. merge or consolidate with or into other
companies;
. dispose of all or substantially all of
our assets and the assets of our
subsidiaries; and
. enter into transactions with affiliates.
These covenants are subject to a number of
important limitations and exceptions. For
more details, see "Description of the
Exchange Notes" section under the heading
"Certain Covenants."
Absence of a Public Market for
the Exchange Notes.............. The exchange notes will be new securities
for which there will not initially be a
market. As a result, the development or
liquidity of any market for the exchange
notes may not occur. The initial purchasers
have advised us that they currently intend
to make a market in the exchange notes.
However, you should be aware that the
initial purchasers are not obligated to do
so. In the event such a market may develop,
the initial purchasers may discontinue it
at any time without notice. We do not
intend to apply for a listing of the
exchange notes on any securities exchange
or on any automated dealer quotation
system.
</TABLE>
7
<PAGE>
Risk Factors
You should carefully consider the information set forth under the caption
"Risk Factors" beginning on page 11 and all the other information in this
prospectus before deciding whether to participate in the exchange offer.
8
<PAGE>
Summary Financial and Operating Data
The following table presents summary historical and pro forma financial and
operating data about us. Prior to the formation of Madison River Capital, LLC
in September 1999, the operations were consolidated at the Madison River
Telephone Company, LLC level. Concurrent with the formation of Madison River
Capital as a subsidiary of Madison River Telephone Company, all operations were
consolidated at the Madison River Capital level. All historical operations
presented in these financial statements prior to the formation of Madison River
Capital include the combined financial statements of the operating
subsidiaries. The historical data for 1997 represents the operations of Madison
River and its predecessor, Mebcom Communications. Madison River was organized
on April 5, 1996 as a limited liability company for the primary purpose of
acquiring and operating local exchange telephone companies. From the date of
organization through 1997, Madison River had not engaged in any revenue
producing activities and was a development stage company. In January 1998,
Madison River acquired Mebcom Communications and its subsidiary, Mebtel, Inc.,
a local exchange company. Since Madison River had no telephone operations prior
to this acquisition, Mebcom is considered the predecessor to Madison River for
accounting purposes. In November 1998, Madison River acquired the operations of
Gallatin River.
The unaudited pro forma data give effect to the sale of the outstanding
notes, the acquisition of Gulf Coast Services in September 1999 and the
acquisition of Coastal Communications in March 2000, and related financings for
each acquisition, as if all of these transactions had been consummated on
January 1, 1999 with respect to the income statement data and on December 31,
1999 with respect to the balance sheet data. The pro forma data is derived from
the Unaudited Pro Forma Consolidated Financial Information of Madison River,
Gulf Coast Services and Coastal Communications, which is included elsewhere in
this prospectus. The unaudited pro forma data does not purport to be indicative
of the results that would have been obtained had such transactions been
completed as of the assumed dates and for the periods presented nor are they
necessarily indicative of results that may be obtained in the future. You
should read this information together with "Unaudited Pro Forma Consolidated
Financial Information," "Selected Financial and Operating Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Madison River Capital's, Mebcom's, Gulf Coast Services' and Coastal
Communications' consolidated financial statements and the notes relating to
those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
Historical Pro Forma
-------------------------------------------------- ------------
1997 1997 1998 1999
Mebcom Madison River Madison River Madison River 1999
(a) (b) (c) (d) Consolidated
------- ------------- ------------- ------------- ------------
(Unaudited)
(dollars in thousands, except for ratios and other operating
data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue $ 6,379 $ -- $ 16,864 $ 81,517 $166,852
Operating Expenses:
Cost of services and
selling, general and
administrative
expenses............ 4,259 949 12,157 54,517 121,360
Depreciation and
amortization........ 715 12 4,177 21,508 44,100
------- ------ -------- --------- --------
Total operating
expenses.............. 4,974 961 16,334 76,025 165,460
------- ------ -------- --------- --------
Operating income
(loss)................ 1,405 (961) 530 5,492 1,392
Interest expense....... (409) (31) (3,893) (22,443) (63,896)
Other income (e)....... 286 19 481 3,386 18,343
------- ------ -------- --------- --------
Income (loss) before
taxes................. 1,282 (973) (2,882) (13,565) (44,161)
Income tax (provision)
benefit............... (480) -- (52) (1,625) (2,336)
------- ------ -------- --------- --------
Income (loss) before
minority interest and
extraordinary item.... 802 (973) (2,934) (15,190) (46,497)
Minority interest...... -- -- -- -- (1,000)
------- ------ -------- --------- --------
Income (loss) before
extraordinary item.... 802 (973) (2,934) (15,190) (47,497)
Extraordinary item..... -- -- (173) -- --
------- ------ -------- --------- --------
Net income (loss)...... $ 802 $ (973) $ (3,107) $ (15,190) $(47,497)
======= ====== ======== ========= ========
Balance Sheet Data (at
period end):
Cash and cash
equivalents........... $ 2,668 $7,698 $ 6,354 $ 83,729 $107,021
Telephone, plant and
equipment, net........ 6,980 69 89,486 293,322 343,446
Total assets........... 13,073 8,021 285,763 785,290 993,876
Long-term debt,
including
current portions
(f)................... 5,522 -- 219,877 535,611 678,144
Total member's capital
(g)................... 4,364 6,885 54,070 165,994 170,175
Other Financial Data:
Capital expenditures... $ 1,385 $ 4 $ 6,056 $ 37,756 $ 81,430
EBITDA (h)............. 2,120 (949) 4,707 27,000 45,492
Adjusted pro forma
EBITDA (h)............ -- -- -- -- 60,820
Ratio of earnings to
fixed charges (i)..... 4.1 -- -- -- --
Other Operating Data:
Access lines........... 9,031 -- 91,311 150,000 189,920
Employees.............. 51 6 248 745 940
</TABLE>
9
<PAGE>
Note:
(a) Represents the historical consolidated financial information of Mebcom.
(b) Represents the historical consolidated financial information of Madison
River Capital.
(c) Represents the historical consolidated financial information of Madison
River Capital which includes the results of operations of Madison River
Capital and its subsidiaries, including Mebcom (acquired on January 1,
1998) and Gallatin River (acquired on November 1, 1998).
(d) Represents the historical consolidated financial information of Madison
River Capital, which includes the results of operations of Madison River
Capital and its subsidiaries, including Gulf Coast Services (acquired on
September 29, 1999.)
(e) Other income for the pro forma consolidated year ended December 31, 1999
consists primarily of interest income, proceeds from life insurance on a
deceased officer at Coastal Communications and gain on disposal of assets
of Gulf Coast Services, all of which are reflected in the historical
financial statements for the respective entity.
(f) Includes long-term debt, including current portions.
(g) Includes member's interest and accumulated deficit.
(h) EBITDA consists of operating income (loss) before depreciation and
amortization. Adjusted pro forma EBITDA is calculated by adding to pro
forma EBITDA (a) a non-recurring non-cash compensation expense associated
with Gulf Coast Services' employee stock ownership plan ("ESOP") (See "Note
3 to Gulf Coast Services, Inc. Consolidated Statements of Operations and
Cash Flows"), (b) non-cash compensation expense incurred in connection with
certain long-term incentive awards that were granted to certain employees
(See "Note 8 to Madison River Capital, LLC's Consolidated Financial
Statements"), (c) one-time costs incurred in connection with identifying
and remediating computer systems that were not Year 2000 compliant and
improving and developing our information technology infrastructure and (d)
one-time expenses associated with evaluating potential acquisitions of
assets being disposed of by Regional Bell Operating Companies that we
decided not to pursue.
EBITDA and Adjusted pro forma EBITDA are presented because we believe they
are frequently used by investors and other interested parties in the
evaluation of a company's ability to meet its future debt service, capital
expenditures and working capital requirements. However, other companies in
our industry may present EBITDA and Adjusted pro forma EBITDA differently
than we do. EBITDA and Adjusted pro forma EBITDA are not measurements of
financial performance under generally accepted accounting principles and
should not be considered as alternatives to cash flows from operating
activities or as measures of liquidity or alternatives to net earnings as
indicators of our operating performance or any other measures of performance
derived in accordance with generally accepted accounting principles. EBITDA
is not calculated in the same manner as in the indenture with respect to the
notes. See the Consolidated Statements of Cash Flows included in our
financial statements.
The following table summarizes the impact of these adjustments to EBITDA for
the year ended December 31, 1999 to calculate Adjusted pro forma EBITDA:
<TABLE>
<CAPTION>
Pro Forma Consolidated
Year Ended December 31,
1999
-----------------------
<S> <C>
EBITDA (as defined).................................. $45,492
Adjustments:
Gulf Coast Services' ESOP expense.................. 12,392
Management incentive plan expense.................. 2,576
Systems conversion/Y2K compliance expense.......... 194
One-time transaction expenses...................... 166
-------
Adjusted pro forma EBITDA............................ $60,820
=======
</TABLE>
(i) The ratio of earnings to fixed charges is computed by dividing income
before income taxes and fixed charges (other than capitalized interest) by
fixed charges. Fixed charges consist of interest charges, amortization of
debt expense and discount or premium related to indebtedness, whether
expensed or capitalized, and that portion of rental expense the Company
believes to be representative of interest. For the year ended December 31,
1997, 1998 and 1999 and the pro forma year ended December 31, 1999,
earnings of Madison River were insufficient to cover fixed charges by $973,
$2,882, $13,565 and $44,161, respectively.
10
<PAGE>
RISK FACTORS
You should carefully consider each of the following factors and all of the
other information set forth in this prospectus before deciding whether to
participate in the exchange offer. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently believe to be immaterial may also adversely
affect our business.
Risk Factors Relating to Madison River
We have a limited operating history upon which you can evaluate our
performance.
We began operations in January 1998. Accordingly, we have a limited
operating history upon which you can base an evaluation of our performance and
your investment in the notes, including the reliability of our network and
future financial results. Our viability, profitability and growth will depend
upon successful implementation of our business plan. We cannot assure you that
we will successfully implement our business plan. While we have a current base
of approximately 193,000 access lines (giving effect to the Coastal
Communications acquisition) and operate over 2,200 route-miles of fiber optic
cable, we are still in the early stages of our operations. The prospects for
our success must be considered in light of the risks often encountered in the
establishment of a new business in an industry subject to rapid technological
and price changes and filled with many competitors.
Our significant amount of indebtedness could limit our operational flexibility
or otherwise affect our financial health.
We now have a significant amount of indebtedness. As of December 31, 1999
and on an as adjusted basis to give effect to the issuance of the outstanding
notes, the application of the net proceeds from that offering and the
consummation of the Coastal Communications acquisition, we would have had:
. Total indebtedness of $678.1 million;
. Member's capital of $170.2 million;
. Debt to equity ratio of 4.0; and
. For the year ended December 31, 1999, our pro forma earnings would have
been insufficient to cover our fixed charges by $44.2 million.
The indenture governing the notes limits our ability to undertake certain
transactions. The covenants in the indenture restrict our ability to:
. incur additional indebtedness;
. pay dividends on, redeem or repurchase our member interests;
. make various investments;
. sell certain assets or utilize certain asset sale proceeds;
. create certain liens or use assets as security in other transactions;
. enter into certain transactions with affiliates; and
. merge or consolidate with or into other companies, or dispose of all or
substantially all of our assets and the assets of our subsidiaries.
11
<PAGE>
These covenants are subject to a number of important exceptions. In
addition, our existing credit facilities contain (and credit facilities that
we may enter into in the future may contain) other and more restrictive
covenants, including covenants limiting our ability to incur debt and make
capital expenditures and limiting our subsidiaries' ability to make
distributions or pay dividends to us. In addition, these covenants may require
us to meet or maintain specified financial ratios and tests. Our ability to
meet these financial ratios could be affected by events beyond our control,
and no assurance can be given that we will be able to comply with these
provisions. A breach of any of these covenants could result in a default under
these credit facilities and/or the indenture. See "Description of the Notes--
Certain Covenants."
Our substantial indebtedness could have important consequences for you. For
example, it could:
. make it more difficult for us to satisfy our obligations with respect to
the notes;
. limit our flexibility to adjust to changing market conditions, reduce our
ability to withstand competitive pressures and increase our vulnerability
to general adverse economic and industry conditions;
. limit our ability to borrow additional amounts for working capital,
capital expenditures, research and development costs, future business
opportunities and other general corporate requirements or hinder us from
obtaining such financing on terms favorable to us or at all;
. require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures, research and development efforts, future business
opportunities and other general corporate purposes;
. limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
. place us at a competitive disadvantage compared to our competitors that
have less debt; and
. make us vulnerable to increases in prevailing interest rates.
We may incur substantial additional indebtedness in the future. This could
further exacerbate the risks described above. The terms of our current
indebtedness do not fully prohibit us from incurring other indebtedness. Our
credit facilities currently permit additional borrowing of up to $39 million,
and all of those borrowings would be effectively senior to the notes.
We may not be able to increase our business and revenues.
Consumers may not purchase our services. Our success will depend on our
ability to expand our current customer base, penetrate our target markets and
otherwise implement our business plan. Expansion of our customer base depends
on marketplace acceptance of our communications services and the willingness
of prospective customers to switch to our services from their current
carriers, which may be limited by the fact that some of our competitors have
long-standing relationships with customers and resources that are far greater
than ours.
We need to increase the volume of traffic on our network. We must increase
the volume of voice, data and Internet transmission on our network at the
prices we anticipate in order to realize the anticipated cash flow, operating
efficiencies and cost benefits of our network. If we do not develop long term
commitments with new customers, or maintain our relationships with current
customers, we will be unable to increase traffic on our network which could
adversely affect our business and our ability to achieve sufficient cash flow
to service the notes.
Prices may decline. The prices that we can charge our customers for network
services, including wholesale fiber capacity and voice telecommunications
services, could decline due to the following factors, among others:
12
<PAGE>
. installation by us and our competitors, some of which are expanding
capacity on their existing networks or developing new networks, of fiber
and related equipment that provides substantially more transmission
capacity than needed;
. recent technological advances that permit substantial increases in, or
better usage of, the capacity of transmission media;
. reduced differentiation in product quality and service resulting in
increased price competition; and
. strategic alliances or similar transactions that decrease industry
participants' costs.
Our ability to compete effectively will also depend upon our continued
ability to maintain price competitiveness.
We may not be successful in efficiently managing the growth of our business.
Our business plan will, if successfully implemented, result in rapid expansion
of our operations, which may place a significant strain on our management,
financial and other resources. To achieve and sustain growth we must, among
other things, monitor operations, control costs, maintain regulatory
compliance, maintain effective quality controls and significantly expand our
internal management, technical, provisioning, information, billing, customer
service and accounting systems.
We cannot guarantee that we will successfully obtain, integrate and use the
employee, management, operational and financial resources necessary to manage a
developing and expanding business in an evolving, regulated and increasingly
competitive industry.
We may not be able to achieve desired operating efficiencies from our
information and billing systems. Sophisticated information and billing systems
are vital to our growth and ability to monitor and control costs, bill
customers, process customer orders, provision customer service and achieve
operating efficiencies. We currently rely on internal systems and third party
vendors, to provide our information and processing systems. Some of our
billing, customer service and management information systems have been
developed by third parties for us and may not perform as anticipated. Our plans
for developing and implementing our information and billing systems rely
primarily on the delivery of products and services by third party vendors. We
may not be able to develop new business, identify revenues and expenses,
service customers, collect revenues or develop and maintain an adequate work
force if any of the following occurs:
. vendors fail to deliver proposed products and services in a timely and
effective manner or at acceptable costs;
. we fail to identify adequately our information and processing needs;
. our related processing or information systems fail;
. we fail to upgrade systems when necessary; and
. we fail to integrate our systems with those of our major customers.
In addition, our right to use these systems is dependent upon license
agreements with third party vendors. Some of these agreements may be
cancellable by the vendor and the cancellation or nonrenewable nature of these
agreements could impair our ability to process orders or bill our customers.
Since we rely on third party vendors to provide some of these services, any
switch in vendors could potentially be costly and affect operating
efficiencies.
We are dependent on market acceptance of DSL-based services. We expect that
an increasing amount of our revenue will come from providing digital subscriber
line, or DSL-based services. The market for business, telecommuter and
residential Internet access is in the early stages of development. Because we
offer and expect to expand our offering of services to a new and evolving
market and because current and future competitors are likely to introduce
competing services, it is
13
<PAGE>
difficult for us to predict the rate at which this market will grow. Various
providers of high-speed digital communications services are testing products
from various suppliers for various applications, and it is unclear if digital
subscriber lines will offer the same or more attractive price-performance
characteristics. The markets for our services could fail to develop, grow more
slowly than anticipated or become saturated with competitors.
Development of our competitive local operations will negatively impact our cash
flow and financial results.
Our business plan includes expanding our operations to new markets where we
will operate as a competitive local exchange carrier offering local and long
distance voice, high-speed data, Internet access and transport services over
our fiber networks. The development of our CLEC business and the acquisition,
installation and expansion of our networks in new markets require significant
expenditures, and we must make a substantial portion of those expenditures
before we realize any revenue. We expect these necessary capital expenditures
to increase as we continue to implement our business plan and attempt to
provide competitive services in our target expansion markets. As a result of
these expenditures, together with the associated high initial service costs of
providing service in new markets, we expect to have negative cash flow and
operating losses from our expansion operations which will materially decrease
our EBITDA until we establish an adequate revenue base. We cannot be certain
that we will establish an adequate revenue base in each of our target markets
or in our target markets as a whole. Growth and profitability in our expansion
operations may also require interconnection and resale terms and pricing which
depend on federal and state regulatory decisions and court interpretations of
legislation, all of which are outside of our control.
We have risks relating to our network.
Rapidly changing communications technology and other factors may require us
to expand or adapt our network in the future. We expect that new products and
technologies will emerge as the telecommunications industry is subject to rapid
and significant changes in technology, and we cannot predict the effect of
these technological changes on our business. Further new technologies and
products may not be compatible with our existing technologies and systems.
These changes could require us to incur significant expenditures. New products
and technologies may (1) reduce the prices for our services or (2) be superior
to, and render obsolete, the products and technologies we use. If we do not
replace or upgrade our technology and equipment that becomes obsolete, we will
not be able to compete effectively because we will not be able to meet customer
expectations. We cannot assure you that technological changes in the
communications industry will not have a material adverse effect on our business
and our ability to achieve sufficient cash flow to service the notes. We may
not be able to obtain timely access to new technology on satisfactory terms, or
incorporate new technology into our systems in a cost effective manner, or at
all.
In addition to technological advances, other factors could require us to
further expand or adapt our network, including (1) an increasing number of
customers; (2) demand for greater data transmission capacity; and (3) changes
in our customers' service requirements. Expanding or adapting our network could
require substantial additional financial, operational and managerial resources,
any of which may not be available to us.
Furthermore, due to the limited development of our DSL-based services, the
ability of our network to connect and manage a substantial number of end users
at high digital transmission speeds is still unknown. While peak digital data
transmission speeds across our network between a central office and the end
user can exceed 1.1 megabits per second, the actual data transmission speed
over our network could be significantly slower due to:
. the type of DSL technology deployed;
14
<PAGE>
. the distance from end user to a central office;
. the condition and configuration of the telecommunications line utilized;
. the existence of and number of data transmission impediments on telephone
company copper lines;
. the gauge of copper lines; and
. the presence and severity of interfering transmissions on nearby lines.
For example, we are not certain whether we can successfully deploy higher DSL
speeds through digital loop carrier systems which, because they connect copper
lines to a fiber link, currently limit DSL service to as slow a speed as 128
kilobits per second.
Because we rely on incumbent local telephone companies to overcome technical
limitations associated with loop carrier systems in service areas outside our
own, we cannot assure you that we will be able to successfully deploy high-
speed DSL service to all areas in our markets. As a result, our network may not
be able to achieve and maintain the highest possible digital transmission
speed. Our failure to achieve or maintain high-speed digital transmissions
would have a material adverse effect on our business.
Network disruptions could adversely affect our operating results. The
success of our operations will require that our network provide competitive
reliability, capacity and security. Some of the risks to our network and
infrastructure include:
. physical damage;
. power loss from, among other things, adverse weather conditions;
. capacity limitations;
. software defects;
. breaches of security, including sabotage, tampering, computer viruses,
break-ins; and
. other disruptions that are beyond our control.
Disruptions or system failures may cause interruptions in service or reduced
capacity for customers. If service is not restored in a timely manner,
agreements with our customers may obligate us to provide credits or other
remedies to them, and this would reduce our revenues. Service disruptions could
also damage our reputation with customers causing us to lose existing customers
or have difficulty attracting new ones. Many of our customers' communications
needs are extremely time sensitive, and delays in signal delivery may cause
significant losses to a customer using our network.
We may not complete our network efficiently and on time. Our continued
ability to provide communications services and our ability to increase revenues
and make a profit will depend in part upon the successful, timely and cost
effective completion and enhancement of our network into our target markets
where we plan to compete as a competitive local service provider.
We need to obtain and maintain the necessary rights-of-way for our network.
As of March 31, 2000, we have acquired all necessary nonexclusive right-of-way
agreements covering ILEC and CLEC operations in existence. However, we may need
to obtain supplemental rights-of-way and other permits from railroads,
utilities, state highway authorities, local governments and transit authorities
to install conduit and related telecom equipment for the expansion of our
network into our target markets, where we plan to compete as a competitive
local service provider. We may not be successful in obtaining and maintaining
these right-of-way agreements or obtaining these agreements on acceptable terms
whether in new markets or in our existing markets. Some of these agreements may
be short-term or revocable at will, and we cannot assure you that we will
continue to have access to existing rights-of-way after they have expired or
terminated. Although we believe that alternative supplemental rights-of-way
will be available, if any of these agreements were terminated or could not be
renewed, we may be forced to remove our fiber optic cable from under the
streets or abandon our networks.
15
<PAGE>
Our utility right-of-way agreements are subject to certain conditions and
limitations on access and use and are subject to termination upon customary
default provisions. In some cases, these agreements require our fiber network
to be moved or removed in the event that the utility needs its right-of-way for
public utility purposes or no longer owns its right-of-way. We may not be able
to maintain all of our existing rights and permits or obtain and maintain the
additional rights and permits needed to implement our business plan. In
addition, our failure to maintain the necessary rights-of-way, franchises,
easements, licenses and permits may result in an event of default under certain
of our credit facilities.
Our ability to protect our proprietary technology is limited and
infringement claims against us could impact our ability to conduct our
business. We currently rely on a combination of copyright, trademark and trade
secret laws and contractual confidentiality provisions to protect the
proprietary information that we have developed. Our ability to protect our
proprietary technology is limited, and we cannot assure you that our means of
protecting our proprietary rights will be adequate or that our competitors will
not independently develop similar technology. Also, we cannot be certain that
the intellectual property that local telephone companies or others claim to
hold and that may be necessary for us to provide our services will be available
on commercially reasonable terms. If we were found to be infringing upon the
intellectual property rights of others, we might be required to enter into
royalty or licensing agreements, which may be costly or not available on
commercially reasonable terms. If successful, a claim of infringement against
us and our inability to license the infringed or similar technology on terms
acceptable to us could adversely affect our business.
Expanding our services entails a number of risks.
Currently, we operate our business and provide our services almost
exclusively as a local telephone company. We are expanding our business by
providing new services to existing customers and by entering into new markets
to serve new customers as a competitive local and integrated communications
service provider. As we expand into new telecommunications businesses and enter
into new markets, we will face certain additional risks, including increased
legal and regulatory risks. The telecommunications businesses in which we
compete and our target markets are highly competitive and, as a new entrant, we
may be disadvantaged. The success of our entry into new telecommunications
businesses and markets will be dependent upon, among other things, our ability
to:
. integrate new equipment and software into our networks;
. design and/or obtain fiber optic network routes;
. obtain regulatory approval;
. develop strategic alliances or relationships;
. hire and train qualified personnel; and
. enhance our billing, back-office and information systems.
We may not be successful in expanding our services or entering new markets.
In addition, demand and market acceptance for any new products and services we
introduce, whether in existing or new markets, are subject to a high level of
uncertainty. Our inability to expand our services or to enter new markets
effectively could have a material adverse effect on our business.
We may need to raise more capital to expand our business.
In order to expand our fiber optic network and enter our target markets, we
may need to raise more capital. Additional capital could be needed for: (1)
network engineering and design, the
16
<PAGE>
installation of conduit and fiber, and the acquisition and installation of
switches and other network hardware and software, in connection with expanding
our network; (2) acquisition of additional rights-of-way; (3) expansion of
sales and marketing, and the development of billing and information systems;
and (4) hiring and training employees to service a larger customer base.
Based on our business plan, we believe that the net proceeds from the sale
of the outstanding notes, existing equity commitments, available borrowings
under our credit facility, cash and investments on hand and our cash flow from
operations will be adequate to meet our foreseeable liquidity needs for the
next two years. However, there is no guarantee that we will not need additional
capital earlier. While possible sources of additional capital include
commercial bank borrowings, vendor financing or the sale or issuance of equity
and debt securities to one or more strategic investors, our ability to arrange
additional capital and the cost of any financing will depend upon many factors,
some of which are beyond our control. We may be unable to raise additional
capital, and such failure to do so could have a material adverse effect on our
business.
We depend on key personnel.
Our business is dependent upon a small number of key executive officers. We
have entered into employment, confidentiality and noncompetition agreements
with Messrs. J. Stephen Vanderwoude, James D. Ogg, Paul H. Sunu, Donald K.
Roberton and Bruce J. Becker providing for employment of each executive for a
five year period, subject to termination by either party (with or without
cause) on 30 days' prior written notice, and an agreement not to compete with
us for a maximum period of up to fifteen months, following termination for
cause or voluntary termination of employment. We have not entered into
employment agreements with any other key executives.
We cannot guarantee that we will be able to attract or retain other skilled
management personnel in the future. The loss of the services of key personnel,
or the inability to attract additional qualified personnel, could have a
material adverse effect on our business and results of operation.
We face risks associated with our strategy of growth through acquisitions.
Our current business plan contemplates growth from future acquisitions. Any
future acquisitions will depend on our ability to identify suitable acquisition
candidates, to negotiate acceptable terms for their acquisition and to finance
those acquisitions. We will also face competition for suitable acquisition
candidates which may increase our costs and limit the number of suitable
acquisition candidates. In addition, future acquisitions by us could result in
the incurrence of debt or contingent liabilities, which could have a material
adverse effect on our business, and our ability to achieve sufficient cash flow
to service the notes. Any future acquisitions could also expose us to increased
risks, including, among others:
. the difficulty of assimilating the acquired operations and personnel;
. the potential disruption of our ongoing business and diversion of
resources and management time;
. the inability to generate revenues from acquired businesses sufficient to
offset acquisition costs;
. the inability of management to maintain uniform standards, controls,
procedures and policies;
. the risks of entering markets in which we have little or no direct prior
experience;
. the impairment of relationships with employees or customers as a result
of changes in management; and
. the impairment of supplier relationships.
As a result, we cannot be sure that any acquisitions will occur or that any
acquisitions, if made, would be successfully integrated into our operations.
17
<PAGE>
To date, we have grown through the acquisition of local telephone companies
and other operating assets. Our future operations depend largely upon our
ability to manage our growing business successfully. Our management team will
have to manage a more complex and larger number of operations than we have
previously operated. There can be no assurance that we will be successful in
integrating the various acquisitions. In addition, we may discover information
in the course of the integration of these acquisitions which may have an
adverse effect on our business and results of operations.
Year 2000 issue.
An issue exists for all companies that rely on computers after January 1,
2000. The "year 2000" problem is the result of the past practice in the
computer industry of computer programs using two digits rather than four to
define the applicable year. This practice will result in incorrect results when
computers perform arithmetic operations, comparisons or data field sorting
involving years later than 1999. Any of our computer programs that have date-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
During 1999, we planned, inventoried and evaluated systems, remediated,
replaced where and when necessary and tested such remediation and replacements.
We used internal information systems technology, personnel and other personnel.
As a result, we experienced no year 2000 related issues on January 1, 2000. We
recognize that there may be residual effects related to year 2000 issues. Our
assessment of our year 2000 readiness will be ongoing as we continue to develop
our operating systems and rely on third party systems or additional third party
systems. We do not have any way to assess the costs related to remediation of
any residual year 2000 effect. We intend to use internal resources for such
remediation where possible. We may in the future identify a significant
internal or external year 2000 related residual issue which, if not remedied in
a timely manner, could have a material adverse effect on our business,
financial condition and results of operations.
Risk Factors Relating to the Telecommunications Industry
We face significant competition in our current and target markets.
We currently operate primarily as an incumbent local telephone company in an
industry that is highly competitive. However, due to the rural, low-density
characteristics of our existing operating areas, the high cost of entry into
these markets and the lack of concentration of medium and large business users,
we believe that compared to most other local exchange carriers, we have
historically faced relatively less competition in our existing markets. As
characteristics of our markets change, the likelihood of local competitors
entering our markets may increase.
Significant and potentially larger competitors could enter our markets at
almost any time. We may face competition from future market entrants, including
competitive local service providers, cable television companies, electric
utilities, microwave carriers, wireless telecommunications providers, Internet
service providers and private networks built by large end users and
municipalities. Increased competition could lead to price reductions, fewer
large-volume sales, reduced operating margins and loss of market share.
In addition, in each of the cities where we anticipate providing competitive
local services, the services we offer will compete principally with the
services offered by the incumbent local provider serving that area. These local
telephone companies have long-standing relationships with their customers and
have the potential to subsidize competitive services from monopoly service
revenues. The Federal Communications Commission's, or the "FCC's,"
interconnection decisions and the Telecommunications Act of 1996 (the "Telecom
Act") provide local telephone companies with
18
<PAGE>
increased pricing flexibility for their services and other regulatory relief,
which could adversely effect our competitive local operations. The local
telephone companies with which we compete may be allowed by regulators to lower
rates for their services, engage in substantial volume and term discount
pricing practices for their customers, or seek to charge us substantial fees
for interconnection to their networks.
Our success in our target service area depends upon our ability to increase
our share of the carrier services market by providing high quality services at
competitive prices. Many potential competitors have, and some potential
competitors are likely to enjoy, substantial competitive advantages, including
the following:
. greater name recognition;
. greater financial, technical, marketing and other resources;
. more extensive knowledge of the telecommunications business and industry;
and
. well established relationships with a larger installed base of current
and potential customers.
Local telephone companies can also adversely affect the pace at which we add
new customers to our competitive local business by prolonging the process of
providing unbundled network elements, collocations, intercompany trunks and
operations support system interfaces, which allow the electronic transfer
between local telephone companies and competitive carriers of needed
information about customer accounts, service orders and repairs. Although the
Telecom Act requires local telephone companies to provide the unbundled network
elements, interconnections and operations support system interfaces needed to
allow the customers of competitive carriers and other new entrants to the local
exchange market to obtain service comparable to that provided by the local
telephone companies to their own customers in terms of installation time,
repair response time, billing and other administrative functions, in many cases
the local telephone companies have not complied with the mandates of the
Telecom Act to the satisfaction of many competitors. In addition, the
interconnection regulations may be affected by the outcome of pending court
decisions and FCC rulemaking.
We face particular risks relating to our long distance business.
As part of our offering of bundled telecommunications services to our
customers, we offer long distance services. The long distance business is
extremely competitive and prices have declined substantially in recent years
and we expect prices to continue to decline. In addition, the long distance
industry has historically had a high average churn rate, as customers
frequently change long distance providers in response to the offering of lower
rates or promotional incentives by competitors. We rely on other carriers to
provide transmission and termination services for all of our long distance
traffic. We must enter into resale agreements with long distance carriers to
provide us with transmission services. These agreements typically provide for
the resale of long distance services on a per-minute basis and may contain
minimum volume commitments. Negotiation of these agreements involves estimates
of future supply and demand for transmission capacity as well as estimates of
the calling patterns and traffic levels of our future customers. In the event
we fail to meet our minimum volume commitments, we may be obligated to pay
underutilization charges and in the event we underestimate our need for
transmission capacity, we may be required to obtain capacity through more
expensive means. The incurrence of any underutilization charges, rate increases
or termination charges could have a material adverse effect on our business and
our ability to achieve sufficient cash flow to service the notes.
We may not be able to compete effectively with the RBOCs in the provision of
long distance services.
Federal law currently prohibits RBOCs from providing certain types of long
distance telephone service in most states. However, this restriction may be
removed by the FCC if an RBOC meets
19
<PAGE>
certain specified conditions for a particular state and the FCC determines that
removal of the restriction is in the public interest. On December 22, 1999,
Bell Atlantic received approval from the FCC to provide long distance services
in New York State. On April 5, 2000, SBC filed a petition to provide long
distance services in Texas. If RBOCs obtain permission to provide these
services in more states, or if they are able to enter into teaming agreements
with others to circumvent these restrictions, our business could be adversely
affected. It would remove the major incentive RBOCs have to cooperate with
companies like ours to foster competition within their service areas, and it
would permit the RBOCs to offer both long distance and local exchange services,
a competitive advantage which companies like ours currently are able to offer
in those regions.
We are subject to extensive government regulation.
We are subject to varying degrees of federal, state and local regulation.
Changes in these regulations could materially increase our compliance costs or
prevent us from implementing our business plan. Regulation of the
telecommunications industry is changing rapidly, which affects our
opportunities, competition and other aspects of our business. The regulatory
environment varies substantially from state to state. In the states in which we
provide service, we are generally required to obtain and maintain certificates
of authority from regulatory bodies and file tariffs where we offer intrastate
services.
While our competitive local telephone and long distance businesses are
subject to government regulation, our incumbent local telephone businesses, in
particular, are highly regulated at both the federal and state levels. In
general, our incumbent local telephone businesses operate under regulations
limiting their rates of return on interstate and intrastate services. For
interstate services, the FCC periodically reviews the reasonableness of the
allowed rate-of-return these businesses may charge and may reduce such allowed
rate-of-return. In addition, the FCC is in the process of reforming the rules
that govern how these businesses charge long distance companies for completion
of interstate calls. If reforms already adopted with respect to larger
incumbent local telephone companies are applied to our incumbent local
telephone businesses, they could reduce the interstate costs recovered from
interstate access charges.
As a condition to its approval of Gallatin River Communications' acquisition
of Sprint Corporation's Illinois incumbent local telephone exchanges, the
Illinois Commerce Commission required Gallatin River Communications to file, in
an undocumented, informal proceeding, an informational earnings report covering
its first full calendar year of operations by April 2000. Gallatin River
Communications filed the required report on April 1, 2000. The information
supplied could be used by the Illinois Commerce Commission's staff to initiate
a proceeding to lower our intrastate rates, which may adversely affect our
business and results of operations.
The Telecom Act requires incumbent local telephone companies to enter into
agreements to interconnect with, sell unbundled network elements to, and sell
services for resale to, competitive telephone companies. Our ability to compete
in the local exchange market as a competitive local telephone company may be
adversely affected by the incumbent's pricing of such offerings and related
terms, such as the availability of operation support systems and local number
portability, and would be adversely affected if such requirements of the
Telecom Act were repealed. Depending on the implementation of the Telecom Act,
our incumbent local telephone businesses may be forced to interconnect with,
and sell such services and elements to, competitors at prices that do not fully
recover our costs of providing such services.
With the passage of the Telecom Act, the regulation of our services has been
subject to numerous administrative proceedings at the federal and state level,
litigation in federal and state courts, and legislation in federal and state
legislatures. We cannot predict the outcome of the various proceedings,
litigation and legislation or whether and to what extent they may adversely
affect our business or operations.
20
<PAGE>
Many other aspects of our services and operations are subject to federal and
state regulation, including the introduction and pricing of new services,
contributions to universal service funds and our use of radio frequencies. We
currently receive revenues as a result of state and federal universal service
fund contributions and make payments to such funds. If these programs are
modified or discontinued, we may be adversely affected.
Risk Factors Relating to the Notes
Our ability to service our indebtedness will depend on our ability to generate
cash.
Our ability to make payments on and to refinance our indebtedness, including
the notes, and to fund planned capital expenditures, will depend on our ability
to generate cash in the future, our success in our financial and operating
performance, on our ability to successfully implement our business plan and our
ability to access the cash flow of our subsidiaries. This, to a certain extent,
is subject to general economic, financial, competitive, legislative, regulatory
and other factors that are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations, that currently anticipated cost savings and operating
improvements will be realized on schedule or that future borrowings will be
available to us under our credit facilities in an amount sufficient to enable
us to pay our indebtedness, including the notes, or to fund our other liquidity
needs. We may need to refinance all or a portion of our indebtedness, including
the notes on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including our credit facilities and the
notes, on commercially reasonable terms or at all. In addition, we may be
forced to reduce or delay planned product improvement initiatives and capital
expenditures, sell assets, or obtain additional equity capital.
We may be unable to access the cash flow of our subsidiaries since certain
of our subsidiaries are parties to credit or other borrowing agreements that
restrict the payment of dividends, and such subsidiaries are likely to continue
to be subject to such restrictions and prohibitions for the foreseeable future.
In addition, future agreements governing the terms of our subsidiaries'
indebtedness may restrict our subsidiaries' ability to pay dividends to us. See
"Description of Other Indebtedness" and footnote 4 to the Consolidated
Financial Statements of Madison River Capital, LLC. As a result, we may be
unable to receive cash through dividends, distributions or other payments from
our subsidiaries sufficient to pay principal of and interest on the notes.
Madison River Capital is a holding company, and the notes will be structurally
subordinate to the indebtedness of the issuers' subsidiaries.
Madison River Capital is a holding company with no direct operations, and
its principal assets consist of the equity interests of its operating
subsidiaries. We are dependent upon dividends and other payments from our
subsidiaries to generate the funds necessary to meet our obligations, including
the payment of principal of and interest on the notes. Our subsidiaries,
however, are legally distinct from us, and our subsidiaries will have no
obligation, contingent or otherwise, to pay amounts due pursuant to the notes
or to make funds available to us for such payment. Because our subsidiaries do
not guarantee the notes, any right of the issuers to receive assets of any
subsidiary upon the subsidiary's liquidation or reorganization (and consequent
right of the holders of the notes to participate in the distribution or realize
proceeds from those assets) will be effectively subordinated to the claims of
the creditors of any such subsidiary in liquidation or reorganization. The
ability of our subsidiaries to make payments to us will be subject to, among
other things, the availability of funds, the terms of those subsidiaries'
indebtedness (which limits their ability to pay dividends or make
distributions) and applicable state laws. Claims of our subsidiaries'
creditors, including trade creditors,
21
<PAGE>
will generally have priority as to the assets of the subsidiaries over the
claims of the holders of Madison River Capital's indebtedness, including the
notes. Accordingly, the notes will be effectively subordinated to the
liabilities (including the credit facilities, trade payables and other
indebtedness) of our subsidiaries.
The holders of a majority of the notes have the right to waive defaults under
and to modify the indenture.
Subject to certain limitations specified in the indenture, the holders of a
majority in principal amount of the notes then outstanding have the right to:
. waive certain existing defaults or events of default;
. waive compliance with certain provisions of the indenture or the notes;
. modify or supplement the indenture; and
. direct the time, method and place of conducting any proceeding for any
remedy available to the trustee under the indenture.
These provisions of the indenture could allow actions affecting the notes to
be taken without the approval of all of the holders of the notes and thus may
have an adverse effect on the holders of the notes who do not approve of such
actions.
We may not be able to obtain financing necessary to complete a change of
control offer under the indenture.
Upon the occurrence of certain specific kinds of change of control events,
we will be required to offer to repurchase all notes then outstanding. For
example, under the terms of Madison River Telephone Company's Operating
Agreement, at any time on or after January 2, 2006, certain members may require
Madison River Telephone Company to purchase all of their redeemable member
units at an amount equal to the fair market value of such units. Such an event
could result in a "Change of Control" under the indenture. However, it is
possible that we will not have sufficient funds at the time of the change of
control to make the required repurchase of notes or that restrictions in our
credit facilities will not allow such repurchases. In particular, a change of
control may cause an acceleration of the indebtedness outstanding under our
credit facilities, in which case such indebtedness would be required to be
repaid in full before redemption or repurchase of the notes. Certain important
corporate events, however, such as a leveraged recapitalization, which would
increase the level of our indebtedness, would not constitute a "Change of
Control" under our credit facilities. See "Description of the Notes--Repurchase
at the Option of Holders."
Risk Factors Related to the Exchange Offer
Your failure to exchange your outstanding notes may limit your ability to
transfer your notes.
We did not register the outstanding notes under the Securities Act or any
state securities laws, and we do not intend to do so after the exchange offer.
As a result, outstanding notes may be transferred only in limited circumstances
under the securities laws. If you do not exchange your outstanding notes in the
exchange offer by following the procedures described in this prospectus, you
will lose your right to have the outstanding notes registered under the
Securities Act, with some exceptions. If you continue to hold outstanding notes
after the exchange offer, you may be unable to sell them. Outstanding notes
that are not tendered or are tendered but not accepted will, following the
exchange offer, continue to be subject to the existing transfer restrictions.
You may find it difficult to sell your exchange notes.
While the outstanding notes are presently eligible for trading in the PORTAL
market of the NASD by qualified institutional buyers, there is no existing
market for the exchange notes, and we do not
22
<PAGE>
intend to apply for listing of the exchange notes on any securities exchange or
on any automated dealer quotation system. Although the initial purchasers have
informed us that they intend to make a market in the exchange notes, they are
not obligated to do so and may discontinue any such market at any time without
notice. In addition, such market making activity may be limited during the
exchange offer or during an offering under a shelf registration statement
should we decide to file one. As a result, we can make no assurances to you as
to the development or liquidity of any market for the exchange notes, your
ability to sell the exchange notes or the price at which you may be able to
sell the exchange notes. Future trading prices of the exchange notes will
depend on many factors, including, among other things, prevailing interest
rates, our operating results and the market for similar securities.
Historically, the market for securities similar to the exchange notes,
including non-investment grade debt, has been subject to disruptions that have
caused substantial volatility in the prices of such securities. We cannot
assure you that, if a market develops, it will not be subject to similar
disruptions.
Goldman Sachs may be deemed to be an affiliate of ours and, as such, may be
required to deliver a market-maker prospectus in connection with its market-
making activities in the exchange notes. Pursuant to a registration rights
agreement, we have agreed to file a registration statement that would allow
Goldman Sachs to engage in market-making transactions in the exchange notes. We
have agreed to keep the market-making registration statement effective for as
long as Goldman Sachs may be required to deliver a prospectus in connection
with its secondary transactions in the exchange notes. We have agreed to pay
substantially all the costs and expenses related to the registration statement.
There can be no assurance that the interests of Goldman Sachs will not conflict
with the interests of the holders of the notes.
You may be subject to backup withholding on your exchange notes.
Backup withholding at a 31% rate will generally apply to payments with
respect to the exchange notes to non-U.S. holders if the non-U.S. holder fails
to furnish required information certification to us or our paying agent and
fails to otherwise establish an exemption. Any amounts withheld will be allowed
as a refund or a credit against your federal income tax liability, if any, if
you follow the procedures of the IRS for obtaining refunds or credits. You
should read the section entitled "Important United States Federal Income Tax
Considerations" under the heading "Information Reporting and Backup
Withholding" for information on how you can avoid backup withholding
requirements.
USE OF PROCEEDS
We will receive no cash proceeds from the exchange of notes pursuant to the
exchange offer. The exchange offer is intended to satisfy our obligations under
the registration rights agreement.
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<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization on an actual
basis as of December 31, 1999, and as adjusted to give effect to:
. the exchange offer;
. the issuance of, and the application of the proceeds from, the sale of
the outstanding notes;
. $534.7 million of 15 year senior secured credit facilities with the RTFC,
as of December 31, 1999, which included (i) $14.3 million at a fixed rate
of 6.8%, (ii) $7.3 million converted in April 2000 to a fixed rate of
8.55%, (iii) $73.7 million converted in April 2000 to a fixed rate of
8.8%, (iv) $123.2 million at a fixed rate of 7.0%, (v) $177.8 million at
the base rate of RTFC's stated variable rate plus 200 basis points and
(vi) $138.4 million at a fixed rate of 8.4%;
. $0.9 million in other long-term debt;
. the repayment of $177.8 million of indebtedness to RTFC with the proceeds
of the outstanding notes offering and the cash redemption of $17.8
million of subordinated certificates;
. the incurrence of $118.7 million of indebtedness from the RTFC in
connection with the acquisition of Coastal Communications;
. the assumption of $2.0 million of long-term debt and the incurrence of a
$2.4 million mortgage on a building purchase in connection with the
acquisition of Coastal Communications;
. the increase in minority interest related to the acquisition of Coastal
Communications; and
. the additional purchase of member's interests of $4.2 million by
management.
You should read this table in conjunction with "Unaudited Pro Forma
Consolidated Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Description of Other
Indebtedness" and our consolidated financial statements, including the related
notes thereto, and other financial data appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................... $ 83,729 $107,021(1)
======== ========
Credit facilities ...................................... 535,611 480,882
Outstanding notes....................................... -- 197,262
-------- --------
Total long-term debt (2).............................. 535,611 678,144
Minority interest..................................... -- 45,000
Member's capital
Member's interest..................................... 185,700 189,881
Accumulated deficit................................... (19,706) (19,706)
-------- --------
Total member's capital.............................. 165,994 170,175
-------- --------
Total capitalization................................ $701,605 $893,319
======== ========
</TABLE>
- --------
(1) Does not reflect a cash reduction of up to $35.0 million that may be
required to redeem a portion of the minority interests in Coastal
Communications beginning as early as April 2002. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation-
Liquidity and Capital Resources."
(2) Excludes any potential borrowings under any undrawn term loans and
revolving credit facilities totalling $39.0 million.
24
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
The following tables contain selected financial and operating data of
Madison River as of and for each of the three years in the period ended
December 31, 1999 and for the period from April 5, 1996 (inception) to December
31, 1996, and for its predecessor, Mebcom, as of and for each of the three
years in the period ending December 31, 1997. Prior to the formation of Madison
River Capital, LLC in September 1999, the operations of the operating
subsidiaries were consolidated at the Madison River Telephone Company, LLC
level. Concurrent with the formation of Madison River Capital as a subsidiary
of Madison River Telephone Company, all operations were consolidated at the
Madison River Capital level. These amounts were derived from audited
consolidated financial statements of these companies. The following information
should be read in conjunction with, and is qualified in its entirety by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the notes
thereto and the other financial and operating data included elsewhere in this
prospectus.
25
<PAGE>
MADISON RIVER CAPITAL, LLC
Selected Financial and Operating Data
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1996 1997
------------------- -------------------
1998 1999
1995 Madison Madison Madison Madison
Mebcom (a) Mebcom(a) River (b) Mebcom(a) River (b) River (c) River (d)
---------- --------- --------- --------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue................ $ 5,003 $ 5,435 $ -- $ 6,379 $ -- $ 16,864 $ 81,517
Operating Expenses:
Cost of services and
selling, general and
administrative
expenses............. 3,642 3,756 429 4,259 949 12,157 54,517
Depreciation and
amortization......... 571 765 2 715 12 4,177 21,508
------- ------- ------ ------- ------ -------- --------
Total operating
expenses............... 4,213 4,521 431 4,974 961 16,334 76,025
------- ------- ------ ------- ------ -------- --------
Operating income
(loss)................. 790 914 (431) 1,405 (961) 530 5,492
Interest expense....... (442) (428) (16) (409) (31) (3,893) (22,443)
Other income........... 498 388 11 286 19 481 3,386
------- ------- ------ ------- ------ -------- --------
Income (loss) before
taxes.................. 846 874 (436) 1,282 (973) (2,882) (13,565)
Income tax (provision)
benefit................ (185) (226) -- (480) -- (52) (1,625)
------- ------- ------ ------- ------ -------- --------
Income (loss) before
extraordinary item..... 661 648 (436) 802 (973) (2,934) (15,190)
Extraordinary item..... -- -- -- -- -- (173) --
------- ------- ------ ------- ------ -------- --------
Net income (loss)...... $ 661 $ 648 $ (436) $ 802 $ (973) $ (3,107) $(15,190)
======= ======= ====== ======= ====== ======== ========
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 947 $ 1,974 $ 532 $ 2,668 $7,698 $ 6,354 $ 83,729
Telephone plant and
equipment, net......... 6,264 6,390 77 6,980 69 89,486 293,322
Total assets........... 11,660 12,437 615 13,073 8,021 285,763 785,290
Long-term debt,
including current
portions (e)........... 5,996 5,747 -- 5,522 -- 219,877 535,611
Total member's
capital................ 2,913 3,562 160 4,364 6,885 54,070 165,994
Other Financial Data:
Capital expenditures... $ 713 $ 951 $ 79 $ 1,385 $ 4 $ 6,056 $ 37,756
EBITDA (f)............. 1,361 1,679 (429) 2,120 (949) 4,707 27,000
Ratio of earnings to
fixed charges (g)...... 2.9 3.0 -- 4.1 -- -- --
</TABLE>
Note:
(a) Represents the historical consolidated financial information of Mebcom.
(b) Represents the historical consolidated financial information of Madison
River Capital.
(c) Represents the historical consolidated financial information of Madison
River Capital which includes the results of operations of Madison River
Capital and its subsidiaries, including Mebcom (acquired on January 1,
1998) and Gallatin River (acquired on November 1, 1998).
(d) Represents the historical consolidated financial information of Madison
River Capital, which includes the results of operations of Madison River
Capital and its subsidiaries, including Gulf Coast Services (acquired on
September 29, 1999).
(e) Includes long-term debt including current portions.
(f) EBITDA consists of operating income (loss) before depreciation and
amortization. EBITDA is presented because we believe it is frequently used
by investors and other interested parties in the evaluation of a company's
ability to meet its future debt service, capital expenditures and working
capital requirements. However, other companies in our industry may present
EBITDA differently than we do. EBITDA is not a measurement of financial
performance under generally accepted accounting principles and should not
be considered as an alternative to cash flows from operating activities or
as a measure of liquidity or as an alternative to net earnings as an
indicator of our operating performance or any other measure of performance
derived in accordance with generally accepted accounting principles. See
the Consolidated Statements of Cash Flows included in our financial
statements.
(g) The ratio of earnings to fixed charges is computed by dividing income
before income taxes and fixed charges (other than capitalized interest) by
fixed charges. Fixed charges consist of interest charges, amortization of
debt expense and discount or premium related to indebtedness, whether
expensed or capitalized, and that portion of rental expense the Company
believes to be representative of interest. For the years ended December
31, 1996, 1997, 1998 and 1999, earnings of Madison River were insufficient
to cover fixed charges by $436, $973, $2,882 and $13,565, respectively.
26
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The accompanying unaudited pro forma consolidated balance sheet of Madison
River at December 31, 1999, and the related unaudited pro forma consolidated
statement of operations for the year ended December 31, 1999 give effect on a
pro forma basis to the following transactions (collectively, the
"Transactions"):
. the acquisition of Gulf Coast Services in September 1999;
. the acquisition of Coastal Communications in March 2000; and
. the issuance of the outstanding notes, and the related increase in
interest expense.
The unaudited pro forma consolidated statement of operations has been
prepared to reflect the Transactions as if they were consummated on January 1,
1999, and the unaudited pro forma consolidated balance sheet reflects the
transactions occurring after December 31, 1999 as if they occurred on that
date. The pro forma adjustments are based on the historical financial
statements of Madison River and the acquired businesses recorded using the
purchase method of accounting, which allocates the aggregate purchase price to
the assets acquired and liabilities assumed based upon their respective fair
values. The excess of the purchase price over the fair value of assets
acquired, net of liabilities assumed, has been recorded as goodwill. We believe
that the allocations set forth herein are reasonable; however, they are subject
to revision as additional information becomes available. Our detailed
assumptions and estimates are described in the accompanying supplemental notes.
The pro forma information is not intended to be indicative of the actual
results or financial position that would have been achieved had the
acquisitions in fact been consummated on January 1, 1999 or at December 31,
1999, nor does it purport to be indicative of our future consolidated operating
results. Such pro forma financial information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Description of Other Indebtedness," the consolidated financial
statements and notes thereto of Madison River, Gulf Coast Services and Coastal
Communications, and other financial data appearing elsewhere in this
prospectus.
27
<PAGE>
MADISON RIVER CAPITAL, LLC
Unaudited Pro Forma Consolidated Balance Sheet
As of December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Coastal Outstanding
Historical Historical Acquisition Notes Pro
Consolidated Coastal Adjustments Adjustments Forma
(a) (b) (c) (d) Totals
------------- ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 83,729 $13,012 $(24,048)(e) $34,328 (q) $107,021
Accounts receivable,
net of allowance for
uncollectible
accounts.............. 11,673 1,229 -- -- 12,902
Accounts receivable,
primarily from
interexchange
carriers.............. 6,592 2,711 -- -- 9,303
Income tax
recoverable........... 54 591 -- -- 645
Inventories............ 1,343 672 -- -- 2,015
Deferred income
taxes................. 48 -- 986 (f) -- 1,034
Other current assets... 1,436 217 -- -- 1,653
-------- ------- -------- ------- --------
Total current
assets.............. 104,875 18,432 (23,062) 34,328 134,573
Telephone, plant &
equipment, net......... 293,322 46,924 3,200 (g) -- 343,446
Other assets:
Investments............ 51,539 18,925 21,543 (h) (17,778)(r) 74,229
Goodwill, net of
accumulated
amortization.......... 326,560 -- 97,923 (i) -- 424,483
Deferred income
taxes................. 5,131 1,650 (1,650)(j) 5,131
Other noncurrent
assets................ 3,863 3,198 (2,162)(k) 7,115 (s) 12,014
-------- ------- -------- ------- --------
Total other assets... 387,093 23,773 115,654 (10,663) 515,857
-------- ------- -------- ------- --------
Total assets......... $785,290 $89,129 $ 95,792 $23,665 $993,876
======== ======= ======== ======= ========
Liabilities and member's
capital
Current liabilities:
Accounts payable....... $ 4,160 $ 1,809 $ -- $ -- $ 5,969
Accrued expenses....... 23,766 761 -- -- 24,527
Advance billings and
customer deposits..... 3,701 280 -- -- 3,981
Current portion of
long-term debt........ 9,467 3,779 (2,391)(l) -- 10,855
Other current
liabilities........... 609 1,165 -- -- 1,774
-------- ------- -------- ------- --------
Total current
liabilities......... 41,703 7,794 (2,391) -- 47,106
Noncurrent liabilities:
Long-term debt......... 526,144 59,448 62,213 (l) 19,484 (t) 667,289
Deferred income
taxes................. 41,557 2,758 5,358 (m) -- 49,673
Other liabilities...... 9,892 6,401 (1,660)(n) -- 14,633
-------- ------- -------- ------- --------
Total noncurrent
liabilities......... 577,593 68,607 65,911 19,484 731,595
-------- ------- -------- ------- --------
Total liabilities.... 619,296 76,401 63,520 19,484 778,701
Redeemable minority
interest............... -- -- 45,000 (o) -- 45,000
Stockholders' equity.... -- 12,728 (12,728)(p) -- --
Member's capital:
Member's interest...... 185,700 -- -- 4,181 (u) 189,881
Accumulated deficit.... (19,706) -- -- -- (19,706)
-------- ------- -------- ------- --------
Total member's
capital............. 165,994 -- -- 4,181 170,175
-------- ------- -------- ------- --------
Total liabilities and
member's capital.... $785,290 $89,129 $ 95,792 $23,665 $993,876
======== ======= ======== ======= ========
</TABLE>
28
<PAGE>
MADISON RIVER CAPITAL, LLC
Notes to Unaudited Pro Forma Consolidated Balance Sheet
December 31, 1999
(a) This column represents the historical consolidated balance sheet of Madison
River at December 31, 1999.
(b) This column represents the historical consolidated balance sheet of Coastal
Communications at December 31, 1999.
(c) This column represents pro forma adjustments related to the Coastal
Communications acquisition, which include the preliminary purchase price
allocation for Coastal Communications. The allocation includes amounts
recorded based upon the fair value of assets acquired and liabilities
assumed and an amount recorded as goodwill.
The preliminary purchase price estimate is subject to change based on post
closing adjustments and valuation changes for the redeemable minority
interest instruments issued to the former Coastal Communications'
shareholders. If the purchase price estimate changes, minority interest,
goodwill and goodwill amortization could change significantly.
(d) This column represents pro forma adjustments for the outstanding notes
offering, repayment of $177.8 million of RTFC debt and purchase of
additional member's interests by management related to the terms of the
acquisition financing.
(e) This adjustment represents a combination of the following:
(i) Decreases in cash relating to:
. Cash paid in the amount of $72.8 million for the Coastal
Communications acquisition;
. Cash paid in the amount of $57.4 million to RTFC, which is net of
$3.1 million in proceeds from the redemption of RTFC stock applied to
the outstanding principal, for the repayment of Coastal
Communications' debt at the closing of the acquisition;
. Cash paid in the amount of $4.9 million for estimated closing,
systems and integration costs related to the Coastal Communications
acquisition;
. Cash paid in the amount of $2.0 million at the closing of the Coastal
Communications acquisition to fund a pension obligation; and
. Cash down payment in the amount of $1.2 million related to the
purchase of a building at the closing of the Coastal Communications
acquisition.
(ii) Increases in cash relating to:
. Cash proceeds in the amount of $6.5 million from the sale of life
insurance assets in conjunction with the Coastal Communications
acquisition; and
. Net proceeds in the amount of $97.8 million from a term loan and
$10.0 million from a secured line of credit with RTFC obtained to
finance the Coastal Communications acquisition. Proceeds are net of
$10.9 million paid for an investment in RTFC's stock as required by
the financing agreement.
(f) This adjustment represents the tax effect on the recognition of a $2.4
million accrued pension liability in the allocation of purchase price in
conjunction with the Coastal Communications acquisition.
(g) This adjustment represents (i) the purchase of a building in the amount of
$3.6 million and (ii) the sale of property with a net book value in the
amount of $0.4 million in conjunction with the Coastal Communications
acquisition.
(h) This adjustment represents a combination of the following:
(i) Increases in investments relating to:
. Purchase of $10.9 million in RTFC stock in conjunction with obtaining
financing from RTFC for the Coastal Communications acquisition; and
29
<PAGE>
MADISON RIVER CAPITAL, LLC
Notes to Unaudited Pro Forma Consolidated Balance Sheet--(Continued)
December 31, 1999
. Write-up of $20.3 million in a stock investment as a result of the
allocation of purchase price to fair value of the asset acquired.
(ii) Decrease in investments relating to:
. Redemption of $3.1 million in RTFC stock in conjunction with the
repayment of Coastal Communications' debt prior to the acquisition;
and
. Sale of a $6.5 million life insurance investment in conjunction with
the Coastal Communications acquisition.
(i) This adjustment represents the goodwill resulting from the Coastal
Communications acquisition.
(j) This adjustment represents the elimination of the deferred income tax asset
related to the Coastal Communications pension plan made in the allocation
of purchase price in conjunction with the Coastal Communications
acquisition.
(k) This adjustment represents the elimination of a prepaid pension asset
related to the Coastal Communications pension plan made in the allocation
of purchase price in conjunction with the Coastal Communications
acquisition.
(l) This adjustment represents a combination of the following:
(i) Decrease in indebtedness relating to reduction of $61.3 million of
long-term debt, including current portion of $2.4 million, not assumed
by Madison River at the closing of the Coastal Communications
acquisition;
(ii) Increases in indebtedness relating to:
. Additional indebtedness of $108.7 million from a term loan and $10.0
million from a secured line of credit with RTFC obtained to fund the
Coastal Communications acquisition; and
. Incurrence of a $2.4 million mortgage on a building purchased at the
closing of the Coastal Communications acquisition.
(m) This adjustment represents (i) an $8.1 million deferred income tax
liability resulting from the difference between book and tax basis in an
acquired investment asset, due to the allocation of purchase price to fair
value of the asset acquired, and (ii) a $2.7 million deferred income tax
liability eliminated as a result of the Coastal Communications acquisition.
(n) This adjustment represents (i) the elimination of a $4.1 million additional
pension liability related to the Coastal Communication pension plan in the
allocation of purchase price in conjunction with the Coastal Communications
acquisition, and (ii) the recognition of $2.4 million accrued pension
liability in the allocation of purchase price in conjunction with the
Coastal Communications acquisition. The accrued pension liability results
from the excess of the projected benefit obligation over the fair value of
plan assets at the date of the Coastal Communications acquisition.
(o) This adjustment represents a $45.0 million minority interest that the
former shareholders of Coastal Communications have retained in Coastal
Communications after the acquisition.
(p) This adjustment represents the elimination of the equity of Coastal
Communications as a result of the acquisition.
30
<PAGE>
MADISON RIVER CAPITAL, LLC
Notes to Unaudited Pro Forma Consolidated Balance Sheet--(Continued)
December 31, 1999
(q) This adjustment represents a combination of the following:
(i) Increase in cash relating to:
. Net proceeds of $190.1 million from the offering of the outstanding
notes. Amount consists of gross proceeds of $197.3 million, net of
$2.7 million discount, less $7.1 million in issuance costs; and
. Proceeds from $4.2 million of additional equity purchases of member's
interests by management.
(ii) Decrease in cash relating to repayment of $160.0 million of RTFC
indebtedness, originally obtained to fund the Gulf Coast Services
acquisition. The cash payment was for $177.8 million of principal,
less $17.8 million in proceeds from the redemption of Madison River's
investment in RTFC stock applied to the outstanding principal. The
RTFC stock is redeemable at the time the RTFC debt is repaid.
(r) This adjustment represents the redemption of $17.8 million of RTFC stock,
the proceeds of which were used to repay RTFC indebtedness.
(s) This adjustment represents capitalized debt issuance costs of $7.1 million
related to the offering of the outstanding notes, which are amortized over
ten years.
(t) This adjustment represents (i) $197.3 million of indebtedness, net of $2.7
million discount from the offering of the outstanding notes, less (ii)
repayment of $177.8 million of RTFC indebtedness using proceeds from the
offering of the outstanding notes.
(u) This adjustment represents a $4.2 million of additional purchases of
member's interests by management related to the terms of the acquisition
financing.
31
<PAGE>
MADISON RIVER CAPITAL, LLC
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1999
(Dollars in Thousands)
<TABLE>
<CAPTION>
Historical
----------------------------------- Pro Forma Pro Forma
Consolidated(a) Gulf(b) Coastal(c) Adjustments Totals
--------------- ------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Operating revenues:
Local service......... $ 32,810 $12,934 $11,198 $ -- $ 56,942
Network access
service.............. 29,893 15,608 18,648 -- 64,149
Long distance
service.............. 6,270 8,674 3,799 -- 18,743
Miscellaneous......... 7,169 3,713 1,528 -- 12,410
Customer premise
revenue.............. 6,960 7,828 1,657 -- 16,445
Provision for
uncollectible
accounts............. (1,585) (191) (61) -- (1,837)
-------- ------- ------- -------- --------
Total operating
revenues............ 81,517 48,566 36,769 -- 166,852
Operating expenses:
Plant specific........ 16,526 20,939 5,765 -- 43,230
Plant nonspecific..... 8,383 6,804 2,955 -- 18,142
Depreciation.......... 11,705 6,489 6,058 90 (d) 24,342
Amortization.......... 9,803 86 26 9,843 (e) 19,758
Customer operations... 11,753 5,213 4,116 -- 21,082
Corporate operations.. 17,254 11,683 7,892 -- 36,829
Other taxes........... 601 697 779 -- 2,077
-------- ------- ------- -------- --------
Total operating
expenses............ 76,025 51,911 27,591 9,933 165,460
Net operating income
(loss)................. 5,492 (3,345) 9,178 (9,933) 1,392
Other income, net..... 3,386 10,262 4,695 -- 18,343
-------- ------- ------- -------- --------
Income before interest
and income tax
expense................ 8,878 6,917 13,873 (9,933) 19,735
Interest expense........ (22,443) (1,769) (4,021) (35,663)(f) (63,896)
-------- ------- ------- -------- --------
(Loss) income before
income taxes and
minority interest...... (13,565) 5,148 9,852 (45,596) (44,161)
Income tax expense...... (1,625) (3,215) (2,444) 4,948 (g) (2,336)
-------- ------- ------- -------- --------
(Loss) income before
minority interest...... (15,190) 1,933 7,408 (40,648) (46,497)
Minority interest....... -- -- -- (1,000)(h) (1,000)
-------- ------- ------- -------- --------
Net (loss) income....... $(15,190) $ 1,933 $ 7,408 $(41,648) $(47,497)
======== ======= ======= ======== ========
</TABLE>
32
<PAGE>
MADISON RIVER CAPITAL, LLC
Notes to Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1999
(Dollars in Thousands)
(a) This column represents Madison River's historical results of operations for
the year ended December 31, 1999, including the operating results of its
Gulf Coast Services subsidiary for the three month period from the date of
acquisition through December 31, 1999.
(b) This column represents Gulf Coast Services' historical results of
operations for the period from January 1, 1999 to September 29, 1999, prior
to its acquisition.
(c) This column represents Coastal Communications' historical results of
operations for the year ended December 31, 1999.
(d) This adjustment represents (i) an increase in Coastal Communications'
depreciation as a result of the purchase of a building at the closing of
the Coastal Communications acquisition, and (ii) a decrease in Coastal
Communications' depreciation as a result of the sale of certain property at
the closing of the Coastal Communications acquisition. The following table
sets forth the details of the depreciation adjustments:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Increased depreciation related to purchase of a
building................................................ 105
Decreased depreciation related to sale of certain
property................................................ (15)
----
Net depreciation adjustment ............................. $ 90
====
</TABLE>
Included in the assets of Gulf Coast Services that we purchased was $90.0
million of fiber, which was not placed in service as of the date of the pro
formas. If the assets had been placed in service on January 1, 1999, we
would have recorded additional depreciation of $3.6 million.
(e) This adjustment was made to reflect the amortization expense of (i) debt
issuance costs related to the offering of the outstanding notes, (ii) debt
issuance costs related to the additional indebtedness with RTFC, and (iii)
additional goodwill resulting from the acquisitions of Gulf Coast Services
and Coastal Communications, as if the transactions had been consummated at
the beginning of 1999. For purposes of the pro forma presentation, the
goodwill related to the Coastal Communications acquisition was computed as
the excess of the purchase price over the net assets acquired excluding
long-term debt based on its balance sheet as of December 31, 1999. The
goodwill associated with the above acquisitions is amortized over 25 years;
the debt issuance costs are amortized over the ten year life of the notes;
the RTFC debt financing costs are amortized over 5 to 15 years. The
following table sets forth the details of the amortization adjustments:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Goodwill amortization related to Gulf Coast Services
acquisition............................................. $5,211
Goodwill amortization related to Coastal Communications
acquisition............................................. 3,917
------
Net goodwill amortization adjustment..................... 9,128
------
Outstanding notes offering cost amortization............. 712
Debt financing cost amortization for Gulf Coast Services
acquisition............................................. 2
Debt financing cost amortization for Coastal
Communications acquisition.............................. 1
------
Net financing cost amortization adjustment............... 715
------
Total amortization adjustment............................ $9,843
======
</TABLE>
33
<PAGE>
MADISON RIVER CAPITAL, LLC
Notes to Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1999
(Dollars in Thousands)
(f) This adjustment represents additional interest expense on (i) the debt
financings related to the acquisitions of Gulf Coast Services and Coastal
Communications and (ii) the offering of the outstanding notes, assuming the
related debt was outstanding beginning on January 1, 1999. As of December
31, 1999, Madison River had $534.7 million of 15 year credit facilities
outstanding at a combination of fixed and variable rates with RTFC and, as
of March 30, 2000, obtained an additional $108.7 million long term debt and
$10.0 million line of credit from RTFC to finance the Coastal
Communications acquisition. The interest rate on Madison River's term loans
ranged from 6.8% to 9.05% at December 31, 1999. The year-to-date interest
expense on the $177.8 million term loan related to Gulf Coast Services
acquisition financing was eliminated for the year ended December 31, 1999,
as it was repaid in full with the proceeds from the outstanding notes
offering. As of March 31, 2000, Madison River's long-term debt was $678.1
million. The following table sets forth the details of the interest expense
adjustment:
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Indebtedness related to Gulf Coast Services acquisition.. $ 8,719 (1)
Indebtedness related to Coastal Communications
acquisition............................................. 10,099 (2)
Outstanding notes offering............................... 26,662 (3)
Exclusion of Gulf Coast Services acquisition financing
repaid with the notes proceeds.......................... (4,027)(4)
Elimination of Gulf Coast Services' debt prior to
acquisition............................................. (1,769)(4)
Elimination of Coastal Communications' debt prior to
acquisition............................................. (4,021)(4)
-------
Net interest adjustment.................................. $35,663
=======
</TABLE>
--------
(1) Based on $138.4 million principal amount at a fixed rate of 8.4% for
the period from January 1, 1999 to September 29, 1999.
(2) Based on $108.7 million principal amount at a fixed rate of 8.5% and
$10.0 million principal amount at a variable rate assumed to be 8.6%,
each for the twelve-month period.
(3) Based on $200.0 million principal amount at a stated fixed rate of
13.25% plus amortization of the discount.
(4) Based on amounts reported in the historical financial statements.
(g) This adjustment reflects the impact of the pro forma interest expense on
the income tax provision for the year ended December 31, 1999. The $26.7
million pro forma interest expense related to the outstanding notes
offering and the $4.0 million pro forma interest expense related to the
Gulf Coast Services acquisition financing do not have a tax impact as it is
recorded on Madison River Capital which is a limited liability company.
(h) This adjustment represents the stated dividends on the redeemable minority
interest in Coastal Communications for the year ended December 31, 1999.
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial and Operating Data," "Unaudited Pro Forma Consolidated Financial
Information" and Madison River Capital's, Gulf Coast Services' and Coastal
Communications' consolidated financial statements, including the notes related
thereto, and other financial data appearing elsewhere in this prospectus.
Certain statements set forth below constitute "forward-looking statements" that
involve risks and uncertainties. During our existence, we have completed
multiple acquisitions of telecommunications companies and assets. As a result,
we believe that period-to-period comparisons of our financial results to date
are not necessarily meaningful and should not be relied upon as an indication
of future performance. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under "Risk Factors" or in other parts of this
prospectus.
Overview
We are an established and rapidly growing provider of integrated
communications services and solutions that focuses on markets in the Gulf
Coast, Mid-Atlantic and Midwest regions of the United States. Our integrated
service offerings to business and residential customers include voice, high-
speed data, fiber transport and Internet access. We currently operate in North
Carolina, Alabama, Illinois and, as of March 30, 2000, with the completion of
the Coastal Communications acquisition, in Georgia. We have a reputation for
delivering high quality services and being highly responsive to our customers,
which we and our predecessors have established as providers of communications
services and solutions in these markets for over fifty years.
Since our inception, our principal activities have been to acquire,
integrate, operate and improve the operation of local telephone companies in
secondary markets. Through these acquisitions, we have acquired businesses with
positive cash flow, government and regulatory authorizations and
certifications, operating support systems, management and key personnel and
facilities.
Our current business plan is focused on developing our existing markets and
expanding, initially, from those established markets into 14 markets,
including:
. Mid-Atlantic: Greensboro, Raleigh, Durham, Cary and Winston-Salem, North
Carolina.
. Midwest: Peoria, Bloomington-Normal, Decatur and Springfield, Illinois.
. Gulf Coast: Mobile and Montgomery, Alabama; Biloxi, Mississippi;
Pensacola, Florida; and New Orleans, Louisiana.
Our parent company, Madison River Telephone Company, LLC, was founded in
April 1996 by a management team led by J. Stephen Vanderwoude, former president
and Chief Operating Officer of Centel Corporation. In January 1998, Madison
River Telephone Company acquired all of the outstanding common stock of Mebcom
Communications, Inc., our predecessor, a North Carolina telecommunications
provider for $23.0 million. Prior to the date of the Mebcom acquisition,
Madison River Telephone Company was a development stage company with no revenue
and principal activities consisting of procuring governmental authorizations,
raising capital, hiring management and other key personnel and pursuing
acquisition opportunities. Madison River Capital, LLC was formed as a wholly-
owned subsidiary of Madison River Telephone Company in September 1999 to serve
as a holding company for our operations.
In November 1998, we acquired certain assets and liabilities from Central
Telephone Company of Illinois, a local exchange company, for $232.0 million
which we refer to as the "Gallatin River"
35
<PAGE>
acquisition. We acquired Gulf Coast Services, a telecommunications provider
located in the southeastern United States, in September 1999 for $312.6
million. In March 2000, we acquired all of the outstanding capital stock of
Coastal Communications for $130.0 million in cash and issued Series A non-
voting common stock in the face amount of $10.0 million and Series B non-voting
common stock in the face amount of $5.0 million of Coastal Communications with
put and call features exercisable by the holders and us. See "--Liquidity and
Capital Resources" below for further discussion.
As a result of our limited operating history as a combined company, there is
limited operating and financial data about us upon which to base an evaluation
of our performance.
Factors Affecting Future Operations
The following is a discussion of the primary factors that we believe will
affect our operations over the next few years.
Revenues
To date, our revenues have been derived principally from the sale of local
and long distance communications services to customers in our existing markets.
Our voice services accounted for 84.6% of our total revenues for the year ended
December 31, 1999. We intend to generate revenue from voice services (local and
long distance), dedicated fiber transport, Internet access/enhanced data and
other services.
We currently expect that a substantial portion of our revenues will be
generated from the sale of these communications services to customers in our
existing markets and, as we expand, to businesses and residential multi-
dwelling units in our new markets. We will continue to offer bundled services
and intend to continue to competitively price our services in each of our
markets. In addition, we intend to continue to offer combined service discounts
designed to give customers incentives to buy bundled services pursuant to long-
term contracts.
Over the next three years, we expect to derive a growing percentage of our
revenues from the sale of fiber transport services to major telecommunications
carriers and non-facilities based carriers. Our 2,200 mile fiber optic route
connects Dallas and Atlanta, two of the four Tier I Network Access Points.
Further, the route connects other metropolitan areas such as Houston and New
Orleans. We expect this business will be price driven, and, as a result, we
will competitively price these services to gain market share.
Expenses
Historically, our operating expenses have remained relatively consistent
from period to period. As we expand into new markets, our operating expenses
will be less predictable. In the near term, we expect that our primary
operating expenses for our expansion markets will consist of cost of services
and selling, general and administrative expenses.
Cost of services.
Our cost of services will include:
. plant specific costs and expenses, such as inspection, testing and
conditioning, repairing telephone cable and poles;
. non-plant specific costs, such as provisioning, network, administrative,
power and engineering;
36
<PAGE>
. the cost of leasing unbundled copper loop lines and high capacity digital
lines from the ILECs to connect our customers and other carriers'
networks to our network;
. the cost of leasing transport from ILECs or other providers where our
fiber transport capacity is not available;
. the cost of collocating in ILEC central offices; and
. the cost of purchasing and installing electronics on our fiber network.
We have already entered into interconnection agreements with Bell South, GTE
and Ameritech. Other interconnection agreements may be required and
certifications by state regulators would be required in states where we are not
certified as a competitive provider.
We have a resale agreement with Global Crossing to provide long distance
transmission services. This agreement contains minimum volume commitments.
Although we believe that we will meet these commitments and expect to
experience lower cost per minute usage rates as volume increases, we may be
required to obtain capacity through more expensive means.
Selling, general and administrative expenses.
Selling, general and administrative expenses include:
. selling and marketing expenses;
. expenses associated with customer care;
. billing and other operating support systems; and
. corporate expenses.
We currently employ a professional sales team and intend to expand this team
to fulfill our expansion initiative. We offer a competitive compensation
package based on minimum quota sales and incentives for long-term contracts and
bundled services. To date, we have been able to recruit experienced
telecommunications sales professionals. It may not be possible to replicate the
sales structure in other target markets due to competition for qualified sales
professionals in the markets into which we are expanding.
We have operating support and other back office systems that we use to
enter, schedule, provision, track customer orders, test services and interface
with trouble management, inventory, billing, collection and customer care
service systems for our access lines in our established operations. As we
expand into new markets, we may review and consider the benefits offered by the
latest generation of systems, and we expect that our operations support systems
and customer care expenses may also increase.
As a result of our limited operating history as a consolidated company and
the number and timing of our acquisitions, there is limited operating and
financial data about us upon which to base an evaluation of our performance.
Although we expect to maintain positive EBITDA (operating income (loss) before
depreciation and amortization) as we expand from our established markets,
operating losses in the markets into which we intend to expand will materially
decrease our EBITDA. Further, our expansion plans require additional capital
expenditures necessary to deliver high quality integrated communications
services and solutions. Thus, we expect our free cash flow at times to be
negative. Although we are currently projecting an increase in revenues, our
revenues may not increase or even continue at their current levels, and we may
not achieve or maintain profitability or generate cash from operations in
future periods at the levels we currently project or at all. Our actual future
operating results will differ from our current projections, and those
differences may be material.
37
<PAGE>
Pro Forma Results of Operations
The pro forma statement of operations for the year ended December 31, 1999
has been prepared to give effect to the Gulf Coast Services acquisition we
consummated in September 1999, the issuance of the outstanding notes and
subsequent application of the proceeds in February 2000, and the Coastal
Communications acquisition we consummated in March 2000, as if these
transactions had occurred on January 1, 1999.
Year Ended December 31, 1999
Pro forma revenues for the year ended December 31, 1999 were $166.9 million.
Pro forma operating expenses for the year ended December 31, 1999 were
$165.5 million, resulting in an operating margin of 0.8%. Cost of services
represented 36.8% of total revenues; selling, general and administration
expenses represented 36.0% of total revenues; and depreciation and amortization
expenses represented 26.4% of total revenues. Amortization expense consisted
primarily of goodwill amortization resulting from recent acquisitions.
Pro forma interest expense for the year ended December 31, 1999 was $63.9
million, or 38.3% of total revenues. Interest expense was primarily
attributable to the indebtedness related to acquisitions and the offering of
the outstanding notes.
Pro forma net loss for the year ended December 31, 1999 was $47.5 million,
or 28.5% of total revenues. Pro forma EBITDA for the year ended December 31,
1999 was $45.5 million, or 27.3% of total revenues.
Historical Results of Operations
Year Ended December 31, 1999 compared to Year Ended December 31, 1998
In January and November 1998 and September 1999, we acquired Mebcom,
Gallatin River and Gulf Coast Services, respectively. As a result of the
acquisitions, we believe that our historical financial statements for the year
ended December 31, 1998 and 1999 are not directly comparable. The operating
results for the year ended December 31, 1999 include twelve months of
operations of Mebcom and Gallatin River, and three months of operations of Gulf
Coast Services, whereas the operating results for the year ended December 31,
1998 include twelve months of operations of Mebcom and only two months of
operations of Gallatin River.
Total revenue increased $64.7 million to $81.5 million for the year ended
December 31, 1999, attributed to a full year of operations of Gallatin River in
1999 versus two months in 1998, and the inclusion of three months of operations
of Gulf Coast Services in 1999. The change in Gallatin River's revenue
accounted for $46.7 million, or 72.3% of the net increase; Gulf Coast Services'
revenue accounted for $14.8 million, or 22.9% of the net increase. The
remaining increase was primarily due to an approximate $2 million increase in
miscellaneous revenue as directory advertising revenues increased. Revenues
from voice services, which is comprised of local, network access and long
distance service, as a percentage of total revenues, is approximately 85.3% and
84.6% for 1998 and 1999, respectively.
Total operating expenses increased $59.7 million from $16.3 million, or
96.9% of total revenues in 1998, to $76.0 million, or 93.3% of total revenues
in 1999. The increase is partly due to a full year of operations of Gallatin
River in 1999 versus two months in 1998, attributed to the inclusion of three
months of operations of Gulf Coast Services, and the expansion of internet and
CLEC business. The change in Gallatin River's operating expenses accounted for
$39.2 million, or 65.7% of the net increase; Gulf Coast Services' operating
expenses accounted for $12.9 million, or 21.6% of the net increase; and the
expansion of internet and CLEC business accounted for $6.8 million, or 11.4% of
the net increase in operating expenses. Plant expenses, which consist of both
specific and non
38
<PAGE>
specific, as a percentage of total revenues, increased from 24.2% in 1998 to
30.6% in 1999, whereas general, selling and administration expenses, which
consist of other taxes, customer and corporate operations, as a percentage of
total revenues, decreased from 47.9% in 1998 to 36.3% in 1999. Depreciation and
amortization expense, as a percentage of total revenues, increased slightly
from 24.8% in 1998 to 26.4% in 1999. Goodwill amortization expense increased
$6.5 million to $8.2 million in 1999 as a result of the acquisitions of
Gallatin River in November 1998 and Gulf Coast Services in September 1999.
Net operating income increased $5.0 million from $0.5 million, or 3.1% of
total revenues in 1998, to $5.5 million, or 6.7% of total revenues in 1999. The
increase in net operating income margin was directly attributable to the
decrease in operating expenses as a percentage of total revenues.
Interest expense increased $18.5 million from $3.9 million, or 23.1% of
total revenues in 1998, to $22.4 million, or 27.5% of total revenues in 1999.
The increase in interest expense was primarily due to the financings associated
with the acquisitions of Gallatin River and Gulf Coast Services.
Net loss increased $12.1 million from $3.1 million, or 18.4% of total
revenues in 1998, to $15.2 million, or 18.6% of total revenues in 1999, as a
result of the factors discussed above. EBITDA increased $22.3 million from $4.7
million, or 27.9% of total revenues in 1998, to $27.0 million, or 33.1% of
total revenues.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Prior to January 1998, we were a development stage company and did not have
any revenues. In January 1998 and November 1998, we acquired Mebcom and
Gallatin River, our initial operating entities. As a result of these
acquisitions, we believe that our historical financial statements for the years
ended 1997 and 1998 are not directly comparable. The operating results of 1998
include a full year of operations of Mebcom and two months of operations of
Gallatin River, whereas 1997 has no operating revenues but incurred expenses
due to the early development stage activities of the business.
Total operating revenues increased to $16.9 million in 1998, primarily due
to the acquisition of Mebcom, which accounted for $7.8 million in revenues, and
the acquisition of Gallatin River, which accounted for $9.0 million in revenues
for two months. Total revenues for 1998 included $14.4 million of revenues, or
85.3%, from voice services.
Total operating expenses increased $15.4 million from $1.0 million in 1997
to $16.3 million in 1998, primarily due to the acquisition of Mebcom, which
incurred $6.8 million in operating expenses, and the acquisition of Gallatin
River, which incurred $8.5 million in operating expenses for two months. Net
operating margin represents 3.1% of total revenues in 1998. Plant expenses
accounted for $4.1 million, or 24.2% of total revenues; customer and corporate
expenses, including other taxes, accounted for $8.1 million, or 47.9% of total
revenues; and depreciation and amortization expense accounted for $4.2 million,
or 24.8% of total revenues in 1998. Goodwill amortization for 1998 associated
with these acquisitions totaled $1.7 million, or 10.1% of revenues.
Interest expense increased approximately $3.9 million from $31.4 thousand in
1997 to $3.9 million in 1998, primarily attributable to the incurrence of
indebtedness of $23.3 million in January 1998 and $196.9 million in October
1998 with RTFC, to finance the acquisitions of Mebcom and Gallatin River and
related working capital. Total interest expense for 1998 represented 23.1% of
total revenues.
We incurred an extraordinary loss of $0.2 million in 1998, which was a
prepayment penalty arising from an early payoff of indebtedness with Rural
Telephone Bank.
Net loss increased $2.1 million from $1.0 million in 1997 to $3.1 million in
1998 as a result of the factors discussed above whereas, EBITDA increased $5.7
million from negative $1.0 million in 1997 to positive $4.7 million in 1998,
which represents 27.9% of total revenues for 1998.
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Liquidity and Capital Resources
We are a holding company with no business operations of our own. Our only
significant assets are the capital stock/member interests of our subsidiaries.
Accordingly, our only sources of cash to pay our obligations are cash on hand,
distributions from our subsidiaries from their net earnings and cash flow. Even
if our subsidiaries determine to pay a dividend on or make a distribution in
respect of their capital stock/member interest, we cannot assure you that our
subsidiaries will generate sufficient cash flow to pay such a dividend or
distribute such funds or that they will be permitted to pay such dividend or
distribution under the terms of their credit facilities.
Since our inception, we have funded the operations and growth through cash
flow from operations, borrowings and equity contribution from our members. Our
balance sheet reflected positive working capital of $5.2 million and $63.2
million at December 31, 1998 and 1999, respectively.
Operating Activities. For the years ended December 31, 1998 and 1999, we
generated cash from operating activities of $3.6 million and $12.9 million,
respectively. Net cash generated from operating activities for 1999 was
primarily attributable to the increase in depreciation and amortization and
accrued expenses. Net cash generated from operating activities for 1998 was
primarily attributable to the increase in accounts payable, accrued expenses
and depreciation and amortization expenses resulting from the acquisition of
Mebtel and Gallatin River. For the year ended December 31, 1997, we used $0.5
million of cash in operating activities during our development stage.
Investing Activities. For the years ended December 31, 1997, 1998 and 1999,
we used cash in investing activities of $3.7 thousand, $269.9 million and
$374.6 million, respectively. Investing activities for 1999 were primarily
attributable to the acquisition of Gulf Coast Services net of cash acquired,
for $310.5 million and purchases of telephone plant in service and stock in
RTFC. Investing activities for 1998 consisted primarily of the acquisition of
Mebcom for $21.0 million in cash and the acquisition of Gallatin River for
$232.0 million in cash. The remaining cash used in investing activities for
1998 was spent on purchases of telephone plant in service and stock in RTFC.
Financing Activities. For the years ended December 31, 1997, 1998 and 1999,
net cash provided by financing activities was $7.7 million, $265.0 million and
$439.0 million, respectively. Net cash provided by financing activities for
1999 consisted of $127.1 million of equity contributions from our members and
$316.2 million of loan proceeds from RTFC. Most of the cash provided by
financing activities for 1999 was invested in the acquisition of Gulf Coast
Services. Included in cash provided by financing activities for 1998 were
$227.1 million of loan proceeds from RTFC, and $50.3 million of equity
contributions from our member. Most of the cash provided by financing
activities for 1998 was invested in the acquisitions of Mebcom and Gallatin
River in 1998. Net cash provided by financing activities for 1997 came from
capital contributions from our member.
We or our subsidiaries currently have outstanding term and revolving credit
facilities with RTFC, which were entered into in connection with the
acquisitions of Mebcom, Gallatin River, Gulf Coast Services and, as of March
30, 2000, Coastal Communications.
In connection with the Mebcom acquisition, on January 16, 1998, Mebtel,
Inc., our wholly owned subsidiary, entered into a secured credit facility with
the RTFC consisting of a $23.3 million term loan and a $1.0 million revolving
line of credit. The term facility matures in January 2013, and the line of
credit matures in January 2003. A total of $22.6 million was funded from the
term loan at the closing of the acquisition. The term facility bears interest
at the base rate of RTFC plus 50 basis points, with the right to convert, at
our option under certain circumstances, into a fixed rate. In accordance with
the credit facility, we have converted $15.0 million of the facility into a
fixed rate of 6.8% per annum
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through September 2003. In April 2000, we converted the remaining variable
portion of the facility in the amount of $7.2 million into a fixed rate of
8.55% per annum through April 2003.
In connection with the Gallatin River acquisition, on October 30, 1998,
Gallatin River Communications, LLC, and Madison River Communications, Inc.
(renamed Madison River Management Company effective March 6, 2000) our wholly
owned subsidiaries, entered into a secured credit facility with the RTFC
consisting of a $123.2 million term credit facility and $10.0 million revolving
line of credit by Gallatin River Communications and a $73.7 million term
facility by Madison River Management Company. The term loans were fully funded
at the closing of the acquisition. The term facilities mature in October 2013,
and the line of credit matures in October 2003. The term facilities bear
interest at the base rate of RTFC's stated variable rate plus 75 basis points,
with the right to convert, at our option under certain circumstances, into a
fixed rate. In accordance with the credit facility, we have converted $123.2
million of the facility into a fixed rate of 7.0% per annum through November
2004. In April 2000, we converted the $73.7 million term facility into a fixed
rate of 8.8% per annum through April 2003.
To finance the Gulf Coast Services acquisition, on September 29, 1999, we
entered into a secured term facility with the RTFC for $177.8 million, and our
subsidiary, Gulf Telephone Company, entered into secured term loan facilities
for $138.4 million and $7.8 million and a revolving line of credit for $10.0
million with the RTFC. The $138.4 million and $177.8 million term loan
facilities were fully funded at the closing of the acquisition, and the $7.8
million term facility is available to Gulf Telephone Company for working
capital and capital expenditures. In February 2000, we repaid in full our
$177.8 million facility with proceeds from the outstanding notes offering. The
term facilities with Gulf Telephone Company mature in September 2014, and the
line of credit matures in September 2004. Gulf Telephone Company's term
facilities bear interest at the base rate of RTFC's stated variable rate plus
35 basis points, with the right to convert, at our option under certain
circumstances, into a fixed rate. In accordance with the credit facility, we
have converted the $138.4 million term facility into a fixed rate of 8.4% per
annum through October 2004.
On February 17, 2000, we privately placed $200.0 million of the outstanding
notes. We used the proceeds of the offering to repay our $177.8 million secured
term facility with RTFC related to the Gulf Coast acquisition, to finance a
portion of the Coastal acquisition and for general corporate and working
capital purposes.
To finance the Coastal Communications acquisition, on March 30, 2000, our
subsidiary, Coastal Utilities, entered into secured term facilities for $118.7
million and a $10.0 million unsecured revolving line of credit with the RTFC.
The term facilities are composed of a $108.7 million, fifteen year facility and
a $10.0 million, interest only, five year facility. The term facilities and the
line of credit bear interest at the RTFC base rate plus 50 basis points for
term loans and 100 basis points for revolving lines of credit, respectively,
with the right to convert the fifteen year facility, at our option under
certain circumstances, into a fixed rate. In accordance with the credit
facility, we have converted the $108.7 million term facility into a fixed rate
of 8.5% per annum through April 2005.
In addition to the $130.0 million in cash paid for the acquisition of
Coastal Communications, we also issued to the former shareholders of Coastal
Communications Series A non-voting common stock and Series B non-voting common
stock of Coastal Communications in the face amount of $10.0 million and $5.0
million, respectively. The Series A and Series B non-voting common stock have
put and call features exercisable by the holders and us. Based on the put and
call features, the holders of the Series B non-voting common stock have the
right to put their shares for $35.0 million, and we have until April 2002 to
repurchase the stock. The holders of Series A non-voting common stock may put
their shares to Coastal Communications in December 2005 for $17.7 million. If
the Series B shares are not put or called and repurchased in 2002, the holders
may put or we may call the stock pursuant to the terms of a shareholders
agreement.
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Our business will require significant capital to fund capital expenditures,
working capital needs, debt service and cash flow deficits. In the near term,
we expect that our primary uses of cash will include the purchase and
installation of:
. electronics for our fiber optic network;
. digital ATM switches; and
. transmission equipment collocated in ILEC central offices.
Our expenditures will also include:
. real estate expenses in connection with our network facilities and
operations;
. the development and integration of OSS and other automated back office
systems;
. the upgrade and maintenance of our current network infrastructure;
. sales and marketing;
. corporate overhead; and
. personnel development.
We currently estimate that cash required to fund these capital expenditures
will be approximately $142.5 million over the next two years. We currently
project that the net proceeds from the sale of the outstanding notes, existing
equity commitments, available borrowings under our credit facilities, cash and
investments on hand and our cash flow from operations will be sufficient to
finance our currently contemplated expansion initiatives in the Gulf Coast,
Mid-Atlantic and Midwest regions of the United States. However, our actual cash
needs may differ from our estimates and those differences could be material.
Our future capital requirements will depend on many factors, including, among
others:
. the extent to which we consummate any significant additional
acquisitions;
. the success of our expansion initiatives;
. the demand for our services in our existing markets;
. our ability to acquire, develop and integrate the necessary OSS and other
back office systems; and
. regulatory, technological and competitive developments.
We may be unable to access the cash flow of our subsidiaries since certain
of our subsidiaries are parties to credit or other borrowing agreements that
restrict the payment of dividends, and such subsidiaries are likely to continue
to be subject to such restrictions and prohibitions for the foreseeable future.
In addition, future agreements governing the terms of our subsidiaries'
indebtedness may restrict our subsidiaries' ability to pay dividends to us.
Under the terms of Madison River Telephone's Operating Agreement, at any
time on or after January 2, 2006, certain members may require Madison River
Telephone to purchase all of their units at an amount equal to the fair market
value of the units. Subject to compliance with the restrictions contained in
our credit facilities and the indenture with respect to the notes, we may make
distributions to Madison River Telephone to satisfy this obligation. In
addition, as early as April 2002, we may be required to pay up to $35.0 million
to redeem a portion of the minority interests in Coastal Communications.
To the extent that our development plans or projections change or prove to
be inaccurate, we may require additional financing or require financing sooner
than we currently anticipate. Sources of additional financing may include
commercial bank borrowings, RTFC financing, vendor financing or the private or
public sales of equity and debt securities. We cannot assure you that we will
generate
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sufficient cash flow from operations in the future, that anticipated revenue
growth will be realized or that future borrowings or equity contributions will
be available in amounts sufficient to service our indebtedness and make
anticipated capital expenditures. Failure to obtain any such financing could
require us to significantly reduce our planned capital expenditures and scale
back our expansion plans, either of which could have a material adverse effect
on our projected financial condition or results of operations.
Year 2000
During 1999, we planned, inventoried and evaluated systems, remediated,
replaced where and when necessary and tested such remediation and replacements.
We used internal information systems technology, personnel and other personnel.
As a result, we experienced no year 2000 related issues on January 1, 2000. We
recognize that there may be residual effects related to year 2000 issues. Our
assessment of our year 2000 readiness will be ongoing as we continue to develop
our operating systems and rely on third party systems or additional third party
systems. We do not have any way to assess the costs related to remediation of
any residual year 2000 effect. We intend to use internal resources for such
remediation where possible. We may in the future identify a significant
internal or external year 2000 related residual issue which, if not remedied in
a timely manner, could have a material adverse effect on our business,
financial condition and results of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and Hedging Activities," (SFAS
133) which establishes accounting and reporting standards for derivative
instruments, including derivative instruments embedded in other contracts, and
for hedging activities. SFAS No. 133 was amended by SFAS No. 137 and is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000. We do not expect that the adoption of SFAS No. 133 will have a material
impact on our consolidated financial statements.
Quantitative and Qualitative Disclosure of Market Risks
Although we invest our short-term excess cash balances, the nature and
quality of these investments are restricted under our internal investment
policies. These investments are limited primarily to U.S. Treasury agreement
and agency securities, certain time deposits and high quality repurchase
agreements and commercial paper. We do not invest in any derivative or
commodity type instruments. Accordingly, we are subject to minimal market risk
on our investments.
Our long term secured debt facilities with the RTFC amortize over a 15-year
period. As of April 30, 2000, we have fixed rate secured debt with the RTFC of
$463.8 million at a blended rate of 8.07%. The fixed rates on the facilities
expire from 2003 to 2005 at which time they will be adjusted. We have
approximately $10.0 million of variable rate secured debt with the RTFC.
Changes in interest rates would have an immaterial impact on the variable
portion of our facility. The outstanding notes have a stated fixed rate of
13.25%. Accordingly, we are subject to only minimal interest rate risk on our
long-term debt.
As part of the Coastal Communications acquisition, we acquired a stock
investment with a fair value of $21.2 million. We intend to dispose of this
asset, however, we are subject to market risk in the interim.
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BUSINESS
Our Business
We are an established and rapidly growing provider of integrated
communications services and solutions that focuses on markets in the Gulf
Coast, Mid-Atlantic and Midwest regions of the United States. Our integrated
service offering to business and residential customers includes voice, high
speed data, fiber transport and Internet access. We currently operate in North
Carolina, Alabama and Illinois and Georgia. We have a reputation for delivering
high quality services and being highly responsive to our customers, which we
and our predecessors have established as providers of communications services
and solutions in these markets for over fifty years. As of March 31, 2000, we
served approximately 193,000 access lines. For the year ended December 31,
1999, we would have generated $166.9 million in revenue on a pro forma basis
after giving effect to the acquisitions of Gulf Coast Services and Coastal
Communications as if they were consummated on January 1, 1999.
We are growing our customer base of businesses and residential multiple
dwelling units around our regional centers and along our 2,200 route-mile fiber
optic network by building on our established customer base, strong local
presence, state of the art technology and experienced local sales and operating
professionals. From our switches and our fiber transport networks, we are able
to address over 2.3 million access lines in attractive secondary markets such
as Greensboro, Raleigh-Durham, Mobile and Peoria. In order to further expand
the services available to our existing customers and to attract new customers,
we are aggressively developing high speed broadband service offerings utilizing
advanced bandwidth enhancing technologies such as asynchronous transfer mode,
or ATM, digital subscriber line, or DSL, and fiber optic networks. The number
of access lines we serve has increased faster than industry averages.
Our customer base is comprised of approximately 54,000 business and 139,000
residential access lines, 43,000 long distance customers and 27,000 Internet
access customers. Our network platform includes eight Nortel DMS digital
switches, one Siemens digital switch and five Nortel ATM switches. We currently
have interconnection agreements with BellSouth, GTE and Ameritech. We have been
certified as a CLEC in four states. In addition, we have been certified as an
ILEC in four states and are qualified to provide long distance services in ten
states. Our 2,200 route-mile fiber optic network serves as the backbone to
allow us to offer competitive data and voice transport and Internet access
services to our existing and future customers, and we believe will also provide
revenue opportunities from providing transport services to other carriers.
Our equity holders are affiliates of Madison Dearborn Partners, Goldman,
Sachs & Co. and Providence Equity Partners and certain members of our
management. We have grown since our formation in 1996 through the acquisition
of four local telephone companies and fiber transport assets in our current
regions of operation.
Our Markets
Our established and target markets are predominantly secondary markets. We
believe customers in certain secondary markets have significant demand for a
comprehensive service offering, which is not yet fully provided. The above
average industry growth in our markets demonstrates the need and potential for
a provider of a full range of communications solutions. We believe the markets
we have targeted for expansion will experience rapid growth, similar to our
established markets, in their demand for telecommunications services. We
believe that our thorough knowledge of the markets in our regions, established
operations and reputation for a high standard of service give us a competitive
advantage over potential entrants in the markets we serve. We expect continued
growth in our established markets where the lower population density favors the
incumbent local provider because of the high cost of build-out relative to
major urban markets. In the markets we are targeting for expansion, we believe
we will be able to build upon our operations infrastructure, full suite of
services, brand name recognition and reputation for quality customer service to
successfully enter these markets.
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Management
Our management team has extensive experience in telecommunications, network
engineering and operations, customer care, sales and marketing, project
development and finance. J. Stephen Vanderwoude, our Chairman and Chief
Executive Officer, has extensive experience in the telecommunications industry,
including serving as President and Chief Operating Officer and a Director of
Centel Corporation and President and Chief Operating Officer of the Local
Telecommunications division of Sprint Corporation. Many of the other members of
the management team have prior telecommunications industry experience,
including positions at Sprint Corporation and Centel Corporation and experience
at Citizen's Utilities and ICG Telecommunications. Our management team averages
more than 30 years of experience in the telecommunications industry. We believe
the skill and experience of our management team will continue to provide
significant benefits to us as we continue to enhance and expand our service
offerings.
Our Business Strategy
Our objective is to be the preeminent regional provider of integrated
communications services in the Gulf Coast, Mid-Atlantic and Midwest regions of
the United States. During the first quarter of 2000, we completed a strategic
reorganization of our business into two operating divisions, the Local
Telecommunications Division ("LTD") and the Integrated Communications Division
("ICD"). The LTD is responsible for the operation, integration and development
of our established markets. The ICD is responsible for developing and expanding
our target markets and transport business. The key elements of our strategy
include:
Expanding our established regional presence. We are focused on expanding our
base of services and reputation to serve the increasing needs of customers in
our established markets and to enter new markets within our regions. We believe
that we can capitalize on opportunities in select markets which have
traditionally been underserved and become a preeminent regional communications
provider. By pursuing a regional strategy, we are building on our established
operational and network infrastructure and our management expertise.
Continuing to deliver superior communications services. We intend to
continue to deliver superior communications services through our integrated
regional platform. We believe our performance advantage is derived from:
Superior delivery of a full suite of services: We provide customers with
a full suite of services. We have the ability to provide an array of
integrated services in voice, high-speed data, fiber transport and Internet
access, all on one bill. Our value-added services include DSL service,
voice mail, caller identification and conference bridge services. In most
instances, we believe our customer care and service delivery are better
than the services currently provided by the Regional Bell Operating
Companies, or RBOCs, and other incumbent providers.
Economies of scale: We have centralized many business and back office
functions including procurement, regulatory, finance, accounting, legal and
human resources, which creates economies of scale while maintaining local
management and customer service functions in our operating locations. This
allows us to serve our customers in a more cost-effective manner.
Regional fiber optic network: Our 2,200 route-mile fiber network is a
state of the art fiber communications backbone interconnecting our markets,
which allows us to deliver high speed broadband applications to our
customers cost-effectively. The network will allow us to transport our and
other carriers' data for termination or interconnection in major markets
such as Atlanta, Dallas, Houston and New Orleans. A full service network
control center, operating twenty-four hours a day, seven days a week, to be
located in Dallas, Texas will provide backbone surveillance and performance
monitoring for all core and edge network devices by the second quarter of
year 2000.
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Extensive local market knowledge: We have dedicated and experienced
senior managers and customer service representatives located in each region
with an extensive knowledge of the dynamics of their specific markets. In
addition, we customize our operations to fit the requirements of each
locale. We believe this approach will continue to produce better than
average growth in customer lines, increased service penetration in acquired
accounts and greater customer retention. Operating under local brand names,
such as Mebtel Communications, Gallatin Communications and Coastal
Communications, is a part of our marketing strategy.
Providing additional services. We seek to provide additional services and
integrated communications solutions efficiently to our established base of
customers and to customers in new markets. We intend to accomplish this by:
Marketing value-added services to our established customer base: As an
established provider of high quality, reliable services, we are pursuing a
strategy of bundling our products to provide customers a full range of
communications products through a single provider. For example, in our
North Carolina market we have increased our penetration of the long
distance market by an average of 1.5% per month by targeting our existing
customers since we began offering private label long distance service in
July 1999.
Delivering integrated communications services to businesses and
residential multiple dwelling units in our expansion markets: We believe
that offering integrated communications services appeals to customers in
businesses and residential multiple dwelling units who seek to select from
a full suite of services including voice, high speed data, dedicated fiber
transport, Internet access, conference bridge and voice mail, all on one
bill. Our existing network, including our fiber communications backbone,
along with our established operational infrastructure and management depth
allow us immediate access to customers in our target markets. By utilizing
the operations infrastructure in our established markets in combination
with leased or owned fiber, we believe we can execute a capital efficient
strategy to serve new markets effectively. In addition, we intend to
utilize our owned fiber backbone to target wholesale customers including
inter-exchange carriers, competitive access providers, Internet service
providers, competitive local exchange carriers and wireless carriers.
Growing through selective acquisitions. In addition to internal growth, we
believe that we can continue to grow our business by engaging in selective
acquisitions of value enhancing assets. Only those candidates that meet our
rigorous selection criteria will be considered for acquisition. Among other
criteria, we consider: current and historical operating performance; geographic
location of network and proximity to our established or expansion markets;
demographic profile of market; quality of infrastructure and facilities;
regulatory environment and outlook; integration; management; and opportunities
to provide integrated communications services.
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Organization
The following chart sets forth our current structure:
[ORGANIZATION CHART OF MADISON RIVER]
- --------
(/1/Gulf)Long Distance, Inc. and Gulf Telephone Company are wholly-owned
subsidiaries of Gulf Coast Services, Inc.
(/2/Gallatin)River Communications LLC is a wholly-owned subsidiary of Gallatin
River Holdings, LLC.
(/3/Madison)River Capital, LLC owns 100% of the voting stock of Coastal
Communications, Inc. Non-affiliated parties own the remaining interests of
Coastal Communications, Inc.
(/4/Coastal)Long Distance Services, Inc. is a wholly-owned subsidiary of
Coastal Utilities, Inc.
Products and services
We currently provide integrated communications services to business and
residential customers and transport services to end users and other data and
voice carriers.
Integrated communications services. We seek to capitalize on our local
presence and network infrastructure by offering a full suite of integrated
communications services in voice, high-speed data, fiber transport, Internet
access and long distance services, as well as value-added features such as call
waiting, caller identification, DSL, voicemail and conference bridge services,
all on one bill.
Outside of the markets in which we are an incumbent local provider, we
intend to provide a full suite of integrated data-centric and voice-centric
communications services in a number of secondary markets. In many cases these
markets are within a reasonable proximity of our existing markets or our
network infrastructure. We have recently entered into new markets, such as
Raleigh-Durham, Cary, Chapel Hill and Greensboro, North Carolina, and have
plans to enter into other new markets such as Peoria and Springfield, Illinois
by the end of the year 2000.
Set forth below are brief descriptions of our communications services:
Voice. As of March 31, 2000, we provided local exchange service as an
incumbent local telephone company in areas serving approximately 193,000
access lines. We offer all of our local telephone subscribers value-added
features such as call waiting, call forwarding,
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conference calling, speed dialing, caller identification and call blocking.
As of December 31, 1999, approximately 46% of our access lines subscribed
to one or more of our value added features. We offer local exchange
services in all of the markets in which we currently provide
telecommunications services and expect to offer local services in a total
of 16 markets by December 31, 2000. We also offer a full range of retail
long distance services, including traditional switched and dedicated long
distance, toll free calling, international, calling card and operator
services. Over time, as part of our expansion strategy, we expect to
supplement our own switching facilities and existing regional fiber optic
network by using the unbundled network elements of incumbent local exchange
carriers or other competitive local service providers in the surrounding
areas. On a pro forma basis, our voice services accounted for approximately
83.8% of our total revenues for the year ended December 31, 1999.
In connection with our offering of local services, we have entered into
Interconnection Agreements with Ameritech (for Illinois), GTE (for Illinois
and North Carolina) and BellSouth (for all nine BellSouth States), to (1)
resell the interconnector's local exchange services and (2) interconnect
our network with the interconnector's network for the purpose of
immediately gaining access to the unbundled network elements necessary to
provide local exchange services and DSL. The Interconnection Agreements
contain provisions which grant us the right to obtain the benefit of any
arrangements entered into during the term of the Interconnection Agreements
between the interconnectors and any other carrier that materially differs
from the rates, terms or conditions of our Interconnection Agreements.
Under the Interconnection Agreements, we may resell one or more unbundled
network elements of the interconnectors at agreed upon prices. The
BellSouth and Ameritech Interconnection Agreements call for reciprocal
compensation associated with the transport and termination of
interconnected local traffic, excluding Internet service provider traffic.
The GTE agreement uses the "bill and keep" method of compensation for the
transport and termination of interconnected local traffic.
Data services. We provide high quality data services to our customers
primarily using ATM switches distributed strategically throughout our
network, enabling customers to use a single network connection to
communicate with multiple sites throughout our fiber optic network. We will
continue to seek, through strategic business relationships with other
providers, to interconnect our fiber optic network with the fiber optic
networks of other companies. We anticipate increasing demand for data
services in the future and expect that in the future a larger percentage of
our revenues will be derived from the sale of dedicated and multipoint data
services. We also provide high speed and high quality DSL services in all
of our markets.
Internet access, Intranet services and Web development. We also provide
dedicated ATM Internet access and Intranet services, electronic mail and
Web development services. We expect that businesses in the secondary
markets in which we operate will require faster Internet access and larger
bandwidth in the future, and we intend to offer products that will meet
that demand.
Other Services. We sell and install customer premise equipment such as
telephones and office private branch exchange systems for customers in our
markets. We also print, publish and sell advertising in local telephone
directories in markets where we are also the ILEC.
Transport services. We intend to provide services to major
telecommunications carriers and non-facilities based carriers that have
switches but do not own transmission facilities, to transport their already-
switched traffic between local access and transport areas, or LATAs. Digital
data and voice transmitted over a long-haul circuit for a customer are
generally routed by the customer through a switch to a receiving terminal in
our network. We transmit the signals over a long-haul circuit to the terminal
where the signals are to exit our network. The signals are then routed by the
customer through another switch and to the call recipient through a local
exchange carrier. We will
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provide DS-1, DS-3 and OC-N services. OC-N services are used for very high
capacity inter-city connectivity and specialized high speed networking. The
interface between our network and the customer's facilities will be by either
local exchange carrier or a direct connection between our network and the
facilities of the customer. We intend to bill the customers a fixed monthly
rate depending on the capacity and length of the circuit, regardless of the
amount the circuit is actually used. Our transport facilities will be
continually monitored by our network control center.
Sales and marketing
Our marketing approach emphasizes locally managed, customer oriented sales,
marketing and service. As of March 31, 2000, the sales and marketing group was
comprised of 23 direct sales personnel in our existing markets. We intend to
expand our locally managed sales and marketing approach in each of our markets.
We have local staff and provide sales and customer support services in the
community. We believe that local presence facilitates a direct connection to
the community, which improves customer satisfaction and loyalty. From time to
time, we retain third-party telemarketers for specific purposes.
We or our predecessors have been serving these markets for at least five
decades. We intend to open additional offices in our larger markets as we
expand our operations. Our direct sales force targets medium and large
businesses as well as residential multi-tenant units. We perform detailed
demographic studies which enable us to identify customers we believe will
benefit most from our services. This approach improves sales productivity by
eliminating a majority of non-productive cold calls. Our sales personnel make
direct calls to prospective and existing business customers, conduct analyses
of business customers' usage histories and service needs, and demonstrate how
our service package will improve a customer's communications capabilities and
costs. Our sales personnel work closely with our network engineers and
information systems consultants to design new service products and
applications, such as xDSL and wholesale transport services. Our local offices
are primarily responsible for coordinating service and customer premise
equipment installation activities. Our technicians survey customer premises to
assess building entry, power and space requirements and coordinate delivery,
installation and testing of equipment.
Our sales force is trained to emphasize our customer focused sales and
customer service efforts, including our 24 hours a day, 365 days a year
customer service center, which a customer may call with any question or problem
regarding our services. Our employees answer customer service calls directly
rather than requiring customers to use an automated queried message system. We
believe our emphasis on a "single point of contact" for meeting the customers'
telecommunications needs, as well as our ability to provide a fully integrated
monthly billing statement for local, long distance, 800, international, voice
mail, Internet access and calling card service, is very appealing to our
prospective customers. Our ATM-based services are fully monitored for service
performance by systems in our network operating centers, enabling us to provide
preventative as well as corrective maintenance.
We seek to maintain and enhance the strong brand identity and reputation
that each of our local telephone companies enjoys in the communities that it
serves, as we believe this is a significant competitive advantage. For example,
in each of our major areas of operation, we market Internet access and presence
through our local brand names, madisonriver.net, mebtel.net, mebtel.com,
gallatinriver.com, coastal-online.com and gulfnet.com. As we market new
services, or reach out from our established markets, we will seek to use our
brand identities to attain increased recognition with potential customers.
Network
We offer full facilities-based services in each of our markets. We own and
operate a fully integrated telecommunications network comprised primarily of
five ATM core switches, capable
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of handling both voice and data, and nine TDM digital central office switches
in our three regions of operation. Our network also includes a 2,200 route-mile
fiber optic network predominately based in the southeastern United States. We
currently own all of our network facilities and believe that our ownership
creates strategic value for the company. We continue to expand our network and
look to identify new markets for other network expansion opportunities and will
consider potential network facility acquisitions from time to time.
We believe our proven Operational Support Systems (OSS) and Customer
Care/Billing systems allow us to meet or exceed our customers' expectations.
These OSSs include inter-company provisioning (Metasolve) and trading partner
electronic data exchange systems (DSET), which offer a rapid exchange of
mission critical data needed to provision and support the expansion of our
competitive local services customer base. Our OSSs are scalable to accommodate
our planned growth and expansion.
Switching Strategy. Our switch deployment strategy in our competitive local
operations incorporates both TDM switching devices as well as newer ATM "soft
switch" platforms. Using Nortel Network's Passport and Succession technology,
supported by high density wave division multiplexing, or HDWDM, fiber optic
transport, we are building a next generation ATM network. TDM switching systems
components are deployed as public switched telephone network interface vehicles
through newly available integrated ATM friendly modules in Nortel's DMS 500 and
ATM edge devices. We deliver both switched and non-switched data-centric and
voice-centric services to our targeted business and residential market segments
in a robust, cost effective, single solution package. Because of the growth in
customer demand for data-centric products, our ability to compete in the market
place is substantially improved by our single integrated voice-centric and
data-centric ATM delivery medium.
Presently, we have deployed two DMS500 Passport and Succession based host
systems in North Carolina and Illinois. In each case, we have extended our
switching footprint, employing ATM transport and "soft switch" remote
technology in lieu of TDM and pulse code modulation, or PCM, switching and
transport options. We believe our strategy of rapidly moving into nearby
markets, using an extensive SONET transport network based on the latest ATM
technology while leasing "last mile" digital qualified local loop facilities
from the incumbent local carrier, creates a highly competitive and robust
telecommunications alternative to traditional local high speed data and voice
services. In addition, deployment of remote ATM "soft switches" along our
existing fiber optic routes, in lieu of TDM remotes or host switching systems,
enables us to expand our network footprint in a cost effective and timely
manner with limited exposure to premature obsolescence.
A basic foundation of our switch and private line deployment tactic is
predicated on ATM's ability to handle single point and multi-point data-centric
transport alternatives. We believe this, together with our capacity to
dynamically allocate bandwidth between voice and data demands at the edge
device level, positions us on the leading edge of providing telecommunication
customer products and solutions.
We anticipate an increase in our voice and data handling capacity on our
existing local, inter-city and inter-state fiber network by deploying ATM
transport alternatives across our southeast fiber routes that increase voice
traffic through-put to at least four times that of obsolete PCM schemes.
Host switching systems will be strategically placed on our fiber route in
New Orleans, Louisiana and Mobile, Alabama. From there we intend to move across
our fiber network, deploying ATM remote switching devices in Biloxi,
Mississippi and Montgomery, Alabama. We plan to include Pensacola, Florida,
Dallas and Houston, Texas and Atlanta, Georgia as well as yet to be identified
small cities and rural areas along our existing routes.
Fiber Optic Facilities. Our owned high capacity fiber network in the Gulf
Coast region is capable of reaching over 20 major points of presences in six
southeastern states (Alabama, Florida,
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Louisiana, Mississippi, Georgia and Texas). Presently, it extends approximately
2,000 route-miles linking Dallas to Atlanta along a route touching a number of
southern and southeastern cities such as Houston, Texas; Baton Rouge and New
Orleans, Louisiana; Biloxi, Mississippi; Mobile and Montgomery, Alabama; and
Pensacola, Tallahassee and Lake City, Florida.
In our fiber optic network in the Mid-Atlantic region, there are
approximately 575,000 business access lines within the reach of our existing
local service area. To reach these potential customers, we are developing an
intercity fiber optic network stretching 254 route miles from Raleigh-Durham
through the Research Triangle area to Winston-Salem, North Carolina. We
acquired this fiber through indefeasible rights of use arrangements lasting 20
years, as well as optical windows with providers of wholesale fiber capacity.
Serving as the backbone of our Gulf Coast and Mid-Atlantic regions, this
high capacity optical network allows us to offer a full range of data-centric
and voice-centric integrated communications services to our existing and
targeted customers, including other communications carriers. Our network offers
electronic diversity as well as diverse access routing.
Our fiber network's advanced fiber and transmission electronics provide us
with lower operating and maintenance costs compared with older fiber systems
that are typical in commercial use today. In addition, we have entered into
irrevocable rights of use and joint construction contracts, which have and will
continue to reduce our net cost per fiber mile.
Our network control center located in Mebane, North Carolina monitors all of
our networks in the Mid-Atlantic region from one location. A similar operation
has been established in Galesburg, Illinois for our markets in that region. In
addition, we will establish a full service network control center in Dallas,
Texas, which will provide backbone surveillance and performance monitoring for
all our core and edge devices by the end of the second quarter of 2000. These
three centers will provide support for each other as well.
Industry overview and competition
Over the past several years, the telecommunications industry has undergone
significant structural change. Many of the largest service providers have
achieved growth through acquisitions and mergers. These combinations have
provided access to new markets, new products and economies of scale. Despite
this consolidation, the number of new entrants is increasing and small new
entrants are gaining market share from the large and established providers, in
part, because the demand for all types of telecommunications services has been
increasing, with especially rapid growth in high-speed data services, including
the Internet.
The 1982 antitrust consent decree between AT&T and the U.S. Department of
Justice strongly influenced the current structure of the communications
industry. The consent decree was intended, among other things, to spur
competition in providing long distance service and supplying telecommunications
equipment. The Telecommunications Act of 1996 replaced the restrictions on the
RBOCs from the 1982 consent decree and enhanced the development of competition
in telecommunications services. The Telecommunications Act of 1996, among other
provisions:
. prohibits states from enforcing barriers to entry;
. requires most ILECs to interconnect with competing carriers on
nondiscriminatory terms;
. requires most ILECs to lease parts of their networks, including the
telephone lines that connect an end-user to a local exchange carrier's
switch, to competing carriers at cost-based prices; and
. requires most ILECs to provide service at wholesale rates to competing
carriers for resale to end-users.
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By allowing providers to offer additional services, the Telecommunications Act
of 1996 also stimulated competition for virtually all communications services,
including local exchange service, long distance service and enhanced services.
Providers are increasingly bundling these services and providing one-stop
shopping for end-user customers.
The rural and small urban ILEC industry is composed of a very large number
of relatively small independent companies. According to the United States
Telephone Association, there are over 1,300 independent telephone companies
with less than 25,000 access lines in the U.S. A majority of these small
telephone companies operate in sparsely populated rural areas where competition
from CLECs or wireless telecommunications companies (such as cellular or PCS
providers) is limited due to the generally unfavorable economics of
constructing and operating such competitive systems.
Most ILECs in rural and small urban markets are owned by families or small
groups of individuals and were founded soon after the expiration of Alexander
Graham Bell's patent in the 1890's. We believe that the owners of these small
companies are increasingly interested in selling such companies as the growing
technical, administrative and regulatory complexities of the local telephone
business challenge the capabilities of the existing management. In addition,
certain large telephone companies are selling many of their small rural
exchanges to focus their attention on their major metropolitan operations that
generate the bulk of their consolidated revenue and which are increasingly
threatened by competition. As a result of these circumstances, we believe that
we have, and in the future will have, numerous opportunities to acquire rural
and small urban telephone operations currently owned by the large telephone
companies.
Since the enactment of the Communications Act of 1934, federal and state
regulations promoting the widespread availability of telephone service have
allowed rural and small urban telephone companies to maintain advanced
technology while keeping prices affordable for customers. This policy
commitment was reaffirmed and expanded by the universal service provisions of
the Telecommunications Act of 1996. In light of the high cost per access line
of installing lines and switches and providing telephone service in sparsely
populated areas, a system of cost recovery mechanisms has been established to,
among other things, keep customer telephone charges at a reasonable level and
yet allow owners of such telephone companies to earn a fair return on their
investment. These cost recovery mechanisms, which are less available to larger
telephone companies, have resulted in robust telecommunications networks in
many rural and small urban areas, and such capabilities deter entry by
potential competitors in these small markets.
In markets where we implement our CLEC strategy, we will be subject to
competition from ILECs in those markets, as well as other CLECs, including
cable television operators, other ILECs operating outside their traditional
service areas, long distance carriers and wireless carriers. In addition, we
may compete against other CLECs for customer business. The ongoing
consolidation in the telecommunications industry could change the nature of our
competitive environment.
Employees
As of March 31, 2000, our work force consisted of 923 full time employees.
Approximately 169 of our employees are represented by collective bargaining
agreements with the International Brotherhood of Electrical Workers (IBEW) and
with the Communications Workers of America (CWA). Our labor agreement with the
CWA, covering employees of Gallatin River in Galesburg, Illinois expires on
April 30, 2002. Our labor agreements with the IBEW, covering employees of
Gallatin River in Dixon and Pekin, Illinois expire on November 30, 2002 and
September 30, 2002, respectively. There can be no assurance that, upon the
expiration of existing collective bargaining or similar agreements, new
agreements will be reached without union action or that any such new agreements
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will be on terms satisfactory to us. We believe that our future success will
depend on our continued ability to attract and retain highly skilled and
qualified employees. We believe that our relations with our employees are good.
Properties
We own offices and space in a number of locations within our three regions
of operation, primarily for our central office switches, network monitoring,
customer service centers, sales offices and network equipment installations.
Our corporate headquarters and accounting center are located in 20,980 square
feet of leased space in Mebane, North Carolina. The lease for most of this
space (including our renewal options) will expire in approximately thirteen
years. We believe our current facilities are adequate to meet our needs in our
existing markets for the foreseeable future.
Legal proceedings
On September 29, 1999, our parent company, Madison River Telephone Company,
LLC acquired all of the stock of Gulf Coast Services, Inc. On October 5, 1999,
nine former employees of a subsidiary of Gulf Coast, who had elected to retire
and receive cash distributions for their interests in an employee stock
ownership plan (ESOP) in 1996 and 1997 filed a class action lawsuit in Alabama
state court alleging breach of fiduciary duty, suppression, and
misrepresentation against, among others, Gulf Coast and its subsidiary in an
action titled Bobby Grimes, et al. v. Gulf Telephone Co., et al., CV-99-1006
(U.S. District Court for the Southern District of Alabama). The complaint
alleged that the defendants failed to disclose to plaintiffs' ongoing
negotiations for the sale of the company and that the true value of their ESOP
interests was higher than the amounts offered to them in connection with their
early retirement. Plaintiffs have, since the inception of the case, filed an
amended complaint on November 18, 1999 adding ten additional named plaintiffs,
and seeking class certification, the establishment of a constructive trust to
distribute proceeds from the sale of Gulf Telephone to the plaintiffs, and a
preliminary injunction to stop Gulf Telephone from making any further
distributions from the ESOP. The plaintiffs are also seeking unspecified
compensatory and punitive damages, and attorneys fees as a result of
defendants' alleged breach of fiduciary duty, self dealing, misrepresentation
and fraudulent inducement to retire and forego the benefits of continued
employment in connection with the plaintiffs' retirement elections and ESOP
distributions. On December 6, 1999, defendants moved to dismiss plaintiffs'
amended complaint on the ground that it failed to state any claim upon which
relief could be granted. Defendants' motion is currently pending with the
Court.
Madison River believes plaintiffs' allegations are without merit and intends
to defend against them vigorously. Additionally, Madison River believes it will
be entitled to indemnification from the former stockholders of Gulf Coast for
any potential liability resulting from this lawsuit. Consequently, Madison
River does not believe that the resolution of this litigation will have a
material adverse effect on Madison River's financial condition.
We are not aware of any other material litigation against us. We are
involved in numerous regulatory proceedings before various public utilities
commissions, as well as before the FCC.
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REGULATION
Overview
We are subject to regulation by federal, state and local government
agencies. At the federal level, the Federal Communications Commission generally
has jurisdiction over interstate and international telecom services. State
public service commissions, commonly referred to as "PSCs," generally exercise
jurisdiction over intrastate telecom services. The FCC does not directly
regulate enhanced services and has preempted certain inconsistent state
regulation of enhanced services. Additionally, municipalities and other local
government agencies regulate limited aspects of our business, such as use of
government owned rights of way, construction permits and building codes. The
following description covers some of the major regulations affecting us, but
there are numerous other areas of regulation which influence our business.
Federal regulation
Our provision of services must comply with the requirements of the
Communications Act of 1934, as amended by the Telecom Act. Pursuant to this
statute, the FCC regulates the rates and terms for interstate access services,
which are an important source of revenues for our ILEC subsidiaries. This
federal statute also creates opportunities for us by promoting competition in
telecom services. The Telecom Act has changed and will continue to change the
marketplace for telecom services. Among its more significant provisions, the
Telecom Act (1) removes legal barriers to entry into local exchange services,
(2) requires ILECs to interconnect with competitors, (3) establishes procedures
for ILEC entry into other services, such as long distance for the Regional Bell
Operating Companies (RBOCs), and (4) directs the FCC to establish an explicit
subsidy mechanism for the preservation of universal service.
Access Charges. The FCC regulates interstate access charges, which are the
ILECs' charges for use of their exchange facilities in originating or
terminating interstate transmissions. Interstate access charges are structured
pursuant to FCC rules as a combination of flat monthly end-user charges, usage
sensitive charges paid by inter-exchange carriers, and flat monthly inter-
exchange carrier charges.
For larger ILECs, the FCC ordered a multi-year transition in the structure
of interstate access charges, which is designed to lead to lower usage
sensitive charges. The FCC adopted these rules in May 1997, and they were
upheld on court review in August 1998. The FCC issued a notice of proposed
rulemaking in May 1998 proposing to adopt similar rules for the access charges
of smaller ILECs, including our subsidiaries, but has not yet adopted an order
in this proceeding. On August 5, 1999, the FCC adopted an order and further
notice of proposed rulemaking aimed at additional pricing flexibility and other
deregulation for large ILECs' interstate access services, particularly special
access and dedicated transport. The FCC has proposed further changes in the
structure of interstate access charges, including through a notice released on
September 15, 1999.
The FCC regulates the levels of interstate access charges through price caps
for larger ILECs and through various forms of rate regulation for smaller
ILECs. The FCC's rules require that affiliated ILECs employ price caps on an
all-or-none basis. For 1999, our ILEC subsidiaries elected not to apply federal
price caps. Instead, these subsidiaries employ rate-of-return regulation for
interstate access charges. Mebtel and Coastal Communications filed tariffs for
interstate access services which became effective on July 1, 1999, and our
other ILEC subsidiaries apply tariffs filed by the National Exchange Carrier
Association for a pool of small ILECs. Association tariff rates are established
based on the pooling carriers' expenses incurred and investment and a regulated
rate of return. The current authorized rate of return for such interstate
access services is 11.25%, which was prescribed in 1990. The FCC initiated a
rulemaking proceeding in October 1998 considering whether to represcribe
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the authorized rate of return for ILECs employing such regulation. While the
outcome and timing of this proceeding are uncertain, it could lead to a
reduction in the authorized rate of return and consequently a decrease in our
revenues from interstate access services.
Removal of Entry Barriers. Prior to enactment of the Telecom Act, many
states limited the services that could be offered by a company competing with
an ILEC. The Telecom Act generally prohibits state and local governments from
enforcing any law, rule or legal requirement that prohibits or has the effect
of prohibiting any entity from providing any interstate or intrastate telecom
service. However, states can modify conditions of entry into areas served by
rural telephone companies where the PSC has determined that certain universal
service protections must be satisfied. The federal law should enable us to
provide a full range of local exchange and inter-exchange services in most
areas of any state. Because the Telecom Act reduces the barriers to entry by
all potential competitors, the level of competition in all the markets we serve
as an ILEC or CLEC will likely increase. See "Business--Industry Overview and
Competition."
Interconnection with LEC and Access to Other Facilities. The Telecom Act
imposes a number of access and interconnection requirements on all local
exchange providers, including CLECs, with additional requirements imposed on
ILECs. These requirements ensure access to certain networks under reasonable
rates, terms and conditions. Specifically, LECs must provide the following:
. Resale. All LECs generally may not prohibit or place unreasonable
restrictions on the resale of their services.
. Telephone Number Portability. Telephone number portability enables a
customer to keep the same telephone number when the customer switches
LECs.
. Dialing Parity. All LECs must provide dialing parity, which allows
customers to route their calls to a telecommunications provider without
having to dial special access codes.
. Access to Rights-of-Way. All LECs must provide access to their poles,
ducts, conduits and rights-of-way on a reasonable, nondiscriminatory
basis.
. Reciprocal Compensation. The duty to provide reciprocal compensation
means that each LEC on whose network a call originates must reasonably
compensate each LEC on whose network the call terminates.
All of our LEC subsidiaries have implemented full equal access capabilities.
Our ILEC subsidiaries have not received a request to implement local number
portability. The FCC's rules require an ILEC to use reasonable efforts to
implement this capability after receiving such request.
In addition, all ILECs must provide the following, subject to possible
exemptions for rural telephone companies based on economic or technical
burdens:
. Resale. An ILEC must offer its retail local exchange services to
resellers at a wholesale rate that is less than the retail rate charged
to end-users.
. Unbundling of Network Elements. ILECs must offer access to various
unbundled elements of their networks.
. Collocation. ILECs must provide physical collocation, which allows CLECs
to install and maintain their own network termination equipment in ILEC
central offices, or functionally equivalent forms of interconnection
under some conditions.
As defined in the Telecom Act, all of our subsidiaries qualify as rural
telephone companies. Therefore, they have an exemption from the ILEC
interconnection requirements until they receive a bona fide request for
interconnection and the PSC lifts the exemption. However, Gallatin River
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has agreed with its state regulators that it will not contest requests by CLECs
for such interconnection arrangements. State commissions have jurisdiction to
review certain aspects of interconnection and resale agreements.
The FCC has adopted rules for unbundled offerings of the ILECs' network
elements and pricing these services to CLECs. In January 1999, the United
States Supreme Court upheld the FCC's authority to adopt pricing rules for
unbundled network elements and resale by CLECs and upheld the FCC's rules
allowing CLECs to pick-and-choose among provisions in interconnection
agreements that ILECs enter into with other CLECs. While the Supreme Court
established that the FCC has the authority to adopt pricing rules for unbundled
network elements, the courts have not yet resolved the validity of the specific
pricing guidelines based on total service long-run incremental costs that the
FCC adopted. Further, the Supreme Court instructed the FCC to reconsider an
earlier determination regarding the extent to which ILECs are required to
unbundle elements of their networks. In September 1999, the FCC adopted an
order identifying which network elements ILECs are required to provide to
CLECs. On March 17, 2000, the D.C. Circuit Court of Appeals upheld some of the
FCC's collocation rules but vacated and remanded the FCC's interpretation of
"necessary" and "physical collocations." GTE and the BOC's have agreed to abide
by their existing collocation practices while the FCC decides the issues on
remand.
The Telecom Act requires utilities to provide access to their poles, ducts,
conduits and rights-of-way to telecom carriers on a nondiscrimination basis. On
June 10, 1999, the FCC initiated a regulatory proceeding seeking comment from
the public on a number of issues related to access for telecommunications
providers to multi-tenant buildings. The FCC seeks to adopt rules which will
increase competition in telecommunications services. We cannot predict the
outcome of the various pending FCC proceedings or their effects on our
business.
RBOC Entry into Long Distance Services. Our principal competitor for local
services in each area where we operate as a CLEC is an ILEC. In many of these
areas, the ILEC is a RBOC. The Telecom Act allows the RBOCs to enter into
providing long distance services within their own local service regions upon
satisfaction of a 14-point checklist of competitive requirements. To date, the
FCC has granted only one RBOC petition for entry in a particular state and has
denied several other of these petitions. On December 22, 1999, the FCC granted
Bell Atlantic approval to provide long distance services in New York State. On
April 5, 2000, SBC filed a petition to provide long distance services in Texas.
Although several of the RBOCs are in the process of attempting to show their
compliance with these requirements in various states, the timing of filing of
other such petitions with the FCC and the timing of their approval for entry
into the in-region long distance service business in any one state is
uncertain. In addition, federal legislation has been introduced to allow the
RBOCs to provide long distance Internet and high-speed data services.
Relaxation of Regulation. Through a series of proceedings, the FCC has
decreased the regulatory requirements applicable to carriers which do not
dominate their markets. All providers of domestic interstate services other
than ILECs are classified as non-dominant carriers. Our subsidiaries which are
operating as non-dominant carriers are subject to relatively limited regulation
by the FCC. Among other things, these subsidiaries must offer interstate
services at just and reasonable rates in a manner that is not unreasonably
discriminatory.
In 1996, the FCC issued an order requiring non-dominant inter-exchange
carriers to cease filing and to withdraw their tariffs for domestic inter-
exchange services. This order was upheld by a federal appeals court on April
28, 2000. Non-dominant interstate carriers will no longer be able to rely on
tariffs as a means of specifying the prices, terms and conditions under which
they offer interstate services. In June 1997, the FCC issued another order
allowing non-dominant LECs to withdraw their
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interstate access tariffs. Moreover, in March 1999, the FCC adopted rules that
require long distance carriers to make specific public disclosures on the
carriers' Internet web sites. The effective date of these rules was delayed
until after the court's decision on the appeal in the FCC's detariffing order.
Universal Service. The FCC is required to establish a "universal service"
program to ensure that affordable, quality telecommunications services are
available to all Americans. The Telecommunications Act sets forth policies and
establishes certain standards in support of universal service, including that
consumers in rural areas should have access to telecommunications and
information services that are reasonably comparable in rates and other terms to
those services provided in urban areas. A new universal service support
mechanism for larger ILECs went into effect on January 1, 2000. The FCC has
stated that it intends to review universal service support mechanisms for
smaller ILECs in a subsequent proceeding. Our contribution to federal universal
service support is assessed against our interstate end-user telecommunications
revenues.
We are required to contribute to state universal service programs, in
addition to the federal program. Our contribution for such state programs is
assessed against our intrastate revenues. Although many states are likely to
adopt an assessment methodology similar to the federal methodology, states are
free to calculate telecommunications service provider contributions in any
manner they choose as long as the process is not inconsistent with the FCC's
rules.
Internet. The FCC has to date treated Internet service providers (ISPs) as
enhanced service providers rather than common carriers. As such, ISPs have been
exempt from various federal and state regulations, including the obligation to
pay access charges and contribute to universal service funds. The FCC has
determined that both dedicated and dial-up calls from a customer to an ISP are
interstate, not local, calls, and, therefore, are subject to the FCC's
jurisdiction. On March 24, 2000, the D.C. Circuit Court of Appeals vacated and
remanded this determination so that the FCC can explain more clearly why such
calls are not considered local. In addition, several states are considering
this issue, and at least one state has held that the originating LEC is not
required to pay reciprocal compensation for such calls.
Customer Information. The Telecom Act and FCC rules adopted thereunder
protect the privacy of certain information about telecom customers that a
carrier like us acquires by virtue of our provision of telecom services to such
customers. Protected information includes information related to the quantity,
technical configuration, type, destination and the amount of use of a telecom
service. A carrier may not use such information acquired through one of its
service offerings to market certain other service offerings without the
approval of the affected customers. These restrictions may affect our ability
to market a variety of packaged services to existing customers.
Slamming. A customer may change service providers at any time, but the FCC
and some states regulate this process and require that specific procedures be
followed. When these procedures are not followed, particularly if the change is
unauthorized or fraudulent, the process is known as "slamming." The FCC has
levied substantial fines for slamming and has recently increased the penalties
for slamming, although no such fines have been assessed against us.
State regulation
Most states have some form of certification requirement which requires
telecom providers to obtain authority from the PSC prior to offering common
carrier services. Our operating subsidiaries in Alabama, Illinois, North
Carolina and Georgia are ILECs and are certified in those states to provide
local telephone services.
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PSCs generally regulate the rates ILECs charge for intrastate services,
including rates for intrastate access services paid by providers of intrastate
long distance services. ILECs must file tariffs setting forth the terms,
conditions and prices for their intrastate services. Under the Telecom Act,
PSCs have jurisdiction to arbitrate and review negotiations between ILECs and
CLECs regarding the prices ILECs charge for interconnection of network elements
with, and resale of services by, CLECs, in accordance with rules set by the
FCC. See "Business--Regulation--Federal Regulation." PSCs may also formulate
rules regarding taxes and fees imposed on providers of telecommunications
services within their respective states to support state universal service
programs.
In Alabama, Gulf Telephone is subject to regulation by the Alabama Public
Service Commission. Gulf Telephone must have tariffs approved by and on file
with that commission for basic, non-basic and interconnection services.
The Illinois Commerce Commission (ICC) regulates Gallatin River. Gallatin
River provides services pursuant to tariffs that are filed with, and subject to
the approval of, the ICC. The rates for these services are regulated on a rate
of return basis by the ICC, although Gallatin River has some pricing
flexibility with respect to services that have been deemed competitive by the
ICC, such as digital centrex, high capacity digital service, wide area
telephone service (WATS), and digital data services. The ICC has approved
several interconnection agreements under the Telecom Act between Gallatin River
and mobile wireless carriers. Gallatin River is required to support state
universal service programs and is subject to ICC rules implementing these and
the federal universal service programs.
In North Carolina, our operating subsidiary Mebtel is regulated by the North
Carolina Utilities Commission. Mebtel provides service pursuant to tariffs that
are filed with, and subject to the approval of, that commission. Effective
January 1, 2000, a price cap plan applies to Mebtel's rates for intrastate
services, replacing rate of return regulation. Mebtel is subject to commission
rules implementing state and federal universal service programs.
In Georgia, Coastal Communications is regulated by the Georgia Public
Service Commission. Passage of the Telecommunications and Competition
Development Act of 1995 in Georgia significantly changed that commission's
regulatory responsibilities. Instead of setting prices for telecommunications
services, the commission now manages and facilitates the transition to
competitive markets, establishes and administers a universal access fund,
monitors rates and service quality, and mediates disputes between competitors.
A price cap plan applies to Coastal Communications' rates for intrastate
services.
Local government authorizations
We may be required to obtain from municipal authorities street opening and
construction permits or operating franchises to install and expand fiber optic
facilities in certain cities. We have obtained such municipal franchises in our
ILEC territories in Alabama, North Carolina, Illinois and Georgia. In some
cities, subcontractors or electric utilities with which we have contracts may
already possess the requisite authorizations to construct or expand our
networks.
Some jurisdictions where we may provide service require license or franchise
fees based on a percent of certain revenues. There are no assurances that
jurisdictions that do not currently impose fees will not seek to impose fees in
the future. The Telecom Act requires jurisdictions to charge nondiscriminatory
fees to all telecom providers, but it is uncertain how quickly this requirement
will be implemented by particular jurisdictions in which we operate or plan to
operate, especially regarding materially lower fees that may be charged to
ILECs.
58
<PAGE>
MANAGEMENT
Board of Managers and Executive Officers
We are managed by our sole member, Madison River Telephone Company. The
Board of Managers of Madison River Capital consists of the following nine
members: J. Stephen Vanderwoude, James D. Ogg, Paul H. Sunu, James N. Perry,
Jr., James H. Kirby, Sanjeev K. Mehra, Joseph P. DiSabato, Mark A. Pelson and
Albert J. Dobron, Jr. At present, all managers are appointed by certain groups
of members of Madison River Telephone Company. The members holding a majority
of the member units of the group consisting of Madison Dearborn Partners'
affiliates, the group consisting of Goldman Sachs' affiliates, and the group
consisting of Providence Equity Partners' affiliates, are each entitled to
appoint up to two individuals affiliated with it to the Board. The members
holding a majority of the member units held by those individuals in management
subject to employment agreements are entitled to appoint up to three
individuals to the Board of Managers, at least two of whom must be J. Stephen
Vanderwoude, James D. Ogg, Paul H. Sunu or Donald K. Roberton. In the event
that an appointed Manager ceases to serve as a member of the Board of Managers,
the resulting vacancy on the Board of Managers must be filled by a person
appointed by the members that appointed the withdrawn manager.
The following table sets forth certain information regarding the members of
the Board of Managers, executive officers and key operations personnel of
Madison River Capital and its operating subsidiaries.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
J. Stephen Vanderwoude.. 56 Managing Director--Chairman and Chief Executive
Officer
James D. Ogg............ 61 Managing Director
Chairman and Chief Executive Officer, Local
Telecommunications Division
Paul H. Sunu............ 44 Managing Director--Chief Financial Officer
Donald K. Roberton...... 58 Managing Director
Chairman and Chief Executive Officer,
Integrated Communications Division
Kenneth Amburn.......... 57 Managing Director
Chief Operating Officer, Local
Telecommunications Division
Bruce J. Becker......... 53 Managing Director--Chief Technology Officer
Michael T. Skrivan...... 46 Managing Director--Revenues
Craig J. Stapel......... 39 Managing Director--Chief Marketing Officer
Joseph P. DiSabato...... 33 Member of Board of Managers
Albert J. Dobron, Jr.... 31 Member of Board of Managers
James H. Kirby.......... 32 Member of Board of Managers
Sanjeev K. Mehra........ 41 Member of Board of Managers
Mark A. Pelson.......... 38 Member of Board of Managers
James N. Perry, Jr...... 39 Member of Board of Managers
</TABLE>
59
<PAGE>
The following sets forth certain biographical information with respect to
the members of our Board of Managers and our executive officers:
Mr. J. Stephen Vanderwoude serves as Managing Director--Chairman and Chief
Executive Officer and was a founding member of Madison River Telephone Company
in 1996. He has over 33 years of telecommunications experience including
serving as President and Chief Operating Officer and a Director of Centel
Corporation and President and Chief Operating Officer and the Local
Telecommunications division of Sprint Corporation. He has also served as
President and Chief Executive Officer and director of Powerhouse Technologies,
Inc. from 1994 to 1995. He is currently a director of Centennial Communications
and First Midwest Bancorp.
Mr. James D. Ogg serves as Managing Director--Chairman and Chief Executive
Officer of the Local Telecommunications Division and was a founding member of
Madison River Telephone Company in 1996. He has over 40 years of
telecommunications experience including serving as President of Centel--
Illinois and Vice President and General Manager of Centel--Virginia and
Centel--North Carolina. Mr. Ogg has also served as Vice President for
Governmental Relations for Centel Corporation. In this capacity, Mr. Ogg was
responsible for advocacy of corporate policy on telecommunications, cable and
electric businesses before Congress and federal regulatory agencies. Mr. Ogg
has successfully testified in or managed seventeen rates cases and brings
extensive experience in dealing with federal and state regulatory processes.
Mr. Ogg was retired from Sprint Corporation, the acquiror of Centel, from 1994
to 1996.
Mr. Paul H. Sunu serves as Managing Director--Chief Financial Officer and
Secretary and was a founding member of Madison River Telephone Company in 1996.
Mr. Sunu is a certified public accountant and a member of the Illinois Bar with
18 years of experience in finance, tax, treasury, securities and law. From 1991
to 1996, Mr. Sunu served as Senior Vice President, CFO and General Counsel for
RHR International Company, a management consulting firm with 16 profit centers
located in North America, Europe and Russia. Mr. Sunu has also served as
President and is one of four principals who established JMG Financial Group, a
tax and investment consulting firm. The four principals of JMG established
Equity Partners, Ltd., a real estate acquisitions and management firm. Today,
Equity Partners is known as Great Lakes REIT, a New York Stock Exchange
company.
Mr. Donald K. Roberton serves as Managing Director--Chairman and Chief
Executive officer of the Integrated Communications Division and was a founding
member of Madison River Telephone Company in 1996. He has over 39 years of
telecommunications experience including serving as Vice President--
Telecommunications and Assistant to the Chairman and Vice President--Strategic
Development, Telecommunications for Citizens Utilities from 1990 to 1996. In
these capacities, Mr. Roberton negotiated the acquisition of 500,000 access
lines from GTE and 130,000 access lines from ALLTEL, increasing Citizens'
holdings to nearly 800,000 access lines. Mr. Roberton also negotiated the
initial entry of Citizens Utilities into Hungarian Telephone and Cable
Corporation. As a result, he served as a Director and Vice Chairman of
Hungarian Telephone and Cable Company. Prior to his service with Citizens
Utilities, Mr. Roberton served as Vice President--West Division for Centel
Corporation and was responsible for P&L, sales, engineering, construction,
installation and maintenance. As Vice President--Customer Service for Centel,
he established the first remote monitoring system for observing PABXs
nationwide.
Mr. Kenneth Amburn serves as Managing Director--Chief Operating Officer of
the Local Telecommunications Division, joining Madison River in 1998. He has
over 35 years of telecommunications experience including service as Vice
President--Operations for Centel--Texas where he had oversight for operations
involving over 280,000 access lines and for customer services, network
maintenance, construction, and overall business operations for Texas. Mr.
Amburn has also served as Vice President, East Region Telecommunications for
Citizens Utilities where he was responsible for establishing the operations and
completing the transition of 1,400 employees to
60
<PAGE>
Citizens Utilities in connection with the 500,000 access line purchase from
GTE. In addition, Mr. Amburn established entrepreneurial operations through his
service with Network Construction Services, Inc. as Executive Vice President
and a member of the Board of Directors from 1995 to 1998.
Mr. Bruce J. Becker serves as Managing Director--Chief Technology Officer
for Madison River Telephone Company, joining Madison River in 1999. He has over
36 years of telecommunications experience including serving as the Senior Vice
President of Operations and Planning for ICG Telecommunications and CIO for
ICG's Telecommunications Group from 1995 to 1997. Prior to that time, Mr.
Becker served in various roles for Centel Corporation, including Vice President
of Strategic and Technical Planning, General Manager of Network Engineering and
Operations for Centel's Nevada and Texas Region, General Manager of Operational
Planning and Marketing for Centel--Nevada and General Network and Switching
Manager Centel--Texas. Most recently, from 1997 to 1998, Mr. Becker founded and
served as President of BTC Partners LTD., a telecommunications consulting firm
providing services to an array of CLECs, ILECs, CATV providers,
telecommunications and data transport equipment manufacturers and investment
groups. Mr. Becker has also served as a voting director of the T1 Committee, a
director on the UNLV School of Engineering Board, a senior member of Northern
Telecom's technical advisory board, an active member of USTA and has testified
as an expert witness at the state and federal level on numerous rate and
technology proceedings and inquiries.
Mr. Michael T. Skrivan serves as Managing Director--Revenues for Madison
River Telephone Company, joining Madison River in 1999. He is a certified
public accountant and a certified management accountant with 22 years of
experience in the telecommunications industry. Prior to joining Madison River
Telephone Company, Mr. Skrivan was a founding member in the consulting firm of
Harris, Skrivan & Associates, LLC, which provides regulatory and financial
services to local exchange carriers from 1995 to 1999. Mr. Skrivan was also an
executive with Illinois Consolidated Telephone Company for nine years, holding
positions in regulatory, strategic planning, marketing and customer service. At
Illinois Consolidated, which serves 80,000 access lines, he helped develop
competitive businesses, including wireless services, long distance services,
fiber operations, directory services, operator services, inmate services and
payphone services. Mr. Skrivan began his telecommunications career with Ernst &
Young's Telecommunications Consulting Practice, providing cost-of-service
studies to Independent Telephone Companies throughout the United States.
Mr. Craig J. Stapel serves as Managing Director--Chief Marketing Officer,
joining Madison River in 2000. He has over 13 years of experience in
telecommunications, executive, and sales management including serving as Vice
President of Sales and Marketing with One Stop Telecommunications from 1998 to
1999 where he developed sales strategies which grew revenues from $5 million to
over $18 million in less than one year. He also designed and implemented new
marketing channels that created over 7,000 new business clients in seven
months. Prior to One Stop, Mr. Stapel was President and CEO of The Millennium
Group Telemanagement where he was employed from 1985 to 1998. While at
Millennium Group, he developed the first and largest CLEC in Wisconsin.
Additionally, Mr. Stapel spent eight years, from 1987 to 1994, with MCI
Telecommunications performing marketing, planning, forecasting, training, and
technical functions for nine branch facilities encompassing three states, 130
people, and $65 million in annual revenues.
Mr. Joseph P. DiSabato is a member of the Board of Managers and a Vice
President of Goldman, Sachs & Co. in the Merchant Banking Division where he has
been employed since 1994. Mr. DiSabato serves on the Board of Directors of
several privately held companies on behalf of Goldman Sachs.
Mr. Albert J. Dobron, Jr. is a member of the Board of Managers and an
Associate of Providence Equity Partners since 1999. Mr. Dobron is also an
observer on the Board of Directors of Surebridge,
61
<PAGE>
Inc. Prior to that time, Mr. Dobron worked for Morgan Stanley & Co. from 1996
to 1999 in mergers and acquisitions and held positions with the K.A.D.
Companies, a private equity investment group, working primarily in an operating
role with one of the firm's portfolio companies. From 1994 to 1996, he was
earning his Masters of Business Administration degree.
Mr. James H. Kirby is a member of the Board of Managers and a Managing
Director of Madison Dearborn Partners. He joined Madison Dearborn Partners in
1996 and focuses on venture capital and private equity investing in the
communications industry. Prior to his joining Madison Dearborn Partners, Mr.
Kirby was with The Beacon Group from 1995 to 1996 and Lazard Freres & Co from
1993 to 1995 in private equity investing and investment banking. Mr. Kirby
currently serves on the Board of Directors of Completel Europe LLC, Reiman
Holding Company, LLC, and Wireless One Network, L.P.
Mr. Sanjeev K. Mehra is a member of the Board of Managers and a Managing
Director in Goldman Sachs' Merchant Banking Division for the past five years.
He serves on the board of Amscan Holdings, Inc., Pro Medco Management Co. and
on the boards of several portfolio companies. He is a member of the Principal
Investment Area's Investment Committee.
Mr. Mark A. Pelson is a member of the Board of Managers and a Managing
Director of Providence Equity Partners where he has been employed since 1996.
Mr. Pelson is currently also a director of Carrier 1 International S.A.,
GlobeNet Communications Group, MGC Communications, Inc. and Language Line
Holdings, LLC. Prior to joining Providence, Mr. Pelson was a co-founder and
director of TeleCorp, Inc., a wireless telecommunications company from 1994 to
1996. He previously served in various management positions with AT&T, most
recently as a general manager of strategic planning and mergers and
acquisitions.
Mr. James N. Perry, Jr. is a member of the Board of Managers and a Managing
Director and co-founder of Madison Dearborn Partners. Prior to his joining
Madison Dearborn Partners in 1993, Mr. Perry was with First Chicago Venture
Capital for eight years. Mr. Perry concentrates on investments in the
communications industry and currently also serves on the Boards of Directors of
Allegiance Telecom, Inc., @link Networks, Inc., Completel LLC, Clearnet
Communications Inc., Enews.com, Focal Communications Corporation, Omnipoint
Corporation, Orblynx, Inc., Pangea Ltd., Reiman Holding Company, LLC and
Wireless One Network, L.P.
Committees of the Board of Managers
Effective January 2000, the Board of Managers of Madison River Capital
established an Audit Committee and a Compensation Committee. The Audit
Committee, which is comprised of Messrs. Mark Pelson and Joseph DiSabato, is
responsible for overseeing the actions of Madison River Capital's and our
independent auditors and reviewing our internal financial and accounting
controls and policies. The Compensation Committee, which is comprised of
Messrs. James Perry, Sanjeev Mehra and J. Stephen Vanderwoude, is responsible
for determining salaries, incentives and other forms of compensation for
officers and other employees and administers various incentive compensation and
benefit plans. One member of our Compensation Committee, Mr. Vanderwoude, also
serves as our Chairman and Chief Executive Officer.
All executive officers serve at the discretion of the Board of Managers,
subject to the terms of any employment agreements. There are no family
relationships among managers and executive officers.
62
<PAGE>
Compensation of Managers and Executive Officers
The following table sets forth certain information regarding the cash and
non-cash compensation paid by Madison River Telephone Company to the Chief
Executive Officer and to each of our four most highly compensated executive
officers other than the Chief Executive Officer, whose combined salary and
bonus exceeded $100,000 during the fiscal year ended December 31, 1999
(collectively, the "Named Executive Officers"). The managers of Madison River
Capital do not receive any compensation for serving as a manager.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
----------------------------------- ------------
Securities
Underlying
Other Annual Unit Option All Other
Name Year Salary Bonus Compensation Grants Compensation(/1/)
---- ---- -------- -------- ------------ ------------ ----------------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
J. Stephen Vanderwoude.. 1999 $189,800 $111,000 -- -- $245,833
James D. Ogg............ 1999 160,646 50,004 -- -- 58,333
Paul H. Sunu............ 1999 160,014 90,000 -- -- 41,667
Donald K. Roberton...... 1999 157,824 60,000 -- -- 58,334
Bruce J. Becker......... 1999 160,000 -- -- -- --
</TABLE>
- --------
(/1/Represents)compensation deferred from previous years.
401(k) Savings Plans
In 1998, we established a 401(k) savings plan covering substantially all of
our employees that meet certain age and employment criteria. Pursuant to the
plan, eligible employees may elect to reduce their current compensation by up
to 15% of eligible compensation. We have agreed to contribute an amount equal
to 50% of employee contributions for the first 6% of compensation contributed
on behalf of all participants. We made matching contributions of approximately
$480,000 and $23,600 in 1999 and 1998, respectively. The 401(k) plan is
intended to qualify under Section 401 of the Internal Revenue Code of 1986, as
amended, so that contributions by employees or by us to the plan, and income
earned on plan contributions, are not taxable to employees until withdrawn and
our contributions are deductible by us when made.
Long-Term Incentive Plan
In 1998, we adopted a long-term incentive plan arrangement which provides
for annual incentive awards for certain employees as approved by the Board of
Directors. Under the terms of the plan, annual awards are expensed over the
succeeding twelve months after the award is determined. The incentive awards
vest automatically at the time of a qualified event as defined under the plan.
Vested awards are payable under certain circumstances as defined under the
long-term incentive plan arrangement. We recognized compensation expense of
$2,576,000 and $313,000 in the years ended December 31, 1999 and 1998,
respectively, related to the long-term incentive awards.
63
<PAGE>
Pension Plan
In May 1998, we adopted a noncontributory defined benefit pension plan,
which was transferred to us from our subsidiary Mebtel, Inc. The plan covers
all full-time employees who have met certain age and service requirements and
provides benefits based upon the participants' final average compensation and
years of service. Our policy is to fund the maximum allowable contribution by
the Internal Revenue Service and comply with the funding requirements of the
Employee Retirement Income Security Act of 1974.
Employment Agreements
We have entered into employment, confidentiality and noncompetition
agreements with Messrs. J. Stephen Vanderwoude, James D. Ogg, Paul H. Sunu,
Donald K. Roberton and Bruce J. Becker providing for employment of each
executive for a five-year period, subject to termination by either party (with
or without cause) on 30 days' prior written notice. The agreements also provide
that employees may not disclose any confidential information while employed by
us or thereafter. Additionally, the agreements provide that the employees will
not compete with us for a period of up to a maximum of fifteen months following
termination for cause or voluntary termination of employment.
64
<PAGE>
PRINCIPAL MEMBERS
All of Madison River Capital's outstanding member units are owned by Madison
River Telephone Company. Madison River Capital owns all of the outstanding
stock in Madison River Finance Corp. The following table sets forth certain
information regarding the beneficial ownership of Madison River Telephone
Company's member units as of April 30, 2000 by (A) each holder known by Madison
River Telephone Company to beneficially own five percent or more of such member
units, (B) each executive officer of Madison River Telephone Company and (C)
all executive officers as a group. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or
investment power with respect to securities. Options or warrants to purchase
member units that are currently exercisable or exercisable within 60 days of
April 30, 2000 are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
Number of Class A
Units, Warrants
or Options Held
Name by Member Percentage of Units
---- ----------------- -------------------
<S> <C> <C>
J. Stephen Vanderwoude......... 3,562,490.34(/1/)(/2/) 1.87%
James D. Ogg................... 1,347,417.81(/1/)(/2/) *
Paul H. Sunu................... 1,280,417.81(/1/)(/2/) *
Donald K. Roberton............. 1,280,417.81(/1/)(/2/) *
Bruce J. Becker................ 1,017,979.98(/1/)(/2/) *
Madison Dearborn Partners
group(/3/).................... 76,741,108.44 40.00%
Goldman Sachs group(/4/)....... 63,623,748.90 33.33%
Providence Equity Partners
group(/5/).................... 41,991,674.13 22.00%
ORVS Madison River............. 5,089,899.91 2.67%
All officers and managers as a
group (13 persons)............ 190,439,635.20 100.00%
</TABLE>
- --------
* Represents less than one percent (1%).
(/1/) Excludes the following incentive interests granted to management, the
vesting of which is contingent upon the occurrence of certain liquidity
events, including the sale of the company or an initial public offering:
<TABLE>
<CAPTION>
Class B Units Class C Units
------------- -------------
<S> <C> <C>
J. Stephen Vanderwoude........................ 3,000 1,550
James D. Ogg.................................. 1,500 1,150
Paul H. Sunu.................................. 1,000 1,150
Donald K. Roberton............................ 1,000 1,150
Bruce J. Becker............................... -- 770
Madison River Long Term Incentive Plan........ 3,500 4,230
</TABLE>
(/2/) Includes the following units which are owned by ORVS Madison River but
beneficial ownership of which is attributable to each officer: J. Stephen
Vanderwoude--1,017,979.98; James D. Ogg--1,017,979.98; Paul H. Sunu--
1,017,979.98; Donald K. Roberton--1,017,979.98; and Bruce J. Becker--
1,017,979.98.
(/3/) Includes 392,610 units which Madison Dearborn Capital Partners, L.P.
has the right to acquire upon conversion of existing indebtedness and
76,348,498.44 units held by Madison Dearborn Capital Partners II, L.P.
(/4/) Includes 33,156,361.07 units held by GS Capital Partners II, L.P.;
6,763,005.37 units held by GSCPII Mad River Holding, L.P.; 1,472,418.89
units held by GSCPII Germany Mad River Holding, L.P.; 15,869,587.80 units
held by GSCPII Offshore Mad River Holding, L.P.; 2,079,542.26 units held by
Bridge Street Fund 1997, L.P.; and 4,282,833.51 units held by Stone Street
Fund 1997, L.P.
(/5/) Includes 41,991,674.13 units held by Providence Equity Partners, L.P.
and Providence Equity Partners II L.P.
65
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
The following is a summary of the material terms of some of our
indebtedness. This description does not purport to be complete and is subject
to, and qualified in its entirety by reference to, all provisions of the
agreements evidencing such indebtedness. Terms used and not defined herein have
the meanings given to them in the agreements described.
Gulf Coast Credit Facility--LEC Portion
To finance the LEC portion of the Gulf Coast Services acquisition, our
subsidiary, Gulf Telephone Company (a wholly-owned subsidiary of Gulf Coast
Services, Inc.) borrowed funds in a total available amount of $156.2 million in
the aggregate under a credit facility with the Rural Telephone Finance
Cooperative (RTFC). This facility consists of the following (dollars in
millions):
<TABLE>
<CAPTION>
Amount Outstanding
as of Maximum Spread to
Availability March 31, 2000 Term RTFC "base" Rate(/1/)(/2/)
------------ ------------------ -------- --------------------------
<S> <C> <C> <C> <C>
Term A Facility......... -- $138.4 15 years 35 bps(/3/)
Term B Facility......... $ 7.8 -- 15 years 35 bps
Revolving Credit
Facility............... $10.0 -- 5 years 50 bps
</TABLE>
- --------
(/1/) Pricing subject to reduction based on achievement of a specified
leverage ratio and certain other factors.
(/2/) The RTFC "base" rate is the rate established by the RTFC from time to
time for loans similarly classified.
(/3/) In accordance with the credit facility, $138.4 million of the facility
has been converted into a fixed rate of 8.4% through October 2004.
The $10.0 million revolving credit facility was made available to us for
general corporate purposes. The $138.4 million Term A Facility was drawn at the
closing of the Gulf Coast Services acquisition and was used (i) to fund a
portion of the cost of acquiring the stock in the Gulf Coast Services
acquisition, including transaction expenses (including the repayment of
outstanding indebtedness of Gulf Coast Services and its subsidiaries), (ii) to
fund working capital, and (iii) to purchase RTFC Subordinated Capital
Certificates equal to 10% of the total amount we borrowed from the RTFC under
the Term A Facility. The $7.8 million Term B Facility is available to fund Gulf
Telephone Company's working capital and capital expenditures; however, as of
September 28, 2001, the RTFC may, in its sole discretion, stop advancing funds
under the Term B facility.
This credit facility is secured by (i) a perfected security interest in
substantially all of the assets of Gulf Telephone Company (including all of the
equity interests in its subsidiaries other than Gulf Communications, LLC) and
(ii) a pledge of all of the equity interests in Madison River Capital, Madison
River Management Company, Mebtel, Inc., Gulf Coast Services, Inc., Gulf
Telephone Company, Gulf Long Distance, Inc., Gallatin River Communications, LLC
and Gallatin River Holdings, LLC (only to the extent held by Madison River
Capital) held by the respective direct parent companies or members of each
entity. This credit facility is also unconditionally guaranteed by Gulf Long
Distance, Inc. The guaranty is secured by a perfected security interest in
substantially all of the assets of Gulf Long Distance, Inc. The facility
contains customary negative covenants as well as financial covenants,
including:
. Minimum annual times-interest-earned ratios,
. Minimum debt service coverage ratios,
. Maximum leverage ratios, and
. Prohibition on the declaration or payment of dividends or other
distributions to shareholders, if the borrower does not maintain a
current ratio of 1.25 or more and does not meet a minimum net worth test,
without the written consent of RTFC.
66
<PAGE>
The RTFC Subordinated Capital Certificates we purchased at the closing of
the Gulf Coast Services acquisition are non-interest-bearing, equity
certificates that are amortized annually to maintain certificate amounts equal
to 10% of the outstanding balance of the new credit facilities. Amortization of
the certificates begins approximately one year after we purchased them and will
be paid to us in cash.
In addition, we will receive a share of RTFC's net margins in the form of
patronage capital refunds. Patronage capital is allocated based on the
percentage that our interest payments contribute to RTFC's gross margins. RTFC
currently makes these capital payments in both cash and in additional patronage
capital certificates.
Gulf Coast Services also has a $4.0 million revolving credit facility with
CoBank. In connection with the acquisition of Gulf Coast Services, we received
a $4.0 million note receivable from the sellers related to this debt. The
balance on the facility was $0.5 million at March 31, 2000. We intend to pay
the remaining balance in the near term and to terminate the 8.75% credit
facility.
Mebtel Financing
To finance, among other things, the acquisition of Mebtel, Inc., Mebtel,
Inc. borrowed approximately $23.3 million under a credit facility with the
RTFC. This credit facility consists of the following (dollars in millions):
<TABLE>
<CAPTION>
Amount Outstanding
as of Maximum Spread to
New Credit Facility Availability March 31, 2000 Term RTFC "base" Rate (/1/)(/2/)
- ------------------- ------------ ------------------ -------- ---------------------------
<S> <C> <C> <C> <C>
First Term Facility..... -- $14.2 15 years 50 bps(/3/)
Second Term Facility.... -- $ 7.2 15 years 50 bps(/4/)
Revolving Credit
Facility............... $1.0 -- 5 years --
</TABLE>
- --------
(/1/) Pricing subject to reduction based on achievement of a specified
leverage ratio and certain other factors.
(/2/) The RTFC "base" rate is the rate established by the RTFC from time to
time for loans similarly classified.
(/3/) In accordance with the credit facility, the $14.2 million facility has
been converted into a fixed rate of 6.80% through September 2003.
(/4/) In accordance with the credit facility, the $7.2 million facility has
been converted into a fixed rate of 8.55% through April 2003.
The First Term Facility was made available to us (i) to fund a portion of
the cost to acquire the stock of Mebtel, (ii) to refinance existing
indebtedness owed to Rural Utilities Service and Rural Telephone Bank and (iii)
to purchase RTFC Subordinated Capital Certificates equal to 5% of the total
amount borrowed under the First Term Facility. The Second Term Facility was
made available to us (i) for general corporate purposes and (ii) to purchase
RTFC Subordinated Capital Certificates equal to 5% of the total amount borrowed
under the Second Term Facility.
This credit facility is secured by a perfected first priority security
interest in substantially all of the assets of Mebtel. The facility contains
customary negative covenants as well as financial covenants, including:
. Minimum annual times-interest-earned ratio,
. Minimum debt service coverage ratio,
. Maximum leverage ratio, and
. Prohibition on the declaration or payment of dividends or other
distributions to shareholders, without written consent to RTFC, if Mebtel
does not meet a minimum net worth test or exceeds certain cash margin
ratios.
As of March 31, 2000, Mebtel, Inc. was precluded from paying dividends to
Madison River Capital without the consent of the RTFC.
67
<PAGE>
The RTFC Subordinated Capital Certificates that we agreed to purchase
pursuant to the terms of the First and Second Term Facilities are non-interest
bearing equity certificates that are amortized annually to maintain an
aggregate certificate amount equal to 5% of the outstanding balance of the
First and Second Term Facilities. Amortization of each certificate begins
approximately one year after we purchase it and will be refunded in cash to us.
In addition, we will receive a share of RTFC's net margins in the form of
patronage capital refunds. Patronage capital is allocated based on the
percentage that our interest payments contribute to RTFC's gross margins. RTFC
currently makes these capital payments in cash and in patronage capital
certificates.
Gallatin River Financing
To finance the Central Illinois Telephone acquisition, our affiliates
Gallatin River Communications, LLC and Madison River Management Company,
borrowed approximately $206.9 million in the aggregate under separate credit
facilities (collectively, the "GRC and MRC Credit Facilities") with RTFC. The
GRC and MRC Credit Facilities consist of the following (dollars in millions):
<TABLE>
<CAPTION>
Amount Outstanding Maximum Spread to
as of RTFC
Availability March 31, 2000 Tenor "base" Rate(/1/)(/2/)
------------ ------------------ -------- ---------------------
<S> <C> <C> <C> <C>
GRC Term Facility....... -- $121.9 15 years 75 bps(/3/)
GRC Revolving Facility.. $10.0 -- 5 years 50 bps
MRC Term Facility....... -- $ 73.4 15 years 75 bps(/4/)
</TABLE>
- --------
(/1/) Pricing subject to reduction based on achievement of a specified
leverage ratio and certain other factors.
(/2/) The RTFC "base" rate is the rate established by the RTFC from time to
time for loans similarly classified.
(/3/) In accordance with the credit facility, the $121.9 million facility
has been converted into a fixed rate of 7.00% through November 2004.
(/4/) In accordance with the credit facility, the $73.4 million facility has
been converted into a fixed rate of 8.8% through April 2003.
The $10.0 million GRC Revolving Facility was made available to us for
general corporate purposes. The $196.9 million Term Facilities to Gallatin
River Communications and Madison River Management Company were drawn at the
closing of the Central Illinois Telephone acquisition and were used to fund a
portion of the cost of acquiring certain assets of Central Telephone Company of
Illinois, including transaction expenses, to fund working capital, and to
purchase RTFC Subordinated Capital Certificates equal to 5% of the total amount
we borrowed under the term facilities from the RTFC. These facilities are
unconditionally guaranteed by Gallatin River Holdings, LLC, which guaranty is
secured by a perfected security interest in substantially all of the assets of
Gallatin River Holdings, LLC.
The GRC Credit Facility is secured by a perfected security interest in
substantially all of the assets of Gallatin River Communications, the MRC
Credit Facility is secured by a perfected security interest in substantially
all of the assets of Madison River Management Company, and, each of the MRC and
GRC facilities are secured by a pledge of all the equity interests in Madison
River Capital, Gallatin River Holdings, LLC, Gallatin River Communications LLC,
Mebtel, Inc., Madison River Management Company, and Gulf Coast Services, Inc.
These credit facilities contain customary negative covenants as well as
financial covenants, including:
. Minimum annual times-interest-earned ratios,
. Minimum debt service coverage ratios,
. Maximum leverage ratios, and
. Prohibition on the declaration or payment of dividends or other
distributions to shareholders, if the borrower does not maintain a
current ratio of 1.25 or more and does not meet a minimum net worth test,
without the written consent of RTFC.
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The RTFC Subordinated Capital Certificates we purchased at the closing of
the Gallatin River acquisition are non-interest bearing equity certificates
that are amortized annually to maintain certificate amounts equal to 5% of the
outstanding balance of the new credit facilities. Amortization of the
certificates begins approximately one year after we purchased them and will be
paid in cash to us.
In addition, we will receive a share of RTFC's net margins in the form of
patronage capital refunds. Patronage capital is allocated based on the
percentage that our interest payments contribute to RTFC's gross margins. RTFC
currently makes these capital payments in cash and in patronage capital
certificates.
Coastal Communications Financing
To finance the acquisition of Coastal Communications, Coastal Utilities,
Inc. borrowed approximately $128.7 million in the aggregate under a credit
facility with RTFC. The credit facility consists of the following (dollars in
millions):
<TABLE>
<CAPTION>
Amount Outstanding
as of Maximum Spread to
Availability March 31, 2000 Tenor RTFC "base" Rate(/1/)
------------ ------------------ -------- ---------------------
<S> <C> <C> <C> <C>
Term Facility........... -- $108.7 15 years 50 bps(/2/)
Secured Revolving Credit
Facility............... -- $ 10.0 5 years 50 bps
Unsecured Revolving
Credit Facility........ $10.0 -- 5 years 100 bps
</TABLE>
- --------
(/1/) The RTFC "base" rate is the rate established by the RTFC from time to
time for loans similarly classified.
(/2/) In accordance with the credit facility, the $108.7 million facility
has been converted into a fixed rate of 8.50% through April 2005.
The $10.0 million Unsecured Revolving Credit Facility was made available to
us for general corporate purposes. The $108.7 million Term Facility and the
$10.0 million Secured Revolving Credit Facility were drawn at the closing of
the Coastal Communications acquisition and were used to: fund a portion of the
cost of acquiring the outstanding common stock of Coastal Utilities, Inc.,
including transaction expenses; fund working capital; and purchase RTFC
Subordinated Capital Certificates equal to 10% of the total amount we borrowed
under the term facility from the RTFC.
The credit facility is secured by a perfected security interest in
substantially all of the assets of Coastal Utilities, Inc. and a pledge of all
of the equity interests of its wholly-owned subsidiary, Coastal Long Distance
Services, Inc. In addition, Coastal Communications, Inc. pledged all of the
equity interests of Coastal Utilities, Inc. These credit facilities contain
customary negative covenants as well as financial covenants, including:
. Minimum annual times-interest-earned ratios,
. Minimum debt service coverage ratios,
. Maximum leverage ratios, and
. Prohibition on the declaration or payment of dividends or other
distributions to shareholders if the borrower does not maintain a current
ratio of 1.25 or more and does not meet a minimum net worth test, without
the written consent of RTFC.
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<PAGE>
The RTFC Subordinated Capital Certificates we purchased at the closing of
the Coastal Communications acquisition are non-interest bearing equity
certificates that are amortized annually to maintain certificate amounts equal
to 10% of the outstanding balance of the new credit facilities. Amortization of
the certificates begins approximately one year after we purchased them and will
be paid in cash to us.
In addition, we will receive a share of RTFC's net margins in the form of
patronage capital refunds. Patronage capital is allocated based on the
percentage that our interest payments contribute to RTFC's gross margins. RTFC
currently makes these capital payments in cash and in patronage capital
certificates.
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THE EXCHANGE OFFER
Purpose of the Exchange Offer
On February 17, 2000, we privately placed $200.0 million of 13 1/4% senior
notes due 2010. Simultaneously with the sale of the outstanding notes, we
entered into a registration rights agreement relating to the outstanding notes.
We entered into the registration rights agreements with the initial purchasers
of the outstanding notes--Goldman, Sachs & Co., Chase Securities Inc., Morgan
Stanley & Co. Incorporated and Bear, Stearns & Co. Inc. Under this registration
rights agreement, we agreed to file a registration statement regarding the
exchange of the outstanding notes for notes with terms identical in all
material respects. We also agreed to use our reasonable best efforts to cause
that registration statement to become effective with the SEC. A copy of the
registration rights agreement has been filed with the SEC as an exhibit to the
Form S-4 registration statement of which this prospectus is a part.
We are conducting the exchange offer to satisfy our contractual obligations
under the registration rights agreement. The form and terms of the exchange
notes are the same as the form and terms of the outstanding notes, except that
the exchange notes will be registered under the Securities Act. As a result,
the exchange notes will not bear legends restricting their transfer and will
not contain the registration rights and liquidated damage provisions contained
in the outstanding notes. The outstanding notes provide that, if a registration
statement relating to the exchange offer has not been filed by May 17, 2000 and
declared effective by August 15, 2000, we will pay liquidated damages on the
outstanding notes. Upon the completion of the exchange offer, you will not be
entitled to any liquidated damages on your outstanding notes or any further
registration rights under the registration rights agreement, except under
limited circumstances. The exchange offer is not extended to holders of
outstanding notes in any jurisdiction where the exchange offer does not comply
with the securities or blue sky laws of that jurisdiction.
In this section entitled "The Exchange Offer," the term "holder" means:
. any person in whose name the outstanding notes are registered on our
books or
. any other person who has obtained a properly completed bond power from
the registered holder, or
. any person whose outstanding notes are held of record by DTC and who
wants to deliver these outstanding notes by book-entry transfer at DTC.
Terms of the Exchange Offer
We are offering to exchange up to $200.0 million total principal amount of
exchange notes for the same total principal amount of outstanding notes. The
outstanding notes must be tendered properly on or before the expiration date,
which is defined below, and not withdrawn. In exchange for outstanding notes
properly tendered and accepted, we will issue a like total principal amount of
up to $200.0 million in exchange notes.
The expiration date of the exchange offer is 5:00 p.m., New York City time,
on [ . ], 2000 for the outstanding notes, unless we extend the exchange offer.
The exchange offer is not conditioned upon holders tendering a minimum
principal amount of outstanding notes. As of the date of this prospectus,
$200.0 million aggregate principal amount of outstanding notes are outstanding.
You do not have any appraisal or dissenters' rights in the exchange offer.
If you do not tender outstanding notes or you tender outstanding notes that we
do not accept, your outstanding notes will remain outstanding. Any outstanding
notes will be entitled to the benefits of the indenture under
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<PAGE>
which they were, and the exchange notes will be, issued. The outstanding notes
will not, however, be entitled to any further registration rights under the
registration rights agreement, except under limited circumstances. See the
section entitled "Risk Factors" under the heading "Risks Factors Related to the
Exchange Offer--Your failure to exchange your outstanding notes may limit your
ability to transfer your notes" for more information regarding notes
outstanding after the exchange offer.
After the expiration date, we will return to you any tendered outstanding
notes that we did not accept for exchange.
You will not have to pay brokerage commissions or fees or transfer taxes for
exchanging your outstanding notes if you follow the instructions in the letter
of transmittal. We will pay the charges and expenses, other than those taxes
described below, in the exchange offer. See "--Fees and Expenses" below for
further information regarding fees and expenses.
Neither the Issuers nor the Issuers' board of managers or board of directors
recommends you to tender or not tender outstanding notes in the exchange offer.
In addition, we have not authorized anyone to make any recommendation. You must
decide whether to tender in the exchange offer and, if so, the aggregate amount
of outstanding notes to tender.
We have the right, in accordance with applicable law, at any time:
. to delay the acceptance of the outstanding notes;
. to terminate the exchange offer if we determine that any of the
conditions to the exchange offer have not occurred or have not been
satisfied;
. to extend the expiration date of the exchange offer and keep all
outstanding notes tendered other than those notes properly withdrawn; and
. to waive any condition or amend the terms of the exchange offer.
If we materially change the exchange offer, or if we waive a material
condition of the exchange offer, we will promptly distribute a prospectus
supplement to you disclosing the change or waiver. We also will extend the
exchange offer as required by Rule 14e-1 under the Securities Exchange Act of
1934.
If we exercise any of the rights listed above, we will promptly give oral or
written notice of the action to the exchange agent, as defined below under the
heading "--Exchange Agent," and we will issue a release to appropriate news
agencies. In the case of an extension, an announcement will be made no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
Acceptance of Outstanding Notes for Exchange; Issuance of Exchange Notes
We will issue to the exchange agent exchange notes for outstanding notes
tendered and accepted and not withdrawn promptly after the expiration date. The
exchange agent might not deliver the exchange notes to all tendering holders at
the same time. The timing of delivery depends upon when the exchange agent
receives and processes the required documents.
We will be deemed to have exchanged outstanding notes validly tendered and
not withdrawn when we give oral or written notice to the exchange agent of our
acceptance. The exchange agent is an agent for us for receiving tenders of
outstanding notes, letters of transmittal and related documents. The exchange
agent is also an agent for tendering holders for receiving outstanding notes,
letters of transmittal and related documents and transmitting exchange notes to
validly tendering holders. If for any reason, we:
. delay the acceptance or exchange of any outstanding notes, or
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<PAGE>
. extend the exchange offer, or
. are unable to accept or exchange notes,
then the exchange agent may, on our behalf and subject to Rule 14e-1(c) under
the Exchange Act, retain tendered notes. Notes that the exchange agent retains
may not be withdrawn, except according to the withdrawal procedures outlined
below in the section entitled "--Withdrawal Rights."
In tendering outstanding notes, you must warrant in the letter of
transmittal or in an agent's message, which is described below, that:
. you have full power and authority to tender, exchange, sell, assign and
transfer outstanding notes,
. we will acquire good, marketable and unencumbered title to the tendered
outstanding notes, free and clear of all liens, restrictions, charges and
other encumbrances, and
. the outstanding notes tendered for exchange are not subject to any
adverse claims or proxies.
You also must warrant and agree that you will, upon request, execute and
deliver any additional documents that we or the exchange agent requests to
complete the exchange, sale, assignment and transfer of the outstanding notes.
Procedures for Tendering Outstanding Notes
Valid Tender
You may tender your outstanding notes by book-entry transfer or by other
means. For book-entry transfer, you must deliver to the exchange agent either:
. a properly completed and duly executed letter of transmittal, including
all other documents that the letter of transmittal requires, or
. an agent's message, meaning a message transmitted to the appropriate
exchange agent by DTC and forming a part of a book-entry confirmation,
stating that you agree to be bound by the terms of the letter of
transmittal.
You must deliver your letter of transmittal or agent's message by mail,
facsimile, hand delivery or overnight carrier to the exchange agent on or
before the expiration date.
In addition, to complete a book-entry transfer, you must also either:
. have DTC transfer the outstanding notes into the exchange agent's account
at DTC using the ATOP procedures for transfer and obtain a confirmation
of the transfer, or
. follow the guaranteed delivery procedures described below under the
heading "--Guaranteed Delivery."
If you tender fewer than all of your outstanding notes, you should fill in
the amount of outstanding notes tendered in the appropriate box on the letter
of transmittal. If you do not indicate the amount tendered in the appropriate
box, we will assume you are tendering all outstanding notes that you hold.
For tendering your outstanding notes other than by book-entry transfer, you
must deliver a completed and signed letter of transmittal to the exchange
agent. Again, you must deliver the letter of transmittal by mail, facsimile,
hand delivery or overnight carrier to the exchange agent on or before the
expiration date. In addition, to complete a valid tender, you must:
. deliver your outstanding notes to the exchange agent on or before the
expiration date, or
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. follow the guaranteed delivery procedures set forth below under the
heading "--Guaranteed Delivery."
Delivery of required documents by whatever method you choose is at your sole
risk. Delivery is complete when the exchange agent actually receives the items
to be delivered. Delivery of documents to DTC in accordance with their
procedures or to us does not constitute delivery to the exchange agent. If
delivery is by mail, we recommend registered mail, return receipt requested,
properly insured, or an overnight delivery service. In all cases, you should
allow sufficient time to ensure timely delivery.
Signature Guarantees
You do not need to endorse certificates for the outstanding notes or provide
signature guarantees on the letter of transmittal unless:
(1) someone other than the registered holder tenders the certificate, or
(2) you complete the box entitled "Special Issuance Instructions" or
"Special Delivery Instructions" in the letter of transmittal.
In the case of (1) or (2) above, you must sign your outstanding note or
provide a properly executed bond power. The signature on the bond power and on
the letter of transmittal must be guaranteed by a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor
institution." Eligible guarantor institutions include:
. a bank;
. a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;
. a credit union;
. a national securities exchange, registered securities association or
clearing agency; or
. a savings association that is a participant in a securities transfer
association.
Guaranteed Delivery
If you want to tender outstanding notes in the exchange offer and:
. the certificates for the outstanding notes are not immediately available,
. all required documents are unlikely to reach the exchange agent on or
before the expiration date or
. a book-entry transfer cannot be completed in time,
the outstanding notes may be tendered if you comply with the following
guaranteed delivery procedures:
. your tender is made by or through an eligible guarantor institution;
. you deliver a properly completed and signed notice of guaranteed
delivery, like the form provided with the letter of transmittal, to the
appropriate exchange agent on or before the expiration date; and
. you deliver the certificates or a confirmation of book-entry transfer and
a properly completed and signed letter of transmittal to the exchange
agent within three New York Stock Exchange trading days after the notice
of guaranteed delivery is executed.
You may deliver the notice of guaranteed delivery by hand, facsimile or mail
to the exchange agent. You must include a guarantee by an eligible guarantor
institution in the form described in the notice.
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Our acceptance of properly tendered outstanding notes is a binding agreement
between you and Madison River upon the terms and subject to the conditions of
the exchange offer.
Determination of Validity
We will resolve all questions regarding the form of documents, validity,
eligibility, time of receipt and acceptance for exchange of any tendered
outstanding notes. Our resolution of these questions as well as our
interpretation of the terms and conditions of the exchange offer, including the
letter of transmittal, is final and binding on all parties. A tender of
outstanding notes is invalid until all irregularities have been cured or
waived. Neither Madison River, any affiliates or assigns of Madison River, the
exchange agent nor any other person is under any obligation to give notice of
any irregularities in tenders, and they are not liable for failing to give any
such notice. We reserve the absolute right, in our sole and absolute
discretion, to reject any tenders determined to be in improper form or
unlawful. We also reserve the absolute right to waive any of the conditions of
the exchange offer or any condition or irregularity in the tender of
outstanding notes by any holder. We need not waive similar conditions or
irregularities in the case of other holders.
If any letter of transmittal, endorsement, bond power, power of attorney, or
any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
that person must indicate that capacity when signing. In addition, unless
waived by us, the person must submit proper evidence satisfactory to us, in our
sole discretion, of his or her authority to so act.
If you beneficially own outstanding notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
or custodian, you should contact that entity promptly if you want to
participate in the exchange offer.
Resales of Exchange Notes
We are exchanging the outstanding notes for exchange notes in reliance upon
the staff of the SEC's position, set forth in interpretive letters to third
parties in other similar transactions. We will not seek our own interpretive
letter. As a result, we cannot assure you that the staff will take the same
position on this exchange offer as it did in interpretive letters to other
parties. Based on the staff's letters to other parties, we believe that holders
of exchange notes, other than broker-dealers, can offer the exchange notes for
resale, resell and otherwise transfer the exchange notes without delivering a
prospectus to prospective purchasers. However, you must acquire the exchange
notes in the ordinary course of business and have no intention of engaging in a
distribution of the exchange notes, as a "distribution" is defined by the
Securities Act.
If you are an "affiliate" of Madison River or you intend to distribute
exchange notes, or if you are a broker-dealer who purchased outstanding notes
from Madison River to resell pursuant to Rule 144A or any other available
exemption under the Securities Act, you:
. cannot rely on the staff's interpretations in the above mentioned
interpretive letters;
. cannot tender outstanding notes in the exchange offer; and
. must comply with the registration and prospectus delivery requirements of
the Securities Act to transfer the outstanding notes, unless the sale is
exempt.
In addition, if you are a broker-dealer who acquired outstanding notes for
your own account as a result of market-making or other trading activities and
you exchange the outstanding notes for exchange notes, you must deliver a
prospectus with any resales of the exchange notes.
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If you want to exchange your outstanding notes for exchange notes, you will
be required to affirm that you:
. are not an "affiliate" of Madison River;
. are acquiring the exchange notes in the ordinary course of your business;
. have no arrangement or understanding with any person to participate in a
distribution of the exchange notes, within the meaning of the Securities
Act; and
. are not a broker-dealer, are not engaged in, and do not intend to engage
in, a distribution of the exchange notes, within the meaning of the
Securities Act.
In addition, we may require you to provide information regarding the number
of "beneficial owners" of the outstanding notes within the meaning of Rule 13d-
3 under the Exchange Act. Each broker-dealer that receives exchange notes for
its own account must acknowledge that it acquired the outstanding notes for its
own account as the result of market-making activities or other trading
activities. Each broker-dealer must further agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with
any resale of exchange notes. By making this acknowledgment and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" under the Securities Act. Based on the staff's position in
interpretive letters issued to third parties, we believe that broker-dealers
who acquired outstanding notes for their own accounts as a result of market-
making activities or other trading activities may fulfill their prospectus
delivery requirements with respect to the exchange notes with a prospectus
meeting the requirements of the Securities Act. Accordingly, a broker-dealer
may use this prospectus to satisfy such requirements. We have agreed that a
broker-dealer may use this prospectus for a period ending 180 days after the
expiration date of the exchange offer. You should read the section entitled
"Plan of Distribution" for further information about the use of this prospectus
by broker-dealers. A broker-dealer intending to use this prospectus in the
resale of exchange notes must notify us, on or prior to the expiration date,
that it is a participating broker-dealer. This notice may be given in the
letter of transmittal or may be delivered to the appropriate exchange agent.
Any participating broker-dealer who is an "affiliate" of Madison River may not
rely on the staff's interpretive letters and must comply with the registration
and prospectus delivery requirements of the Securities Act when reselling
exchange notes.
Each participating broker-dealer exchanging outstanding notes for exchange
notes agrees that, upon receipt of notice from us:
(a) that any statement contained or incorporated by reference in this
prospectus makes the prospectus untrue in any material respect,
(b) that this prospectus omits to state a material fact necessary to
make the statements contained or incorporated by reference in this
prospectus, in light of the circumstances under which they were made, not
misleading, or
(c) of the occurrence of other events specified in the registration
rights agreement,
the participating broker-dealer will suspend the sale of exchange notes. Each
participating broker-dealer agrees not to resell the exchange notes until:
(1) we have amended or supplemented this prospectus to correct the
misstatement or omission and we furnish copies of the amended or
supplemented prospectus to the participating broker-dealer, or
(2) we give notice that the sale of the exchange notes may be resumed.
If we give notice suspending the sale of exchange notes, it shall extend the
180-day period during which this prospectus may be used by a participating
broker-dealer by the number of days between the date we give notice of
suspension and the date participating broker-dealers receive copies of the
amended or supplemented prospectus or the date we give notice resuming the sale
of exchange notes.
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Withdrawal Rights
You can withdraw tenders of outstanding notes at any time on or before the
expiration date.
For a withdrawal to be effective, you must deliver a written, telegraphic,
telex or facsimile transmission of a notice of withdrawal or an agent's message
to the appropriate exchange agent on or before the expiration date. The notice
of withdrawal must specify the name of the person tendering the outstanding
notes to be withdrawn, the total principal amount of outstanding notes
withdrawn, and the name of the registered holder of the outstanding notes if
different from the name of the person tendering the outstanding notes. If you
delivered outstanding notes to an exchange agent, you must submit the serial
numbers of the outstanding notes to be withdrawn, and the signature on the
notice of withdrawal must be guaranteed by an eligible guarantor institution,
except in the case of outstanding notes tendered for the account of an eligible
guarantor institution. If you tendered outstanding notes as a book-entry
transfer, the notice of withdrawal must specify the name and number of the
account at DTC to be credited with the withdrawal of outstanding notes. You
must deliver the notice of withdrawal to the appropriate exchange agent by
written, telegraphic, telex or facsimile transmission, or by an agent's
message. You may not rescind withdrawals of tender. Outstanding notes properly
withdrawn may again be tendered at any time on or before the expiration date.
We will determine all questions regarding the validity, form and eligibility
of withdrawal notices. Our determination will be final and binding on all
parties. Neither Madison River, any affiliate or assign of Madison River, the
exchange agent nor any other person is under any obligation to give you notice
of any irregularities in any notice of withdrawal, and they are not liable for
failing to give any such notice. Withdrawn outstanding notes will be returned
to you after withdrawal.
Interest on Exchange Notes
The exchange notes will bear interest at a rate of 13 1/4% per annum.
Interest is payable semi-annually on March 1 and September 1 of each year.
Holders of exchange notes will receive interest from the date of initial
issuance of the exchange notes, plus an amount equal to the accrued interest on
the outstanding notes. Interest on the outstanding notes accepted for exchange
will cease to accrue upon issuance of the exchange notes.
Conditions to the Exchange Offer
We do not need to exchange any outstanding notes, may terminate the exchange
offer or may waive any conditions to the exchange offer or amend the exchange
offer, if any of the following conditions has occurred:
. the staff of the SEC no longer allows the exchange notes to be offered
for resale, resold and otherwise transferred by holders without
compliance with the registration and prospectus delivery provisions of
the Securities Act;
. a governmental body passes any law, statute, rule or regulation which, in
our opinion, prohibits or prevents the exchange offer;
. the SEC or any state securities authority issues a stop order suspending
the effectiveness of the registration statement or initiates or threatens
to initiate a proceeding to suspend the effectiveness of the registration
statement; or
. we are unable to obtain any governmental approval that we believe is
necessary to complete the exchange offer.
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If we reasonably believe that any of the above conditions has occurred, we may:
. terminate the exchange offer, whether or not any outstanding notes have
been accepted for exchange,
. waive any condition to the exchange offer or
. amend the terms of the exchange offer in any respect.
If our waiver or amendment materially changes the exchange offer, we will
promptly disclose the waiver or amendment through a prospectus supplement. We
will distribute the prospectus supplement to the registered holders of the
outstanding notes. The prospectus supplement will also extend the exchange
offer as required by Rule 14d-1 of the Exchange Act.
Exchange Agent
We appointed Norwest Bank Minnesota, National Association as exchange agent
for the exchange offer. You should direct questions and requests for
assistance, requests for additional copies of this prospectus or of the letter
of transmittal and requests for a notice of guaranteed delivery to the exchange
agent addressed as follows:
By hand:
By registered or By regular mail or courier: Norwest Bank Minnesota,
certified mail: Norwest Bank Minnesota, N.A. N.A.
Norwest Bank Minnesota, Corporate Trust Operations Northstar East Building
N.A. MAC N9303-121 608 2nd Avenue South
Corporate Trust 6th & Marquette Avenue 12th Floor,
Operations Minneapolis, MN 55479 Corporate Trust
MAC N9303-121 Services
P.O. Box 1517 Facsimile Transmissions: Minneapolis, MN 55479
Minneapolis, MN 55480 (Eligible Guarantor Institutions Only)
(612) 667-4927
Attn: Corporate Trust Services
If you deliver letters of transmittal or any other required documents to an
address or facsimile number other than those listed above, your tender is
invalid.
Fees and Expenses
We will pay the exchange agent reasonable and customary fees for their
services and reasonable out-of-pocket expenses. We will also pay brokerage
houses and other custodians, nominees and fiduciaries their reasonable out-of-
pocket expenses for sending copies of this prospectus and related documents to
holders of outstanding notes, and for handling or tendering for their
customers.
We will pay the transfer taxes for the exchange of the outstanding notes in
the exchange offer. If, however, exchange notes are delivered to or issued in
the name of a person other than the registered holder, or if a transfer tax is
imposed for any reason other than for the exchange of outstanding notes in the
exchange offer, then the tendering holder will pay the transfer taxes. If a
tendering holder does not submit satisfactory evidence of payment of taxes or
exemption from taxes with the letter of transmittal, the taxes will be billed
directly to the tendering holder.
We will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the exchange offer.
Accounting Treatment
The exchange notes will be recorded at the same carrying value as the
outstanding notes. Accordingly, we will not recognize any gain or loss on the
exchange for accounting purposes. We intend to amortize the expenses of the
exchange offer and issuance of the outstanding notes over the term of the
notes.
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DESCRIPTION OF THE NOTES
General
The outstanding notes were, and the exchange notes will be, issued under an
indenture, dated as of February 17, 2000, among Madison River Capital, LLC,
Madison River Finance Corp. and Norwest Bank Minnesota, National Association,
as trustee under the indenture. The indenture is governed by New York law. The
terms of the exchange notes are the same as the terms of the outstanding notes,
except that we registered the exchange notes under the Securities Act. As a
result, their transfer is not restricted like transfer of the outstanding
notes. In addition, holders of the exchange notes are not entitled to rights
under the registration rights agreement. In this section entitled "Description
of the Notes," the word "Madison River" refers only to Madison River Capital,
LLC and not to any of its subsidiaries, and the word "Finance" refers only to
Madison River Finance Corp. and not to any of its subsidiaries, and the word
"Issuers" refers collectively to Madison River and Finance. You can find the
definitions of certain capitalized terms used in this section under the
subheading entitled "--Certain Definitions" below.
Finance is a wholly owned subsidiary of Madison River that was incorporated
in Delaware to serve as a co-issuer of the notes. We believe that certain
purchasers of the outstanding notes may not have been permitted to purchase
debt securities of limited liability companies such as Madison River unless a
corporation jointly issues such debt securities. Finance will not have any
substantial operations or assets and will not have any revenues. As a result,
you should not expect Finance to participate in servicing the interest and
principal obligations on the notes. See "--Certain Covenants--Restrictions on
Activities of Finance" below.
The following description is a summary of the material provisions of the
indenture and the registration rights agreement. It does not restate those
agreements in their entirety. We urge you to read the indenture and the
registration rights agreement because they and not this description, define
your rights as holders of the notes. Copies of the indenture and the
registration rights agreement can be obtained by following the instructions
contained in this prospectus in the section "Where You Can Find More
Information." The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939.
Brief Description of the Notes
The Notes
These notes:
. are general unsecured obligations of the Issuers;
. are equal in right of payment with all existing and future
unsubordinated unsecured indebtedness of the Issuers; and
. are senior in right of payment to any future subordinated
Indebtedness of the Issuers.
The operations of Madison River are conducted through its subsidiaries and,
therefore, Madison River depends on the cash flow of its subsidiaries to meet
its obligations, including its obligations under the notes. The notes will be
effectively subordinated in right of payment to all Indebtedness and other
liabilities and commitments (including trade payables and lease obligations) of
Madison River's subsidiaries. Any right of Madison River to receive assets of
any of its subsidiaries upon the subsidiary's liquidation or reorganization
(and the consequent right of the holders of the notes to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that Madison River is itself recognized as a
creditor of the subsidiary, in which case the claims of Madison River would
still be subordinate in right of payment to any security in the
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assets of the subsidiary and any indebtedness of the subsidiary senior to that
held by Madison River. As of December 31, 1999, Madison River's subsidiaries
would have had approximately $678.1 million of Indebtedness and $6.0 million of
trade payables outstanding assuming completion of the sale of the outstanding
notes and the consummation of the Coastal Communications acquisition.
As of February 17, 2000, all of our subsidiaries will be "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture.
Principal, Maturity and Interest
The Issuers will issue notes with a maximum aggregate principal amount of
$200 million. The Issuers will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on March 1, 2010.
The Issuers may issue additional notes ("Additional notes") from time to
time after the exchange offer, subject to the provisions of the indenture
described below under the caption "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock." The notes and any Additional
notes subsequently issued under the indenture would be treated as a single
class for all purposes under the indenture, including, without limitation,
waivers, amendments, redemptions and offers to purchase.
Interest on the notes will accrue at the rate of 13 1/4% per annum and will
be payable semi-annually in arrears on March 1 and September 1, commencing on
September 1, 2000. The Issuers will make each interest payment to the Holders
of record on the immediately preceding February 15 and August 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
If a Holder of more than $5.0 million in principal amount of the notes has
given wire transfer instructions to the Issuers, the Issuers will make all
payments of principal, premium, interest and Special Interest, if any, on those
notes in accordance with those instructions. All other payments on these notes
will be made at the office or agency of the paying agent and registrar within
the City and State of New York unless the Issuers elect to make payments of
interest and Special Interest, if any, by check mailed to the Holders at their
address set forth in the register of Holders.
Paying Agent and Registrar for the Notes
The Trustee will initially act as paying agent and registrar. The Issuers
may change the paying agent or registrar without prior notice to the Holders of
the notes, and either Issuer or any of its Subsidiaries may act as paying agent
or registrar.
Transfer and Exchange
A Holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Issuers may
require a Holder to pay any taxes and fees required by law or
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permitted by the indenture. The Issuers are not required to transfer or
exchange any note selected for redemption. Also, the Issuers are not required
to transfer or exchange any note for a period of 15 days before a selection of
notes to be redeemed.
The registered Holder of a note will be treated as the owner of it for all
purposes.
Optional Redemption
At any time prior to March 1, 2003, the Issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes
originally issued under the indenture at a redemption price of 113.250% of the
principal amount thereof, plus accrued and unpaid interest and Special
Interest, if any, to the redemption date, with the net cash proceeds of one or
more Public Equity Offerings by Madison River or the net cash proceeds of a
Strategic Equity Investment in Madison River or a capital contribution to
Madison River's common equity made with the net cash proceeds of a concurrent
Public Equity Offering by, or Strategic Investment in, Madison River's direct
parent; provided that:
(1) at least 65% in aggregate principal amount of notes remains outstanding
immediately after the occurrence of such redemption (excluding notes held
by Madison River and its Subsidiaries); and
(2) the redemption must occur within 60 days of the date of the closing of such
Public Equity Offering or Strategy Equity Investment.
Except pursuant to the preceding paragraph, the notes will not be redeemable
at the Issuers' option prior to March 1, 2005.
After March 1, 2005, the Issuers may redeem all or a part of these notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest and Special Interest thereon, if any, to the applicable
redemption date, if redeemed during the twelve-month period beginning on March
1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005.......................... 106.625%
2006.......................... 104.417%
2007.......................... 102.208%
2008 and thereafter........... 100.000%
</TABLE>
Mandatory Redemption
The Issuers are not required to make mandatory redemption or sinking fund
payments with respect to the notes.
Repurchase at the Option of Holders
Change of Control
If a Change of Control occurs, each Holder of notes will have the right to
require the Issuers to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of that Holder's notes pursuant to the Change of
Control Offer. In the Change of Control Offer, the Issuers will offer a Change
of Control Payment in cash equal to 101% of the aggregate principal amount of
notes repurchased plus accrued and unpaid interest and Special Interest
thereon, if any, to the date of purchase or, in the case of repurchases of
notes prior to the full Accretion Date, at a purchase price
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equal to 101% of the aggregate principal amount of notes repurchased plus
accrued and unpaid interest and Special Interest thereon, if any, to such date
of repurchase. Within 30 days following any Change of Control, the Issuers will
mail a notice to each Holder briefly describing the transaction or transactions
that constitute a Change of Control and offering to repurchase notes on the
date specified in such notice (the "Change of Control Payment Date"), pursuant
to the procedures required by the indenture and described in such notice.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change
of Control provisions of the indenture, the Issuers will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Change of Control provisions of the
indenture by virtue of such conflict.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful:
(1) accept for payment all notes or portions thereof properly tendered pursuant
to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all notes or portions thereof so tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions thereof being purchased by Madison River.
The paying agent will promptly mail to each Holder of notes so tendered the
Change of Control Payment for such notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
The provisions described above that require the Issuers to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the Holders of the notes to require that the
Issuers repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by the
Issuers and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of Madison River and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of notes to require the Issuers to
repurchase such notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of Madison River and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
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Asset Sales
Madison River will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Madison River (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or otherwise
disposed of;
(2) such fair market value is determined by Madison River's Board of Directors
and evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee; and
(3) at least 75% of the consideration therefor received by Madison River or
such Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a) any Indebtedness or other liabilities (as shown on Madison River's or
such Restricted Subsidiary's most recent balance sheet), of Madison
River or any Restricted Subsidiary (other than contingent liabilities
and Indebtedness that is by its terms subordinated to the notes) that
are assumed by the transferee of any such assets pursuant to a
customary novation agreement that releases Madison River or such
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Madison River or
any such Restricted Subsidiary from such transferee that are (subject
to ordinary settlement periods) converted within 60 days of the
applicable Asset Sale by Madison River or such Restricted Subsidiary
into cash or Cash Equivalents (to the extent of the cash received in
that conversion).
In the event and to the extent that the Net Proceeds received by Madison
River or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after February 17, 2000 in any period of 12 consecutive months
exceed 10% of Consolidated Tangible Assets (determined as of the date closest
to the commencement of such 12-month period for which a consolidated balance
sheet has been provided to the Trustee pursuant to the "Reports" covenant),
then Madison River or the applicable Restricted Subsidiary may apply such Net
Proceeds, within 365 days after the date on which the Net Proceeds so received
exceed 10% of Consolidated Tangible Assets:
(1) to reduce Indebtedness under a Credit Facility;
(2) to reduce other Indebtedness of any of Madison River's Restricted
Subsidiaries;
(3) to acquire all or substantially all of the assets of a Telecommunications
Business;
(4) to the acquisition of Voting Stock of a Person primarily engaged in a
Telecommunications Business from a Person that is not a Subsidiary of
Madison River; provided, that, after giving effect thereto, the Person
whose Voting Stock was so acquired becomes a Restricted Subsidiary of
Madison River;
(5) to make a capital expenditure; or
(6) to acquire other long-term assets that are used or useful in a
Telecommunications Business.
Pending the final application of any such Net Proceeds, Madison River may
temporarily reduce borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuers will
make an Asset Sale Offer to all Holders of notes
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and all holders of other Indebtedness that is pari passu with the notes
containing provisions similar to those set forth in the indenture with respect
to offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of notes and such other pari passu
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer will be equal to 100% of principal amount plus accrued
and unpaid interest and Special Interest thereon, if any, to the date of
purchase, in accordance with the procedures set forth in the indenture and such
other senior Indebtedness of Madison River. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, Madison River may use such Excess Proceeds
for any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of notes and such other pari passu Indebtedness tendered into
such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall
select the notes and such other pari passu Indebtedness to be purchased on a
pro rata basis based on the principal amount of notes and such pari passu
Indebtedness tendered. Upon completion of each Asset Sale Offer, the amount of
Excess Proceeds shall be reset at zero.
Notwithstanding the three immediately preceding paragraphs, Madison River
and its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent that (i) at least 75% of
the consideration received by Madison River and its Restricted Subsidiaries in
such Asset Sale consists of cash, assets that would qualify under sections (3)
through (6) of the second preceding paragraph, or any combination of any of the
foregoing and (ii) such Asset Sale is for Fair Market Value; provided that any
such consideration received by Madison River or any of its Restricted
Subsidiaries that constitutes an Investment is made in compliance with the
covenant described below under the caption "Certain Covenants--Restricted
Payments" and any Net Cash Proceeds received by Madison River or any of its
Restricted Subsidiaries in connection with any such Asset Sale are applied in
accordance with the immediately preceding paragraph.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
purchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the indenture, the Issuers will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the Trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of the
principal national securities exchange on which the notes are listed; or
(2) if the notes are not so listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days
before the redemption date to each Holder of notes to be redeemed at its
registered address.
Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the Holder thereof
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upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
Certain Covenants
Restricted Payments
Madison River will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution on
account of Madison River's or any of its Restricted Subsidiaries' Equity
Interests (including, without limitation, any payment in connection with
any merger or consolidation involving Madison River or any of its
Restricted Subsidiaries) or to the direct or indirect holders of Madison
River's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of Madison River or payable to
Madison River or a Restricted Subsidiary of Madison River);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Madison River) any Equity Interests of Madison River or any
direct or indirect parent of Madison River or any Restricted Subsidiary of
Madison River (other than any such Equity Interests owned by Madison River
or any Restricted Subsidiary of Madison River);
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is subordinated
to the notes, except a payment of interest or principal at the Stated
Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions set
forth in clauses (1) through (3) above and in this clause (4) being
collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) Madison River would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Debt to
Consolidated Cash Flow Ratio test set forth in the first paragraph of the
covenant described below under the caption "--Incurrence of Indebtedness
and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Madison River and its Restricted Subsidiaries
after February 17, 2000 (excluding Restricted Payments permitted by clauses
(2), (3) and (4) of the next succeeding paragraph), shall not exceed, at
the date of determination, without duplication, the sum of:
(a) an amount equal to 100% of Madison River's Consolidated EBITDA since
February 17, 2000 to the end of Madison River's most recently ended
fiscal quarter for which internal financial statements are available
taken as a single accounting period, less the product of 1.5 times
Madison River's Consolidated Interest Expense since February 17, 2000
to the end of Madison River's most recently ended fiscal quarter for
which internal financial statements are available, taken as a single
accounting period; plus
(b) 100% of the aggregate net cash proceeds received by Madison River since
February 17, 2000 as a contribution to its common equity capital or
from the issue or sale of Equity Interests of Madison River (other than
sales of Disqualified Stock) in excess of $24 million
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or from the issue or sale of convertible or exchangeable Disqualified
Stock or convertible or exchangeable debt securities of Madison River
that have been converted into or exchanged for such Equity Interests
(other than Equity Interests (or Disqualified Stock or convertible debt
securities) sold to a Subsidiary of Madison River and other than
Disqualified Stock or convertible debt securities that have been
converted into Disqualified Stock); plus
(c) to the extent that any Restricted Investment that was made after
February 17, 2000 is sold for cash or otherwise liquidated or repaid
for cash, the lesser of (i) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and
(ii) the initial amount of such Restricted Investment.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend or distribution within 60 days after the date
of declaration thereof, if at said date of declaration such payment would
have complied with the provisions of the indenture;
(2) the making of any Investment or the redemption, repurchase, retirement,
defeasance or other acquisition of any subordinated Indebtedness or
Equity Interests of Madison River in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of Madison River) of, Equity Interests of Madison River (other than
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence
of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of Madison River
to the holders of its common Equity Interests on a pro rata basis;
(5) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Madison River or any Restricted Subsidiary
that is held by any current or former employee, director or consultant
(or their estates or the beneficiaries of such estates) of Madison River
or any Subsidiary; provided that the aggregate price paid for all such
repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $1.0 million in any twelve-month period;
(6) so long as no Default or Event of Default under the indenture shall have
occurred and be continuing or shall be in existence immediately
thereafter, making loans to members of management of Madison River
pursuant to written agreements with such members, in an aggregate
principal amount not to exceed $1.0 million in the aggregate at any one
time outstanding;
(7) the payment of cash in lieu of the issuance of fractional shares of
common stock upon exercise or conversion of securities exercisable or
convertible into common stock of Madison River;
(8) payments or distributions, in the nature of satisfaction of dissenters'
rights, pursuant to or in connection with a consolidation, merger or
transfer of assets that complies with the provisions hereof applicable to
mergers, consolidations and transfers of all or substantially all of the
property and assets of Madison River;
(9) any purchase or acquisition from, or withholding on issuances to, any
employee of Madison River's Capital Stock in order to satisfy any
applicable federal, state or local tax payments in respect of the receipt
of shares of Madison River's Capital Stock;
(10) any withholding on issuances to any employee of Madison River of Madison
River's Capital Stock in order to pay the purchase price of such Capital
Stock or similar instrument pursuant to a stock option, equity incentive
or other employee benefit plan or agreement of Madison River or any of
its Restricted Subsidiaries;
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(11) so long as Madison River is a limited liability company treated as a
partnership or an entity disregarded as separate from its owner for
federal, state and local income tax purposes (and prior to any
distribution of any Tax Amount, Madison River delivers a certificate
prepared by the Tax Amount CPA to such effect), distributions to members
of Madison River in an amount, with respect to any period beginning after
December 31, 1998, not to exceed the Tax Amount with respect to Madison
River for such period;
(12) payments to Holdings for expenses incurred by Holdings in the ordinary
course of business directly relating to the administration of Madison
River or its Restricted Subsidiaries in an amount not to exceed $1.0
million in any fiscal year; and
(13) other Restricted Payments in an aggregate amount not to exceed $2.0
million.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by Madison River or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be
valued by this covenant shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee. The Board of
Directors' determination must be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, the Issuers shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this "Restricted Payments"
covenant were computed, together with a copy of any fairness opinion or
appraisal required by the indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
Madison River will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise (collectively, "incur"), with respect to any Indebtedness (including
Acquired Debt), and Madison River will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that Madison River may incur Indebtedness
(including Acquired Debt) or issue shares of Disqualified Stock and Madison
River's Restricted Subsidiaries may incur Indebtedness under Credit Facilities
or pursuant to Permitted Telecommunications Financing if, in each case:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) the Debt to Consolidated Cash Flow Ratio at the time of incurrence of such
Indebtedness or the issuance of such Disqualified Stock, after giving pro
forma effect to such incurrence or issuance as of such date and to the use
of proceeds therefrom as if the same had occurred at the beginning of the
most recently ended four full fiscal quarter period of Madison River for
which internal financial statements are available, would have been no
greater than 6.0 to 1 for Indebtedness incurred on or prior the date that
is eighteen months after February 17, 2000, or no greater than 5.5 to 1 for
Indebtedness incurred after such date.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Madison River or any of its Restricted Subsidiaries of
Indebtedness under one or more Credit Facilities in an aggregate principal
amount (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of Madison River and its
Restricted Subsidiaries thereunder) at any one time outstanding not to
exceed an amount equal to $517 million, less the aggregate amount of all
Net Proceeds of Asset Sales
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applied to repay Indebtedness under Credit Facilities pursuant to the
covenant described above under the caption "--Repurchase at the Option of
Holders--Asset Sales";
(2) the incurrence by Madison River and its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by Madison River of Indebtedness represented by the notes;
(4) the incurrence by Madison River or any of its Restricted Subsidiaries of
Indebtedness in connection with Permitted Telecommunications Financing;
(5) the incurrence by Madison River or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness (other
than intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3),
(4) or this clause (5) of this paragraph;
(6) the incurrence by Madison River or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Madison River and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Madison River is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests, other
than directors qualifying shares, that results in any such
Indebtedness being held by a Person other than Madison River or a
Restricted Subsidiary and (ii) any sale or other transfer of any such
Indebtedness to a Person that is not either Madison River or a
Restricted Subsidiary; shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by Madison River or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause
(6);
(7) the incurrence by Madison River or any of its Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or
hedging interest rate risk with respect to any floating rate Indebtedness
that is permitted by the terms of this indenture to be outstanding;
(8) the guarantee by Madison River or a Restricted Subsidiary of Madison
River that was permitted to be incurred by another provision of the
indenture;
(9) the incurrence by Madison River of Indebtedness or by a Restricted
Subsidiary of Madison River of Indebtedness not to exceed, at any one
time outstanding, 2.0 times the aggregate net cash proceeds received by
Madison River after February 17, 2000 from the issuance and sale of its
Common Stock (other than Disqualified Stock) to a Person that is not a
Subsidiary of Madison River, to the extent such net cash proceeds have
not been used pursuant to clause 3(b) of the second paragraph or clause
(2) of the third paragraph of the covenant described above under the
caption "--Restricted Payments" to make a Restricted Payment or to make a
Permitted Investment pursuant to clause (9) of the definition thereof;
and provided that such Indebtedness (other than Acquired Debt) does not
mature prior to the Stated Maturity of the notes and the Weighted Average
Life to Maturity of such Indebtedness is longer than that of the notes;
(10) the incurrence by Madison River of Indebtedness, to the extent that the
net proceeds thereof are promptly (A) used to repurchase notes tendered
in a Change of Control Offer or (B) deposited to defease all of the notes
as described below under "--Legal Defeasance and Covenant Defeasance;"
(11) the incurrence by Madison River or any of its Restricted Subsidiaries of
Indebtedness constituting reimbursement obligations with respect to
letters of credit issued in the ordinary course of business, including
without limitation, letters of credit in respect of workers' compensation
claims or self-insurance, or other Indebtedness with respect to
reimbursement
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type obligations regarding workers' compensation claims; provided,
however, that upon the drawing of such letters of credit or the incurrence
of such Indebtedness, such obligations are reimbursed within 30 days
following such drawing or incurrence;
(12) Indebtedness arising from agreements of Madison River or a Restricted
Subsidiary of Madison River providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed
in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or a Subsidiary for
the purpose of financing such acquisition; provided that (a) such
Indebtedness is not reflected on the balance sheet of Madison River or
any Restricted Subsidiary (contingent obligations referred to in the
footnote or footnotes to financial statements and not otherwise reflected
on the balance sheet will not be deemed to be reflected on such balance
sheet for purposes of this clause (a)) and (b) the maximum assumable
liability in respect of such Indebtedness shall at no time exceed the
gross proceeds including non-cash proceeds (the fair market value of such
non-cash proceeds being measured at the time received without giving
effect to any such subsequent changes in value) actually received by
Madison River and/or such Restricted Subsidiary in connection with such
disposition;
(13) obligations in respect of performance and surety bonds and completion
guarantees provided by Madison River or any Restricted Subsidiary of
Madison River in the ordinary course of business;
(14) the accrual of interest, the accretion or amortization of original issue
discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class
of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; and
(15) the incurrence by Madison River or any of its Restricted Subsidiaries of
additional Indebtedness (in addition to any Indebtedness permitted by
clauses (1) through (14) above or by the first paragraph of this
covenant) in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, not to exceed $25.0 million.
Madison River will not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other
Indebtedness of Madison River unless such Indebtedness is also contractually
subordinated in right of payment to the notes on substantially identical
terms; provided, however, that no Indebtedness of Madison River shall be
deemed to be contractually subordinated in right of payment to any other
Indebtedness of Madison River solely by virtue of being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (15) above, or
is entitled to be incurred pursuant to the first paragraph of this covenant,
Madison River will be permitted to classify such item of Indebtedness on the
date of its incurrence, or later reclassify all or a portion of such item of
Indebtedness, in any manner that complies with this covenant. Indebtedness
under Credit Facilities outstanding on the date on which notes are first
issued and authenticated under the indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (1) of
the definition of Permitted Debt.
Liens
Madison River will not and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist
or become effective any Lien of any kind (other than Permitted Liens) upon any
of their property or assets, now owned or hereafter acquired, unless all
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payments due under the indenture and the notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Madison River will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Madison River or any of Madison River's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to Madison River or any of its
Restricted Subsidiaries;
(2) make loans or advances to Madison River or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Madison River or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness as in effect on February 17, 2000 and any
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacements or refinancings thereof, provided that such
amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are no more restrictive, taken as
a whole, with respect to such dividend and other payment restrictions than
those contained in such Existing Indebtedness, as in effect on February
17, 2000;
(2) the indenture and the notes;
(3) applicable law;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Madison River or any of its Restricted Subsidiaries as in
effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that, in
the case of Indebtedness, such Indebtedness was permitted by the terms of
the indenture to be incurred by Madison River or such Restricted
Subsidiary;
(5) customary non-assignment provisions in contracts entered into in the
ordinary course of business;
(6) purchase money obligations for property acquired in the ordinary course of
business that impose restrictions on the property so acquired of the
nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted Subsidiary
that restricts distributions by such Restricted Subsidiary pending its
sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred pursuant to
the provisions of the covenant described above under the caption "--Liens"
that limit the right of Madison River or any of its Restricted
Subsidiaries to dispose of the assets subject to such Lien;
(10) provisions with respect to the disposition or distribution of assets or
property in joint venture agreements and other similar agreements entered
into in the ordinary course of business;
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(11) restrictions on cash or other deposits or net worth imposed by customers
under contracts entered into in the ordinary course of business;
(12) restrictions imposed pursuant to the terms of Indebtedness of a Restricted
Subsidiary of Madison River that was permitted by the indenture to be
incurred; provided that such restrictions, in the written view of the
Board of Directors of Madison River or an executive officer of Madison
River:
(a) are required in order to obtain such financing;
(b) are customary for such financings or, in the absence of industry
customs, reasonable in the view of the Board of Directors or such
executive officer; and
(c) will not materially impair Madison River's ability to make interest
and principal payments as required under the notes.
Merger, Consolidation, or Sale of Assets
Madison River may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not Madison River is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets, in one or more related
transactions, to another Person; unless:
(1) either: (a) Madison River is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
Madison River) or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than Madison River) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Madison River under the Registration Rights Agreement,
the notes and the indenture pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee;
(3) immediately after such transaction no Default or Event of Default exists;
and
(4) except in the case of a merger of Madison River with or into a Wholly Owned
Subsidiary of Madison River, Madison River or the Person formed by or
surviving any such consolidation or merger (if other than Madison River),
or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made will, immediately after such transaction
after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt to Consolidated Cash Flow Ratio test set
forth in the first paragraph of the covenant described above under the
caption "--Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, Madison River may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation, or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among Madison River and its Restricted
Subsidiaries.
Transactions with Affiliates
Madison River will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
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agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
Madison River or the relevant Restricted Subsidiary than those that would
have been obtained in a comparable transaction by Madison River or such
Restricted Subsidiary with an unrelated Person; and
(2) Madison River delivers to the Trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$2.5 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by Madison River or any of its
Restricted Subsidiaries in the ordinary course of business of Madison River
or such Restricted Subsidiary;
(2) transactions between or among Madison River and/or its Restricted
Subsidiaries;
(3) transactions with a Person that is an Affiliate of Madison River solely
because Madison River owns an Equity Interest in such Person;
(4) payment of reasonable fees to directors who are not otherwise Affiliates of
Madison River or any of its Restricted Subsidiaries, and customary
indemnification and insurance arrangements in favor of any director;
(5) sales or issuances of Equity Interests (other than Disqualified Stock) to
Affiliates of Madison River;
(6) Restricted Payments that are permitted by the provisions of the indenture
described above under the caption "--Restricted Payments";
(7) the issuance or sale of Equity Interests (other than Disqualified Stock) of
Madison River; and
(8) loans or advances, not to exceed $2.0 million in the aggregate at any time
outstanding, to employees in the ordinary course of business.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Madison River and its Restricted Subsidiaries
in the Subsidiary so designated will be deemed to be an Investment made as of
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the caption "--Restricted Payments" or Permitted Investments, as
applicable. All such outstanding Investments will be valued at their fair
market value at the time of such designation. That designation will only be
permitted if such Restricted Payment would be permitted at that time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
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Sale and Leaseback Transactions
Madison River will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
Madison River or any Restricted Subsidiary may enter into a sale and leaseback
transaction if:
(1) Madison River or such Restricted Subsidiary, as applicable, could have (a)
incurred Indebtedness in an amount equal to the Attributable Debt relating
to such sale and leaseback transaction under the Debt to Consolidated Cash
Flow Ratio test in the first paragraph of the covenant described above
under the caption "--Incurrence of Additional Indebtedness and Issuance of
Preferred Stock" and (b) incurred a Lien to secure such Indebtedness
pursuant to the covenant described above under the caption "--Liens";
(2) the gross cash proceeds of that sale and leaseback transaction are at least
equal to the fair market value, as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the
Trustee, of the property that is the subject of such sale and leaseback
transaction; and
(3) the transfer of assets in that sale and leaseback transaction is permitted
by, and Madison River applies the proceeds of such transaction in
compliance with, the covenant described above under the caption "--Asset
Sales."
Restrictions on Activities of Finance
Finance will not hold any material assets, become liable for any material
obligations, other than the notes, or engage in any significant business
activities; provided that Finance may be a co-obligor with respect to
Indebtedness if Madison River is a primary obligor of such Indebtedness and the
net proceeds of such Indebtedness are received by Madison River or one or more
of Madison River's Restricted Subsidiaries other than Finance.
Reports
Whether or not required by the SEC, so long as any notes are outstanding,
the Issuers will furnish to the Holders of notes, within 15 days of the time
periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be required to be
contained in a filing with the SEC on Forms 10-Q and 10-K if Madison River
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and, with
respect to the annual information only, a report on the annual financial
statements by Madison River's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on Form
8-K if Madison River were required to file such reports.
If Madison River has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Madison
River and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of Madison River.
In addition, following the consummation of the exchange offer, whether or
not required by the SEC, the Issuers will file a copy of all of the information
and reports referred to in clauses (1) and (2) above with the SEC for public
availability within the time periods specified in the SEC's rules and
regulations (unless the SEC will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request.
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Payments for Consent
Madison River will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of notes for or as an inducement to any consent, waiver
or amendment of any of the terms or provisions of the indenture or the notes
unless such consideration is offered to be paid and is paid to all Holders of
the notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Special
Interest with respect to, the notes;
(2) default in payment when due of the principal of or premium, if any, on the
notes;
(3) failure by Madison River or any of its Subsidiaries (a) to comply for 30
days after notice with the provisions described under the captions "--
Certain Covenants--Restricted Payments," "--Certain Covenants--Incurrence
of Indebtedness and Issuance of Preferred Stock" or (b) to comply with "--
Certain Covenants--Merger, Consolidation or Sale of Assets," "--Repurchase
at the Option of Holders--Change of Control" or "--Repurchase at the Option
of Holders--Asset Sales;"
(4) failure by Madison River or any of its Restricted Subsidiaries for 45 days
after notice from the Trustee or the Holders of 25% or more of the
outstanding notes to comply with any of the other agreements in the
indenture or the notes;
(5) default under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Indebtedness
for money borrowed by Madison River or any of its Restricted Subsidiaries
(or the payment of which is guaranteed by Madison River or any of its
Restricted Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after February 17, 2000, if that default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness, together
with the principal amount of any other such Indebtedness under which there
has been a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(6) failure by Madison River or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) certain events of bankruptcy or insolvency with respect to Madison River or
any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to Madison River, any Subsidiary that is a
Significant Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all notes that are outstanding will become
due and payable immediately without further action or notice. If any other
Event of Default occurs and is continuing, the trustee or the Holders of at
least 25% in principal amount of the then outstanding notes may declare all the
notes to be due and payable immediately.
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Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a
majority in principal amount of the notes then outstanding may direct the
trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest or Special Interest) if it determines that withholding notice is in
their interest.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the trustee, the Holders of a
majority in aggregate principal amount of notes outstanding by written notice
to Madison River and the Trustee, may rescind and annul such declaration and
its consequences if (a) Madison River has paid or deposited with the trustee a
sum sufficient to pay (1) all sums paid or advanced by the trustee under the
indenture and the reasonable compensation, expenses, disbursements and advances
of the trustee, its agents and counsel, (2) all overdue interest on all notes
then outstanding, (3) the principal of and premium, if any, on any notes then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon (including Special Interest) at the rate
borne by the notes and (4) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the notes; (b) the
rescission would not conflict with any judgment or decree of a court of
competent jurisdiction; and (c) all Events of Default, other than the non-
declaration of acceleration, have been cured or waived as provided in the
indenture. No such rescission shall affect any subsequent default or impair any
right consequent thereon.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest or Special Interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Madison River with the
intention of avoiding payment of the premium that Madison River would have had
to pay if Madison River then had elected to redeem the notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the notes. If an Event of Default occurs prior to
March 1, 2005, by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of Madison River with the intention of avoiding the
prohibition on redemption of the notes prior to March 1, 2005, then the premium
specified in the indenture shall also become immediately due and payable to the
extent permitted by law upon the acceleration of the notes.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the Issuers are required to deliver to the Trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of Madison River
or any Subsidiary, as such, shall have any liability for any obligations of
Madison River under the notes, the indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
notes by accepting a note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the notes. The waiver
may not be effective to waive liabilities under the federal securities laws.
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Legal Defeasance and Covenant Defeasance
The Issuers may, at their option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for:
(1) the rights of Holders of notes then outstanding to receive payments in
respect of the principal of, premium, if any, and interest and Special
Interest on such notes when such payments are due from the trust referred
to below;
(2) the Issuers' obligations with respect to the notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost or
stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and the
Issuers' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Issuers may, at their option and at any time, elect to have
the obligations of the Issuers released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Issuers must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest
and Special Interest, if any, on the notes then outstanding on the stated
maturity or on the applicable redemption date, as the case may be, and the
Issuers must specify whether the notes are being defeased to maturity or to
a particular redemption date;
(2) in the case of Legal Defeasance, the Issuers shall have delivered to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that (a) the Issuers has received from, or there has been
published by, the Internal Revenue Service a ruling or (b) since February
17, 2000, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the notes then outstanding will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, the Issuers shall have delivered to the
Trustee an Opinion of Counsel reasonably acceptable to the Trustee
confirming that the Holders of the notes then outstanding will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day
after the date of deposit;
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(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or
violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which Madison River or any of its
Restricted Subsidiaries is a party or by which Madison River or any of its
Restricted Subsidiaries is bound;
(6) the Issuers must have delivered to the Trustee an opinion of counsel to the
effect that after the 91st day following the deposit, the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) the Issuers must deliver to the Trustee an Officers' Certificate stating
that the deposit was not made by the Issuers with the intent of preferring
the Holders of notes over the other creditors of the Issuers with the
intent of defeating, hindering, delaying or defrauding creditors of the
Issuers or others; and
(8) the Issuers must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next three succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in aggregate principal amount of the notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in aggregate principal amount of the
notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or alter
the provisions with respect to the redemption of the notes (other than
provisions relating to the covenants described above under the caption "--
Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any note;
(4) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the Holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers of
past Defaults or the rights of Holders of notes to receive payments of
principal of or premium, if any, or interest or Special Interest, if any,
on the notes;
(7) waive a redemption payment with respect to any note (other than a payment
required by one of the covenants described above under the caption "--
Repurchase at the Option of Holders");
(8) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the Holders of
the notes will require the consent of the Holders of at least 75% in aggregate
principal amount of notes then outstanding.
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Notwithstanding the preceding, without the consent of any Holder of notes,
the Issuers and the Trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Madison River's obligations to Holders of
notes in the case of a merger or consolidation or sale of all or
substantially all of Madison River's assets;
(4) to make any change that would provide any additional rights or benefits to
the Holders of notes or that does not adversely affect the legal rights
under the indenture of any such Holder; or
(5) to comply with requirements of the SEC in order to effect or maintain the
qualification of the indenture under the Trust Indenture Act.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated (except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has theretofore been deposited in trust and thereafter
repaid to Madison River) have been delivered to the Trustee for
cancellation; or
(b) all notes that have not been delivered to the Trustee for cancellation
have become due and payable by reason of the mailing of a notice of
redemption or otherwise or will become due and payable within one year
and the Issuers have irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust solely for the benefit of the
Holders, cash in U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient without
consideration of any reinvestment of interest, to pay and discharge the
entire indebtedness on the notes not delivered to the Trustee for
cancellation for principal, premium and Special Interest, if any, and
accrued interest to the date of maturity or redemption;
(2) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit or shall occur as a result of such deposit and such
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which the Issuers are a party or by
which the Issuers are bound;
(3) Madison River has paid or caused to be paid all sums payable by it under
the indenture; and
(4) Madison River has delivered irrevocable instructions to the trustee under
the indenture to apply the deposited money toward the payment of the notes
at maturity or the redemption date, as the case may be.
In addition, Madison River must deliver an Officers' Certificate and an
Opinion of Counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Concerning the Trustee
If the Trustee becomes a creditor of the Issuers, the indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue or resign.
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The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Additional Information
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Madison River
Capital, LLC, 103 South Fifth Street, Mebane, North Carolina 27302, Attention:
General Counsel. In addition, we filed the indenture and the registration
rights agreement as exhibits to the Form S-4 of which this prospectus is a
part. See the section in this prospectus entitled "Where You Can Find More
Information" for information regarding how to obtain documents from the SEC.
Book-Entry, Delivery and Form
The notes will be represented by one or more notes in registered, global
form without interest coupons (collectively, the "Global Notes"). Upon
issuance, the Global Notes initially will be deposited with the Trustee, as
custodian for DTC in New York, New York and registered in the name of DTC or
its nominee, in each case for credit to an account of a direct or indirect
participant as described below.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
notes in certificated form except in the limited circumstances described below.
See "--Depositary Procedures--Exchange of Book-Entry notes for Certificated
Notes." Except in the limited circumstances described below, owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Notes (as defined below).
Transfers of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants
(including, if applicable, those of Euroclear System ("Euroclear") and
Clearstream Banking, formerly known as Cedel Bank, Societe anonyme ("Cedel")),
which may change from time to time.
Initially, the Trustee will act as paying agent and registrar under the
indenture. The notes may be presented for registration of transfer and exchange
at the offices of the registrar.
Depositary Procedures
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them from time to time. Madison River takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised Madison River that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and
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dealers, banks, trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
DTC has also advised Madison River that, pursuant to procedures established
by it,
(a) upon deposit of the Global Notes, DTC will credit the accounts of
Participants with portions of the principal amount of the Global Notes
and
(b) ownership of such interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, Euroclear and Cedel, if they are Participants in such system, or
indirectly through organizations which are Participants in such system. All
interests in a Global Note, including those held through Euroclear or Cedel,
may be subject to the procedures and requirements of DTC. Those interests held
through Euroclear or Cedel may also be subject to the procedures and
requirements of such systems. The laws of some states require that certain
persons take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer beneficial interests in a Global Note to
such persons will be limited to that extent. Because DTC can act only on behalf
of Participants, which in turn act on behalf of Indirect Participants and
certain banks, the ability of a person having beneficial interests in a Global
Note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
affected by the lack of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the indenture for any purpose.
Payments in respect of the principal of, and premium, if any, and interest
on the Global Notes will be payable to DTC in its capacity as the registered
Holder of the Global Notes under the indenture. Under the terms of the
indenture, Madison River and the Trustee will treat the persons in whose names
the notes are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently, none
of Madison River, the Trustee or any agent of Madison River has or will have
any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect Participant's
records relating to or payments made on account of beneficial ownership
interest in the Global Notes, or for maintaining, supervising or reviewing
any of DTC's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Notes, or
(2) any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.
DTC has advised Madison River that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in the principal amount of beneficial interest in the relevant
security as shown on the records of DTC unless DTC has reason to believe it
will not receive payment on such payment date. Payments by the Participants and
the Indirect Participants to the beneficial owners of notes will be
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governed by standing instructions and customary practices and will be the
responsibility of the Participants or the Indirect Participants and will not be
the responsibility of DTC, the Trustee or Madison River. Neither Madison River
nor the Trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the notes, and Madison River and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Cedel participants, interest
in the Global Notes are expected to be eligible to trade in DTC's Same-Day
Funds Settlement System and secondary market trading activity in such interests
will, therefore, settle in immediately available funds, subject in all cases to
the rules and procedures of DTC and its Participants. See "--Same Day
Settlement and Payment."
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same day funds, and transfers between
participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes
described herein, cross-market transfers between the Participants in DTC, on
the one hand, and Euroclear or Cedel participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Cedel, as the case may be, by its respective depositary; however, such cross-
market transactions will require delivery of instructions to Euroclear or
Cedel, as the case may be, by the counterparty in such system in accordance
with the rules and procedures and within the established deadlines (Brussels
time) of such system. Euroclear or Cedel, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf
by delivering or receiving interests in the relevant Global Note in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
DTC has advised Madison River that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the relevant Global Notes and
only in respect of such portion of the relevant Global Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the notes, DTC reserves the right to exchange the
Global Notes for notes in certificated form, and to distribute such notes to
its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Global Notes among Participants in
DTC, Euroclear and Cedel, they are under no obligation to perform or to
continue to perform such procedures, and such procedures may be discontinued at
any time. None of Madison River, the Trustee or any of their respective agents
will have any responsibility for the performance by DTC, Euroclear or Cedel or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if
(1) DTC (x) notifies Madison River that it is unwilling or unable to continue
as depositary for the Global Notes and Madison River thereupon fails to
appoint a successor depositary or (y) has ceased to be a clearing agency
registered under the Exchange Act,
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(2) Madison River, at its option, notifies the Trustee in writing that it
elects to cause the issuance of the Certificated Notes, or
(3) there shall have occurred and be continuing a Default or Event of Default
with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to the
Trustee by or on behalf of DTC in accordance with customary procedures. In all
cases, Certificated Notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in any
approved denominations, requested by or on behalf of DTC (in accordance with
its customary procedures).
Same Day Settlement and Payment
The indenture requires that payments in respect of the notes represented by
the Global Notes (including principal, premium, if any, interest and Special
Interest, if any) be made by wire transfer of immediately available funds to
the accounts specified by the holder of the applicable Global Notes. With
respect to Certificated Notes, Madison River will make all payments of
principal, premium, if any, interest, and Special Interest, if any, by wire
transfer of immediately available funds to the accounts specified by the
holders thereof or, if no such account is specified, by mailing a check to each
such holder's registered address. The notes represented by the Global Notes
will be eligible to trade in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in such notes will, therefore, be
required by DTC to be settled in immediately available funds. Madison River
expects that secondary trading in any certificated notes will also be settled
in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following
the settlement date of DTC. DTC has advised Madison River that cash received in
Euroclear or Cedel as a result of sales of interests in a Global Note by or
through a Euroclear or Cedel participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel cash account only as of the business day for
Euroclear or Cedel following DTC's settlement date.
Registration Rights; Special Interest
The following description is a summary of the material provisions of the
registration rights agreement. It does not restate that agreement in its
entirety. We urge you to read the proposed form of registration rights
agreement in its entirety because it, and not this description, defines your
registration rights as Holders of these notes. See "--Additional Information."
The Issuers and the initial purchasers entered into a registration rights
agreement, dated as of February 17, 2000. Pursuant to the registration rights
agreement, the Issuers agreed to file with the SEC the Exchange Offer
Registration Statement on the appropriate form under the Securities Act with
respect to the exchange notes. Upon the effectiveness of the Exchange Offer
Registration Statement, the Issuers will offer to the Holders of Transfer
Restricted Securities pursuant to the exchange offer who are able to make
certain representations the opportunity to exchange their Transfer Restricted
Securities for the exchange notes.
If:
(1) The Issuers are not
(a) required to file the Exchange Offer Registration Statement; or
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(b) permitted to consummate the exchange offer because the exchange offer
is not permitted by applicable law or SEC policy; or
(2) any Holder of Transfer Restricted Securities notifies the Issuers prior to
the 20th day following consummation of the exchange offer that:
(a) it is prohibited by law or SEC policy from participating in the
exchange offer; or
(b) that it may not resell the exchange notes acquired by it in the
exchange offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales; or
(c) that it is a broker-dealer and owns notes acquired directly from the
Issuers or an affiliate of the Issuers,
the Issuers will file with the SEC a Shelf Registration Statement to cover
resales of the notes by the Holders of the notes who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement.
The Issuers will use their best efforts to cause the applicable registration
statement to be declared effective as promptly as possible by the SEC.
For purposes of the preceding, "Transfer Restricted Securities" means each
outstanding note until:
(1) the date on which such note has been exchanged by a Person other than a
broker-dealer for an exchange note in the Exchange Offer;
(2) following the exchange by a broker-dealer in the exchange offer of an
outstanding note for an exchange note, the date on which such an exchange
note is sold to a purchaser who receives from such broker-dealer on or
prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement;
(3) the date on which such note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement; or
(4) the date on which such note is distributed to the public pursuant to Rule
144 under the Securities Act.
The registration rights agreement provides that:
(1) the Issuers will file an Exchange Offer Registration Statement with the SEC
on or prior to May 17, 2000;
(2) the Issuers will use their best efforts to have the Exchange Offer
Registration Statement declared effective by the SEC on or prior to August
15, 2000;
(3) unless the exchange offer would not be permitted by applicable law or SEC
policy, the Issuers will
(a) commence the exchange offer; and
(b) use their best efforts to issue on or prior to 30 business days, or
longer, if required by the federal securities laws, after the date on
which the Exchange Offer Registration Statement was declared effective
by the SEC, exchange notes in exchange for all outstanding notes
tendered prior thereto in the Exchange Offer; and
(4) if obligated to file the Shelf Registration Statement, the Issuers will use
their best efforts to file the Shelf Registration Statement with the SEC on
or prior to 30 days after such filing obligation arises and to cause the
Shelf Registration to be declared effective by the SEC on or prior to 90
days after such obligation arises.
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If:
(1) the Issuers fail to file any of the registration statements required by the
registration rights agreement on or before the date specified for such
filing; or
(2) any of such registration statements is not declared effective by the SEC
on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"); or
(3) the Issuers fail to consummate the exchange offer within 30 business days
of the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement; or
(4) the Shelf Registration Statement or the Exchange Offer Registration
Statement is declared effective but thereafter ceases to be effective or
usable in connection with resales of Transfer Restricted Securities during
the periods specified in the registration rights agreement (each such
event referred to in clauses (1) through (4) above, a "Registration
Default"),
then the Issuers will pay special interest ("Special Interest") to each Holder
of notes, with respect to the first 90-day period immediately following the
occurrence of the first Registration Default in an amount equal to $.05 per
week per $1,000 principal amount of notes held by such Holder.
The amount of Special Interest will increase by an additional $.05 per week
per $1,000 principal amount of notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Special Interest for all Registration Defaults of $.50 per week per $1,000
principal amount of notes.
All accrued Special Interest will be paid by the Issuers on each Damages
Payment Date to the Global note Holder by wire transfer of immediately
available funds or by federal funds check and to Holders of Certificated Notes
by wire transfer to the accounts specified by them or by mailing checks to
their registered addresses if no such accounts have been specified.
Following the cure of all Registration Defaults, the accrual of Special
Interest will cease.
Holders of outstanding notes will be required to make certain
representations to the Issuers (as described in the registration rights
agreement) in order to participate in the exchange offer and will be required
to deliver certain information to be used in connection with the Shelf
Registration Statement and to provide comments on the Shelf Registration
Statement within the time periods set forth in the registration rights
agreement in order to have their outstanding notes included in the Shelf
Registration Statement and benefit from the provisions regarding Special
Interest set forth above. By acquiring Transfer Restricted Securities, a Holder
will be deemed to have agreed to indemnify the Issuers against certain losses
arising out of information furnished by such Holder in writing for inclusion in
any Shelf Registration Statement. Holders of outstanding notes will also be
required to suspend their use of the prospectus included in the Shelf
Registration Statement under certain circumstances upon receipt of written
notice to that effect from the Issuers.
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness or Disqualified Stock of any other Person existing at the time
such other Person is merged with or into or became a Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with or
into, or becoming a Subsidiary of, such specified Person; and
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(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling," "controlled by" and "under common
control with" shall have correlative meanings.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or rights,
other than sales of inventory in the ordinary course of business consistent
with past practices; provided that the sale, conveyance or other
disposition of all or substantially all of the assets of Madison River and
its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption "--Change of
Control" and/or the provisions described above under the caption "--Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issuance or sale by Madison River or any of its Restricted Subsidiaries
of Equity Interests in any of Madison River's Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that involves
assets having a fair market value of less than $1.0 million;
(2) a transfer of assets between or among Madison River and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to Madison River
or to another Restricted Subsidiary;
(4) a transaction that is either a Restricted Payment or Restricted Investment
that is permitted by the covenant described above under the caption "--
Restricted Payments" or a Permitted Investment;
(5) the sale or other disposition of real or personal property or equipment
that has become worn out, obsolete or damaged or otherwise unsuitable or
not required for use in connection with the business of Madison River or
any Restricted Subsidiary, as the case may be;
(6) the sale or other disposition of cash or Cash Equivalents; and
(7) the sale or lease of equipment, inventory, accounts receivable or other
assets in the ordinary course of business.
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
sale and leaseback transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition.
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"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock (including common stock and
preferred stock);
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or
membership interests (whether general or limited); and
(4) any other interest, other than straight debt obligations, or participation
that confers on a Person the right to receive a share of the profits and
losses of, or distributions of assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof (provided that
the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than 365 days from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities of 365
days or less from the date of acquisition, bankers' acceptances with
maturities not exceeding 365 days and overnight bank deposits, in each
case, with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within 365 days after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of Madison River and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in
Section 13(d)(3) of the Exchange Act) other than a Principal or a Related
Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of the
Issuers;
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(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties becomes
the Beneficial Owner, directly or indirectly, of more than 50% of the
Voting Stock of Madison River, measured by voting power rather than number
of shares; for purposes of this definition a percentage ownership of the
equity securities of a person shall be deemed to be beneficial ownership of
a corresponding percentage of any equity securities beneficially owned by
such person.
(4) the first day on which a majority of the members of the Board of Directors
of Madison River Capital are not Continuing Directors; or
(5) Madison River or Holdings consolidates with, or merges with or into, any
Person, or any Person consolidates with, or merges with or into, Madison
River or Holdings, in any such event pursuant to a transaction in which any
of the outstanding Voting Stock of Madison River or Holdings is converted
into or exchanged for cash (other than fractional shares), securities or
other property, other than any such transaction where the Voting Stock of
Madison River or Holdings outstanding immediately prior to such transaction
is converted into or exchanged for Voting Stock (other than Disqualified
Stock) of the surviving or transferee Person constituting a majority of the
outstanding shares of such Voting Stock of such surviving or transferee
Person immediately after giving effect to such issuance.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Indebtedness" means, with respect to any Person as of any date
of determination, the sum, without duplication, of (i) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (ii) the
total amount of Indebtedness of any other Person, to the extent that such
Indebtedness has been Guaranteed by the referent Person or one or more of its
Restricted Subsidiaries, plus (iii) the aggregate liquidation value of all
Disqualified Stock of such Person and all preferred stock of Restricted
Subsidiaries of such Person, in each case, determined on a consolidated basis
in accordance with GAAP.
"Consolidated EBITDA" means, for any period, the consolidated net income of
Madison River and its Restricted Subsidiaries for such period calculated in
accordance with GAAP plus, to the extent such amount was deducted in
calculating such consolidated net income:
(1) Consolidated Interest Expense;
(2) income taxes;
(3) depreciation expense;
(4) amortization expense;
(5) all other non-cash items, extraordinary items and the cumulative effects of
changes in accounting principles reducing such consolidated net income,
less all non-cash items, extraordinary items and the cumulative effects of
changes in accounting principles increasing such consolidated net income
(other than the accrual of revenue in the ordinary course of business), all
as determined on a consolidated basis for Madison River and its Restricted
Subsidiaries in conformity with GAAP; and
(6) gains and losses on Asset Sales;
provided that, Consolidated EBITDA shall not include: the net income (or net
loss) of any Person that is not a Restricted Subsidiary, except (I) with
respect to net income, to the extent of the amount of dividends or other
distributions actually paid to Madison River or any of its Restricted
Subsidiaries by
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such Person during such period and (II) with respect to net losses, to the
extent of the amount of investments made by Madison River or any Restricted
Subsidiary in such Person during such period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization or original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations); and
(2) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period, and
(3) any interest expense on Indebtedness of another Person that is guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien
on assets of such Person or one of its Restricted Subsidiaries (whether or
not such Guarantee or Lien is called upon);
"Consolidated Tangible Assets" means, with respect to Madison River, the
total consolidated assets of Madison River and its Restricted Subsidiaries,
less the total intangible assets of Madison River and its Restricted
Subsidiaries, as shown on the most recent internal consolidated balance sheet
of Madison River and such Restricted Subsidiaries calculated on a consolidated
basis in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of Madison River or Holdings, as applicable, who:
(1) was a member of such Board of Directors on February 17, 2000; or
(2) was nominated for election or elected to such Board of Directors with the
approval of a majority of the Continuing Directors who were members of such
Board at the time of such nomination or election.
"Credit Facilities" means one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing
for revolving credit loans, term loans, receivables financing (including
through the sale of receivables to such lenders or to special purpose entities
formed to borrow from such lenders against such receivables) or letters of
credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Debt to Consolidated Cash Flow Ratio" means, as of any date of
determination, the ratio of (a) the Consolidated Indebtedness of Madison River
as of such date to (b) the Consolidated EBITDA of Madison River for the four
most recent full fiscal quarters ending immediately prior to such date for
which internal financial statements are available, in each case determined on a
pro forma basis after giving effect to all acquisitions or dispositions of
assets made by Madison River and its Subsidiaries from the beginning of such
four-quarter period through and including such date of determination (including
any related financing transactions) as if such acquisitions and dispositions
had occurred at the beginning of such four-quarter period. For purposes of
making the computation referred to above, (i) acquisitions that have been made
by Madison River or any of its Restricted Subsidiaries, including through
mergers or consolidations and including any related financing transactions,
during the reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the reference period and Consolidated EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded.
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"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the
holder thereof, in whole or in part, on or prior to the date that is 91 days
after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders thereof have the right to require Madison River to
repurchase such Capital Stock upon the occurrence of a change of control or an
asset sale shall not constitute Disqualified Stock if the terms of such
Capital Stock provide that Madison River may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption "--Certain
Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Offer Registration Statement" means the Registration Statement
relating to the exchange offer, including the related Prospectus.
"Existing Indebtedness" means up to $535 million in aggregate principal
amount of Indebtedness of Madison River and its Restricted Subsidiaries in
existence on February 17, 2000, until such amounts are repaid.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors of Madison River, whose determination
shall be evidenced by a resolution thereof set forth in an officers'
certificate delivered to the Trustee; provided that for purposes of clause
(11) of the second paragraph of the covenant described above under the caption
"--Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," (x) the fair market value of any security registered under the
Exchange Act shall be the average of the closing prices, regular way, of such
security for the 20 consecutive trading days immediately preceding the sale of
Capital Stock and (y) in the event the aggregate fair market value of any
other property (other than cash or Cash Equivalents) received by Madison River
exceeds $10.0 million, the fair market value of such property shall be
determined by a nationally recognized investment banking firm (or, if no such
investment banking firm is qualified to issue such an opinion, by a nationally
recognized appraisal firm or public accounting firm) and set forth in the
written opinion of such firm which shall be delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on February 17, 2000.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
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(2) other agreements or arrangements designed to protect such Person against
fluctuations in interest rates.
"Holder" means a Person in whose name a note is registered.
"Holdings" means Madison River Telephone Company, a limited liability
corporation organized under the laws of Delaware.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent, in respect of:
(1) borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof);
(3) banker's acceptances;
(4) representing Capital Lease Obligations;
(5) the balance deferred and unpaid of the purchase price of any property,
except any such balance that constitutes an accrued expense or trade
payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of
the specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount; and
(2) the principal amount thereof, together with any interest thereon that is
more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If Madison River or any Restricted Subsidiary of Madison River sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of Madison River such that, after giving effect to any such sale or
disposition, such Person is no longer a Restricted Subsidiary of Madison River,
Madison River shall be deemed to have made an Investment on the date of any
such sale or disposition equal to the fair market value of the Equity Interests
of such Restricted Subsidiary not sold or disposed of in an amount determined
as provided in the final paragraph of the covenant described above under the
caption "--Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
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"Net Proceeds" means the aggregate cash proceeds received by Madison River
or any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale, including, without limitation, (i) legal,
accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, (ii) taxes paid or reasonably
estimated to be payable as a result thereof, (including, for so long as Madison
River is treated as a partnership or an entity disregarded as separate from its
owner for federal, state and local income tax purposes, taxes reasonably
estimated to be payable by, or with respect to the net income of, the members
of Madison River with respect to such members' allocable shares of net income
arising from such Asset Sale); (iii) amounts required to be applied to the
repayment of Indebtedness, other than Indebtedness under a Credit Facility,
secured by a Lien on the asset or assets that were the subject of such Asset
Sale; (iv) all distributions and other payments required to be made to minority
interest holders in Restricted Subsidiaries or joint ventures as a result of
such Asset Sale; and (v) the deduction of appropriate amounts provided by the
seller as a reserve in accordance with GAAP against any liabilities associated
with the assets disposed of in such Asset Sale and retained by Madison River or
any Restricted Subsidiary after such Asset Sale and, without duplication, any
reserves that Madison River's Board of Directors determines in good faith
should be made in respect of the sale price of such asset or assets for post
closing adjustments; provided that in the case of any reversal of any reserve
referred to above, the amount so reserved shall be deemed to be Net Proceeds
from an Asset Sale as of the date of such reversal.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Madison River nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the holders
thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of Madison River or any of
its Restricted Subsidiaries to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its
stated maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of Madison River or any of its
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means:
(1) any Investment in Madison River or in a Restricted Subsidiary of Madison
River;
(2) any Investment in Cash Equivalents;
(3) any Investment by Madison River or any Restricted Subsidiary of Madison
River in a Person, if as a result of or concurrently with such Investment:
(a) such Person becomes a Restricted Subsidiary of Madison River; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Madison River or a Restricted Subsidiary of Madison
River;
(4) any Restricted Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--
Repurchase at the Option of Holders--Asset Sales";
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(5) any acquisition of assets solely in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of Madison River;
(6) loans or advances to employees made in the ordinary course of business not
to exceed $2.0 million at any one time outstanding;
(7) securities and other assets received in settlement of trade debts or other
claims arising in the ordinary course of business;
(8) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(9) other Investments in Telecommunications Businesses; provided, that the
aggregate amount of such Investments does not exceed at any time the sum
of
(a) $25.0 million; plus
(b) the amount of Net Proceeds received by Madison River after February
17, 2000 as a capital contribution or from the sale of its Capital
Stock (other than Disqualified Stock) to a Person who is not a
Subsidiary of Madison River, except to the extent such Net Proceeds
are used to make Restricted Payments permitted pursuant to clause (2)
of the second paragraph of the "Restricted Payments" covenant or
Investments permitted pursuant to this clause (9); plus
(c) the net reduction in Investments made pursuant to this clause (9)
resulting from distributions on or repayments of such Investments or
from the Net Proceeds from the sale of any such Investment (except in
each case to the extent any such payment or proceeds are included in
the calculation of Consolidated EBITDA) or from such Person becoming a
Restricted Subsidiary; provided, that the net reduction in any such
Investment shall not exceed the amount of such Investment.
(10) any Investment existing as of February 17, 2000, and any amendment,
modification, extension or renewal thereof to the extent such amendment,
modification, extension or renewal does not require Madison River or any
Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith; and
(11) Hedging Obligations entered into in the ordinary course of business and
not for speculative purposes.
"Permitted Liens" means:
(1) Liens securing Indebtedness under Credit Facilities that were permitted by
the terms of the indenture to be incurred;
(2) Liens in favor of Madison River;
(3) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with Madison River or any Subsidiary of
Madison River; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
Madison River or the Subsidiary;
(4) Liens on property existing at the time of acquisition thereof by Madison
River or any Restricted Subsidiary of Madison River, provided that such
Liens were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds, deposits to secure the performance of bids, trade
contracts, government contracts, leases or licenses or other obligations of
a like nature incurred in the ordinary course of business (including
without limitation, landlord Liens on leased properties);
(6) Liens existing on February 17, 2000;
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(7) Liens securing the notes and the indenture;
(8) Liens granted in favor of the Holders of the notes;
(9) Liens for taxes, assessments or governmental charges or claims that are not
yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded, provided that any
reserve or other appropriate provision as shall be required in conformity
with GAAP shall have been made therefor.
(10) Liens incurred in the ordinary course of business of Madison River or any
Restricted Subsidiary of Madison River with respect to obligations that do
not exceed $10.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the
value of the property or materially impair the use thereof in the
operation of business by Madison River or such Restricted Subsidiary.
(11) Liens imposed by law, such as carriers', warehousemen's and mechanics'
liens and other similar liens arising in the ordinary course of business
which secure payment of obligations that are not yet delinquent or that
are being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and for which an appropriate reserve
or provision shall have been made in accordance with GAAP;
(12) easements, rights of way, and other restrictions on use of property or
minor imperfections of title that in the aggregate are not material in
amount and do not in any case materially detract from the property subject
thereto or interfere with the ordinary conduct of the business of Madison
River or its Subsidiaries;
(13) Liens related to Capital Lease Obligations, mortgage financings or
purchase money obligations (including refinancings thereof), in each case
incurred for the purpose of financing all or any part of the purchase
price or cost of construction or improvement of property, plant or
equipment used in the business of Madison River or any Restricted
Subsidiary or a Telecommunications Business, provided that any such Lien
encumbers only the asset or assets so financed, purchased, constructed or
improved;
(14) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(15) leases or subleases granted to third Persons not interfering with the
ordinary course of business of Madison River;
(16) Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of
credit and the products and proceeds thereof;
(17) Liens on the assets of Madison River to secure Hedging Obligations with
respect to Indebtedness permitted by the Indenture to be incurred;
(18) attachment or judgment Liens not giving rise to a Default or an Event of
Default; and
(19) any interest or title of a lessor under any capital lease or operating
lease.
"Permitted Refinancing Indebtedness" means any Indebtedness of Madison River
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of Madison River or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or
accreted value, if applicable), plus accrued interest on, the Indebtedness
so extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith);
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(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the
notes on terms at least as favorable to the Holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Madison River or by the Restricted
Subsidiary who is the obligor on the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded.
"Permitted Telecommunications Financing" means the incurrence of any
Indebtedness or the issuance of any preferred stock (including Indebtedness
under any Credit Facility entered into with any vendor or supplier or any
financial institution); provided that such Indebtedness is incurred or such
preferred stock is issued solely for the purpose of financing the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) of acquiring,
constructing, expanding, developing or improving equipment, inventory, licenses
or network assets (including acquisitions by way of acquisitions of real
property rights, leasehold improvements, Capitalized Leases and acquisitions of
the Capital Stock of a Person that becomes a Restricted Subsidiary of Madison
River to the extent of the fair market value of the equipment, inventory,
licenses or network assets so acquired) after February 17, 2000.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any
subdivision or ongoing business of any such entity or substantially all of the
assets of any such entity, subdivision or business).
"Principals" means Goldman, Sachs & Co., Madison Dearborn Partners and
Providence Equity Partners.
"Prospectus" means the prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
"Public Equity Offering" means any underwritten public offering of common
stock of Madison River or Holdings in which the net cash proceeds to Madison
River are at least $25.0 million.
A "Public Market" shall be deemed to exist if (i) a Public Equity Offering
has been consummated and (ii) 25% or more of the total issued and outstanding
Common Stock of Madison River immediately following the consummation of such
Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act.
"Registration Statement" means any registration statement of Madison River
relating to (a) an offering of exchange notes pursuant to the exchange offer or
(b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (i) that is filed pursuant to
the provisions of the Registration Rights Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
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"Related Party" with respect to any Principal means:
(1) any controlling stockholder, 50% or more owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal;
or
(2) any trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners, owners or Persons beneficially holding a
controlling interest of which consist of such Principal and/or such other
Persons referred to in the immediately preceding clause (1).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Shelf Registration Statement" means the Shelf Registration Statement as
defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Strategic Equity Investment" means an investment in Madison River or
Holdings by a company which is primarily engaged in the telecommunications
industry and which has a market capitalization (if a public company) on the
date of such investment in Madison River or Holdings of more than $1.0 billion
or, if not a public company, had total revenues of more than $1.0 billion
during its previous fiscal year.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which more than
50% of the total voting power of shares of Capital Stock entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Tax Amount" means for any taxable period an amount equal to the product of
(1) the Taxable Income of Madison River as determined by the Tax Amount CPA and
(2) the Tax Percentage; provided, however, that in determining the Tax Amount,
the effect thereon of any net operating loss carryforwards that would have
arisen if Madison River were a separate entity shall be taken into account.
"Taxable Income" means, with respect to Madison River for any period, the
hypothetical taxable income or loss of Madison River for such period for
federal income tax purposes computed on the hypothetical assumption that
Madison River is a separate entity as reasonably determined by the Tax Amount
CPA.
"Tax Amount CPA" means a nationally recognized certified public accounting
firm selected by Madison River.
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<PAGE>
"Tax Percentage" means, for a particular taxable year, the highest effective
marginal combined rate of federal, state and local income tax, imposed on an
individual or corporate taxpayer, whichever rate is higher, as certified by the
Tax Amount CPA in a certificate filed with the Trustee. The rate of "state
income tax" to be taken into account for purposes of determining the Tax
Percentage for a particular taxable year shall be deemed to be the highest New
York State income tax rate imposed on individuals or corporations for such
year, whichever rate is higher. The rate of "local income tax" to be taken into
account for purposes of determining the Tax Percentage for a particular taxable
year shall be deemed to be the highest New York City income tax rate imposed on
individuals or corporations for such year, whichever rate is higher.
"Telecommunications Business" means the development, ownership or operation
of one or more telephone, telecommunications or information systems or the
provision of telephony, telecommunications or information services (including,
without limitation, any voice, video transmission, data or Internet services)
and any related, ancillary or complementary business; provided that the
determination of what constitutes a Telecommunications Business shall be made
in good faith by the Board of Directors of Madison River.
"Transfer Restricted Securities" means each outstanding note, until the
earliest to occur of (a) the date on which such note is exchanged in the
exchange offer and entitled to be resold to the public by the Holder thereof
without complying with the prospectus delivery requirements of the Act, (b) the
date on which such note has been disposed of in accordance with a Shelf
Registration Statement, (c) the date on which such note is disposed of by a
Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (d) the date on which such note is distributable to the
public pursuant to Rule 144(k) under the Act.
"Unrestricted Subsidiary" means any Subsidiary of Madison River that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding with
Madison River or any Restricted Subsidiary of Madison River unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to Madison River or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of
Madison River;
(3) is a Person with respect to which neither Madison River nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Madison River or any of its Restricted
Subsidiaries; and
(5) has at least one director on its board of directors that is not a director
or executive officer of Madison River or any of its Restricted Subsidiaries
and has at least one executive officer that is not a director or executive
officer of Madison River or any of its Restricted Subsidiaries.
Any designation of a Subsidiary of Madison River as an Unrestricted
Subsidiary shall be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under
the caption "Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an
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<PAGE>
Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of
Madison River as of such date and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant described under the caption
"Incurrence of Indebtedness and Issuance of Preferred Stock," Madison River
shall be in default of such covenant. The Board of Directors of Madison River
may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of Madison River of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect
thereof, by (b) the number of years (calculated to the nearest one-twelfth)
that will elapse between such date and the making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
117
<PAGE>
IMPORTANT UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of important U.S. federal income tax
consequences of the acquisition, ownership and disposition of the exchange
notes as of the date hereof. It deals only with exchange notes held as capital
assets by Holders of the outstanding notes that exchange them for exchange
notes, and does not deal with special situations, such as those of dealers in
securities or currencies, financial institutions, banks, tax-exempt
organizations, insurance companies, holders that are partnerships or other
pass-through entities and holders whose "functional currency" is not the U.S.
dollar, or special rules with respect to "straddle," "conversion," "hedging" or
"constructive sales" transactions. The discussion below is based upon the
Internal Revenue Code of 1986, as amended, and regulations, rulings and
judicial decisions thereunder as of the date hereof, and such authorities may
be repealed, revoked or modified, possibly with retroactive effect, so as to
result in federal income tax consequences different from those discussed below.
This discussion is not binding on the IRS or the courts. No ruling has been
sought or will be sought from the IRS with respect to the positions and issues
discussed herein, and there can be no assurance that the IRS will not take a
different position concerning the tax consequences of the purchase, ownership
or disposition of the exchange notes or that any such position would not be
sustained. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR
TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF EXCHANGE NOTES THAT MAY
BE SPECIFIC TO THEM, INCLUDING THE TAX CONSEQUENCES ARISING UNDER ANY STATE,
LOCAL OR FOREIGN LAWS.
As used herein, the term "U.S. holder" means a beneficial owner of an
outstanding note or an exchange note that is for United States federal income
tax purposes:
. a citizen or resident of the United States,
. a corporation created or organized under the laws of the United States or
any political subdivision thereof or therein,
. an estate the income of which is subject to U.S. federal income taxation
regardless of source, or
. a trust if both:
(a) A U.S. court is able to exercise primary supervision over the
administration of the trust, and
(b) one or more U.S. persons have the authority to control all
substantial decisions of the trust.
As used herein, the term "Non-U.S. holder" means a holder of an outstanding
note or an exchange note that is not a U.S. holder.
Exchange Offer
The exchange of the outstanding notes for the exchange notes will not be
treated as an "exchange" for U.S. federal income tax purposes. Accordingly, a
Holder will not recognize any taxable gain or loss on the exchange of
outstanding notes for exchange notes pursuant to the exchange offer, and a
Holder will have the same adjusted tax basis and holding period in the exchange
notes as the Holder had in the outstanding notes exchanged therefor.
U.S. Holders
Interest
Interest on the exchange notes generally will be taxable to a U.S. holder as
ordinary interest income at the time accrued or received in accordance with the
U.S. holder's regular method of accounting for federal income tax purposes.
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<PAGE>
Dispositions
Upon the sale, exchange, retirement or other disposition of an exchange
note, a U.S. holder generally will recognize taxable gain or loss equal to the
difference between the amount realized on the disposition, not including any
amounts attributable to accrued but unpaid interest income, and such holder's
adjusted tax basis in the exchange note. Such gain or loss generally will be
capital gain or loss. To the extent that the amount realized represents accrued
but unpaid interest, however, such amounts must be taken into account as
interest income, with exchange gain or loss computed as described above. If a
U.S. holder receives foreign currency on such a sale, exchange or retirement,
the amount realized will be based on the U.S. dollar value of the foreign
currency on the date of disposition assuming the exchange notes are not traded
on an established securities market.
For certain non-corporate U.S. holders, including individuals, the rate of
taxation of capital gains will depend upon
. the holder's holding period in the capital asset, with a preferential
rate generally available for capital assets held for more than one year,
and
. the holder's marginal tax rate for ordinary income.
Non-U.S. Holders
The following discussion is limited to the U.S. federal income tax
consequences relevant to a holder of an exchange note that is a Non-U.S.
holder.
Interest
Payments of interest on an exchange note to any Non-U.S. holder will
generally not be subject to U.S. federal income or withholding tax, provided
that
(1) the holder is not
(a) a direct or indirect owner of 10% or more of the total voting power
of all voting stock of Madison River, taking into account certain
attribution rules or
(b) a controlled foreign corporation related to Madison River through
stock ownership,
(2) such interest payments are not effectively connected with the conduct
by the Non-U.S. holder of a trade or business within the United States
and
(3) Madison River or its paying agent receives
(a) from the Non-U.S. holder, a properly completed Form W-8 BEN, or
substitute Form W-8 BEN, under penalties of perjury which provides
the Non-U.S. holder's name and address and certifies that the Non-
U.S. holder of the exchange note is a Non-U.S. holder or
(b) from a security clearing organization, bank or other financial
institution that holds the exchange notes in the ordinary course of
its trade or business on behalf of the Non-U.S. holder,
certification under penalties of perjury that such a Form W-8 BEN,
or substitute Form W-8 BEN, has been received by it, or by another
such financial institution, from the Non-U.S. holder, and a copy of
the Form W-8 BEN, or substitute Form W-8 BEN, is furnished to the
payor.
A Non-U.S. holder that does not qualify for exemption from withholding under
the preceding paragraph generally will be subject to withholding of U.S.
federal income tax at the rate of 30%, or lower applicable treaty rate, on
payments of interest on the exchange notes.
If the payments of interest on an exchange note are effectively connected
with the conduct by a Non-U.S. holder of a trade or business in the United
States, such payments will be subject to U.S.
119
<PAGE>
federal income tax on a net basis at the rates applicable to United States
persons generally, and, with respect to corporate holders, may also be subject
to a 30% branch profits tax. If payments are subject to U.S. federal income tax
on a net basis in accordance with the rules described in the preceding
sentence, such payments will not be subject to United States withholding tax so
long as the holder provides us or our paying agent with a properly executed
Form W-8 ECI.
Non-U.S. holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, exemption from or reduction of
branch profits tax, or other rules different from those described above.
Dispositions
Any gain realized by a Non-U.S. holder on the sale, exchange, retirement or
other disposition of an exchange note generally will not be subject to U.S.
federal income or withholding tax, unless
. such gain is effectively connected with the conduct by such Non-U.S.
holder of a trade or business within the United States,
. the Non-U.S. holder is an individual who is present in the United States
for 183 days or more in the taxable year of the disposition and other
conditions are satisfied, or
. the Non-U.S. holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates.
Federal estate tax
In general, exchange notes held, or treated as held, by an individual who is
a Non-U.S. holder at the time of his or her death will not be subject to U.S.
federal estate tax provided that
. the individual does not actually or constructively own 10% or more of the
total voting power of all voting stock of Madison River and
. income on the exchange notes was not effectively connected with the
conduct by such Non-U.S. holder of a trade or business within the United
States.
Backup Withholding
U.S. federal income tax may be withheld at a rate of 31% on payments made by
us with respect to exchange notes and on payments of proceeds from the sale or
disposition thereof if the Holder fails to furnish his, her or its taxpayer
identification number, fails to certify that he, she or it is exempt from
backup withholding, or the IRS notifies the payor of such amounts that the
Holder is subject to backup withholding. The Holder may be entitled to a
federal income tax credit for the amount of any backup withholding if the
required information is furnished to the IRS.
PLAN OF DISTRIBUTION
The exchange offer is not being made to, nor will we accept surrenders of or
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Based on interpretations by the SEC set forth in no-action letters issued to
third parties, we believe that the exchange notes issued pursuant to the
exchange offer in exchange for the outstanding notes may be offered for resale,
resold and otherwise transferred by holders thereof, other than any holder
which is (A) an "affiliate" of Madison River within the meaning of Rule 405
under the Securities Act, (B) a broker-dealer who acquired notes directly from
Madison River or (C) broker-dealers who acquired notes as a result of market-
making or other trading activities,
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<PAGE>
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such exchange notes are acquired in the
ordinary course of such holders' business, and such holders are not engaged in,
and do not intend to engage in, and have no arrangement or understanding with
any person to participate in, a distribution of such exchange notes. However,
broker-dealers receiving the exchange notes in the exchange offer will be
subject to a prospectus delivery requirement with respect to resales of such
exchange notes. To date, the SEC has taken the position that these broker-
dealers may fulfill their prospectus delivery requirements with respect to
transactions involving an exchange of securities such as the exchange pursuant
to the exchange offer, other than a resale of an unsold allotment from the sale
of the outstanding notes to the initial purchasers, with the prospectus
contained in the exchange offer registration statement. Pursuant to the
registration rights agreement, we have agreed to permit these broker-dealers to
use this prospectus in connection with the resale of such exchange notes. We
have agreed that, for a period of 180 days after the expiration date, we will
make this prospectus, and any amendment or supplement to this prospectus,
available to any broker-dealer that requests such documents in the letter of
transmittal.
Each holder of the outstanding notes who wishes to exchange its outstanding
notes for exchange notes in the exchange offer will be required to make certain
representations to us as set forth in "The Exchange Offer--Resales of Exchange
Notes."
Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such exchange notes. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for outstanding
notes where such outstanding notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of
180 days after the consummation of the exchange offer, we will use our
commercially reasonable efforts to make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale. In addition, until [ . ], 2000, all dealers effecting transactions
in the exchange notes may be required to deliver a prospectus.
We will not receive any proceeds from any sale of exchange notes by broker-
dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer or the purchasers of any such exchange notes. Any broker-
dealer that resells exchange notes that were received by it for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commission or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that, by acknowledging that it will deliver and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the consummation of the exchange offer, we
will promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to
the exchange offer, other than commissions or concessions of any broker-dealers
and will indemnify the holders of the Securities, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act.
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LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for us
by Skadden, Arps, Slate, Meagher & Flom (Illinois), Chicago, Illinois.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements (and schedule) of Madison River Capital, LLC at December
31, 1999 and 1998, and for each of the three years in the period ended December
31, 1999, as set forth in their report. We have included these financial
statements (and schedule) in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of MEBCOM Communications, Inc. and Subsidiary at December
31, 1997, and for the year then ended, as set forth in their report. We have
included these financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on
their authority as experts in accounting and auditing.
Ernst & Young LLP, independent auditors, have audited the consolidated
statements of operations and cash flows of Gulf Coast Services, Inc. for the
period from January 1, 1999 to September 29, 1999 and the two years in the
period ended December 31, 1998, as set forth in their report. We have included
these financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
The consolidated financial statements of Coastal Utilities, Inc. and
Subsidiary as of December 31, 1998 and 1999 and for each of the three years in
the period ended December 31, 1999 included in this prospectus have been
audited by Golden Associates, independent auditors, as stated in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
122
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INDEX TO THE FINANCIAL STATEMENTS
<TABLE>
<S> <C>
MADISON RIVER CAPITAL, LLC
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1999................ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-4
Consolidated Statements of Member's Capital for the Years Ended December
31, 1997, 1998 and 1999................................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Schedule II--Valuations and Qualifying Accounts.......................... F-20
MEBCOM COMMUNICATIONS, INC. AND SUBSIDIARY
Report of Independent Auditors........................................... F-21
Consolidated Balance Sheet at December 31, 1997.......................... F-22
Consolidated Statement of Income for the Year Ended December 31, 1997.... F-23
Consolidated Statement of Shareholders' Equity for the Year Ended
December 31, 1997 ...................................................... F-24
Consolidated Statement of Cash Flows for the Year Ended December 31,
1997.................................................................... F-25
Notes to Consolidated Financial Statements............................... F-26
COASTAL UTILITIES, INC. AND SUBSIDIARY
Independent Auditor's Report............................................. F-32
Consolidated Balance Sheets at December 31, 1998 and 1999................ F-33
Consolidated Statements of Earnings for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-35
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1998 and 1999........................................ F-36
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999..................................................... F-37
Notes to Consolidated Financial Statements............................... F-39
GULF COAST SERVICES, INC.
Report of Independent Auditors........................................... F-57
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1998 and for the Period from January 1, 1999 to September 29,
1999.................................................................... F-58
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1998, and for the Period from January 1, 1999 to September 29,
1999.................................................................... F-59
Notes to Consolidated Statements of Operations and Cash Flows............ F-60
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Member
Madison River Capital, LLC
We have audited the accompanying consolidated balance sheets of Madison
River Capital, LLC as of December 31, 1999 and 1998, and the related
consolidated statements of operations, member's capital, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index on page F-1.
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Madison River
Capital, LLC at December 31, 1999 and 1998, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
Ernst & Young LLP
Raleigh, North Carolina
February 11, 2000
F-2
<PAGE>
Madison River Capital, LLC
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................ $ 83,728,562 $ 6,354,334
Accounts receivable, less allowance for
uncollectible accounts of $1,087,000 and
$335,000 in 1999 and 1998, respectively......... 11,673,213 5,073,021
Accounts receivable, primarily from interexchange
carriers........................................ 6,591,941 2,571,307
Income tax recoverable........................... 53,664 105,300
Due from related party........................... -- 19,289
Inventories...................................... 1,343,257 683,890
Deferred income taxes............................ 48,400 40,200
Other current assets............................. 1,435,800 487,341
------------ ------------
Total current assets........................... 104,874,837 15,334,682
Telephone plant and equipment:
Land, buildings and general equipment............ 48,575,575 14,252,798
Central office equipment......................... 48,344,720 30,915,280
Poles, wires, cables and conduit................. 80,409,273 41,802,692
Leasehold improvements........................... 1,372,077 588,063
Software......................................... 6,828,746 3,212,544
Construction-in-progress......................... 121,353,147 898,455
------------ ------------
306,883,538 91,669,832
Accumulated depreciation and amortization........ (13,561,243) (2,184,160)
------------ ------------
Telephone plant and equipment, net............... 293,322,295 89,485,672
Other assets:
Rural Telephone Bank stock, at cost.............. 8,606,172 283,666
Rural Telephone Finance Cooperative stock, at
cost............................................ 42,933,408 10,974,211
Goodwill, net of accumulated amortization of
$9,840,200 and $1,670,300 in 1999 and 1998,
respectively.................................... 326,560,346 161,276,276
Receivable from NECA............................. -- 6,900,000
Deferred income taxes............................ 5,130,669 --
Other assets..................................... 3,862,773 1,508,425
------------ ------------
Total other assets............................. 387,093,368 180,942,578
------------ ------------
Total assets................................... $785,290,500 $285,762,932
============ ============
Liabilities and member's capital
Current liabilities:
Accounts payable ................................ $ 4,160,212 $ 1,404,680
Accrued expenses................................. 23,766,342 6,381,104
Advance billings and customer deposits........... 3,700,486 1,222,869
Other current liabilities........................ 609,011 122,524
Current portion of long-term debt................ 9,467,237 978,336
------------ ------------
Total current liabilities...................... 41,703,288 10,109,513
Noncurrent liabilities:
Long-term debt................................... 526,144,065 218,898,485
Deferred income taxes............................ 41,556,987 1,212,500
Other liabilities................................ 9,892,021 1,472,064
------------ ------------
Total noncurrent liabilities................... 577,593,073 221,583,049
------------ ------------
Total liabilities.............................. 619,296,361 231,692,562
Member's capital:
Member's interest............................... 185,700,158 58,585,916
Accumulated deficit............................. (19,706,019) (4,515,546)
------------ ------------
Total member's capital......................... 165,994,139 54,070,370
------------ ------------
Total liabilities and member's capital......... $785,290,500 $285,762,932
============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
Madison River Capital, LLC
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1999 1998 1997
------------ ----------- ---------
<S> <C> <C> <C>
Operating revenues:
Local service......................... $ 32,809,887 $ 6,369,715 $ --
Network access service................ 29,892,953 6,410,200 --
Long distance service................. 6,269,681 1,603,733 --
Miscellaneous......................... 7,168,464 865,205 --
Customer premise revenue.............. 6,960,392 1,727,097 --
Provision for uncollectible accounts.. (1,584,677) (111,427) --
------------ ----------- ---------
Total operating revenues............ 81,516,700 16,864,523 --
Operating expenses:
Plant specific........................ 16,525,776 3,031,477 --
Plant nonspecific..................... 8,382,742 1,051,728 --
Depreciation.......................... 11,705,300 2,376,039 11,688
Amortization.......................... 9,803,421 1,800,953 --
Customer operations................... 11,752,897 2,436,634 --
Corporate operations.................. 17,253,554 5,404,878 949,266
Other taxes........................... 601,425 232,492 --
------------ ----------- ---------
Total operating expenses............ 76,025,115 16,334,201 960,954
Net operating income (loss)............. 5,491,585 530,322 (960,954)
Other income............................ 3,386,126 480,622 19,798
------------ ----------- ---------
Income (loss) before interest and income
tax expense............................ 8,877,711 1,010,944 (941,156)
Interest expense........................ (22,443,184) (3,892,741) (31,409)
------------ ----------- ---------
Loss before income tax expense and
extraordinary item..................... (13,565,473) (2,881,797) (972,565)
Income tax expense...................... (1,625,000) (52,000) --
------------ ----------- ---------
Loss before extraordinary item.......... (15,190,473) (2,933,797) (972,565)
Extraordinary item--loss on early
extinguishment of debt................. -- (173,412) --
------------ ----------- ---------
Net loss................................ $(15,190,473) $(3,107,209) $(972,565)
============ =========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
Madison River Capital, LLC
Consolidated Statements of Member's Capital
<TABLE>
<CAPTION>
Member's Accumulated
Interest Deficit Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1996.......... $ 595,415 $ (435,772) $ 159,643
Member's capital.................... 7,849,000 -- 7,849,000
Repurchase of member's capital...... (1,300) -- (1,300)
Issuance costs...................... (150,000) -- (150,000)
Net loss............................ -- (972,565) (972,565)
------------ ------------ ------------
Balance at December 31, 1997.......... 8,293,115 (1,408,337) 6,884,778
Member's capital.................... 50,293,001 -- 50,293,001
Repurchase of member's capital...... (200) -- (200)
Net loss............................ -- (3,107,209) (3,107,209)
------------ ------------ ------------
Balance at December 31, 1998.......... 58,585,916 (4,515,546) 54,070,370
Member's capital.................... 127,114,242 -- 127,114,242
Net loss............................ -- (15,190,473) (15,190,473)
------------ ------------ ------------
Balance at December 31, 1999.......... $185,700,158 $(19,706,019) $165,994,139
============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
Madison River Capital, LLC
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------
1999 1998 1997
------------- ------------- ----------
<S> <C> <C> <C>
Operating activities
Net loss............................ $ (15,190,473) $ (3,107,209) $ (972,565)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization..... 21,508,721 4,176,982 11,688
Deferred compensation............. 2,576,035 313,333 --
Deferred income taxes............. 147,109 296,493 --
Rural Telephone Finance
Cooperative Patronage Capital.... (342,530) -- --
Changes in operating assets and
liabilities:
Accounts receivable............. 217,491 (879,179) --
Accounts receivable, primarily
from interexchange carriers.... (1,283,219) (1,871,409) --
Income tax recoverable.......... 51,635 (105,300) --
Due from related party.......... (1,075,226) 1,481,497 (249,019)
Inventories..................... 21,777 (93,694) --
Other current assets............ 3,611,277 (1,445,084) (146)
Accounts payable ............... (3,351,917) 143,950 71,100
Accrued expenses................ 5,631,018 4,449,366 610,059
Advance billings and customer
deposits....................... 500,286 331,852 --
Other current liabilities....... (84,750) (109,131) --
------------- ------------- ----------
Net cash provided by (used in)
operating activities............... 12,937,234 3,582,467 (528,883)
Investing activities
Purchases of telephone plant in
service............................ (37,756,196) (6,056,354) (3,691)
Acquisitions, net of cash acquired.. (310,457,682) (252,895,960) --
Purchase of Rural Telephone Finance
Cooperative stock.................. (31,616,667) (10,974,211) --
Decrease in other assets............ 5,248,607 -- --
------------- ------------- ----------
Net cash used in investing
activities......................... (374,581,938) (269,926,525) (3,691)
Financing activities
Capital contributions from member... 127,114,242 50,293,001 7,699,000
Repurchase of member's capital...... -- (200) (1,300)
Proceeds from long-term debt........ 316,166,667 227,091,580 --
Payments on long-term debt.......... (4,821,829) (13,125,435) --
Other long-term liabilities......... 559,852 741,826 --
------------- ------------- ----------
Net cash provided by financing
activities......................... 439,018,932 265,000,772 7,697,700
------------- ------------- ----------
Net increase (decrease) in cash and
cash equivalents................... 77,374,228 (1,343,286) 7,165,126
Cash and cash equivalents at
beginning of year.................. 6,354,334 7,697,620 532,494
------------- ------------- ----------
Cash and cash equivalents at end of
year............................... $ 83,728,562 $ 6,354,334 $7,697,620
============= ============= ==========
Supplemental disclosures of cash
flow information
Cash paid for interest.............. $ 20,879,000 $ 3,465,000 $ 31,000
============= ============= ==========
Cash paid for income taxes.......... $ 2,085,000 $ 305,000 $ --
============= ============= ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements
December 31, 1999
1. Summary of Significant Accounting Policies
Description of Business
On August 26, 1999, Madison River Capital, LLC (the "Company"), a wholly-
owned subsidiary of Madison River Telephone Company (the "Parent"), was
organized as a limited liability company under the provisions of the Delaware
Limited Liability Company Act. Under the provisions of this Act, the member's
liability is limited to the Company's assets provided that the members return
to the Company any distributions received. Prior to the formation of Madison
River Capital, LLC, the operations of the operating subsidiaries were
consolidated at the Madison River Telephone Company, LLC level. Concurrent with
the formation of Madison River Capital, LLC as a subsidiary of Madison River
Telephone Company, LLC, all operations were consolidated at the Madison River
Capital, LLC level. All historical operations presented in these financial
statements prior to the date of formation of the Company include the combined
financial statements of the following operating subsidiaries: Gallatin River
Holdings, LLC, Gulf Coast Services, Inc., Madison River Communications, Inc.,
Madison River Long Distance Solutions, Inc., MEBTEL, Inc., and Mebtel
Integrated Communications Solutions, LLC.
The Company was formed for the primary purpose of acquiring and operating
local exchange telephone companies throughout the United States. During 1997,
the Company was a development stage company.
In January 1998, the Company acquired MEBCOM Communications, Inc., a North
Carolina local exchange company serving 9,000 access lines, for approximately
$23,000,000. The purchase price consisted of $21,000,000 in cash and a
$2,000,000 note payable to the selling shareholders. In November 1998, the
Company acquired certain assets and liabilities from Central Telephone Company
of Illinois, a local exchange company serving 82,000 access lines, for cash
consideration of approximately $232,000,000. In September 1999, the Company
acquired Gulf Coast Services, Inc., an Alabama local exchange company serving
approximately 50,000 access lines, for cash consideration of approximately
$313,000,000. These transactions were accounted for using the purchase method
of accounting with results of operations of the acquired companies included in
the Company's operations from the effective dates of acquisition. The Company
records acquired assets and liabilities at their estimated fair value. The
excess of the purchase price over the fair value of net assets acquired is
recorded as goodwill.
Reclassifications
Certain 1997 and 1998 financial statement amounts have been reclassified to
conform with 1999 classifications. These reclassifications had no effect on net
loss or member's capital as previously reported.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
F-7
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
Regulatory Assets and Liabilities
As a regulated entity, the Company is subject to the provisions of Statement
of Financial Accounting Standards No. 71, Accounting for the Effects of Certain
Types of Regulation ("SFAS 71"). Accordingly, the Company records certain
assets and liabilities that result from the effects of the rate-making process,
which would not be recorded under generally accepted accounting principles for
non-regulated entities. These regulatory assets and liabilities relate
primarily to fixed assets and the regulatory impact thereof.
Property, plant and equipment of the Company's regulated telephone
operations has been depreciated using generally the straight line method over
lives approved by regulators. Such depreciable lives have generally exceeded
the depreciable lives used by nonregulated entities. In addition, in accordance
with regulatory accounting, retirements of regulated telephone property have
been charged to accumulated depreciation, along with the costs of removal, less
salvage, with no gain or loss recognized. These accounting policies have
resulted in accumulated depreciation being significantly less than if the
Company's telephone operations had not been regulated.
Statement of Financial Accounting Standards No. 101 ("SFAS 101"), "Regulated
Enterprises--Accounting for the Discontinuance of Application of FASB Statement
No. 71," specifies the accounting required when an enterprise ceases to meet
the criteria for application of SFAS 71. SFAS 101 requires the elimination of
the affects of any actions of regulators that have been recognized as assets
and liabilities in accordance with SFAS 71 but would not have been recognized
as assets and liabilities by enterprises in general, along with an adjustment
of certain accumulated depreciation accounts to reflect the difference between
recorded depreciation and the amount of depreciation that would have been
recorded had the Company's telephone operations not been subject to rate
regulation.
The ongoing applicability of SFAS 71 to the Company's regulated telephone
operations is being monitored due to the changing regulatory, competitive and
legislative environments, and it is possible that changes in these areas or in
the demand for regulated services or products could result in the Company's
telephone operations no longer being subject to SFAS 71 in the future. If the
regulated operations of the Company no longer qualify for the application of
SFAS 71, the net adjustments required could result in a material, noncash
charge against earnings.
Cash Equivalents
It is the Company's policy to consider investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
Telephone Plant in Service
Telephone plant is stated at cost, which includes certain labor and direct
costs associated with the installation of certain assets.
Depreciation is provided using composite straight-line rates, which
approximated 6.54% and 5.42% of average depreciable property for 1999 and 1998,
respectively. Such rates are approved by the Illinois Commerce Commission, the
North Carolina Utilities Commission and the Alabama Public Service Commission,
respectively, for regulated telephone plant in service.
F-8
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
Maintenance, repairs, and minor renewals are primarily expensed as incurred.
Additions, renewals, and betterments are capitalized to telephone plant
accounts. The original cost of depreciable property retired is removed from
telephone plant accounts and charged to accumulated depreciation, which is
credited with the salvage value less removal cost. Under this method, a profit
or loss is not recognized on ordinary retirements of depreciable property.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
the accompanying notes. Actual results could differ from those estimates.
Preoperating Costs
Costs incurred during the development stage, such as expenses associated
with due diligence on potential acquisitions, have been expensed to operations
as incurred.
Inventories
Inventories are comprised primarily of poles, wires, and telephone equipment
and are stated at the lower of cost (average cost) or market.
Revenues
Network access service revenues are based on long distance service pool
settlements with the National Exchange Carrier Association ("NECA") for service
between states. For service between local access and transport area ("LATA"),
access revenues are based on a bill and keep arrangement. Within the LATA,
originating service revenues are based on a bill and keep arrangement and
terminating service is settled with other local exchange carriers within the
state. The Company provides billing and collection services to interexchange
carriers and provides certain directory advertising services. Local service
revenues are billed monthly in advance and deferred until earned.
Income Taxes
For federal and state income tax purposes the Company and its subsidiaries,
except for MEBTEL, Inc., Gulf Coast Services, Inc., Madison River Long
Distance, Inc. and Madison River Communications, Inc., which are taxable C
Corporations, are treated as partnerships. Accordingly, income, losses and
credits are passed through directly to the members. The tax provision in the
accompanying financial statements reflects the income tax expense and income
tax accounts attributable to the taxable C Corporation subsidiaries.
Allocation of Distributions
Distributions to members, if any, are allocated in accordance with the terms
outlined in the Company's Operating Agreement.
F-9
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
Goodwill
Goodwill resulting from the purchase price for the assets in excess of fair
market value is being amortized using the straight-line method over twenty-five
years. Goodwill was recorded in connection with the acquisitions that occurred
in January 1998, November 1998 and September 1999. The Company recorded
amortization expense related to this goodwill of approximately $8,170,000 and
$1,670,000 for the years ended December 31, 1999 and 1998, respectively. The
carrying value of goodwill is reviewed if the facts and circumstances suggest
impairment. If this review by management indicates that the carrying value will
not be recoverable, as determined based on undiscounted cash flows over the
remaining amortization period, the Company would reduce the carrying value by
the estimated shortfall of cash flows on a discounted basis. Based upon the
application of this policy, no impairments were recognized during 1999 and
1998.
Concentration of Credit Risk
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which are unsecured. The
Company provides an allowance for doubtful receivables based on an analysis of
the likelihood of collection of outstanding amounts. One customer, which is
AT&T, represented 15% and 14% of operating revenues for the years ended
December 31, 1999 and 1998.
Cash Concentration
At December 31, 1999, the Company had approximately $82,811,600 cash and
cash equivalents invested in four financial institutions. At December 31, 1998,
the Company had approximately $4,770,000 in cash invested in two financial
institutions.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("FAS 130"). FAS 130 requires that total comprehensive income and
comprehensive income per share be disclosed with equal prominence as net income
and earnings per share. Comprehensive income is defined as changes in member's
capital exclusive of transactions with owners such as capital contributions and
distributions. The Company adopted this Standard in 1998. Comprehensive income
is equivalent to net income for all years presented.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Investments
and Hedging Activities," ("SFAS No. 133"). SFAS No. 133 establishes a new model
for accounting for derivatives and hedging activities and supersedes several
existing standards. SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS No. 133 will have a material impact
on the consolidated financial statements.
F-10
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
2. Rural Telephone Bank Stock
The Company's investment in Rural Telephone Bank ("RTB") stock is carried at
cost and consists of 10,127 and 1,462 shares of $1,000 par value Class C stock
and 15,861 and 152,781 shares of $1 par value Class B stock at December 31,
1999 and 1998, respectively.
3. Rural Telephone Finance Cooperative Stock
The Company's investment in Rural Telephone Finance Cooperative ("RTFC")
stock is carried at cost and consists of Subordinated Capital Certificates
("SCCs") acquired as a condition of obtaining long-term financing from the
RTFC. The SCCs are redeemed proportionately as the principal is repaid to the
RTFC. The Company receives dividends in the form of patronage capital or SCCs
from RTFC, which the Company records at cost.
4. Long-Term Debt and Lines of Credit
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
------------ ------------
<S> <C> <C>
First mortgage notes collateralized by substantially
all assets:
RTFC note payable in escalating quarterly principal
installments beginning in February 2000 through
2013 (initial quarterly installment amount of
$1,309,302), interest payments are due quarterly
at a fixed rate of 7%............................. $123,192,631 $123,192,631
RTFC note payable in escalating quarterly principal
installments beginning in February 2000 through
August 2013 (initial quarterly installment amount
of $250,000), interest payments are due quarterly
at the financial institution's base rate plus .75%
(7.8% at December 31, 1999)....................... 73,684,211 73,684,211
RTFC note payable in escalating quarterly principal
installments beginning in February 1999 through
2012 (initial quarterly installment amount is
$157,995) plus interest payable at a fixed rate of
6.8%.............................................. 14,350,873 15,000,000
RTFC note payable in escalating quarterly principal
installments beginning in February 1999 through
2012 (initial quarterly installment amount is
$80,128) plus interest payable at the financial
institution's base rate plus .5% (7.55% at
December 31, 1999)................................ 7,278,159 7,607,369
RTFC note payable in quarterly principal
installments of $1,486,560 beginning in December
2000 through September 2014 plus interest at a
fixed rate of 8.4%................................ 138,388,889 --
RTFC note payable in escalating quarterly principal
installments beginning in February 2002 through
August 2014 (initial quarterly installment amount
is $1,958,086), interest payments are due
quarterly at the financial institution's base rate
plus 2%. This note was paid in full in February
2000 (see
Note 12).......................................... 177,777,778 --
Other.............................................. 938,761 392,610
------------ ------------
535,611,302 219,876,821
Less current portion................................. 9,467,237 978,336
------------ ------------
$526,144,065 $218,898,485
============ ============
</TABLE>
F-11
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
Principal maturities of long-term debt at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000......................................................... $ 9,467,237
2001......................................................... 14,128,424
2002......................................................... 23,178,581
2003......................................................... 30,526,339
2004......................................................... 32,413,059
Thereafter................................................... 425,897,662
------------
$535,611,302
============
</TABLE>
The Company also has a $10,000,000 revolving line of credit from the RTFC
with a term up to five years. Interest is payable quarterly at the lender's
base rate plus one-half percent per annum. The Company has no borrowings
outstanding under the line of credit at December 31, 1999 and 1998.
The Company also has a $1,000,000 revolving line of credit facility with the
RTFC. Interest on outstanding amounts under the line is payable quarterly at
the RTFC's base rate per annum. The Company had no borrowings under the line of
credit at December 31, 1999 and 1998. The line of credit facility is subject to
review for renewal in January 2003.
In 1999, the Company entered into another $10,000,000 revolving line of
credit with the RTFC for a term up to five years. Interest is payable at the
lender's base rate plus one-half percent per annum. The Company has no
borrowings under the line of credit at December 31, 1999. In addition, the
Company has a fifteen year, $7,800,000 term loan facility with the RTFC that is
available to fund a wholly-owned subsidiary, Gulf Coast Services', working
capital and capital expenditures. Interest is payable at the lender's base rate
plus .35% per annum. The Company has no borrowings under the facility at
December 31, 1999.
Under the terms of the debt agreements, the Company is restricted from
declaring or paying dividends under specified circumstances and is required to
comply with certain financial covenants. At December 31, 1999, substantially
all of the assets of the Company and its subsidiaries were restricted due to
these financial covenants.
The transfer of funds from certain consolidated subsidiaries to the parent
are also restricted by various borrowing agreements. These subsidiaries
generally may advance or loan funds to the parent only if certain financial
ratios and conditions are met. At December 31, 1999, total restricted net
assets of consolidated subsidiaries were approximately $14,900,000.
The Company estimates that the fair value of long-term debt 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, 1999. 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.
5. Leases
The Company leases its office space under operating lease agreements which
expire through 2009. The office leases contain certain provisions for renewal
and also contain certain escalation
F-12
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
clauses. Future minimum lease payments for years subsequent to December 31,
1999 are as follows:
<TABLE>
<S> <C>
2000........................................................... $ 330,649
2001........................................................... 237,133
2002........................................................... 221,358
2003........................................................... 189,625
2004........................................................... 172,176
Thereafter..................................................... 275,254
----------
$1,426,195
==========
</TABLE>
Total rent expense was approximately $319,000, $116,000 and $65,000 for the
years ended December 31, 1999, 1998 and 1997, respectively.
6. Income Taxes
Income taxes for the Company's wholly-owned corporate subsidiaries, MEBTEL,
Inc. ("MEBTEL"), Gulf Coast Services, Inc. ("GCSI"), Madison River Long
Distance Solutions, Inc. ("MRLD") and Madison River Communications, Inc.
("MRCI") are calculated using the liability method, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in MEBTEL's, GCSI's, MRLD's
and MRCI's financial statements or tax returns. Deferred income taxes arise
from temporary differences between the income tax basis and financial reporting
basis of assets and liabilities. Components of income tax expense for the years
ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Current:
Federal......................................... $ 965,203 $(193,885)
State........................................... 242,154 (32,023)
Deferred:
Federal......................................... 255,006 248,994
State........................................... (107,904) 47,499
---------- ---------
Subtotal.......................................... 1,354,459 70,585
Investment tax credits, net....................... (18,585) (18,585)
Change in valuation allowance..................... 289,126 --
---------- ---------
Total income tax expense.......................... $1,625,000 $ 52,000
========== =========
</TABLE>
The net income (loss) before taxes of the wholly-owned corporate
subsidiaries for the years ended December 31, 1999 and 1998 was approximately
$979,000 and $(508,000), respectively. Differences between reported tax expense
computed by applying the statutory federal income tax rate to loss before
income taxes and reported tax expense for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
Amount computed at statutory rate................. $ 332,865 $(172,886)
Non-deductible goodwill amortization.............. 856,012 258,518
Increase in tax valuation allowance............... 289,126 --
State income taxes, net of federal benefit........ 134,250 --
Amortization of investment tax credits............ (18,585) (18,585)
Other, net........................................ 31,332 (15,047)
---------- ---------
Total income tax expense.......................... $1,625,000 $ 52,000
</TABLE>
F-13
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
MRCI had a net operating loss carryforward of approximately $2,195,000 at
December 31, 1999, which will begin to expire in 2018. MRLD had a net operating
loss carryforward of approximately $460,000 at December 31, 1999, which will
begin to expire in 2019. At December 31, 1999, GCSI and its wholly-owned
subsidiary, Gulf Long Distance, had state net operating loss carry forwards for
tax purposes of $3,700,000 and $6,000,000, respectively, which expire beginning
in 2000 through 2013 and 2005 through 2013, respectively.
The tax effects of temporary differences that gave rise to significant
portions of deferred tax assets and deferred tax liabilities at December 31 are
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Deferred tax assets:
Accrued employee benefits.................. $ 2,435,247 $ --
Deferred compensation...................... 1,037,000 --
Net operating loss carryforwards........... 1,512,947 430,000
Other deferred assets...................... 1,011,516 40,200
------------ -----------
Total deferred tax assets.................. 5,996,710 470,200
Valuation allowance for deferred tax
assets.................................... (817,641) --
------------ -----------
Net deferred tax assets.................... 5,179,069 470,200
Deferred tax liabilities:
Book basis of property, plant and equipment
in excess of tax basis.................... (36,601,823) (1,212,500)
Basis difference in investment............. (4,955,164) (430,000)
------------ -----------
Total deferred tax liabilities............... (41,556,987) (1,642,500)
------------ -----------
Net deferred tax liabilities................. $(36,377,918) $(1,172,300)
============ ===========
</TABLE>
7. Benefit Plans
Pension Plan
The Company adopted a noncontributory defined benefit pension plan, which
was transferred to the Company from its wholly-owned subsidiary, MEBTEL, Inc.,
in May 1998, that covers all full-time employees who have met certain age and
service requirements. The plan provides benefits based on participants' final
average compensation and years of service. The Company's policy is to fund the
maximum contribution allowable by the Internal Revenue Code and comply with the
funding requirements of the Employee Retirement Income Security Act of 1974.
During 1998, the plan reflected the impact of a reduction in the number of
MEBTEL employees covered by the plan which significantly reduced the projected
benefit obligation.
The Company adopted the Statement of Financial Accounts Standards No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits which
standardizes disclosure requirements for pensions and other postretirement
benefits, eliminates certain disclosures and requires some additional
information.
F-14
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
The following table sets forth the funded status of the Company's pension
plan and amounts recognized in the Company's financial statements at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Actuarial present value of accumulated
benefits:
Accumulated benefit obligation.............. $(1,572,251) $(1,154,188)
=========== ===========
Projected benefit obligation................ $(1,689,734) $(1,252,083)
Plan assets at fair value, principally
marketable securities...................... 2,036,277 2,028,288
----------- -----------
Plan assets in excess of projected benefit
obligation................................. 346,543 776,205
Unrecognized prior service costs............ 27,711 --
Unrecognized net obligation................. 17,538 19,487
Unrecognized net actuarial gain............. (553,931) (638,000)
----------- -----------
Net pension (costs) prepaid............... $ (162,139) $ 157,692
=========== ===========
</TABLE>
Weighted-average assumptions used are as follows:
<TABLE>
<CAPTION>
December
31,
-----------
1999 1998
----- -----
<S> <C> <C>
Plan discount rates........................................... 7.50% 7.50%
Rates of increase in future compensation levels............... 3.00% 3.00%
Expected long-term rates of return on assets.................. 8.00% 8.00%
</TABLE>
The following table sets forth the net periodic pension cost for the
Company:
<TABLE>
<CAPTION>
December 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Service cost....................................... $ 417,847 $ 54,107
Interest cost...................................... 89,701 83,580
Estimated return on plan assets.................... (162,263) (161,685)
Net amortization and deferral...................... (25,454) (31,660)
--------- ---------
Net periodic pension costs (benefit)............. $ 319,831 $ (55,658)
========= =========
</TABLE>
Changes in plan assets:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Fair value of plan assets
at beginning of year..... $2,028,288 $1,965,873
Actual return on plan
assets, net.............. 21,822 (102,693)
Contributions............. -- 165,108
Distributions............. (13,833) --
---------- ----------
Fair value of plan
assets at end of year.. $2,036,277 $2,028,288
========== ==========
</TABLE>
F-15
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
Changes in benefit obligations:
<TABLE>
<CAPTION>
December 31
----------------------
1999 1998
---------- ----------
<S> <C> <C>
Net benefit obligation at beginning of year....... $1,252,083 $1,843,859
Service cost...................................... 417,847 54,107
Interest cost..................................... 89,701 83,580
Actuarial gain.................................... (56,064) (729,463)
Gross benefits paid............................... (13,833) --
---------- ----------
Net benefit obligation at end of year........... $1,689,734 $1,252,083
========== ==========
</TABLE>
Postretirement Benefit Other Than Pensions
GCSI provides medical coverage to retirees and their dependents through a
traditional indemnity plan administered by a third party. The plan provisions
are the same as those for active participants. Eligibility to participate in
the retiree medical plan upon retirement is defined as age 55 with 25 years of
service.
GCSI requires retirees to contribute 10% of medical, dental and eye care
premium rates. The additional cost of the plan is absorbed by GCSI. GCSI's
retirees also receive free local phone service and a $100 long distance credit
per month. GCSI does not anticipate any changes in the cost-sharing provisions
of the existing written plan, and there is no commitment to increase monetary
benefits. The plan is unfunded.
The following table sets forth the funded status of GCSI's plan and amounts
recognized in GCSI's financial statements at December 31, 1999:
<TABLE>
<S> <C>
Change in benefit obligation:
Accumulated plan benefit obligation at September 30,
1999.................................................... $ 5,881,800
Service cost............................................. 77,100
Interest cost............................................ 113,800
Plan participants' contributions......................... 2,200
Actuarial gain........................................... (572,900)
Benefits paid............................................ (32,300)
-----------
Net accumulated plan benefit obligation at December 31,
1999.................................................... $ 5,469,700
===========
Change in plan assets:
Fair value of plan assets at September 30, 1999.......... $ --
Employer contribution.................................... 30,100
Plan participants' contributions......................... 2,200
Benefits paid............................................ (32,300)
-----------
Fair value of plan assets at December 31, 1999........... $ --
===========
Funded status.............................................. $(5,469,700)
Unrecognized net gain...................................... (572,900)
-----------
Accrued postretirement benefit cost........................ $(6,042,600)
===========
</TABLE>
F-16
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
Components of Net Periodic Postretirement Benefit Cost for September 30,
1999 through December 31, 1999:
<TABLE>
<S> <C>
Service cost................................................. $ 77,100
Interest cost................................................ 113,800
----------
Net periodic postretirement benefit cost...................... $ 190,900
==========
Weighted-average assumptions for 1999:
Discount rate................................................ 8.00%
Initial medical trend rate................................... 9.00%
Initial dental and vision trend rate......................... 8.00%
Ultimate trend rate.......................................... 5.00%
Years to ultimate trend rate................................. 8
Other information:
One percent increase in trend rates:
Effect on service and interest cost.......................... $ 46,100
Effect on accumulated plan benefit obligation................ 1,033,200
One percent decrease in trend rates:
Effect on service and interest cost.......................... (34,800)
Effect on accumulated plan benefit obligation................ (805,500)
</TABLE>
401(k) Savings Plans
During 1998, the Company established a 401(k) savings plan covering
substantially all employees who meet certain age and employment criteria.
Employees may elect to contribute up to 15% of their compensation to the plan.
The Company matches the first 6% of compensation deferred at the rate of 50% of
employee contributions. The Company made matching contributions of
approximately $480,000 in 1999 and $23,600 in 1998.
8. Long-Term Incentive Plan
In 1998, the Company adopted a long-term incentive plan arrangement which
provides for annual incentive awards for certain employees as approved by the
Board of Directors. Under the terms of the plan, awards are earned over the
succeeding twelve months after the award eligibility is determined.
Incentive awards vest automatically at the time of a qualified event as
defined under the plan. Vested awards are payable under certain circumstances
as defined under the long-term incentive plan arrangement. The Company
recognized compensation expense of $2,576,000 and $313,000 in the years ended
December 31, 1999 and 1998, respectively, related to the long-term incentive
awards.
9. Acquisitions
The following unaudited pro forma summary of consolidated results of
operations has been prepared as if the acquisition of Gulf Coast Services, Inc.
occurred on January 1, 1998 and the acquisitions of MEBCOM Communications, Inc.
and certain assets and liabilities from Central Telephone Company of Illinois
occurred on January 1, 1997 (see Note 1).
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1999 1998 1997
-------- -------- -------
(In Thousands)
<S> <C> <C> <C>
Total operating revenues..................... $130,082 $127,951 $57,536
Income (loss) before extraordinary item...... $(49,577) $(56,173) $ 6,846
Extraordinary item........................... -- (173) --
-------- -------- -------
Net income (loss)............................ $(49,577) $(56,346) $ 6,846
======== ======== =======
</TABLE>
F-17
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
These pro forma results do not purport to be indicative of the results that
would have actually been obtained if the respective businesses had been
acquired as of January 1, 1997 or of results that may occur in the future.
10. Segments
The Company has one reportable segment under the requirements of Statement
of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments
of an Enterprise and Related Information."
Revenues by product line are disclosed in the Consolidated Statement of
Operations. All operations and assets are based in the United States.
11. Commitments and Contingencies
Under the terms of Madison River Telephone Company's Operating Agreement, at
any time on or after January 2, 2006, certain members may require Madison River
Telephone Company to purchase all of their redeemable member units in an amount
equal to the fair market value of such units. Such an event could result in
Madison River Capital and its subsidiaries being required to fund this
obligation of the Parent.
On October 5, 1999, nine former employees of Gulf Coast Services, Inc.
("GCSI"), who had elected to retire and receive cash distributions for their
interests in the GCSI Employee Stock Ownership Plan ("ESOP") in 1996 and 1997
filed a class action lawsuit in Alabama state court alleging breach of
fiduciary duty, suppression, and misrepresentation against GCSI and its
subsidiaries. The complaint alleged that GCSI failed to disclose to plaintiffs'
ongoing negotiations for the sale of GCSI and that the true value of their ESOP
interests were higher than the amounts offered to them in connection with their
early retirement. Plaintiffs have filed an amended complaint on November 18,
1999, and sought class certification, the establishment of a constructive trust
to distribute proceeds from the sale of GCSI to the plaintiffs, and a
preliminary injunction seeking to stop GCSI from making further distributions
from the ESOP. The plaintiffs are also seeking unspecified compensatory and
punitive damages, and attorneys fees as a result of defendants' alleged breach
of fiduciary duty, self dealing, misrepresentation, and fraudulent inducement
to retire and forego the benefits of continued employment in connection with
the plaintiffs' retirement elections and ESOP distributions. On December 6,
1999, the Company, moved to dismiss plaintiffs' amended complaint on the ground
that it failed to state any claim upon which relief could be granted. The
Company's motion is currently pending with the Court.
The Company believes the plaintiffs' allegations are without merit and
intends to defend against them vigorously. Additionally, the Company believes
it is adequately covered by indemnification agreements with the former
shareholders of GCSI for any potential liability resulting from this lawsuit.
Consequently, the Company does not believe that the resolution of this
litigation will have a material adverse effect on its financial condition,
results of operations or cash flows.
F-18
<PAGE>
Madison River Capital, LLC
Notes to Consolidated Financial Statements (continued)
12. Subsequent Events
During February 2000, the Company completed a private debt offering for
$200,000,000 of Senior Notes at 13.25% per annum which mature in 2010. The net
proceeds were approximately $190,147,000, reflecting a bond discount of
$2,738,000 and estimated issuance costs of $7,115,000. These funds were used
primarily to repay $160,000,000 of RTFC indebtedness, which was comprised of
$177,777,778 of principal less $17,777,778 in proceeds from the redemption of
the Company's investment in RTFC stock applied towards the repayment of the
debt.
13. Subsequent Events (Unaudited)
During March 2000, the Company, through its wholly-owned subsidiary Coastal
Communications, Inc. ("Coastal Communications"), completed its acquisition of
all of the outstanding stock of Coastal Utilities, Inc., a Georgia local
exchange company. The Company paid $130,000,000 in cash and issued Series A
non-voting common stock and Series B non-voting common stock of Coastal
Communications in the face amount of $10.0 million and $5.0 million,
respectively. The Series A and Series B non-voting common stock have put and
call features exercisable by the holders and Coastal Communications. Based on
the put and call features, the holders of the Series B non-voting common stock
have the right to put their shares for $35.0 million, and the Company has until
April 2002 to repurchase the stock. The holders of Series A non-voting common
stock may put their shares to Coastal Communications in December 2005 for $17.7
million. If the Series B shares are not put or called and repurchased in 2002,
the holders may put or the Company may call the stock pursuant to the Company's
Shareholder Agreement. This transaction was accounted for under the purchase
method of accounting.
F-19
<PAGE>
Madison River Capital, LLC
Schedule II--Valuations and Qualifying Accounts
Year Ended December 31, 1997, 1998 and 1999
(In Thousands)
<TABLE>
<CAPTION>
Additions
-----------------------
Additions (a)
Balance at Charged to Additions Deductions Balance at
Beginning Costs and Due to from End
of Period Expenses Acquisitions Reserves of Period
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997:
Allowance for
uncollectible
accounts............ $ -- $ -- $ -- $ -- $ --
===== ======= ===== ======== =======
Year ended December 31,
1998:
Allowance for
uncollectible
accounts............ $ -- $ 111 $ 240 $ (16) $ 335
===== ======= ===== ======== =======
Year ended December 31,
1999:
Allowance for
uncollectible
accounts............ $ 335 $ 1,585 $ 261 $ (1,094) $ 1,087
===== ======= ===== ======== =======
</TABLE>
Note:
(a) This column represents additions due to the acquisitions of Mebcom,
Gallatin River and Gulf Coast Services.
F-20
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
MEBCOM Communications, Inc.
We have audited the accompanying consolidated balance sheet of MEBCOM
Communications, Inc. and Subsidiary, as of December 31, 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 1997 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of MEBCOM
Communications, Inc. and Subsidiary at December 31, 1997, and the consolidated
results of their operations and cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States.
Raleigh, North Carolina Ernst & Young LLP
January 23, 1998
F-21
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Consolidated Balance Sheet
December 31, 1997
<TABLE>
<S> <C>
Assets
Current assets:
Cash and cash equivalents....................................... $ 2,667,806
Accounts receivable, less allowance for uncollectible accounts
of $55,900..................................................... 596,361
Receivables, primarily from interexchange carriers.............. 401,975
Accounts receivable from officers............................... 1,230,469
Inventory, at average cost...................................... 78,689
-----------
Total current assets.......................................... 4,975,300
Investments and other assets:
Rural Telephone Bank stock, at cost............................. 283,666
Note receivable from affiliate.................................. 54,141
Goodwill........................................................ 89,131
Nonregulated property and equipment, net of accumulated
depreciation of $1,207,011..................................... 375,308
Receivable from sales type leases............................... 93,490
Other assets.................................................... 221,901
-----------
Total investments and other assets............................ 1,117,637
Telephone plant and equipment
Land, buildings and general equipment........................... 3,209,527
Central office equipment........................................ 3,730,359
Poles, wires, cables and conduit................................ 7,457,296
Construction-in-progress........................................ 16,461
-----------
14,413,643
Accumulated depreciation.......................................... (7,433,300)
-----------
Telephone plant and equipment, net................................ 6,980,343
-----------
Total assets.................................................. $13,073,280
===========
Liabilities and shareholders' equity
Current liabilities:
Current portion of long-term debt............................... $ 954,347
Accounts payable................................................ 764,009
Accrued expenses................................................ 155,566
Pension liability............................................... 428,513
Income taxes payable............................................ 346,269
Deferred income taxes .......................................... 34,371
Advance billings and customer deposits.......................... 244,755
-----------
Total current liabilities..................................... 2,927,830
Noncurrent liabilities:
Long-term debt.................................................. 4,567,823
Deferred income taxes........................................... 920,875
Deferred investment tax credits................................. 99,150
Regulatory liability............................................ 27,729
Unearned income--sales type leases.............................. 83,517
Other deferred credits.......................................... 81,939
-----------
Total liabilities............................................. 8,708,863
Shareholders' equity
8% preferred stock, Class B, nonvoting, noncumulative, $100 par
value; authorized 30,000 shares, 989.69 shares issued and
outstanding.................................................... 98,969
Common stock, Class A, voting, $1 par value; authorized 60,000
shares, 480 shares issued and outstanding...................... 480
Common stock, Class B, nonvoting, $1 par value; authorized
110,000 shares, 1,920 shares issued and outstanding............ 1,920
Additional paid-in capital...................................... 260,000
Retained earnings............................................... 4,003,048
-----------
Total shareholders' equity.................................... 4,364,417
-----------
Total liabilities and shareholders' equity.................... $13,073,280
===========
</TABLE>
See accompanying notes.
F-22
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Consolidated Statement of Income
<TABLE>
<CAPTION>
Year ended December 31, 1997
----------------------------
<S> <C>
Operating revenues:
Sales and lease revenue...................... $ 339,553
Local service................................ 2,096,226
Access service............................... 3,459,667
Long distance service........................ 387,866
Other operating.............................. 206,924
Provision for uncollectible accounts......... (111,108)
----------
Total operating revenues....................... 6,379,128
Operating expenses:
Cost of sales................................ 99,400
Nonallocated salaries and fringe benefits.... 16,069
Plant specific............................... 976,708
Plant nonspecific:
Network and other.......................... 448,176
Depreciation .............................. 701,017
Amortization............................... 14,130
Customer operations.......................... 616,449
Corporate operations......................... 1,905,411
----------
Total operating expenses....................... 4,777,360
----------
Net operating revenue.......................... 1,601,768
Operating taxes:
Federal and state income taxes............... 347,124
Taxes other than income taxes................ 196,526
----------
Total operating taxes.......................... 543,650
----------
Net operating income........................... 1,058,118
Other income (expense):
Loss on sale of investments.................. (208,733)
Other income, net............................ 457,845
Nonregulated income, net..................... 37,264
Federal and state income taxes............... (133,405)
----------
Total other income, net........................ 152,971
----------
Income available for fixed charges............. 1,211,089
Interest expense............................... (408,601)
----------
Net income..................................... $ 802,488
==========
</TABLE>
See accompanying notes.
F-23
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Preferred B Common A Common B
----------------- ---------------- ---------------- Additional
Number Number Number Paid in Retained
of Shares Amount of Shares Amount of Shares Amount Capital Earnings Total
--------- ------- --------- ------ --------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... 989.69 $98,969 480 $480 1,920 $1,920 $260,000 $3,200,560 $3,561,929
Net income............. -- -- -- -- -- -- -- 802,488 802,488
------ ------- --- ---- ----- ------ -------- ---------- ----------
Balance at December 31,
1997................... 989.69 $98,969 480 $480 1,920 $1,920 $260,000 $4,003,048 $4,364,417
====== ======= === ==== ===== ====== ======== ========== ==========
</TABLE>
See accompanying notes.
F-24
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997
-----------------------
<S> <C>
Operating activities
Net income............................................ $ 802,488
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 715,147
Loss on sale of investments......................... 208,733
Provision for deferred income taxes................. 26,000
Amortization of deferred investment tax credits..... (19,066)
Change in operating assets and liabilities:
Receivables, net.................................. (430,673)
Inventory......................................... 24,930
Other assets...................................... 25,030
Refundable income taxes........................... 82,019
Income taxes payable.............................. 346,269
Unearned income--sales type leases................ 83,517
Accounts payable.................................. 237,583
Accrued expenses.................................. 101,965
Pension liability................................. (436)
Advance billings and customer deposits............ 18,083
----------
Total adjustments............................... 1,419,101
Proceeds from sales of trading securities............. 666,026
----------
Net cash provided by operating activities............. 2,887,615
Investing activities
Proceeds from sales of equipment...................... 141,144
Purchases of telephone plant in service and other
equipment............................................ (1,385,431)
Purchases of Rural Telephone Bank stock............... (10,950)
----------
Net cash used in investing activities................. (1,255,237)
Financing activities
Net (decrease) increase in short-term borrowings...... (130,000)
Payments of long-term debt............................ (1,038,532)
Proceeds from issuance of long-term debt.............. 229,950
----------
Net cash used in financing activities................. (938,582)
----------
Net increase in cash and cash equivalents............. 693,796
Cash and cash equivalents at beginning of year........ 1,974,010
----------
Cash and cash equivalents at end of year.............. $2,667,806
==========
</TABLE>
See accompanying notes.
F-25
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 1997
1. Summary of Significant Accounting Policies
Description of Business
MEBCOM Communications, Inc., ("MEBCOM" or the "Company") operates in the
telecommunications industry and provides local and long-distance services to
customers who are primarily residents of Alamance and Orange Counties in North
Carolina through its wholly-owned subsidiary MEBTEL, Inc. ("MEBTEL").
Principles of Consolidation
The accompanying consolidated financial statements include amounts for
MEBCOM and its subsidiary MEBTEL. MEBCOM owns 100% of the outstanding common
stock of MEBTEL. All significant intercompany balances and transactions have
been eliminated in consolidation.
Concentration of Credit Risk
The Company's principal financial instrument subject to potential
concentration of credit risk is accounts receivable which are unsecured. The
Company provides an allowance for doubtful receivables based on an analysis of
the likelihood of collection of outstanding amounts. Credit losses on accounts
receivable will result only if the Company's actual bad debt expense exceeds
the reserve provided.
One customer, AT&T, represented 13% of total accounts receivable, as of
December 31, 1997.
Telephone Plant in Service
Telephone plant is stated at original cost, which includes certain
capitalized costs consisting of payroll taxes, pension and other fringe
benefits.
Depreciation is provided using composite straight-line rates, which
approximated 5.1% of average depreciable property for 1997. Such rates are
approved by the North Carolina Utilities Commission for regulated telephone
plant in service.
Maintenance, repairs, and minor renewals are primarily charged to
maintenance expense accounts. Additions, renewals, and betterments are
capitalized to telephone plant accounts. The original cost of depreciable
property retired is removed from telephone plant accounts and charged to
accumulated depreciation, which is credited with the salvage value less removal
cost. Under this method, a profit or loss is not recognized on ordinary
retirements of depreciable property.
Goodwill
Goodwill resulting from the purchase of MEBTEL is being amortized using the
straight-line method over a 40-year period.
Regulatory Assets and Liabilities
As a regulated entity, the Company is subject to the provisions of SFAS No.
71, Accounting for the Effects of Certain Types of Regulation. Accordingly, the
Company records certain assets and liabilities that result from the effects of
the rate-making process, which would not be recorded under generally accepted
accounting principles for non-regulated entities. These regulatory assets and
liabilities relate primarily to excess deferred taxes, deferred investment tax
credits and the regulatory impact thereof.
F-26
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
Revenues
Access service revenues are based on long-distance service pool settlements
with the National Exchange Carrier Association ("NECA") for service between
states. For service between local access and transport areas ("LATA"), access
revenues are based on a bill and keep arrangement. For service within the LATA,
revenues are pooled and distributed to the various local exchange carriers
within the states. The Company provides billing and collection services to
interexchange carriers and provides certain directory advertising services.
Local service revenues are billed monthly in advance and deferred until the
month earned.
Income Taxes
The Company and MEBTEL file a consolidated federal income tax return.
Deferred income taxes are provided for temporary differences between book
and tax basis of assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income.
Income taxes are allocated between operating income and other income based on
the source of the income that generated the tax.
Investment tax credits related to telephone plant have been deferred and
amortized as a reduction of federal income tax expense over the estimated
useful lives of the assets giving rise to the credits.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
original maturities of three months or less.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Rural Telephone Bank Stock
The Company's investment in Rural Telephone Bank ("RTB") stock is carried at
cost and consists of five shares of $1,000 par value Class C stock and
1,456,347 shares of $1 par value Class B stock at December 31, 1997. As a
condition to obtaining long-term financing from the RTB, 283,666 shares were
acquired and additional shares have been received through patronage refunds in
the form of stock dividends. Class B stock must be held by the borrower until
the loan is repaid and is not transferable. The loan was repaid in full in
January 1998.
F-27
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
3. Debt and Line of Credit
Long-term debt at December 31, 1997 consists of the following:
<TABLE>
<CAPTION>
1997
----------
<S> <C>
First mortgage notes collateralized by telephone plant in service
fixed assets:
2.0% Rural Utilities Service ("RUS") notes, due in quarterly
installments to 2005............................................. $ 353,077
5.5% RTB notes, due in monthly and quarterly installments to
2008............................................................. 965,809
6.75% RTB notes, due in monthly installments to 2002.............. 2,046,702
6.40% RTB note, due in monthly installments to 2002............... 1,037,188
6.88% RTB notes, due in monthly installments to 2022.............. 192,276
6.42% RTB note, due in monthly installments to 2022............... 264,934
6.54% RTB note, due in monthly installments to 2022............... 229,056
Bank note:
Note payable to bank due in monthly installments of $5,400,
including interest, through 1998. Interest is at the bank's prime
rate (8.50% at December 31, 1997)................................ 59,390
Notes to former shareholder:
9% unsecured notes due in quarterly installments of $66,457,
including interest, through 1999................................. 373,738
----------
Total long-term debt............................................ 5,522,170
Less current portion of long-term debt.......................... 954,347
----------
Long-term debt, excluding current portion....................... $4,567,823
==========
</TABLE>
The Company had a $130,000 outstanding unsecured note payable to a bank
which was repaid in full during 1997.
The Company has a $600,000 revolving line-of-credit with a bank which was
repaid in full during 1997.
The RUS and RTB first mortgage notes are collateralized by substantially all
of MEBTEL's telephone plant in service.
During 1997, the Company paid interest of approximately $377,000.
F-28
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
4. Pension Plan
The Company has a noncontributory defined benefit pension plan that covers
all full-time employees who have met certain age and service requirements. The
plan provides benefits based on participants' final average compensation and
years of service. The Company's policy is to fund the maximum contribution
allowable by the Internal Revenue Code and comply with the funding requirements
of the Employee Retirement Income Security Act. The following table sets forth
the funded status of the Company's pension plan and amounts recognized in the
Company's financial statements at December 31, 1997:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Actuarial present value of accumulated plan benefits:
Accumulated benefit obligation, including vested benefits of
$990,372 in 1997................................................ $(1,049,638)
===========
Projected benefit obligation....................................... $(2,216,460)
Plan assets at fair value, principally marketable securities....... 1,965,873
-----------
Projected benefit obligation less plan assets...................... (250,587)
Unrecognized net obligation........................................ 28,598
Unrecognized net gain.............................................. (206,524)
-----------
Net accrued pension costs.......................................... $ (428,513)
===========
</TABLE>
Net periodic pension cost for the Company in 1997 is as follows:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Service cost-benefit earned during the period................... $138,369
Interest cost on projected benefit obligation................... 144,983
Actual return on plan assets.................................... (343,925)
Net amortization and deferral................................... 218,258
--------
Net periodic pension cost....................................... $157,685
========
</TABLE>
The assumed discount rate used in the determination of the actuarial present
value of accumulated plan benefits was 7.5% for 1997. The assumed long-term
rate of return on plan assets was 8% for 1997 and the assumed rate of
compensation increase was 5% for 1997.
<TABLE>
<CAPTION>
1997
----------
<S> <C>
Changes in plan assets:
Fair value of plan assets at beginning of year ............. $1,463,827
Actual return on plan assets, net .......................... 343,925
Contributions............................................... 158,121
Distributions............................................... --
----------
Fair value of plan assets at end of year...................... $1,965,873
==========
<CAPTION>
1997
----------
<S> <C>
Changes in benefit obligations:
Net benefit obligation at beginning of year................. $1,933,108
Service cost................................................ 138,369
Interest cost............................................... 144,983
Gross benefits paid......................................... --
----------
Net benefit obligation at end of year......................... $2,216,460
==========
</TABLE>
F-29
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. Income Taxes
Components of federal and state income tax expense are as follows:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Included in operating taxes:
Current:
Federal..................................................... $258,530
State....................................................... 45,623
Deferred:
Federal..................................................... 36,526
State....................................................... 6,445
--------
Total........................................................... 347,124
Included in other income (expenses):
Current:
Federal..................................................... 113,395
State....................................................... 20,010
Deferred:
Federal..................................................... --
State....................................................... --
--------
Total........................................................... 133,405
--------
Total income tax expense........................................ $480,529
========
</TABLE>
Total income tax expense differs from the amounts computed by applying the
U.S. Federal income tax rate of 34% to income before income taxes as a result
of the following:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Amount computed at statutory rate............................... $436,226
State income taxes, net of federal income tax benefits.......... 56,452
Dividends received deduction.................................... (13,345)
Amortization of investment tax credit........................... (19,065)
Other, net...................................................... 20,261
--------
Total income tax expense........................................ $480,529
========
</TABLE>
F-30
<PAGE>
MEBCOM Communications, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1997 are as follows:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Net current income tax assets (liabilities):
Investments.............................................. $ (79,648)
Other.................................................... 45,277
-----------
Total...................................................... $ (34,371)
===========
Net noncurrent income tax assets (liabilities):
Employee benefit plan.................................... $ 177,833
Deferred investment tax credits.......................... 40,885
Property, plant and equipment, primarily due to
depreciation differences................................ (1,139,593)
-----------
Total...................................................... $ (920,875)
===========
</TABLE>
During 1997, the Company paid approximately $279,000 in income taxes.
6. Receivables From Related Parties
At December 31, 1997, the Company had an unsecured note receivable totaling
$54,141 from a company affiliated through common ownership. The note is due in
equal installments of $642, including interest at 7.125% for 120 months. The
balance of the note receivable was collected in full in 1998.
At December 31, 1997, the Company had unsecured accounts receivable from
officers totaling $1,230,469. The receivables are noninterest-bearing and are
due upon demand.
7. Subsequent Events
In January 1998, all of the outstanding capital stock of the Company was
acquired by Madison River Capital for a purchase price of $21.3 million plus
the assumption of approximately $2.0 million of existing indebtedness of the
Company. Also, the Company's investment in Rural Telephone Bank Class B stock
has been converted to Class C stock. Madison River Capital has merged the
Company and the Parent into one corporation with the Company as the surviving
entity.
F-31
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Coastal Utilities, Inc.
Hinesville, Georgia
We have audited the accompanying consolidated balance sheets of Coastal
Utilities, Inc. and its Subsidiary as of December 31, 1999 and 1998 and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for the years ended December 31, 1999, 1998 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Coastal
Utilities, Inc. and its Subsidiary as of December 31, 1999 and 1998, and the
results of its consolidated operations and its cash flows for the years ended
December 31, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles.
GOLDEN ASSOCIATES
Certified Public Accountants
March 23, 2000
Hinesville, Georgia
F-32
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash................................................. $ 1,673,486 $ 3,122,038
Working cash advance................................. 7,650 7,850
Temporary investments (Note 2)....................... 5,485,608 9,881,820
Due from customers and agents, net of allowance for
doubtful accounts of $381,890 in 1999 and $322,383
in 1998............................................. 936,980 1,228,604
Interest receivable.................................. -- --
Due from other carriers.............................. 1,606,583 2,226,137
Other receivables.................................... 267,212 485,326
Current portion of net investment in direct-
financing, sales-type leases (Note 11).............. 57,848 65,355
Material and supplies (Note 1)....................... 694,407 672,500
Claims for income tax refunds........................ -- 590,778
Prepaid expenses..................................... 396,863 151,344
----------- -----------
TOTAL CURRENT ASSETS............................... 11,126,637 18,431,752
----------- -----------
OTHER INVESTMENTS (Note 2)............................. 15,636,089 18,924,499
----------- -----------
NET INVESTMENT IN DIRECT-FINANCING, SALES-TYPE LEASES
(Note 11)............................................. -- --
----------- -----------
INVESTMENT IN TELEPHONE PLANT (Note 1)
Telephone plant in service........................... 81,185,729 85,783,321
Less accumulated depreciation........................ 36,705,834 40,337,900
----------- -----------
Net plant in service................................. 44,479,895 45,445,421
Telephone plant under construction................... 1,544,903 1,039,278
Nonoperating plant................................... 441,670 439,500
----------- -----------
TOTAL TELEPHONE PLANT.............................. 46,466,468 46,924,199
DEFERRED CHARGES
Deferred charges--other.............................. 3,188,511 3,198,473
Deferred tax asset--minimum pension liability (Note
8).................................................. -- 1,650,036
----------- -----------
TOTAL ASSETS........................................... $76,417,705 $89,128,959
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
CONSOLIDATED BALANCE SHEETS--CONTINUED
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Short-term borrowing and debt maturing within one
year (Notes 3 & 4).............................. $ 2,522,591 $ 3,779,186
Accounts payable (Note 18)....................... 1,827,665 1,808,693
Customers' deposits.............................. 254,915 280,283
Other current liabilities (Note 19).............. 1,253,362 1,165,300
Accrued taxes.................................... 74,757 --
Accrued income taxes............................. 3,018,724 --
Unmatured interest............................... 56,300 760,614
------------ ------------
TOTAL CURRENT LIABILITIES...................... 9,008,314 7,794,076
------------ ------------
Long-term debt (Note 3)............................ 55,400,419 59,448,340
Deferred income taxes (Note 8)................... 1,764,159 2,757,762
Other liabilities (Note 7)....................... 1,846,135 2,275,447
Unfunded accumulated pension benefit obligation.. -- 4,125,089
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 9)
Preferred stockholders' equity Series A 8%
preferred stock, cumulative, $100 par value,
1,704 shares issued and outstanding............. 440,500 440,500
Series B 12% preferred stock, cumulative, $100
par value, 4,086 shares issued and outstanding 1,057,200 1,057,200
Common stockholders' equity Common stock, Class
A, $10 par value, 21,111 shares issued and
outstanding..................................... 528,600 528,600
Common stock, Class B, $10 par value, 88,659
shares issued and outstanding................... 2,220,120 2,220,120
Retained earnings--unreserved.................... 40,066,589 46,991,609
Accumulated other comprehensive income........... 252,944 (2,342,509)
Treasury stock, at cost.......................... (36,167,275) (36,167,275)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY..................... 8,398,678 12,728,245
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $ 76,417,705 $ 89,128,959
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING REVENUE....................... $31,146,570 $33,573,175 $36,769,161
COST OF GOODS SOLD...................... 117,823 250,165 126,050
OPERATING EXPENSE....................... 22,672,528 25,153,189 26,685,494
----------- ----------- -----------
NET OPERATING INCOME BEFORE OPERATING
TAXES.................................. 8,356,219 8,169,821 9,957,617
----------- ----------- -----------
OPERATING TAXES
Federal and State income taxes (Note
8)................................... 1,585,555 1,554,557 1,810,869
Other operating taxes................. 760,855 835,800 779,398
----------- ----------- -----------
TOTAL OPERATING TAXES............... 2,346,410 2,390,357 2,590,267
----------- ----------- -----------
NET OPERATING INCOME.................... 6,009,809 5,779,464 7,367,350
----------- ----------- -----------
OTHER INCOME AND (EXPENSE)
Other income.......................... -- 441,313 --
Interest and dividend income.......... 2,236,545 9,742,423 1,416,426
Miscellaneous income (loss)........... 22,529 (33,441) (54,423)
Life insurance on lives of officers... 320,983 155,187 (18,289)
Life insurance proceeds (Note 17)..... -- -- 3,601,313
Miscellaneous income charges.......... (230,109) (146,823) (250,143)
Federal and State income taxes--non-
operating (Note 8)................... (541,152) (3,240,273) (633,355)
Other non-operating taxes............. (45) -- --
----------- ----------- -----------
TOTAL OTHER INCOME AND EXPENSE...... 1,808,751 6,918,386 4,061,529
----------- ----------- -----------
INCOME BEFORE INTEREST.................. 7,818,560 12,697,850 11,428,879
----------- ----------- -----------
INTEREST
Interest on long-term debt............ 3,417,344 3,936,445 3,987,214
Other interest deductions............. 22,194 25,439 33,714
----------- ----------- -----------
TOTAL INTEREST...................... 3,439,538 3,961,884 4,020,928
----------- ----------- -----------
NET INCOME.............................. 4,379,022 8,735,966 7,407,951
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME BEFORE TAX
Unrealized holding gains arising
during period........................ 4,744,826 421,572 220,907
Minimum pension liability adjustment.. -- -- (4,125,089)
----------- ----------- -----------
TOTAL OTHER COMPREHENSIVE INCOME
BEFORE TAX......................... 4,744,826 421,572 (3,904,182)
----------- ----------- -----------
Income tax expense related to items of
other comprehensive income........... (1,897,930) (168,628) 1,561,673
----------- ----------- -----------
OTHER COMPREHENSIVE INCOME, NET OF TAX.. 2,846,896 252,944 (2,342,509)
----------- ----------- -----------
COMPREHENSIVE INCOME.................... $ 7,225,918 $ 8,988,910 $ 5,065,442
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
December 31, 1999, 1998, and 1997
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Accumulated Other Retained Earnings
Series A Series B Class A Class B Paid In Capital Comprehensive Income Unreserved
-------- ----------- -------- ---------- --------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996...... $440,500 $ 1,057,200 $528,600 $2,220,120 $ (2,583,637) $ 1,487,238 $27,329,602
Prior period adjustment
(Note 13)............. -- -- -- -- -- -- 746,422
Net income--1997....... -- -- -- -- -- -- 4,379,022
Unrealized holdings
Gain(Loss) (Note 2)... -- -- -- -- -- 1,359,658 --
Dividend declared
Common stock ($2.31
per share), net of
Treasury stock...... -- -- -- -- -- -- (512,375)
Preferred stock ($8
per share), net of
Treasury stock...... -- -- -- -- -- -- (27,240)
Preferred stock ($12
per share), net of
Treasury stock...... -- -- -- -- -- -- (98,064)
Purchase of Treasury
Stock................. -- -- -- -- (2,583,637) -- --
-------- ----------- -------- ---------- ------------ ----------- -----------
December 31, 1997...... $440,500 $1, 057,200 $528,600 $2,220,120 $ (5,167,274) $ 2,846,896 $31,817,367
Prior period adjustment
(Note 13)............. -- -- -- -- -- -- 290,920
Net income--1998....... -- -- -- -- -- -- 8,735,966
Unrealized holdings
Gain(Loss) (Note 2)... -- -- -- -- -- (2,593,952) --
Dividend declared
Common stock ($2.97
per share), net of
Treasury stock...... -- -- -- -- -- -- (652,360)
Preferred stock ($8
per share), net of
Treasury stock...... -- -- -- -- -- -- (27,240)
Preferred stock ($12
per share), net of
Treasury stock...... -- -- -- -- -- -- (98,064)
Purchase of Treasury
Stock................. -- -- -- -- (31,000,001) -- --
-------- ----------- -------- ---------- ------------ ----------- -----------
December 31, 1998...... $440,500 $ 1,057,200 $528,600 $2,220,120 $(36,167,275) $ 252,944 $40,066,589
Prior period adjustment
(Note 13)............. -- -- -- -- -- -- (178,722)
Net income -1999....... -- -- -- -- -- -- 7,407,951
Unrealized holdings
Gain(Loss) (Note 2)... -- -- -- -- -- (120,400) --
Dividend declared
Common stock ($2.20
per share), net of
Treasury stock...... -- -- -- -- -- -- (241,494)
Preferred stock ($8
per share), net of
Treasury stock...... -- -- -- -- -- -- (13,632)
Preferred stock ($12
per share), net of
Treasury stock...... -- -- -- -- -- -- (49,033)
Minimum Pension
Liability Adjustment.. -- -- -- -- -- (2,475,053) --
-------- ----------- -------- ---------- ------------ ----------- -----------
December 31, 1999...... $440,500 $ 1,057,200 $528,600 $2,220,120 $(36,167,275) $(2,342,509) $46,991,609
======== =========== ======== ========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING
ACTIVITIES
Net income............................ $ 4,379,022 $ 8,735,966 $ 7,407,951
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization......... 5,759,980 5,998,675 6,083,680
Provision for losses on due from
customers and agents................. 27,610 83,074 59,507
Prior period adjustment............... 746,422 290,920 (178,772)
Additional pension liability.......... -- -- (2,475,053)
Increase (decrease) in unamortized
investment credit.................... (121,135) (101,101) (43,151)
Deferred income taxes................. 1,819,360 (2,025,680) (656,443)
Deferred compensation retirement
benefit.............................. (31,298) (436,618) 556,005
(Increase) decrease in prepaid
pension.............................. (1,470,861) (261,584) (430,039)
Increase in deferred credit pension... -- -- 4,125,089
(Increase) decrease in:
Due from customers and agents....... (38,392) (257,879) (351,131)
Interest receivable................. 10,466 19,463 --
Due from other carriers............. 68,071 (144,513) (619,555)
Other receivables................... (230,437) 41,950 (218,114)
Materials and supplies.............. 20,777 170,180 21,908
Claims for income tax refunds....... (671,005) -- (3,605,940)
Prepaid expenses.................... 24,416 (14,357) 245,518
Increase (decrease) in:
Accounts payable.................... 259,079 (389,803) (18,855)
Customers' deposits................. (1,521) 20,909 25,368
Other current liabilities........... 126,699 88,817 (88,063)
Taxes other than taxes on income.... (144,321) 74,630 (74,875)
Income taxes payable................ (495,398) 3,828,132 (3,562)
Unmatured interest.................. (592) (87,396) 704,314
----------- ----------- -----------
NET CASH FROM (USED FOR) OPERATING
ACTIVITIES....................... 10,036,942 15,633,785 10,465,797
----------- ----------- -----------
CASH FLOWS FROM (USED FOR) INVESTING
ACTIVITIES
Extension and replacement of plant.... (5,555,958) (6,933,917) (7,034,120)
Purchase of nonoperating plant........ -- (176,145) 2,170
Proceeds from disposal of plant....... 340,277 337,465 490,540
(Increase) in other investments....... (1,318,104) (1,093,400) 2,986,071
Decrease in deferred charges.......... 152,217 832,127 420,077
Leases receivable..................... 77,584 25,068 (21,017)
Purchase of investments............... (434,117) (474,161) (6,274,480)
OID-USTN Holdings..................... (35,598) -- --
(Increase) Decrease in temporary
investments.......................... (596,109) 18,621,148 (4,396,211)
Sale of World Access Stock............ 150,000 210,000 --
Increase (decrease) in unrealized
holdings............................. 1,359,658 (2,593,952) (120,400)
----------- ----------- -----------
NET CASH FROM (USED FOR) INVESTING
ACTIVITIES....................... (5,860,150) 8,754,233 (13,947,370)
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-37
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
CONSOLIDATED STATEMENTS OF CASH FLOWS--CONTINUED
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1998 1999
---------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR) FINANCING
ACTIVITIES
Advances to GA PCS Mgt, LLC............. -- -- 1,174,200
Advances to US Carrier.................. -- -- 801,359
Advances from RUS....................... 2,137,000 -- --
Advance from RTFC....................... -- 57,543,843 5,000,000
Advance from NationsBank of GA.......... -- -- --
Pay off of Long-term debt to RUS........ (1,297,724) (25,856,228) --
Pay off of Long-term debt to RTB........ (675,159) (24,138,339) --
Repayment of debt to RTFC............... -- -- (1,454,376)
Repayment of debt to NationsBank of GA.. (1,216,667) (216,667) (216,667)
Cash dividends paid to stockholders..... (637,679) (777,664) (304,159)
Increase (decrease) in deferred revenue
from leases............................ (20,313) (4,516) 3,904
Increase (decrease) in deferred interest
from leases............................ (18,202) (11,867) 9,606
Increase (decrease) in deferred
credits................................ 26,346 (14,076) (83,541)
(Increase) decrease in treasury stock... (2,583,638) (31,000,001) --
---------- ----------- ----------
NET CASH FROM (USED FOR) FINANCING
ACTIVITIES......................... (4,286,036) (24,475,515) 4,930,326
---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. (109,244) (87,496) 1,448,753
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR..................................... 1,877,876 1,768,632 1,681,136
---------- ----------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.. $1,768,632 $ 1,681,136 $3,129,889
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements
December 31, 1999, 1998, and 1997
Note 1--Significant Accounting Policies
A. Nature of operations
The Company is a telephone utility (local exchange carrier) which provides a
variety of telecommunications services within an area designated by the Georgia
Public Service Commission (GPSC). This area includes all of Liberty County, a
portion of Long County, a portion of Bryan County which includes Richmond Hill
and Keller, and all of the Fort Stewart Military Reservation. The Company,
through its wholly owned subsidiary, Coastal Long Distance Services, Inc.,
offers long distance and Internet access services to its subscribers within the
above defined areas. The Company constructs the plant necessary to provide
telecommunication services to consumers.
B. Accounting procedures
The Company follows the accrual basis of accounting as provided by the
Federal Communications Commission Rules and Regulations for Class A Telephone
Companies.
C. Inventories
The Company records inventory of materials and supplies, telephone store and
business systems at average cost.
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Material and supplies
Telephone operations--at average cost....... $475,030 $339,486 $323,980
Phone store--Hinesville--at cost............ 47,680 61,715 43,088
Business systems--at average cost........... 341,877 293,206 305,432
-------- -------- --------
$864,587 $694,407 $672,500
======== ======== ========
</TABLE>
D. Allowance for doubtful accounts
The Company uses the reserve method in accounting for doubtful accounts. The
allowance is based on prior years' experience.
E. Depreciation
The Company provides for depreciation on the straight-line basis using class
rates applied to depreciable property. The percentages of annual provisions for
depreciation to the average balances of depreciable property were 8% in 1999,
1998 and in 1997.
F. Revenue
The Company recognizes revenue when earned. The structure of the Company's
revenue is as follows:
1. Local service revenues are generated from the provision of local exchange
and local private line revenues.
F-39
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
2. Network access revenues are received from interexchange carriers that use
the local network. These revenues are also received from Southern Bell on the
intrastate intralata jurisdiction under the primary carrier concept. These
revenues are in the form of switched access and special access revenues.
3. Operator services revenue is produced by a contractual agreement between
the Company, Coastal Long Distance Services, Inc. on the inter/intralata
jurisdiction and Southern Bell on the intralata jurisdiction.
4. Billing and collection revenues are produced by agreements with
Illuminet, Independent NECA Services, Southern Bell and Coastal Long Distance
Services, Inc. (a wholly owned subsidiary of the Company). The Company uses
Independent NECA Services to administer AT&T and Sprint billing and
collections. The Company uses Illuminet to administer MCI and various other
carriers' casual billing.
5. Other miscellaneous income consists of regulated and deregulated revenue
items such as lease and sale of customer premise equipment, directory
advertising and public telephone revenues.
6. Coastal Long Distance Services, Inc. (a wholly owned subsidiary of the
Company) generates revenue from toll and Internet access services provided to
its subscribers.
Certain revenues derived from local services are billed monthly in advance
and are recognized the month when the services are provided. Revenues derived
from other telecommunications services which include network access, operator
services, and toll services are recognized monthly as services are provided.
Allowances for uncollectible billed services are adjusted monthly. Directory
advertising and other miscellaneous revenues are recognized monthly as earned.
G. Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
H. Telephone Plant
The investment in Telephone Plant is stated at original cost. For plant
dedicated to providing regulated telecommunications services, depreciation is
based on the remaining life method of depreciation and straight-line composite
rates determined on the basis of equal life groups of certain categories of
telephone plant acquired in a given year. When depreciable telephone plant is
disposed of, the original cost less net salvage value is charged to accumulated
depreciation. The cost of other property, plant and equipment is depreciated
using either straight-line or accelerated methods over the estimated useful
lives of the assets. Gains or losses on disposal of other depreciable property,
plant and equipment are recognized in the year of disposition as an element of
Other Income, net.
I. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, after elimination of all significant
intercompany balances and transactions.
F-40
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
J. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 2--Investments
A. Temporary Investments
Temporary investments are composed of cash and highly liquid securities
invested with NationsBank of Georgia and SunTrust Bank. These accounts are
available-for-sale and are reported at the aggregate fair value. The gross
unrealized holding gain (loss) for 1999, 1998 and 1997 were $220,907,
($4,323,253) and $2,266,096, respectively.
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1998 1999
----------- ---------- ----------
<S> <C> <C> <C>
NationsBank of Georgia................. $19,838,235 $ -- $ --
SunTrust Bank.......................... 3,533,971 3,789,002 3,724,677
Barnett Bank........................... 300,000 -- --
Coastal Bank........................... 43,627 29,366 49,123
Heritage Bank.......................... 125,131 1,100,075 4,642,124
Bryan Bank & Trust..................... 261,939 556,952 1,441,290
First Citizens Bank.................... 3,853 10,213 24,606
----------- ---------- ----------
Total Temporary Investment........... $24,106,756 $5,485,608 $9,881,820
=========== ========== ==========
</TABLE>
F-41
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
B. Other Investments
Other investments at December 31, 1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Rural Telephone Bank--Class B Stock.... $ 1,466,120 $ 1,466,878 $ --
Rural Telephone Bank--Class C Stock.... 5,000 5,000 1,471,878
Cash Value of Life Ins. Policies on
officers.............................. 12,144,457 13,262,759 9,088,535
Less Loans related to Insurance
Policies.............................. (1,514,958) (1,539,860) (351,707)
Rural Telephone Finance Cooperative
Patronage Capital..................... 37,347 37,347 37,347
Rural Telephone Finance Coop (SCC's)... -- -- 3,146,651
Communications Satellite Stock, at
cost, 2000 shares of common stock..... 2,000 2,000 2,000
Coastal Electronics Stock, at cost,
1000 shares of common stock........... 1,000 1,000 1,000
Illuminet, Inc., at cost, 117,934
shares of Class A common stock........ 939,282 939,447 939,242
Savannah Independent PCS Group, at
cost.................................. 622,380 734,080 --
Georgia PCS Management, LLC, at cost,
15.0571% of Ownership................. 350,465 635,260 3,070,960
Restor Industries (World Access)....... 210,000 -- --
US Carrier Telecom, LLC, at cost,
7.642% of Ownership................... 15,435 92,178 1,518,593
----------- ----------- -----------
Total Other Investments................ $14,278,528 $15,636,089 $18,924,499
=========== =========== ===========
</TABLE>
The investment in Rural Telephone Bank (RTB) Stock includes a stock dividend
of $6,420,261. In the years before 1977, these dividends were treated as
income. For the years 1977 through 1999, the dividends were offset by a
valuation account. As of February 16, 1999, the Company requested that RTB
Class B stock be converted into RTB Class C stock. As of December 31, 1999, the
Company has 1,187,477 shares of Class B stock with par value $1 per share and
15,028 shares of Class C stock with a par value of $1,000 per share.
This results in the RTB investment being shown on the Company's books as
follows:
<TABLE>
<S> <C>
RTB investment (including stock dividends).................. $ 16,215,477
Contra RTB investment..................................... (14,743,599)
------------
Total RTB investment.................................... $ 1,471,878
============
</TABLE>
The Company owns 117,934 shares of Illuminet Class A Stock. The stock is
currently in a "lock up" period for 180 days from the date of the initial
public offering (IPO). At the end of the lock up period, April 5, 2000, all
Class A Common Stock will automatically convert 4 to 1 into publicly tradable
shares of common stock. At such date, the Company will hold 471,736 shares of
Illuminet common stock.
F-42
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
During 1995, the Company adopted SFAS 115, Accounting for Certain
Investments in Debt and Equity Securities. All securities held by the Company
are classified as available-for-sale. These securities are reported at the
aggregate fair value. There are no gross unrealized holding gains (losses) for
1999, 1998 and 1997. Cost approximates aggregate fair value.
Note 3--Long-Term Debt
Long-term debt at December 31, 1999, 1998 and 1997, was as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Mortgage notes payable, due in
installments
Rural Utilities Service
2% payable to 2005......... $ 785,153 $ -- $ --
5% payable to 2013......... 25,071,074 -- --
Rural Telephone Bank
6 1/2% payable to 2012..... 6,221,688 -- --
7 1/2% payable to 2011..... 3,480,661 -- --
8% payable to 2007......... 2,605,037 -- --
9% payable to 2021......... 11,830,953 -- --
NationsBank of Georgia
8.05% payable to 2000...... 595,834 379,167 162,500
Mortgage notes payable, due in
installments
Rural Telephone Finance
Capital
Patronage Capital--A01..... -- 57,543,843 46,016,372
Patronage Capital--A02..... -- -- 4,947,997
Patronage Capital--A03..... -- -- 10,125,098
Capital Requirements
Georgia PCS Management,
LLC.......................
Equity Subscription
Agreement................. -- -- 1,174,200
US Carrier Telecom, LLC.... -- -- 801,359
Less current portions.......... (2,334,191) (2,522,591) (3,779,186)
----------- ----------- -----------
$48,256,209 $55,400,419 $59,448,340
=========== =========== ===========
</TABLE>
Principal retirements on the above debt for the next five years will be
approximately:
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
2000.......................................................... $ 3,779,186
2001.......................................................... 2,959,056
2002.......................................................... 2,672,016
2003.......................................................... 3,299,591
2004.......................................................... 3,512,428
-----------
$16,222,277
===========
</TABLE>
F-43
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
All assets of the Company are pledged as security for long-term debt to
RTFC.
During 1998, the Company paid off all debt to the Rural Electrification
Administration (REA) and also to the Rural Telephone Bank (RTB). This was
accomplished by obtaining 3 notes and a secured revolving line of credit from
the Rural Telephone Cooperative (RTFC) in the total amount of $80,000,000. The
detail of these borrowing is as follows:
<TABLE>
<S> <C>
GA 543-A-01................................................... $46,500,000
GA 543-A-02................................................... 5,000,000
GA 543-A-03................................................... 20,500,000
Line of Credit................................................ 8,000,000
-----------
$80,000,000
===========
</TABLE>
The three notes are payable in quarterly installments based upon level debt
service (no principal deferral) for the GA 543-A-01 and GA 543-A-02 loans and
level debt service with principal payments deferred for a period of three years
for the GA 543-A-03 loan. The secured revolving line of credit is also payable
quarterly.
The interest rate is equal to Prevailing Bank Prime Rate plus one and one-
half percent per annum or such lesser total rate per annum as may be fixed by
the Lender (RTFC) from time to time. Prevailing Bank Prime Rate is defined as
that bank prime rate published in the "Money Rates" column of any edition of
The Wall Street Journal which the Lender (RTFC) determines in its discretion to
be the representative bank prime rate on the day preceding the day on which an
adjustment in the interest rate hereof shall become effective. Coastal
Utilities, Inc has currently drawn down $61,089,467.
The Company shall also purchase Subordinate Capital Certificates (SCC's) in
the aggregate and shall not exceed the following amounts:
<TABLE>
<S> <C>
GA 543-A-01.................................................... $2,325,000
GA 543-A-02.................................................... 250,000
GA 543-A-03.................................................... 1,025,000
----------
$3,600,000
==========
</TABLE>
Unless otherwise requested in writing by the Company prior to the initial
Advance and approved by the Lender, the Borrower agrees to purchase SCC's
either with:
1. each Advance in the amount of 5% of each such Advance, and each such SCC
shall be paid for with proceeds of such Advance or
2. by making payments with Company's own funds in 20 equal quarterly
installments, commencing with the first full quarter following the initial
Advance. The SCCs shall bear no interest and shall mature in accordance with
the terms there of.
F-44
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
RTFC requires that the Company will not, in any one calendar year, without
the prior approval in writing of the lender (1) declare or pay any dividends or
make any other distributions to its stockholders with respect to its capital
stock; (ii) purchase or redeem or retire any of its capital stock; or (iii) pay
any management fees or if already paying a management fee, pay an increase in
management fees unless with respect to any of the foregoing (after giving
effect to such transaction) (1) (a) the Company maintains a Current Ratio of
not less than 1.25; and (b) the Company meets the Minimum Net Worth Test or (2)
(a) the Company maintains a Current Ratio of not less than 1.25; (b) the
Company maintains a minimum Net Worth to total assets of not less than twenty-
five percent (25%) and (c) the payment of such dividend, the making of such
distribution, or the purchase, redemption or retirement of such stock,
individually or in the aggregate does not exceed twenty-five percent (25%) of
the prior year-end Cash Margins in any one fiscal year or (3) for the payment
of dividends up to $500,000 in any fiscal year, the Company maintains a Current
Ratio of not less than 1.25. In no event may the Company make any such
distribution or payment when there is unpaid any due installment of principal
and/or interest or if the Company is otherwise in material default of any
provision of this agreement or would be in material default hereunder as a
result of such distribution or payment.
Note 4--Concentration of Credit Risk
The Company provides telecommunications service to customers within its
prescribed area. Management reviews past due accounts on a monthly basis and
requires deposits on account based on credit evaluation. Credit losses have
been within management's expectations.
The Company has deposits of $8,996,247 exceeding the amounts insured by the
FDIC at 3 financial institutions. The Company has deposits of $282,934 which
are insured by the FDIC.
Note 5--Pension Plan
Coastal Utilities, Inc. has a defined benefit pension plan covering
substantially all of its employees. The benefits are based on years of service
and the employee's compensation for the five highest consecutive calendar years
of earnings. The Company's funding policy is to contribute annually the amount
needed to satisfy the minimum funding standards in ERISA.
F-45
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
The following table sets forth the plan's funded status and amounts
recognized in the Company's statement of financial position at December 31,
1999.
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $7,494,814 in 1999 ........................ $ 8,015,499
Plan assets at fair value............................... 6,052,893
------------
Unfunded accumulated benefits........................... $ 1,962,606
============
Projected benefit obligation............................ $(10,480,991)
Plan assets at fair value............................... 6,052,893
Items not yet recognized in earnings:
Unrecognized net obligation (net asset) at January 1,
1999................................................... --
Unrecognized prior service cost......................... --
Unrecognized net (gain) loss............................ 6,590,581
------------
(Accrued)/prepaid pension cost.......................... $ 2,162,483
============
</TABLE>
Weighted-average assumptions used as December 31, 1999 as follows:
<TABLE>
<S> <C>
Plan discount rates--pre-retirement............................... 7.50%
Plan discount rates--post-retirement.............................. 6.50%
Rates of increase in future compensation levels................... 3.00%
Expected long-term rates of return assets......................... 8.00%
</TABLE>
F-46
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
The following table sets forth the net period pension cost for the Company
in 1999:
<TABLE>
<S> <C>
Service cost................................................. $ 345,777
Interest cost................................................ 695,813
Actual return on plan assets................................. 189,488
Net amortization and deferral................................ 347,058
Net asset gain (loss) during the period deferred for later
recognition................................................. (707,178)
-----------
Net periodic pension cost (benefit)...................... $ 870,958
===========
Changes in Plan assets:
Fair value of plan assets at beginning of year............. $ 6,794,744
Actual return on plan assets, net.......................... (189,488)
Contributions.............................................. 1,300,997
Distributions.............................................. (1,853,360)
-----------
Fair value of plan assets at end of year..................... $ 6,052,893
===========
Change in benefit obligations:
Net benefit obligation at beginning of year................ $ 7,506,050
Actuarial Restatement...................................... 2,187,024
Service cost............................................... 345,777
Interest cost.............................................. 695,813
Gross benefits cost........................................ (1,853,360)
Actuarial gain (loss)...................................... 1,599,687
-----------
Net benefit obligation at end of year.................... $10,480,991
===========
</TABLE>
During 1992, the Company elected to change the pension plan year to a
calendar year. Previously, the pension plan was on a fiscal year ending
September 30. The plan was amended and restated on October 20, 1994. The
restated plan was effective as of October 1, 1989, and such Plan fully reflects
the provisions of the 1986 Tax Reform Act and subsequent rules and regulations.
The Company provides a Salary Reduction Plan for eligible employees.
Employer and employee contributions are discretionary. Employee contributions
are not to exceed in total 16% of the total compensation earned by plan
participants for the year. Employer contributions are not to exceed 50% of each
participant's contribution up to a contribution of 6% of compensation. These
limitations are further restricted in that they shall not exceed the annual
deductible limit for contributions to a qualified profit-sharing plan as set
forth in Section 404(a)(3) of the Internal Revenue Code as limited by Section
404(j) of the Internal Revenue Code.
During 1999, 1998 and 1997, the Company provided for $170,489, $142,264 and
$136,592 in contributions, respectively. The Salary Reduction Plan is tax
exempt under Section 401(k) of the Internal Revenue Code.
F-47
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
Note 6--Earnings Per Share
Earnings per common share are computed on total shares of common stock
outstanding at the end of the year, after giving effect to dividends on
preferred stock.
The Series A preferred stock issue was effective December 31, 1974, and the
Series B preferred stock issue was effective August 7, 1985 and quarterly
dividends are cumulative from that date.
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
NET INCOME.................................... $4,379,022 $8,735,966 $7,407,951
Less dividend on preferred stock
4,405 shares at $8, net of treasury stock... 27,240 27,240 13,632
10,572 shares at $12, net of treasury
stock...................................... 98,064 98,064 49,032
---------- ---------- ----------
AVAILABLE FOR COMMON STOCK.................... $4,253,718 $8,610,662 $7,345,287
========== ========== ==========
Earnings per share............................ $ 19.38 $ 39.22 $ 66.92
========== ========== ==========
</TABLE>
Note 7--Deferred Credits
Deferred credits at December 31, 1999, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Unamortized investment credits................ $ 312,981 $ 211,880 $ 168,729
Other deferred credits........................ 132,430 118,353 34,812
Deferred compensation retirement benefit...... 1,952,520 1,515,902 2,071,906
---------- ---------- ----------
$2,397,931 $1,846,135 $2,275,447
========== ========== ==========
</TABLE>
The items that give rise to unamortized investment credits and deferred
income taxes are more fully explained in Note 8.
Note 8--Income Taxes
At December 31, 1994, the Company had net investment tax credit carry
forwards for income tax purposes of approximately $582,220, which expire in
years 1995 through 2003. These carry forwards resulted from prior year
acquisitions.
The net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used
for income tax purposes are reflected in deferred income taxes. For 1998 income
tax reporting, an Alternative Minimum Tax Credit of $34,357 was indefinitely
available to reduce future regular taxes. For financial statement reporting,
the credit was recognized as a deferred tax asset. The Alternative Minimum Tax
Credit was used in 1998 to offset the Company's income tax liability. The
deferred tax asset has been reversed.
F-48
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Minimum pension liability.................... $ -- $ -- $1,650,036
Deferred compensation-retirement benefit..... 297,676 415,433 628,850
Post retirement benefits..................... 28,209 -- --
Bad debt allowances.......................... 283,811 315,397 334,976
Alternative minimum tax...................... -- -- --
Other........................................ 104,437 107,714 183,365
---------- ---------- ----------
Total deferred tax assets.................. 714,133 838,544 2,797,227
Deferred tax liabilities:
Accelerated tax depreciation................. 2,017,699 1,741,098 1,777,250
Other........................................ 2,486,274 861,605 2,127,703
---------- ---------- ----------
Total deferred liabilities................. 4,503,973 2,602,703 3,904,953
---------- ---------- ----------
Net deferred tax liabilities............... $3,789,840 $1,764,159 $1,107,726
========== ========== ==========
</TABLE>
Significant components of the provision for income taxes attributable to
continuing operations are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Operating
Federal--regular tax...... $1,360,345 $1,139,838 $ 825,786
State..................... 252,839 204,205 133,139
Non-Operating
Federal--regular tax...... 746,043 2,755,956 538,357
Federal--alternative
minimum tax.............. -- -- --
State..................... 131,645 484,316 94,998
---------- ---------- ----------
Total current........... $2,490,872 $4,584,315 $1,592,280
========== ========== ==========
Deferred:
Operating
Federal--regular tax...... $ (200,939) $ 264,872 $ 750,141
State..................... (42,093) 46,742 144,954
Amortization of investment
tax credits.............. (121,135) (101,101) (43,151)
Non-Operating
Federal--regular tax...... -- -- --
Federal--alternative
minimum tax.............. -- -- --
State..................... -- -- --
---------- ---------- ----------
Total deferred.......... $ (364,167) $ 210,513 $ 851,944
========== ========== ==========
</TABLE>
F-49
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
The reconciliation of income tax attributable to continuing operations
computed at the federal statutory tax rate to the Company's effective income
tax expense is:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Tax at federal statutory rate.............. $1,840,016 $3,919,772 $1,452,741
State and local income taxes, net of
federal benefit........................... 330,472 692,753 256,348
Other, net................................. (320,384) (401,012) 116,809
---------- ---------- ----------
$1,850,104 $4,211,513 $1,825,898
========== ========== ==========
</TABLE>
Note 9--Stockholders' Equity
The certificate of incorporation of Coastal Utilities, Inc. authorizes
issuance of stock as follows:
<TABLE>
<CAPTION>
Authorized Outstanding Par Value
---------- --------------------- ---------
Stockholders Treasury
------------ --------
<S> <C> <C> <C> <C>
Preferred Stock
Series A........................... 50,000 1,704 2,701 $100
Series B........................... 50,000 4,086 6,486 $100
Common Stock
Class A............................ 300,000 21,111 31,749 $ 10
Class B............................ 900,000 88,659 133,353 $ 10
</TABLE>
Dividends on Series A preferred stock at the rate of $8 per share per annum
and on Series B preferred stock at the rate of $12 per share per annum are
cumulative and preferential to the payment of dividends on Class A and Class B
common stock. Preferred stock is callable at $105 per share. In the event of
liquidation, the holders of preferred stock are entitled to receive $100 per
share before any distributions on behalf of Class A and Class B common stock.
Note 10--Commitments and Contingencies
The Company leases data processing equipment which is accounted for as
operating leases. In addition, the Company leases business premises under
operating leases from Bryant Realty, an entity owned by major stockholders. The
amount of rent paid to Bryant Realty in 1999 was $599,998. The business
premises leases have five to seven year terms, each with renewal options.
The following is a schedule of minimum future rentals required under
operating leases payable as of December 31, 1999.
<TABLE>
<CAPTION>
Year ended
----------
<S> <C>
2000.......................................................... $ 742,195
2001.......................................................... 606,711
2002.......................................................... 606,711
2003.......................................................... 559,997
2004.......................................................... 559,997
----------
Total Minimum Future Rentals................................ $3,075,611
==========
</TABLE>
F-50
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
The Financial Accounting Standards Board issued SFAS 107, "Disclosures
about Fair Values of Financial Instruments," which requires entities to
disclose the estimated current value of their financial instruments.
Disclosure will be required for both assets and liabilities and for on-and
off-balance sheet items.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and short term investments
The carrying amount approximates fair value because of the short maturity
of those instruments.
Long-term investments
The fair values of these investments are estimated based on cost
approximating aggregate fair value.
Long-term debt
The fair value of the Corporation's long-term debt is estimated based on
the quoted market prices for the same or similar issues or on the current
rates offered to the Corporation for debt of the same remaining maturities.
The estimated fair values of the Corporation's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------------------- ----------------------- -----------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Cash and short-term
investments............ $25,875,388 $25,875,388 $ 7,166,744 $ 7,166,744 $13,011,708 $13,011,708
Long-term investments
estimated fair value... 14,278,528 14,278,528 15,636,089 15,636,089 18,924,499 18,924,499
Long-term debt.......... 48,256,209 48,256,209 55,400,419 55,400,419 59,448,340 59,448,340
</TABLE>
During 1998, Georgia Independent PCS Corporation and Savannah Independent
PCS Corporation were in the process of completing an asset transfer and
subsequent liquidation of 100% interest to Georgia PCS Management, LLC, a
single-member limited liability company, which was completed as of March 26,
1999. Coastal Utilities, Inc. holds a 15.071% interest in the combined entity,
Georgia PCS Management, LLC as of December 31, 1999.
As of September 1, 1999, the Company signed a guaranty in the amount of
$3,969,752 and a related equity subscription agreement in the amount of
$1,399,800 for Georgia PCS Management, LLC. This guaranty represents 15.47% of
the total loan outstanding with the Rural Telephone
F-51
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
Finance Cooperative for Georgia PCS Management, LLC. The loan documents for
this transaction were signed on September 1, 1999.
The agreement provides for capital contributions to be made by the Company
in the amount of $1,399,800. Of this total amount, $225,600 was contributed
during 1999 and recorded as an increase subsequently as follows:
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
2000........................................................... $ 587,100
2001........................................................... 587,100
----------
$1,174,200
==========
</TABLE>
As of December 31, 1999, the additional $1,174,200 required by the equity
subscription agreement was recorded as a current and long-term liability as
indicated above and as a corresponding increase in the investment on the books
of the Company.
The Company has also signed a letter of commitment with USCarrier Telecom,
LLC which provides for capital contributions for the year 2000 in the amount of
$757,350. The Company has also committed to an additional contribution of
$44,009 that was refused by another member.
Note 11--Capital Leases
The Company is a lessor of business telephone systems under agreements
expiring at various dates through 2003. The majority of the leases are direct-
financing sales-type leases. The lessees have a bargain purchase option at the
end of the lease term. The Company has accounted for the leases as capital
leases. The Company's net investment in the direct-financing, sales-type leases
is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Total minimum lease payments....................... $136,666 $111,598 $132,615
Estimated executory costs & related profit......... 34,597 30,081 33,985
-------- -------- --------
Minimum lease payments receivable.................. 102,069 81,517 98,630
Unearned interest.................................. 35,537 23,670 33,275
-------- -------- --------
Net investment in direct-financing, sales-type
leases............................................ $ 66,532 $ 57,847 $ 65,355
======== ======== ========
</TABLE>
Future minimum lease payments receivable under the capital lease agreements
are:
<TABLE>
<S> <C>
2000............................................................ $ 53,376
2001............................................................ 33,140
2002............................................................ 22,821
2003............................................................ 19,301
--------
Total Minimum Lease Payments Receivable....................... $128,638
========
</TABLE>
F-52
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
Note 12--Supplemental Cash Flow Information
The following supplemental information is presented in accordance with the
provisions of Statement of Financial Accounting Standards No. 95 "Statement of
Cash Flows:"
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................... $2,338,535 $4,049,280 $ 3,316,614
Income taxes........................... 1,762,000 1,239,500 1,966,330
---------- ---------- -----------
$4,100,535 $5,288,780 $ 5,282,944
========== ========== ===========
Schedule of Non Cash Investing and
Financing Activities:
<CAPTION>
December 31,
-----------------------------------
1997 1998 1999
---------- ---------- -----------
<S> <C> <C> <C>
Deferred charges....................... $ 152,217 $ 832,127 $(1,742,406)
Leases receivable...................... 77,584 25,068 21,908
Deferred revenue from leases........... (20,313) (4,516) 3,904
Deferred interest from leases.......... (18,202) (11,867) 9,606
Deferred credits....................... 26,346 14,076 (83,541)
---------- ---------- -----------
$ 217,632 $ 854,888 $(1,790,529)
========== ========== ===========
</TABLE>
Note 13--Prior Period Adjustment
During 1999, a correction was made to a deferred tax liability related to a
prepaid pension asset. The net effect was to decrease net income by $178,772.
During 1998, a correction was made to the income calculation for the
Company. This correction was made prior to the filing of the 1997 corporate
income tax return. The correction was due to a timing difference between book
and tax income. The effect of the correction was to increase net income by
$112,148. A correction was also made to a deferred tax liability related to a
prepaid pension asset. The net effect was to increase net income by $178,772.
During 1997, a correction was made to the income calculation for the
Company. This correction was made prior to the filing of the 1996 corporate
income tax return. The correction was due to a timing difference between book
and tax income. The effect of the correction was to increase net income by
$4,166. A correction was also made to recognize prepaid pension cost of
$1,237,094 and the related tax effect of $494,838.
Note 14--Related Parties
During 1993, the Company created a wholly-owned subsidiary, Coastal Long
Distance Services, Inc. The subsidiary is engaged in the long distance reseller
business. Because the subsidiary is wholly-owned, the results of its operations
have been consolidated with the Company's on the basis indicated in Note 1.
F-53
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
Note 15--Post Retirement Benefits Other Than Pensions
In December 1991, the Financial Accounting Standards Board issued SFAS 106,
"Employers' Accounting for Post Retirement Benefits Other Than Pensions", which
Coastal Utilities was required to adopt by 1995.
The statement requires employers, among other things, to accrue the cost of
providing post retirement benefits other than pensions. This accrual should be
made during the period the employees are expected to earn the benefits.
Currently, Coastal Utilities has no post retirement benefits that fall
within the scope of SFAS 106. However, the Company provides deferred
compensation retirement benefits to selected employees on an individual-by-
individual basis. Accordingly, these benefits do not fall within the scope of
SFAS 106. The deferred compensation retirement benefits have been computed
based on the present value of the future benefits expected to be provided to
each employee covered at an 8% discount rate. The Company's long-term liability
is $2,071,906, $1,515,902, and $1,308,321 at December 31, 1999, December 31,
1998 and 1997 respectively. The cost of these benefits will be amortized over
the remaining years of service to retirement age 65 for those employees
covered.
The Company also provides health and life insurance to selected retirees on
an individual-by-individual basis. Accordingly, these benefits do not fall
within the scope of SFAS 106. The cost of these benefits is expensed currently.
The Company also provides a death benefit only deferred compensation to
selected employees. This is provided for in the form of life insurance for
officers. The cost of this benefit is expensed currently through life insurance
expense.
Note 16--Treasury Stock
During December 1998, the Company purchased stock owned by G. Allan Bryant,
Daniel M. Bryant, and Thomas J. Ratcliffe, Jr. as co-trustees under the
declaration of trust for Glenn E. Bryant Dated November 21, 1997 approved by
the Probate Court and Superior Court of Liberty County for $31,000,000. A
detail of shares purchased follows:
<TABLE>
<CAPTION>
Dollar
Number of Shares Amount
---------------- -----------
<S> <C> <C>
Preferred Stock A.................................. 1,701 $ 1,801,935
Preferred Stock B.................................. 4,086 568,365
Common Stock A..................................... 21,109 9,269,500
Common Stock B..................................... 88,661 19,360,200
------- -----------
Total Shares..................................... 115,557 $31,000,000
======= ===========
</TABLE>
F-54
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
During February 1997, the Company purchased stock owned by Glenn E. Bryant
for $2,583,638. A detail of shares purchased follows:
<TABLE>
<CAPTION>
Number of Shares Dollar Amount
---------------- -------------
<S> <C> <C>
Preferred Stock A................................ 500 $ 92,052
Preferred Stock B................................ 1,200 29,035
Common Stock A................................... 5,320 473,533
Common Stock B................................... 22,346 1,989,018
------ ----------
Total Shares................................... 29,366 $2,583,638
====== ==========
</TABLE>
The Company purchased all of the stock owned by Trudie P. Bryant for
$2,583,638 in September 1996. A detail of shares purchased follows:
<TABLE>
<CAPTION>
Number of Shares Dollar Amount
---------------- -------------
<S> <C> <C>
Preferred Stock A................................ 500 $ 92,052
Preferred Stock B................................ 1,200 29,035
Common Stock A................................... 5,320 473,533
Common Stock B................................... 22,346 1,989,018
------ ----------
Total Shares................................... 29,366 $2,583,638
====== ==========
</TABLE>
Note 17--Life Insurance Proceeds
During 1999, the Company received life insurance proceeds of $7,436,505 upon
the death of a key officer and major stockholder. This resulted in a reduction
of cash value of life insurance policies on officers in the amount of
$3,748,188 and an increase in other income of $3,601,313.
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998 1999
---------- ---------- --------
<S> <C> <C> <C>
Life insurance premiums..................... $ 844,582 $ 993,276 $802,272
Change in cash value........................ (1,165,565) (1,148,463) (820,561)
---------- ---------- --------
Net cost of life insurance on lives of
officers................................... $ (320,983) $ (155,187) $(18,289)
========== ========== ========
</TABLE>
Note 18--Accounts Payable
Accounts Payable are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Accounts Payable--Trade...................... $ 566,049 $ 541,453 $ 630,149
Accounts Payable--Other (Future Plant)....... 959,988 366,584 319,397
Accounts Payable--Pension.................... -- -- --
Accounts Payable--Settlements................ 608,321 957,880 690,065
Taxes Payable Other Than Income.............. 83,109 14,762 151,880
911 and Dual Relay Payable................... -- (53,014) 17,202
---------- ---------- ----------
Total...................................... $2,217,467 $1,827,665 $1,808,693
========== ========== ==========
</TABLE>
F-55
<PAGE>
COASTAL UTILITIES, INC. AND SUBSIDIARY
GEORGIA 543
Hinesville, Georgia
Notes to Consolidated Financial Statements (continued)
December 31, 1999, 1998 and 1997
Note 19--Other Current Liabilities
Other Current Liabilities as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Advanced Billing & Payment................... $ 215,408 $ 269,829 $ 253,270
Dividends Payable............................ 159,420 194,416 76,040
Other Accrued Liabilities--Payroll........... 237,998 295,836 324,946
Other Liabilities--
Compensated Absences......................... 479,524 489,281 407,044
Other Current Liabilities.................... 4,000 4,000 4,000
Deferred Compensation Retirement Benefit--
Current..................................... 68,196 -- 100,000
---------- ---------- ----------
Total...................................... $1,164,546 $1,253,362 $1,165,300
========== ========== ==========
</TABLE>
F-56
<PAGE>
Report of Independent Auditors
Board of Directors
Gulf Coast Services, Inc.
We have audited the accompanying consolidated statements of operations and
cash flows of Gulf Coast Services, Inc. for the period from January 1, 1999 to
September 29, 1999 and the years ended December 31, 1998 and 1997. These
statements of operations and cash flows are the responsibility of the Company's
management. Our responsibility is to express an opinion on these statements of
operations and cash flows based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the statements of
operations and cash flows are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statements of operations and cash flows. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated statements of operations and cash flows
referred to above present fairly, in all material respects, the consolidated
results of operations and cash flows of Gulf Coast Services, Inc. for the
period from January 1, 1999 to September 29, 1999 and the years ended December
31, 1998 and 1997, in conformity with accounting principles generally accepted
in the United States.
Ernst & Young, LLP
Raleigh, North Carolina
January 7, 2000
F-57
<PAGE>
Gulf Coast Services, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period from
January 1,
1999 to Year ended December 31,
September -------------------------
29, 1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Operating revenues:
Local service ....................... $12,933,804 $16,063,197 $ 14,387,177
Network access service .............. 15,608,169 20,407,211 19,778,609
Long distance service ............... 8,674,409 8,962,849 8,213,108
Miscellaneous ....................... 3,712,681 4,705,772 4,153,061
Nonregulated ........................ 7,827,526 18,249,683 2,713,724
Provision for uncollectible accounts
.................................... (190,919) (324,676) (249,232)
----------- ----------- ------------
Total operating revenues .......... 48,565,670 68,064,036 48,996,447
Operating expenses:
Plant specific ...................... 12,670,997 13,491,079 12,219,778
Plant nonspecific ................... 6,002,695 4,149,814 4,326,540
Depreciation ........................ 6,489,574 8,203,558 7,824,929
Amortization ........................ 86,059 93,930 94,373
Customer operations ................. 5,212,648 5,115,980 6,537,255
Corporate operations ................ 10,146,452 8,293,776 7,785,608
Other taxes ......................... 696,728 1,356,451 905,302
Nonregulated ........................ 10,605,627 11,133,391 2,761,310
----------- ----------- ------------
Total operating expenses .......... 51,910,780 51,837,979 42,455,095
----------- ----------- ------------
Net operating (loss) income ........... (3,345,110) 16,226,057 6,541,352
Other income (expense):
Other income, net ................... 299,104 658,261 864,295
Share of losses of equity investee .. -- (6,592,302) (7,123,827)
Gain on disposal of assets .......... 9,962,895 1,267,527 --
----------- ----------- ------------
Total other income (expense), net
.................................. 10,261,999 (4,666,514) (6,259,532)
----------- ----------- ------------
Income before interest and income tax
expense .............................. 6,916,889 11,559,543 281,820
Interest expense ...................... 1,769,302 3,162,713 3,004,148
----------- ----------- ------------
Net income (loss) before income taxes
...................................... 5,147,587 8,396,830 (2,722,328)
Income tax expense .................... 3,214,551 5,884,065 907,944
----------- ----------- ------------
Net income (loss) ..................... 1,933,036 2,512,765 (3,630,272)
Other comprehensive income:
Unrealized gain (loss) on available
for sale securities 271,607 (292,708) (402,573)
----------- ----------- ------------
Comprehensive income ................ $ 2,204,643 $ 2,220,057 $ (4,032,845)
=========== =========== ============
</TABLE>
See accompanying notes.
F-58
<PAGE>
Gulf Coast Services, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period from Year ended December 31,
January 1, 1999 to -------------------------
September 29, 1999 1998 1997
------------------ ----------- ------------
<S> <C> <C> <C>
Operating activities
Net income (loss) .............. $ 1,933,036 $ 2,512,765 $ (3,630,272)
Adjustments to reconcile net in-
come (loss) to net
cash provided by operating ac-
tivities:
Gain on disposal of assets ... (9,962,895) (1,267,527) --
ESOP compensation ............ 12,341,000 547,440 530,331
Share of losses of equity
investee .................... -- 6,592,302 7,123,826
Depreciation and amortization
............................. 6,575,633 8,595,385 7,919,302
Deferred income taxes ........ (16,698) 1,069,596 725,347
Amortization of investment tax
credit ...................... (117,000) (156,000) (156,000)
Changes in operating assets
and liabilities:
Accounts receivable ........ (820,195) (2,128,491) (3,343,669)
Inventories ................ 236,133 237,050 (146,812)
Refundable income taxes .... -- 628,791 136,674
Prepaid expenses ........... (150,416) (109,451) 69,129
Costs in excess of billings
........................... 2,169,634 (2,169,634) --
Other assets ............... (156,549) (864,315) 36,032
Accounts payable and accrued
expenses .................. 13,015,594 2,290,885 2,841
Customer deposits .......... (67,298) 9,643 41,955
Due to Madison River ....... 1,094,515 -- --
Income taxes payable ....... 1,962,572 1,185,841 82,837
Unearned revenue ........... 197,901 192,665 --
Postretirement benefit obli-
gation .................... 558,043 1,075,798 1,036,925
Deferred compensation pay-
able ...................... (512,864) (476,959) (43,843)
Other liabilities .......... (494) (785,836) 786,331
----------- ----------- ------------
Net cash provided by operating
activities .................... 28,279,652 16,979,948 11,170,934
Investing activities
Investment in DigiPH ........... -- (3,218,503) (2,050,000)
Proceeds from sale of DigiPH ... 6,500,000 -- --
Decrease (increase) in invest-
ments ......................... 202,123 (141,800) 748,894
Purchases of property, plant and
equipment ..................... (42,494,403) (19,838,187) (10,479,175)
Proceeds from the sale of prop-
erty, plant
and equipment.................. 1,405,324 3,538,352 119,908
Notes receivable from employees
............................... 197,285 (34,331) (5,922)
----------- ----------- ------------
Net cash used in investing ac-
tivities ...................... (34,189,671) (19,694,469) (11,666,295)
Financing activities
Proceeds from long-term debt ... 27,581,000 9,936,884 4,597,825
Principal payments on long-term
debt .......................... (2,155,210) (3,062,490) (4,705,085)
Proceeds from issuance of common
stock ......................... 88,230 90,158 19,940
Purchase of common stock........ -- (51,510) --
Distributions to shareholders... (8,190,000) -- --
----------- ----------- ------------
Net cash provided by (used in)
financing activities .......... 17,324,020 6,913,042 (87,320)
----------- ----------- ------------
Increase (decrease) in cash and
cash equivalents .............. 11,414,001 4,198,521 (582,681)
Cash and cash equivalents at be-
ginning of year ............... 5,392,004 1,193,483 1,776,164
----------- ----------- ------------
Cash and cash equivalents at end
of year ....................... $16,806,005 $ 5,392,004 $ 1,193,483
=========== =========== ============
Supplemental disclosures of cash
flow information
Cash paid for interest ......... $ 1,769,302 $ 3,469,236 $ 2,870,646
=========== =========== ============
Cash paid for income taxes ..... $ 2,337,000 $ 3,150,000 $ 800,000
=========== =========== ============
</TABLE>
See accompanying notes.
F-59
<PAGE>
Gulf Coast Services, Inc.
Notes to Consolidated Statements of Operations and Cash Flows
September 29, 1999
1. Accounting Policies
Description of Business
Gulf Coast Services, Inc. (the Company) was formed in December 1984. The
Company has two wholly-owned subsidiaries, Gulf Telephone Company (GTC) and
Gulf Long Distance, Inc. (GLD). GTC provides communication services to
businesses and residences in southeast Alabama. GLD was formed on July 18, 1990
and serves as a reseller of toll telephone services.
GTC is subject to regulation by the Federal Communications Commission
("FCC") and the Alabama Public Service Commission ("PSC"). Pending and future
regulatory actions may have a significant impact on the Company's future
operations and financial condition.
Effective September 29, 1999, all of the outstanding Common Stock of the
Company was acquired by Gulf Merger Corporation ("GMC"), a wholly-owned
subsidiary of Madison River Capital, LLC ("Madison River") for cash
consideration of $312 million.
Principles of Consolidation
The Consolidated Statements of Operations and Cash Flows include the
accounts of the Company and its wholly-owned subsidiaries on the accrual basis.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Basis of Accounting
GTC maintains accounts for its regulated activities in accordance with the
Uniform System of Accounts prescribed for telephone companies by the FCC. The
Consolidated Statements of Operations of the Company are prepared in accordance
with the provisions of Statement of Financial Accounting Standards No. 71,
Accounting for the Effect of Certain Types of Regulation.
Depreciation and Fixed Asset Retirements
Depreciation of the original cost of depreciable telecommunications plant in
service is provided using composite straight-line rates approximating 8% during
the period from January 1, 1999 to September 29, 1999 and the years ended
December 31, 1998 and 1997. When property subject to depreciation is retired or
otherwise disposed of in the normal course of business, its cost, together with
cost of removal less salvage, is charged to the allowance for depreciation.
Costs for repairs and maintenance are expensed as incurred.
Depreciation expense includes amortization of assets recorded under a
capital lease.
Telecommunication Services Revenues
Revenues are recognized when services are provided. Intrastate network
access service revenues are based upon a tariff filed with the PSC. The Company
participates in a revenue pool with other telephone companies for interstate
revenue. Such pools are funded by toll revenue and by access charges in the
interstate market. Revenues earned through the pooling process are initially
recorded based on estimates. The Company recorded adjustments to its estimates,
based on settlements of prior years' revenues, which increased revenues by
approximately $525,000, $683,000 and $959,000, respectively, during the period
from January 1, 1999 to September 29, 1999 and the years ended December 31,
1998 and 1997.
F-60
<PAGE>
Gulf Coast Services, Inc.
Notes to Consolidated Statements of Operations and Cash Flows (continued)
Network Construction Services Revenues
The Company provides network construction services and installs fiber optic
communications services for inter-exchange carriers and other communications
entities as well as for its own use. These revenues were recorded as
nonregulated revenue in the accompanying Consolidated Statement of Operations.
The Company accounts for long-term construction contracts relating to the
development of telecommunications networks using the percentage of completion
method. Under this method, costs and revenues generally are recognized as the
contract progresses toward completion.
The Company recorded an asset of approximately $2,170,000 for costs incurred
in excess of billings relating to network construction at December 31, 1998.
The Company billed and collected all costs and estimated earnings during 1999.
There are no costs in excess of billings related to the construction contracts
as of September 29, 1999 since all projects were substantially complete at that
time.
Gain on Disposals of Assets
During 1998 and 1999, the Company entered into various agreements to provide
indefeasible rights of use of multiple fibers along its network in exchange for
either cash or an indefeasible right of use to the other parties' fibers. The
Company evaluated each transaction separately and accounted for transactions
that represented the exchange of fiber with third parties as non-monetary
exchanges of similar productive assets with no gain recognized. The Company
recognized a gain or loss for cash transactions for the difference between the
cash received and the carrying value of the asset.
Concentrations of Credit Risk and Major Customers
The Company derives the majority of its operating revenues from customers in
southern Alabama. Financial instruments which potentially subject the Company
to concentrations of credit risk consist principally of accounts receivable.
The Company's allowance for doubtful accounts is based upon management's
estimates and historical experience. In situations where the Company deems
appropriate, prepayment and/or cash deposits are required for the provision of
services.
Substantially all of the Company's revenues were from communications and
related services. Approximately $4,041,000, $5,000,000, and $7,500,000,
respectively, of the Company's operating revenue for the period from January 1,
1999 to September 29, 1999 and years ended December 31, 1998 and 1997 were
derived from services provided to customers of AT&T. The revenues were received
primarily from access charges, but also included revenues for operator, billing
and collection, and other interexchange services.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes", which requires an asset and liability approach to accounting for income
taxes. Under the provisions of SFAS 109, the Company adjusts existing deferred
income tax amounts annually, using current tax rates, for the estimated future
tax effects attributable to temporary differences between the tax bases of
assets and liabilities and their reported amounts in the financial statements.
The Company accounts for investment tax credits on the deferred method.
Investment tax credits realized are deferred and amortized to operating income
ratably over the lives of the respective assets qualifying for the credit.
F-61
<PAGE>
Gulf Coast Services, Inc.
Notes to Consolidated Statements of Operations and Cash Flows (continued)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in financial statements and
accompanying notes. Actual results could differ from those estimates.
Allowance for Funds Used During Construction
Regulatory commissions allow the Company to capitalize an allowance for
funds used during construction, which includes both interest and return on
equity components. Such amounts are reflected as a cost of constructing certain
plant assets. The allowance for funds capitalized was approximately $669,000,
$134,000 and $247,000 during the period from January 1, 1999 to September 29,
1999 and the years ended 1998 and 1997, respectively.
Reclassifications
Certain 1998 and 1997 amounts have been reclassified to conform with the
1999 financial statement presentation. These reclassifications had no effect on
net income or loss or shareholders' equity as previously reported.
Advertising Expenses
The Company accounts for advertising costs in accordance with the Statement
of Position No. 93-7, Reporting on Advertising Costs. Advertising costs are
expensed as incurred. Advertising expenses amounted to approximately $384,000,
$316,000 and $248,000, respectively, for the period from January 1, 1999 to
September 29, 1999 and the years ended December 31, 1998 and 1997.
Comprehensive Income
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130 "Reporting Comprehensive Income." The Statement requires the
Company to provide disclosure of amounts related to comprehensive income as
prescribed by the Statement. The Company has disclosed comprehensive income on
its consolidated Statement of Operations for each period presented.
The FASB also issued Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information." This statement requires that the Company
disclose certain information about its major business lines as well as certain
geographic information.
2. Share of Losses of Equity Investee
The Company had a 50% equity investment in DigiPH Holding, Inc. ("DigiPH").
DigiPH was formed to acquire personal communications services ("PCS") licenses
in the FCC C block auctions. DigiPH bid for and, in May 1996, won FCC licenses
to provide PCS services in areas extending along the Gulf of Mexico westward
from Destin, Florida through Fort Walton Beach and Pensacola, Florida; Mobile,
Alabama; Biloxi, Gulfport, and Pascagoula, Mississippi; and north through the
Hattiesburg, Laurel, Meridian and Columbus/Starkville, Mississippi metropolitan
areas. DigiPH's successful bids totaled $74.7 million, net of bidding credits,
and was financed by 10-year government notes at 7% interest. DigiPH began
offering partial PCS service in the fourth quarter of 1997 and began offering
full service in all areas during 1998.
F-62
<PAGE>
Gulf Coast Services, Inc.
Notes to Consolidated Statements of Operations and Cash Flows (continued)
During 1998, the Company reduced the carrying value of its investment in
DigiPH to $0 as its share of DigiPH's losses exceeded its investment and
recognized a liability for its future funding obligation to DigiPH since its
share of DigiPH's losses exceeded the carrying amount of the investment. In
September 1999, the Company sold its investment interest in DigiPH and
recognized a $10.5 million gain on the sale.
3. Employee Stock Ownership Plan
The Company sponsors an employee stock ownership plan ("ESOP") which
complies with provisions of the Internal Revenue Code and the Employee
Retirement Income Security Act ("ERISA"). All employees of the Company may
participate after completing a year of service and attaining the age of
nineteen. Vesting begins after three years of service and benefits are fully
vested after an employee has completed seven years of service.
The Company has agreed to voluntarily contribute (in cash or Company common
stock) 2.3% of the participants' basic annual compensation to the plan. The
Company has the right under the plan to discontinue such contributions at any
time and terminate the plan. The Company can make additional contributions at
the discretion of the Board of Directors.
The Trustees, except when subject to the Company or Advisory Committee
direction, have full discretion and authority with regard to the investment of
the trust fund and may invest in securities of the Company.
Cash contributions of approximately $328,000, $2,588,000 and $2,458,000 were
recorded for nine-month period ended September 29, 1999 and the years ended
1998 and 1997, respectively, which were in excess of the minimum amount
required by the plan. The Company expensed these amounts when contributed.
The ESOP purchased 15,151 shares of Company stock for $3,000,000, $2,000,000
of which was financed through a bank note. This note payable is to be repaid in
annual installments with final maturity on March 1, 2002 and is guaranteed
unconditionally by the Company. Inasmuch as the Company has guaranteed the
unpaid balance of the borrowing, it is recorded as debt of the Company with a
corresponding reduction of stockholders' equity.
The ESOP shares initially were pledged as collateral for the ESOP debt. As
the debt is repaid, shares are released from collateral and allocated to active
employees, based on the proportion of debt service paid in the year. The debt
of the ESOP was recorded as debt and the shares pledged as collateral were
reported as unallocated stock of ESOP on the balance sheet. As shares are
committed to be released from collateral, the Company reports compensation
expense equal to the current market price of the shares. ESOP compensation
expense was approximately $12,391,947, $730,029 and $776,535 for the period
from January 1, 1999 to September 29, 1999 and the years ended December 31,
1998 and 1997, respectively. A summary of the ESOP shares at the end of each
period is presented below:
<TABLE>
<CAPTION>
December 31,
September 29, ---------------------
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Allocated shares of common stock.......... 34,167 32,736 31,265
Shares of common stock released........... 4,873 1,431 1,471
Unreleased shares of common stock......... -- 4,873 6,304
------- ---------- ----------
Total ESOP shares ...................... 39,040 39,040 39,040
======= ========== ==========
Fair value of unreleased shares........... $ -- $2,485,000 $2,704,000
======= ========== ==========
</TABLE>
F-63
<PAGE>
Gulf Coast Services, Inc.
Notes to Consolidated Statements of Operations and Cash Flows (continued)
Furthermore, the ESOP is obligated to repurchase vested shares from
employees upon retirement. At September 29, 1999, the fair value of the
released and allocated shares subject to a repurchase obligation is
$109,312,000 and the outstanding debt on the ESOP is $857,000. Fair market
value of the unreleased shares and projected repurchase obligation is based on
an independent valuation of the GCS common stock comprising a minority interest
of the outstanding common stock. This value may not necessarily reflect the
value a third party would pay to acquire a controlling equity interest in the
Company. In November 1999, a partial distribution was made to ESOP participants
as the Company is in the process of terminating the Plan.
4. Employee Benefit Plan
In 1996, the Company established a defined contribution 401(k) plan covering
employees who have completed at least 1000 hours of service during the first 12
consecutive months of employment or during any plan year thereafter, and are
age 19 or older.
The Company may elect to match a portion of the participant's elective
deferral. The Company made contributions of $224,208, $306,818 and $293,831
during the period from January 1, 1999 to September 29, 1999 and the years
ended 1998 and 1997, respectively.
5. Income Taxes
Differences between total income tax expense for the periods and the amount
computed by applying the statutory federal income tax rate to income before
income taxes are as follows:
<TABLE>
<CAPTION>
Period from
January 1, Year ended December
1999 to 31,
September 29, ----------------------
1999 1998 1997
------------- ---------- ----------
<S> <C> <C> <C>
Income tax (benefit) at statutory rate
on pre-tax income (loss).............. $ 1,750,179 $2,854,923 $ (925,592)
Amortization of deferred investment tax
credits .............................. (117,000) (156,000) (156,000)
Effect of state income tax deduction .. (101,176) (142,746) (82,819)
Nondeductible expenses, primarily ESOP
compensation expense ................. 4,200,177 316,084 --
Change in valuation allowance related
primarily to ownership of equity
investee.............................. (2,815,832) 2,238,318 2,133,602
Other ................................. -- 353,645 (304,831)
----------- ---------- ----------
Total federal income tax .............. 2,916,348 5,464,224 664,360
State income tax ...................... 298,203 419,842 243,584
----------- ---------- ----------
$ 3,214,551 $5,884,066 $ 907,944
=========== ========== ==========
</TABLE>
F-64
<PAGE>
Gulf Coast Services, Inc.
Notes to Consolidated Statements of Operations and Cash Flows (continued)
The components of federal and state income tax provisions are as follows:
<TABLE>
<CAPTION>
Period from
January 1, Year ended December
1999 to 31,
September 29, ---------------------
1999 1998 1997
------------- ---------- ---------
<S> <C> <C> <C>
Federal:
Current ............................. $3,048,498 $4,386,409 $ 196,215
Deferred ............................ (15,150) 952,379 728,781
Investment tax credits............... (117,000) (156,000) (156,000)
---------- ---------- ---------
2,916,348 5,182,788 768,996
State:
Current ............................. 299,751 584,060 243,584
Deferred ............................ (1,548) 117,217 (104,636)
---------- ---------- ---------
Total ............................... $3,214,551 $5,884,065 $ 907,944
========== ========== =========
</TABLE>
6. Postretirement Benefits Other than Pensions
The Company provides medical coverage to retirees and their dependents
through a traditional indemnity plan administered by a third party. The plan
provisions are the same as those for active participants. Eligibility to
participate in the retiree medical plan upon retirement is defined as age 55
with 25 years of service. A plan amendment adopted in 1995 lowered the age
requirement from 65 in 1994 to 55 in 1995.
The Company requires retirees to contribute 10% of medical, dental and eye
care premium rates. Additional costs of the plan are paid by the Company.
Additionally, the Company's retirees also receive free local phone service and
a $100 long distance credit per month. Costs related to providing free
telephone service are expensed as incurred. The Company does not anticipate any
changes in the cost-sharing provisions of the existing written plan and there
is no commitment to increase monetary benefits. The plan is unfunded.
The Company has adopted Statement of Financial Accounting Standard No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits,"
which standardizes disclosure requirements for pensions and other
postretirement benefits, eliminates certain disclosures and requires certain
additional information to be disclosed.
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
Period from
January 1,
1999 to Year ended December 31,
September 29, -----------------------
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Net periodic postretirement benefit
cost............................... $731,000 $ 1,192,698 $ 1,106,300
Employer contributions ............. 328,200 116,900 92,300
Plan participant contributions ..... -- 10,800 2,100
Benefits paid ...................... 149,800 127,700 94,400
</TABLE>
F-65
<PAGE>
Gulf Coast Services, Inc.
Notes to Consolidated Statements of Operations and Cash Flows (continued)
7. Commitments and Contingencies
On October 5, 1999, nine former employees of the Company, who had elected to
retire and receive cash distributions for their interests in the ESOP in 1996
and 1997 filed a class action lawsuit in Alabama state court alleging breach of
fiduciary duty, suppression, and misrepresentation against the Company and its
subsidiaries. The complaint alleged that the Company failed to disclose to
plaintiffs' ongoing negotiations for the sale of the Company and that the true
value of their ESOP interests were higher than the amounts offered to them in
connection with their early retirement. Plaintiffs have filed an amended
complaint on November 18, 1999 and sought class certification, the
establishment of a constructive trust to distribute proceeds from the sale of
the Company to the plaintiffs, and a preliminary injunction seeking to stop the
Company from making further distributions from the ESOP. The plaintiffs are
also seeking unspecified compensatory and punitive damages, and attorneys fees
as a result of defendants' alleged breach of fiduciary duty, self dealing,
misrepresentation, and fraudulent inducement to retire and forego the benefits
of continued employment in connection with the plaintiffs' retirement elections
and ESOP distributions. On December 6, 1999, the Company, moved to dismiss
plaintiffs' amended complaint on the ground that it failed to state any claim
upon which relief could be granted. Defendants' motion is currently pending
with the Court.
The Company believes the plaintiffs' allegations are without merit and
intends to defend against them vigorously. Additionally, the Company believes
it will be entitled to indemnification from its former shareholders for any
potential liability resulting from this lawsuit. Consequently, the Company does
not believe that the resolution of their litigation will have a material
adverse effect in its financial condition.
8. Accumulated Other Comprehensive Income
The components of other comprehensive income are as follows:
<TABLE>
<CAPTION>
Unrealized Gain
(Loss) on
Available-for-Sale
Securities
------------------
<S> <C>
Balance at January 1, 1997................................. $ --
Unrealized loss on available-for-sale securities......... (402,573)
---------
Balance at December 31, 1997............................... (402,573)
Unrealized loss on available-for-sale securities......... (292,708)
---------
Balance at January 1, 1998................................. (695,281)
Unrealized gain on available-for-sale securities......... 271,607
---------
Balance at September 29, 1999.............................. $(423,674)
=========
</TABLE>
9. Related Party Transactions
At September 29, 1999, the Company had amounts due to Madison River totaling
$1,094,515. These were costs paid by Madison River in connection with the
acquisition (see Note 1).
10. Year 2000 (Unaudited)
The Company completed all Year 2000 readiness work prior to December 31,
1999. The Company incurred approximately $7,500,000 in preparation costs for
Year 2000 issue and does not expect to incur any additional material
expenditures in the future.
F-66
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by Madison River. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the securities to which it relates or any offer to sell
or the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of Madison River
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
Until [ . ], 2000, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to the unsold
allotments or subscriptions.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information...................................... i
Forward-Looking Statements............................................... i
Market and Industry Data................................................. ii
Summary.................................................................. 1
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 23
Capitalization........................................................... 24
Selected Financial and Operating Data.................................... 25
Unaudited Pro Forma Consolidated Financial Information................... 27
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 35
Business................................................................. 44
Regulation............................................................... 54
Management............................................................... 59
Principal Members........................................................ 65
Description of Other Indebtedness........................................ 66
The Exchange Offer....................................................... 71
Description of the Notes................................................. 79
Important United States Federal Tax Considerations....................... 118
Plan of Distribution..................................................... 120
Legal Matters............................................................ 122
Independent Auditors..................................................... 122
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OFFER TO EXCHANGE
ALL OUTSTANDING
SERIES A
13 1/4% SENIOR NOTES
DUE 2010
FOR
SERIES B
13 1/4% SENIOR NOTES
DUE 2010
---------------
[Madison River Communications Logo]
---------------
Madison River Capital, LLC
Madison River Finance Corp.
---------------
PROSPECTUS
---------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these notes until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these notes, and it is not soliciting an offer to buy these +
+notes in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE FRONT COVER PAGE FOR MARKET-MAKING PROSPECTUS]
Subject to Completion, dated May 11, 2000.
PROSPECTUS
[LOGO]
Madison River Capital, LLC
Madison River Finance Corp.
-----------
Terms of the 13 1/4% Series B Senior Notes Due 2010
Interest Ranking
The notes bear interest The notes are unsecured,
at a fixed annual rate of senior obligations of
13 1/4%. Interest will be Madison River and rank
paid on each March 1 and junior to all of our
September 1 commencing secured debt.
September 1, 2000.
Optional Redemption
Maturity
At any time on or after March 1, 2005, we may
redeem some or all of the notes at the prices
specified herein.
The notes will mature on March 1, 2010.
Mandatory Offer to Repurchase
In addition, on or prior to March 1, 2003, we may
If we undergo a specific redeem up to 35% of the notes at the prices
kind of change of specified herein, but only with the net cash
control, we must offer to proceeds from certain equity offerings.
repurchase the notes at
the prices specified
herein.
-----------
Investing in the notes involves a high degree of risk. See "Risk Factors"
beginning on page [ . ] for a discussion of certain factors that you should
consider in connection with an investment in the notes.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these notes or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
This prospectus has been prepared for and will be used by Goldman, Sachs &
Co. in connection with offers and sales of the notes in market-making
transactions. These transactions may occur in the open market or may be
privately negotiated, at prices related to prevailing market prices at the time
of sale or at negotiated prices. Goldman, Sachs & Co. may act as principal or
agent in these transactions. Madison River will not receive any of the proceeds
of such sales of the notes but will bear the expenses of registration.
Goldman, Sachs & Co.
-----------
, 2000.
A-1
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
You may find it difficult to sell your exchange notes.
There is no existing trading market for the exchange notes, and we cannot
assure you about the future development of a market for the exchange notes or
the ability of the holders of the exchange notes to sell their exchange notes
or the price at which such holders may be able to sell their exchange notes. If
such a market were to develop, the exchange notes could trade at prices that
may be higher or lower than their initial offering price depending on many
factors, including, among other things, prevailing interest rates, our
operating results and the market for similar securities. Historically, the
market for securities similar to the exchange notes, including non-investment
grade debt, has been subject to disruptions that have caused substantial
volatility in the prices of such securities. We cannot assure you that, if a
market develops, it will not be subject to similar disruptions. Although it is
not obligated to do so, Goldman, Sachs & Co. intends to make a market in the
exchange notes. Any such market-making activity may be discontinued at any
time, for any reason, without notice at the sole discretion of Goldman, Sachs &
Co. No assurance can be given as to the liquidity of or the trading market for
the exchange notes.
Goldman, Sachs & Co. may be deemed to be an affiliate of ours and, as such,
may be required to deliver a prospectus in connection with its market-making
activities in the exchange notes. Pursuant to the registration rights
agreement, we have agreed to file and maintain a registration statement that
would allow Goldman, Sachs & Co. to engage in market-making transactions in the
exchange notes. Subject to certain exceptions, the registration statement will
remain effective for as long as Goldman, Sachs & Co. may be required to deliver
a prospectus in connection with market-making transactions in the exchange
notes. We have agreed to bear substantially all the costs and expenses related
to such registration statement.
A-2
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of the exchange
notes by Goldman, Sachs & Co. in market-making transactions. We will not
receive any of the proceeds from such transactions.
A-3
<PAGE>
[ALTERNATE PAGE FOR MARKET-MAKING PROSPECTUS]
PLAN OF DISTRIBUTION
This prospectus is to be used by Goldman, Sachs & Co. in connection with
offers and sales of the exchange notes in market-making transactions effected
from time to time. Goldman, Sachs & Co. may act as a principal or agent in such
transactions, including as agent for the counterparty when acting as principal
or as agent for both counterparties, and may receive compensation in the form
of discounts and commissions, including from both counterparties when it acts
as agent for both. Such sales will be made at prevailing market prices at the
time of sale, at prices related thereto or at negotiated prices.
Certain affiliates of Goldman, Sachs & Co. purchased Class A Units of our
sole parent Madison River Telephone Company, which in the aggregate constitute
33.3% of the equity ownership of Madison River Telephone. Goldman, Sachs & Co.
has informed Madison River that it does not intend to confirm sales of the
exchange notes to any accounts over which it exercises discretionary authority
without the prior specific written approval of such transactions by the
customer.
We have been advised by Goldman, Sachs & Co. that, subject to applicable
laws and regulations, Goldman, Sachs & Co. currently intends to make a market
in the exchange notes following completion of the Exchange Offer. However,
Goldman, Sachs & Co. is not obligated to do so and any such market-making may
be interrupted or discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed by the Securities
Act and the Exchange Act. There can be no assurance that an active trading
market will develop or be sustained. See "Risk Factors--Trading Market for the
Exchange Notes."
Goldman, Sachs & Co. and their respective affiliates may in the future
engage in commercial and/or investment banking transactions with Madison River
and its affiliates. Goldman, Sachs & Co. acted as an initial purchaser in
connection with initial sale of the outstanding notes.
Goldman, Sachs & Co. and Madison River have entered into a registration
rights agreement with respect to the use by Goldman, Sachs & Co. of this
prospectus. Pursuant to such agreement, we agreed to bear substantially all
registration expenses incurred under such agreement and to indemnify Goldman,
Sachs & Co. against certain liabilities, including liabilities under the
Securities Act.
A-4
<PAGE>
[ALTERNATE BACK COVER PAGE FOR MARKET-MAKER PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by Madison River. This prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
securities other than the securities to which it relates or any offer to sell
or the solicitation of an offer to buy such securities in any circumstances in
which such offer or solicitation is unlawful. Neither the delivery of this
prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of Madison River
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date.
Until [ . ], 2000, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to the unsold
allotments or subscriptions.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Where You Can Find More Information......................................
Forward-Looking Statements...............................................
Market and Industry Data.................................................
Summary..................................................................
Risk Factors.............................................................
Use of Proceeds..........................................................
Capitalization...........................................................
Selected Financial and Operating Data....................................
Unaudited Pro Forma Consolidated Financial Information...................
Management's Discussion and Analysis of Financial Condition and Results
of Operations...........................................................
Business.................................................................
Regulation...............................................................
Management...............................................................
Principal Members........................................................
Description of Other Indebtedness........................................
Description of the Notes.................................................
Plan of Distribution.....................................................
Legal Matters............................................................
Independent Auditors.....................................................
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TERMS OF
THE SERIES B
13 1/4% SENIOR NOTES
DUE 2010
---------------
[Madison River Communications Logo]
---------------
Madison River Capital, LLC
Madison River Finance Corp.
---------------
PROSPECTUS
---------------
, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Madison River Capital, LLC's Limited Liability Company Agreement provides
that the company will indemnify its sole member, or any person that is or was
serving as an officer, director, principal, member, employee or agent of the
member or the company, and will have the power to indemnify its other agents,
to the fullest extent permitted by the Limited Liability Company Act of the
State of Delaware (the "LLCA"), as amended from time to time (but, in the case
of any such amendment, only to the extent that such amendment permits the
company to provide broader indemnification rights than such law permitted the
company to provide immediately prior to such amendment). As of the date of the
registration statement, Section 18-108 of the LLCA provides as follows:
"Subject to such standards and restrictions, if any, as are set forth in
its limited liability company agreement, a limited liability company may,
and shall have the power to, indemnify and hold harmless any member or
manager or other person from and against any and all claims and demands
whatsoever."
Madison River Finance Corp.'s Certificate of Incorporation and By-Laws
provide that the corporation will indemnify its officers and directors, and
will have the power to indemnify its other agents, to the full extent permitted
by law. As of the date of this registration statement, Section 145 of the
General Corporation Law of the State of Delaware (the "GCL") provides as
follows:
"(a) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
the corporation) by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
person in connection with such action, suit or proceeding if the person
acted in good faith and in a manner the person reasonably believed to be in
or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe
the person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
the person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
(b) A corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of such action or suit if the person acted in good faith and in
a manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine upon
II-1
<PAGE>
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in subsections (a) and (b) of
this section, or in defense of any claim, issue or matter therein, such
person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon determination that indemnification of
the present or former director, officer, employee or agent is proper in the
circumstances because the person has met the applicable standard of conduct
set forth in subsections (a) and (b) of this section. Such determination
shall be made, with respect to a person who is a director or officer at the
time of such determination, (1) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a
quorum, or (2) by a committee of such directors designated by majority vote
of such directors, even though less than a quorum, or (3) if there are no
such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action,
suit or proceeding may be paid by the corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in this
section. Such expenses (including attorneys' fees) incurred by former
directors and officers or other employees and agents may be so paid upon
such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
such person's official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not
the corporation would have the power to indemnify such person against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
and employees or agents, so that any person who is or was a director,
officer, employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its
separate existence had continued.
II-2
<PAGE>
(i) For purposes of this section, references to "other enterprises' shall
include employee benefit plans; references to "fines' shall include any
excise taxes assessed on a person with respect to any employee benefit
plan; and references to "serving at the request of the corporation' shall
include any services as a director, officer, employee or agent of the
corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner such person reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner not opposed to the best interests of the
corporation' as referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized
or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw, agreement,
vote of stockholders or disinterested directors, or otherwise. The Court of
Chancery may summarily determine a corporation's obligation to advance
expenses (including attorneys' fees)."
Section 102(b)(7) of the GCL, permits a corporation in its certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director for violations of the director's fiduciary duty, except
(1) for any breach of the director's fiduciary duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3)
pursuant to Section 174 of the General Corporation Law of the State of Delaware
(the "GCL") (providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions), or (4) for any
transaction from which the director derived an improper personal benefit.
Madison River Capital, LLC maintains directors' and officers' liability
insurance.
Item 21. Exhibits and Financial Statement Schedules
(a) Reference is made to the Exhibit Index which immediately precedes the
exhibits filed with this Registration Statement, which is incorporated herein
by reference.
(b) Not Applicable.
(c) Not Applicable.
Item 22. Undertakings
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrants will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE>
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
posteffective amendment all information concerning a transaction, and the
company being acquired involved therein that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change in such information in the registration
statement; provided, however, that the registrant need not file a post-
effective amendment to include the information required to be included
by subsection (i) or (ii) if such information is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Mebane, State of North
Carolina, on May 11, 2000.
Madison River Capital, LLC
/s/ J. Stephen Vanderwoude
By: _________________________________
J. Stephen Vanderwoude
Managing Director, Chairman and
Chief Executive Officer
We, the undersigned members of the Board of Managers of the registrant, do
hereby constitute and appoint Paul H. Sunu and J. Stephen Vanderwoude, and each
of them, our true and lawful attorneys-in-fact and agents, to do any and all
acts and things in our names and on our behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our name in
the capacities indicated below, which said attorneys and agents, or either of
them, may deem necessary or advisable to enable said corporations to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
registration statement, or any registration statement for this offering that is
to be effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, including specifically, but without limitation, the power and authority
to sign for us or any of us in our names in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto; and we do
hereby ratify and confirm all that said attorneys and agents, or any of them,
shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated, on May 11, 2000.
<TABLE>
<S> <C>
/s/ J. Stephen Vanderwoude
___________________________________________
J. Stephen Vanderwoude
Managing Director, Chairman and
Chief Executive Officer
(Principal Executive Officer)
/s/ Paul H. Sunu
___________________________________________
Paul H. Sunu
Managing Director, Chief Financial Officer
and Secretary
(Principal Financial Officer)
/s/ John T. Hogshire
___________________________________________
John T. Hogshire
Vice President and Controller
(Principal Accounting Officer)
/s/ Joseph P. DiSabato
___________________________________________
Joseph P. DiSabato
Manager
/s/ Albert J. Dobron, Jr.
___________________________________________
Albert J. Dobron, Jr.
Manager
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
/s/ James H. Kirby
___________________________________________
James H. Kirby
Manager
/s/ Sanjeev K. Mehra
___________________________________________
Sanjeev K. Mehra
Manager
/s/ James D. Ogg
___________________________________________
James D. Ogg
Managing Director
/s/ Mark A. Pelson
___________________________________________
Mark A. Pelson
Manager
/s/ James N. Perry, Jr.
___________________________________________
James N. Perry, Jr.
Manager
</TABLE>
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Mebane, State of North
Carolina, on May 11, 2000.
Madison River Finance Corp.
/s/ J. Stephen Vanderwoude
By: _________________________________
J. Stephen Vanderwoude Director,
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated, on May 11, 2000.
<TABLE>
<S> <C>
/s/ J. Stephen Vanderwoude
___________________________________________
J. Stephen Vanderwoude
Director, Chairman and
Chief Executive Officer
(Principal Executive Officer)
/s/ Paul H. Sunu
___________________________________________
Paul H. Sunu
Chief Financial Officer and Secretary
(Principal Financial Officer)
/s/ John T. Hogshire
___________________________________________
John T. Hogshire
Vice President and Controller
(Principal Accounting Officer)
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description of Exhibit
-------- ----------------------
<C> <S> <C>
3.1 Certificate of Formation of Madison River Capital, LLC
3.2 Limited Liability Company Agreement of Madison River Capital,
LLC
3.3 Certificate of Incorporation of Madison River Finance Corp.
3.4 By-Laws of Madison River Finance Corp.
4.1 Form of the Outstanding Notes
4.2 Form of the Exchange Notes
4.3 Purchase Agreement, dated as of February, 17, 2000, between
Madison River Capital, LLC, Madison River Finance Corp. and
Goldman, Sachs & Co., Bear, Stearns & Co., Inc., Chase
Securities Inc. and Morgan Stanley & Co. Incorporated
4.4 Indenture, dated as of February 17, 2000, between Madison
River Capital, LLC, Madison River Finance Corp. and Norwest
Bank Minnesota, National Association
4.5 Exchange and Registration Rights Agreement, dated as of
February 17, 2000, between Madison River Capital, LLC, Madison
River Finance Corp. and Goldman, Sachs & Co., Bear, Stearns &
Co. Inc., Chase Securities Inc. and Morgan Stanley & Co.
Incorporated
5.1* Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)
10.1 Contribution and Stock Purchase Agreement, dated November 23,
1999, by and among, Madison River Telephone Company, LLC,
Coastal Communications, LLC, Coastal Utilities, Inc., Daniel
M. Bryant, G. Allan Bryant and The Michael E. Bryant Life
Trust
10.1.1 First Amendment to Contribution and Stock Purchase Agreement,
dated March 20, 2000, by and among, Madison River Telephone
Company, LLC, Coastal Communications, LLC, Coastal Utilities,
Inc., Daniel M. Bryant, G. Allan Bryant and The Michael E.
Bryant Life Trust
10.1.2 Second Amendment to Contribution and Stock Purchase Agreement,
dated March 29, 2000, by and among, Madison River Telephone
Company, LLC, Coastal Communications, LLC, Coastal Utilities,
Inc., Daniel M. Bryant, G. Allan Bryant and The Michael E.
Bryant Life Trust
10.1.3 Shareholders Agreement, dated March 30, 2000, by and among
Coastal Communications, Inc. and Daniel M. Bryant, G. Allan
Bryant, The Michael E. Bryant Life Trust and Madison River
Capital, LLC
10.2 Agreement and Plan of Merger, dated May 9, 1999, by and
between Madison River Telephone Company, LLC and Gulf Coast
Services, Inc.
10.2.1 First Amendment to Agreement and Plan of Merger, dated July 2,
1999, by and between Madison River Telephone Company, LLC and
Gulf Coast Services, Inc.
10.2.2 Second Amendment to Agreement and Plan of Merger, dated August
24, 1999, by and between Madison River Telephone Company, LLC
and Gulf Coast Services, Inc.
10.2.3 Third Amendment to Agreement and Plan of Merger, dated
September 28, 1999, by and between Madison River Telephone
Company, LLC and Gulf Coast Services, Inc.
10.3 Asset Purchase Agreement, dated April 21, 1998, among Madison
River Telephone Company, LLC, Gallatin River Communications
L.L.C., Central Telephone Company of Illinois and Centel
Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description of Exhibit
-------- ----------------------
<C> <S> <C>
10.3.1 Amendment No. 1 to Asset Purchase Agreement, dated September
22, 1998, by and between Gallatin River Communications, LLC,
Madison River Telephone Company, LLC, Central Telephone
Company of Illinois and Centel Corporation
10.3.2 Amendment No. 2 to Asset Purchase Agreement, dated October 29,
1998, by and between Gallatin River Communications, LLC,
Madison River Telephone Company, LLC, Central Telephone
Company of Illinois and Centel Corporation
10.4 Stock Purchase Agreement, dated September 12, 1997, by and
among Madison River Telephone Company, LLC and Mebcom
Communications, Inc. and its stockholders
10.5 Employment Agreement, dated April 17, 1996, between Madison
River Telephone Company, LLC and J. Stephen Vanderwoude
10.5.1 First Amendment to Employment Agreement, dated October 8,
1996, between Madison River Telephone Company, LLC and J.
Stephen Vanderwoude
10.5.2 Second Amendment to Employment Agreement, dated January 24,
1997, between Madison River Telephone Company, LLC and J.
Stephen Vanderwoude
10.5.3 Third Amendment to Employment Agreement, dated October 16,
1997, between Madison River Telephone Company, LLC and J.
Stephen Vanderwoude
10.5.4 Fourth Amendment to Employment Agreement, dated September 15,
1999, between Madison River Telephone Company, LLC and J.
Stephen Vanderwoude
10.6 Employment Agreement, dated April 17, 1996, between Madison
River Telephone Company, LLC and James D. Ogg
10.6.1 First Amendment to Employment Agreement, dated October 8,
1996, between Madison River Telephone Company, LLC and James
D. Ogg
10.6.2 Second Amendment to Employment Agreement, dated January 24,
1997, between Madison River Telephone Company, LLC and James
D. Ogg
10.6.3 Third Amendment to Employment Agreement, dated October 16,
1997, between Madison River Telephone Company, LLC and James
D. Ogg
10.6.4 Fourth Amendment to Employment Agreement, dated September 15,
1999, between Madison River Telephone Company, LLC and James
D. Ogg
10.7 Employment Agreement, dated August 1, 1996, between Madison
River Telephone Company, LLC and Donald K. Roberton
10.7.1 First Amendment to Employment Agreement, dated January 24,
1997, between Madison River Telephone Company, LLC and Donald
K. Roberton
10.7.2 Second Amendment to Employment Agreement, dated October 16,
1997, between Madison River Telephone Company, LLC and Donald
K. Roberton
10.7.3 Third Amendment to Employment Agreement, dated September 15,
1999, between Madison River Telephone Company, LLC and Donald
K. Roberton
10.8 Employment Agreement, dated June 4, 1996, between Madison
River Telephone Company, LLC and Paul H. Sunu
10.8.1 First Amendment to Employment Agreement, dated October 8,
1996, between Madison River Telephone Company, LLC and Paul H.
Sunu
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description of Exhibit
-------- ----------------------
<C> <S> <C>
10.8.2 Second Amendment to Employment Agreement, dated January 24,
1997, between Madison River Telephone Company, LLC and Paul H.
Sunu
10.8.3 Third Amendment to Employment Agreement, dated October 16,
1997, between Madison River Telephone Company, LLC and Paul H.
Sunu
10.8.4 Fourth Amendment to Employment Agreement, dated September 15,
1999, between Madison River Telephone Company, LLC and Paul H.
Sunu
10.9 Employment Agreement, dated September 28, 1999, between
Madison River Telephone Company, LLC and Bruce J. Becker
10.10 Terms of the Madison River Telephone Company, LLC Long Term
Incentive Plan effective November 1, 1998
10.11 Loan Agreement and Promissory Notes, dated as of September 29,
1999, between Gulf Telephone Company and the Rural Telephone
Finance Cooperative (the "RTFC")
10.12 Secured Revolving Line of Credit Agreement, dated as of
September 29, 1999, between Gulf Telephone Company and the
RTFC
10.13 Loan Agreement, dated as of January 16, 1998, between Mebtel,
Inc. and the RTFC
10.14 Secured Revolving Line of Credit Agreement, dated as of
January 16, 1998, between Mebtel, Inc. and the RTFC
10.15 Loan Agreement, dated as of October 30, 1998, between Gallatin
River Communications, LLC and the RTFC
10.16 Loan Agreement, dated as of October 30, 1998, between Madison
River Communications, Inc. and the RTFC
10.17 Secured Revolving Line of Credit Agreement, dated as of
October 30, 1998, between Gallatin River Communications, LLC
and the RTFC
10.18 Loan Agreement, dated as of March 29, 2000, between Coastal
Utilities, Inc. and the RTFC
10.19 Secured Revolving Line of Credit Agreement, dated as of March
29, 2000, between Coastal Utilities, Inc. and the RTFC
10.20 Unsecured Revolving Line of Credit Agreement, dated as of
March 29, 2000, between Coastal Utilities, Inc. and the RTFC
10.21* Interconnection Agreement, dated December 18, 1998, between
BellSouth Telecommunications Inc. and Mebtel Integrated
Communications Solutions, LLC
10.22* Interconnection, Resale and Unbundling Agreement, dated as of
October 13, 1999 between GTE North Incorporated, GTE South
Incorporated and Mebtel Integration Communication Solutions,
Inc.
10.23* Interconnection Agreement, dated as of August 31, 1999, by and
between Ameritech Information Industry Services and Mebtel
Integrated Communications Solutions, LLC
12.1 Statements re: Computation of Earnings to Fixed Charges
21.1 Subsidiaries of the Registrants
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER Description of Exhibit
-------- ----------------------
<C> <S> <C>
23.1 Consent of Ernst & Young LLP
23.2 Consent of Golden Associates
23.3* Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois)
(contained in its opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (included in signature page hereto)
25.1 Statement of Eligibility and Qualification of Norwest Bank
Minnesota, National Association, on Form T-1 under the Trust
Indenture Act of 1939, as amended
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Instruction to Registered Holder and/or Depository
Trust Company Participant to Beneficial Owner
99.3 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
*To be filed by amendment.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF FORMATION
OF
MADISON RIVER CAPITAL, LLC
This Certificate of Formation of Madison River Capital, LLC (the
"LLC"), dated as of the 26/th/ day of August, 1999, is being duly executed and
filed by Robert E. Futrell, Jr., as an authorized person, to form a limited
liability company under the Delaware Limited Liability Company Act (6 Del. C.
(S) 18-101, et seq.)
-- ---
FIRST, The name of the limited liability company formed hereby is
Madison River Capital, LLC.
SECOND, The address of the registered office for the LLC in the State
of Delaware is 1209 Orange Street, Wilmington, New Castle County, Delaware
19805.
THIRD, The name and address of the registered agent for service of
process on the LLC in the State of Delaware is The Corporation Trust Company,
1209 Orange Street, Wilmington, New Castle County, Delaware 19805.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation as of the date first above written.
/s/ Robert E. Futrell, Jr.
--------------------------------------
Robert E. Futrell, Jr.
Authorized Person
<PAGE>
EXHIBIT 3.2
MADISON RIVER CAPITAL, LLC
LIMITED LIABILITY COMPANY AGREEMENT
This LIMITED LIABILITY COMPANY AGREEMENT OF MADISON RIVER CAPITAL, LLC, a
Delaware limited liability company (the "Company"), is hereby adopted and
-------
approved by its sole member, MADISON RIVER TELEPHONE COMPANY, LLC, a Delaware
limited liability company (the "Member"), and confirmed and agreed to by the
------
Company, effective as of this 29th day of September, 1999.
W I T N E S S E T H
WHEREAS, the Member is the parent entity of a group of affiliated entities
(the "Madison River Group"), which is seeking to acquire all of the stock of
-------------------
Gulf Coast Services, Inc., an Alabama corporation ("GCSI"); and
----
WHEREAS, the Member has determined that it is both advisable and necessary
to restructure the Madison River Group to facilitate the acquisition of GCSI;
and
WHEREAS, as part of this restructuring, the Member desires to create a
wholly-owned-subsidiary limited liability company, which will hold all of the
Member's equity interests in certain of the entities included within the Madison
River Group.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
ARTICLE I
DEFINITIONS
Wherever used in this Agreement, the following terms shall have the
meanings set forth below.
"Act" means the Delaware Limited Liability Company Act, as from time to
---
time amended, and any successor to the Act. Any reference in this Agreement to
a
<PAGE>
specific statutory provision of the Act shall, unless otherwise specifically
excluded, include any successor provision(s) to the referenced provision.
"Affiliate" means any Person that, directly or indirectly, owns or Controls
---------
any other Person on an aggregate basis, including all beneficial ownership and
ownership or Control as a trustee, guardian or other fiduciary, or that is
controlled by or is under common control with such other Person.
"Agreement" means this Limited Liability Company Agreement and all
---------
schedules and exhibits hereto, if any, as from time to time amended.
"Company" shall have the meaning set forth in the first paragraph of this
-------
Agreement.
"Control" (including, with correlative meanings, the terms "controlled by,"
-------
"controlling" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by contract or otherwise.
"Dissolution Event" shall have the meaning set forth in Section 8.1.
-----------------
"Entity" means any corporation, partnership, limited liability company,
------
trust, unincorporated organization, association or other entity.
"Indemnified Person" shall have the meaning set forth in Section 6.2.
------------------
"Member" shall have the meaning set forth in the first paragraph of this
------
Agreement.
"Person" means an individual or an Entity.
------
ARTICLE II
ORGANIZATION, OFFICES, PURPOSE AND TERM
2.1 Formation; Admission of Member. The Company was formed as a
------------------------------
limited liability company pursuant to the Act on August 26, 1999. Madison River
Telephone Company, LLC (the "Member") is hereby admitted to the Company
------
2
<PAGE>
as its initial and sole member and shall have a limited liability company
interest in the Company constituting one hundred percent (100%) of the issued
and outstanding limited liability company interests of the Company.
2.2 Limited Liability Company Agreement. The Member and the Company
-----------------------------------
hereby execute and deliver this Agreement for the purpose of governing and
regulating the affairs of the Company and the conduct of its business in
accordance with the provisions of the Act. During the term of the Company set
forth in Section 2.6, to the greatest extent permitted under applicable law: (i)
the rights and obligations of the Member with respect to the Company shall be
determined in accordance with the terms and conditions of this Agreement and
(ii) where the Act provides that such rights and obligations specified in the
Act shall apply "unless otherwise provided in a limited liability company
agreement", the "limited liability company agreement may provide" for such
rights and obligations, or words of similar effect, such rights and obligations
shall be as set forth in this Agreement, none of those statutory default
provisions shall apply or have any effect whatsoever and, therefore, by way of
illustration and not in limitation of the foregoing, appraisal rights permitted
under Section 18-210 of the Act shall not apply or be incorporated into this
Agreement, and no Member or assignee of a limited liability company interest in
the Company shall have any of the dissenter or appraisal rights described
therein except to the extent expressly provided herein.
2.3 Name. The name of the Company shall be "Madison River Capital,
----
LLC" and its operations shall be conducted under such name, provided, that the
operations of the Company may be conducted under any other name deemed necessary
or desirable by the Member or as may be necessary to comply with the
requirements of the various state(s) in which the Company may conduct
operations.
2.4 Offices. The principal office of the Company shall be located at
-------
such place as shall be determined by the Member. The initial registered office
of the Company shall be at c/o The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19805. In
addition, the Company may maintain such other offices as the Member may deem
advisable at any other place or places. The initial registered agent of the
Company for service of process shall be The Corporation Trust Company. The
Member may change the registered agent and registered office of the Company to
such other agent or office as may be permitted under the Act, upon such
satisfaction of the requirements for making such a change as are set forth under
the Act.
3
<PAGE>
2.5 Purpose. The purpose and business of the Company shall be to
-------
engage in any lawful business that may be engaged in by a limited liability
company organized under the Act, as such business activities may be determined
by the Member from time to time.
2.6 Term. The Company commenced upon the filing of the Certificate
----
pursuant to the Act. The Company shall continue until dissolved pursuant to
Article VIII, and for so long thereafter as is reasonably necessary for the
winding up and liquidation of the Company's business.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Capital Contributions. In exchange for its limited liability
---------------------
company interest in the Company, which shall constitute one hundred percent
(100%) of the issued and outstanding equity and limited liability company
interests of the Company, the Member shall contribute to the Company all of its
equity interests in the following entities: Mebtel, Inc., a Delaware
corporation; Madison River Communications, Inc., a Delaware corporation;
Gallatin River Holdings, LLC, a Delaware limited liability company, and MEBTEL
Integrated Communications Solutions, LLC, a Delaware limited liability company.
The Member shall have no obligation to make any additional capital contribution
to the Company, unless it shall otherwise agree in writing. The Member shall not
be entitled to interest on any capital contributions, or to a return of any
capital contributions, except as specifically provided herein.
3.2 Member Loans. The Member may, but shall not be required to make
------------
loans to the Company and on such terms and conditions to be agreed upon by the
Company and the Member.
3.3 Compromise. None of the Company, any creditor of the Company or
----------
any other Person shall have any claim against any Member with respect to any
distribution made by the Company to such Member, and any such claim that the
Company, any creditor of the Company or any other Person might have for return
4
<PAGE>
of such distribution shall be deemed to be "compromised" within the meaning of
Section 18-502(b) of the Act by the terms of this Section 3.3.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 Allocation of Profits and Losses. All of the Company's income
--------------------------------
and loss (including items thereof) shall be allocated to the Member, provided
--------
that the Member shall not be required to make any additional capital
contribution to the Company to fund losses of the Company, except as the Member
shall otherwise agree in writing.
4.2 Distributions. Subject to any restrictions or limitations
-------------
mandatorily imposed on the Company under Section 18-607 of the Act, the Member
may, in its sole discretion, cause the Company to make distributions to the
Member at any time and from time to time.
ARTICLE V
MANAGEMENT
5.1 Management by the Member. The Company shall be managed by the
------------------------
Member. All decisions with respect to the management of the business and affairs
of the Company shall be made by the Member. The Member shall have full and
complete power, authority and discretion to manage and control the business of
the Company, including, without limitation, incurring debt, investing Company
funds, entering into contracts and acquiring and transferring real and personal
property, and to make all decisions regarding those matters and to perform any
and all acts customary or incident to the management of the Company's business.
Any Person dealing with the Company or its Member may rely upon a certificate
executed by its Member as to (i) the identity of the Member(s); (ii) acts by the
Member(s), (iii) any act or failure to act by the Company; or (iv) any other
matter whatsoever involving the Company or any Member. The Member may delegate
any functions and responsibilities with respect to the Company to any employee,
agent or officer of the Company.
5.2 Officers. The Member may, but shall not be required to, elect or
--------
appoint one or more officers of the Company, including but not limited to the
5
<PAGE>
following: a President, a Secretary, a Treasurer, one or more Vice-Presidents,
and one or more Assistant Secretaries. Such officers shall have such titles,
duties, authority and compensation as may be designated by the Member in
accordance with this Section 5.2 and the Act. Any two or more offices may be
held by the same individual, but no officer may act in more than one capacity
where action of two or more officers is required. Each officer shall hold office
until his or her death, resignation, retirement or removal, or as provided by
the terms of any written agreement between such officer and the Company. Any
officer elected or appointed by the Member may be removed by the Member at any
time for or without cause, subject to the terms of any written agreement between
such officer and the Company. The compensation of all officers of the Company
shall be fixed from time to time by the Member, subject to the terms of any
written agreement between such officer and the Company.
ARTICLE VI
LIMITATION OF LIABILITY
6.1 Limitation of Liability. The Member shall not be liable for the
-----------------------
debts, obligations and liabilities of the Company. The failure by the Company or
its Member to observe any formalities or requirements relating to the exercise
of its powers and management of the Company's business and affairs under this
Agreement or the Act shall not be grounds for imposing personal liability on the
Member.
6.2 Indemnification.
---------------
(a) The Company hereby agrees to indemnify and hold harmless any
Person (each an "Indemnified Person") to the fullest extent permitted under the
------------------
Act, as the same now exists or may hereafter be amended, substituted or replaced
(but, in the case of any such amendment, substitution or replacement, only to
the extent that such amendment, substitution or replacement permits the Company
to provide broader indemnification rights than the Company is providing
immediately prior to such amendment, substitution or replacement), against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
excise taxes or penalties) reasonably incurred or suffered by such Person (or
one or more of such Person's Affiliates) by reason of the fact that such Person
is or was a Member or is or was serving (with respect to or in connection with
the Company's business or operations) as an officer, director, principal,
member, employee or agent of the Member or the Company or is or was serving at
the request of the Company as a
6
<PAGE>
representative, manager, officer, director, principal, member, employee or agent
of another Entity; provided, that (unless the Company otherwise consents) no
--------
Indemnified Person shall be indemnified for any expenses, liabilities and losses
suffered that are attributable to such Indemnified Person's or its Affiliates'
gross negligence, willful misconduct or knowing violation of law or for any
present of future breaches of any representations, warranties or covenants by
such Indemnified Person or its Affiliates contained herein or in other
agreements with the Company. Expenses, including reasonable attorneys' fees,
incurred by any such Indemnified Person in defending a preceding shall be paid
by the Company in advance of the final disposition of such preceding, including
any appeal therefrom, upon receipt of any undertaking by or on behalf of such
Indemnified Person to repay such amount if it shall ultimately be determined
that such Indemnified Person is not entitled to be indemnified by the Company.
(b) The right to indemnification and the advancement of expenses
conferred in this Section 6.2 shall not be exclusive of any other right which
any Person may have or hereafter acquire hereunder or under any statute,
agreement, or consent of the Company or otherwise.
(c) The Company may maintain insurance, at its expense, to
protect any Indemnified Person against any expense, liability or loss described
in Section 6.2(a) above, whether or not the Company would have the power to
indemnify such Indemnified Person against such expense, liability or loss under
the provisions of this Section 6.2.
(d) Notwithstanding anything contained herein to the contrary
(including in this Section 6.2), any indemnity by the Company relating to the
matters covered in this Section 6.2 shall be provided out of and to the extent
of Company assets only, and the Member shall have no liability on account
thereof and shall not be required to make additional capital contributions to
help satisfy such indemnity of the Company.
(e) If this Section 6.2 or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify and hold harmless each Indemnified Person
pursuant to this Section 6.2 to the fullest extent permitted by any applicable
portion of this Section 6.2 that shall not have been invalidated and to the
fullest extent permitted by applicable law.
7
<PAGE>
6.3 Fiduciary Duties and Obligations. The Member shall have no
--------------------------------
fiduciary duties of loyalty or otherwise with respect to the Company.
ARTICLE VII
TRANSFERABILITY OF LIMITED LIABILITY COMPANY INTEREST
7.1 Transfer. The Member may sell, hypothecate, pledge, assign or
--------
otherwise transfer any part or all of its limited liability company interest in
the Company to any other Person at any time. In the event the Member transfers
its entire limited liability company interest in the Company, the transferee(s)
shall become a member of the Company without any further action, unless the
Member and the transferee(s) agree otherwise.
ARTICLE VIII
DISSOLUTION AND TERMINATION
8.1 Events Causing Dissolution. This Company shall be dissolved by
--------------------------
the first to occur of the following events (a "Dissolution Event").
-----------------
(a) The sale or disposition of all or substantially all of the
assets (other than cash or cash equivalents) of the Company in a single
transaction or a series of related transactions, and the determination to
distribute all proceeds of any such transaction(s) in accordance with the
terms of this Agreement.
(b) The written consent of the Member, or
(c) The entry of a decree of judicial dissolution of the Company
under Section 18-802 of the Act.
The Member hereby agrees that, notwithstanding any provision of the Act, the
Company shall not dissolve prior to the occurrence of a Dissolution Event. None
of the other events set forth in Section 18-801 of the Act shall cause the
dissolution of the Company.
8.2 Liquidation. Upon the occurrence of a Dissolution Event, the
-----------
Member shall act as liquidator or may appoint another Person to act as
liquidator in the Member's sole discretion, which liquidator shall be subject to
the Member's
8
<PAGE>
direction and control. The liquidator shall proceed diligently to wind up the
affairs of the Company and make final distributions as provided herein and in
the Act. The costs of liquidation shall be borne as a Company expense until such
final distribution, the liquidator shall continue to operate the Company,
subject to the direction and control of the Member. The liquidator shall
undertake the following:
(a) as promptly as possible after dissolution and again after
final liquidation, the liquidator shall cause a proper accounting to be made, by
the Company's independent accountants, of the Company's assets, liabilities and
operations through the last day of the calendar month in which the dissolution
occurs or the final liquidation is completed, as applicable.
(b) the liquidator shall pay, satisfy or discharge from Company
funds all of the debts, liabilities and obligations of the Company (including,
without limitation, all expenses incurred in liquidation) or otherwise make
adequate provision for payment and discharge thereof (including, without
limitation, the establishment of a cash fund for contingent liabilities in such
amount and for such term as the liquidator may reasonably determine); and
(c) the liquidator shall distribute all remaining assets of the
Company to the Member.
8.3 Cancellation of Certificate. On completion of the distribution
---------------------------
of Company assets as provided herein, the Company shall be terminated (and the
Company shall not be terminated prior to such time), and the Member (or such
other Person or Persons as the Act may require or permit) shall file a
certificate of cancellation with the Secretary of State of Delaware, cancel any
other filings made pursuant to this Agreement that are or should be canceled and
take such other actions as may be necessary to terminate the Company. The
Company shall be deemed to continue in existence for all purposes of this
Agreement until it is terminated pursuant to this Section 8.3.
8.4 Reasonable Time for Winding Up. A reasonable time shall be
------------------------------
allowed for the orderly winding up of the business and affairs of the Company
and
9
<PAGE>
the liquidation of its assets pursuant to Section 8.2 in order to minimize any
losses otherwise attendant upon such winding up.
ARTICLE IX
MISCELLANEOUS
9.1 Amendment. This Agreement may be amended in whole or in part
---------
only upon the written consent of the Member.
9.2 Severability. Each provision of this Agreement is intended to be
------------
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not effect the validity of the
remainder of this Agreement.
9.3 Delaware Law. The substantive laws of the State of Delaware
------------
shall govern the validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties, without giving
effect to any choice of law or conflict of laws rules or provisions (whether of
the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
9.4 Integrated Agreement. This Agreement supersedes any and all
--------------------
prior agreements or dealings between the parties hereto and their respective
agents, employees, or officers with respect to the subject matter hereof (except
as contained in any other agreements contemplated herein), and this Agreement
constitutes the entire understanding and agreement between the parties hereto
with respect to the subject matter hereof, and there are no agreements,
understandings, restrictions, representations or warranties between the parties
(subject to such exception) other than those set forth herein or herein provided
for.
9.5 Creditors. None of the provisions of this Agreement shall be for
---------
the benefit of or enforceable by any creditors of the Company or any of its
Affiliates, and no creditor who makes a loan to the Company or any of its
Affiliates may have or acquire (except pursuant to the terms of a separate
agreement executed by the Company in favor of such creditor) at any time, as a
result of making the loan, any direct or indirect interest in Company profits,
losses, gains, distributions, capital or property other than as a secured
creditor or unsecured creditor, as the case may be.
10
<PAGE>
9.6 Descriptive Headings; Interpretation. The descriptive headings
------------------------------------
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. Whenever required by the context, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns, pronouns and verbs
shall include the plural and vice versa. The use of the words "or," "either" and
"any" shall not be exclusive.
9.7 Counterparts; Delivery by Facsimile. This Agreement may be
-----------------------------------
executed in any number of counterparts with the same effect as if all parties
hereto had signed the same document. All counterparts shall be construed
together and shall constitute one Agreement. This Agreement and any signed
agreement or instrument entered into in connection with this Agreement or
contemplated hereby, and any amendments hereto or thereto, to the extent signed
and delivered by means of a facsimile machine, shall be treated in all manner
and respects as an original agreement or instrument and shall be considered to
have the same binding legal effect as if it were the original signed version
thereof delivered in person. At the request of any party hereto or to any such
agreement or instrument, each other party hereto or thereto shall re-execute
original forms thereof and deliver them to all other parties. No party hereto or
to any such agreement or instrument shall raise the use of a facsimile machine
to deliver a signature or the fact that any signature or agreement or instrument
was transmitted or communicated through the use of a facsimile machine as a
defense to the formation of a contract and each such party forever waives any
such defense.
[The Next Page Is The Signature Page]
11
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed or caused to be executed
on their behalf this Limited Liability Company Agreement of Madison River
Capital, LLC as of the date first above written.
COMPANY
-------
MADISON RIVER CAPITAL, LLC
BY MADISON RIVER TELEPHONE COMPANY, LLC,
MEMBER-MANAGER
By: /s/ Paul H. Sunu
--------------------
Paul H. Sunu, Secretary and Chief Financial
Officer
MEMBER
------
MADISON RIVER TELEPHONE COMPANY, LLC
By: /s/ J. Stephen Vanderwoude
--------------------------
J. Stephen Vanderwoude, Chairman and
Chief Executive Officer
12
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
MADISON RIVER FINANCE CORP.
FIRST: The name of the Corporation is Madison River Finance Corp.
-----
(hereinafter the "Corporation").
SECOND: The address of the registered office of the Corporation in
------
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Delaware
Code (the "GCL").
FOURTH: The total number of shares of stock which the Corporation
------
shall have authority to issue is 1000 shares of Common Stock, each having a par
value of one penny ($.01).
FIFTH: The name and mailing address of the Sole Incorporator is as
-----
follows:
Name Address
---- -------
M. Martha Sherry 333 W. Wacker Dr.
Suite 2100
Chicago, IL 60606
SIXTH: The following provisions are inserted for the management of
-----
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
<PAGE>
(1) The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders
to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation.
(3) The number of directors of the Corporation shall be as from time
to time fixed by, or in the manner provided in, the By-Laws of the
Corporation. Election of directors need not be by written ballot unless
the By-Laws so provide.
(4) No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any
transaction from which the director derived an improper personal benefit.
Any repeal or modification of this Article SIXTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the GCL, this Certificate of Incorporation, and any By-Laws
adopted by the stockholders; provided, however, that no By-Laws hereafter
adopted by the stockholders shall invalidate any prior act of the directors
which would have been valid if such By-Laws had not been adopted.
SEVENTH: Meetings of stockholders may be held within or without the
-------
State of Delaware, as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
2
<PAGE>
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
EIGHTH: The Corporation reserves the right to amend, alter, change or
------
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
I, THE UNDERSIGNED, being the Sole Incorporator hereinbefore named,
for the purpose of forming a corporation pursuant to the GCL, do make this
Certificate, hereby declaring and certifying that this is my act and deed and
the facts herein stated are true, and accordingly have hereunto set my hand this
10th day of January, 2000.
/s/ M. Martha Sherry
--------------------
M. Martha Sherry
Sole Incorporator
3
<PAGE>
EXHIBIT 3.4
BY-LAWS
OF
MADISON RIVER FINANCE CORP.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the
--------- -----------------
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices at
--------- -------------
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
--------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
<PAGE>
Section 2. Annual Meetings. The Annual Meetings of Stockholders for
--------- ---------------
the election of directors shall be held on such date and at such time as shall
be designated from time to time by the Board of Directors. Any other proper
business may be transacted at the Annual Meeting of Stockholders.
Section 3. Special Meetings. Unless otherwise required by law or by
--------- ----------------
the certificate of incorporation of the Corporation, as amended and restated
from time to time (the "Certificate of Incorporation"), Special Meetings of
Stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, or (ii) the President, (iii) any Vice President, if
there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be
one, and shall be called by any such officer at the request in writing of (i)
the Board of Directors, (ii) a committee of the Board of Directors that has been
duly designated by the Board of Directors and whose powers and authority include
the power to call such meetings or (iii) stockholders owning a majority of the
capital stock of the Corporation issued and outstanding and entitled to vote.
Such request shall state the purpose or purposes of the proposed meeting. At a
Special Meeting of Stockholders, only such business shall be conducted as shall
be specified in the notice of meeting (or any supplement thereto).
Section 4. Notice. Whenever stockholders are required or permitted
--------- ------
to take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special
2
<PAGE>
meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be given not
less than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 5. Adjournments. Any meeting of the stockholders may be
--------- ------------
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 6. Quorum. Unless otherwise required by law or the
--------- ------
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum.
If, however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to
3
<PAGE>
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, in the manner provided in Section 5,
until a quorum shall be present or represented.
Section 7. Voting. Unless otherwise required by law, the Certificate
--------- ------
of Incorporation or these By-laws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the total number of votes of the capital stock
represented and entitled to vote thereat, voting as a single class. Unless
otherwise provided in the Certificate of Incorporation, and subject to Section 5
of Article V hereof, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder. Such votes may be cast in person or
by proxy but no proxy shall be voted on or after three years from its date,
unless such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 8. Consent of Stockholders in Lieu of Meeting. Unless
--------- ------------------------------------------
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without a
4
<PAGE>
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. Every written consent shall bear the date of signature of
each stockholder who signs the consent and no written consent shall be effective
to take the corporate action referred to therein unless, within sixty days of
the earliest dated consent delivered in the manner required by this Section 8 to
the Corporation, written consents signed by a sufficient number of holders to
take action are delivered to the Corporation by delivery to its registered
office in the state of Delaware, its principal place of business, or an officer
or agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing and who, if the
action had been taken at a meeting, would have been entitled to notice of the
meeting if the record date for such meeting had
5
<PAGE>
been the date that written consents signed by a sufficient number of holders to
take the action were delivered to the Corporation as provided above in this
section.
Section 9. List of Stockholders Entitled to Vote. The officer of the
--------- -------------------------------------
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the Corporation shall
---------- ------------
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 9 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 11. Conduct of Meetings. The Board of Directors of the
---------- -------------------
Corporation may adopt by resolution such rules and regulations for the conduct
of
6
<PAGE>
the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
7
<PAGE>
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. The Board of Directors
--------- --------------------------------
shall consist of not less than one nor more than fifteen members, the exact
number of which shall initially be fixed by the Incorporator and thereafter from
time to time by the Board of Directors. Except as provided in Section 2 of this
Article III, directors shall be elected by a plurality of the votes cast at the
Annual Meetings of Stockholders and each director so elected shall hold office
until the next Annual Meeting of Stockholders and until such director's
successor is duly elected and qualified, or until such director's earlier death,
resignation or removal. Any director may resign at any time upon written notice
to the Corporation. Directors need not be stockholders.
Section 2. Vacancies. Unless otherwise required by law or the
--------- ---------
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.
Section 3. Duties and Powers. The business and affairs of the
--------- -----------------
Corporation shall be managed by or under the direction of the Board of Directors
8
<PAGE>
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold meetings, both
--------- --------
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or by any director. Notice thereof stating the
place, date and hour of the meeting shall be given to each director either by
mail not less than forty-eight (48) hours before the date of the meeting, by
telephone or telegram on twenty-four (24) hours' notice, or on such shorter
notice as the person or persons calling such meeting may deem necessary or
appropriate in the circumstances.
Section 5. Quorum. Except as otherwise required by law or the
--------- ------
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the
9
<PAGE>
meeting from time to time, without notice other than announcement at the meeting
of the time and place of the adjourned meeting, until a quorum shall be present.
Section 6. Actions by Written Consent. Unless otherwise provided in
--------- --------------------------
the Certificate of Incorporation, or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
--------- -----------------------------------------
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate one or
--------- ----------
more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of
10
<PAGE>
a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to
the extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
Section 9. Compensation. The directors may be paid their expenses, if
--------- ------------
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director, payable in cash or securities. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction between
---------- --------------------
the Corporation and one or more of its directors or officers, or between the
Corpora-
11
<PAGE>
tion and any other corporation, partnership, association, or other organization
in which one or more of its directors or officers are directors or officers or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
12
<PAGE>
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be chosen
--------- -------
by the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Board of Directors, in its discretion, also may choose a Chairman of the
Board of Directors (who must be a director) and one or more Vice Presidents,
Assistant Secretaries, Assistant Treasurers and other officers. Any number of
offices may be held by the same person, unless otherwise prohibited by law or
the Certificate of Incorporation. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its first meeting
--------- --------
held after each Annual Meeting of Stockholders (or action by written consent of
stockholders in lieu of the Annual Meeting of Stockholders), shall elect the
officers of the Corporation who shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be determined from
time to time by the Board of Directors; and all officers of the Corporation
shall hold office until their successors are chosen and qualified, or until
their earlier death, resignation or removal. Any officer elected by the Board
of Directors may be removed at any time by the affirmative vote of the Board of
Directors. Any vacancy occurring in any
13
<PAGE>
office of the Corporation shall be filled by the Board of Directors. The
salaries of all officers of the Corporation shall be fixed by the Board of
Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
--------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President or any
other officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
--------- ----------------------------------
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the
14
<PAGE>
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as may from time to
time be assigned by these By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the control of
--------- ---------
the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and shall
see that all orders and resolutions of the Board of Directors are carried into
effect. The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these By-Laws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The
President
15
<PAGE>
shall also perform such other duties and may exercise such other powers as may
from time to time be assigned to such officer by these By-Laws or by the Board
of Directors.
Section 6. Vice Presidents. At the request of the President or in
--------- ---------------
the President's absence or in the event of the President's inability or refusal
to act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated 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. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Chairman of the Board of Directors and no
Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, 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.
Section 7. Secretary. The Secretary shall attend all meetings of the
--------- ---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The
16
<PAGE>
Secretary shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors, the Chairman
of the Board of Directors or the President, under whose supervision the
Secretary shall be. If the Secretary shall be unable or shall refuse to cause to
be given notice of all meetings of the stockholders and special meetings of the
Board of Directors, and if there be no Assistant Secretary, then either the
Board of Directors or the President may choose another officer to cause such
notice to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any Assistant Secretary, if there be one, shall
have authority to affix the same to any instrument requiring it and when so
affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest to the affixing by such officer's signature. The Secretary shall see
that all books, reports, statements, certificates and other documents and
records required by law to be kept or filed are properly kept or filed, as the
case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
--------- ---------
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in
17
<PAGE>
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all transactions as Treasurer and
of the financial condition of the Corporation. If required by the Board of
Directors, the Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of the office of the Treasurer and for
the restoration to the Corporation, in case of the Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the Treasurer's possession or under
the Treasurer's control belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if there be
--------- ---------------------
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of the Secretary's disability or refusal to act, 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.
18
<PAGE>
Section 10. Assistant Treasurers. Assistant Treasurers, if there be
---------- --------------------
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of the Treasurer's disability or refusal to act, 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. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restoration to the Corporation, in case of the Assistant
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Assistant
Treasurer's possession or under the Assistant Treasurer's control belonging to
the Corporation.
Section 11. Other Officers. Such other officers as the Board of
---------- --------------
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
19
<PAGE>
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
--------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate
--------- ----------
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may direct a
--------- -----------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new certificate,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof,
20
<PAGE>
require the owner of such lost, stolen or destroyed certificate, or the owner's
legal representative, to advertise the same in such manner as the Board of
Directors shall require and/or to give the Corporation a bond in such sum as it
may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost, stolen or
destroyed or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be transferable
--------- ---------
in the manner prescribed by law and in these By-Laws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued. No transfer of stock shall be valid as
against the Corporation for any purpose until it shall have been entered in the
stock records of the Corporation by an entry showing from and to whom
transferred.
Section 5. Record Date.
--------- -----------
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than
21
<PAGE>
ten days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; providing, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date shall not be more than ten days after the date
upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in this State, its principal
place of business, or an officer or agent of the Corporation having
22
<PAGE>
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested. If no record date has
been fixed by the Board of Directors and prior action by the Board of Directors
is required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the day on which the Board of Directors adopts the resolutions
taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to
--------- -------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls
23
<PAGE>
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise required by law.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law, the
--------- -------
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by
--------- -----------------
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance
of a person at a meeting,
24
<PAGE>
present in person or represented by proxy, shall constitute a waiver of notice
of such meeting, except where the person attends the meeting for the express
purpose of objecting at the beginning of the meeting to the transaction of any
business because the meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
25
<PAGE>
Section 2. Disbursements. All checks or demands for money and notes
--------- -------------
of the Corporation shall be signed by such officer or officers or such other
person or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
--------- -----------
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
--------- --------------
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
--------- ---------------------------------------------------------
than Those by or in the Right of the Corporation. Subject to Section 3 of this
- ------------------------------------------------
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, em-
26
<PAGE>
ployee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or
--------- ---------------------------------------------------------
in the Right of the Corporation. Subject to Section 3 of this Article VIII, the
- -------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director,
27
<PAGE>
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the Corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
--------- --------------------------------
under this Article VIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
28
<PAGE>
independent legal counsel in a written opinion or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination
--------- ------------------
under Section 3 of this Article VIII, a person shall be deemed to have acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe such
person's conduct was unlawful, if such person's action is based on the records
or books of account of the Corporation or another enterprise, or on information
supplied to such person by the officers of the Corporation or another enterprise
in the course of their duties, or on the advice of legal counsel for the
Corporation or another enterprise or on information or records given or reports
made to the Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used in
this Section 4 shall mean any other corporation or any partnership, joint
venture,
29
<PAGE>
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
--------- --------------------------
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or
30
<PAGE>
in part, the director or officer seeking indemnification shall also be entitled
to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
--------- ---------------------------
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
--------- ----------------------------------------------------
Expenses. The indemnification and advancement of expenses provided by or
- --------
granted pursuant to this Article VIII shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any By-Law, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the
31
<PAGE>
Corporation has the power or obligation to indemnify under the provisions of the
General Corporation Law of the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
--------- ---------
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
--------- -------------------
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the
32
<PAGE>
same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses.
---------- -------------------------------------------------------
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article VIII shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
---------- -----------------------------
contained in this Article VIII to the contrary, except for proceedings to
enforce
33
<PAGE>
rights to indemnification (which shall be governed by Section 5 hereof), the
Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
---------- ---------------------------------------
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
----------
Section 1. Amendments. These By-Laws may be altered, amended or
--------- ----------
repealed, in whole or in part, or new By-Laws may be adopted by the stockholders
or by the Board of Directors, provided, however, that notice of such alteration,
amendment, repeal or adoption of new By-Laws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of a majority of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
34
<PAGE>
Section 2. Entire Board of Directors. As used in this Article IX and
--------- -------------------------
in these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
35
<PAGE>
EXHIBIT 4.1
- --------------------------------------------------------------------------------
CUSIP/CINS 558212AA4
13 1/4% Series A Senior Notes due 2010
No. 1 $200,000,000.00
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of TWO HUNDRED MILLION
Dollars on March 1, 2010.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
Dated: February 17, 2000
MADISON RIVER CAPITAL, LLC
By: __________________________
Name:
Title
This is one of the Notes referred to MADISON RIVER FINANCE CORP.
in the within-mentioned Indenture:
NORWEST BANK MINNESOTA, By: ___________________________
NATIONAL ASSOCIATION Name:
as Trustee Title
By: ________________________
Authorized Signatory
(SEAL)
- --------------------------------------------------------------------------------
<PAGE>
13 1/4% Series A Senior Notes due 2010
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) AND (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN
EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES."
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Madison River Capital, LLC, a Delaware limited liability
company (the "Company") and Madison River Finance Corp., A Delaware corporation
("Madison River Finance" and, together with the Company, the "Issuers"),
promises to pay interest on the principal amount of this Note at 13 1/4% per
annum from February 17, 2000 until maturity and shall pay the Special Interest
payable pursuant to Section 2 of the Registration Rights Agreement referred to
below. The Issuers will pay interest and Special Interest semi-annually in
arrears on March 1 and September 1 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be September 1, 2000. The Issuers shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Special Interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
<PAGE>
2. Method of Payment. The Issuers will pay interest on the Notes (except
defaulted interest) and Special Interest to the Persons who are registered
Holders of Notes at the close of business on the February 15 or August 15 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes will
be payable as to principal, premium and Special Interest, if any, and interest
at the office or agency of the Paying Agent and Registrar maintained for such
purpose within or without the City and State of New York, or, at the option of
the Issuers, payment of interest and Special Interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Special
Interest on, all Global Notes and all other Notes the Holders of which shall
have provided wire transfer instructions to the Issuers or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota, National
Association, the Trustee under the Indenture, will act as Paying Agent and
Registrar. The Issuers may change any Paying Agent or Registrar without notice
to any Holder. Either Issuer or any of its Subsidiaries may act in any such
capacity.
4. Indenture. The Issuers issued the Notes under an Indenture dated as of
February 17, 2000 ("Indenture") between the Issuers and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. To the
extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling. The
Notes are obligations of the Issuers limited to $350.0 million in aggregate
principal amount of which $200.0 million are Initial Notes and up to $150.0
million may be issued as Additional Notes.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Issuers shall not have the option to redeem the Notes pursuant to this Paragraph
5 prior to March 1, 2005. Thereafter, the Issuers shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Special Interest
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 1 of the years indicated below:
Year Percentage
---- ----------
2005........................................... 106.625%
2006........................................... 104.417%
2007........................................... 102.208%
2008 and thereafter............................ 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to March 1, 2003, the Issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes originally
issued under the Indenture with the net proceeds of one or more Public Equity
Offerings by the Company or the net cash proceeds of a Strategic Equity
Investment in the Company or a capital contribution to the Company's common
equity made with the net cash proceeds of a concurrent Public Equity Offering
by, or Strategic Investment in, the Company's direct parent at a
<PAGE>
redemption price equal to 113.250% of the principal amount thereof plus accrued
and unpaid interest and Special Interest thereon, if any, to the redemption
date; provided that (1) at least 65% in aggregate principal amount of the Notes
remains outstanding immediately after the occurrence of such redemption,
excluding Notes held by the Company and its Subsidiaries and (2) that such
redemption occurs within 60 days of the date of the closing of such Public
Equity Offering or Strategic Equity Investment.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Issuers shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Issuers shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount of the Notes repurchased
plus accrued and unpaid interest and Special Interest thereon, if any, to the
date of purchase or, in the case of repurchases of Notes prior to the full
Accretion Date, at a purchase price equal to 101% of the aggregate principal
amount of Notes repurchased plus accrued and unpaid interest and Special
Interest thereon, if any, to such date of repurchase (in either case, the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Issuers shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five Business Days of each date on which the aggregate amount of Excess Proceeds
exceeds $10 million, the Issuers shall commence an offer to all Holders of Notes
(as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase
the maximum principal amount of Notes (including any Additional Notes) that may
be purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Special Interests thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes (including any Additional Notes) tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary)
may use such deficiency for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes surrendered by Holders
thereof and such other pari passi indebtedness tendered exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other pari passi
indebtedness to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Issuers prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. The Registrar and the Trustee may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for
<PAGE>
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding Notes
and Additional Notes, if any, voting as a single class, and any existing default
or compliance with any provision of the Indenture or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes and Additional Notes, if any, voting as a single class.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Issuers' obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act, or to
provide for the Issuance of Additional Notes in accordance with the limitations
set forth in the Indenture.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Special Interests on the Notes; (ii)
default in payment when due of principal of or premium, if any, on the Notes
when the same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise, (iii) failure by the Company
to comply for 30 days after notice with Section 4.07 or 4.09, or to comply with
Sections 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 45
days after notice to the Company by the Trustee or the Holders of at least 25%
in principal amount of the Notes (including Additional Notes, if any) then
outstanding voting as a single class to comply with certain other agreements in
the Indenture or the Notes; (v) default under certain other agreements relating
to Indebtedness of the Company which default results in the acceleration of such
Indebtedness prior to its express maturity; (vi) certain final judgments for the
payment of money that remain undischarged for a period of 60 days; and (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries. If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, Special Interest, if any, or the principal of, the
Notes. The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
<PAGE>
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuers or their Affiliates, and may otherwise deal with the Issuers or
their Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Issuers, as such, shall not have any
liability for any obligations of the Issuers under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Restricted Global Notes and Restricted
Definitive Notes. In addition to the rights provided to Holders of Notes under
the Indenture, Holders of Restricted Global Notes and Restricted Definitive
Notes shall have all the rights set forth in the Registration Rights Agreement
dated as of February 17, 2000, between the Issuers and the parties named on the
signature pages thereof (the "Registration Rights Agreement").
18. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Attention: General Counsel
<PAGE>
EXHIBIT 4.2
CUSIP_______________
13 1/4% Series B Senior Notes due 2010
No. 1
$_____________.00
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of _________________
Dollars on March 1, 2010.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
Issuance Date: February 17, 2000
Dated: ____________, 2000
MADISON RIVER CAPITAL, LLC
By:____________________________
Name: J. Stephen Vanderwoude
Title: Chief Executive Officer
This is one of the Notes referred to MADISON RIVER FINANCE CORP.
in the within-mentioned Indenture:
NORWEST BANK MINNESOTA, By:____________________________
NATIONAL ASSOCIATION Name: Paul H. Sunu
as Trustee Title: Secretary & Treasurer
By: _________________________
Authorized Signatory
(SEAL)
<PAGE>
13 1/4% Series B Senior Notes due 2010
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Madison River Capital, LLC, a Delaware limited
liability company (the "Company"), and Madison River Finance Corp., a Delaware
corporation ("Madison River Finance" and, together with the Company, the
"Issuers"), promise to pay interest on the principal amount of this Note at 13
1/4% per annum from February 17, 2000 until maturity. The Issuers will pay
interest semi-annually in arrears on March 1 and September 1 of each year, or if
any such day is not a Business Day, on the next succeeding Business Day (each an
"Interest Payment Date"). Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance; provided that if there is no existing Default in the
payment of interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be September 1, 2000. The
Issuers shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at a rate that is 1% per annum in excess of the rate then in
effect; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
2. Method of Payment. The Issuers will pay interest on the Notes
(except defaulted interest) to the Persons who are registered Holders of Notes
at the close of business
2
<PAGE>
on the February 15 or August 15 next preceding the Interest Payment Date, even
if such Notes are canceled after such record date and on or before such Interest
Payment Date, except as provided in Section 2.12 of the Indenture with respect
to defaulted interest. The Notes will be payable as to principal, premium and
interest at the office or agency of the Paying Agent and Registrar maintained
for such purpose within or without the City and State of New York, or, at the
option of the Issuers, payment of interest may be made by check mailed to the
Holders at their addresses set forth in the register of Holders, and provided
that payment by wire transfer of immediately available funds will be required
with respect to principal of, interest and premium on, all Global Notes and all
other Notes the Holders of which shall have provided wire transfer instructions
to the Issuers or the Paying Agent. Such payment shall be in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Issuers may change any Paying Agent or Registrar without
notice to any Holder. Either Issuer or any of its Subsidiaries may act in any
such capacity.
4. Indenture. The Issuers issued the Notes under an Indenture dated
as of February 17, 2000 ("Indenture") between the Issuers and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Issuers limited to $350.0 million
in aggregate principal amount of which $200.0 million are Initial Notes and up
to $150.0 million may be issued as Additional Notes.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5,
the Issuers shall not have the option to redeem the Notes pursuant to this
Paragraph 5 prior to March 1, 2005. Thereafter, the Issuers shall have the
option to redeem the Notes, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon, if
any, to the applicable redemption date, if redeemed during the twelve-month
period beginning on March 1 of the years indicated below:
3
<PAGE>
Year Percentage
---- ----------
2005.......................... 106.625%
2006.......................... 104.417%
2007.......................... 102.208%
2008 and thereafter........... 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this
Paragraph 5, at any time prior to March 1, 2003, the Issuers may on any one or
more occasions redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture with the net proceeds of one or more
Public Equity Offerings by the Company or the net cash proceeds of a Strategic
Equity Investment in the Company or a capital contribution to the Company's
common equity made with the net cash proceeds of a concurrent Public Equity
Offering by, or Strategic Investment in, the Company's direct parent at a
redemption price equal to 113.250% of the principal amount thereof plus accrued
and unpaid interest thereon, if any, to the redemption date; provided that (1)
at least 65% in aggregate principal amount of the Notes remains outstanding
immediately after the occurrence of such redemption, excluding Notes held by the
Company and its Subsidiaries and (2) that such redemption occurs within 60 days
of the date of the closing of such Public Equity Offering or Strategic Equity
Investment.
6. Mandatory Redemption.
Except as set forth in Paragraph 7 below, the Issuers shall not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Issuers shall be
required to make an offer (a "Change of Control Offer") to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at
a purchase price equal to 101% of the aggregate principal amount of the Notes
repurchased plus accrued and unpaid interest thereon, if any, to the date of
purchase or, in the case of repurchases of Notes prior to the full Accretion
Date, at a purchase price equal to 101% of the aggregate principal amount of
Notes repurchased plus accrued and unpaid interest thereon, if any, to such date
of repurchase (in either case, the "Change of Control Payment"). Within 30 days
following any Change of Control, the Issuers shall mail a notice to each Holder
setting forth the procedures governing the Change of Control Offer as required
by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales,
within five Business Days of each date on which the aggregate amount of Excess
Proceeds exceeds $10 million, the Issuers shall commence an offer to all Holders
of Notes (as "Asset Sale
4
<PAGE>
Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum
principal amount of Notes (including any Additional Notes) that may be purchased
out of the Excess Proceeds at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest and Special
Interests thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture. To the extent that the aggregate amount
of Notes (including any Additional Notes) tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company (or such Subsidiary) may use
such deficiency for any purpose not otherwise prohibited by the Indenture. If
the aggregate principal amount of Notes surrendered by Holders thereof and such
other pari passi indebtedness tendered exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes and such other pari passi indebtedness to be
purchased on a pro rata basis. Holders of Notes that are the subject of an offer
to purchase will receive an Asset Sale Offer from the Issuers prior to any
related purchase date and may elect to have such Notes purchased by completing
the form entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes.
8. Notice of Redemption. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000, unless all of the Notes held by a Holder are to be
redeemed. On and after the redemption date, interest ceases to accrue on Notes
or portions thereof called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Notes may be registered and Notes may be exchanged as
provided in the Indenture. The Registrar and the Trustee may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents,
and the Issuers may require a Holder to pay any taxes and fees required by law
or permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be
treated as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions,
the Indenture or the Notes may be amended or supplemented with the consent of
the Holders of at least a majority in principal amount of the then outstanding
Notes and Additional Notes, if any, voting as a single class, and any existing
default or compliance with any provision of the
5
<PAGE>
Indenture or the Notes may be waived with the consent of the Holders of a
majority in principal amount of the then outstanding Notes and Additional Notes,
if any, voting as a single class. Without the consent of any Holder of a Note,
the Indenture or the Notes may be amended or supplemented to cure any ambiguity,
defect or inconsistency, to provide for uncertificated Notes in addition to or
in place of certificated Notes, to provide for the assumption of the Issuers'
obligations to Holders of the Notes in case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders of the Notes or that does not adversely affect the legal rights under
the Indenture of any such Holder, to comply with the requirements of the SEC in
order to effect or maintain the qualification of the Indenture under the Trust
Indenture Act, or to provide for the Issuance of Additional Notes in accordance
with the limitations set forth in the Indenture.
12. Defaults and Remedies. Events of Default include: (i) default
for 30 days in the payment when due of interest on the Notes; (ii) default in
payment when due of principal of or premium, if any, on the Notes when the same
becomes due and payable at maturity, upon redemption (including in connection
with an offer to purchase) or otherwise, (iii) failure by the Company to comply
for 30 days after notice with Section 4.07 or 4.09, or to comply with Sections
4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 45 days
after notice to the Company by the Trustee or the Holders of at least 25% in
principal amount of the Notes (including Additional Notes, if any) then
outstanding voting as a single class to comply with certain other agreements in
the Indenture or the Notes; (v) default under certain other agreements relating
to Indebtedness of the Company which default results in the acceleration of such
Indebtedness prior to its express maturity; (vi) certain final judgments for the
payment of money that remain undischarged for a period of 60 days; and (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries. If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes. The Issuers are
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Issuers are required upon becoming
6
<PAGE>
aware of any Default or Event of Default, to deliver to the Trustee a statement
specifying such Default or Event of Default.
13. Trustee Dealings with Company. The Trustee, in its individual or
any other capacity, may make loans to, accept deposits from, and perform
services for the Issuers or their Affiliates, and may otherwise deal with the
Issuers or their Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Issuers, as such, shall not have any
liability for any obligations of the Issuers under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Notes.
15. Authentication. This Note shall not be valid until authenticated
by the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name
of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and
without charge a copy of the Indenture. Requests may be made to:
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Attention: General Counsel
7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to:___________________________________
(Insert assignee's legal name)
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Issuers.The agent may substitute
another to act for him.
Date: _______________
Your Signature:_____________________________________________
(Sign exactly as your name appears on the face of this Note)
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
[_] Section 4.10 [_] Section 4.15
If you want to elect to have only part of the Note purchased by the Issuers
pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$_______________
Date: _______________
Your Signature: ____________________________________________
(Sign exactly as your name appears on the face of this Note)
Tax Identification No.:_____________________________________
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest in
another Global Note or for a Definitive Note, or exchanges of a part of another
Global Note or Definitive Note for an interest in this Global Note, have been
made:
<TABLE>
<CAPTION> Principal Amount
Amount of decrease in Amount of increase in [at maturity] of this
Principal Amount Principal Amount Global Note following Signature of authorized
[at maturity] of [at maturity] of such decrease officer of Trustee or
Date of Exchange this Global Note this Global Note (or increase) Note Custodian
- ---------------- ---------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
EXHIBIT 4.3
Madison River Capital, LLC
Madison River Finance Corp.
13 1/4% Senior Notes due 2010
_____________
Purchase Agreement
------------------
February 14, 2000
Goldman, Sachs & Co.,
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Morgan Stanley & Co. Incorporated
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Madison River Capital, LLC, a Delaware limited liability company (the
"Company"), and Madison River Finance Corp., a Delaware corporation ("Madison
River Finance" and, together with the Company, the "Issuers") propose, subject
to the terms and conditions stated herein, to issue and sell to the Purchasers
named in Schedule I hereto (the "Purchasers") an aggregate of $200,000,000
principal amount of their Senior Notes specified above (the "Securities").
1. The Issuers, jointly and severally, represent and warrant to, and
agree with, each of the Purchasers that:
(a) A preliminary offering circular, dated January 28, 2000 (the
"Preliminary Offering Circular") and an offering circular, dated
February 14, 2000 (the "Offering Circular"), in each case including the
international supplement thereto, have been prepared in connection with
the offering of the Securities. Any reference to the Preliminary
Offering Circular or the Offering Circular shall be deemed to refer to
and include any Additional Issuer Information (as defined in Section
5(f)) furnished by the Issuers prior to the completion of the
distribution of the Securities. The Preliminary Offering Circular or
the Offering Circular and any amendments or supplements thereto did not
and will not, as of their respective dates, contain an untrue statement
of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that this
representation and warranty shall not apply to any
<PAGE>
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by a Purchaser through
Goldman, Sachs & Co. expressly for use therein;
(b) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Offering Circular any material loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Offering Circular; and, since the
respective dates as of which information is given in the Offering
Circular, there has not been any change in the capital stock or
members' capital, as the case may be, or long-term debt of the Company
or any of its subsidiaries or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position,
stockholders' equity or members' capital, as the case may be, or
results of operations of the Company or any of its subsidiaries, taken
as a whole, otherwise than as set forth or contemplated in the
Offering Circular;
(c) The Company and its subsidiaries have a good and marketable
title in fee simple to all material real property and good and
marketable title to all material personal property owned by them, in
each case free and clear of all liens, encumbrances and defects except
such as are described in the Offering Circular or such as do not
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by them; and any
material real property and buildings held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property
and buildings by them.
(d) The Company and its subsidiaries have (i) all licenses,
certificates, permits, authorizations, approvals, franchises and other
rights (collectively, "Permits"), from, and has made all declarations
and filings with, all federal, state and local authorities (including,
without limitation, the Federal Communications Commission (the "FCC")
or any applicable state public utility commissions ("State PUCs")),
all self-regulatory authorities and all courts and other tribunals
(each an "Authorization") necessary to engage in the business
conducted by the Company and its subsidiaries in the manner described
in the Offering Circular, including, without limitation, under any
laws, rules or regulations regulating or relating to the conduct of
its telecommunications business, except as described in the Offering
Circular or except where the failure to possess such Authorizations
and Permits would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole and (ii) neither the Company
nor any of its subsidiaries has received notice of any proceedings
relating to the revocation or modification of any such Permits or
Authorizations, which, singly or in the aggregate if the subject of an
unfavorable decision, would result in a material adverse effect on the
Company and its subsidiaries taken as a whole. All such Authorizations
are valid and in full force and effect and the Company and its
subsidiaries are in compliance in all material respects with the terms
and conditions of all such Authorizations and with the rules and
regulations of the regulatory
2
<PAGE>
authorities having jurisdiction with respect thereto except insofar as
non-compliance or failure to be in full force and effect would not
have a material adverse effect on the Company and its subsidiaries
taken as a whole;
(e) Except as described in the Offering Circular, the Company
and its subsidiaries own, possess or have the right to employ
sufficient patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, software,
systems or procedures), trademarks, service marks and trade names,
inventions, computer programs, technical data and information
(collectively, the "Intellectual Property Rights") reasonably
necessary to conduct their businesses as now conducted except insofar
as the failure to have such rights would not have a material adverse
effect on the Company and its subsidiaries taken as a whole; and the
expected expiration of any of such Intellectual Property Rights would
not result in a material adverse change;
(f) Each of the Issuers and their subsidiaries has been duly
incorporated or formed, as the case may be, and is validly existing as
a corporation or limited liability company, as the case may be, in
good standing under the laws of its jurisdiction of incorporation or
organization, as the case may be, with corporate power (in the case of
a corporation) or power (in the case of a limited liability company)
and authority (corporate and other) to own its properties and conduct
its business as described in the Offering Circular, and has been duly
qualified as a foreign corporation or limited liability company, as
the case may be, for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, except where the failure to be so qualified would not
have a material adverse effect on the Company and its subsidiaries
taken as a whole;
(g) All limited liability company interests of the Company are
owned by Madison River Telephone Company, LLC ("Madison River
Telephone"), free and clear of any security interest, claim, lien,
encumbrance or adverse interest of any nature (each a "Lien"). All
shares of capital stock of Madison River Finance are owned by the
Company, free and clear of any Liens. All outstanding limited
liability company interests of the Company have been duly authorized,
validly issued, are fully paid and non-assessable, and are not subject
to any preemptive or similar rights. All outstanding shares of capital
stock of Madison River Finance have been duly authorized, validly
issued, are fully paid and non-assessable, and are not subject to any
preemptive or similar rights;
(h) The Company has an authorized capitalization as set forth in
the Offering Circular, and all of the issued shares of capital stock
or membership interests, as the case may be, of each subsidiary of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and (except for directors' qualifying shares
and except as otherwise set forth in the Offering Circular) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
3
<PAGE>
(i) this Agreement has been duly authorized, executed and
delivered by the Issuers;
(j) The Securities have been duly authorized and, when issued
and delivered pursuant to this Agreement, will have been duly
executed, authenticated, issued and delivered and will constitute
valid and legally binding obligations of the Issuers entitled to the
benefits provided by the indenture to be dated as of February 17, 2000
(the "Indenture") between the Issuers and Norwest Bank Minnesota,
National Association, as Trustee (the "Trustee"), under which they are
to be issued, which will be substantially in the form previously
delivered to you; the Indenture has been duly authorized and, when
executed and delivered by the Issuers and the Trustee, the Indenture
will constitute a valid and legally binding instrument, enforceable in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles; and the Securities and the Indenture will conform in all
material respects to the descriptions thereof in the Offering Circular
and will be in substantially the form previously delivered to you;
(k) The exchange and registration rights agreement, to be dated
as of February 17, 2000 (the "Registration Rights Agreement"), between
the Issuers and the Purchasers has been duly authorized by the Issuers
and, when executed and delivered by the Issuers, the Registration
Rights Agreement will constitute a valid and legally binding
instrument of the Issuers enforceable against the Issuers in
accordance with its terms, except to the extent that enforcement
thereof may be limited by bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting
creditors' rights and by general principles of equity. Pursuant to the
Registration Rights Agreement, the Issuers will agree to file with the
Commission, under the circumstances set forth therein, (i) a
registration statement under the United States Securities Act of 1933,
as amended (the "Act"), relating to another series of debt securities
of the Issuers with terms substantially identical to the Securities
(the "Exchange Securities") to be offered in exchange for the
Securities (the "Exchange Offer"), (ii) to the extent required by the
Registration Rights Agreement, a shelf registration statement pursuant
to Rule 415 of the Act relating to the resale by certain holders of
the Securities and (iii) to the extent required by the Registration
Rights Agreement, a market making registration statement, and in each
case, to use all commercially reasonable efforts to cause such
registration statements to be declared effective. The Exchange
Securities have been duly authorized for issuance by the Issuers, and
when issued and authenticated in accordance with the terms of the
Indenture will be the valid and legally binding obligations of the
Issuers, entitled to the benefits provided by the Indenture,
enforceable against the Issuers in accordance with their terms, except
to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and by general principles
of equity. The Registration Rights Agreement will conform, in all
material respects, to the description thereof in the Offering Circular
and will be in substantially the form previously delivered to you;
(l) None of the transactions contemplated by this Agreement
(including, without limitation, the use of the proceeds from the sale
of the Securities) will violate or result in a
4
<PAGE>
violation of Section 7 of the United States Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any regulation promulgated
thereunder, including, without limitation, Regulations T, U, and X of
the Board of Governors of the Federal Reserve System;
(m) Prior to the date hereof, neither the Issuers nor any of
their affiliates have taken any action which is designed to or which
has constituted or which might have been expected to cause or result
in stabilization or manipulation of the price of any security of the
Issuers in connection with the offering of the Securities;
(n) The issuance and sale of the Securities by the Issuers, the
execution and delivery of the Indenture, the Registration Rights
Agreement and this Agreement by the Issuers, compliance by the Issuers
with the terms thereof and the consummation by the Issuers of the
transactions contemplated thereby, each in accordance with its terms,
will not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries is bound or
to which any of the property or assets of the Company or any of its
subsidiaries is subject (except such as will not, individually or in
the aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole), nor will such action result in any
violation of the provisions of the Certificate of Incorporation or
Organization, as the case may be, or By-laws or Limited Liability
Company Agreements, as the case may be, of the Issuers or any statute
or any order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Issuers or any of its
subsidiaries or any of their properties (including, without
limitation, the Communications Act of 1934 (the "Communications Act")
and the rules and regulations of the FCC; and no consent, approval,
authorization, order, registration or qualification of or with any
such court or governmental agency or body (including, without
limitation, the FCC) is required for the issue and sale of the
Securities or the consummation by the Issuers of the transactions
contemplated by this Agreement or the Indenture, except for the filing
of a registration statement by the Issuers with the Commission
pursuant to the Act pursuant to Section 5(l) hereof and such consents,
approvals, authorizations, registrations or qualifications as may be
required and qualification of the Indenture under the Trust Indenture
Act of 1939, as amended and under state securities or Blue Sky laws in
connection with the purchase and distribution of the Securities by the
Purchasers, and except such as will not, individually or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries taken as a whole;
(o) Neither the Company nor any of its subsidiaries is (1) in
violation of its Certificate of Incorporation or Organization, as the
case may be, or By-laws or Limited Liability Company Agreements, as
the case may be, or (2) in default in the performance or observance of
any obligation, covenant or condition contained in any indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its
properties may be bound other than, in the case of clause (2) any
default which would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole;
5
<PAGE>
(p) The statements set forth in the Offering Circular under the
caption "Description of Securities", insofar as they purport to
constitute a summary of the terms of the Securities, under the caption
"Taxation", insofar as they purport to describe the provisions of the
laws and documents referred to therein, fairly describe or summarize
such provisions in all material respects;
(q) Other than as set forth in the Offering Circular, there are
no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any of their properties
is the subject which, if determined adversely to the Company or any of
its subsidiaries, could individually or in the aggregate reasonably be
expected to have a material adverse effect on the current or future
financial position, stockholders' equity or members' capital, as the
case may be, or results of operations of the Company or its
subsidiaries taken as a whole; and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(r) When the Securities are issued and delivered pursuant to
this Agreement, the Securities will not be of the same class (within
the meaning of Rule 144A under the Act) as securities which are listed
on a national securities exchange registered under Section 6 of the
Exchange Act or quoted in a U.S. automated inter-dealer quotation
system;
(s) The Issuers are not, and after giving effect to the offering
and sale of the Securities, will not be an "investment company", as
such term is defined in the United States Investment Company Act of
1940, as amended (the "Investment Company Act");
(t) Neither the Issuers nor any person acting on its or their
behalf (other than the Purchasers and their affiliates as to whom the
Company makes no representation) has offered or sold the Securities by
means of any general solicitation or general advertising within the
meaning of Rule 502(c) under the Act or, with respect to Securities
sold outside the United States to non-U.S. persons (as defined in Rule
902 under the Act), by means of any directed selling efforts within the
meaning of Rule 902 under the Act and the Issuers, any affiliate of the
Issuers and any person acting on its or their behalf (other than the
Purchasers and their affiliates as to whom the Company makes no
representation) has complied with and will implement the "offering
restriction" within the meaning of such Rule 902;
(u) Within the preceding six months, neither the Issuers nor any
other person acting on behalf of the Issuers (other than the Purchasers
and their affiliates as to whom the Company makes no representation)
has offered or sold to any person any Securities, or any securities of
the same or a similar class as the Securities, other than Securities
offered or sold to the Purchasers hereunder. The Issuers will take
reasonable precautions designed to insure that any offer or sale,
direct or indirect, in the United States or to any U.S. person (as
defined in Rule 902 under the Act) of any Securities or any
substantially similar security issued by the Issuers, within six months
subsequent to the date on which the distribution of the Securities has
been completed (as notified to the Company by Goldman, Sachs & Co.), is
made under restrictions and other circumstances reasonably designed not
to affect the status of the offer and sale of the
6
<PAGE>
Securities in the United States and to U.S. persons contemplated by
this Agreement as transactions exempt from the registration provisions
of the Act;
(v) Neither the Issuers nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes; and
(w) Ernst & Young LLP, who has certified certain financial
statements of the Company and its subsidiaries, Arthur Andersen LLP,
who has certified certain financial statements of Mebtel
Communications, Inc., and Golden Associates, who has certified certain
financial statements of Coastal Utilities, Inc., are each independent
public accountants as required by the Act and the rules and regulations
of the Commission thereunder;
(x) The Issuers have reviewed their operations and that of their
subsidiaries and any third parties with which the Issuers or any of
their subsidiaries has a material relationship to evaluate the extent
to which the business or operations of the Issuers or any of their
subsidiaries has been or will be affected by the Year 2000 Problem. As
a result of such review, the Issuers have no reason to believe, and do
not believe, that the Year 2000 Problem has had or will have a material
adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, members'
capital or stockholders' equity, as applicable, or results of
operations of the Issuers and their subsidiaries or has resulted or
will result in any material loss or interference with the Issuers'
business or operations. The "Year 2000 Problem" as used herein means
any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind is not functioning or will
not function, in the case of dates or time periods occurring after
December 31, 1999, at least as effectively as in the case of dates or
time periods occurring prior to January 1, 2000;
2. Subject to the terms and conditions herein set forth, the
Issuers agree to issue and the Issuers agree to sell to each of the Purchasers,
and each of the Purchasers agrees, severally and not jointly, to purchase from
the Issuers, at a purchase price of 95.881% of the principal amount thereof,
plus accrued interest, if any, from February 17, 2000 to the Time of Delivery
hereunder, the principal amount of Securities set forth opposite the name of
such Purchaser in Schedule I hereto.
3. Upon the authorization by you of the release of the Securities,
the several Purchasers propose to offer the Securities for sale upon the terms
and conditions set forth in this Agreement and the Offering Circular and each
Purchaser hereby represents and warrants to, and agrees with the Company that:
(a) It will offer and sell the Securities only to: (i) persons
who it reasonably believes are "qualified institutional buyers"
("QIBs") within the meaning of Rule 144A under the Act in transactions
meeting the requirements of Rule 144A or (ii) upon the terms and
conditions set forth in Annex I to this Agreement;
7
<PAGE>
(b) It is an Institutional Accredited Investor; and
(c) It will not offer or sell the Securities by any form of
general solicitation or general advertising, including but not limited
to the methods described in Rule 502(c) under the Act.
4. (a) The Securities to be purchased by each Purchaser hereunder
will be represented by one or more definitive global Securities in
book-entry form which will be deposited by or on behalf of the Issuers
with The Depository Trust Company ("DTC") or its designated custodian.
The Issuers will deliver the Securities to Goldman, Sachs & Co., for
the account of each Purchaser, against payment by or on behalf of such
Purchaser of the purchase price therefor by certified or official bank
check or checks, payable to the order of the Issuers in Federal (same
day) funds, by causing DTC to credit the Securities to the account of
Goldman, Sachs & Co. at DTC. The Issuers will cause the certificates
representing the Securities to be made available to Goldman, Sachs &
Co. for checking at least twenty-four hours prior to the Time of
Delivery (as defined below) at the office of DTC or its designated
custodian (the "Designated Office"). The time and date of such delivery
and payment shall be 9:30 a.m., New York City time, on February 17,
2000 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing. Such time and date are herein called
the "Time of Delivery".
(b) The documents to be delivered at the Time of Delivery by or
on behalf of the parties hereto pursuant to Section 7 hereof, including
the cross-receipt for the Securities and any additional documents
requested by the Purchasers pursuant to Section 7(j) hereof, will be
delivered at such time and date at the offices of Latham & Watkins, 885
Third Avenue, Suite 1000, New York, NY 10022 (the "Closing Location"),
and the Securities will be delivered at the Designated Office, all at
the Time of Delivery. A meeting will be held at the Closing Location at
1:00 p.m., New York City time, on the New York Business Day next
preceding the Time of Delivery, at which meeting the final drafts of
the documents to be delivered pursuant to the preceding sentence will
be available for review by the parties hereto. For the purposes of this
Section 4, "New York Business Day" shall mean each Monday, Tuesday,
Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law
or executive order to close.
5. Each of the Issuers, jointly and severally, agrees with each of
the Purchasers:
(a) To prepare the Offering Circular in a form approved by you;
to make no amendment or any supplement to the Offering Circular which
shall be disapproved by you promptly after reasonable notice thereof;
and to furnish you with copies thereof as reasonably requested;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Securities for offering and sale
under the securities laws of such jurisdictions as you may reasonably
request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be
necessary to complete the distribution of the Securities, provided that
in connection therewith neither of the Issuers shall
8
<PAGE>
be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction;
(c) To furnish the Purchasers with copies of the Offering
Circular and each amendment or supplement thereto with the independent
accountants' report(s) in the Offering Circular, and any amendment or
supplement containing amendments to the financial statements covered by
such report(s), signed by the accountants, and additional copies
thereof in such quantities as you may from time to time reasonably
request, and if, at any time prior to the expiration of nine months
after the date of the Offering Circular, any event shall have occurred
as a result of which the Offering Circular as then amended or
supplemented would include an untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made when such Offering Circular is delivered, not misleading, or,
if for any other reason it shall be necessary or desirable during such
same period to amend or supplement the Offering Circular, to notify you
and upon your request to prepare and furnish without charge to each
Purchaser and to any dealer in securities as many copies as you may
from time to time reasonably request of an amended Offering Circular or
a supplement to the Offering Circular which will correct such statement
or omission or effect such compliance;
(d) During the period beginning from the date hereof and
continuing until the date six months after the Time of Delivery, not to
offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder any securities of the Issuers that are substantially
similar to the Securities;
(e) Not to be or become, at any time prior to the expiration of
three years after the Time of Delivery, an open-end investment company,
unit investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under
Section 8 of the Investment Company Act;
(f) At any time when the Company is not subject to Section 13 or
15(d) of the Exchange Act, for or the benefit of holders from time to
time of Securities, to furnish at its expense, upon request, to holders
of Securities and prospective purchasers of securities information (the
"Additional Issuer Information") satisfying the requirements of
subsection (d)(4)(i) of Rule 144A under the Act;
(g) If requested by you, to use its best efforts to cause such
Designated Securities to be eligible for the PORTAL trading system of
the National Association of Securities Dealers, Inc.;
(h) To generally make available to the holders of the Securities
as soon as practicable after the end of each fiscal year an annual
report (including a balance sheet and statements of income,
stockholders' equity or members' capital, as the case may be, and cash
flows of the Company and its consolidated subsidiaries certified by
independent public accountants) and, as soon as practicable after the
end of each of the first three quarters of each fiscal year (beginning
with the fiscal quarter ending after the date of the Offering
Circular), to make available to its
9
<PAGE>
stockholders or members, as the case may be, consolidated summary
financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(i) During a period of five years from the date of the Offering
Circular, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders or
members, as the case may be, of the Issuers, and to deliver to you (i)
as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or any securities
exchange on which the Securities or any class of securities of the
Issuers is listed; and (ii) such additional information concerning the
business and financial condition of the Issuers as you may from time to
time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Issuers and its
subsidiaries are consolidated in reports furnished to their
stockholders or members, as the case may be, generally or to the
Commission);
(j) During the period of two years after the Time of Delivery,
the Issuers will not, and will not permit any of its "affiliates" (as
defined in Rule 144 under the Act) to, resell any of the Securities
which constitute "restricted securities" under Rule 144 that have been
reacquired by any of them;
(k) The Issuers shall file and use their best efforts cause to
be declared or become effective under the Act, on or prior to 180 days
after the Time of Delivery, a registration statement on Form S-4
providing for the registration of (i) the Exchange Securities, with
terms identical to the Securities, and the exchange of the Securities
for the Exchange Securities, all in a manner which will permit persons
who acquire the Exchange Securities to resell the Exchange Securities
pursuant to Section 4(1) of the Act; and
(l) To use the net proceeds received by it from the sale of the
Securities pursuant to this Agreement in the manner specified in the
Offering Circular under the caption "Use of Proceeds".
6. Each of the Issuers, jointly and severally, covenants and agrees
with the several Purchasers that the Issuers will pay or cause to be paid the
following: (i) the fees, disbursements and expenses of their counsel and
accountants in connection with the issue of the Securities and all other
expenses in connection with the preparation, printing and filing of the
Preliminary Offering Circular and the Offering Circular and any amendments and
supplements thereto and the mailing and delivering of copies thereof to the
Purchasers and dealers; (ii) the cost of printing or producing any Agreement
among Purchasers, this Agreement, the Indenture, the Blue Sky and Legal
Investment Memoranda, closing documents (including any compilations thereof) and
any other documents in connection with the offering, purchase, sale and delivery
of the Securities; (iii) all expenses in connection with the qualification of
the Securities for offering and sale under state securities laws as provided in
Section 5(b) hereof, including the fees and disbursements of counsel for the
Purchasers in connection with such qualification and in connection with the Blue
Sky and legal investment surveys; (iv) any fees charged by securities rating
services for rating the Securities; (v) the cost of preparing the Securities;
(vi) the fees and expenses of the Trustee and any agent of the Trustee and the
fees and disbursements of
10
<PAGE>
counsel for the Trustee in connection with the Indenture and the Securities;
(vii) any cost incurred in connection with the designation of the Securities for
trading in PORTAL and (viii) all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section. It is understood, however, that, except as
provided in this Section, and Sections 8 and 11 hereof, the Purchasers will pay
all of their own costs and expenses, including the fees of their counsel,
transfer taxes on resale of any of the Securities by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Purchasers hereunder shall be subject, in
their discretion, to the condition that all representations and warranties and
other statements of the Issuers herein are, at and as of the Time of Delivery,
true and correct, the condition that each of the Issuers shall have performed
all of their respective obligations hereunder theretofore to be performed, and
the following additional conditions:
(a) Latham & Watkins, counsel for the Purchasers, shall have
furnished to you such opinion or opinions, dated the Time of Delivery,
with respect to the matters covered in paragraphs (1), (3), (4), (5),
(6), and (13) of Annex III hereof as well as such other related matters
as you may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable
them to pass upon such matters;
(b) Skadden, Arps, Slate, Meagher & Flom (Illinois), counsel for
the Issuers, shall have furnished to you their written opinion, dated
the Time of Delivery, in form and substance satisfactory to you, as set
forth in Annex III;
(c) Matt Springer, general counsel for the Issuers or local
counsel for the Issuers, shall have furnished to you their written
opinion, dated the Time of Delivery, in form and substance satisfactory
to you, to the effect that:
(i) Each of the Issuers, Gulf Telephone Company, Mebtel, Inc.,
and Gallatin River Communications, LLC has been duly qualified as a
foreign corporation or limited liability company, as the case may be,
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, except where
the failure to be so qualified in any such jurisdiction would not have
a material adverse effect on the Issuers and their subsidiaries taken
as a whole (such counsel being entitled to rely in respect of the
opinion in this clause solely upon good standing certificates issued by
the appropriate Secretary of State);
(ii) Gulf Telephone Company, Mebtel, Inc. and Gallatin River
Communications, LLC have each been duly incorporated or formed, as the
case may be, and is validly existing as a corporation or limited
liability company, as the case may be, in good standing under the laws
of its jurisdiction of incorporation or organization, as the case may
be; and all of the issued shares of capital stock or membership
interests, as the case may be, of Gulf Telephone Company, Mebtel, Inc.
and Gallatin River Communications, LLC have been duly and validly
authorized and issued, are fully paid and non-assessable, and (except
for directors' qualifying shares and
11
<PAGE>
except as otherwise set forth in the Offering Circular) based solely on
a review of the stock transfer books of such subsidiaries, are owned
directly or indirectly by the Issuers and, to such counsel's knowledge
and other than as disclosed in the Offering Circular, are free and
clear of all liens, encumbrances, equities or claims (such counsel
being entitled to rely in respect of the opinion in this clause upon
opinions of local counsel and in respect of matters of fact upon
certificates of officers of the Issuers or their subsidiaries, provided
that such counsel shall state that they believe that both you and they
are justified in relying upon such opinions and certificates);
(iii) To the best of such counsel's knowledge and other than as
set forth in the Offering Circular, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is
a party or of which any property of the Company or any of its
subsidiaries is the subject which, if determined adversely to the
Company or any of its subsidiaries, would individually or in the
aggregate reasonably be expected to have a material adverse effect on
the current or future consolidated financial position, stockholders'
equity or members' capital, as the case may be, or results of
operations of the Company and its subsidiaries; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(iv) Neither the execution and delivery of this Agreement and
the operative documents nor the sale of the Securities contemplated
hereby will violate any rules or regulations of the North Carolina or
Alabama public utility commissions as interpreted as of this date.
(v) Each of the Company and Madison River Finance has all
certificates, orders, permits, licenses, authorizations, consents and
approvals (collectively, the "Permits") of and from, and has made all
filings and registrations with, the FCC and any of the North Carolina,
Illinois or Alabama public utility commissions necessary to (a) conduct
its business in all material respects as described in the Offering
Circular and (b) consummate the transactions contemplated in this
Agreement.
(d) On the date of the Offering Circular prior to the execution
of this Agreement and also at the Time of Delivery, Ernst & Young LLP
shall have furnished to you a letter or letters, dated the respective
dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex II hereto;
(e) On the date of the Offering Circular prior to the execution
of this Agreement and also at the Time of Delivery, Golden Associates
shall have furnished to you a letter or letters, dated the respective
dates of delivery thereof, in form and substance satisfactory to you,
to the effect set forth in Annex II hereto;
(f) (i) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Offering Circular any loss or interference
with its business from fire, explosion, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or court
or governmental action, order or
12
<PAGE>
decree, otherwise than as set forth or contemplated in the Offering
Circular, and (ii) since the respective dates as of which information
is given in the Offering Circular there shall not have been any change
in the capital stock or members' capital, as the case may be, or long-
term debt of the Company or any of its subsidiaries or any change, or
any development involving a prospective change, in or affecting the
general affairs, management, financial position, stockholders' equity
or members' capital, as the case may be, or results of operations of
the Company or any of its subsidiaries, otherwise than as set forth or
contemplated in the Offering Circular, the effect of which, in any such
case described in clause (i) or (ii), is in the judgment of the
Representatives so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities on the terms and in the manner contemplated in this
Agreement and in the Offering Circular;
(g) On or after the date hereof (i) no downgrading shall have
occurred in the rating accorded to any of the Issuers' debt securities
by any "nationally recognized statistical rating organization", as that
term is defined by the Commission for purposes of Rule 436(g)(2) under
the Act, and (ii) no such organization shall have publicly announced
that it has under surveillance or review, with possible negative
implications, its rating of any of the Issuers' debt securities;
(h) On or after the date hereof there shall not have occurred
any of the following: (i) a suspension or material limitation in
trading in securities generally on the New York Stock Exchange; (ii) a
general moratorium on commercial banking activities declared by either
Federal or New York or State authorities; (iii) the outbreak or
escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this clause (iii) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Securities on the terms
and in the manner contemplated in the Offering Circular; or (iv) the
occurrence of any material adverse change in the existing, financial,
political or economic conditions in the United States or elsewhere
which, in the judgment of the Representatives, would materially and
adversely affect the financial markets or the markets for the
Securities and other debt securities;
(i) The Securities have been designated for trading on PORTAL;
and
(j) The Issuers shall have furnished or caused to be furnished
to you at the Time of Delivery certificates of officers of the Issuers
satisfactory to you as to the accuracy of the representations and
warranties of the Issuers herein at and as of such Time of Delivery, as
to the performance by the Issuers of all of its obligations hereunder
to be performed at or prior to such Time of Delivery, as to the matters
set forth in subsections (a) and (e) of this Section and as to such
other matters as you may reasonably request.
(k) Prior to February 17, 2000, the Issuers shall have furnished
or caused to be furnished to you a copy of the consent required to
allow the issuance of the Securities under the loan agreement by and
between the Rural Telephone Finance Cooperative (the "RTFC") and
13
<PAGE>
the Company, dated as of September 29, 1999, in a form reasonably
satisfactory to you and your counsel and such that no condition exists
or would exist that would constitute a default under such agreement.
8. (a) The Issuers, jointly and severally, will indemnify and hold
harmless each Purchaser against any losses, claims, damages or
liabilities, joint or several, to which such Purchaser may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Offering Circular or the
Offering Circular, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein
a material fact necessary to make the statements therein not
misleading, and will reimburse each Purchaser for any legal or other
expenses reasonably incurred by such Purchaser in connection with
investigating or defending any such action or claim as such expenses
are incurred. The Issuers shall not be required to indemnify a
Purchaser for any amount paid or payable by such Purchaser in the
settlement of any action, proceeding or investigation without the
written consent of the Issuers, which consent shall not be unreasonably
withheld; provided, however, that neither of the Issuers shall be
liable in any such case to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Preliminary Offering Circular or the Offering Circular or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Purchaser through Goldman,
Sachs & Co. expressly for use therein.
(b) Each Purchaser will indemnify and hold harmless the Issuers
against any losses, claims, damages or liabilities to which the Issuers
may become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Offering
Circular or the Offering Circular, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission was made in any Preliminary Offering
Circular or the Offering Circular or any such amendment or supplement
in reliance upon and in conformity with written information furnished
to the Company by such Purchaser through Goldman, Sachs & Co. expressly
for use therein; and will reimburse the Issuers for any legal or other
expenses reasonably incurred by the Issuers in connection with
investigating or defending any such action or claim as such expenses
are incurred.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any
action, such indemnified party shall, if a claim in respect thereof is
to be made against the indemnifying party under such subsection, notify
the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party shall not relieve it from
any liability which it may have to any indemnified
14
<PAGE>
party otherwise than under such subsection. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any
legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent
to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may
be sought hereunder (whether or not the indemnified party is an actual
or potential party to such action or claim) unless such settlement,
compromise or judgment (i) includes an unconditional release of the
indemnified party from all liability arising out of such action or
claim and (ii) does not include a statement as to, or an admission of,
fault, culpability or a failure to act, by or on behalf of any
indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party
under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received
by the Issuers on the one hand and the Purchasers on the other from the
offering of the Securities. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if
the indemnified party failed to give the notice required under
subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Issuers on the one hand and the
Purchasers on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Issuers on the
one hand and the Purchasers on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Issuers bear to the total
underwriting discounts and commissions received by the Purchasers, in
each case as set forth in the Offering Circular. The relative fault
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Issuers on the one hand or the Purchasers on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The
Issuers and the Purchasers agree that it would not be just and
equitable if contribution pursuant to this subsection (d) were
determined
15
<PAGE>
by pro rata allocation (even if the Purchasers were treated as one
entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above
in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this subsection (d)
shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this subsection (d), no Purchaser shall be required to contribute any
amount in excess of the amount by which the total price at which the
Securities underwritten by it and distributed to investors were offered
to investors exceeds the amount of any damages which such Purchaser has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. The Purchasers'
obligations in this subsection (d) to contribute are several in
proportion to their respective underwriting obligations and not joint.
(e) The obligations of the Issuers under this Section 8 shall be
in addition to any liability which the Issuers may otherwise have and
shall extend, upon the same terms and conditions, to each person, if
any, who controls any Purchaser within the meaning of the Act; and the
obligations of the Purchasers under this Section 8 shall be in addition
to any liability which the respective Purchasers may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of the Issuers, and to each person, if any, who controls the
Issuers within the meaning of the Act.
9. (a) If any Purchaser shall default in its obligation to purchase
the Securities which it has agreed to purchase hereunder, you may in
your discretion arrange for you or another party or other parties to
purchase such Securities on the terms contained herein. If within
thirty-six hours after such default by any Purchaser you do not arrange
for the purchase of such Securities, then the Issuers shall be entitled
to a further period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such Securities
on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the
purchase of such Securities, or the Company notifies you that it has so
arranged for the purchase of such Securities, you or the Company shall
have the right to postpone the Time of Delivery for a period of not
more than seven days, in order to effect whatever changes may thereby
be made necessary in the Offering Circular, or in any other documents
or arrangements, and the Issuers agree to prepare promptly any
amendments to the Offering Circular which in your opinion may thereby
be made necessary. The term "Purchaser" as used in this Agreement shall
include any person substituted under this Section with like effect as
if such person had originally been a party to this Agreement with
respect to such Securities.
(b) If, after giving effect to any arrangements for the purchase
of the Securities of a defaulting Purchaser or Purchasers by you and
the Issuers as provided in subsection (a) above, the aggregate
principal amount of such Securities which remains unpurchased does not
exceed one-eleventh of the aggregate principal amount of all the
Securities, then the Issuers shall have the right to require each
non-defaulting Purchaser to purchase the principal amount of
16
<PAGE>
Securities which such Purchaser agreed to purchase hereunder and, in
addition, to require each non-defaulting Purchaser to purchase its pro
rata share (based on the principal amount of Securities which such
Purchaser agreed to purchase hereunder) of the Securities of such
defaulting Purchaser or Purchasers for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Purchaser from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase
of the Securities of a defaulting Purchaser or Purchasers by you and
the Issuers as provided in subsection (a) above, the aggregate
principal amount of Securities which remains unpurchased exceeds
one-eleventh of the aggregate principal amount of all the Securities,
or if the Issuers shall not exercise the right described in subsection
(b) above to require non-defaulting Purchasers to purchase Securities
of a defaulting Purchaser or Purchasers, then this Agreement shall
thereupon terminate, without liability on the part of any
non-defaulting Purchaser or the Issuers, except for the expenses to be
borne by the Issuers and the Purchasers as provided in Section 6 hereof
and the indemnity and contribution agreements in Section 8 hereof; but
nothing herein shall relieve a defaulting Purchaser from liability for
its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Issuers and the several Purchasers, as
set forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation (or any statement as to the results thereof) made by or on
behalf of any Purchaser or any controlling person of any Purchaser or the
Issuers, or any officer or director or controlling person of the Issuers, and
shall survive delivery of and payment for the Securities.
11. If this Agreement shall be terminated pursuant to Section 9
hereof, neither of the Issuers shall then be under any liability to any
Purchaser except as provided in Sections 6 and 8 hereof; but, if for any other
reason, the Securities are not delivered by or on behalf of the Issuers as
provided herein, the Issuers, jointly and severally, will reimburse the
Purchasers through you for all out-of-pocket expenses approved in writing by
you, including reasonable fees and disbursements of counsel, reasonably incurred
by the Purchasers in making preparations for the purchase, sale and delivery of
the Securities, but neither of the Issuers shall then be under any further
liability to any Purchaser except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Purchasers, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Purchaser made or given
by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Purchasers shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department, and if to the Issuers shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the Offering
Circular, Attention: Secretary; provided, however, that any notice to a
Purchaser pursuant to Section 8(c) hereof
17
<PAGE>
shall be delivered or sent by mail, telex or facsimile transmission to such
Purchaser at its address set forth in its Purchasers' Questionnaire, or telex
constituting such Questionnaire, which address will be supplied to the Company
by you upon request. Any such statements, requests, notices or agreements shall
take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the
benefit of, the Purchasers and the Issuers and, to the extent provided in
Sections 8 and 10 hereof, the officers and directors of the Issuers, and each
person who controls the Issuers or any Purchaser, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Securities from any Purchaser shall be deemed a successor or assign
by reason merely of such purchase.
14. Time shall be of the essence of this Agreement.
15. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such respective counterparts shall together constitute one and
the same instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us 7 counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Purchasers, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Purchasers and the
Issuers. It is understood that your acceptance of this letter on behalf of each
of the Purchasers is pursuant to the authority set forth in a form of Agreement
among Purchasers, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
[Signature pages follow]
18
<PAGE>
Very truly yours,
Madison River Capital, LLC
By: /s/ J. Stephen Vanderwoude
--------------------------------
Name: J. Stephen Vanderwoude
Title: Chief Executive Officer
Accepted as of the date hereof: Madison River Finance Corp.
Goldman, Sachs & Co. By: /s/ Paul H. Sunu
Bear, Stearns & Co. Inc.... --------------------------------
Chase Securities Inc....... Name: Paul H. Sunu
Morgan Stanley & Co. Incorporated Title: Secretary & Treasurer
By: /s/ Goldman, Sachs & Co.
--------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Purchasers
Purchase Agreement
Signature Page
<PAGE>
SCHEDULE I
Principal
Amount of
Securities
to be
Purchaser Purchased
--------- ---------
Goldman, Sachs & Co....................................... $110,000,000
Bear, Stearns & Co. Inc................................... 10,000,000
Chase Securities Inc...................................... 40,000,000
Morgan Stanley & Co. Incorporated......................... 40,000,000
------------
Total........................................... $200,000,000
============
S-1
<PAGE>
ANNEX I
(1) The Securities have not been and will not be registered under the
Act and may not be offered or sold within the United States or to, or for the
account or benefit of, U.S. persons except in accordance with Regulation S under
the Act or pursuant to an exemption from the registration requirements of the
Act. Each Purchaser represents that it has offered and sold the Securities, and
will offer and sell the Securities (i) as part of their distribution at any time
and (ii) otherwise until 40 days after the later of the commencement of the
offering and the Time of Delivery, only in accordance with Rule 903 of
Regulation S or Rule 144A under the Act. Accordingly, each Purchaser agrees that
neither it, its affiliates nor any persons acting on its or their behalf has
engaged or will engage in any directed selling efforts with respect to the
Securities, and it and they have complied and will comply with the offering
restrictions requirement of Regulation S. Each Purchaser agrees that, at or
prior to confirmation of sale of Securities (other than a sale pursuant to Rule
144A), it will have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases Securities from it
during the restricted period a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered and sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later of the commencement of
the offering and the closing date, except in either case in accordance
with Regulation S (or Rule 144A if available) under the Securities
Act. Terms used above have the meaning given to them by Regulation S."
Terms used in this paragraph have the meanings given to them by Regulation S.
Each Purchaser further agrees that it has not entered and will not
enter into any contractual arrangement with respect to the distribution or
delivery of the Securities, except with its affiliates or with the prior written
consent of the Issuers.
(2) Notwithstanding the foregoing, Securities in registered form may
be offered, sold and delivered by the Purchasers in the United States and to
U.S. persons pursuant to Section 3 of this Agreement without delivery of the
written statement required by paragraph (1) above.
(3) Each Purchaser further represents and agrees that (i) it has not
offered or sold and will not offer or sell any Securities to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (b) it
has complied, and will comply, with all applicable provisions of the Financial
Services Act of 1986 of Great Britain with respect to anything done by it in
relation to the Securities in, from or otherwise involving the United Kingdom,
and (c) it has only issued or passed on
A-1
<PAGE>
and will only issue or pass on in the United Kingdom any document received by it
in connection with the issuance of the Securities to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 of Great Britain or is a person to whom
the document may otherwise lawfully be issued or passed on.
(4) Each Purchaser agrees that it will not offer, sell or deliver any
of the Securities in any jurisdiction outside the United States except under
circumstances that will result in compliance with the applicable laws thereof,
and that it will take at its own expense whatever action is required to permit
its purchase and resale of the Securities in such jurisdictions. Each Purchaser
understands that no action has been taken to permit a public offering in any
jurisdiction outside the United States where action would be required for such
purpose. Each Purchaser agrees not to cause any advertisement of the Securities
to be published in any newspaper or periodical or posted in any public place and
not to issue any circular relating to the Securities, except in any such case
with Goldman, Sachs & Co.'s express written consent and then only at its own
risk and expense.
A-2
<PAGE>
ANNEX II
Pursuant to Section 7(d) of the Purchase Agreement, the accountants shall
furnish letters to the Purchasers to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries under rule 101 of the American
Institute of Certified Public Accountants' Code of Professional Conduct,
and its interpretations and rulings;
(ii) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Offering Circular
agrees with the corresponding amounts (after restatements where applicable)
in the audited consolidated financial statements for such five fiscal
years;
(iii) On the basis of limited procedures not constituting an audit in
accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Offering Circular, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Offering Circular are not in conformity with generally
accepted accounting principles applied on the basis substantially
consistent with the basis for the unaudited condensed consolidated
statements of income, consolidated balance sheets and consolidated
statements of cash flows included in the Offering Circular;
(B) any other unaudited income statement data and balance sheet
items included in the Offering Circular do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Offering Circular;
(C) the unaudited financial statements which were not included
in the Offering Circular but from which were derived any unaudited
condensed financial statements referred to in clause (A) and any
unaudited income statement data and balance sheet items included in
the Offering Circular and referred to in clause (B) were not
determined on a basis substantially consistent with the basis for the
audited consolidated financial statements included in the Offering
Circular;
B-1
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(D) any unaudited pro forma consolidated condensed financial
statements included in the Offering Circular do not comply as to form
in all material respects with the applicable accounting requirements
or the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Offering Circular or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any decreases
in consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Offering
Circular except in each case for changes, increases or decreases which
the Offering Circular discloses have occurred or may occur or which
are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Offering Circular to the specified date
referred to in clause (E) there were any decreases in consolidated net
revenues or operating profit or the total or per share amounts of
consolidated net income or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding
length specified by the Representatives, except in each case for
decreases or increases which the Offering Circular discloses have
occurred or may occur or which are described in such letter; and
iv) In addition to the examination referred to in their report(s)
included in the Offering Circular and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (iv) above, they have carried out certain specified procedures,
not constituting an audit in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Offering Circular, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its subsidiaries and have found them to be in agreement.
B-2
<PAGE>
February __, 2000
Dear Ernst & Young:
Goldman, Sachs & Co., as representatives of the Purchasers of 13 1/4%
Senior Notes due 2010 to be issued by Madison River Capital, LLC (the "Company")
and Madison River Finance Corp. ("Madison River Finance" and, together with the
Company, the "Issuers") will be reviewing certain information relating to the
Issuers that will be included (incorporated by reference) in the Offering
Circular. This review process, applied to the information relation to the issue,
is (will be) substantially consistent with the due diligence review process that
we would perform if this placement of securities were being registered pursuant
to the Securities Act of 1933 (the Act). It is recognized however that what is
"substantially consistent" may vary from situation to situation and may not be
the same as that done in a registered offering of the same securities for the
same issuer and whether the procedures being, or to be, followed will be
"substantially consistent" will be determined by us on a case-by-case basis. We
are knowledgeable with respect to the due diligence review process that would be
performed if this placement of securities were being registered pursuant to the
Act. We hereby request that you deliver to us a "comfort" letter concerning the
financial statements of the issuer and certain statistical and other data
included in the offering document. We will contact you to identify the
procedures we wish you to follow and the form we wish the comfort letter to
take.
Very truly yours,
_______________________________
(Goldman, Sachs & Co.)
B-3
<PAGE>
ANNEX III
1. Each of the Issuers has been duly incorporated or formed, as the case
may be, and is validly existing as a corporation or limited liability
company, as the case may be, in good standing under the laws of its
jurisdiction of incorporation or organization, as the case may be,
with corporate power (in the case of a corporation) or power (in the
case of a limited liability company) and authority (corporate and
other) to own its properties and conduct its business as described in
the Offering Circular;
2. Based solely on our review of the stock transfer records of Madison
River Finance and the records of the Company, the Company is the
holder of all of the outstanding capital stock of Finance and Madison
River Telephone Company, LLC ("Madison River Telephone") is the holder
of all of the outstanding limited liability interests of the Company.
All outstanding limited liability company interests of the Company
have been duly authorized, validly issued and are not subject to any
preemptive or similar rights under applicable state law and its
limited liability company agreement. All outstanding shares of capital
stock of Madison River Finance have been duly authorized and validly
issued and are fully paid, non-assessable and not subject to any
preemptive or similar rights under applicable state law and its
charter and by-laws;
3. The Purchase Agreement has been duly authorized, executed and
delivered by the Issuers;
4. The Securities have been duly authorized and executed by the Issuers
and when duly authenticated in accordance with the terms of the
Indenture, and issued and delivered to and paid for by you pursuant to
the Purchase Agreement, will be valid and legally binding obligations
of the Issuers entitled to the benefits of the Indenture, enforceable
against the Issuers in accordance with their terms, except to the
extent that enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to or affecting
creditors' rights generally and (ii) general principles of equity
(regardless of whether enforceability is considered in a proceeding at
law or in equity);
5. The Indenture has been duly authorized, executed and delivered by the
Issuers and is a valid and legally binding agreement of the Issuers,
enforceable against the Issuers in accordance with its terms, except
to the extent that enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating
to or affecting creditors' rights generally and (ii) general
principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity);
6. The Registration Rights Agreement has been duly authorized, executed
and delivered by the Issuers and is a valid and legally binding
obligation of the Issuers, enforceable against the Issuers in
accordance with its terms, except to the extent that (a) enforcement
thereof
C-1
<PAGE>
may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to or affecting creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity), and
(b) the enforceability of indemnification and contribution provisions
may be limited by federal and state securities laws and the policies
underlying such laws;
7. The issuance and sale of the Securities by the Issuers, the execution
and delivery of the Indenture, the Registration Rights Agreement and
the Purchase Agreement by the Issuers, compliance by the Issuers with
the terms thereof and the consummation by the Issuers of the
transactions contemplated thereby, each in accordance with its terms,
will not (i) constitute a violation of or a default under the terms of
any Applicable Contract (except that we do not express any opinion as
to any covenant, restriction or provision of any such agreement or
instrument with respect to financial covenants, ratios or tests or any
aspect of the financial condition or results of operations of the
Issuers or any of their subsidiaries) or (ii) result in any
contravention of any Applicable Law or any Applicable Order; and such
actions will not result in any violation of the provisions of the
Certificate of Incorporation or Organization, as the case may be, or
By-laws or Limited Liability Company Agreements, as the case may be,
of the Issuers;
8. Neither the execution and delivery of this Agreement and the operative
documents nor the sale of the Securities contemplated hereby will
violate (i) the Communications Act as interpreted as of this date,
(ii) the Telecommunications Act of 1996 (the "Telecom Act of 1996") as
interpreted as of this date, (iii) any rules or regulations of the
Federal Communications Commission (the "FCC") applicable to the
Issuers as interpreted as of this date or (iv) any rules or
regulations of the Illinois public utility commissions as interpreted
as of this date.
9. No consent, approval, authorization, order, registration or
qualification of or with any federal or New York governmental agency
or body or any federal or New York court is required for the issue and
sale by the Issuers of the Securities and Exchange Securities and the
compliance by the Issuers with all the provisions of the Purchase
Agreement, the Indenture and the Registration Rights Agreement, except
for the filing of a registration statement by the Issuers with the
Commission under the Securities Act pursuant to the Registration
Rights Agreement and the related qualification of the Indenture under
the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"), in connection with the registration of the Securities or
Exchange Securities and such other consents, approvals,
authorizations, registrations or qualifications as may be required
under state securities or Blue Sky laws or the rules of the National
Association of Securities Dealers, Inc.;
10. The statements set forth in the Offering Circular under the caption
"Description of Notes", insofar as they purport to constitute a
summary of the terms of the documents described
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<PAGE>
therein, and under the caption "Taxation", insofar as they purport to
describe the provisions of the laws and documents referred to therein,
fairly summarize the provisions of such documents purported to be
described therein all material respects;
11. The statements in the Offering Circular under the headings of
"Regulation: Federal Regulation", to the extent such statements
constitute summaries of the Telecom Act of 1996 or rules and
regulations of the FCC, are accurate in all material respects.
12. Assuming (i) the accuracy of the representations and warranties of the
Issuers set forth in Section 1 of the Purchase Agreement (except for
clause (k) of such Section 1) and of your representations, warranties
and agreements set forth in Section 3 of the Purchase Agreement, (ii)
the due performance by the Issuers of the covenants and agreements set
forth in Section 5 of the Purchase Agreement, and (iii) the compliance
by the Issuers and you with the offering and transfer procedures and
restrictions described in the Offering Circular, the offer, sale and
delivery of the Securities to you in the manner contemplated by the
Purchase Agreement and the Offering Circular, and the initial resale
of the Securities by you in the manner contemplated in the Offering
Circular and the Purchase Agreement, do not require registration under
the Securities Act, and the Indenture does not require qualification
under the Trust Indenture Act, it being understood that we do not
express any opinion as to any subsequent resale of any Security; and
13. The Issuers are not subject to registration or regulation as an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
In addition, we have participated in conferences with officers and
other representatives of the Issuers, internal counsel for the Issuers,
representatives of the independent accountants for the Issuers, and you and
your counsel at which the contents of the Offering Circular and related
matters were discussed and, although we are not passing upon, and do not
assume any responsibility for, the accuracy, completeness or fairness of
the statements contained in the Offering Circular and have made no
independent check or verification thereof (except to the extent referred to
in paragraph (7) above), on the basis of the foregoing, no facts have come
to our attention that have led us to believe that the Offering Circular, as
of its date or as of the date hereof, contained or contains an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that we do
not express any opinion or belief with respect to the financial statements
and related notes and other financial data include therein or excluded
therefrom.
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<PAGE>
EXHIBIT 4.4
________________________________________________________________________________
Madison River Capital, LLC
Madison River Finance Corp.
SERIES A AND SERIES B
13 1/4% SENIOR NOTES DUE 2010
___________________
INDENTURE
Dated as of February 17, 2000
___________________
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Trustee
___________________
________________________________________________________________________________
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
<S> <C>
310(a)(1).......................................... 7.10
(a)(2).......................................... 7.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.10
(b)............................................. 7.10
(c)............................................. N.A.
311(a)............................................. 7.11
(b)............................................. 7.11
(c)............................................. N.A.
312(a)............................................. 2.05
(b)............................................. 12.03
(c)............................................. 12.03
313(a)............................................. 7.06
(b)(1).......................................... N.A.
(b)(2).......................................... 7.07
(c)............................................. 7.06;12.02
(d)............................................. 7.06
314(a)............................................. 4.03;12.02
(b)............................................. N.A.
(c)(1).......................................... 12.04
(c)(2).......................................... 12.04
(c)(3).......................................... N.A.
(d)............................................. N.A.
(e)............................................. 12.05
(f)............................................. N.A.
315(a)............................................. 7.01
(b)............................................. 7.05,12.02
(c)............................................. 7.01
(d)............................................. 7.01
(e)............................................. 6.11
316(a) (last sentence)............................. 2.09
(a)(1)(A)....................................... 6.05
(a)(1)(B)....................................... 6.04
(a)(2).......................................... N.A.
(b)............................................. 6.07
(c)............................................. 2.12
317(a)(1).......................................... 6.08
(a)(2).......................................... 6.09
(b)............................................. 2.04
318(a)............................................. 12.01
(b)............................................. N.A.
(c)............................................. 12.01
</TABLE>
N.A. means not applicable.
* This Cross Reference Table is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions................................................................ 1
Section 1.02. Other Definitions.......................................................... 16
Section 1.03. Incorporation by Reference of Trust Indenture Act.......................... 16
Section 1.04. Rules of Construction...................................................... 17
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating............................................................ 17
Section 2.02. Execution and Authentication............................................... 18
Section 2.03. Registrar and Paying Agent................................................. 18
Section 2.04. Paying Agent to Hold Money in Trust........................................ 19
Section 2.05. Holder Lists............................................................... 19
Section 2.06. Transfer and Exchange...................................................... 19
Section 2.07. Replacement Notes.......................................................... 30
Section 2.08. Outstanding Notes.......................................................... 30
Section 2.09. Treasury Notes............................................................. 31
Section 2.10. Temporary Notes............................................................ 31
Section 2.11. Cancellation............................................................... 31
Section 2.12. Defaulted Interest......................................................... 31
ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee......................................................... 32
Section 3.02. Selection of Notes to Be Redeemed.......................................... 32
Section 3.03. Notice of Redemption....................................................... 32
Section 3.04. Effect of Notice of Redemption............................................. 33
Section 3.05. Deposit of Redemption Price................................................ 33
Section 3.06. Notes Redeemed in Part..................................................... 33
Section 3.07. Optional Redemption........................................................ 33
Section 3.08. Mandatory Redemption....................................................... 34
Section 3.09. Offer to Purchase by Application of Excess Proceeds........................ 34
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes........................................................... 36
Section 4.02. Maintenance of Office or Agency............................................ 36
Section 4.03. Reports.................................................................... 36
Section 4.04. Compliance Certificate..................................................... 37
Section 4.05. Taxes...................................................................... 38
Section 4.06. Stay, Extension and Usury Laws............................................. 38
Section 4.07. Restricted Payments........................................................ 38
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries............. 40
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock................. 41
</TABLE>
i
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<TABLE>
<S> <C>
Section 4.10. Asset Sales............................................... 43
Section 4.11. Transactions with Affiliates.............................. 44
Section 4.12. Liens..................................................... 45
Section 4.13. Intentionally deleted..................................... 45
Section 4.14. Corporate Existence....................................... 45
Section 4.15. Offer to Repurchase Upon Change of Control................ 45
Section 4.16. Limitation on Sale and Leaseback Transactions............. 46
Section 4.17. Designation of Restricted and Unrestricted Subsidiaries... 46
Section 4.18. Restrictions on Activities of Madison River Finance....... 47
Section 4.19. Payments for Consent...................................... 47
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.................. 47
Section 5.02. Successor Corporation Substituted......................... 48
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default......................................... 48
Section 6.02. Acceleration.............................................. 49
Section 6.03. Other Remedies............................................ 50
Section 6.04. Waiver of Past Defaults................................... 51
Section 6.05. Control by Majority....................................... 51
Section 6.06. Limitation on Suits....................................... 51
Section 6.07. Rights of Holders of Notes to Receive Payment............. 51
Section 6.08. Collection Suit by Trustee................................ 52
Section 6.09. Trustee May File Proofs of Claim.......................... 52
Section 6.10. Priorities................................................ 52
Section 6.11. Undertaking for Costs..................................... 53
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee......................................... 53
Section 7.02. Rights of Trustee......................................... 54
Section 7.03. Individual Rights of Trustee.............................. 54
Section 7.04. Trustee's Disclaimer...................................... 54
Section 7.05. Notice of Defaults........................................ 55
Section 7.06. Reports by Trustee to Holders of the Notes................ 55
Section 7.07. Compensation and Indemnity................................ 55
Section 7.08. Replacement of Trustee.................................... 56
Section 7.09. Successor Trustee by Merger, etc.......................... 57
Section 7.10. Eligibility; Disqualification............................. 57
Section 7.11. Preferential Collection of Claims Against the Issuers..... 57
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.. 57
Section 8.02. Legal Defeasance and Discharge............................ 57
Section 8.03. Covenant Defeasance....................................... 58
Section 8.04. Conditions to Legal or Covenant Defeasance................ 58
</TABLE>
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<TABLE>
<S> <C>
Section 8.05. Deposited Money and Government Securities to be Held in
Trust; Other Miscellaneous Provisions.................... 59
Section 8.06. Repayment to Issuers..................................... 60
Section 8.07. Reinstatement............................................ 60
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes...................... 60
Section 9.02. With Consent of Holders of Notes......................... 61
Section 9.03. Compliance with Trust Indenture Act...................... 62
Section 9.04. Revocation and Effect of Consents........................ 62
Section 9.05. Notation on or Exchange of Notes......................... 62
Section 9.06. Trustee to Sign Amendments, etc.......................... 63
ARTICLE 10.
INTENTIONALLY DELETED
ARTICLE 11.
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge............................... 63
Section 11.02. Application of Trust Money............................... 64
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls............................. 64
Section 12.02. Notices.................................................. 64
Section 12.03. Communication by Holders of Notes with Other Holders
of Notes................................................. 65
Section 12.04. Certificate and Opinion as to Conditions Precedent....... 66
Section 12.05. Statements Required in Certificate or Opinion............ 66
Section 12.06. Rules by Trustee and Agents.............................. 66
Section 12.07. No Personal Liability of Directors, Officers,
Employees and Stockholders............................... 66
Section 12.08. Governing Law............................................ 66
Section 12.09. No Adverse Interpretation of Other Agreements............ 67
Section 12.10. Successors............................................... 67
Section 12.11. Severability............................................. 67
Section 12.12. Counterpart Originals.................................... 67
Section 12.13. Table of Contents, Headings, etc......................... 67
</TABLE>
EXHIBITS
Exhibit A1 FORM OF NOTE
Exhibit A2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE
Exhibit B FORM OF CERTIFICATE OF TRANSFER
Exhibit C FORM OF CERTIFICATE OF EXCHANGE
Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E FORM OF SUPPLEMENTAL INDENTURE
iii
<PAGE>
INDENTURE dated as of February 17, 2000 between Madison River Capital,
LLC, a Delaware limited liability company (the "Company"), and Madison River
Finance Corp., a Delaware corporation ("Madison River Finance" and, together
with the Company, the "Issuers"), and Norwest Bank Minnesota, National
Association, as trustee (the "Trustee").
The Issuers and the Trustee agree as follows for the benefit of each
other and for the equal and ratable benefit of the Holders of the 13 1/4% Series
A Senior Notes due 2010 (the "Series A Notes") and the 13 1/4% Series B Senior
Notes due 2010 (the "Series B Notes" and, together with the Series A Notes, the
"Notes"):
ARTICLE 1.
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"144A Global Note" means a global note substantially in the form of
Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of, and registered in the name of, the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold in reliance on Rule 144A.
"Acquired Debt" means, with respect to any specified Person (1)
Indebtedness or Disqualified Stock of any other Person existing at the time such
other Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person, and (2) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Notes" means up to $150.0 million aggregate principal
amount of Notes (other than the Initial Notes) issued under this Indenture in
accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the
Initial Notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Applicable Procedures" means, with respect to any transfer or exchange
of or for beneficial interests in any Global Note, the rules and procedures of
the Depositary, Euroclear and Cedel that apply to such transfer or exchange.
"Asset Sale" means (1) the sale, lease, conveyance or other disposition
of any assets or rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale, conveyance or
other disposition of all or substantially all of the assets of the Company and
its Restricted Subsidiaries taken as a whole will be governed by the provisions
of Section 4.15 hereof and/or the provisions described in Section 5.01 hereof
and not by the provisions of Section 4.10 hereof,
1
<PAGE>
and (2) the issuance or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests in any of the Company's Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales: (1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $1.0 million, (2) a
transfer of assets between or among the Company and its Restricted Subsidiaries,
(3) an issuance of Equity Interests by a Restricted Subsidiary to the Company or
to another Restricted Subsidiary, (4) a transaction that is either a Restricted
Payment or Restricted Investment that is permitted by Section 4.07 hereof or a
Permitted Investment, (5) the sale or other disposition of real or personal
property or equipment that has become worn out, obsolete or damaged or otherwise
unsuitable or not required for use in connection with the business of the
Company or any Restricted Subsidiary, as the case may be, (6) the sale or other
disposition of cash or Cash Equivalents, and (7) the sale or lease of equipment,
inventory, accounts receivable or other assets in the ordinary course of
business.
"Attributable Debt" in respect of a sale and leaseback transaction
means, at the time of determination, the present value of the obligation of the
lessee for net rental payments during the remaining term of the lease included
in such sale and leaseback transaction including any period for which such lease
has been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with GAAP.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal or
state law for the relief of debtors.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3
and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means (1) with respect to a corporation, the board
of directors of the corporation, (2) with respect to a partnership, the Board of
Directors of the general partner of the partnership, and (3) with respect to any
other Person, the board or committee of such Person serving a similar function.
"Broker-Dealer" has the meaning set forth in the Registration Rights
Agreement.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (1) in the case of a corporation, corporate stock
(including common stock and preferred stock), (2) in the case of an association
or business entity, any and all shares, interests, participations, rights or
other equivalents (however designated) of corporate stock, (3) in the case of a
partnership or limited liability company, partnership or membership interests
(whether general or limited), and (4) any other interest, other than straight
debt obligations, or participation that confers on a Person the right to receive
a share of the profits and losses of, or distributions of assets of, the issuing
Person.
"Cash Equivalents" means (1) United States dollars, (2) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof (provided
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that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than 365 days from the date of
acquisition, (3) certificates of deposit and eurodollar time deposits with
maturities of 365 days or less from the date of acquisition, bankers'
acceptances with maturities not exceeding 365 days and overnight bank deposits,
in each case, with any domestic commercial bank having capital and surplus in
excess of $500 million and a Thompson Bank Watch Rating of "B" or better, (4)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (2) and (3) above entered into with
any financial institution meeting the qualifications specified in clause (3)
above, (5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within 365 days after the date of acquisition, and (6) money market
funds at least 95% of the assets of which constitute Cash Equivalents of the
kinds described in clauses (1) through (5) of this definition.
"Cedel" means Clearstream Banking, formerly known as Cedel Bank,
societe anonyme.
"Change of Control" means the occurrence of any of the following: (1)
the sale, transfer, conveyance or other disposition (other than by way of merger
or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act) other than a Principal or a Related Party of a Principal, (2)
the adoption of a plan relating to the liquidation or dissolution of the
Issuers, (3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above), other than the Principals and their Related Parties becomes the
Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock
of the Company, measured by voting power rather than number of shares; for
purposes of this definition a percentage ownership of the equity securities of a
person shall be deemed to be beneficial ownership of a corresponding percentage
of any equity securities beneficially owned by such person, (4) the first day on
which a majority of the members of the Board of Directors of the Company are not
Continuing Directors, or (5) the Company or Holdings consolidates with, or
merges with or into, any Person, or any Person consolidates with, or merges with
or into, the Company or Holdings, in any such event pursuant to a transaction in
which any of the outstanding Voting Stock of the Company or Holdings is
converted into or exchanged for cash (other than fractional shares), securities
or other property, other than any such transaction where the Voting Stock of the
Company or Holdings outstanding immediately prior to such transaction is
converted into or exchanged for Voting Stock (other than Disqualified Stock) of
the surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person immediately
after giving effect to such issuance.
"Closing Date" means February 17, 2000.
"Company" means Madison River Capital, LLC, and any and all successors
thereto.
"Common Stock" of any Person means Capital Stock of such Person that
does not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Indebtedness" means, with respect to any Person as of any
date of determination, the sum, without duplication, of (1) the total amount of
Indebtedness of such Person and its Restricted Subsidiaries, plus (2) the total
amount of Indebtedness of any other Person, to the extent that such Indebtedness
has been Guaranteed by the referent Person or one or more of its Restricted
Subsidiaries, plus (3) the aggregate liquidation value of all Disqualified Stock
of such Person and all preferred stock of
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Restricted Subsidiaries of such Person, in each case, determined on a
consolidated basis in accordance with GAAP.
"Consolidated EBITDA" means, for any period, the consolidated net
income of the Company and its Restricted Subsidiaries for such period calculated
in accordance with GAAP plus, to the extent such amount was deducted in
calculating such consolidated net income (1) Consolidated Interest Expense, (2)
income taxes, (3) depreciation expense, (4) amortization expense, (5) all other
non-cash items, extraordinary items and the cumulative effects of changes in
accounting principles reducing such consolidated net income, less all non-cash
items, extraordinary items and the cumulative effects of changes in accounting
principles increasing such consolidated net income (other than the accrual of
revenue in the ordinary course of business), all as determined on a consolidated
basis for the Company and its Restricted Subsidiaries in conformity with GAAP,
and (6) gains and losses on Asset Sales, provided that, Consolidated EBITDA
shall not include: the net income (or net loss) of any Person that is not a
Restricted Subsidiary, except (I) with respect to net income, to the extent of
the amount of dividends or other distributions actually paid to the Company or
any of its Restricted Subsidiaries by such Person during such period and (II)
with respect to net losses, to the extent of the amount of investments made by
the Company or any Restricted Subsidiary in such Person during such period.
"Consolidated Interest Expense" means, with respect to any Person for
any period, the sum, without duplication, of (1) the consolidated interest
expense of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization or original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, commissions, discounts and other fees and charges
incurred in respect of letter of credit bankers' acceptance financings, and net
payments (if any) pursuant to Hedging Obligations), (2) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (3) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon).
"Consolidated Tangible Assets" means, with respect to the Company, the
total consolidated assets of the Company and its Restricted Subsidiaries, less
the total intangible assets of the Company and its Restricted Subsidiaries, as
shown on the most recent internal consolidated balance sheet of the Company and
such Restricted Subsidiaries calculated on a consolidated basis in accordance
with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company or Holdings, as applicable, who
(1) was a member of such Board of Directors on the date hereof, or (2) was
nominated for election or elected to such Board of Directors with the approval
of a majority of the Continuing Directors who were members of such Board at the
time of such nomination or election.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.02 hereof or such other address as to which the
Trustee may give notice to the Issuers.
"Credit Facilities" means one or more debt facilities or commercial
paper facilities, in each case with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
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"Custodian" means the Trustee, as custodian with respect to the Notes
in global form, or any successor entity thereto.
"Debt to Consolidated Cash Flow Ratio" means, as of any date of
determination, the ratio of (a) the Consolidated Indebtedness of the Company as
of such date to (b) the Consolidated EBITDA of the Company for the four most
recent full fiscal quarters ending immediately prior to such date for which
internal financial statements are available, in each case determined on a pro
forma basis after giving effect to all acquisitions or dispositions of assets
made by the Company and its Subsidiaries from the beginning of such four-quarter
period through and including such date of determination (including any related
financing transactions) as if such acquisitions and dispositions had occurred at
the beginning of such four-quarter period. For purposes of making the
computation referred to above, acquisitions that have been made by the Company
or any of its Restricted Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
reference period or subsequent to such reference period and on or prior to the
Calculation Date shall be deemed to have occurred on the first day of the
reference period and Consolidated EBITDA attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Definitive Note" means a certificated Note registered in the name of
the Holder thereof and issued in accordance with Section 2.06 hereof,
substantially in the form of Exhibit A1 hereto except that such Note shall not
bear the Global Note Legend and shall not have the "Schedule of Exchanges of
Interests in the Global Note" attached thereto.
"Depositary" means, with respect to the Notes issuable or issued in
whole or in part in global form, the Person specified in Section 2.03 hereof as
the Depositary with respect to the Notes, and any and all successors thereto
appointed as depositary hereunder and having become such pursuant to the
applicable provision of this Indenture.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the Notes mature. Notwithstanding the preceding sentence, any
Capital Stock that would constitute Disqualified Stock solely because the
holders thereof have the right to require the Company to repurchase such Capital
Stock upon the occurrence of a change of control or an asset sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with Section 4.07
hereof.
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
office, as operator of the Euroclear system.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Exchange Offer" means exchange and issuance by the Company of a
principal amount of New Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Notes that are tendered by such Holders in connection with such exchange and
issuance.
"Exchange Offer Registration Statement" means the Registration
Statement relating to the Exchange Offer, including the related Prospectus.
"Existing Indebtedness" means up to $535 million in aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries in
existence on the date hereof, until such amounts are repaid.
"fair market value" means the price that would be paid in an
arm's-length transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer under no compulsion to buy,
as determined in good faith by the Board of Directors of the Company, whose
determination shall be evidenced by a resolution thereof set forth in an
officers' certificate delivered to the Trustee; provided that for purposes of
clause (11) of the second paragraph of Section 4.09 hereof, (x) the fair market
value of any security registered under the Exchange Act shall be the average of
the closing prices, regular way, of such security for the 20 consecutive trading
days immediately preceding the sale of Capital Stock and (y) in the event the
aggregate fair market value of any other property (other than cash or Cash
Equivalents) received by the Company exceeds $10.0 million, the fair market
value of such property shall be determined by a nationally recognized investment
banking firm (or, if no such investment banking firm is qualified to issue such
an opinion, by a nationally recognized appraisal firm or public accounting firm)
and set forth in the written opinion of such firm which shall be delivered to
the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date hereof.
"Global Notes" means, individually and collectively, each of the
Restricted Global Notes and the Unrestricted Global Notes, substantially in the
form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv),
2.06(d)(ii) or 2.06(f) hereof.
"Global Note Legend" means the legend set forth in Section 2.06(g)(ii),
which is required to be placed on all Global Notes issued under this Indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America, and the payment for which the
United States pledges its full faith and credit.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (1) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (2) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
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"Holder" means a Person in whose name a Note is registered.
"Holdings" means Madison River Telephone Company, a limited liability
company organized under the laws of Delaware.
"IAI Global Note" means the global Note substantially in the form of
Exhibit A1 hereto bearing the Global Note Legend and the Private Placement
Legend and deposited with or on behalf of and registered in the name of the
Depositary or its nominee that will be issued in a denomination equal to the
outstanding principal amount of the Notes sold to Institutional Accredited
Investors.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent, in respect of (1)
borrowed money, (2) evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof), (3)
banker's acceptances, (4) representing Capital Lease Obligations, (5) the
balance deferred and unpaid of the purchase price of any property, except any
such balance that constitutes an accrued expense or trade payable, or (6)
representing any Hedging Obligations, if and to the extent any of the preceding
items (other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of the specified Person prepared in accordance
with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of
others secured by a Lien on any asset of the specified Person (whether or not
such Indebtedness is assumed by the specified Person) and, to the extent not
otherwise included, the Guarantee by such Person of any indebtedness of any
other Person. The amount of any Indebtedness outstanding as of any date shall be
(1) the accreted value thereof, in the case of any Indebtedness issued with
original issue discount, and (2) the principal amount thereof, together with any
interest thereon that is more than 30 days past due, in the case of any other
Indebtedness.
"Indenture" means this Indenture, as amended or supplemented from time
to time.
"Indirect Participant" means a Person who holds a beneficial interest
in a Global Note through a Participant.
"Initial Notes" means the first $200,000,000 aggregate principal amount
of Notes issued under this Indenture on the date hereof.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, who are not also QIBs.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
If the Company or any Restricted Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Restricted Subsidiary
of the Company such that, after giving effect to any such sale or disposition,
such Person is no longer a Restricted Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Restricted Subsidiary not sold or disposed of in an amount determined as
provided in the final paragraph of Section 4.07 hereof.
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"Issuers" means Madison River Capital, LLC, Madison River Finance
Corp., and any and all successors thereto.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no interest shall accrue on
such payment for the intervening period.
"Letter of Transmittal" means the letter of transmittal to be prepared
by the Issuers and sent to all Holders of the Notes for use by such Holders in
connection with the Exchange Offer.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Market Making Shelf Registration Statement" has the meaning set forth
in the Registration Rights Agreement.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (1) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or (b)
the disposition of any securities by such Person or any of its Subsidiaries or
the extinguishment of any Indebtedness of such Person or any of its
Subsidiaries, and (2) any extraordinary gain (but not loss), together with any
related provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale, including, without limitation, (1)
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, (2) taxes paid or reasonably
estimated to be payable as a result thereof, (including, for so long as the
Company is treated as a partnership or an entity disregarded as separate from
its owner for federal, state and local income tax purposes, taxes reasonably
estimated to be payable by, or with respect to the net income of, the members of
the Company with respect to such members' allocable shares of net income arising
from such Asset Sale); (3) amounts required to be applied to the repayment of
Indebtedness, other than Indebtedness under a Credit Facility, secured by a Lien
on the asset or assets that were the subject of such Asset Sale; (4) all
distributions and other payments required to be made to minority interest
holders in Restricted Subsidiaries or joint ventures as a result of such Asset
Sale; and (5) the deduction of appropriate amounts provided by the seller as a
reserve in accordance with GAAP against any liabilities associated with the
assets disposed of in such Asset Sale and retained by the Company or any
Restricted Subsidiary after such Asset Sale and, without duplication, any
reserves that the Company's Board of Directors determines in good faith should
be made in respect of the sale price of such asset or assets for post closing
adjustments; provided that in the case of any reversal of any reserve referred
to above, the amount so reserved shall be deemed to be Net Proceeds from an
Asset Sale as of the date of such reversal.
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"New Notes" means the Issuers' 13 1/4% Senior Notes due 2010 to be
issued pursuant to this Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 2 of the Registration Rights Agreement.
"Non-U.S. Person" means a Person who is not a U.S. Person.
"Non-Recourse Debt" means Indebtedness (1) as to which neither the
Company nor any of its Restricted Subsidiaries (a) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or
otherwise, or (c) constitutes the lender, (2) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit upon notice, lapse of
time or both any holder of any other Indebtedness (other than the Notes) of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity, and (3) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Notes" has the meaning assigned to it in the preamble to this
Indenture. The Initial Notes and the Additional Notes shall be treated as a
single class for all purposes under this Indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering" means the offering of the Notes by the Issuers.
"Officer" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller,
the Secretary or any Vice-President of such Person.
"Officers' Certificate" means a certificate signed on behalf of each of
the Issuers by two Officers of the respective Issuer, one of whom must be the
principal executive officer, the principal financial officer, the treasurer or
the principal accounting officer of the respective Issuer, that meets the
requirements of Section 12.05 hereof.
"Opinion of Counsel" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
12.05 hereof. The counsel may be an employee of or counsel to the Company, any
Subsidiary of the Company or the Trustee.
"Participant" means, with respect to the Depositary, Euroclear or
Cedel, a Person who has an account with the Depositary, Euroclear or Cedel,
respectively (and, with respect to DTC, shall include Euroclear and Cedel).
"Permitted Investments" means (1) any Investment in the Company or in a
Restricted Subsidiary of the Company, (2) any Investment in Cash Equivalents,
(3) any Investment by the Company or any Restricted Subsidiary of the Company in
a Person, if as a result of or concurrently with such Investment, (a) such
Person becomes a Restricted Subsidiary of the Company, or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company, (4) any Restricted Investment made as a
result of the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with Section 4.10 hereof, (5) any acquisition of
assets solely in exchange for the issuance of Equity Interests (other than
Disqualified Stock) of the Company, (6) loans or advances to
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employees made in the ordinary course of business not to exceed $2.0 million at
any one time outstanding, (7) securities and other assets received in settlement
of trade debts or other claims arising in the ordinary course of business, (8)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits, (9) other Investments in Telecommunications Businesses, provided, that
the aggregate amount of such Investments does not exceed at any time the sum of
(a) $25.0 million, plus (b) the amount of Net Proceeds received by the Company
after the Closing Date as a capital contribution or from the sale of its Capital
Stock (other than Disqualified Stock) to a Person who is not a Subsidiary of the
Company, except to the extent such Net Proceeds are used to make Restricted
Payments permitted pursuant to clause (2) of the second paragraph of Section
4.07 hereof or Investments permitted pursuant to this clause (9), plus (c) the
net reduction in Investments made pursuant to this clause (9) resulting from
distributions on or repayments of such Investments or from the Net Proceeds from
the sale of any such Investment (except in each case to the extent any such
payment or proceeds are included in the calculation of Consolidated EBITDA) or
from such Person becoming a Restricted Subsidiary, provided, that the net
reduction in any such Investment shall not exceed the amount of such Investment,
(10) any Investment existing as of the date hereof, and any amendment,
modification, extension or renewal thereof to the extent such amendment,
modification, extension or renewal does not require the Company or any
Restricted Subsidiary to make any additional cash or non-cash payments or
provide additional services in connection therewith, and (11) Hedging
Obligations entered into in the ordinary course of business and not for
speculative purposes.
"Permitted Liens" means (1) Liens securing Indebtedness under Credit
Facilities that were permitted by the terms of this Indenture to be incurred,
(2) Liens in favor of the Company, (3) Liens on property of a Person existing at
the time such Person is merged with or into or consolidated with the Company or
any Subsidiary of the Company, provided that such Liens were in existence prior
to the contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with the
Company or the Subsidiary, (4) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the Company,
provided that such Liens were in existence prior to the contemplation of such
acquisition, (5) Liens to secure the performance of statutory obligations,
surety or appeal bonds, performance bonds, deposits to secure the performance of
bids, trade contracts, government contracts, leases or licenses or other
obligations of a like nature incurred in the ordinary course of business
(including without limitation, landlord Liens on leased properties), (6) Liens
existing on the date hereof, (7) Liens securing the Notes, the New Notes and
this Indenture, (8) Liens granted in favor of the Holders of the Notes, (9)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor, (10) Liens incurred in the ordinary course of business of
the Company or any Restricted Subsidiary of the Company with respect to
obligations that do not exceed $10.0 million at any one time outstanding and
that (a) are not incurred in connection with the borrowing of money or the
obtaining of advances or credit (other than trade credit in the ordinary course
of business) and (b) do not in the aggregate materially detract from the value
of the property or materially impair the use thereof in the operation of
business by the Company or such Restricted Subsidiary, (11) Liens imposed by
law, such as carriers', warehousemen's and mechanics' liens and other similar
liens arising in the ordinary course of business which secure payment of
obligations that are not yet delinquent or that are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and for which an appropriate reserve or provision shall have been made in
accordance with GAAP, (12) easements, rights of way, and other restrictions on
use of property or minor imperfections of title that in the aggregate are not
material in amount and do not in any case materially detract from the property
subject thereto or interfere with the ordinary conduct of the business of the
Company or its Subsidiaries, (13) Liens related to Capital Lease Obligations,
mortgage financings or purchase money obligations (including refinancings
thereof), in each case incurred for the purpose of financing all or any part of
the purchase price or cost of construction or
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improvement of property, plant or equipment used in the business of the Company
or any Restricted Subsidiary or a Telecommunications Business, provided that any
such Lien encumbers only the asset or assets so financed, purchased, constructed
or improved, (14) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, (15) leases or subleases granted to third
Persons not interfering with the ordinary course of business of the Company,
(16) Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of credit
and the products and proceeds thereof, (17) Liens on the assets of the Company
to secure Hedging Obligations with respect to Indebtedness permitted by this
Indenture to be incurred, (18) attachment or judgment Liens not giving rise to a
Default or an Event of Default, and (19) any interest or title of a lessor under
any capital lease or operating lease.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries
(other than intercompany Indebtedness), provided that (1) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith), (2) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded, (3) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded, and (4) such Indebtedness
is incurred either by the Company or by the Restricted Subsidiary who is the
obligor on the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"Permitted Telecommunications Financing" means the incurrence of any
Indebtedness or the issuance of any preferred stock (including Indebtedness
under any Credit Facility entered into with any vendor or supplier or any
financial institution), provided that such Indebtedness is incurred or such
preferred stock is issued solely for the purpose of financing the cost
(including the cost of design, development, acquisition, construction,
installation, improvement, transportation or integration) of acquiring,
constructing, expanding, developing or improving equipment, inventory, licenses
or network assets (including acquisitions by way of acquisitions of real
property rights, leasehold improvements, Capitalized Leases and acquisitions of
the Capital Stock of a Person that becomes a Restricted Subsidiary of the
Company to the extent of the fair market value of the equipment, inventory,
licenses or network assets so acquired) after the date hereof.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or agency or political subdivision thereof (including any subdivision
or ongoing business of any such entity or substantially all of the assets of any
such entity, subdivision or business).
"Principals" means Goldman, Sachs & Co., Madison Dearborn Partners and
Providence Equity Partners.
"Private Placement Legend" means the legend set forth in Section
2.06(g)(i) to be placed on all Notes issued under this Indenture except where
otherwise permitted by the provisions of this Indenture.
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"Prospectus" means the prospectus included in a Registration Statement
at the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
"Public Equity Offering" means any underwritten public offering of
common stock of the Company or Holdings in which the net cash proceeds to the
Company are at least $25.0 million.
A "Public Market" shall be deemed to exist if (1) a Public Equity
Offering has been consummated and (2) 25% or more of the total issued and
outstanding Common Stock of the Company immediately following the consummation
of such Public Equity Offering has been distributed by means of an effective
registration statement under the Securities Act.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of February 17, 2000, by and among the Issuers and the other
parties named on the signature pages thereof, as such agreement may be amended,
modified or supplemented from time to time and, with respect to any Additional
Notes, one or more registration rights agreements between the Issuers and the
other parties thereto, as such agreement(s) may be amended, modified or
supplemented from time to time, relating to rights given by the Issuers to the
purchasers of Additional Notes to register such Additional Notes under the
Securities Act.
"Registration Statement" means any registration statement of the
Company relating to (a) an offering of New Notes pursuant to an Exchange Offer
or (b) the registration for resale of Transfer Restricted Securities pursuant to
the Shelf Registration Statement, in each case, (1) that is filed pursuant to
the provisions of the Registration Rights Agreement and (2) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
"Regulation S" means Regulation S promulgated under the Securities Act.
"Regulation S Global Note" means a Regulation S Temporary Global Note
or Regulation S Permanent Global Note, as appropriate.
"Regulation S Permanent Global Note" means a permanent global Note in
the form of Exhibit A1 hereto bearing the Global Note Legend and the Private
Placement Legend and deposited with or on behalf of and registered in the name
of the Depositary or its nominee, issued in a denomination equal to the
outstanding principal amount of the Regulation S Temporary Global Note upon
expiration of the Restricted Period.
"Regulation S Temporary Global Note" means a temporary global Note in
the form of Exhibit A2 hereto bearing the Private Placement Legend and deposited
with or on behalf of and registered in the name of the Depositary or its
nominee, issued in a denomination equal to the outstanding principal amount of
the Notes initially sold in reliance on Rule 903 of Regulation S.
"Related Party" with respect to any Principal means (1) any controlling
stockholder, 50% or more owned Subsidiary, or spouse or immediate family member
(in the case of an individual) of such Principal, or (2) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding a controlling interest of which consist of such
Principal and/or such other Persons referred to in the immediately preceding
clause (1).
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"Responsible Officer," when used with respect to the Trustee, means any
officer within the Corporate Trust Administration of the Trustee (or any
successor group of the Trustee) or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Definitive Note" means a Definitive Note bearing the
Private Placement Legend.
"Restricted Global Note" means a Global Note bearing the Private
Placement Legend.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"Restricted Period" means the 40-day restricted period as defined in
Regulation S.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Rule 144A" means Rule 144A promulgated under the Securities Act.
"Rule 903" means Rule 903 promulgated under the Securities Act.
"Rule 904" means Rule 904 promulgated the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Special Interest" means all special interest then owing pursuant to
Section 2 of the Registration Rights Agreement.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Strategic Equity Investment" means an investment in the Company or
Holdings by a company which is primarily engaged in the telecommunications
industry and which has a market capitalization (if a public company) on the date
of such investment in the Company or Holdings of more than $1.0 billion or, if
not a public company, had total revenues of more than $1.0 billion during its
previous fiscal year.
"Subsidiary" means, with respect to any Person (1) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without
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regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other Subsidiaries
of that Person (or a combination thereof), and (2) any partnership (a) the sole
general partner or the managing general partner of which is such Person or a
Subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more Subsidiaries of such Person (or any combination
thereof).
"Tax Amount" means for any taxable period an amount equal to the
product of (1) the Taxable Income of the Company as determined by the Tax Amount
CPA and (2) the Tax Percentage; provided, however, that in determining the Tax
Amount, the effect thereon of any net operating loss carryforwards that would
have arisen if the Company were a separate entity shall be taken into account.
"Taxable Income" means, with respect to the Company for any period, the
hypothetical taxable income or loss of the Company for such period for federal
income tax purposes computed on the hypothetical assumption that the Company is
a separate entity as reasonably determined by the Tax Amount CPA.
"Tax Amount CPA" means a nationally recognized certified public
accounting firm selected by the Company.
"Tax Percentage" means, for a particular taxable year, the highest
effective marginal combined rate of federal, state and local income tax, imposed
on an individual or corporate taxpayer, whichever rate is higher, as certified
by the Tax Amount CPA in a certificate filed with the Trustee. The rate of
"state income tax" to be taken into account for purposes of determining the Tax
Percentage for a particular taxable year shall be deemed to be the highest New
York State income tax rate imposed on individuals or corporations for such year,
whichever rate is higher. The rate of "local income tax" to be taken into
account for purposes of determining the Tax Percentage for a particular taxable
year shall be deemed to be the highest New York City income tax rate imposed on
individuals or corporations for such year, whichever rate is higher.
"Telecommunications Business" means the development, ownership or
operation of one or more telephone, telecommunications or information systems or
the provision of telephony, telecommunications or information services
(including, without limitation, any voice, video transmission, data or Internet
services) and any related, ancillary or complementary business; provided that
the determination of what constitutes a Telecommunications Business shall be
made in good faith by the Board of Directors of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb) as in effect on the date on which this Indenture is qualified under the
TIA.
"Transfer Restricted Securities" means each Note, until the earliest to
occur of (a) the date on which such Note is exchanged in the Exchange Offer and
entitled to be resold to the public by the Holder thereof without complying with
the prospectus delivery requirements of the Act, (b) the date on which such Note
has been disposed of in accordance with a Shelf Registration Statement, (c) the
date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan
of Distribution" contemplated by the Exchange Offer Registration Statement
(including delivery of the Prospectus contained therein) or (d) the date on
which such Note is distributable to the public pursuant to Rule 144(k) under the
Act.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
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"Unrestricted Global Note" means a permanent global Note substantially
in the form of Exhibit A1 attached hereto that bears the Global Note Legend and
that has the "Schedule of Exchanges of Interests in the Global Note" attached
thereto, and that is deposited with or on behalf of and registered in the name
of the Depositary, representing a series of Notes that do not bear the Private
Placement Legend.
"Unrestricted Definitive Note" means one or more Definitive Notes that
do not bear and are not required to bear the Private Placement Legend.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary (1) has no
Indebtedness other than Non-Recourse Debt, (2) is not party to any agreement,
contract, arrangement or understanding with the Company or any Restricted
Subsidiary of the Company unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company, (3) is a Person with respect to which
neither the Company nor any of its Restricted Subsidiaries has any direct or
indirect obligation (a) to subscribe for additional Equity Interests or (b) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results, (4) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries, and (5) has at least one
director on its board of directors that is not a director or executive officer
of the Company or any of its Restricted Subsidiaries and has at least one
executive officer that is not a director or executive officer of the Company or
any of its Restricted Subsidiaries. Any designation of a Subsidiary of the
Company as an Unrestricted Subsidiary shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the preceding conditions and was permitted by Section
4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of this Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under Section 4.09 hereof, the Company
shall be in default of such Section. The Board of Directors of the Company may
at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under Section 4.09 hereof,
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (2) no Default or Event of
Default would be in existence following such designation.
"U.S. Person" means a U.S. person as defined in Rule 902(o) under the
Securities Act.
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (1) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (2) the then outstanding principal
amount of such Indebtedness.
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"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
Section 1.02. Other Definitions.
Defined in
Term Section
---- -------
"Affiliate Transaction".............................. 4.11
"Asset Sale"......................................... 4.10
"Asset Sale Offer"................................... 3.09
"Authentication Order"............................... 2.02
"Bankruptcy Law"..................................... 4.01
"Change of Control Offer"............................ 4.15
"Change of Control Payment".......................... 4.15
"Change of Control Payment Date"..................... 4.15
"Covenant Defeasance"................................ 8.03
"Event of Default"................................... 6.01
"Excess Proceeds".................................... 4.10
"incur".............................................. 4.09
"Legal Defeasance"................................... 8.02
"Offer Amount"....................................... 3.09
"Offer Period"....................................... 3.09
"Paying Agent"....................................... 2.03
"Permitted Debt"..................................... 4.09
"Purchase Date"...................................... 3.09
"Registrar".......................................... 2.03
"Restricted Payments"................................ 4.07
"Unit Legend"........................................ 2.06
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Notes;
"indenture security Holder" means a Holder of a Note;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the Notes means the Issuers and any successor obligor upon
the Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
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Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(c) "or" is not exclusive;
(d) words in the singular include the plural, and in the plural
include the singular;
(e) provisions apply to successive events and transactions; and
(f) references to sections of or rules under the Securities Act shall
be deemed to include substitute, replacement or successor sections or rules
adopted by the SEC from time to time.
ARTICLE 2.
THE NOTES
Section 2.01. Form and Dating.
(a) General. The Notes and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit A hereto. The Notes
may have notations, legends or endorsements required by law, stock exchange rule
or usage. Each Note shall be dated the date of its authentication. The Notes
shall be in denominations of $1,000 and integral multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Issuers and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby. However, to the extent any
provision of any Note conflicts with the express provisions of this Indenture,
the provisions of this Indenture shall govern and be controlling.
(b) Global Notes. Notes issued in global form shall be substantially
in the form of Exhibits A1 or A2 attached hereto (including the Global Note
Legend thereon and the "Schedule of Exchanges of Interests in the Global Note"
attached thereto). Notes issued in definitive form shall be substantially in the
form of Exhibit A1 attached hereto (but without the Global Note Legend thereon
and without the "Schedule of Exchanges of Interests in the Global Note" attached
thereto). Each Global Note shall represent such of the outstanding Notes as
shall be specified therein and each shall provide that it shall represent the
aggregate principal amount of outstanding Notes from time to time endorsed
thereon and that the aggregate principal amount of outstanding Notes represented
thereby may from time to time be reduced or increased, as appropriate, to
reflect exchanges and redemptions. Any endorsement of a Global Note to reflect
the amount of any increase or decrease in the aggregate principal amount of
outstanding Notes represented thereby shall be made by the Trustee or the
Custodian, at the direction of the Trustee, in accordance with instructions
given by the Holder thereof as required by Section 2.06 hereof.
(c) Temporary Global Notes. Notes offered and sold in reliance on
Regulation S shall be issued initially in the form of the Regulation S Temporary
Global Note, which shall be deposited on behalf of the purchasers of the Notes
represented thereby with the Trustee, at its New York office, as custodian for
the Depositary, and registered in the name of the Depositary or the nominee of
the
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Depositary for the accounts of designated agents holding on behalf of Euroclear
or Cedel Bank, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The Restricted Period shall be terminated upon the receipt
by the Trustee of (1) a written certificate from the Depositary, together with
copies of certificates from Euroclear and Cedel Bank certifying that they have
received certification of non-United States beneficial ownership of 100% of the
aggregate principal amount of the Regulation S Temporary Global Note (except to
the extent of any beneficial owners thereof who acquired an interest therein
during the Restricted Period pursuant to another exemption from registration
under the Securities Act and who will take delivery of a beneficial ownership
interest in a 144A Global Note or an IAI Global Note bearing a Private Placement
Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (2) an Officers'
Certificate from the Issuers. Following the termination of the Restricted
Period, beneficial interests in the Regulation S Temporary Global Note shall be
exchanged for beneficial interests in Regulation S Permanent Global Notes
pursuant to the Applicable Procedures. Simultaneously with the authentication of
Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S
Temporary Global Note. The aggregate principal amount of the Regulation S
Temporary Global Note and the Regulation S Permanent Global Notes may from time
to time be increased or decreased by adjustments made on the records of the
Trustee and the Depositary or its nominee, as the case may be, in connection
with transfers of interest as hereinafter provided.
(d) Euroclear and Cedel Procedures Applicable. The provisions of the
"Operating Procedures of the Euroclear System" and "Terms and Conditions
Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank"
and "Customer Handbook" of Cedel Bank shall be applicable to transfers of
beneficial interests in the Regulation S Temporary Global Note and the
Regulation S Permanent Global Notes that are held by Participants through
Euroclear or Cedel Bank.
Section 2.02. Execution and Authentication.
One Officer shall sign the Notes for each of the Issuers by manual or
facsimile signature. The Company's seal may be reproduced on the Notes and may
be in facsimile form.
If an Officer whose signature is on a Note no longer holds that office
at the time a Note is authenticated, the Note shall nevertheless be valid.
A Note shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Note has
been authenticated under this Indenture.
The Trustee shall, upon a written order of the Issuers signed by two
Officers (an "Authentication Order"), authenticate Notes for original issue up
to the aggregate principal amount stated in paragraph 4 of the Notes. The
aggregate principal amount of Notes outstanding at any time may not exceed such
amount except as provided in Section 2.07 hereof.
The Trustee may appoint an authenticating agent acceptable to the
Issuers to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Holders or an
Affiliate of the Issuers.
Section 2.03. Registrar and Paying Agent.
The Issuers shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange.
The Issuers may appoint one or more co-registrars and one or more additional
paying agents. The term
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"Registrar" includes any co-registrar and the term "Paying Agent" includes any
additional paying agent. The Issuers may change any Paying Agent or Registrar
without notice to any Holder. The Issuers shall notify the Trustee in writing of
the name and address of any Agent not a party to this Indenture. If the Issuers
fail to appoint or maintain another entity as Registrar or Paying Agent, the
Trustee shall act as such. The Issuers or any of their Subsidiaries may act as
Paying Agent or Registrar.
The Issuers initially appoint The Depository Trust Company ("DTC") to
act as Depositary with respect to the Global Notes.
The Issuers initially appoint the Trustee to act as the Registrar and
Paying Agent and to act as Custodian with respect to the Global Notes.
Section 2.04. Paying Agent to Hold Money in Trust.
The Issuers shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Special Interest, if any, or interest on the Notes, and
will notify the Trustee of any default by the Issuers in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Issuers at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Issuers or a
Subsidiary) shall have no further liability for the money. If the Issuers or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
any bankruptcy or reorganization proceedings relating to the Issuers, the
Trustee shall serve as Paying Agent for the Notes.
Section 2.05. Holder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA (S) 312(a). If the Trustee is
not the Registrar, the Issuers shall furnish to the Trustee at least seven
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of the Holders of
Notes and the Company shall otherwise comply with TIA (S) 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Global Notes. A Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary,
by a nominee of the Depositary to the Depositary or to another nominee of the
Depositary, or by the Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. All Global Notes will be exchanged by
the Issuers for Definitive Notes if (1) the Issuers deliver to the Trustee
notice from the Depositary that it is unwilling or unable to continue to act as
Depositary or that it is no longer a clearing agency registered under the
Exchange Act and, in either case, a successor Depositary is not appointed by the
Issuers within 120 days after the date of such notice from the Depositary, (2)
the Issuers in their sole discretion determine that the Global Notes (in whole
but not in part) should be exchanged for Definitive Notes and deliver a written
notice to such effect to the Trustee; provided that in no event shall the
Regulation S Temporary Global Note be exchanged by the Issuers for Definitive
Notes prior to (x) the expiration of the Restricted Period and (y) the receipt
by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B)
under the Securities Act, or (3) there shall have occurred and be continuing a
Default or Event of Default with respect to the Notes. Upon the occurrence of
either of the preceding events in (1), (2), or (3) above, Definitive Notes shall
be issued in such names as the Depositary shall instruct the
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Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as
provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and
delivered in exchange for, or in lieu of, a Global Note or any portion thereof,
pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be
authenticated and delivered in the form of, and shall be, a Global Note. A
Global Note may not be exchanged for another Note other than as provided in this
Section 2.06(a), however, beneficial interests in a Global Note may be
transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.
(b) Transfer and Exchange of Beneficial Interests in the Global
Notes. The transfer and exchange of beneficial interests in the Global Notes
shall be effected through the Depositary, in accordance with the provisions of
this Indenture and the Applicable Procedures. Beneficial interests in the
Restricted Global Notes shall be subject to restrictions on transfer comparable
to those set forth herein to the extent required by the Securities Act.
Transfers of beneficial interests in the Global Notes also shall require
compliance with either subparagraph (i) or (ii) below, as applicable, as well as
one or more of the other following subparagraphs, as applicable:
(i) Transfer of Beneficial Interests in the Same Global Note.
Beneficial interests in any Restricted Global Note may be transferred
to Persons who take delivery thereof in the form of a beneficial
interest in the same Restricted Global Note in accordance with the
transfer restrictions set forth in the Private Placement Legend;
provided, however, that prior to the expiration of the Restricted
Period, transfers of beneficial interests in the Temporary Regulation S
Global Note may not be made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Beneficial
interests in any Unrestricted Global Note may be transferred to Persons
who take delivery thereof in the form of a beneficial interest in an
Unrestricted Global Note. No written orders or instructions shall be
required to be delivered to the Registrar to effect the transfers
described in this Section 2.06(b)(i).
(ii) All Other Transfers and Exchanges of Beneficial Interests in
Global Notes. In connection with all transfers and exchanges of
beneficial interests that are not subject to Section 2.06(b)(i) above,
the transferor of such beneficial interest must deliver to the
Registrar either (A) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to credit or cause to be
credited a beneficial interest in another Global Note in an amount
equal to the beneficial interest to be transferred or exchanged and (2)
instructions given in accordance with the Applicable Procedures
containing information regarding the Participant account to be credited
with such increase or (B) (1) a written order from a Participant or an
Indirect Participant given to the Depositary in accordance with the
Applicable Procedures directing the Depositary to cause to be issued a
Definitive Note in an amount equal to the beneficial interest to be
transferred or exchanged and (2) instructions given by the Depositary
to the Registrar containing information regarding the Person in whose
name such Definitive Note shall be registered to effect the transfer or
exchange referred to in (1) above; provided that in no event shall
Definitive Notes be issued upon the transfer or exchange of beneficial
interests in the Regulation S Temporary Global Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the
Registrar of any certificates required pursuant to Rule 903 under the
Securities Act. Upon consummation of an Exchange Offer by the Issuers
in accordance with Section 2.06(f) hereof, the requirements of this
Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt
by the Registrar of the instructions contained in the Letter of
Transmittal delivered by the Holder of such beneficial interests in the
Restricted Global Notes. Upon satisfaction of all of the requirements
for transfer or exchange of beneficial interests in Global Notes
contained in this Indenture and the Notes or otherwise applicable under
the Securities Act, the Trustee shall adjust the principal amount of
the relevant Global Note(s) pursuant to Section 2.06(h) hereof.
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(iii) Transfer of Beneficial Interests to Another Restricted
Global Note. A beneficial interest in any Restricted Global Note may be
transferred to a Person who takes delivery thereof in the form of a
beneficial interest in another Restricted Global Note if the transfer
complies with the requirements of Section 2.06(b)(ii) above and the
Registrar receives the following:
(A) if the transferee will take delivery in the form of a
beneficial interest in the 144A Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications in item (1) thereof;
(B) if the transferee will take delivery in the form of a
beneficial interest in the Regulation S Temporary Global Note or the
Regulation S Global Note, then the transferor must deliver a
certificate in the form of Exhibit B hereto, including the
certifications in item (2) thereof; and
(C) if the transferee will take delivery in the form of a
beneficial interest in the IAI Global Note, then the transferor must
deliver a certificate in the form of Exhibit B hereto, including the
certifications and certificates and Opinion of Counsel required by
item (3) thereof, if applicable.
(iv) Transfer and Exchange of Beneficial Interests in a
Restricted Global Note for Beneficial Interests in the Unrestricted Global
Note. A beneficial interest in any Restricted Global Note may be exchanged
by any holder thereof for a beneficial interest in an Unrestricted Global
Note or transferred to a Person who takes delivery thereof in the form of a
beneficial interest in an Unrestricted Global Note if the exchange or
transfer complies with the requirements of Section 2.06(b)(ii) above and:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of the beneficial interest to be transferred, in the
case of an exchange, or the transferee, in the case of a transfer,
certifies in the applicable Letter of Transmittal that it is not (1) a
broker-dealer, (2) a Person participating in the distribution of the
New Notes or (3) a Person who is an affiliate (as defined in Rule 144)
of the Issuers;
(B) such transfer is effected pursuant to the Shelf
Registration Statement or the Market Making Shelf Registration
Statement, in each case, in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a beneficial interest in an Unrestricted Global
Note, a certificate from such holder in the form of Exhibit
C hereto, including the certifications in item (1)(a)
thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the
form of a beneficial interest in an Unrestricted Global
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Note, a certificate from such holder in the form of Exhibit
B hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
If any such transfer is effected pursuant to subparagraph (B) or (D) above
at a time when an Unrestricted Global Note has not yet been issued, the Issuers
shall issue and, upon receipt of an Authentication Order in accordance with
Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted
Global Notes in an aggregate principal amount equal to the aggregate principal
amount of beneficial interests transferred pursuant to subparagraph (B) or (D)
above.
Beneficial interests in an Unrestricted Global Note cannot be exchanged
for, or transferred to Persons who take delivery thereof in the form of, a
beneficial interest in a Restricted Global Note.
(c) Transfer or Exchange of Beneficial Interests for Definitive Notes.
(i) Beneficial Interest in Restricted Global Notes to Restricted
Definitive Notes. If any holder of a beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a Restricted
Definitive Note or to transfer such beneficial interest to a Person who
takes delivery thereof in the form of a Restricted Definitive Note, then,
upon receipt by the Registrar of the following documentation:
(A) if the holder of such beneficial interest in a Restricted
Global Note proposes to exchange such beneficial interest for a
Restricted Definitive Note, a certificate from such holder in the form
of Exhibit C hereto, including the certifications in item (2)(a)
thereof;
(B) if such beneficial interest is being transferred to a QIB in
accordance with Rule 144A under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (1) thereof;
(C) if such beneficial interest is being transferred to a Non-
U.S. Person in an offshore transaction in accordance with Rule 903 or
Rule 904 under the Securities Act, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (2)
thereof;
(D) if such beneficial interest is being transferred pursuant to
an exemption from the registration requirements of the Securities Act
in accordance with Rule 144 under the Securities Act, a certificate to
the effect set forth in Exhibit B hereto, including the certifications
in item (3)(a) thereof;
(E) if such beneficial interest is being transferred to an
Institutional Accredited Investor in reliance on an exemption from the
registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
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(F) if such beneficial interest is being transferred to the
Issuers or any of their Subsidiaries, a certificate to the effect set
forth in Exhibit B hereto, including the certifications in item (3)(b)
thereof; or
(G) if such beneficial interest is being transferred pursuant to
an effective registration statement under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(c) thereof,
the Trustee shall cause the aggregate principal amount of the applicable
Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof,
and the Issuers shall execute and the Trustee shall authenticate and
deliver to the Person designated in the instructions a Definitive Note in
the appropriate principal amount. Any Definitive Note issued in exchange
for a beneficial interest in a Restricted Global Note pursuant to this
Section 2.06(c) shall be registered in such name or names and in such
authorized denomination or denominations as the holder of such beneficial
interest shall instruct the Registrar through instructions from the
Depositary and the Participant or Indirect Participant. The Trustee shall
deliver such Definitive Notes to the Persons in whose names such Notes are
so registered. Any Definitive Note issued in exchange for a beneficial
interest in a Restricted Global Note pursuant to this Section 2.06(c)(i)
shall bear the Private Placement Legend and shall be subject to all
restrictions on transfer contained therein.
(ii) Beneficial Interests in Regulation S Temporary Global Note to
Definitive Notes. Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a
beneficial interest in the Regulation S Temporary Global Note may not be
exchanged for a Definitive Note or transferred to a Person who takes
delivery thereof in the form of a Definitive Note prior to (x) the
expiration of the Restricted Period and (y) the receipt by the Registrar of
any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the
Securities Act, except in the case of a transfer pursuant to an exemption
from the registration requirements of the Securities Act other than Rule
903 or Rule 904.
(iii) Beneficial Interests in Restricted Global Notes to Unrestricted
Definitive Notes. A holder of a beneficial interest in a Restricted Global
Note may exchange such beneficial interest for an Unrestricted Definitive
Note or may transfer such beneficial interest to a Person who takes
delivery thereof in the form of an Unrestricted Definitive Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the holder of such beneficial interest, in the case of an
exchange, or the transferee, in the case of a transfer, certifies in
the applicable Letter of Transmittal that it is not (1) a broker-
dealer, (2) a Person participating in the distribution of the New
Notes or (3) a Person who is an affiliate (as defined in Rule 144) of
the Issuers;
(B) such transfer is effected pursuant to the Shelf
Registration Statement or the Market Making Shelf Registration
Statement, in each case, in accordance with the Registration Rights
Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant
to the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the holder of such beneficial interest in a
Restricted Global Note proposes to exchange such beneficial
interest for a Definitive Note that does
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not bear the Private Placement Legend, a certificate from such
holder in the form of Exhibit C hereto, including the
certifications in item (1)(b) thereof; or
(2) if the holder of such beneficial interest in a
Restricted Global Note proposes to transfer such beneficial
interest to a Person who shall take delivery thereof in the form
of a Definitive Note that does not bear the Private Placement
Legend, a certificate from such holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
(iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted
Definitive Notes. If any holder of a beneficial interest in an Unrestricted
Global Note proposes to exchange such beneficial interest for a Definitive
Note or to transfer such beneficial interest to a Person who takes delivery
thereof in the form of a Definitive Note, then, upon satisfaction of the
conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause
the aggregate principal amount of the applicable Global Note to be reduced
accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall
execute and the Trustee shall authenticate and deliver to the Person
designated in the instructions a Definitive Note in the appropriate
principal amount. Any Definitive Note issued in exchange for a beneficial
interest pursuant to this Section 2.06(c)(iii) shall be registered in such
name or names and in such authorized denomination or denominations as the
holder of such beneficial interest shall instruct the Registrar through
instructions from the Depositary and the Participant or Indirect
Participant. The Trustee shall deliver such Definitive Notes to the Persons
in whose names such Notes are so registered. Any Definitive Note issued in
exchange for a beneficial interest pursuant to this Section 2.06(c)(iii)
shall not bear the Private Placement Legend.
(d) Transfer and Exchange of Definitive Notes for Beneficial Interests.
(i) Restricted Definitive Notes to Beneficial Interests in Restricted
Global Notes. If any Holder of a Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global Note or
to transfer such Restricted Definitive Notes to a Person who takes delivery
thereof in the form of a beneficial interest in a Restricted Global Note,
then, upon receipt by the Registrar of the following documentation:
(A) if the Holder of such Restricted Definitive Note proposes to
exchange such Note for a beneficial interest in a Restricted Global
Note, a certificate from such Holder in the form of Exhibit C hereto,
including the certifications in item (2)(b) thereof;
(B) if such Restricted Definitive Note is being transferred to a
QIB in accordance with Rule 144A under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (1) thereof;
(C) if such Restricted Definitive Note is being transferred to a
Non-U.S. Person in an offshore transaction in accordance with Rule 903
or Rule 904 under the
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Securities Act, a certificate to the effect set forth in Exhibit B
hereto, including the certifications in item (2) thereof;
(D) if such Restricted Definitive Note is being transferred
pursuant to an exemption from the registration requirements of the
Securities Act in accordance with Rule 144 under the Securities Act, a
certificate to the effect set forth in Exhibit B hereto, including the
certifications in item (3)(a) thereof;
(E) if such Restricted Definitive Note is being transferred to
an Institutional Accredited Investor in reliance on an exemption from
the registration requirements of the Securities Act other than those
listed in subparagraphs (B) through (D) above, a certificate to the
effect set forth in Exhibit B hereto, including the certifications,
certificates and Opinion of Counsel required by item (3) thereof, if
applicable;
(F) if such Restricted Definitive Note is being transferred to
the Issuers or any of their Subsidiaries, a certificate to the effect
set forth in Exhibit B hereto, including the certifications in item
(3)(b) thereof; or
(G) if such Restricted Definitive Note is being transferred
pursuant to an effective registration statement under the Securities
Act, a certificate to the effect set forth in Exhibit B hereto,
including the certifications in item (3)(c) thereof,
the Trustee shall cancel the Restricted Definitive Note, increase or cause to be
increased the aggregate principal amount of, in the case of clause (A) above,
the appropriate Restricted Global Note, in the case of clause (B) above, the
144A Global Note, in the case of clause (C) above, the Regulation S Global Note,
and in all other cases, the IAI Global Note.
(ii) Restricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange
such Note for a beneficial interest in an Unrestricted Global Note or transfer
such Restricted Definitive Note to a Person who takes delivery thereof in the
form of a beneficial interest in an Unrestricted Global Note only if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the New Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) such transfer is effected pursuant to the Shelf Registration
Statement or the Market Making Shelf Registration Statement, in each
case, in accordance with the Registration Rights Agreement;
(C) such transfer is effected by a Broker-Dealer pursuant to the
Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Definitive Notes proposes to
exchange such Notes for a beneficial interest in the Unrestricted
Global Note, a certificate from
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such Holder in the form of Exhibit C hereto, including the
certifications in item (1)(c) thereof; or
(2) if the Holder of such Definitive Notes proposes to
transfer such Notes to a Person who shall take delivery thereof
in the form of a beneficial interest in the Unrestricted Global
Note, a certificate from such Holder in the form of Exhibit B
hereto, including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests or if the Applicable Procedures so require, an
Opinion of Counsel in form reasonably acceptable to the Registrar to
the effect that such exchange or transfer is in compliance with the
Securities Act and that the restrictions on transfer contained herein
and in the Private Placement Legend are no longer required in order to
maintain compliance with the Securities Act.
Upon satisfaction of the conditions of any of the subparagraphs in
this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and
increase or cause to be increased the aggregate principal amount of the
Unrestricted Global Note.
(iii) Unrestricted Definitive Notes to Beneficial Interests in
Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may
exchange such Note for a beneficial interest in an Unrestricted Global Note
or transfer such Definitive Notes to a Person who takes delivery thereof in
the form of a beneficial interest in an Unrestricted Global Note at any
time. Upon receipt of a request for such an exchange or transfer, the
Trustee shall cancel the applicable Unrestricted Definitive Note and
increase or cause to be increased the aggregate principal amount of one of
the Unrestricted Global Notes.
If any such exchange or transfer from a Definitive Note to a
beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D)
or (iii) above at a time when an Unrestricted Global Note has not yet been
issued, the Issuers shall issue and, upon receipt of an Authentication
Order in accordance with Section 2.02 hereof, the Trustee shall
authenticate one or more Unrestricted Global Notes in an aggregate
principal amount equal to the principal amount of Definitive Notes so
transferred.
(e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon
request by a Holder of Definitive Notes and such Holder's compliance with the
provisions of this Section 2.06(e), the Registrar shall register the transfer or
exchange of Definitive Notes. Prior to such registration of transfer or
exchange, the requesting Holder shall present or surrender to the Registrar the
Definitive Notes duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Registrar duly executed by such Holder or
by its attorney, duly authorized in writing. In addition, the requesting Holder
shall provide any additional certifications, documents and information, as
applicable, required pursuant to the following provisions of this Section
2.06(e).
(i) Restricted Definitive Notes to Restricted Definitive Notes. Any
Restricted Definitive Note may be transferred to and registered in the name
of Persons who take delivery thereof in the form of a Restricted Definitive
Note if the Registrar receives the following:
(A) if the transfer will be made pursuant to Rule 144A under the
Securities Act, then the transferor must deliver a certificate in the
form of Exhibit B hereto, including the certifications in item (1)
thereof;
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(B) if the transfer will be made pursuant to Rule 903 or Rule
904, then the transferor must deliver a certificate in the form of
Exhibit B hereto, including the certifications in item (2) thereof;
and
(C) if the transfer will be made pursuant to any other exemption
from the registration requirements of the Securities Act, then the
transferor must deliver a certificate in the form of Exhibit B hereto,
including the certifications, certificates and Opinion of Counsel
required by item (3) thereof, if applicable.
(ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any
Restricted Definitive Note may be exchanged by the Holder thereof for an
Unrestricted Definitive Note or transferred to a Person or Persons who take
delivery thereof in the form of an Unrestricted Definitive Note if:
(A) such exchange or transfer is effected pursuant to the
Exchange Offer in accordance with the Registration Rights Agreement
and the Holder, in the case of an exchange, or the transferee, in the
case of a transfer, certifies in the applicable Letter of Transmittal
that it is not (1) a broker-dealer, (2) a Person participating in the
distribution of the New Notes or (3) a Person who is an affiliate (as
defined in Rule 144) of the Company;
(B) any such transfer is effected pursuant to the Shelf
Registration Statement or the Market Making Shelf Registration
Statement, in each case, in accordance with the Registration Rights
Agreement;
(C) any such transfer is effected by a Broker-Dealer pursuant to
the Exchange Offer Registration Statement in accordance with the
Registration Rights Agreement; or
(D) the Registrar receives the following:
(1) if the Holder of such Restricted Definitive Notes
proposes to exchange such Notes for an Unrestricted Definitive
Note, a certificate from such Holder in the form of Exhibit C
hereto, including the certifications in item (1)(d) thereof; or
(2) if the Holder of such Restricted Definitive Notes
proposes to transfer such Notes to a Person who shall take
delivery thereof in the form of an Unrestricted Definitive Note,
a certificate from such Holder in the form of Exhibit B hereto,
including the certifications in item (4) thereof;
and, in each such case set forth in this subparagraph (D), if the
Registrar so requests, an Opinion of Counsel in form reasonably
acceptable to the Issuers to the effect that such exchange or transfer
is in compliance with the Securities Act and that the restrictions on
transfer contained herein and in the Private Placement Legend are no
longer required in order to maintain compliance with the Securities
Act.
(iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes.
A Holder of Unrestricted Definitive Notes may transfer such Notes to a
Person who takes delivery thereof in the form of an Unrestricted Definitive
Note. Upon receipt of a request to register such a transfer,
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the Registrar shall register the Unrestricted Definitive Notes pursuant to
the instructions from the Holder thereof.
(f) Exchange Offer. Upon the occurrence of the Exchange Offer in
accordance with the Registration Rights Agreement, the Issuers shall issue and,
upon receipt of an Authentication Order in accordance with Section 2.02, the
Trustee shall authenticate (1) one or more Unrestricted Global Notes in an
aggregate principal amount equal to the principal amount of the beneficial
interests in the Restricted Global Notes tendered for acceptance by Persons that
certify in the applicable Letters of Transmittal that (x) they are not broker-
dealers, (y) they are not participating in a distribution of the New Notes and
(z) they are not affiliates (as defined in Rule 144) of the Issuers, and
accepted for exchange in the Exchange Offer and (2) Definitive Notes in an
aggregate principal amount equal to the principal amount of the Restricted
Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with
the issuance of such Notes, the Trustee shall cause the aggregate principal
amount of the applicable Restricted Global Notes to be reduced accordingly, and
the Issuers shall execute and the Trustee shall authenticate and deliver to the
Persons designated by the Holders of Definitive Notes so accepted Definitive
Notes in the appropriate principal amount.
(g) Legends. The following legends shall appear on the face of all Global
Notes and Definitive Notes issued under this Indenture unless specifically
stated otherwise in the applicable provisions of this Indenture.
(i) Private Placement Legend.
(A) Except as permitted by subparagraph (B) below, each Global
Note and each Definitive Note (and all Notes issued in exchange
therefor or substitution thereof) shall bear the legend in
substantially the following form:
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) AND (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN
EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES."
(B) Notwithstanding the foregoing, any Global Note or Definitive
Note issued pursuant to subparagraphs (b)(iv), (c)(iii), (c)(iv),
(d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and
all Notes issued in exchange therefor or substitution thereof) shall
not bear the Private Placement Legend.
(ii) Global Note Legend. Each Global Note shall bear a legend in
substantially the following form:
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"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
(iii) Regulation S Temporary Global Note Legend. The Regulation S
Temporary Global Note shall bear a legend in substantially the following
form:
"THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON."
(h) Cancellation and/or Adjustment of Global Notes. At such time as all
beneficial interests in a particular Global Note have been exchanged for
Definitive Notes or a particular Global Note has been redeemed, repurchased or
canceled in whole and not in part, each such Global Note shall be returned to or
retained and canceled by the Trustee in accordance with Section 2.11 hereof. At
any time prior to such cancellation, if any beneficial interest in a Global Note
is exchanged for or transferred to a Person who will take delivery thereof in
the form of a beneficial interest in another Global Note or for Definitive
Notes, the principal amount of Notes represented by such Global Note shall be
reduced accordingly and an endorsement shall be made on such Global Note by the
Trustee or by the Depositary at the direction of the Trustee to reflect such
reduction; and if the beneficial interest is being exchanged for or transferred
to a Person who will take delivery thereof in the form of a beneficial interest
in another Global Note, such other Global Note shall be increased accordingly
and an endorsement shall be made on such Global Note by the Trustee or by the
Depositary at the direction of the Trustee to reflect such increase.
(i) General Provisions Relating to Transfers and Exchanges.
(i) To permit registrations of transfers and exchanges, the
Issuers shall execute and the Trustee shall authenticate Global Notes and
Definitive Notes upon the Issuers' order or at the Registrar's request.
(ii) No service charge shall be made to a holder of a beneficial
interest in a Global Note or to a Holder of a Definitive Note for any
registration of transfer or exchange, but the Issuers may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or transfer pursuant
to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).
(iii) The Registrar shall not be required to register the transfer
of or exchange any Note selected for redemption in whole or in part, except
the unredeemed portion of any Note being redeemed in part.
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(iv) All Global Notes and Definitive Notes issued upon any
registration of transfer or exchange of Global Notes or Definitive Notes
shall be the valid obligations of the Issuers, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Global Notes
or Definitive Notes surrendered upon such registration of transfer or
exchange.
(v) The Issuers shall not be required (A) to issue, to register
the transfer of or to exchange any Notes during a period beginning at the
opening of business 15 days before the day of any selection of Notes for
redemption under Section 3.02 hereof and ending at the close of business on
the day of selection, (B) to register the transfer of or to exchange any
Note so selected for redemption in whole or in part, except the unredeemed
portion of any Note being redeemed in part or (C) to register the transfer
of or to exchange a Note between a record date and the next succeeding
Interest Payment Date.
(vi) Prior to due presentment for the registration of a transfer
of any Note, the Trustee, any Agent and the Issuers may deem and treat the
Person in whose name any Note is registered as the absolute owner of such
Note for the purpose of receiving payment of principal of and interest on
such Notes and for all other purposes, and none of the Trustee, any Agent
or the Issuers shall be affected by notice to the contrary.
(vii) The Trustee shall authenticate Global Notes and Definitive
Notes in accordance with the provisions of Section 2.02 hereof.
(viii) All certifications, certificates and Opinions of Counsel
required to be submitted to the Registrar pursuant to this Section 2.06 to
effect a registration of transfer or exchange may be submitted by
facsimile.
Section 2.07. Replacement Notes.
If any mutilated Note is surrendered to the Trustee or the Issuers and
the Trustee receives evidence to its satisfaction of the destruction, loss or
theft of any Note, the Issuers shall issue and the Trustee, upon receipt of an
Authentication Order, shall authenticate a replacement Note if the Trustee's
requirements are met. If required by the Trustee or the Issuers, an indemnity
bond must be supplied by the Holder that is sufficient in the judgment of the
Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Issuers may charge for their expenses in replacing a Note.
Every replacement Note is an additional obligation of the Issuers and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
Section 2.08. Outstanding Notes.
The Notes outstanding at any time are all the Notes authenticated by the
Trustee except for those canceled by it, those delivered to it for cancellation,
those reductions in the interest in a Global Note effected by the Trustee in
accordance with the provisions hereof, and those described in this Section as
not outstanding. Except as set forth in Section 2.09 hereof, a Note does not
cease to be outstanding because the Issuers or an Affiliate of the Issuers hold
the Note; however, Notes held by the Issuers or a Subsidiary of the Issuers
shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
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If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Issuers, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer outstanding and shall cease to accrue
interest.
Section 2.09. Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Issuers, or by any Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuers, shall be considered as
though not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Notes that the Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Notes.
Until certificates representing Notes are ready for delivery, the
Issuers may prepare and the Trustee, upon receipt of an Authentication Order,
shall authenticate temporary Notes. Temporary Notes shall be substantially in
the form of certificated Notes but may have variations that the Issuers consider
appropriate for temporary Notes and as shall be reasonably acceptable to the
Trustee. Without unreasonable delay, the Issuers shall prepare and the Trustee
shall authenticate definitive Notes in exchange for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
Section 2.11. Cancellation.
The Issuers at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange or payment. The
Trustee and no one else shall cancel all Notes surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall destroy
canceled Notes (subject to the record retention requirement of the Exchange
Act). Certification of the destruction of all canceled Notes shall be delivered
to the Issuers. The Issuers may not issue new Notes to replace Notes that it has
paid or that have been delivered to the Trustee for cancellation.
Section 2.12. Defaulted Interest.
If the Issuers default in a payment of interest on the Notes, they
shall pay the defaulted interest in any lawful manner plus, to the extent
lawful, interest payable on the defaulted interest, to the Persons who are
Holders on a subsequent special record date, in each case at the rate provided
in the Notes and in Section 4.01 hereof. The Issuers shall notify the Trustee in
writing of the amount of defaulted interest proposed to be paid on each Note and
the date of the proposed payment. The Issuers shall fix or cause to be fixed
each such special record date and payment date, provided that no such special
record date shall be less than 10 days prior to the related payment date for
such defaulted interest. At least 15 days before the special record date, the
Issuers (or, upon the written request of the Issuers, the Trustee in the name
and at the expense of the Issuers) shall mail or cause to be mailed to Holders a
notice that states the special record date, the related payment date and the
amount of such interest to be paid.
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ARTICLE 3.
REDEMPTION AND PREPAYMENT
Section 3.01. Notices to Trustee.
If the Issuers elect to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 30 days but not more than 60 days before a redemption date, an
Officers' Certificate setting forth (1) the clause of this Indenture pursuant to
which the redemption shall occur, (2) the redemption date, (3) the principal
amount of Notes to be redeemed and (4) the redemption price.
Section 3.02. Selection of Notes to Be Redeemed.
If less than all of the Notes are to be redeemed or purchased in an
offer to purchase at any time, the Trustee shall select the Notes to be redeemed
or purchased among the Holders of the Notes in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not so listed, on a pro rata basis, by lot or in
accordance with any other method the Trustee considers fair and appropriate. In
the event of partial redemption by lot, the particular Notes to be redeemed
shall be selected, unless otherwise provided herein, not less than 30 nor more
than 60 days prior to the redemption date by the Trustee from the outstanding
Notes not previously called for redemption.
The Trustee shall promptly notify the Issuers in writing of the Notes
selected for redemption and, in the case of any Note selected for partial
redemption, the principal amount thereof to be redeemed. Notes and portions of
Notes selected shall be in amounts of $1,000 or whole multiples of $1,000;
except that if all of the Notes of a Holder are to be redeemed, the entire
outstanding amount of Notes held by such Holder, even if not a multiple of
$1,000, shall be redeemed. Except as provided in the preceding sentence,
provisions of this Indenture that apply to Notes called for redemption also
apply to portions of Notes called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.09 hereof, at least 30 days but
not more than 60 days before a redemption date, the Issuers shall mail or cause
to be mailed, by first class mail, a notice of redemption to each Holder whose
Notes are to be redeemed at its registered address.
The notice shall identify the Notes to be redeemed and shall state:
(a) the redemption date;
(b) the redemption price;
(c) if any Note is being redeemed in part only, the portion of the
principal amount of such Note to be redeemed and that, after the redemption date
upon surrender of such Note, a new Note or Notes in principal amount equal to
the unredeemed portion shall be issued in the name of the Holder thereof upon
cancellation of the original Note;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
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(f) that, unless the Issuers default in making such redemption
payment, interest on Notes or portions of them called for redemption ceases to
accrue on and after the redemption date;
(g) the paragraph of the Notes and/or Section of this Indenture
pursuant to which the Notes called for redemption are being redeemed; and
(h) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the Notes.
At the Issuers' request, the Trustee shall give the notice of
redemption in the Issuers' name and at its expense; provided, however, that the
Issuers shall have delivered to the Trustee, at least 45 days prior to the
redemption date, an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in such notice as provided
in the preceding paragraph.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price. A notice of redemption may not be
conditional.
Section 3.05. Deposit of Redemption Price.
One Business Day prior to the redemption date, the Issuers shall
deposit with the Trustee or with the Paying Agent money sufficient to pay the
redemption price of and accrued interest on all Notes to be redeemed on that
date. The Trustee or the Paying Agent shall promptly return to the Issuers any
money deposited with the Trustee or the Paying Agent by the Issuers in excess of
the amounts necessary to pay the redemption price of, and accrued interest on,
all Notes to be redeemed.
If the Issuers comply with the provisions of the preceding paragraph,
on and after the redemption date, interest shall cease to accrue on the Notes or
the portions of Notes called for redemption. If a Note is redeemed on or after
an interest record date but on or prior to the related interest payment date,
then any accrued and unpaid interest shall be paid to the Person in whose name
such Note was registered at the close of business on such record date. If any
Note called for redemption shall not be so paid upon surrender for redemption
because of the failure of the Issuers to comply with the preceding paragraph,
interest shall be paid on the unpaid principal, from the redemption date until
such principal is paid, and to the extent lawful on any interest not paid on
such unpaid principal, in each case at the rate provided in the Notes and in
Section 4.01 hereof.
Section 3.06. Notes Redeemed in Part.
Upon surrender of a Note that is redeemed in part, the Issuers shall
issue and, upon the Issuers' written request, the Trustee shall authenticate for
the Holder at the expense of the Issuers a new Note equal in principal amount to
the unredeemed portion of the Note surrendered.
Section 3.07. Optional Redemption.
(a) Except as set forth in clause (b) of this Section 3.07, the
Issuers shall not have the option to redeem the Notes pursuant to this Section
3.07 prior to March 1, 2005. Thereafter, the Issuers shall have the option to
redeem the Notes, in whole or in part upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus
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accrued and unpaid interest and Special Interest thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period beginning
on March 1, of the years indicated below:
Year Percentage
---- ----------
2005................................................. 106.625%
2006................................................. 104.417%
2007................................................. 102.208%
2008 and thereafter.................................. 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section
3.07, at any time prior to March 1, 2003, the Issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes originally
issued under this Indenture with the net proceeds of one or more Public Equity
Offerings by the Company or the net cash proceeds of a Strategic Equity
Investment in the Company or a capital contribution to the Company's common
equity made with the net cash proceeds of a concurrent Public Equity Offering
by, or Strategic Investment in, the Company's direct parent at a redemption
price equal to 113.250% of the principal amount thereof plus accrued and unpaid
interest and Special Interest thereon, if any, to the redemption date; provided
that (1) at least 65% in aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption excluding Notes
held by the Company and its Subsidiaries and (2) that the redemption must occur
within 60 days of the date of the closing of such Public Equity Offering or
Strategy Equity Investment.
(c) Any redemption pursuant to this Section 3.07 shall be made
pursuant to the provisions of Section 3.01 through 3.06 hereof.
Section 3.08. Mandatory Redemption.
The Issuers shall not be required to make mandatory redemption or
sinking fund payments with respect to the Notes.
Section 3.09. Offer to Purchase by Application of Excess Proceeds.
In the event that, pursuant to Section 4.10 hereof, the Issuers shall
be required to commence an offer to all Holders to purchase Notes (an "Asset
Sale Offer"), they shall follow the procedures specified below.
The Asset Sale Offer shall remain open for a period of 20 Business Days
following its commencement and no longer, except to the extent that a longer
period is required by applicable law (the "Offer Period"). No later than five
Business Days after the termination of the Offer Period (the "Purchase Date"),
the Issuers shall purchase the principal amount of Notes required to be
purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than
the Offer Amount has been tendered, all Notes tendered in response to the Asset
Sale Offer. Payment for any Notes so purchased shall be made in the same manner
as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest shall
be paid to the Person in whose name a Note is registered at the close of
business on such record date, and no additional interest shall be payable to
Holders who tender Notes pursuant to the Asset Sale Offer.
Upon the commencement of an Asset Sale Offer, the Issuers shall send,
by first class mail, a notice to the Trustee and each of the Holders, with a
copy to the Trustee. The notice shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Asset Sale
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Offer. The Asset Sale Offer shall be made to all Holders. The notice, which
shall govern the terms of the Asset Sale Offer, shall state:
(a) that the Asset Sale Offer is being made pursuant to this Section
3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall
remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered or accepted for payment shall continue
to accrete or accrue interest;
(d) that, unless the Issuers default in making such payment, any Note
accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or
accrue interest after the Purchase Date;
(e) that Holders electing to have a Note purchased pursuant to an
Asset Sale Offer may elect to have Notes purchased in integral multiples of
$1,000 only;
(f) that Holders electing to have a Note purchased pursuant to any
Asset Sale Offer shall be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, or
transfer by book-entry transfer, to the Issuers, a depositary, if appointed by
the Issuers, or a Paying Agent at the address specified in the notice at least
three days before the Purchase Date;
(g) that Holders shall be entitled to withdraw their election if the
Issuers, the depositary or the Paying Agent, as the case may be, receives, not
later than the expiration of the Offer Period, a telegram, telex, facsimile
transmission or letter setting forth the name of the Holder, the principal
amount of the Note the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Note purchased;
(h) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Issuers shall select the Notes to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Issuers so that only Notes in denominations of $1,000, or
integral multiples thereof, shall be purchased); and
(i) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered (or transferred by book-entry transfer).
On or before the Purchase Date, the Issuers shall, to the extent
lawful, accept for payment, on a pro rata basis to the extent necessary, the
Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale
Offer, or if less than the Offer Amount has been tendered, all Notes tendered,
and shall deliver to the Trustee an Officers' Certificate stating that such
Notes or portions thereof were accepted for payment by the Issuers in accordance
with the terms of this Section 3.09. The Issuers, the Depositary or the Paying
Agent, as the case may be, shall promptly (but in any case not later than five
days after the Purchase Date) mail or deliver to each tendering Holder an amount
equal to the purchase price of the Notes tendered by such Holder and accepted by
the Issuers for purchase, and the Issuers shall promptly issue a new Note, and
the Trustee, upon written request from the Issuers shall authenticate and mail
or deliver such new Note to such Holder, in a principal amount equal to any
unpurchased portion of the Note surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers
shall publicly announce the results of the Asset Sale Offer on the Purchase
Date.
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Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01 through 3.06 hereof. To the extent that the provisions of any
securities laws or regulations conflict with Sections 3.01 through 3.06, Section
3.09 or Section 4.10 hereof, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under such Sections by virtue of such conflict.
ARTICLE 4.
COVENANTS
Section 4.01. Payment of Notes.
The Issuers shall pay or cause to be paid the principal of, premium, if
any, interest and Special Interest on the Notes on the dates and in the manner
provided in the Notes. Principal, premium, if any, interest and Special Interest
shall be considered paid on the date due if the Paying Agent, if other than the
Issuers or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due
date money deposited by the Issuers in immediately available funds and
designated for and sufficient to pay all principal, premium, if any, interest
and Special Interest then due. The Issuers shall pay all Special Interest, if
any, in the same manner on the dates and in the amounts set forth in the
Registration Rights Agreement.
The Issuers shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Special Interest (without regard to any applicable grace period) at the same
rate to the extent lawful.
Section 4.02. Maintenance of Office or Agency.
The Issuers shall maintain in the Borough of Manhattan, the City of New
York, an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee, Registrar or co-registrar) where Notes may be surrendered for
registration of transfer or for exchange and where notices and demands to or
upon the Issuers in respect of the Notes and this Indenture may be served. The
Issuers shall give prompt written notice to the Trustee of the location, and any
change in the location, of such office or agency. If at any time the Issuers
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Issuers may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Issuers of their obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Issuers shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Issuers hereby designate the Corporate Trust Office of the Trustee
as one such office or agency of the Issuers in accordance with Section 2.03.
Section 4.03. Reports.
(a) Whether or not required by the rules and regulations of the SEC,
so long as any Notes are outstanding, the Issuers shall furnish to the Holders
of Notes within 15 days of the time periods specified in the SEC's rules and
regulations (1) all quarterly and annual financial information that would be
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required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the
Company was required to file such forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report on the annual financial statements by
the Company's certified independent accountants and (2) all current reports that
would be required to be filed with the SEC on Form 8-K if the Company was
required to file such reports, in each case, within the time periods specified
in the SEC's rules and regulations. In addition, following consummation of the
Exchange Offer contemplated by the Registration Rights Agreement, whether or not
required by the rules and regulations of the SEC, the Issuers shall file a copy
of all such information and reports referred to in clauses (1) and (2) above
with the SEC for public availability within the time periods specified in the
SEC's rules and regulations (unless the SEC will not accept such a filing) and
make such information available to securities analysts and prospective investors
upon request. The Issuers shall at all times comply with TIA (S) 314(a).
(b) For so long as any Notes remain outstanding, the Issuers shall
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
(c) Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Issuers'
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
Section 4.04. Compliance Certificate.
(a) The Issuers shall deliver to the Trustee, within 90 days after
the end of each fiscal year, an Officers' Certificate stating that a review of
the activities of the Issuers and their Subsidiaries during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether the Issuers have kept, observed, performed and fulfilled
their obligations under this Indenture, and further stating, as to each such
Officer signing such certificate, that to the best of his or her knowledge the
Issuers have kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and are not in default in the performance or
observance of any of the terms, provisions and conditions of this Indenture (or,
if a Default or Event of Default shall have occurred, describing all such
Defaults or Events of Default of which he or she may have knowledge and what
action the Issuers are taking or propose to take with respect thereto) and that
to the best of his or her knowledge no event has occurred and remains in
existence by reason of which payments on account of the principal of or
interest, if any, on the Notes is prohibited or if such event has occurred, a
description of the event and what action the Issuers are taking or proposes to
take with respect thereto.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, the year-end financial
statements delivered pursuant to Section 4.03(a) above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements, nothing has come to
their attention that would lead them to believe that the Company has violated
any provisions of Article 4 or Article 5 hereof or, if any such violation has
occurred, specifying the nature and period of existence thereof, it being
understood that such accountants shall not be liable directly or indirectly to
any Person for any failure to obtain knowledge of any such violation.
(c) The Issuers shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any Default
or Event of Default, an Officers' Certificate
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specifying such Default or Event of Default and what action the Issuers are
taking or propose to take with respect thereto.
Section 4.05. Taxes.
The Issuers shall pay, and shall cause each of their Subsidiaries to
pay, prior to delinquency, all material taxes, assessments, and governmental
levies except such as are contested in good faith and by appropriate proceedings
or where the failure to effect such payment is not adverse in any material
respect to the Holders of the Notes.
Section 4.06. Stay, Extension and Usury Laws.
The Issuers covenant (to the extent that it may lawfully do so) that
they shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants or
the performance of this Indenture; and the Issuers (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that they shall not, by resort to any such law, hinder, delay
or impede the execution of any power herein granted to the Trustee, but shall
suffer and permit the execution of every such power as though no such law has
been enacted.
Section 4.07. Restricted Payments.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly (1) declare or pay any dividend or make
any other payment or distribution on account of the Company's or any of its
Restricted Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company or
any of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company or payable to the
Company or a Restricted Subsidiary of the Company), (2) purchase, redeem or
otherwise acquire or retire for value (including, without limitation, in
connection with any merger or consolidation involving the Company) any Equity
Interests of the Company or any direct or indirect parent of the Company or any
Restricted Subsidiary of the Company (other than any such Equity Interests owned
by the Company or any Restricted Subsidiary of the Company), (3) make any
payment on or with respect to, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated to the Notes, except a
payment of interest or principal at the Stated Maturity thereof, or (4) make any
Restricted Investment (all such payments and other actions set forth in clauses
(1) through (3) above and in this clause (4) being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment (1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and (2) the Company would,
at the time of such Restricted Payment and after giving pro forma effect thereto
as if such Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt to Consolidated Cash Flow Ratio test set forth
in the first paragraph of Section 4.09 hereof and (3) such Restricted Payment,
together with the aggregate amount of all other Restricted Payments made by the
Company and its Restricted Subsidiaries after the date hereof (excluding
Restricted Payments permitted by clauses (2), (3) and (4) of the next succeeding
paragraph), shall not exceed, at the date of determination, without duplication,
the sum of (a) an amount equal to 100% of the Company's Consolidated EBITDA
since the date hereof to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available taken as a single
accounting period, less the product of 1.5 times the Company's Consolidated
Interest Expense since the date hereof to the end of the Company's most recently
ended fiscal quarter for which internal financial statements are available,
taken
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as a single accounting period, plus (b) 100% of the aggregate net cash proceeds
received by the Company since the date hereof as a contribution to its common
equity capital or from the issue or sale of Equity Interests of the Company
(other than sales of Disqualified Stock) in excess of $24 million or from the
issue or sale of convertible or exchangeable Disqualified Stock or convertible
or exchangeable debt securities of the Company that have been converted into or
exchanged for such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of the
Company and other than Disqualified Stock or convertible debt securities that
have been converted into Disqualified Stock), plus (c) to the extent that any
Restricted Investment that was made after the date hereof is sold for cash or
otherwise liquidated or repaid for cash, the lesser of (1) the cash return of
capital with respect to such Restricted Investment (less the cost of
disposition, if any) and (2) the initial amount of such Restricted Investment.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit (1) the payment of any
dividend or distribution within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with the
provisions of this Indenture, (2) the making of any Investment or the
redemption, repurchase, retirement, defeasance or other acquisition of any
subordinated Indebtedness or Equity Interests of the Company in exchange for, or
out of the net cash proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Company) of, Equity Interests of the Company (other than
Disqualified Stock); provided that the amount of any such net cash proceeds that
are utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition shall be excluded from clause (3)(b) of the preceding
paragraph, (3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness, (4) the payment of any dividend by a
Restricted Subsidiary of the Company to the holders of its common Equity
Interests on a pro rata basis, (5) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Restricted Subsidiary that is held by any current or former employee,
director or consultant (or their estates or the beneficiaries of such estates)
of the Company or any Subsidiary; provided that the aggregate price paid for all
such repurchased, redeemed, acquired or retired Equity Interests shall not
exceed $1.0 million in any twelve-month period, (6) so long as no Default or
Event of Default under this Indenture shall have occurred and be continuing or
shall be in existence immediately thereafter, making loans to members of
management of the Company pursuant to written agreements with such members, in
an aggregate principal amount not to exceed $1.0 million in the aggregate at any
one time outstanding, (7) the payment of cash in lieu of the issuance of
fractional shares of common stock upon exercise or conversion of securities
exercisable or convertible into common stock of the Company, (8) payments or
distributions, in the nature of satisfaction of dissenters' rights, pursuant to
or in connection with a consolidation, merger or transfer of assets that
complies with the provisions hereof applicable to mergers, consolidations and
transfers of all or substantially all of the property and assets of the Company,
(9) any purchase or acquisition from, or withholding on issuances to, any
employee of the Company's Capital Stock in order to satisfy any applicable
federal, state or local tax payments in respect of the receipt of shares of the
Company's Capital Stock, (10) any withholding on issuances to any employee of
the Company of the Company's Capital Stock in order to pay the purchase price of
such Capital Stock or similar instrument pursuant to a stock option, equity
incentive or other employee benefit plan or agreement of the Company or any of
its Restricted Subsidiaries, (11) so long as the Company is a limited liability
company treated as a partnership or an entity disregarded as separate from its
owner for federal, state and local income tax purposes (and prior to any
distribution of any Tax Amount, the Company delivers a certificate prepared by
the Tax Amount CPA to such effect), distributions to members of the Company in
an amount, with respect to any period beginning after December 31, 1998, not to
exceed the Tax Amount with respect to the Company for such period, (12) payments
to Holdings for expenses incurred by Holdings in the ordinary course of business
directly relating to the administration of the Company or its Restricted
Subsidiaries in an amount not to exceed
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$1.0 million in any fiscal year, and (13) other Restricted Payments in an
aggregate amount not to exceed $2.0 million.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any assets or securities that are required to be valued
by this Section 4.07 shall be determined by the Board of Directors whose
resolution with respect thereto shall be delivered to the Trustee. The Board of
Directors' determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm of national standing if the
fair market value exceeds $10.0 million. Not later than the date of making any
Restricted Payment, the Issuers shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by this Section 4.07 were
computed, together with a copy of any fairness opinion or appraisal required by
this Indenture.
Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to (1) pay dividends or make any other distributions on its Capital
Stock to the Company or any of the Company's Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its profits,
or pay any indebtedness owed to the Company or any of its Restricted
Subsidiaries, (2) make loans or advances to the Company or any of its Restricted
Subsidiaries, or (3) transfer any of its properties or assets to the Company or
any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of (1) Existing Indebtedness as in
effect on the date hereof and any amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement or refinancings are no more
restrictive, taken as a whole, with respect to such dividend and other payment
restrictions than those contained in such Existing Indebtedness, as in effect on
the date hereof, (2) this Indenture and the Notes, (3) applicable law, (4) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with or in contemplation of such acquisition), which encumbrance or restriction
is not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired,
provided that, in the case of Indebtedness, such Indebtedness was permitted by
the terms of this Indenture to be incurred by the Company or such Restricted
Subsidiary, (5) customary non-assignment provisions in contracts entered into in
the ordinary course of business, (6) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions on the
property so acquired of the nature described in clause (3) of the preceding
paragraph, (7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary pending
its sale or other disposition, (8) Permitted Refinancing Indebtedness, provided
that the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced, (9)
Liens securing Indebtedness otherwise permitted to be incurred pursuant to the
provisions of Section 4.12 hereof that limit the right of the Company or any of
its Restricted Subsidiaries to dispose of the assets subject to such Lien, (10)
provisions with respect to the disposition or distribution of assets or property
in joint venture agreements and other similar agreements entered into in the
ordinary course of business, (11) restrictions on cash or other deposits or net
worth imposed by customers under contracts entered into in the ordinary course
of business, (12) restrictions
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imposed pursuant to the terms of Indebtedness of a Restricted Subsidiary of the
Company that was permitted by this Indenture to be incurred; provided that such
restrictions, in the written view of the Board of Directors of the Company or an
executive officer of the Company, (a) are required in order to obtain such
financing, (b) are customary for such financings or, in the absence of industry
customs, reasonable in the view of the Board of Directors or such executive
officer, and (c) will not materially impair the Company's ability to make
interest and principal payments as required under the Notes.
Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company shall not issue any Disqualified Stock and shall not
permit any of its Restricted Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock and the Company's
Restricted Subsidiaries may incur Indebtedness under Credit Facilities or
pursuant to Permitted Telecommunications Financing if, in each case (1) no
Default or Event of Default shall have occurred and be continuing or would occur
as a consequence thereof, and (2) the Debt to Consolidated Cash Flow Ratio at
the time of incurrence of such Indebtedness or the issuance of such Disqualified
Stock, after giving pro forma effect to such incurrence or issuance as of such
date and to the use of proceeds therefrom as if the same had occurred at the
beginning of the most recently ended four full fiscal quarter period of the
Company for which internal financial statements are available, would have been
no greater than 6.0 to 1 for Indebtedness incurred on or prior the date that is
eighteen months after the Closing Date, or no greater than 5.5 to 1 for
Indebtedness incurred after such date.
The first paragraph of this Section 4.09 will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt") (1) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness under one or more Credit Facilities in an aggregate
principal amount (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and its Restricted
Subsidiaries thereunder) at any one time outstanding not to exceed an amount
equal to $517 million, less the aggregate amount of all Net Proceeds of Asset
Sales applied to repay Indebtedness under Credit Facilities pursuant to Section
4.10 hereof, (2) the incurrence by the Company and its Restricted Subsidiaries
of Existing Indebtedness, (3) the incurrence by the Company of Indebtedness
represented by the Notes to be issued on the date hereof and the New Notes to be
issued pursuant to the Registration Rights Agreement, (4) the incurrence by the
Company or any of its Restricted Subsidiaries of Indebtedness in connection with
Permitted Telecommunications Financing, (5) the incurrence by the Company or any
of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange
for, or the net proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that is permitted by this
Indenture to be incurred under the first paragraph of this Section 4.09 or
clauses (2), (3), (4) or this clause (5) of this paragraph, (6) the incurrence
by the Company or any of its Restricted Subsidiaries of intercompany
Indebtedness between or among the Company and any of its Restricted
Subsidiaries; provided, however, that (a) if the Company is the obligor on such
Indebtedness, such Indebtedness must be expressly subordinated to the prior
payment in full in cash of all Obligations with respect to the Notes, and (b)(i)
any subsequent issuance or transfer of Equity Interests, other than directors
qualifying shares, that results in any such Indebtedness being held by a Person
other than the Company or a Restricted Subsidiary and (ii) any sale or other
transfer of any such Indebtedness to a Person that is not either the Company or
a Restricted Subsidiary; shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as
the case may be, that was not permitted by this clause (6), (7) the incurrence
by the Company or any of its Restricted Subsidiaries of Hedging Obligations that
are incurred for the purpose of fixing or hedging interest rate risk with
respect to any floating rate
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Indebtedness that is permitted by the terms of this Indenture to be outstanding,
(8) the guarantee by the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this Indenture, (9) the
incurrence by the Company of Indebtedness or by a Restricted Subsidiary of the
Company of Indebtedness not to exceed, at any one time outstanding, 2.0 times
the aggregate net cash proceeds received by the Company after the Closing Date
from the issuance and sale of its Common Stock (other than Disqualified Stock)
to a Person that is not a Subsidiary of the Company, to the extent such net cash
proceeds have not been used pursuant to clause 3(b) of the second paragraph or
clause (2) of the third paragraph of Section 4.07 hereof to make a Restricted
Payment or to make a Permitted Investment pursuant to clause (9) of the
definition thereof; provided that such Indebtedness (other than Acquired Debt)
does not mature prior to the Stated Maturity of the Notes and the Weighted
Average Life to Maturity of such Indebtedness is longer than that of the Notes,
(10) the incurrence by the Company of Indebtedness, to the extent that the net
proceeds thereof are promptly (A) used to repurchase Notes tendered in a Change
of Control Offer or (B) deposited to defease all of the Notes as described in
Article 8 hereof, (11) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness constituting reimbursement obligations with respect
to letters of credit issued in the ordinary course of business, including
without limitation, letters of credit in respect of workers' compensation claims
or self-insurance, or other Indebtedness with respect to reimbursement type
obligations regarding workers' compensation claims; provided, however, that upon
the drawing of such letters of credit or the incurrence of such Indebtedness,
such obligations are reimbursed within 30 days following such drawing or
incurrence, (12) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification, adjustment
of purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary, other
than guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or a Subsidiary for the purpose of financing
such acquisition; provided that (a) such Indebtedness is not reflected on the
balance sheet of the Company or any Restricted Subsidiary (contingent
obligations referred to in the footnote or footnotes to financial statements and
not otherwise reflected on the balance sheet will not be deemed to be reflected
on such balance sheet for purposes of this clause (a)) and (b) the maximum
assumable liability in respect of such Indebtedness shall at no time exceed the
gross proceeds including non-cash proceeds (the fair market value of such non-
cash proceeds being measured at the time received without giving effect to any
such subsequent changes in value) actually received by the Company and/or such
Restricted Subsidiary in connection with such disposition, (13) obligations in
respect of performance and surety bonds and completion guarantees provided by
the Company or any Restricted Subsidiary of the Company in the ordinary course
of business, (14) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the form
of additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock for purposes of this Section 4.09, and (15) the
incurrence by the Company or any of its Restricted Subsidiaries of additional
Indebtedness (in addition to any Indebtedness permitted by clauses (1) through
(14) above or by the first paragraph of this Section 4.09) in an aggregate
principal amount (or accreted value, as applicable) at any time outstanding, not
to exceed $25.0 million.
The Company shall not incur any Indebtedness (including Permitted Debt)
that is contractually subordinated in right of payment to any other Indebtedness
of the Company unless such Indebtedness is also contractually subordinated in
right of payment to the Notes on substantially identical terms; provided,
however, that no Indebtedness of the Company shall be deemed to be contractually
subordinated in right of payment to any other Indebtedness of the Company solely
by virtue of being unsecured.
For purposes of determining compliance with this Section 4.09, in the
event that an item of proposed Indebtedness meets the criteria of more than one
of the categories of Permitted Debt described
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in clauses (1) through (15) above, or is entitled to be incurred pursuant to the
first paragraph of this Section 4.09, the Company will be permitted to classify
such item of Indebtedness on the date of its incurrence, or later reclassify all
or a portion of such item of Indebtedness, in any manner that complies with this
Section 4.09. Indebtedness under Credit Facilities outstanding on the date on
which Notes are first issued and authenticated under this Indenture shall be
deemed to have been incurred on such date in reliance on the exception provided
by clause (1) of the definition of Permitted Debt.
Section 4.10. Asset Sales.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (1) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value of the assets or Equity
Interests issued or sold or otherwise disposed of, (2) such fair market value is
determined by the Company's Board of Directors and evidenced by a resolution of
the Board of Directors set forth in an Officers' Certificate delivered to the
Trustee, and (3) at least 75% of the consideration therefor received by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this Section 4.10, each of the following shall be
deemed to be cash: (a) any Indebtedness or other liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet), of the
Company or any Restricted Subsidiary (other than contingent liabilities and
Indebtedness that is by its terms subordinated to the Notes) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability;
and (b) any securities, notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are (subject to
ordinary settlement periods) converted within 60 days of the applicable Asset
Sale by the Company or such Restricted Subsidiary into cash or Cash Equivalents
(to the extent of the cash received in that conversion).
In the event and to the extent that the Net Proceeds received by the
Company or any of its Restricted Subsidiaries from one or more Asset Sales
occurring on or after the Closing Date in any period of 12 consecutive months
exceed 10% of Consolidated Tangible Assets (determined as of the date closest to
the commencement of such 12-month period for which a consolidated balance sheet
has been provided to the Trustee pursuant to Section 4.03 hereof), then the
Company or the applicable Restricted Subsidiary may apply such Net Proceeds,
within 365 days after the date on which the Net Proceeds so received exceed 10%
of Consolidated Tangible Assets (1) to reduce Indebtedness under a Credit
Facility, (2) to reduce other Indebtedness of any of the Company's Restricted
Subsidiaries, (3) to acquire all or substantially all of the assets of a
Telecommunications Business, (4) to the acquisition of Voting Stock of a Person
primarily engaged in a Telecommunications Business from a Person that is not a
Subsidiary of the Company, provided, that, after giving effect thereto, the
Person whose Voting Stock was so acquired becomes a Restricted Subsidiary of the
Company, (5) to make a capital expenditure, or (6) to acquire other long-term
assets that are used or useful in a Telecommunications Business.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce borrowings or otherwise invest such Net Proceeds in any
manner that is not prohibited by this Indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Issuers shall
make an Asset Sale Offer to all Holders of Notes and all holders of other
Indebtedness that is pari passu with the Notes containing provisions similar to
those set forth in this Indenture with respect to offers to purchase or redeem
with the proceeds of sales of assets to purchase the maximum principal amount of
Notes and such other pari passu Indebtedness that may be purchased out of the
Excess Proceeds. The offer price in any Asset Sale Offer shall be equal to 100%
of principal amount plus accrued and unpaid interest and Special Interest
thereon, if any, to the date of purchase, in
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accordance with the procedures set forth in this Indenture and such other senior
Indebtedness of the Company. If any Excess Proceeds remain after consummation of
an Asset Sale Offer, the Company may use such Excess Proceeds for any purpose
not otherwise prohibited by this Indenture. If the aggregate principal amount of
Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer
exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and
such other pari passu Indebtedness to be purchased on a pro rata basis based on
the principal amount of Notes and such pari passu Indebtedness tendered. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds shall be
reset at zero.
Notwithstanding the three immediately proceeding paragraphs, the
Company and its Restricted Subsidiaries shall be permitted to consummate an
Asset Sale without complying with such paragraphs to the extent that (1) at
least 75% of the consideration received by the Company and its Restricted
Subsidiaries in such Asset Sale consists of cash, assets that would qualify
under sections (3) through (6) of the second preceding paragraph, or any
combination of any of the foregoing and (2) such Asset Sale is for Fair Market
Value; provided that any such consideration received by the Company or any of
its Restricted Subsidiaries that constitutes an Investment is made in compliance
with Section 4.07 hereof and any Net Cash Proceeds received by the Company or
any of its Restricted Subsidiaries in connection with any such Asset Sale are
applied in accordance with the immediately preceding paragraph.
The Issuers shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each purchase
of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of
any securities laws or regulations conflict with the Asset Sales provisions of
this Indenture, the Issuers shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under
Section 4.10 hereof by virtue of such conflict.
Section 4.11. Transactions with Affiliates.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless (1) such Affiliate
Transaction is on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person, and (2) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $2.5 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with this Section 4.11 and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors, and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions
and, therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business of the Company or
such Restricted Subsidiary, (2) transactions between or among the Company and/or
its Restricted Subsidiaries, (3) transactions with a Person that is an Affiliate
of the Company solely because the Company owns an Equity Interest in such
Person, (4) payment of reasonable fees to directors who are not otherwise
Affiliates of the Company or any of its Restricted Subsidiaries, and customary
indemnification and
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insurance arrangements in favor of any director, (5) sales or issuances of
Equity Interests (other than Disqualified Stock) to Affiliates of the Company,
(6) Restricted Payments that are permitted by Section 4.07 hereof, (7) the
issuance or sale of Equity Interests (other than Disqualified Stock) of the
Company, and (8) loans or advances, not to exceed $2.0 million in the aggregate
at any time outstanding, to employees in the ordinary course of business.
Section 4.12. Liens.
The Company shall not and shall not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) upon any of
their property or assets, now owned or hereafter acquired, unless all payments
due under this Indenture and the Notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligations are no
longer secured by a Lien.
Section 4.13. Intentionally deleted.
Section 4.14. Corporate Existence.
Subject to Article 5 hereof, the Issuers shall do or cause to be done
all things necessary to preserve and keep in full force and effect (1) their
corporate existence, and the corporate, partnership or other existence of each
of its Subsidiaries, in accordance with the respective organizational documents
(as the same may be amended from time to time) of the Issuers or any such
Subsidiary and (2) the rights (charter and statutory), licenses and franchises
of the Issuers and their Subsidiaries; provided, however, that the Issuers shall
not be required to preserve any such right, license or franchise, or the
corporate, partnership or other existence of any of their Subsidiaries, if the
respective Board of Directors shall determine that the preservation thereof is
no longer desirable in the conduct of the business of the Issuers and their
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders of the Notes.
Section 4.15. Offer to Repurchase Upon Change of Control.
Upon the occurrence of a Change of Control, the Issuers shall make an
offer (a "Change of Control Offer") to each Holder of Notes to repurchase in
cash all or any part (equal to $1,000 or an integral multiple thereof) of each
Holder's Notes at a purchase price equal to 101% of the aggregate principal
amount of Notes repurchased plus accrued and unpaid interest and Special
Interest thereon, if any, to the date of purchase or, in the case of repurchases
of Notes prior to the full Accretion Date, at a purchase price equal to 101% of
the aggregate principal amount of Notes repurchased plus accrued and unpaid
interest and Special Interest thereon, if any, to such date of repurchase (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Issuers shall mail a notice to each Holder stating: (1) the transaction or
transactions that constitute a Change of Control; (2) that the Change of Control
Offer is being made pursuant to this Section 4.15 and that all Notes tendered
will be accepted for payment; (3) the purchase price and the purchase date,
which shall be no later than 30 business days from the date such notice is
mailed (the "Change of Control Payment Date"); (4) that any Note not tendered
will continue to accrue interest; (5) that, unless the Issuers default in the
payment of the Change of Control Payment, all Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date; (6) that Holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Notes, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Notes completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the third Business Day preceding
the Change of Control Payment Date; (7) that Holders will be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Change of
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Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have the Notes purchased; and (8) that Holders whose Notes are being purchased
only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered, which unpurchased portion must be
equal to $1,000 in principal amount or an integral multiple thereof. The Issuers
shall comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes in
connection with a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the Change of Control provisions of
this Indenture, the Issuers shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached their obligations under the
Change of Control provisions of this Indenture by virtue of such conflict.
On the Change of Control Payment Date, the Issuers shall, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered by such Holder, if any; provided, that each such new Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Issuers shall notify the Trustee of the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date.
Notwithstanding anything to the contrary in this Section 4.15, the
Issuers shall not be required to make a Change of Control Offer upon a Change of
Control if a third party makes the Change of Control Offer in the manner, at the
times and otherwise in compliance with the requirements set forth in this
Section 4.15 and Section 3.09 hereof and all other provisions of this Indenture
applicable to a Change of Control Offer made by the Issuers and purchases all
Notes validly tendered and not withdrawn under such Change of Control Offer.
Section 4.16. Limitation on Sale and Leaseback Transactions.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company or any Restricted Subsidiary may enter into a sale and leaseback
transaction if (1) the Company or such Restricted Subsidiary, as applicable,
could have (a) incurred Indebtedness in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction under the Debt to Consolidated
Cash Flow Ratio test in the first paragraph of Section 4.09 hereof and (b)
incurred a Lien to secure such Indebtedness pursuant to Section 4.12 hereof, (2)
the gross cash proceeds of that sale and leaseback transaction are at least
equal to the fair market value, as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee, of
the property that is the subject of such sale and leaseback transaction, and (3)
the transfer of assets in that sale and leaseback transaction is permitted by,
and the Company applies the proceeds of such transaction in compliance with,
Section 4.10 hereof.
Section 4.17. Designation of Restricted and Unrestricted Subsidiaries.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted
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Subsidiary, all outstanding Investments owned by the Company and its Restricted
Subsidiaries in the Subsidiary so designated will be deemed to be an Investment
made as of the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of Section 4.07 or Permitted
Investments, as applicable. All such outstanding Investments will be valued at
their fair market value at the time of such designation. That designation will
only be permitted if such Restricted Payment would be permitted at that time and
if such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
Section 4.18. Restrictions on Activities of Madison River Finance.
Madison River Finance shall not hold any material assets, become liable
for any material obligations, other than the Notes, or engage in any significant
business activities; provided that Madison River Finance may be a co-obligor
with respect to Indebtedness if the Company is a primary obligor of such
Indebtedness and the net proceeds of such Indebtedness are received by the
Company or one or more of the Company's Restricted Subsidiaries other than
Madison River Finance.
Section 4.19. Payments for Consent.
The Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of Notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or the Notes
unless such consideration is offered to be paid and is paid to all Holders of
the Notes that consent, waive or agree to amend in the time frame set forth in
the solicitation documents relating to such consent, waiver or agreement.
ARTICLE 5.
SUCCESSORS
Section 5.01. Merger, Consolidation, or Sale of Assets.
The Company may not, directly or indirectly (1) consolidate or merge
with or into another Person (whether or not the Company is the surviving
corporation), or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of its properties or assets, in one or more related
transactions, to another Person, unless (1) either (a) the Company is the
surviving corporation, or (b) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia, (2) the Person formed by or surviving any
such consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, conveyance or other disposition shall have been
made assumes all the obligations of the Company under the Registration Rights
Agreement, the Notes and this Indenture pursuant to a supplemental indenture in
a form reasonably satisfactory to the Trustee, (3) immediately after such
transaction no Default or Event of Default exists, and (4) except in the case of
a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the
Company, the Company or the Person formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, conveyance or other disposition shall have been made will, immediately
after such transaction after giving pro forma effect thereto and any related
financing transactions as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Debt to Consolidated Cash Flow Ratio
test set forth in the first paragraph of Section 4.09 hereof.
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In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This Section 5.01 will not apply to a sale,
assignment, transfer, conveyance or other disposition of assets between or among
the Company and its Restricted Subsidiaries.
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and may exercise every right
and power of the Company under this Indenture with the same effect as if such
successor Person had been named as the Company herein; provided, however, that
the predecessor Company shall not be relieved from the obligation to pay the
principal of and interest on the Notes except in the case of a sale, assignment,
transfer, conveyance or other disposition of all of the Company's assets that
meets the requirements of Section 5.01 hereof.
ARTICLE 6.
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(a) the Issuers default in the payment when due of interest on, or
Special Interest with respect to, the Notes and such default continues for a
period of 30 days;
(b) the Issuers default in the payment when due of principal of or
premium, if any, on the Notes when the same becomes due and payable at maturity,
upon redemption (including in connection with an offer to purchase) or
otherwise;
(c) the Company or any of its Subsidiaries fails to comply for 30
days after notice with any of the provisions of Section 4.07 or 4.09, or to
comply with any of the provisions of Section 4.10, 4.15 or 5.01 hereof;
(d) the Company or any of its Restricted Subsidiaries fails to
observe or perform any other covenant, representation, warranty or other
agreement in this Indenture or the Notes for 45 days after notice to the Company
by the Trustee or the Holders of at least 25% in aggregate principal amount of
the Notes (including Additional Notes, if any) then outstanding voting as a
single class;
(e) a default occurs under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries, (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists,
or is created after the date of this Indenture, if that default (a) is caused by
a failure to pay principal of or premium, if any, or interest on such
Indebtedness prior to the expiration of the grace period provided in such
Indebtedness on the date of such default (a "Payment Default") or (b) results in
the acceleration of such Indebtedness prior to its express maturity, and, in
each case, the principal amount of any such Indebtedness, together
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with the principal amount of any other such Indebtedness under which there has
been a Payment Default or the maturity of which has been so accelerated,
aggregates $10.0 million or more;
(f) the Company or any of its Restricted Subsidiaries fails to pay a
final judgment or final judgments for the payment of money entered by a court or
courts of competent jurisdiction against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary and such judgment or judgments remain
unpaid, undischarged or not stayed for a period (during which execution shall
not be effectively stayed) of 60 days, provided that the aggregate of all such
undischarged judgments exceeds $10 million;
(g) the Company or any of its Significant Subsidiaries or any group
of Subsidiaries that, taken as a whole, would constitute a Significant
Subsidiary pursuant to or within the meaning of Bankruptcy Law:
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case,
(iii) consents to the appointment of a custodian of it or for all
or substantially all of its property,
(iv) makes a general assignment for the benefit of its
creditors, or
(v) generally is not paying its debts as they become due; or
(h) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(i) is for relief against the Company or any of its Significant
Subsidiaries or any group of Subsidiaries that, taken as a whole, would
constitute a Significant Subsidiary in an involuntary case;
(ii) appoints a custodian of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary or for all or
substantially all of the property of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary; or
(iii) orders the liquidation of the Company or any of its
Significant Subsidiaries or any group of Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary;
and the order or decree remains unstayed and in effect for 60 consecutive days.
Section 6.02. Acceleration.
If any Event of Default (other than an Event of Default specified in
clause (g) or (h) of Section 6.01 hereof with respect to the Company, any
Significant Subsidiary or any group of Restricted Subsidiaries that, taken as a
whole, would constitute a Significant Subsidiary) occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable immediately.
Upon any such declaration, the Notes shall become due and payable immediately.
Notwithstanding the foregoing, if an Event of Default specified in clause (g) or
(h) of Section 6.01 hereof occurs with respect to the Company, any of its
Significant Subsidiaries or any
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group of Restricted Subsidiaries that, taken as a whole, would constitute a
Significant Subsidiary, all outstanding Notes shall be due and payable
immediately without further action or notice. After a declaration of
acceleration, but before a judgment or decree for payment of the money due has
been obtained by the Trustee, the Holders of a majority in aggregate principal
amount of Notes outstanding by written notice to the Company and the Trustee,
may rescind and annul such declaration and its consequences if (a) the Company
has paid or deposited with the Trustee a sum sufficient to pay (1) all sums paid
or advanced by the Trustee under this Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, (2)
all overdue interest on all Notes then outstanding, (3) the principal of and
premium, if any, on any Notes then outstanding which have become due otherwise
than by such declaration of acceleration and interest thereon (including Special
Interest) at the rate borne by the Notes and (4) to the extent that payment of
such interest is lawful, interest upon overdue interest at the rate borne by the
Notes, (b) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction; and (c) all Events of Default, other than the
non-declaration of acceleration, have been cured or waived as provided in this
Indenture. No such rescission shall affect any subsequent default or impair any
right consequent thereon.
If an Event of Default occurs on or after March 1, 2005 by reason of
any willful action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to Section 3.07 hereof, then, upon acceleration of the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, anything in this Indenture or in the Notes to the
contrary notwithstanding. If an Event of Default occurs prior to March 1, 2005
by reason of any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to such date, then, upon acceleration of the
Notes, an additional premium shall also become and be immediately due and
payable in an amount, for each of the years beginning on March 1 of the years
set forth below, as set forth below (expressed as a percentage of the principal
amount of the Notes on the date of payment that would otherwise be due but for
the provisions of this sentence):
Year Percentage
---- ----------
2000 113.250%
2001 111.925%
2002 110.600%
2003 109.275%
2004 107.950%
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of principal, premium, if any, and
interest on the Notes or to enforce the performance of any provision of the
Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder of a Note in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
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Section 6.04. Waiver of Past Defaults.
Holders of not less than a majority in aggregate principal amount of
the then outstanding Notes by notice to the Trustee may on behalf of the Holders
of all of the Notes waive an existing Default or Event of Default and its
consequences hereunder, except a continuing Default or Event of Default in the
payment of the principal of, premium and Special Interest, if any, or interest
on, the Notes (including in connection with an offer to purchase) (provided,
however, that the Holders of a majority in aggregate principal amount of the
then outstanding Notes may rescind an acceleration and its consequences,
including any related payment default that resulted from such acceleration).
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
Section 6.05. Control by Majority.
Holders of a majority in principal amount of the then outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture that the Trustee determines may be unduly
prejudicial to the rights of other Holders of Notes or that may involve the
Trustee in personal liability.
Section 6.06. Limitation on Suits.
A Holder of a Note may pursue a remedy with respect to this Indenture
or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the then
outstanding Notes make a written request to the Trustee to pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to the Trustee against
any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer and, if requested, the provision of
indemnity; and
(e) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
Section 6.07. Rights of Holders of Notes to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium and Special Interest,
if any, and interest on the Note, on or after the respective due dates expressed
in the Note (including in connection with an offer to purchase), or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
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Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(a) or (b) occurs and
is continuing, the Trustee is authorized to recover judgment in its own name and
as trustee of an express trust against the Issuers for the whole amount of
principal of, premium and Special Interest, if any, and interest remaining
unpaid on the Notes and interest on overdue principal and, to the extent lawful,
interest and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Issuers
(or any other obligor upon the Notes), their creditors or their property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due to it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 7.07 hereof. To the extent that the payment of any such
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.07 hereof out
of the estate in any such proceeding, shall be denied for any reason, payment of
the same shall be secured by a Lien on, and shall be paid out of, any and all
distributions, dividends, money, securities and other properties that the
Holders may be entitled to receive in such proceeding whether in liquidation or
under any plan of reorganization or arrangement or otherwise. Nothing herein
contained shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Notes or the rights of any Holder, or to
authorize the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
Section 6.10. Priorities.
If the Trustee collects any money or property pursuant to this Article,
it shall pay out the money in the following order:
First: to the Trustee, its agents and attorneys for amounts due
under Section 7.07 hereof, including payment of all compensation,
expense and liabilities incurred, and all advances made, by the Trustee
and the costs and expenses of collection;
Second: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium and Special Interest, if any, and
interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Notes for principal,
premium and Special Interest, if any and interest, respectively; and
Third: to the Issuers or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any payment to
Holders of Notes pursuant to this Section 6.10.
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Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder of a
Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in
principal amount of the then outstanding Notes.
ARTICLE 7.
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in its exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely by the
express provisions of this Indenture and the Trustee need perform only
those duties that are specifically set forth in this Indenture and no
others, and no implied covenants or obligations shall be read into this
Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements
of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b)
of this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that
the Trustee was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b), and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or incur any liability. The Trustee shall be under
no obligation to exercise any of its rights and powers under
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this Indenture at the request of any Holders, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Issuers.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may conclusively rely upon any document believed by
it to be genuine and to have been signed or presented by the proper Person. The
Trustee need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Issuers shall be sufficient if
signed by an Officer of the Issuers.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
that might be incurred by it in compliance with such request or direction.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Issuers or any
Affiliate of the Issuers with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest it must eliminate such conflict within 90 days, apply to the SEC for
permission to continue as trustee or resign. Any Agent may do the same with like
rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.
Section 7.04. Trustee's Disclaimer.
The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Indenture or the Notes, it shall not be
accountable for the Issuers' use of the proceeds from the Notes or any money
paid to the Issuers or upon the Issuers' direction under any provision of this
Indenture, it shall not be responsible for the use or application of any money
received by any Paying Agent other than the Trustee, and it shall not be
responsible for any statement or recital herein or any
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statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of Notes a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment of principal of, premium, if any,
interest, or Special Interest, if any, on any Note, the Trustee may withhold the
notice if and so long as a committee of its Responsible Officers in good faith
determines that withholding the notice is in the interests of the Holders of the
Notes.
Section 7.06. Reports by Trustee to Holders of the Notes.
Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, and for so long as Notes remain outstanding, the
Trustee shall mail to the Holders of the Notes a brief report dated as of such
reporting date that complies with TIA (S) 313(a) (but if no event described in
TIA (S) 313(a) has occurred within the twelve months preceding the reporting
date, no report need be transmitted). The Trustee also shall comply with TIA (S)
313(b)(2). The Trustee shall also transmit by mail all reports as required by
TIA (S) 313(c).
A copy of each report at the time of its mailing to the Holders of
Notes shall be mailed to the Issuers and filed with the SEC and each stock
exchange on which the Notes are listed in accordance with TIA (S). 313(d). The
Issuers shall promptly notify the Trustee when the Notes are listed on any stock
exchange.
Section 7.07. Compensation and Indemnity.
The Issuers shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Issuers shall reimburse the Trustee promptly
upon request for all reasonable disbursements, advances and expenses incurred or
made by it in addition to the compensation for its services. Such expenses shall
include the reasonable compensation, disbursements and expenses of the Trustee's
agents and counsel.
The Issuers shall indemnify the Trustee against any and all losses,
liabilities or expenses incurred by it arising out of or in connection with the
acceptance or administration of its duties under this Indenture, including the
costs and expenses of enforcing this Indenture against the Issuers (including
this Section 7.07) and defending itself against any claim (whether asserted by
the Issuers or any Holder or any other person) or liability in connection with
the exercise or performance of any of its powers or duties hereunder, except to
the extent any such loss, liability or expense may be attributable to its
negligence or bad faith. The Trustee shall notify the Issuers promptly of any
claim for which it may seek indemnity. Failure by the Trustee to so notify the
Issuers shall not relieve the Issuers of their obligations hereunder. The
Issuers shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Issuers shall pay the reasonable
fees and expenses of such counsel. The Issuers need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The obligations of the Issuers under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
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To secure the Issuers' payment obligations in this Section, the Trustee
shall have a Lien prior to the Notes on all money or property held or collected
by the Trustee, except that held in trust to pay principal and interest on
particular Notes. Such Lien shall survive the satisfaction and discharge of this
Indenture.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) hereof occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents and
counsel) are intended to constitute expenses of administration under any
Bankruptcy Law.
The Trustee shall comply with the provisions of TIA (S) 313(b)(2) to
the extent applicable.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Issuers. The Holders of a majority
in principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Issuers in writing. The Issuers may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(c) a custodian or public officer takes charge of the Trustee or its
property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Issuers shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Issuers.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee, after written request by any Holder who has been a
Holder for at least six months, fails to comply with Section 7.10, such Holder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Issuers. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all property
held by it as Trustee to the successor Trustee, provided all sums owing to the
Trustee hereunder have been paid and subject to the Lien provided for in Section
7.07 hereof. Notwithstanding
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replacement of the Trustee pursuant to this Section 7.08, the Issuers'
obligations under Section 7.07 hereof shall continue for the benefit of the
retiring Trustee.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
Section 7.10. Eligibility; Disqualification.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $100 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S) 310(a)(1), (2) and (5). The Trustee is subject to TIA
(S) 310(b).
Section 7.11. Preferential Collection of Claims Against the Issuers.
The Trustee is subject to TIA (S) 311(a), excluding any creditor
relationship listed in TIA (S) 311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S) 311(a) to the extent indicated therein.
ARTICLE 8.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
The Issuers may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon
compliance with the conditions set forth below in this Article Eight.
Section 8.02. Legal Defeasance and Discharge.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Notes on the
date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that the Issuers shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Notes, which shall thereafter be deemed to be "outstanding" only for
the purposes of Section 8.05 hereof and the other Sections of this Indenture
referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Notes and this Indenture (and the Trustee, on demand of
and at the expense of the Issuers, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (a) the rights of Holders of
outstanding Notes to receive solely from the trust fund described in Section
8.04 hereof, and as more fully set forth in such Section, payments in respect of
the principal of, premium, if any, and interest and Special Interest on such
Notes when such payments are due, (b) the Issuers' obligations with respect to
such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers,
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trusts, duties and immunities of the Trustee hereunder and the Issuers'
obligations in connection therewith and (d) this Article Eight. Subject to
compliance with this Article Eight, the Issuers may exercise its option under
this Section 8.02 notwithstanding the prior exercise of its option under Section
8.03 hereof.
Section 8.03. Covenant Defeasance.
Upon the Issuers' exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Issuers shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10,
4.11, 4.12, 4.15, 4.16, 4.17, 4.18, and 4.19 hereof and Section 5.01 hereof with
respect to the outstanding Notes on and after the date the conditions set forth
in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the
Notes shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
outstanding Notes, the Issuers may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.01
hereof, but, except as specified above, the remainder of this Indenture and such
Notes shall be unaffected thereby. In addition, upon the Company's exercise
under Section 8.01 hereof of the option applicable to this Section 8.03 hereof,
subject to the satisfaction of the conditions set forth in Section 8.04 hereof,
Sections 6.01(c) through 6.01(f) hereof shall not constitute Events of Default.
Section 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Notes:
(a) the Issuers must irrevocably deposit with the Trustee, in trust,
for the benefit of the Holders of the Notes, cash in United States dollars, non-
callable Government Securities, or a combination thereof, in such amounts as
will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if any, and
Special Interest, if any, and interest on the outstanding Notes on the stated
date for payment thereof or on the applicable redemption date, as the case may
be, and the Issuers must specify whether the Notes are being defeased to
maturity or to a particular redemption date;
(b) in the case of an election under Section 8.02 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Issuers have
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date hereof, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.03 hereof, the Issuers
shall have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee confirming that the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same
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amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing either on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of the
proceeds of which will be used to defease the Notes pursuant to this Article
Eight concurrently with such incurrence), or insofar as Sections 6.01(g) or
6.01(h) hereof is concerned, at any time in the period ending on the 91st day
after the date of deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than this Indenture) to which the Company or any of its
Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound;
(f) the Issuers shall have delivered to the Trustee an Opinion of
Counsel (which may be subject to customary exceptions) to the effect that on the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) the Issuers shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Issuers with the intent
of preferring the Holders of the Notes over any other creditors of the Issuers
or with the intent of defeating, hindering, delaying or defrauding any other
creditors of the Issuers or others; and
(h) the Issuers shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.05. Deposited Money and Government Securities to be Held in Trust;
Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Issuers acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Issuers shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the cash or non-callable
Government Securities deposited pursuant to Section 8.04 hereof or the principal
and interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to the Issuers from time to time upon the request
of the Issuers any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof
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that would then be required to be deposited to effect an equivalent Legal
Defeasance or Covenant Defeasance.
Section 8.06. Repayment to Issuers.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Issuers, in trust for the payment of the principal of, premium, if any,
or interest on any Note and remaining unclaimed for two years after such
principal, and premium, if any, or interest has become due and payable shall be
paid to the Issuers on their request or (if then held by the Issuers) shall be
discharged from such trust; and the Holder of such Note shall thereafter look
only to the Issuers for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Issuers as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Issuers cause to be published once, in the New York
Times and The Wall Street Journal (national edition), notice that such money
remains unclaimed and that, after a date specified therein, which shall not be
less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Issuers.
Section 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Issuers' obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided, however, that, if the Issuers make any
payment of principal of, premium, if any, interest, or Special Interest, if any,
on any Note following the reinstatement of its obligations, the Issuers shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01. Without Consent of Holders of Notes.
Notwithstanding Section 9.02 of this Indenture, the Issuers and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder of a Note:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place of
certificated Notes or to alter the provisions of Article 2 hereof (including the
related definitions) in a manner that does not materially adversely affect any
Holder;
(c) to provide for the assumption of the Company's obligations to the
Holders of the Notes by a successor to the Company pursuant to Article 5 hereof;
(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any Holder of the Note;
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(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA; or
(f) to provide for the issuance of Additional Notes in accordance
with the limitations set forth in this Indenture as of the date hereof.
Upon the request of the Issuers accompanied by a resolution of the
respective Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon receipt by the Trustee of the documents
described in Section 7.02 hereof, the Trustee shall join with the Issuers in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
Section 9.02. With Consent of Holders of Notes.
Except as provided below in this Section 9.02, the Issuers and the
Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and
4.15 hereof) and the Notes with the consent of the Holders of at least a
majority in principal amount of the Notes (including Additional Notes, if any)
then outstanding voting as a single class (including consents obtained in
connection with a tender offer or exchange offer for, or purchase of, the
Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or
Event of Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, interest, or Special Interest, if any, on the
Notes, except a payment default resulting from an acceleration that has been
rescinded) or compliance with any provision of this Indenture or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then outstanding Notes (including Additional Notes, if any) voting as a
single class (including consents obtained in connection with a tender offer or
exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall
determine which Notes are considered to be "outstanding" for purposes of this
Section 9.02.
Upon the request of the Issuers accompanied by a resolution of the
respective Board of Directors authorizing the execution of any such amended or
supplemental Indenture, and upon the filing with the Trustee of evidence
satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid,
and upon receipt by the Trustee of the documents described in Section 7.02
hereof, the Trustee shall join with the Issuers in the execution of such amended
or supplemental Indenture unless such amended or supplemental Indenture directly
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
It shall not be necessary for the consent of the Holders of Notes
under this Section 9.02 to approve the particular form of any proposed amendment
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Issuers shall mail to the Holders of Notes affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Issuers to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a
majority in aggregate principal amount of the Notes (including Additional Notes,
if any) then outstanding voting as a single class may waive compliance in a
particular instance by the Issuers with any provision of this Indenture or the
Notes. However, without the consent of each Holder affected, an amendment or
waiver under this Section 9.02 may not (with respect to any Notes held by a
non-consenting Holder):
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(a) reduce the principal amount of Notes whose Holders must consent
to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of any Note
or alter or waive any of the provisions with respect to the redemption of the
Notes except as provided above with respect to Sections 4.10 and 4.15 hereof;
(c) reduce the rate of or change the time for payment of interest,
including default interest, on any Note;
(d) waive a Default or Event of Default in the payment of principal
of or premium, if any, or interest on the Notes (except a rescission of
acceleration of the Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes (including Additional Notes, if
any) and a waiver of the payment default that resulted from such acceleration);
(e) make any Note payable in money other than that stated in the
Notes;
(f) make any change in the provisions of this Indenture relating to
waivers of past Defaults or the rights of Holders of Notes to receive payments
of principal of or premium, if any, or interest or Special Interest, if any, on
the Notes;
(g) waive a redemption payment with respect to any Note (other than a
payment required by Sections 4.10 and 4.15 hereof); or
(h) make any change in Section 6.04 or 6.07 hereof or in the
foregoing amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of this
Indenture relating to subordination that adversely affects the rights of the
Holders of the Notes will require the consent of the Holders of at least 75% in
aggregate principal amount of Notes then outstanding.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in a amended or supplemental Indenture that complies with the TIA as
then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder of a Note is a continuing consent by the Holder of a Note and
every subsequent Holder of a Note or portion of a Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. However, any such Holder of a Note or subsequent Holder of a
Note may revoke the consent as to its Note if the Trustee receives written
notice of revocation before the date the waiver, supplement or amendment becomes
effective. An amendment, supplement or waiver becomes effective in accordance
with its terms and thereafter binds every Holder.
Section 9.05. Notation on or Exchange of Notes.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. The Issuers in
exchange for all Notes may issue and the Trustee shall,
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upon receipt of an Authentication Order, authenticate new Notes that reflect the
amendment, supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
Section 9.06. Trustee to Sign Amendments, etc.
The Trustee shall sign any amended or supplemental Indenture
authorized pursuant to this Article Nine if the amendment or supplement does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
The Issuers may not sign an amendment or supplemental Indenture until the Board
of Directors approves it. In executing any amended or supplemental indenture,
the Trustee shall be entitled to receive and (subject to Section 7.01 hereof)
shall be fully protected in relying upon, in addition to the documents required
by Section 12.04 hereof, an Officer's Certificate and an Opinion of Counsel
stating that the execution of such amended or supplemental indenture is
authorized or permitted by this Indenture.
ARTICLE 10.
INTENTIONALLY DELETED
ARTICLE 11.
SATISFACTION AND DISCHARGE
Section 11.01. Satisfaction and Discharge.
This Indenture will be discharged and will cease to be of further
effect as to all Notes issued hereunder, when:
(1) either:
(a) all Notes that have been authenticated (except lost, stolen or
destroyed Notes that have been replaced or paid and Notes for
whose payment money has theretofore been deposited in trust and
thereafter repaid to the Company) have been delivered to the
Trustee for cancellation; or
(b) all Notes that have not been delivered to the Trustee for
cancellation have become due and payable by reason of the mailing
of a notice of redemption or otherwise or will become due and
payable within one year and the Issuers have irrevocably
deposited or caused to be deposited with the Trustee as trust
funds in trust solely for the benefit of the Holders, cash in
U.S. dollars, non-callable Government Securities, or a
combination thereof, in such amounts as will be sufficient
without consideration of any reinvestment of interest, to pay and
discharge the entire indebtedness on the Notes not delivered to
the Trustee for cancellation for principal, premium and Special
Interest, if any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or shall occur as a result of such deposit
and such deposit will not result in a breach or violation of, or
constitute a default under, any other instrument to which the Issuers
are a party or by which the Issuers are bound;
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(3) the Company has paid or caused to be paid all sums payable by it under
this Indenture; and
(4) the Company has delivered irrevocable instructions to the Trustee
under this Indenture to apply the deposited money toward the payment
of the Notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
Notwithstanding the satisfaction and discharge of this Indenture, if
money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the provisions of Section 11.02 and Section 8.06
shall survive.
Section 11.02. Application of Trust Money.
Subject to the provisions of Section 8.06, all money and property
deposited with the Trustee pursuant to Section 11.01 shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Issuers acting as their own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any), interest, and Special Interest, if any, for whose payment such money and
property has been deposited with the Trustee; but such money and property need
not be segregated from other funds except to the extent required by law.
If the Trustee or Paying Agent is unable to apply any money or
Government Securities in accordance with Section 11.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Issuers' obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 11.01; provided
that if the Issuers have made any payment of principal of, premium, if any,
interest, or Special Interest, if any, on any Notes because of the reinstatement
of its obligations, the Issuers shall be subrogated to the rights of the Holders
of such Notes to receive such payment from the money or Government Securities
held by the Trustee or Paying Agent.
ARTICLE 12.
MISCELLANEOUS
Section 12.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA (S)318(c), the imposed duties shall control.
Section 12.02. Notices.
Any notice or communication by the Issuers or the Trustee to the
others is duly given if in writing and delivered in Person or mailed by first
class mail (registered or certified, return receipt requested), telex,
telecopier or overnight air courier guaranteeing next day delivery, to the
others' address:
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If to the Issuers:
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Telecopier No.: (919) 563-4993
Attention: Paul H. Sunu
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
333 W. Wacker Dr.
Suite 2100
Chicago, IL 60606
Telecopier No.: (312) 407-0411
Attention: Gary P. Cullen, Esq.
If to the Trustee:
Norwest Bank Minnesota, National Association
Sixth and Marquette N9303-120
Minneapolis, MN 55479
Telecopier No.: (612) 667-9825
Attention: Corporate Trust Services
The Issuers or the Trustee, by notice to the others may designate
additional or different addresses for subsequent notices or communications.
All notices and communications (other than those sent to Holders)
shall be deemed to have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in the mail,
postage prepaid, if mailed; when answered back, if telexed; when receipt
acknowledged, if telecopied; and the next Business Day after timely delivery to
the courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail, certified or registered, return receipt requested, or by overnight air
courier guaranteeing next day delivery to its address shown on the register kept
by the Registrar. Any notice or communication shall also be so mailed to any
Person described in TIA (S) 313(c), to the extent required by the TIA. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Issuers mail a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders of Notes with Other Holders of Notes.
Holders may communicate pursuant to TIA (S) 312(b) with other Holders
with respect to their rights under this Indenture or the Notes. The Issuers, the
Trustee, the Registrar and anyone else shall have the protection of TIA (S)
312(c).
65
<PAGE>
Section 12.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Issuers to the Trustee to take
any action under this Indenture, the Issuers shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of the signers, all
conditions precedent and covenants, if any, provided for in this Indenture
relating to the proposed action have been satisfied; and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set forth in
Section 12.05 hereof) stating that, in the opinion of such counsel, all such
conditions precedent and covenants have been satisfied.
Section 12.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than a certificate
provided pursuant to TIA (S) 314(a)(4)) shall comply with the provisions of TIA
(S) 314(e) and shall include:
(a) a statement that the Person making such certificate or opinion
has read such covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she has
made such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has been
satisfied; and
(d) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been satisfied.
Section 12.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 12.07. No Personal Liability of Directors, Officers, Employees and
Stockholders.
No past, present or future director, officer, employee, incorporator
or stockholder of the Issuers, as such, shall have any liability for any
obligations of the Issuers under the Notes, this Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Notes.
Section 12.08. Governing Law.
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO
CONSTRUE THIS INDENTURE, THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE
66
<PAGE>
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
Section 12.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Issuers or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
Section 12.10. Successors.
All agreements of the Issuers in this Indenture and the Notes shall
bind its successors. All agreements of the Trustee in this Indenture shall bind
its successors.
Section 12.11. Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 12.12. Counterpart Originals.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 12.13. Table of Contents, Headings, etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
67
<PAGE>
SIGNATURES
Dated as of February 17, 2000
Madison River Capital, LLC
By: /s/ J. Stephen Vanderwoude
--------------------------------
Name: J. Stephen Vanderwoude
Title: Chief Executive Officer
Attest:
___________________________
Name:______________________
Title:_____________________
MADISON RIVER FINANCE CORP.
By: /s/ Paul H. Sunu
--------------------------------
Name: Paul H. Sunu
Title: Secretary & Treasurer
Attest:
___________________________
Name:______________________
Title:_____________________
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ Timothy P. Mowdy
--------------------------------
Name: Timothy P. Mowdy
Title: Corporate Trust Officer
Attest:
___________________________
Authorized Signatory
Date:
Indenture Signature Page
<PAGE>
EXHIBIT A1
[Face of Note]
- --------------------------------------------------------------------------------
CUSIP/CINS 558212AA4
13 1/4% Series A Senior Notes due 2010
No. 1 $200,000,000.00
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of TWO HUNDRED MILLION
Dollars on March 1, 2010.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
Dated: February 17, 2000
MADISON RIVER CAPITAL, LLC
By: __________________________
Name:
Title
This is one of the Notes referred to MADISON RIVER FINANCE CORP.
in the within-mentioned Indenture:
NORWEST BANK MINNESOTA, By: __________________________
NATIONAL ASSOCIATION
as Trustee Name:
Title
By: ________________________
Authorized Signatory
(SEAL)
- --------------------------------------------------------------------------------
A1-1
<PAGE>
[Back of Note]
13 1/4% Series A Senior Notes due 2010
"THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE
GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL
OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES
EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED
PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE
EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE,
(III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT
TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO
A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS."
"THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) AND (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN
EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES."
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. Madison River Capital, LLC, a Delaware limited liability
company (the "Company") and Madison River Finance Corp., a Delaware corporation
("Madison River Finance" and, together with the Company, the "Issuers"),
promises to pay interest on the principal amount of this Note at 13 1/4% per
annum from February 17, 2000 until maturity and shall pay the Special Interest
payable pursuant to Section 2 of the Registration Rights Agreement referred to
below. The Issuers will pay interest and Special Interest semi-annually in
arrears on March 1 and September 1 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date"). Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Note is authenticated between a record date referred to on
the face hereof and the next succeeding Interest Payment Date, interest shall
accrue from such next succeeding Interest Payment Date; provided, further, that
the first Interest Payment Date shall be September 1, 2000. The Issuers shall
pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal and premium, if any, from time to time on
demand at a rate that is 1% per annum in excess of the rate then in effect; it
shall pay interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue installments of interest and Special Interest
(without regard to any applicable grace periods) from time to time on demand at
the same rate to the extent lawful. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
A1-2
<PAGE>
2. Method of Payment. The Issuers will pay interest on the Notes (except
defaulted interest) and Special Interest to the Persons who are registered
Holders of Notes at the close of business on the February 15 or August 15 next
preceding the Interest Payment Date, even if such Notes are canceled after such
record date and on or before such Interest Payment Date, except as provided in
Section 2.12 of the Indenture with respect to defaulted interest. The Notes will
be payable as to principal, premium and Special Interest, if any, and interest
at the office or agency of the Paying Agent and Registrar maintained for such
purpose within or without the City and State of New York, or, at the option of
the Issuers, payment of interest and Special Interest may be made by check
mailed to the Holders at their addresses set forth in the register of Holders,
and provided that payment by wire transfer of immediately available funds will
be required with respect to principal of and interest, premium and Special
Interest on, all Global Notes and all other Notes the Holders of which shall
have provided wire transfer instructions to the Issuers or the Paying Agent.
Such payment shall be in such coin or currency of the United States of America
as at the time of payment is legal tender for payment of public and private
debts.
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Issuers may change any Paying Agent or Registrar without
notice to any Holder. Either Issuer or any of its Subsidiaries may act in any
such capacity.
4. Indenture. The Issuers issued the Notes under an Indenture dated as of
February 17, 2000 ("Indenture") between the Issuers and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S.
Code ss.ss. 77aaa-77bbbb). The Notes are subject to all such terms, and Holders
are referred to the Indenture and such Act for a statement of such terms. To the
extent any provision of this Note conflicts with the express provisions of the
Indenture, the provisions of the Indenture shall govern and be controlling. The
Notes are obligations of the Issuers limited to $350.0 million in aggregate
principal amount of which $200.0 million are Initial Notes and up to $150.0
million may be issued as Additional Notes.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Issuers shall not have the option to redeem the Notes pursuant to this Paragraph
5 prior to March 1, 2005. Thereafter, the Issuers shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Special Interest
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 1 of the years indicated below:
Year Percentage
---- ----------
2005................................................ 106.625%
2006................................................ 104.417%
2007................................................ 102.208%
2008 and thereafter................................. 100.000%
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to March 1, 2003, the Issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes originally
issued under the Indenture with the net proceeds of one or more Public Equity
Offerings by the Company or the net cash proceeds of a Strategic Equity
Investment in the Company or a capital contribution to the Company's common
equity made with the net cash proceeds of a concurrent Public Equity Offering
by, or Strategic Investment in, the Company's direct parent at a
A1-3
<PAGE>
redemption price equal to 113.250% of the principal amount thereof plus accrued
and unpaid interest and Special Interest thereon, if any, to the redemption
date; provided that (1) at least 65% in aggregate principal amount of the Notes
remains outstanding immediately after the occurrence of such redemption,
excluding Notes held by the Company and its Subsidiaries and (2) that such
redemption occurs within 60 days of the date of the closing of such Public
Equity Offering or Strategic Equity Investment.
6. Mandatory Redemption.
Except as set forth in paragraph 7 below, the Issuers shall not be required
to make mandatory redemption or sinking fund payments with respect to the Notes.
7. Repurchase at Option of Holder.
(a) If there is a Change of Control, the Issuers shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount of the Notes repurchased
plus accrued and unpaid interest and Special Interest thereon, if any, to the
date of purchase or, in the case of repurchases of Notes prior to the full
Accretion Date, at a purchase price equal to 101% of the aggregate principal
amount of Notes repurchased plus accrued and unpaid interest and Special
Interest thereon, if any, to such date of repurchase (in either case, the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Issuers shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five Business Days of each date on which the aggregate amount of Excess Proceeds
exceeds $10 million, the Issuers shall commence an offer to all Holders of Notes
(as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase
the maximum principal amount of Notes (including any Additional Notes) that may
be purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Special Interests thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes (including any Additional Notes) tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary)
may use such deficiency for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes surrendered by Holders
thereof and such other pari passi indebtedness tendered exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other pari passi
indebtedness to be purchased on a pro rata basis. Holders of Notes that are the
subject of an offer to purchase will receive an Asset Sale Offer from the
Issuers prior to any related purchase date and may elect to have such Notes
purchased by completing the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Notes.
8. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for
A1-4
<PAGE>
redemption, except for the unredeemed portion of any Note being redeemed in
part. Also, the Company need not exchange or register the transfer of any Notes
for a period of 15 days before a selection of Notes to be redeemed or during the
period between a record date and the corresponding Interest Payment Date.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
as its owner for all purposes.
11. Amendment, Supplement and Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding Notes
and Additional Notes, if any, voting as a single class, and any existing default
or compliance with any provision of the Indenture or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes and Additional Notes, if any, voting as a single class.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Issuers' obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act, or to
provide for the Issuance of Additional Notes in accordance with the limitations
set forth in the Indenture.
12. Defaults and Remedies. Events of Default include: (i) default for 30
days in the payment when due of interest or Special Interests on the Notes; (ii)
default in payment when due of principal of or premium, if any, on the Notes
when the same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise, (iii) failure by the Company
to comply for 30 days after notice with Section 4.07 or 4.09, or to comply with
Sections 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 45
days after notice to the Company by the Trustee or the Holders of at least 25%
in principal amount of the Notes (including Additional Notes, if any) then
outstanding voting as a single class to comply with certain other agreements in
the Indenture or the Notes; (v) default under certain other agreements relating
to Indebtedness of the Company which default results in the acceleration of such
Indebtedness prior to its express maturity; (vi) certain final judgments for the
payment of money that remain undischarged for a period of 60 days; and (vii)
certain events of bankruptcy or insolvency with respect to the Company or any of
its Restricted Subsidiaries. If any Event of Default occurs and is continuing,
the Trustee or the Holders of at least 25% in principal amount of the then
outstanding Notes may declare all the Notes to be due and payable.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Notes will become
due and payable without further action or notice. Holders may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest. The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, Special Interest, if any, or the principal of, the
Notes. The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
A1-5
<PAGE>
13. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuers or their Affiliates, and may otherwise deal with the Issuers or
their Affiliates, as if it were not the Trustee.
14. No Recourse Against Others. A director, officer, employee,
incorporator or stockholder, of the Issuers, as such, shall not have any
liability for any obligations of the Issuers under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
15. Authentication. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. Additional Rights of Holders of Restricted Global Notes and Restricted
Definitive Notes. In addition to the rights provided to Holders of Notes under
the Indenture, Holders of Restricted Global Notes and Restricted Definitive
Notes shall have all the rights set forth in the Registration Rights Agreement
dated as of February 17, 2000, between the Issuers and the parties named on the
signature pages thereof (the "Registration Rights Agreement").
18. Cusip Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Attention: General Counsel
A1-6
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
Date: _______________
Your Signature: _____________________________
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A1-7
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers
pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box
below:
Section 4.10 Section 4.15
If you want to elect to have only part of the Note purchased by the
Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the
amount you elect to have purchased:
$---------------
Date: _______________
Your Signature: _______________________________
(Sign exactly as your name appears on
the face of this Note)
Tax Identification No.: _______________________
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A1-8
<PAGE>
SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE
The following exchanges of a part of this Global Note for an interest
in another Global Note or for a Definitive Note, or exchanges of a part of
another Global Note or Definitive Note for an interest in this Global Note, have
been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in [at maturity] of this
Principal Amount Principal Amount Global Note following Signature of authorized
[at maturity] of [at maturity] of such decrease officer of Trustee or
Date of Exchange this Global Note this Global Note (or increase) Note Custodian
---------------- ---------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C>
</TABLE>
A1-9
<PAGE>
EXHIBIT A2
[Face of Regulation S Temporary Global Note]
- --------------------------------------------------------------------------------
CUSIP/CINS U55624AA5
13 1/4% Series A Senior Notes due 2010
No. 1 $
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
promises to pay to CEDE & CO.
or registered assigns,
the principal sum of
Dollars on March 1, 2010.
Interest Payment Dates: March 1 and September 1
Record Dates: February 15 and August 15
Dated: February 17, 2000
MADISON RIVER CAPITAL, LLC
By: __________________________
Name:
Title
This is one of the Notes referred to MADISON RIVER FINANCE CORP.
in the within-mentioned Indenture:
NORWEST BANK MINNESOTA, By: __________________________
NATIONAL ASSOCIATION
as Trustee Name:
Title
By: ________________________
Authorized Signatory
(SEAL)
- --------------------------------------------------------------------------------
A2-1
<PAGE>
[Back of Regulation S Temporary Global Note]
13 1/4% Series A Senior Notes due 2010
THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE
CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS
SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE
BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED
TO RECEIVE PAYMENT OF INTEREST HEREON.
UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE
FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD,
PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) TO A PERSON WHO THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE
903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
THEREUNDER (IF AVAILABLE) AND (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A
TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN
EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF
THE UNITED STATES.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. Interest. Madison River Capital, LLC, a Delaware limited liability
company (the "Company") and Madison River Finance Corp., a Delaware corporation
("Madison River Finance" and, together with the Company, the "Issuers"),
promises to pay interest on the principal amount of this Note at 13 1/4% per
annum from February 17, 2000 until maturity and shall pay the Special Interest
payable pursuant to Section 2 of the Registration Rights Agreement referred to
below. The Issuers will pay interest and Special Interest semi-annually in
arrears on March 1 and September 1 of each year, or if any such day is not a
Business Day, on the next succeeding Business Day (each an "Interest Payment
Date").
A2-2
<PAGE>
Interest on the Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of issuance;
provided that if there is no existing Default in the payment of interest, and if
this Note is authenticated between a record date referred to on the face hereof
and the next succeeding Interest Payment Date, interest shall accrue from such
next succeeding Interest Payment Date; provided, further, that the first
Interest Payment Date shall be September 1, 2000. The Issuers shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue principal and premium, if any, from time to time on demand at a rate
that is 1% per annum in excess of the rate then in effect; it shall pay interest
(including post-petition interest in any proceeding under any Bankruptcy Law) on
overdue installments of interest and Special Interest (without regard to any
applicable grace periods) from time to time on demand at the same rate to the
extent lawful. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
Until this Regulation S Temporary Global Note is exchanged for one or
more Regulation S Permanent Global Notes, the Holder hereof shall not be
entitled to receive payments of interest hereon; until so exchanged in full,
this Regulation S Temporary Global Note shall in all other respects be entitled
to the same benefits as other Senior Notes under the Indenture.
2. Method of Payment. The Issuers will pay interest on the Notes
(except defaulted interest) and Special Interest to the Persons who are
registered Holders of Notes at the close of business on the February 15 or
August 15 next preceding the Interest Payment Date, even if such Notes are
canceled after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to defaulted
interest. The Notes will be payable as to principal, premium and Special
Interest, if any, and interest at the office or agency of the Paying Agent and
Registrar maintained for such purpose within or without the City and State of
New York, or, at the option of the Issuers, payment of interest and Special
Interest may be made by check mailed to the Holders at their addresses set forth
in the register of Holders, and provided that payment by wire transfer of
immediately available funds will be required with respect to principal of and
interest, premium and Special Interest on, all Global Notes and all other Notes
the Holders of which shall have provided wire transfer instructions to the
Issuers or the Paying Agent. Such payment shall be in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
3. Paying Agent and Registrar. Initially, Norwest Bank Minnesota,
National Association, the Trustee under the Indenture, will act as Paying Agent
and Registrar. The Issuers may change any Paying Agent or Registrar without
notice to any Holder. Either Issuer or any of its Subsidiaries may act in any
such capacity.
4. Indenture. The Issuers issued the Notes under an Indenture dated as
of February 17, 2000 ("Indenture") between the Issuers and the Trustee. The
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code (S)(S) 77aaa-77bbbb). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of such
terms. To the extent any provision of this Note conflicts with the express
provisions of the Indenture, the provisions of the Indenture shall govern and be
controlling. The Notes are obligations of the Issuers limited to $350.0 million
in aggregate principal amount of which $200.0 million are Initial Notes and up
to $150.0 million may be issued as Additional Notes.
5. Optional Redemption.
(a) Except as set forth in subparagraph (b) of this Paragraph 5, the
Issuers shall not have the option to redeem the Notes pursuant to this Paragraph
5 prior to March 1, 2005. Thereafter, the Issuers shall have the option to
redeem the Notes, in whole or in part, upon not less than 30 nor more than 60
A2-3
<PAGE>
days' notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Special Interest
thereon, if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 1 of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2005.................................................. 106.625%
2006.................................................. 104.417%
2007.................................................. 102.208%
2008 and thereafter................................... 100.000%
</TABLE>
(b) Notwithstanding the provisions of subparagraph (a) of this Paragraph
5, at any time prior to March 1, 2003, the Issuers may on any one or more
occasions redeem up to 35% of the aggregate principal amount of Notes originally
issued under the Indenture with the net proceeds of one or more Public Equity
Offerings by the Company or the net cash proceeds of a Strategic Equity
Investment in the Company or a capital contribution to the Company's common
equity made with the net cash proceeds of a concurrent Public Equity Offering
by, or Strategic Investment in, the Company's direct parent at a redemption
price equal to 113.250% of the principal amount thereof plus accrued and unpaid
interest and Special Interest thereon, if any, to the redemption date; provided
that (1) at least 65% in aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption, excluding Notes
held by the Company and its Subsidiaries and (2) that such redemption occurs
within 60 days of the date of the closing of such Public Equity Offering or
Strategic Equity Investment.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Issuers shall not be required
to make mandatory redemption or sinking fund payments with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) If there is a Change of Control, the Issuers shall be required to make
an offer (a "Change of Control Offer") to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of each Holder's Notes at a purchase
price equal to 101% of the aggregate principal amount of the Notes repurchased
plus accrued and unpaid interest and Special Interest thereon, if any, to the
date of purchase or, in the case of repurchases of Notes prior to the full
Accretion Date, at a purchase price equal to 101% of the aggregate principal
amount of Notes repurchased plus accrued and unpaid interest and Special
Interest thereon, if any, to such date of repurchase (in either case, the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Issuers shall mail a notice to each Holder setting forth the procedures
governing the Change of Control Offer as required by the Indenture.
(b) If the Company or a Subsidiary consummates any Asset Sales, within
five Business Days of each date on which the aggregate amount of Excess Proceeds
exceeds $10 million, the Issuers shall commence an offer to all Holders of Notes
(as "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase
the maximum principal amount of Notes (including any Additional Notes) that may
be purchased out of the Excess Proceeds at an offer price in cash in an amount
equal to 100% of the principal amount thereof plus accrued and unpaid interest
and Special Interests thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
amount of Notes (including any Additional Notes) tendered pursuant to an Asset
Sale Offer is less than the Excess Proceeds, the Company (or such Subsidiary)
may use such deficiency for any purpose not otherwise prohibited by the
Indenture. If the aggregate principal amount of Notes surrendered by Holders
thereof and such other pari passi indebtedness tendered exceeds the amount of
Excess Proceeds, the Trustee shall select the Notes and such other pari passi
indebtedness to be purchased on a pro rata basis.
A2-4
<PAGE>
Holders of Notes that are the subject of an offer to purchase will receive an
Asset Sale Offer from the Issuers prior to any related purchase date and may
elect to have such Notes purchased by completing the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Notes.
8. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder whose
Notes are to be redeemed at its registered address. Notes in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$1,000, unless all of the Notes held by a Holder are to be redeemed. On and
after the redemption date interest ceases to accrue on Notes or portions thereof
called for redemption.
9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers need not exchange or register the
transfer of any Note or portion of a Note selected for redemption, except for
the unredeemed portion of any Note being redeemed in part. Also, the Company
need not exchange or register the transfer of any Notes for a period of 15 days
before a selection of Notes to be redeemed or during the period between a record
date and the corresponding Interest Payment Date.
10. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the consent of the
Holders of at least a majority in principal amount of the then outstanding Notes
and Additional Notes, if any, voting as a single class, and any existing default
or compliance with any provision of the Indenture or the Notes may be waived
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes and Additional Notes, if any, voting as a single class.
Without the consent of any Holder of a Note, the Indenture or the Notes may be
amended or supplemented to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Issuers' obligations to Holders of
the Notes in case of a merger or consolidation, to make any change that would
provide any additional rights or benefits to the Holders of the Notes or that
does not adversely affect the legal rights under the Indenture of any such
Holder, to comply with the requirements of the SEC in order to effect or
maintain the qualification of the Indenture under the Trust Indenture Act, or to
provide for the Issuance of Additional Notes in accordance with the limitations
set forth in the Indenture.
12. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due of interest or Special Interests on the Notes; (ii)
default in payment when due of principal of or premium, if any, on the Notes
when the same becomes due and payable at maturity, upon redemption (including in
connection with an offer to purchase) or otherwise, (iii) failure by the Company
to comply for 30 days after notice with Section 4.07 or 4.09, or to comply with
Sections 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company for 45
days after notice to the Company by the Trustee or the Holders of at least 25%
in principal amount of the Notes (including Additional Notes, if any) then
outstanding voting as a single class to comply with certain other agreements in
the Indenture or the Notes;
A2-5
<PAGE>
(v) default under certain other agreements relating to Indebtedness of the
Company which default results in the acceleration of such Indebtedness prior to
its express maturity; (vi) certain final judgments for the payment of money that
remain undischarged for a period of 60 days; and (vii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or
the Holders of at least 25% in principal amount of the then outstanding Notes
may declare all the Notes to be due and payable. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Notes will become due and payable without further
action or notice. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest. The Holders of a
majority in aggregate principal amount of the Notes then outstanding by notice
to the Trustee may on behalf of the Holders of all of the Notes waive any
existing Default or Event of Default and its consequences under the Indenture
except a continuing Default or Event of Default in the payment of interest on,
Special Interest, if any, or the principal of, the Notes. The Issuers are
required to deliver to the Trustee annually a statement regarding compliance
with the Indenture, and the Issuers are required upon becoming aware of any
Default or Event of Default, to deliver to the Trustee a statement specifying
such Default or Event of Default.
13. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Issuers or their Affiliates, and may otherwise deal with the Issuers or
their Affiliates, as if it were not the Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee,
incorporator or stockholder, of the Issuers, as such, shall not have any
liability for any obligations of the Issuers under the Notes or the Indenture or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Notes.
15. AUTHENTICATION. This Note shall not be valid until authenticated by
the manual signature of the Trustee or an authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
17. ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED
DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under
the Indenture, Holders of Restricted Global Notes and Restricted Definitive
Notes shall have all the rights set forth in the Registration Rights Agreement
dated as of February 17, 2000, between the Issuers and the parties named on the
signature pages thereof (the "Registration Rights Agreement").
18. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Issuers have caused
CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers
in notices of redemption as a convenience to Holders. No representation is made
as to the accuracy of such numbers either as printed on the Notes or as
contained
A2-6
<PAGE>
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
The Issuers will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Attention: General Counsel
A2-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(I) or (we) assign and transfer this Note to: __________________________________
(Insert assignee's legal name)
________________________________________________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint ________________________________________________________
to transfer this Note on the books of the Issuers. The agent may substitute
another to act for him.
Date: _______________
Your Signature:___________________________________
(Sign exactly as your name appears on
the face of this Note)
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or
other signature guarantor acceptable to the Trustee).
A2-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Issuers pursuant to
Section 4.10 or 4.15 of the Indenture, check the appropriate box below:
Section 4.10 Section 4.15
If you want to elect to have only part of the Note purchased by the Issuers
pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you
elect to have purchased:
$________________
Date: _______________
Your Signature:______________________________
(Sign exactly as your name appears
on the face of this Note)
Tax Identification No.: _____________________
Signature Guarantee*: _________________________
* Participant in a recognized Signature Guarantee Medallion Program (or other
signature guarantor acceptable to the Trustee).
A2-9
<PAGE>
SCHEDULE OF EXCHANGES OF REGULATION S TEMPORARY GLOBAL NOTE
The following exchanges of a part of this Regulation S Temporary Global
Note for an interest in another Global Note, or of other Restricted Global Notes
for an interest in this Regulation S Temporary Global Note, have been made:
<TABLE>
<CAPTION>
Principal Amount
Amount of decrease in Amount of increase in [at maturity] of this
Principal Amount Principal Amount Global Note following Signature of authorized
[at maturity] of [at maturity] of such decrease officer of Trustee or
Date of Exchange this Global Note this Global Note (or increase) Note Custodian
---------------- ---------------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
</TABLE>
A2-10
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF TRANSFER
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Norwest Bank Minnesota, National Association
Sixth and Marquette N9303-120
Minneapolis, MN 55479
Re: 13 1/4% Senior Notes Due 2010
-----------------------------
Reference is hereby made to the Indenture, dated as of February 17, 2000
(the "Indenture"), between Madison River Capital, LLC, (the "Company"), an
Madison River Finance Corp. ("Madison River Finance" and, together with the
Company, the "Issuers") and Norwest Bank Minnesota, National Association, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
___________________, (the "Transferor") owns and proposes to transfer the
Note[s] or interest in such Note[s] specified in Annex A hereto, in the
principal amount of $___________ in such Note[s] or interests (the "Transfer"),
to ___________________________ (the "Transferee"), as further specified in Anne
A hereto. In connection with the Transfer, the Transferor hereby certifies that
[CHECK ALL THAT APPLY]
1. [_] Check if Transferee will take delivery of a beneficial interest
---------------------------------------------------------------
in the 144A Global Note or a Definitive Note Pursuant to Rule 144A. The Transfer
- ------------------------------------------------------------------
is being effected pursuant to and in accordance with Rule 144A under the United
States Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the beneficial
interest or Definitive Note is being transferred to a Person that the Transferor
reasonably believed and believes is purchasing the beneficial interest or
Definitive Note for its own account, or for one or more accounts with respect to
which such Person exercises sole investment discretion, and such Person and each
such account is a "qualified institutional buyer" within the meaning of Rule
144A in a transaction meeting the requirements of Rule 144A and such Transfer is
in compliance with any applicable blue sky securities laws of any state of the
United States. Upon consummation of the proposed Transfer in accordance with the
terms of the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the 144A Global Note and/or the Definitive Note and
in the Indenture and the Securities Act.
2. [_] Check if Transferee will take delivery of a beneficial interest
---------------------------------------------------------------
in the Temporary Regulation S Global Note, the Regulation S Global Note or a
- ----------------------------------------------------------------------------
Definitive Note pursuant to Regulation S. The Transfer is being effected
- ----------------------------------------
pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act
and, accordingly, the Transferor hereby further certifies that (i) the Transfer
is not being made to a person in the United States and (x) at the time the buy
order was originated, the Transferee was outside the United States or such
Transferor and any Person acting on its behalf reasonably believed and believes
that the Transferee was outside the United States or (y) the transaction was
executed in, on or through the facilities of a designated offshore securities
market and neither such Transferor nor any Person acting on its behalf knows
that the transaction was prearranged with a buyer in
B-1
<PAGE>
the United States, (ii) no directed selling efforts have been made in
contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S
under the Securities Act, (iii) the transaction is not part of a plan or scheme
to evade the registration requirements of the Securities Act and (iv) if the
proposed transfer is being made prior to the expiration of the Restricted
Period, the transfer is not being made to a U.S. Person or for the account or
benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of
the proposed transfer in accordance with the terms of the Indenture, the
transferred beneficial interest or Definitive Note will be subject to the
restrictions on Transfer enumerated in the Private Placement Legend printed on
the Regulation S Global Note, the Temporary Regulation S Global Note and/or the
Definitive Note and in the Indenture and the Securities Act.
3. [_] Check and complete if Transferee will take delivery of a
--------------------------------------------------------
beneficial interest in the IAI Global Note or a Definitive Note pursuant to any
- -------------------------------------------------------------------------------
provision of the Securities Act other than Rule 144A or Regulation S. The
- --------------------------------------------------------------------
Transfer is being effected in compliance with the transfer restrictions
applicable to beneficial interests in Restricted Global Notes and Restricted
Definitive Notes and pursuant to and in accordance with the Securities Act and
any applicable blue sky securities laws of any state of the United States, and
accordingly the Transferor hereby further certifies that (check one):
(a) [_] such Transfer is being effected pursuant to a
Securities Act;
or
(b) [_] such Transfer is being effected to the Company or
or
(c) [_] such Transfer is being effected pursuant to an
effective registration statement under the Securities Act and in
compliance with the prospectus delivery requirements of the Securities
Act;
or
(d) [_] such Transfer is being effected to an Institutional
Accredited Investor and pursuant to an exemption from the registration
requirements of the Securities Act other than Rule 144A Rule 144 or
Rule 904, and the Transferor hereby further certifies that it has not
engaged in any general solicitation within the meaning of Regulation D
under the Securities Act and the Transfer complies with the transfer
restrictions applicable to beneficial interests in a Restricted Global
Note or Restricted Definitive Notes and the requirements of the
exemption claimed, which certification i supported by (1) a
certificate executed by the Transferee in the for of Exhibit D to the
Indenture and (2) [if such Transfer is in respec of a principal amount
of Notes at the time of transfer of less than $250,000,] an Opinion of
Counsel provided by the Transferor or the Transferee (a copy of which
the Transferor has attached to this certification), to the effect that
such Transfer is in compliance with the Securities Act. Upon
consummation of the proposed transfer in accordance with the terms of
the Indenture, the transferred beneficial interest or Definitive Note
will be subject to the restrictions on transfer enumerated in the
Private Placement Legend printed on the IAI Global Note and/or the
Definitive Notes and in th Indenture and the Securities Act.
4. [_] Check if Transferee will take delivery of a beneficial interest
---------------------------------------------------------------
in an Unrestricted Global Note or of an Unrestricted Definitive Note.
- --------------------------------------------------------------------
B-2
<PAGE>
(a) [_] Check if Transfer is pursuant to Rule 144. (i) The Transfer
is being effected pursuant to and in accordance with Rule 144 under the
Securities Act and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any state of the United
States and (ii) the restrictions on transfer contained in the Indenture and the
Privat Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will no longer be subject to the restrictions on transfer
enumerated in th Private Placement Legend printed on the Restricted Global
Notes, on Restricted Definitive Notes and in the Indenture.
(b) [_] Check if Transfer is Pursuant to Regulation S. (i) The
Transfer is being effected pursuant to and in accordance with Rule 903 or Rule
904 under th Securities Act and in compliance with the transfer restrictions
contained in th Indenture and any applicable blue sky securities laws of any
state of the Unite States and (ii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act. Upon consummation of the proposed Transfer
in accordance with the terms of the Indenture, the transferred beneficial
interest or Definitive Note will no longer be subject to the restrictions on
transfer enumerated in the Private Placement Legend printed on the Restricted
Global Notes, on Restricted Definitive Notes and in the Indenture.
(c) [_] Check if Transfer is Pursuant to Other Exemption. (i) The
Transfer is being effected pursuant to and in compliance with an exemption from
the registration requirements of the Securities Act other than Rule 144, Rule
903 o Rule 904 and in compliance with the transfer restrictions contained in the
Indenture and any applicable blue sky securities laws of any State of the Unite
States and (ii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act. Upon consummation of the proposed Transfer in accordance
with the terms of the Indenture, the transferred beneficial interest or
Definitive Note will not be subject to the restrictions on transfer enumerated
in the Private Placement Legend printed on the Restricted Global Notes or
Restricted Definitive Notes and in the Indenture.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
____________________________________
[Insert Name of Transferor]
By:_________________________________
Name:
Title:
Dated: _______________________
B-3
<PAGE>
ANNEX A TO CERTIFICATE OF TRANSFER
1. The Transferor owns and proposes to transfer the following:
[CHECK ONE OF (a) OR (b)]
(a) [_] a beneficial interest in the:
(i) [_] 144A Global Note (CUSIP _________), or
(ii) [_] Regulation S Global Note (CUSIP _________), or
(iii) [_] IAI Global Note (CUSIP _________); or
(b) [_] a Restricted Definitive Note.
2. After the Transfer the Transferee will hold:
[CHECK ONE]
(a) [_] a beneficial interest in the:
(i) [_] 144A Global Note (CUSIP _________), or
(ii) [_] Regulation S Global Note (CUSIP _________), or
(iii) [_] IAI Global Note (CUSIP _________); or
(iv) [_] Unrestricted Global Note (CUSIP _________); or
(b) [_] a Restricted Definitive Note; or
(c) [_] an Unrestricted Definitive Note,
in accordance with the terms of the Indenture.
B-4
<PAGE>
EXHIBIT C
FORM OF CERTIFICATE OF EXCHANGE
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Norwest Bank Minnesota, National Association
Sixth and Marquette N9303-120
Minneapolis, MN 55479
Re: 13 1/4% Senior Notes Due 2010
------------------------------
(CUSIP ____________)
Reference is hereby made to the Indenture, dated as of February 17, 2000
(the "Indenture"), between Madison River Capital, LLC, (the "Company"), and
Madison River Finance Corp. ("Madison River Finance" and, together with the
Company, the "Issuers") and Norwest Bank Minnesota, National Association, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
__________________________, (the "Owner") owns and proposes to exchange the
Note[s] or interest in such Note[s] specified herein, in the principal amount of
$____________ in such Note[s] or interests (the "Exchange"). In connection with
the Exchange, the Owner hereby certifies that:
1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A
--------------------------------------------------------------------
RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS
- --------------------------------------------------------------------------------
IN AN UNRESTRICTED GLOBAL NOTE
- ------------------------------
(a) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to beneficial interest in an Unrestricted Global Note. In connection
with the Exchange of the Owner's beneficial interest in a Restricted Global Note
for a beneficial interest in an Unrestricted Global Note in an equal principal
amount, the Owner hereby certifies (i) the beneficial interest is being acquired
for the Owner's own account without transfer, (ii) such Exchange has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with the United States Securities Act of
1933, as amended (the "Securities Act"), (iii) the restrictions on transfer
contained in the Indenture and the Private Placement Legend are not required in
order to maintain compliance with the Securities Act and (iv) the beneficial
interest in an Unrestricted Global Note is being acquired in compliance with any
applicable blue sky securities laws of any state of the United States.
(b) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to Unrestricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for an Unrestricted
Definitive Note, the Owner hereby certifies (i) the Definitive Note is being
acquired for the Owner's own account without transfer, (ii) such Exchange has
been effected in compliance with the transfer restrictions applicable to the
Restricted Global Notes and pursuant to and in accordance with the Securities
Act, (iii) the restrictions on transfer contained in the Indenture and the
Private Placement Legend are not required in order to maintain compliance with
the Securities Act and (iv) the Definitive Note is being acquired in compliance
with any applicable blue sky securities laws of any state of the United States.
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<PAGE>
EXHIBIT C
(c) [_] Check if Exchange is from Restricted Definitive Note to
beneficial interest in an Unrestricted Global Note. In connection with the
Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an
Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest
is being acquired for the Owner's own account without transfer, (ii) such
Exchange has been effected in compliance with the transfer restrictions
applicable to Restricted Definitive Notes and pursuant to and in accordance with
the Securities Act, (iii) the restrictions on transfer contained in the
Indenture and the Private Placement Legend are not required in order to maintain
compliance with the Securities Act and (iv) the beneficial interest is being
acquired in compliance with any applicable blue sky securities laws of any state
of the United States.
(d) [_] Check if Exchange is from Restricted Definitive Note to
Unrestricted Definitive Note. In connection with the Owner's Exchange of a
Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby
certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's
own account without transfer, (ii) such Exchange has been effected in compliance
with the transfer restrictions applicable to Restricted Definitive Notes and
pursuant to and in accordance with the Securities Act, (iii) the restrictions on
transfer contained in the Indenture and the Private Placement Legend are not
required in order to maintain compliance with the Securities Act and (iv) the
Unrestricted Definitive Note is being acquired in compliance with any applicable
blue sky securities laws of any state of the United States.
2. Exchange of Restricted Definitive Notes or Beneficial Interests in
------------------------------------------------------------------
Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests
- -------------------------------------------------------------------------------
in Restricted Global Notes
- --------------------------
(a) [_] Check if Exchange is from beneficial interest in a Restricted
Global Note to Restricted Definitive Note. In connection with the Exchange of
the Owner's beneficial interest in a Restricted Global Note for a Restricted
Definitive Note with an equal principal amount, the Owner hereby certifies that
the Restricted Definitive Note is being acquired for the Owner's own account
without transfer. Upon consummation of the proposed Exchange in accordance with
the terms of the Indenture, the Restricted Definitive Note issued will continue
to be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the Restricted Definitive Note and in the Indenture
and the Securities Act.
(b) [_] Check if Exchange is from Restricted Definitive Note To
beneficial interest in a Restricted Global Note. In connection with the
Exchange of the Owner's Restricted Definitive Note for a beneficial interest in
the [CHECK ONE] [_] 144A Global Note, Regulation S Global Note, IAI Global Note
with an equal principal amount, the Owner hereby certifies (i) the beneficial
interest is being acquired for the Owner's own account without transfer and (ii)
such Exchange has been effected in compliance with the transfer restrictions
applicable to the Restricted Global Notes and pursuant to and in accordance with
the Securities Act, and in compliance with any applicable blue sky securities
laws of any state of the United States. Upon consummation of the proposed
Exchange in accordance with the terms of the Indenture, the beneficial interest
issued will be subject to the restrictions on transfer enumerated in the Private
Placement Legend printed on the relevant Restricted Global Note and in the
Indenture and the Securities Act.
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<PAGE>
EXHIBIT C
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
________________________________________
[Insert Name of Transferor]
By:_____________________________________
Name:
Title:
Dated: ______________________
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<PAGE>
EXHIBIT D
FORM OF CERTIFICATE FROM
ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Norwest Bank Minnesota, National Association
Sixth and Marquette N9303-120
Minneapolis, MN 55479
Re: 13 1/4% Senior Notes Due 2010
-----------------------------
Reference is hereby made to the Indenture, dated as of February 17, 2000
(the "Indenture"), between Madison River Capital, LLC, (the "Company"), and
Madison River Finance Corp. ("Madison River Finance" and, together with the
Company, the "Issuers") and Norwest Bank Minnesota, National Association, as
trustee. Capitalized terms used but not defined herein shall have the meanings
given to them in the Indenture.
In connection with our proposed purchase of $____________ aggregate
principal amount of:
(a) [_] a beneficial interest in a Global Note, or
(b) [_] a Definitive Note,
we confirm that:
1. We understand that any subsequent transfer of the Notes or any
interest therein is subject to certain restrictions and conditions set forth in
the Indenture and the undersigned agrees to be bound by, and not to resell,
pledge or otherwise transfer the Notes or any interest therein except in
compliance with, such restrictions and conditions and the United States
Securities Act of 1933, as amended (the "Securities Act").
2. We understand that the offer and sale of the Notes have not been
registered under the Securities Act, and that the Notes and any interest therein
may not be offered or sold except as permitted in the following sentence. We
agree, on our own behalf and on behalf of any accounts for which we are acting
as hereinafter stated, that if we should sell the Notes or any interest therein,
we will do so only (A) to the Company or any subsidiary thereof, (B) in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes (or has furnished on its
behalf by a U.S. broker-dealer) to you and to the Company a signed letter
substantially in the form of this letter and [, if such transfer is in respect
of a principal amount of Notes, at the time of transfer of less than $250,000,]
an Opinion of Counsel in form reasonably acceptable to the Company to the effect
that such transfer is in compliance with the Securities Act, (D) outside the
United States in accordance with Rule 904 of Regulation S under the Securities
Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or
(F) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing the Definitive Note or
beneficial interest in a Global Note from us in a transaction
D-1
<PAGE>
meeting the requirements of clauses (A) through (E) of this paragraph a notice
advising such purchaser that resales thereof are restricted as stated herein.
3. We understand that, on any proposed resale of the Notes or beneficial
interest therein, we will be required to furnish to you and the Company such
certifications, legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Notes purchased by us will bear a
legend to the foregoing effect.
4. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Notes, and we and
any accounts for which we are acting are each able to bear the economic risk of
our or its investment.
5. We are acquiring the Notes or beneficial interest therein purchased by
us for our own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise sole
investment discretion.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby.
_____________________________________________
[Insert Name of Accredited Investor]
By:__________________________________________
Name:
Title:
Dated: _______________________
D-2
<PAGE>
EXHIBIT E
FORM OF SUPPLEMENTAL INDENTURE
TO BE DELIVERED BY SUBSEQUENT GUARANTORS
Supplemental Indenture (this "Supplemental Indenture"), dated as of
________________, among __________________ (the "Guaranteeing Subsidiary"), a
subsidiary of [Madison River Capital, LLC] [Madison River Finance Corp.] (or its
permitted successor), a Delaware [limited liability company] [corporation] (the
"Company"), the Company, the other Guarantors (as defined in the Indenture
referred to herein) and Norwest Bank Minnesota, National Association, as trustee
under the indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company and [Madison River Finance Corp.] [Madison River
Capital, LLC] has heretofore executed and delivered to the Trustee an indenture
(the "Indenture"), dated as of February 17, 2000 providing for the issuance of
an aggregate principal amount of up to $350,000,000 of 13 1/4% Senior Notes due
2010 (the "Notes");
WHEREAS, the Indenture provides that under certain circumstances the
Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental
indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally
guarantee all of the Company's Obligations under the Notes and the Indenture on
the terms and conditions set forth herein (the "Note Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the
Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the
equal and ratable benefit of the Holders of the Notes as follows:
1. Capitalized Terms. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees as
follows:
(a) Along with all Guarantors named in the Indenture, to jointly and
severally Guarantee to each Holder of a Note authenticated and delivered by
the Trustee and to the Trustee and its successors and assigns, the Notes or
the obligations of the Company hereunder or thereunder, that:
(i) the principal of and interest on the Notes will be promptly
paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and
interest on the Notes, if any, if lawful, and all other obligations of
the Company to the Holders or the Trustee hereunder or thereunder will
be promptly paid in full or performed, all in accordance with the
terms hereof and thereof; and
(ii) in case of any extension of time of payment or renewal of
any Notes or any of such other obligations, that same will be promptly
paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at stated
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<PAGE>
maturity, by acceleration or otherwise. Failing payment when due of
any amount so guaranteed or any performance so guaranteed for whatever
reason, the Guarantors shall be jointly and severally obligated to pay
the same immediately.
(b) The obligations hereunder shall be unconditional, irrespective of
the validity, regularity or enforceability of the Notes or the Indenture,
the absence of any action to enforce the same, any waiver or consent by any
Holder of the Notes with respect to any provisions hereof or thereof, the
recovery of any judgment against the Company, any action to enforce the
same or any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a guarantor.
(c) The following is hereby waived: diligence presentment, demand of
payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against
the Company, protest, notice and all demands whatsoever.
(d) This Note Guarantee shall not be discharged except by complete
performance of the obligations contained in the Notes and the Indenture,
and the Guaranteeing Subsidiary accepts all obligations of a Guarantor
under the Indenture.
(e) If any Holder or the Trustee is required by any court or
otherwise to return to the Company, the Guarantors, or any Custodian,
Trustee, liquidator or other similar official acting in relation to either
the Company or the Guarantors, any amount paid by either to the Trustee or
such Holder, this Note Guarantee, to the extent theretofore discharged,
shall be reinstated in full force and effect.
(f) The Guaranteeing Subsidiary shall not be entitled to any right of
subrogation in relation to the Holders in respect of any obligations
guaranteed hereby until payment in full of all obligations guaranteed
hereby.
(g) As between the Guarantors, on the one hand, and the Holders and
the Trustee, on the other hand, (x) the maturity of the obligations
guaranteed hereby may be accelerated as provided in Article 6 of the
Indenture for the purposes of this Note Guarantee, notwithstanding any
stay, injunction or other prohibition preventing such acceleration in
respect of the obligations guaranteed hereby, and (y) in the event of any
declaration of acceleration of such obligations as provided in Article 6 of
the Indenture, such obligations (whether or not due and payable) shall
forthwith become due and payable by the Guarantors for the purpose of this
Note Guarantee.
(h) The Guarantors shall have the right to seek contribution from any
non-paying Guarantor so long as the exercise of such right does not impair
the rights of the Holders under the Guarantee.
(i) Pursuant to Section 10.02 of the Indenture, after giving effect
to any maximum amount and any other contingent and fixed liabilities that
are relevant under any applicable Bankruptcy or fraudulent conveyance laws,
and after giving effect to any collections from, rights to receive
contribution from or payments made by or on behalf of any other Guarantor
in respect of the obligations of such other Guarantor under Article 10 of
the Indenture, this new Note Guarantee shall be limited to the maximum
amount permissible such that the obligations of such Guarantor under this
Note Guarantee will not constitute a fraudulent transfer or conveyance.
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<PAGE>
3. Execution and Delivery. Each Guaranteeing Subsidiary agrees that the
Note Guarantees shall remain in full force and effect notwithstanding any
failure to endorse on each Note a notation of such Note Guarantee.
4. Guaranteeing Subsidiary May Consolidate, Etc. on Certain Terms.
(a) The Guaranteeing Subsidiary may not consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person)
another corporation, Person or entity whether or not affiliated with such
Guarantor unless:
(i) subject to Sections 10.04 and 10.05 of the Indenture, the
Person formed by or surviving any such consolidation or merger (if
other than a Guarantor or the Company) unconditionally assumes all the
obligations of such Guarantor, pursuant to a supplemental indenture in
form and substance reasonably satisfactory to the Trustee, under the
Notes, the Indenture and the Note Guarantee on the terms set forth
herein or therein; and
(ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
(b) In case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor corporation, by supplemental
indenture, executed and delivered to the Trustee and satisfactory in form
to the Trustee, of the Note Guarantee endorsed upon the Notes and the due
and punctual performance of all of the covenants and conditions of the
Indenture to be performed by the Guarantor, such successor corporation
shall succeed to and be substituted for the Guarantor with the same effect
as if it had been named herein as a Guarantor. Such successor corporation
thereupon may cause to be signed any or all of the Note Guarantees to be
endorsed upon all of the Notes issuable hereunder which theretofore shall
not have been signed by the Company and delivered to the Trustee. All the
Note Guarantees so issued shall in all respects have the same legal rank
and benefit under the Indenture as the Note Guarantees theretofore and
thereafter issued in accordance with the terms of the Indenture as though
all of such Note Guarantees had been issued at the date of the execution
hereof.
(c) Except as set forth in Articles 4 and 5 and Section 10.05 of
Article 10 of the Indenture, and notwithstanding clauses (a) and (b) above,
nothing contained in the Indenture or in any of the Notes shall prevent any
consolidation or merger of a Guarantor with or into the Company or another
Guarantor, or shall prevent any sale or conveyance of the property of a
Guarantor as an entirety or substantially as an entirety to the Company or
another Guarantor.
5. Releases.
(a) In the event of a sale or other disposition of all of the assets
of any Guarantor, by way of merger, consolidation or otherwise, or a sale
or other disposition of all to the capital stock of any Guarantor, in each
case to a Person that is not (either before or after giving effect to such
transaction) a [Restricted] Subsidiary of the Company, then such Guarantor
(in the event of a sale or other disposition, by way of merger,
consolidation or otherwise, of all of the capital stock of such Guarantor)
or the corporation acquiring the property (in the event of a sale or other
disposition of all or substantially all of the assets of such Guarantor)
will be released and relieved of any obligations under its Note Guarantee;
provided that the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the Indenture,
including without limitation Section 4.10 of the Indenture. Upon delivery
by the Company to the Trustee of
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<PAGE>
an Officers' Certificate and an Opinion of Counsel to the effect that such
sale or other disposition was made by the Company in accordance with the
provisions of the Indenture, including without limitation Section 4.10 of
the Indenture, the Trustee shall execute any documents reasonably required
in order to evidence the release of any Guarantor from its obligations
under its Note Guarantee.
(b) Any Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and
interest on the Notes and for the other obligations of any Guarantor under
the Indenture as provided in Article 10 of the Indenture.
6. No Recourse Against Others. No past, present or future director,
officer, employee, incorporator, stockholder or agent of the Guaranteeing
Subsidiary, as such, shall have any liability for any obligations of the Company
or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the
Indenture or this Supplemental Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the Notes. Such
waiver may not be effective to waive liabilities under the federal securities
laws and it is the view of the SEC that such a waiver is against public policy.
7. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK
SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
8. Counterparts. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
9. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
10. The Trustee. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
recitals are made solely by the Guaranteeing Subsidiary and the Company.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed and attested, all as of the date first above
written.
Dated: _______________, ____
[Guaranteeing Subsidiary]
By: _______________________________
Name:
Title:
[MADISON RIVER CAPITAL, LLC]
[MADISON RIVER FINANCE CORP.]
By: _______________________________
Name:
Title:
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION,
as Trustee
By: _______________________________
Authorized Signatory
E-5
<PAGE>
Schedule I
SCHEDULE OF GUARANTORS
The following schedule lists each Guarantor under the Indenture as of the
Issue Date:
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<PAGE>
EXHIBIT 4.5
Execution Copy
Madison River Capital, LLC
Madison River Finance Corp.
13 1/4% Senior Notes due 2010
Exchange and Registration Rights Agreement
------------------------------------------
February 17, 2000
Goldman, Sachs & Co.,
Chase Securities Inc.
Morgan Stanley & Co. Incorporated
Bear, Stearns & Co. Inc.
As representatives of the several Purchasers
named in Schedule I to the Purchase Agreement
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Madison River Capital, LLC, a Delaware limited liability company (the
"Company"), and Madison River Finance Corp., a Delaware corporation ("Madison
River Finance" and, together with the Company, the "Issuers") propose to issue
and sell to the Purchasers (as defined herein) upon the terms set forth in the
Purchase Agreement (as defined herein) their 13 1/4% Senior Notes due 2010. As
an inducement to the Purchasers to enter into the Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchasers thereunder, the
Issuers agree with the Purchasers for the benefit of holders (as defined herein)
from time to time of the Registrable Securities (as defined herein) as follows:
1. Certain Definitions. For purposes of this Exchange and Registration
Rights Agreement, the following terms shall have the following respective
meanings:
"Base Interest" shall mean the interest that would otherwise accrue on the
Securities under the terms thereof and the Indenture, without giving effect to
the provisions of this Agreement.
The term "broker-dealer" shall mean any broker or dealer registered with
the Commission under the Exchange Act.
"Closing Date" shall mean the date on which the Securities are initially
issued.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Exchange
Act or the Securities Act, whichever is the relevant statute for the
particular purpose.
"Conduct Rules" shall have the meaning assigned thereto in Section
3(d)(xix) hereof.
<PAGE>
"Effective Time," in the case of (i) an Exchange Registration, shall mean
the time and date as of which the Commission declares the Exchange
Registration Statement effective or as of which the Exchange Registration
Statement otherwise becomes effective; (ii) a Shelf Registration, shall mean
the time and date as of which the Commission declares the Shelf Registration
Statement effective or as of which the Shelf Registration Statement otherwise
becomes effective; and (iii) a Market Making Shelf Registration, shall mean
the time and date as of which the Commission declares the Market Making Shelf
Registration Statement effective or as of which the Market Making Shelf
Registration Statement otherwise becomes effective.
"Electing Holder" shall mean any holder of Registrable Securities that has
returned a completed and signed Notice and Questionnaire to the Issuers in
accordance with Section 3(d)(ii) or 3(d)(iii) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or any
successor thereto, as the same shall be amended from time to time.
"Exchange Offer" shall have the meaning assigned thereto in Section 2(a)
hereof.
"Exchange Registration" shall have the meaning assigned thereto in Section
3(c) hereof.
"Exchange Registration Statement" shall have the meaning assigned thereto
in Section 2(a) hereof.
"Exchange Securities" shall have the meaning assigned thereto in Section
2(a) hereof and is also referred to as the New Notes in the Indenture.
The term "holder" shall mean each of the Purchasers and other persons who
acquire Registrable Securities from time to time (including any successors or
assigns), in each case for so long as such person owns any Registrable
Securities.
"Indenture" shall mean the Indenture, dated as of February 17, 2000,
between the Issuers and Norwest Bank Minnesota, National Association, as
Trustee, as the same shall be amended from time to time.
"Market Making Shelf Registration" shall have the meaning assigned thereto
in Section 2(c) hereof.
"Market Making Shelf Registration Statement" shall have the meaning
assigned thereto in Section 2(c) hereof.
"NASD" shall have the meaning assigned thereto in Section 3(d)(xix) hereof.
"Notice and Questionnaire" means a Notice of Registration Statement and
Selling Securityholder Questionnaire substantially in the form of Exhibit A
hereto.
The term "person" shall mean a corporation, association, partnership,
organization, business, individual, government or political subdivision
thereof or governmental agency.
"Purchase Agreement" shall mean the Purchase Agreement, dated as of
February 14, 2000, between the Purchasers and the Issuers relating to the
Securities.
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<PAGE>
"Purchasers" shall mean the Purchasers named in Schedule I to the Purchase
Agreement.
"Registrable Securities" shall mean the Securities; provided, however, that
a Security shall cease to be a Registrable Security when (i) in the
circumstances contemplated by Section 2(a) hereof, the Security has been
exchanged for an Exchange Security in an Exchange Offer as contemplated in
Section 2(a) hereof (provided that any Exchange Security that, pursuant to the
last two sentences of Section 2(a), is included in a prospectus for use in
connection with resales by broker-dealers shall be deemed to be a Registrable
Security with respect to Sections 5, 6 and 9 until resale of such Registrable
Security has been effected within the 180-day period referred to in Section
2(a)); (ii) in the circumstances contemplated by Section 2(b) hereof, a Shelf
Registration Statement registering such Security under the Securities Act has
been declared or becomes effective and such Security has been sold or
otherwise transferred by the holder thereof pursuant to and in a manner
contemplated by such effective Shelf Registration Statement; (iii) such
Security is sold pursuant to Rule 144 under circumstances in which any legend
borne by such Security relating to restrictions on transferability thereof,
under the Securities Act or otherwise, is removed by the Issuers or pursuant
to the Indenture; (iv) such Security is eligible to be sold pursuant to
paragraph (k) of Rule 144; or (v) such Security shall cease to be outstanding.
"Registration Default" shall have the meaning assigned thereto in Section
2(d) hereof.
"Registration Default Period" shall have the meaning assigned thereto in
Section 2(d) hereof.
"Registration Expenses" shall have the meaning assigned thereto in Section
4 hereof.
"Resale Period" shall have the meaning assigned thereto in Section 2(a)
hereof.
"Restricted Holder" shall mean (i) a holder that is an affiliate of the
Issuers within the meaning of Rule 405, (ii) a holder who acquires Exchange
Securities outside the ordinary course of such holder's business, (iii) a
holder who has arrangements or understandings with any person to participate
in the Exchange Offer for the purpose of distributing Exchange Securities and
(iv) a holder that is a broker-dealer, but only with respect to Exchange
Securities received by such broker-dealer pursuant to an Exchange Offer in
exchange for Registrable Securities acquired by the broker-dealer directly
from the Issuers.
"Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such rule
promulgated under the Securities Act (or any successor provision), as the same
shall be amended from time to time.
The term "Secondary Offer Registration Statement" shall mean (i) the Shelf
Registration Statement required to be filed by the Company pursuant to Section
2(b) hereof and/or (ii) the Market Making Shelf Registration Statement
required to be filed by the Company pursuant to Section 2(c) hereof, in each
case, as applicable. As used herein, references to a Secondary Offer
Registration Statement in the singular shall, if applicable, be deemed to be
in the plural.
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<PAGE>
"Securities" shall mean, collectively, the 13 1/4% Senior Notes due 2010
of the Issuers to be issued and sold to the Purchasers, and securities issued
in exchange therefor or in lieu thereof pursuant to the Indenture.
"Securities Act" shall mean the Securities Act of 1933, or any successor
thereto, as the same shall be amended from time to time.
"Shelf Registration" shall have the meaning assigned thereto in Section
2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned thereto in
Section 2(b) hereof.
"Special Interest" shall have the meaning assigned thereto in Section 2(d)
hereof.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or any
successor thereto, and the rules, regulations and forms promulgated
thereunder, all as the same shall be amended from time to time.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Exchange and Registration Rights Agreement, and the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Exchange and
Registration Rights Agreement as a whole and not to any particular Section or
other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Issuers agree to file
under the Securities Act, as soon as practicable, but no later than 90 days
after the Closing Date, a registration statement relating to an offer to
exchange (such registration statement, the "Exchange Registration Statement",
and such offer, the "Exchange Offer") any and all of the Securities for a like
aggregate principal amount of debt securities issued by the Issuers, which debt
securities are substantially identical to the Securities (and are entitled to
the benefits of a trust indenture which is substantially identical to the
Indenture or is the Indenture and which has been qualified under the Trust
Indenture Act), except that they have been registered pursuant to an effective
registration statement under the Securities Act and do not contain provisions
for the additional interest contemplated in Section 2(d) below (such new debt
securities hereinafter called "Exchange Securities"). The Issuers agree to use
their best efforts to cause the Exchange Registration Statement to become
effective under the Securities Act as soon as practicable, but no later than 180
days after the Closing Date. The Exchange Offer will be registered under the
Securities Act on the appropriate form and will comply with all applicable
tender offer rules and regulations under the Exchange Act. The Issuers further
agree to use their best efforts to commence and complete the Exchange Offer
promptly, but no later than 45 days after such registration statement has become
effective, hold the Exchange Offer open for at least 30 days and exchange
Exchange Securities for all Registrable Securities that have been properly
tendered and not withdrawn on or prior to the expiration of the Exchange Offer.
The Exchange Offer will be deemed to have been "completed" only if the debt
securities received by holders other than Restricted Holders in the Exchange
Offer for Registrable Securities are, upon receipt, transferable by each such
holder without restriction under Section 5 of the Securities Act and the
Exchange Act (except for the requirement to deliver a prospectus included in the
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Exchange Registration Statement applicable to resales by any broker-dealer of
Exchange Securities received by such broker-dealer pursuant to an Exchange Offer
in exchange for Registrable Securities other than those acquired by the broker-
dealer directly from the Issuers) and without material restrictions under the
blue sky or securities laws of a substantial majority of the States of the
United States of America. The Exchange Offer shall be deemed to have been
completed upon the earlier to occur of (i) the Issuers having exchanged the
Exchange Securities for all outstanding Registrable Securities pursuant to the
Exchange Offer and (ii) the Issuers having exchanged, pursuant to the Exchange
Offer, Exchange Securities for all Registrable Securities that have been
properly tendered and not withdrawn before the expiration of the Exchange Offer,
which shall be on a date that is at least 30 days following the commencement of
the Exchange Offer. The Issuers agree (x) to include in the Exchange
Registration Statement a prospectus for use in any resales by any holder of
Exchange Securities that is a broker-dealer and (y) to keep such Exchange
Registration Statement effective for a period (the "Resale Period") beginning
when Exchange Securities are first issued in the Exchange Offer and ending upon
the earlier of the expiration of the 180th day after the Exchange Offer has been
completed or such time as such broker-dealers no longer own any Registrable
Securities. With respect to such Exchange Registration Statement, such holders
shall have the benefit of the rights of indemnification and contribution set
forth in Sections 6(a), (c), (d) and (e) hereof.
(b) If (i) the Issuers are not (a) required to file the Exchange Offer
Registration Statement or (b) permitted to consummate the Exchange Offer because
the Exchange Offer is not permitted by applicable law or Commission policy, (ii)
any Holder of Transfer Restricted Securities notifies the Issuers prior to the
20/th/ day following consummation of the Exchange Offer that (a) it is
prohibited by law or Commission policy from participating in the Exchange Offer,
(b) that it may not resell the Exchange Securities acquired by it in the
Exchange Offer to the public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not appropriate or
available for such resales or (c) that it is a broker-dealer and owns Securities
acquired directly from the Issuers or an affiliate of the Issuers, the Issuers
shall, in lieu of (or, in the case of clause (ii), in addition to) conducting
the Exchange Offer contemplated by Section 2(a), use all reasonable best efforts
to file under the Securities Act as soon as practicable, but no later than the
later of 30 days after the time such obligation to file arises, a "shelf"
registration statement providing for the registration of, and the sale on a
continuous or delayed basis by the holders of, all of the Registrable
Securities, pursuant to Rule 415 or any similar rule that may be adopted by the
Commission (such filing, the "Shelf Registration" and such registration
statement, the "Shelf Registration Statement"). The Issuers agree to use their
best efforts (x) to cause the Shelf Registration Statement to become or be
declared effective no later than 90 days after such Shelf Registration Statement
is filed and to keep such Shelf Registration Statement continuously effective
for a period ending on the earlier of the second anniversary of the Effective
Time or such time as there are no longer any Registrable Securities outstanding,
provided, however, that no holder shall be entitled to be named as a selling
securityholder in the Shelf Registration Statement or to use the prospectus
forming a part thereof for resales of Registrable Securities unless such holder
is an Electing Holder, and (y) after the Effective Time of the Shelf
Registration Statement, promptly upon the request of any holder of Registrable
Securities that is not then an Electing Holder, to take any action reasonably
necessary to enable such holder to use the prospectus forming a part thereof for
resales of Registrable Securities, including, without limitation, any action
necessary to identify such holder as a selling securityholder in the Shelf
Registration Statement, provided, however,8
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that nothing in this Clause (y) shall relieve any such holder of the obligation
to return a completed and signed Notice and Questionnaire to the Issuers in
accordance with Section 3(d)(iii) hereof. The Issuers further agree to
supplement or make amendments to the Shelf Registration Statement, as and when
required by the rules, regulations or instructions applicable to the
registration form used by the Issuers for such Shelf Registration Statement or
by the Securities Act or rules and regulations thereunder for shelf
registration, and the Issuers agree to furnish to each Electing Holder copies of
any such supplement or amendment prior to its being used or promptly following
its filing with the Commission.
(c) The Issuers shall file under the Securities Act, as soon as
practicable after the date on which the Exchange Registration Statement (or in
lieu thereof, the Shelf Registration Statement) is filed with the Commission, a
"shelf" registration statement (which may be the Exchange Registration Statement
or the Shelf Registration Statement if permitted by the rules and regulations of
the Commission) pursuant to Rule 415 under the Securities Act or any similar
rule that may be adopted by the Commission providing for the registration of,
and the sale on a continuous or delayed basis in secondary transactions by
Goldman, Sachs & Co. of, Securities (in the event of a Shelf Registration) or
Exchange Securities (in the event of an Exchange Offer) (such filing, the
"Market Making Shelf Registration", and such registration statement, the "Market
Making Shelf Registration Statement"). The Issuers agree to use their reasonable
best efforts to cause the Market Making Shelf Registration Statement to become
or be declared effective on or prior to (i) the date the Exchange Offer is
completed pursuant to Section 2(a) above or (ii) the date the Shelf Registration
becomes or is declared effective pursuant to Section 2(b) above, and to keep
such Market Making Shelf Registration Statement continuously effective for so
long as Goldman, Sachs & Co. may be required to deliver a prospectus in
connection with transactions in the Securities or the Exchange Securities, as
the case may be. In the event that Goldman, Sachs & Co. holds Securities at the
time an Exchange Offer is to be conducted under Section 2(a) above, the Issuers
agree that the Market Making Shelf Registration shall provide for the resale by
Goldman, Sachs & Co. of such Securities and shall be kept continuously effective
for so long as Goldman, Sachs & Co. may be required to deliver a prospectus in
connection with the sale of such Securities. The Issuers further agree to
supplement or make amendments to the Market Making Shelf Registration Statement,
as and when required by the rules, regulations or instructions applicable to the
registration form used by the Issuers for such Market Making Shelf Registration
Statement or by the Securities Act or rules and regulations thereunder for shelf
registration, and the Issuers agree to furnish to Goldman, Sachs & Co. copies of
any such supplement or amendment prior to its being used or promptly following
its filing with the Commission.
Notwithstanding the foregoing, the Issuers may suspend the offering and sale
under the Market Making Shelf Registration Statement for a period or periods the
Board of Managers of the Company reasonably determines to be necessary, but in
any event not to exceed 150 days in each year during which the Market Making
Shelf Registration Statement is required to be effective and usable hereunder
(measured from the Effective Time of the Market Making Shelf Registration
Statement to successive anniversaries thereof) if (A)(i) the Issuers are in
possession of material nonpublic information relating to a proposed financing,
recapitalization, acquisition, disposition, business combination or other
material transaction and (ii)(x) such transaction is required to be disclosed in
the Market Making Shelf Registration Statement, the related prospectus or any
amendment or supplement thereto, or the failure by the Issuers to disclose such
transaction in the Market Making Shelf
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<PAGE>
Registration Statement or related prospectus, or any amendment or supplement
thereto, as then amended or supplemented, would cause the Market Making Shelf
Registration Statement, prospectus or amendment or supplement thereto, to
contain an untrue statement of material fact or omit to state a material fact
necessary in order to make the statement therein, in the light of the
circumstances under which they were made, not misleading, (y) information
regarding the existence of such transaction has not then been publicly disclosed
by or on behalf of the Issuers and (z) the Board of Managers of the Company
determines in good faith that disclosure of such transaction would not be in the
best interest of the Issuers or would have a material adverse effect on the
consummation of such transaction, and (B) the Issuers notify Goldman, Sachs &
Co. within five days after such Board of Managers makes the relevant
determination set forth in clause (A).
(d) In the event that (i) the Issuers have not filed the Exchange
Registration Statement or the Shelf Registration Statement on or before the date
on which such registration statement is required to be filed pursuant to Section
2(a), 2(b) or 2(c) hereof, or (ii) such Exchange Registration Statement, Shelf
Registration Statement or Market Making Shelf Registration Statement has not
become effective or been declared effective by the Commission on or before the
date on which such registration statement is required to become or be declared
effective pursuant to Section 2(a), 2(b) or 2(c) hereof, respectively, or (iii)
the Exchange Offer has not been completed within 45 days after the initial
effective date of the Exchange Registration Statement relating to the Exchange
Offer (if the Exchange Offer is then required to be made) or (iv) any Exchange
Registration Statement or Shelf Registration Statement required by Section 2(a)
or 2(b) hereof is filed and declared effective but shall thereafter either be
withdrawn by the Issuers or shall become subject to an effective stop order
issued pursuant to Section 8(d) of the Securities Act suspending the
effectiveness of such registration statement (except as specifically permitted
herein) without being succeeded immediately by an additional registration
statement filed and declared effective (each such event referred to in clauses
(i) through (iv), a "Registration Default" and each period during which a
Registration Default has occurred and is continuing, a "Registration Default
Period"), then, as liquidated damages for such Registration Default, subject to
the provisions of Section 9(b), special interest ("Special Interest"), in
addition to the Base Interest, shall accrue in an amount equal to $0.05 per week
per $1,000 principal amount of the Securities held by such holder with respect
to the first 90-day period, increasing by an additional $0.05 per week per
$1,000 principal amount of Securities with respect to each subsequent 90-day
period up to a maximum amount of $0.50 per week per $1,000 principal amount of
Securities.
(e) The Issuers shall take all actions necessary or advisable to be taken
by it to ensure that the transactions contemplated herein are effected as so
contemplated.
(f) Any reference herein to a registration statement as of any time shall
be deemed to include any document incorporated, or deemed to be incorporated,
therein by reference as of such time and any reference herein to any post-
effective amendment to a registration statement as of any time shall be deemed
to include any document incorporated, or deemed to be incorporated, therein by
reference as of such time.
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<PAGE>
3. Registration Procedures.
If the Issuers file a registration statement pursuant to Section 2(a),
Section 2(b) or Section 2(c), the following provisions shall apply:
(a) At or before the Effective Time of the Exchange Offer, the Shelf
Registration or the Market Making Shelf Registration, whichever may be first,
the Issuers shall qualify the Indenture under the Trust Indenture Act of 1939.
(b) In the event that such qualification would require the appointment of
a new trustee under the Indenture, the Issuers shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
(c) In connection with the Issuers' obligations with respect to the
registration of Exchange Securities as contemplated by Section 2(a) (the
"Exchange Registration"), if applicable, the Issuers shall, as soon as
practicable (or as otherwise specified):
(i) prepare and file with the Commission no later than 60 days
after the Closing Date, an Exchange Registration Statement on any form
which may be utilized by the Issuers and which shall permit the
Exchange Offer and resales of Exchange Securities by broker-dealers
during the Resale Period to be effected as contemplated by Section
2(a), and use their reasonable best efforts to cause such Exchange
Registration Statement to become effective as soon as practicable
thereafter, but no later than 180 days after the Closing Date;
(ii) as soon as practicable prepare and file with the Commission
such amendments and supplements to such Exchange Registration
Statement and the prospectus included therein as may be necessary to
effect and maintain the effectiveness of such Exchange Registration
Statement for the periods and purposes contemplated in Section 2(a)
hereof and as may be required by the applicable rules and regulations
of the Commission and the instructions applicable to the form of such
Exchange Registration Statement, and promptly provide each broker-
dealer holding Exchange Securities with such number of copies of the
prospectus included therein (as then amended or supplemented), in
conformity in all material respects with the requirements of the
Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder, as such broker-dealer
reasonably may request prior to the expiration of the Resale Period,
for use in connection with resales of Exchange Securities;
(iii) promptly notify each broker-dealer that has requested or
received copies of the prospectus included in such Exchange
Registration Statement, and confirm such advice in writing, (A) when
such Exchange Registration Statement or the prospectus included
therein or any prospectus amendment or supplement or post-effective
amendment has been filed, and, with respect to such Exchange
Registration Statement or any post-effective amendment, when the same
has become effective, (B) if requested by such broker-dealer, of any
comments by the Commission and by the blue sky or securities
commissioner or regulator of any state with respect thereto or any
request by the Commission for amendments or supplements to such
Exchange Registration Statement or prospectus or for additional
information, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of
8
<PAGE>
such Exchange Registration Statement or the initiation or threatening
of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Issuers contemplated by Section
5 cease to be true and correct in all material respects, (E) of the
receipt by the Issuers of any notification with respect to the
suspension of the qualification of the Exchange Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding
for such purpose, or (F) at any time during the Resale Period when a
prospectus is required to be delivered under the Securities Act, that
such Exchange Registration Statement, prospectus, prospectus amendment
or supplement or post-effective amendment does not conform in all
material respects to the applicable requirements of the Securities Act
and the Trust Indenture Act and the rules and regulations of the
Commission thereunder or contains an untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances then existing;
(iv) in the event that the Issuers would be required, pursuant
to Section 3(c)(iii)(F) above, to notify any broker-dealers holding
Exchange Securities, without unreasonable delay to prepare and furnish
to each such holder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers
of such Exchange Securities during the Resale Period, such prospectus
shall conform in all material respects to the applicable requirements
of the Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and shall not contain an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(v) use their reasonable best efforts to obtain the withdrawal
of any order suspending the effectiveness of such Exchange
Registration Statement or any post-effective amendment thereto at the
earliest practicable date;
(vi) use their reasonable best efforts to (A) register or
qualify the Exchange Securities under the securities laws or blue sky
laws of such jurisdictions as are contemplated by Section 2(a) no
later than the commencement of the Exchange Offer, (B) keep such
registrations or qualifications in effect and comply with such laws so
as to permit the continuance of offers, sales and dealings therein in
such jurisdictions until the expiration of the Resale Period and (C)
take any and all other actions as may be reasonably necessary or
advisable to enable each broker-dealer holding Exchange Securities to
consummate the disposition thereof in such jurisdictions; provided,
however, that the Issuers shall not be required for any such purpose
to (1) qualify as a foreign corporation in any jurisdiction wherein it
would not otherwise be required to qualify but for the requirements of
this Section 3(c)(vi), (2) consent to general service of process in
any such jurisdiction or (3) make any changes to their certificate of
incorporation or formation or by-laws or any agreement between them
and their stockholders or members;
(vii) use their reasonable best efforts to obtain the consent or
approval of each governmental agency or authority, whether federal,
state or local, which may be required to effect the Exchange
Registration, the Exchange Offer and the offering and sale of Exchange
Securities by broker-dealers during the Resale Period;
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<PAGE>
(viii) provide a CUSIP number for all Exchange Securities, not
later than the applicable Effective Time of the Exchange Registration
Statement; and
(ix) comply with all applicable rules and regulations of the
Commission, and make generally available to their securityholders as
soon as practicable but no later than eighteen months after the
effective date of such Exchange Registration Statement, an earnings
statement of the Company and its subsidiaries complying with Section
11(a) of the Securities Act (including, at the option of the Company,
Rule 158 thereunder).
(d) In connection with the Issuers' obligations with respect to the Shelf
Registration and the Market Making Shelf Registration, as applicable, the
Issuers shall use their reasonable best efforts to cause the applicable
Secondary Offer Registration Statement to permit the disposition of Registrable
Securities by the holders thereof, in the case of the Shelf Registration, and of
Securities or Exchange Securities by Goldman, Sachs & Co., in the case of a
Market Making Shelf Registration (subject to the second paragraph of Section
2(c) hereof), in accordance with the intended method or methods of disposition
thereof provided for in the applicable Secondary Offer Registration Statement.
In connection therewith, the Issuers shall, as soon as practicable (or as
otherwise specified):
(i) prepare and file with the Commission within the time
periods specified in Section 2(b) or Section 2(c) hereof, as
applicable, a Secondary Offer Registration Statement on any form which
may be utilized by the Issuers and which shall (x) register all of the
Registrable Securities, in the case of a Shelf Registration, and the
Securities and Exchange Securities, in the case of a Market Making
Shelf Registration, for resale by the holders thereof in accordance
with such method or methods of disposition as may be specified by such
of the holders of the Registrable Securities as, from time to time,
may be Electing Holders, in the case of a Shelf Registration, or
Goldman, Sachs & Co., in the case of a Market Making Shelf
Registration, and (y) be, in the case of a Market Making Shelf
Registration, in the form approved by Goldman, Sachs & Co., which
approval shall not be unreasonably withheld, provided that, the
Company shall not be prohibited from making any filing which it is
legally obligated to make and (B) use their best efforts to cause such
Secondary Offer Registration Statement to become effective as soon as
practicable but in any case within the time periods specified in
Section 2(b) or Section 2(c) hereof, as applicable;
(ii) not less than 30 calendar days prior to the Effective
Time of the Shelf Registration Statement, mail the Notice and
Questionnaire to the holders of Registrable Securities; no holder
shall be entitled to be named as a selling securityholder in the Shelf
Registration Statement as of the Effective Time, and no holder shall
be entitled to use the prospectus forming a part thereof for resales
of Registrable Securities at any time, unless such holder has returned
a completed and signed Notice and Questionnaire to the Issuers by the
deadline for response set forth therein; provided, however, holders of
Registrable Securities shall have at least 28 calendar days from the
date on which the Notice and Questionnaire is first mailed to such
holders to return a completed and signed Notice and Questionnaire to
the Issuers;
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<PAGE>
(iii) after the Effective Time of the Shelf Registration
Statement, upon the request of any holder of Registrable Securities
that is not then an Electing Holder, promptly send a Notice and
Questionnaire to such holder; provided that the Issuers shall not be
required to take any action to name such holder as a selling
securityholder in the Shelf Registration Statement or to enable such
holder to use the prospectus forming a part thereof for resales of
Registrable Securities until such holder has returned a completed and
signed Notice and Questionnaire to the Issuers;
(iv) prepare and file with the Commission such amendments and
supplements to the Secondary Offer Registration Statement and the
prospectus included therein as may be necessary to effect and maintain
the effectiveness of such Secondary Offer Registration Statement for
the period specified in Section 2(b) or Section 2(c) hereof, as
applicable, and as may be required by the applicable rules and
regulations of the Commission and the instructions applicable to the
form of such Secondary Offer Registration Statement and, in the case
of an amendment to or supplement of the Market Making Shelf
Registration Statement, each in a form approved by Goldman, Sachs &
Co., which approval shall not be unreasonably withheld, provided that,
the Company shall not be prohibited from making any filing which it is
legally obligated to make and (B) furnish to the Electing Holders, in
the case of a Shelf Registration, and Goldman, Sachs & Co., in the
case of a Market Making Shelf Registration, copies of any such
supplement or amendment simultaneously with or prior to its being used
or filed with the Commission;
(v) comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Securities,
Securities or Exchange Securities, as applicable, covered by such
Secondary Offer Registration Statement in accordance with the intended
methods of disposition by the Electing Holders, in the case of a Shelf
Registration, or Goldman, Sachs & Co., in the case of a Market Making
Shelf Registration provided for therein;
(vi) provide (A) with respect to a Shelf Registration, the
Electing Holders, and (B) the underwriters (which term, for purposes
of this Exchange and Registration Rights Agreement, shall include a
person deemed to be an underwriter within the meaning of Section
2(a)(11) of the Securities Act), if any, thereof, the sales or
placement agent therefor, and one counsel for any such underwriter or
agent and not more than one counsel for all the Electing Holders, the
opportunity to participate in the preparation of such Secondary Offer
Registration Statement, each prospectus included therein or filed with
the Commission and each amendment or supplement thereto;
(vii) for a reasonable period prior to the filing of such
Secondary Offer Registration Statement, and throughout the period
specified in Section 2(b) or Section 2(c) hereof, as applicable, make
available at reasonable times at the Company's principal place of
business or such other reasonable place for inspection by the persons
referred to in Section 3(d)(vi) who shall certify to the Issuers that
they have a current intention to sell the Registrable Securities
pursuant to the Shelf Registration, or the Securities or Exchange
Securities pursuant to the Market Making Shelf Registration, as
applicable, such financial and other information and books and records
of the Issuers, and shall use its reasonable best efforts to cause the
officers,
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<PAGE>
employees, counsel and independent certified public accountants of the
Issuers to respond to such inquiries, as shall be reasonably
necessary, in the judgment of the respective counsel referred to in
such Section 3(d)(vi), to conduct a reasonable investigation within
the meaning of Section 11 of the Securities Act; provided, however,
that each such party shall be required to maintain in confidence and
not to disclose to any other person any information or records
reasonably designated by the Issuers as being confidential, until such
time as (A) such information becomes a matter of public record
(whether by virtue of its inclusion in such Secondary Offer
Registration Statement or otherwise), or (B) such person shall be
required so to disclose such information pursuant to a subpoena or
order of any court or other governmental agency or body having
jurisdiction over the matter (subject to the requirements of such
order, and only after such person shall have given the Issuers prompt
prior written notice of such requirement), or (C) such information is
required to be set forth in such Secondary Offer Registration
Statement or the prospectus included therein or in an amendment to
such Secondary Offer Registration Statement or an amendment or
supplement to such prospectus in order that such Secondary Offer
Registration Statement, prospectus, amendment or supplement, as the
case may be, complies with applicable requirements of the federal
securities laws and the rules and regulations of the Commission and
does not contain an untrue statement of a material fact or omit to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances then existing;
(viii) promptly notify each of the Electing Holders or
Goldman, Sachs & Co., as applicable, any sales or placement agent
therefor and any underwriter thereof (which notification may be made
through any managing underwriter that is a representative of such
underwriter for such purpose) and, if requested in writing, confirm
such advice in writing, (A) when such Secondary Offer Registration
Statement or the prospectus included therein or any prospectus
amendment or supplement or post-effective amendment has been filed,
and, with respect to such Secondary Offer Registration Statement or
any post-effective amendment, when the same has become effective, (B)
of any comments by the Commission and by the blue sky or securities
commissioner or regulator of any state with respect thereto or any
request by the Commission for amendments or supplements to such
Secondary Offer Registration Statement or prospectus or for additional
information, (C) of the issuance by the Commission of any stop order
suspending the effectiveness of such Secondary Offer Registration
Statement or the initiation or threatening of any proceedings for that
purpose, (D) if at any time the representations and warranties of the
Issuers contemplated by Section 3(d)(xvii) or Section 5 cease to be
true and correct in all material respects, (E) of the receipt by the
Issuers of any notification with respect to the suspension of the
qualification of the Registrable Securities or the Securities or
Exchange Securities, as applicable, for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose, or
(F) if at any time when a prospectus is required to be delivered under
the Securities Act, that such Secondary Offer Registration Statement,
prospectus, prospectus amendment or supplement or post-effective
amendment does not conform in all material respects to the applicable
requirements of the Securities Act and the Trust Indenture Act and the
rules and regulations of the Commission thereunder or contains an
untrue statement of a material fact or omits to state any material
fact required to be stated therein or
12
<PAGE>
necessary to make the statements therein not misleading in light of
the circumstances then existing;
(ix) use their reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of such Secondary
Offer Registration Statement or any post-effective amendment thereto
at the earliest practicable date;
(x) if requested by any managing underwriter or
underwriters, any placement or sales agent, any Electing Holder or
Goldman, Sachs & Co., promptly incorporate in a prospectus supplement
or post-effective amendment such information as is required by the
applicable rules and regulations of the Commission and as such
managing underwriter or underwriters, such agent, such Electing Holder
or Goldman, Sachs & Co. specifies should be included therein relating
to the terms of the sale of such Registrable Securities or the
Securities or Exchange Securities, as applicable, including
information with respect to the principal amount thereof being sold by
such Electing Holder, Goldman, Sachs & Co. or such agent or to any
underwriters, the name and description of such Electing Holder, a
description of Goldman, Sachs & Co., such agent or such underwriter,
the offering price of such Registrable Securities, Securities or
Exchange Securities, as applicable, and any discount, commission or
other compensation payable in respect thereof and the purchase price
being paid therefor by such underwriters and with respect to any other
terms of the offering of the Registrable Securities, Securities or
Exchange Securities, as applicable, to be sold by such Electing
Holder, Goldman, Sachs & Co. or such agent or to such underwriters, as
applicable; and make all required filings of such prospectus
supplement or post-effective amendment promptly after notification of
the matters to be incorporated in such prospectus supplement or post-
effective amendment;
(xi) furnish to Goldman, Sachs & Co., each Electing Holder,
each placement or sales agent, if any, therefor, each underwriter, if
any, thereof and the respective counsel referred to in Section
3(d)(vi) an executed copy (or, in the case of an Electing Holder, a
conformed copy) of such Secondary Offer Registration Statement, each
such amendment and supplement thereto (in each case including all
exhibits thereto (in the case of an Electing Holder of Registrable
Securities, upon request) and documents incorporated by reference
therein) and such number of copies of such Secondary Offer
Registration Statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by
Goldman, Sachs & Co., such Electing Holder, agent or underwriter, as
the case may be) and of the prospectus included in such Secondary
Offer Registration Statement (including each preliminary prospectus
and any summary prospectus), in conformity in all material respects
with the applicable requirements of the Securities Act and the Trust
Indenture Act and the rules and regulations of the Commission
thereunder, and such other documents, as Goldman, Sachs & Co., such
Electing Holder, agent, if any, and underwriter, if any, may
reasonably request in order to facilitate the offering and disposition
of the Registrable Securities owned by such Electing Holder, the
Securities or Exchange Securities owned by Goldman, Sachs & Co., and
the Registrable Securities, Securities or Exchange Securities offered
or sold by such agent or underwritten by such underwriter, as
applicable, and to permit Goldman, Sachs & Co., such Electing Holder,
agent and underwriter to satisfy the prospectus delivery requirements
of the Securities Act; and the Issuers hereby consent to the
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use of such prospectus (including such preliminary and summary
prospectus) and any amendment or supplement thereto by Goldman, Sachs
& Co. (subject to the second paragraph of Section 2(c) hereof), each
such Electing Holder and by any such agent and underwriter, in each
case in the form most recently provided to such person by the Issuers,
in connection with the offering and sale of the Registrable
Securities, Securities or Exchange Securities covered by the
prospectus (including such preliminary and summary prospectus) or any
supplement or amendment thereto;
(xii) use reasonable best efforts to (A) register or qualify
the Registrable Securities, Securities or Exchange Securities, as
applicable, to be included in such Secondary Offer Registration
Statement under such securities laws or blue sky laws of such
jurisdictions as any Electing Holder, Goldman, Sachs & Co. and each
placement or sales agent, if any, therefor and underwriter, if any,
thereof shall reasonably request, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such
jurisdictions during the period the Shelf Registration is required to
remain effective under Section 2(b) above or the period the Market
Making Shelf Registration is required to remain effective under
Section 2(c) above, as applicable, and for so long as may be necessary
to enable Goldman, Sachs & Co., any such Electing Holder, agent or
underwriter to complete its distribution of Registrable Securities,
Securities, or Exchange Securities, as applicable, pursuant to such
Secondary Offer Registration Statement and (C) take any and all other
actions as may be reasonably necessary or advisable to enable each
such Electing Holder and Goldman, Sachs & Co., as applicable, such
agent, if any, and underwriter, if any, to consummate the disposition
in such jurisdictions of such Registrable Securities, Securities or
Exchange Securities, as applicable; provided, however, that the
Issuers shall not be required for any such purpose to (1) qualify as a
foreign corporation in any jurisdiction wherein it would not otherwise
be required to qualify but for the requirements of this Section
3(d)(xii), (2) consent to general service of process in any such
jurisdiction or (3) make any changes to their certificate of
incorporation or by-laws or any agreement between them and their
stockholders;
(xiii) use their reasonable best efforts to obtain the consent
or approval of each governmental agency or authority, whether federal,
state or local, which may be required of the Issuers or, with respect
to the Registrable Securities, Securities or Exchange Securities, as
applicable, to effect the Shelf Registration or the Market Marking
Shelf Registration, or the offering or sale in connection therewith or
to enable the selling holder or holders or Goldman, Sachs & Co. to
offer, or to consummate the disposition of, their Registrable
Securities;
(xiv) Unless any Registrable Securities shall be in book-entry
only form, cooperate with the Electing Holders or Goldman, Sachs & Co.
and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities, Securities or Exchange Securities to be sold, which
certificates, if so required by any securities exchange upon which any
Registrable Securities, Securities or Exchange Securities are listed,
shall be penned, lithographed or engraved, or produced by any
combination of such methods, on steel engraved borders, and which
certificates shall not bear any restrictive legends; and,
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in the case of an underwritten offering, enable such Registrable
Securities, Securities or Exchange Securities, as applicable, to be in
such denominations and registered in such names as the managing
underwriters may request at least two business days prior to any sale
of the Registrable Securities, Securities or Exchange Securities, as
applicable;
(xv) provide a CUSIP number for all Registrable Securities,
Securities or Exchange Securities, as applicable, not later than the
applicable Effective Time;
(xvi) enter into one or more underwriting agreements,
engagement letters, agency agreements, "best efforts" underwriting
agreements or similar agreements, as appropriate, including customary
provisions relating to indemnification and contribution, and take such
other actions in connection therewith as, (A) in the case of a Shelf
Registration, any Electing Holders aggregating at least 25% in
aggregate principal amount of the Registrable Securities at the time
outstanding shall request in order to expedite or facilitate the
disposition of such Registrable Securities, Securities or Exchange
Securities, as applicable; provided that the Issuers shall not be
required to enter into any such agreement more than twice with respect
to all of the Registrable Securities and may delay entering into any
such agreement until the consummation of any underwritten public
offering in which the Issuers shall be engaged provided that such
delay is reasonable;
(xvii) whether or not an agreement of the type referred to in
Section 3(d)(xvi) hereof is entered into and whether or not any
portion of the offering contemplated by the Secondary Offer
Registration is an underwritten offering or is made through a
placement or sales agent or any other entity, (A) make such
representations and warranties to the Electing Holders, Goldman, Sachs
& Co. (to the extent reasonably requested by Goldman, Sachs & Co.) and
the placement or sales agent, if any, therefor and the underwriters,
if any, thereof in form, substance and scope as are customarily made
in connection with an offering of debt securities pursuant to any
appropriate agreement or to a registration statement filed on the form
applicable to the Shelf Registration or the Market Making Shelf
Registration, as applicable; (B) obtain an opinion of counsel to the
Issuers in customary form and covering such matters, of the type
customarily covered by such an opinion, as the managing underwriters,
if any, and in the case of a Shelf Registration, as any Electing
Holders of at least 25% in aggregate principal amount of the
Registrable Securities at the time outstanding or, in the case of a
Market Making Shelf Registration, as Goldman, Sachs & Co. may
reasonably request, addressed to such Electing Holder or Electing
Holders, Goldman, Sachs & Co. and the placement or sales agent, if
any, therefor and the underwriters, if any, thereof and dated the
effective date of such Secondary Offer Registration Statement (and if
such Secondary Offer Registration Statement contemplates an
underwritten offering of a part or all of the Registrable Securities,
Securities or Exchange Securities, as applicable, dated the date of
the closing under the underwriting agreement relating thereto); (C)
obtain a "cold comfort" letter or letters from the independent
certified public accountants of the Company addressed to the selling
Electing Holders, the placement or sales agent, if any, therefor or
the underwriters, if any, thereof, dated (i) the effective date of
such Secondary Offer Registration Statement and (ii) the effective
date of any prospectus supplement to the prospectus included in such
Secondary Offer Registration Statement or
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post-effective amendment or supplement to such Secondary Offer
Registration Statement which includes unaudited or audited financial
statements as of a date or for a period subsequent to that of the
latest such statements included in such prospectus (and, if such
Secondary Offer Registration Statement contemplates an underwritten
offering pursuant to any prospectus supplement to the prospectus
included in such Secondary Offer Registration Statement or post-
effective amendment to such Secondary Offer Registration Statement
which includes unaudited or audited financial statements as of a date
or for a period subsequent to that of the latest such statements
included in such prospectus, dated the date of the closing under the
underwriting agreement relating thereto), such letter or letters to be
in customary form and covering such matters of the type customarily
covered by letters of such type; (D) deliver such documents and
certificates, including officers' certificates, as may be reasonably
requested, in the case of a Shelf Registration, by any Electing
Holders of at least 25% in aggregate principal amount of the
Registrable Securities at the time outstanding and the placement or
sales agent, if any, therefor and the managing underwriters, if any,
thereof to evidence the accuracy of the representations and warranties
made pursuant to clause (A) above or those contained in Section 5(a)
hereof and the compliance with or satisfaction of any agreements or
conditions contained in the underwriting agreement or other agreement
entered into by the Issuers; and (E) undertake such obligations
relating to expense reimbursement, indemnification and contribution as
are provided in Section 6 hereof;
(xviii) notify in writing each holder of Registrable Securities
affected thereby and Goldman, Sachs & Co. of any proposal by the
Issuers to amend or waive any provision of this Exchange and
Registration Rights Agreement pursuant to Section 9(h) hereof and of
any amendment or waiver effected pursuant thereto, each of which
notices shall contain the text of the amendment or waiver proposed or
effected, as the case may be;
(xix) in the event that any broker-dealer registered under the
Exchange Act shall underwrite any Registrable Securities, Securities
or Exchange Securities or participate as a member of an underwriting
syndicate or selling group or "assist in the distribution" (within the
meaning of the Conduct Rules (the "Conduct Rules) of the National
Association of Securities Dealers, Inc. ("NASD") or any successor
thereto, as amended from time to time) thereof, whether as a holder of
such Registrable Securities, Securities or Exchange Securities or as
an underwriter, a placement or sales agent or a broker or dealer in
respect thereof, or otherwise, assist such broker-dealer in complying
with the requirements of such Conduct Rules, including by (A) if such
Conduct Rules shall so require, engaging a "qualified independent
underwriter" (as defined in such Conduct Rules) to participate in the
preparation of the Secondary Offer Registration Statement relating to
such Registrable Securities, Securities or Exchange Securities, as
applicable, to exercise usual standards of due diligence in respect
thereto and, if any portion of the offering contemplated by such
Secondary Offer Registration Statement is an underwritten offering or
is made through a placement or sales agent, to recommend the yield of
such Registrable Securities, Securities or Exchange Securities, (B)
indemnifying any such qualified independent underwriter to the extent
of the indemnification of underwriters provided in Section 6 hereof
(or to such other customary extent as may be requested by such
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<PAGE>
underwriter), and (C) providing such information to such broker-dealer
as may be required in order for such broker-dealer to comply with the
requirements of the Conduct Rules;
(xx) comply with all applicable rules and regulations of the
Commission, and make generally available to their securityholders as
soon as practicable but in any event not later than eighteen months
after the effective date of such Secondary Offer Registration
Statement, an earnings statement of the Company and its subsidiaries
complying with Section 11(a) of the Securities Act (including, at the
option of the Company, Rule 158 thereunder); and
(xxi) for so long as Goldman, Sachs & Co. may be required to
deliver a prospectus in connection with the offer and sale of
Securities or Exchange Securities in secondary transactions to furnish
to Goldman, Sachs & Co. copies of all reports or other communications
(financial or other) furnished to stockholders or members of the
Issuers, and make available to Goldman, Sachs & Co. (i) as soon as
they are available, copies of any reports and financial statements
furnished to or filed with the Commission or any national securities
exchange or interdealer automated quotation system on which the
Securities or Exchange Securities or any other securities of the
Issuers are listed or quoted and the documents specified in Section
4.03 of the Indenture, as in effect on the Closing; and (ii) such
additional information concerning the business and financial condition
of the Issuers and their subsidiaries as Goldman, Sachs & Co. may from
time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Issuers are
consolidated in reports furnished to its stockholders or members
generally or to the Commission).
(e) In the event that the Issuers would be required, pursuant to Section
3(d)(viii)(F) above, to notify the Electing Holders, Goldman, Sachs & Co., the
placement or sales agent, if any, therefor and the managing underwriters, if
any, thereof, the Issuers shall without unreasonable delay prepare and furnish
to each of the Electing Holders, to each such person, a reasonable number of
copies of a prospectus supplemented or amended so that, as thereafter delivered
to purchasers of Registrable Securities, Securities or Exchange Securities, as
applicable, such prospectus shall conform in all material respects to the
applicable requirements of the Securities Act and the Trust Indenture Act and
the rules and regulations of the Commission thereunder and shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing. Each Electing Holder and Goldman,
Sachs & Co. agree that upon receipt of any notice from the Issuers pursuant to
Section 3(d)(viii)(F) hereof, such Electing Holder and Goldman, Sachs & Co.
shall forthwith discontinue the disposition of Registrable Securities,
Securities or Exchange Securities, as applicable, pursuant to the Secondary
Offer Registration Statement applicable to such Registrable Securities,
Securities or Exchange Securities, as applicable, until such Electing Holder or
Goldman, Sachs & Co., as applicable, shall have received copies of such amended
or supplemented prospectus, and if so directed by the Issuers, such Electing
Holder or Goldman, Sachs & Co. shall deliver to the Issuers (at the Issuers'
expense) all copies, other than permanent file copies, then in such Electing
Holder's or Goldman, Sachs & Co.'s possession of the prospectus covering such
Registrable Securities, Securities or Exchange Securities, as applicable, at the
time of receipt of such notice.
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(f) In addition to the information required to be provided in a Notice and
Questionnaire by each Electing Holder as to which any Shelf Registration
pursuant to Section 2(b) is being effected or to be provided by Goldman, Sachs &
Co. in connection with the Market Making Shelf Registration pursuant to Section
2(c), the Issuers may require an Electing Holder or Goldman, Sachs & Co., as
applicable, to furnish to the Issuers in writing such additional information
regarding such Electing Holder or Goldman, Sachs & Co. and such Electing
Holder's or Goldman, Sachs & Co.'s intended method of distribution of the
applicable Registrable Securities, Securities or Exchange Securities as the
Issuers may from time to time reasonably request in writing, but only to the
extent that such information is required or necessary in order to comply with
the Securities Act. No holder may include any of its Registrable Securities in
any Shelf Registration pursuant to the Exchange and Registration Rights
Agreement or be entitled to receive Special Interest unless and until such
Holder furnishes to the Company, in writing, such information (after being
requested in writing to provide such information) as is required by applicable
law for use in connection with any Shelf Registration or related prospectus or
preliminary prospectus. Each such Electing Holder and Goldman, Sachs & Co.
agrees to notify the Issuers in writing as promptly as practicable of any
inaccuracy or change in information previously furnished by such Electing Holder
or Goldman, Sachs & Co., as the case may be, to the Issuers or of the occurrence
of any event in either case as a result of which any prospectus relating to such
Shelf Registration or Market Making Shelf Registration, as applicable, contains
or would contain an untrue statement of a material fact regarding such Electing
Holder or Goldman, Sachs & Co. or such Electing Holder's or Goldman, Sachs &
Co.'s intended method of disposition of the applicable Registrable Securities,
Securities or Exchange Securities or omits to state any material fact regarding
such Electing Holder or Goldman, Sachs & Co. or such Electing Holder's or
Goldman, Sachs & Co.'s intended method of disposition of the applicable
Registrable Securities, Securities or Exchange Securities required to be stated
therein or necessary to make the statements therein not misleading in the light
of the circumstances then existing, and promptly to furnish to the Issuers any
additional information required to correct and update any previously furnished
information or required so that such prospectus shall not contain, with respect
to such Electing Holder or Goldman, Sachs & Co. or the disposition of the
applicable Registrable Securities, Securities or Exchange Securities, an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(g) Until the expiration of two years after the Closing Date, the Issuers
will not, and will not permit any of their "affiliates" (as defined in Rule 144)
to, resell any of the Securities that have been reacquired by any of them except
pursuant to an effective registration statement under the Securities Act.
4. Registration Expenses.
The Issuers agree to bear and to pay or cause to be paid promptly all
expenses incident to the Issuers' performance of or compliance with this
Exchange and Registration Rights Agreement (excluding fees and disbursements of
counsel to the Initial Purchasers and fees and disbursements of
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<PAGE>
counsel for the placement or sales agent or underwriters in connection with such
registration, filing and review, (b) all fees and expenses in connection with
the qualification of the Registrable Securities, Securities or Exchange
Securities, as applicable, for offering and sale under the State securities and
blue sky laws referred to in Sections 3(d)(vi) and 3(d)(xii) hereof and
determination of their eligibility for investment under the laws of such
jurisdictions as any managing underwriters or the Electing Holders or Goldman,
Sachs & Co. may designate in writing to the Issuers, including any fees and
disbursements of counsel for the Electing Holders or Goldman, Sachs & Co. or
underwriters in connection with such qualification and determination, (c) all
expenses relating to the preparation, printing, production, distribution and
reproduction of each registration statement required to be filed hereunder, each
prospectus included therein or prepared for distribution pursuant hereto, each
amendment or supplement to the foregoing, the expenses of preparing the
Securities or Exchange Securities for delivery and the expenses of printing or
producing any underwriting agreements, agreements among underwriters, selling
agreements and blue sky or legal investment memoranda and all other documents in
connection with the offering, sale or delivery of Securities or Exchange
Securities to be disposed of (including certificates representing the Securities
or Exchange Securities), (d) messenger, telephone and delivery expenses relating
to the offering, sale or delivery of Securities or Exchange Securities and the
preparation of documents referred in clause (c) above, (e) fees and expenses of
the Trustee under the Indenture, any agent of the Trustee and any counsel for
the Trustee and of any collateral agent or custodian, (f) internal expenses
(including all salaries and expenses of the Issuers' officers and employees
performing legal or accounting duties), (g) fees, disbursements and expenses of
counsel and independent certified public accountants of the Issuers (including
the expenses of any opinions or "cold comfort" letters required by or incident
to such performance and compliance), (h) fees, disbursements and expenses of any
"qualified independent underwriter" engaged pursuant to Section 3(d)(xix)
hereof, (i) fees, disbursements and expenses of one counsel for the Electing
Holders retained in connection with a Shelf Registration, as selected by the
Electing Holders of at least a majority in aggregate principal amount of the
Registrable Securities held by such Electing Holders (which counsel shall be
reasonably satisfactory to the Issuers), (j) any fees charged by securities
rating services for rating the Securities or Exchange Securities, and (k) fees,
expenses and disbursements of any other persons, including special experts,
retained by the Issuers in connection with such registration (collectively, the
"Registration Expenses"). To the extent that any Registration Expenses are
incurred, assumed or paid by any holder of Registrable Securities, Goldman,
Sachs & Co. or any placement or sales agent therefor or underwriter thereof, the
Issuers shall reimburse such person for the full amount of the Registration
Expenses so incurred, assumed or paid promptly after receipt of a request
therefor. Notwithstanding the foregoing, the holders of the Registrable
Securities being registered, or Goldman, Sachs & Co., as applicable, shall pay
all agency fees and commissions and underwriting discounts and commissions
attributable to the sale of the applicable Registrable Securities, Securities or
Exchange Securities and the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly), other than
the counsel and experts specifically referred to above.
5. Representations and Warranties.
The Issuers represent and warrant to, and agree with, each Purchaser
and each of the holders from time to time of Registrable Securities that:
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(a) Each registration statement covering Registrable Securities,
Securities or Exchange Securities and each prospectus (including any preliminary
or summary prospectus) contained therein or furnished pursuant to Section 3(c)
or Section 3(d) hereof and any further amendments or supplements to any such
registration statement or prospectus, when it becomes effective or is filed with
the Commission, as the case may be, and, in the case of an underwritten offering
of Registrable Securities, Securities or Exchange Securities, at the time of the
closing under the underwriting agreement relating thereto, will conform in all
material respects to the requirements of the Securities Act and the Trust
Indenture Act and the rules and regulations of the Commission thereunder and
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and at all times subsequent to the applicable Effective
Time when a prospectus would be required to be delivered under the Securities
Act, other than (A) from (i) such time as a notice has been given to holders of
Registrable Securities or Goldman, Sachs & Co., as applicable, pursuant to
Section 3(c)(iii)(F) or Section 3(d)(viii)(F) hereof until (ii) such time as the
Issuers furnish an amended or supplemented prospectus pursuant to Section
3(c)(iv) or Section 3(e) hereof or (B) during any suspension of offering and
sale pursuant to the second paragraph of Section 2 (b) or 2(c) hereof, each such
registration statement, and each prospectus (including any summary prospectus)
contained therein or furnished pursuant to Section 3(c) or Section 3(d) hereof,
as then amended or supplemented, will conform in all material respects to the
requirements of the Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing; provided, however, that this
representation and warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished in writing to the
Issuers by a holder of Registrable Securities or Goldman, Sachs & Co., as
applicable, expressly for use therein.
(b) Any documents incorporated by reference in any prospectus referred to
in Section 5(a) hereof, when they become or became effective or are or were
filed with the Commission, as the case may be, will conform or conformed in all
material respects to the requirements of the Securities Act or the Exchange Act,
as applicable, and none of such documents will contain or contained an untrue
statement of a material fact or will omit or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in conformity
with information furnished in writing to the Issuers by a holder of Registrable
Securities or Goldman, Sachs & Co., as applicable, expressly for use therein.
(c) The compliance by the Issuers with all of the provisions of this
Exchange and Registration Rights Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Issuers or any subsidiary of the Issuers is a party or by which the
Issuers or any subsidiary of the Issuers is bound or to which any of the
property or assets of the Issuers or any subsidiary of the Issuers is subject,
except for such conflicts, breaches, violations or defaults which would not have
a material adverse effect on the business, consolidated financial position,
stockholders' equity or results of operations of the
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Company and its subsidiaries take as a whole, nor will such action result in any
violation of the provisions of the certificate of incorporation, as amended, or
the by-laws of the Issuers or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Issuers or
any subsidiary of the Issuers or any of their properties; and no consent,
approval, authorization, order, registration or qualification of or with any
such court or governmental agency or body is required for the consummation by
the Issuers of the transactions contemplated by this Exchange and Registration
Rights Agreement, except in connection with the registration under the
Securities Act of the Registrable Securities, Securities or Exchange Securities,
qualification of the Indenture under the Trust Indenture Act and such consents,
approvals, authorizations, registrations or qualifications as may be required
under State securities or blue sky laws in connection with the offering and
distribution of the Registrable Securities, Securities or Exchange Securities.
(d) This Exchange and Registration Rights Agreement has been duly
authorized, executed and delivered by the Issuers.
6. Indemnification.
(a) Indemnification by the Issuers. The Issuers jointly and severally,
will indemnify and hold harmless each of the holders of Registrable Securities
included in an Exchange Registration Statement, each of the Electing Holders of
Registrable Securities included in a Shelf Registration Statement and Goldman,
Sachs & Co. as holder of Securities or Exchange Securities included in a Market
Making Shelf Registration Statement and each person who participates as a
placement or sales agent or as an underwriter in any offering or sale of such
Registrable Securities, Securities or Exchange Securities, against any losses,
claims, damages or liabilities, joint or several, to which Goldman, Sachs & Co.,
or such holder, Electing Holder, agent or underwriter may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Exchange Registration Statement or Secondary Offer Registration Statement, as
the case may be, under which such Registrable Securities, Securities or Exchange
Securities, were registered under the Securities Act, or any preliminary, final
or summary prospectus contained therein or furnished by the Issuers to Goldman,
Sachs & Co., any such holder, Electing Holder, agent or underwriter, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse Goldman, Sachs & Co., such holder, such Electing Holder, such agent
and such underwriter for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Issuers shall not be liable
to any such person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, or preliminary, final or summary prospectus, or
amendment or supplement thereto, in reliance upon and in conformity with written
information furnished to the Issuers by such person expressly for use therein
and provided, further, that with respect to any loss, claim, damage or liability
caused by an untrue statement or omission of a material fact made in a
preliminary prospectus, the indemnity agreement contained in this Section 6(a)
shall not inure to the benefit of any person from whom the person asserting any
such loss, claim,
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damage or liability purchased the Registrable Securities concerned, to the
extent that any such loss, claim, damage or liability of such person occurs
under the circumstance where (i) it shall have been determined by a court of
competent jurisdiction by final and nonappealable judgment that (w) the Company
had previously furnished copies of the final prospectus (or the final prospectus
as amended or supplemented) to such person or their representative in sufficient
quantities and at such time to permit its delivery at or prior to the
confirmation of the sale of such Registrable Securities, (x) delivery of the
final prospectus (or the final prospectus as amended or supplemented) was
required by law to be made to such person, (y) the untrue statement or omission
of a material fact contained in the preliminary prospectus was corrected in the
final prospectus (or the final prospectus as amended or supplemented), and (z)
there was not sent or given to the person, at or prior to the written
confirmation of the sale of such Registrable Securities to such person, a copy
of the final prospectus (or the final prospectus as amended or supplemented) and
(ii) such loss, claim, damage or liability would have been eliminated by the
delivery of such corrected final prospectus (or the final prospectus as amended
or supplemented). Additionally, the indemnification provided for in this section
shall not be available to any indemnified party with respect to any sale or
disposition of Securities or Exchange Securities that occurs after notice
pursuant to the second paragraph of 2(c) if the indemnified party is in
violation of the provisions of Section 2(c).
(b) Indemnification by the Holders and any Agents and Underwriters in
Connection with any Shelf Registration. The Issuers may require, as a condition
to including any Registrable Securities in any Shelf Registration filed pursuant
to Section 2(b) hereof and to entering into any underwriting agreement with
respect thereto, that the Issuers shall have received an undertaking reasonably
satisfactory to it from the Electing Holder of such Registrable Securities and
from each underwriter named in any such underwriting agreement, severally and
not jointly, to (i) indemnify and hold harmless the Issuers and all other
holders of Registrable Securities, against any losses, claims, damages or
liabilities to which the Issuers or such other holders of Registrable Securities
may become subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in such registration statement, or any preliminary,
final or summary prospectus contained therein or furnished by the Issuers to any
such Electing Holder, agent or underwriter, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Issuers by such Electing Holder or underwriter
expressly for use therein, and (ii) reimburse the Issuers for any legal or other
expenses reasonably incurred by the Issuers in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that no such Electing Holder shall be required to undertake liability
to any person under this Section 6(b) for any amounts in excess of the dollar
amount of the proceeds to be received by such Electing Holder from the sale of
such Electing Holder's Registrable Securities pursuant to such registration.
(c) Indemnification by Goldman, Sachs & Co. and any Agents and
Underwriters in Connection with the Market Making Shelf Registration. The
Issuers may require, as a condition to including any Securities or Exchange
Securities in the Market Making Shelf
22
<PAGE>
Registration Statement filed pursuant to Section 2(c) hereof and to entering
into any underwriting agreement with respect thereto, that the Issuers shall
have received an undertaking reasonably satisfactory to them from each
underwriter named in any such underwriting agreement, severally and not jointly,
to, and Goldman, Sachs & Co., shall, and hereby agrees to, (i) indemnify and
hold harmless the Issuers against any losses, claims, damages or liabilities to
which the Issuers may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in the Market Making Shelf Registration
Statement, or any preliminary, final or summary prospectus contained therein or
furnished by the Issuers to Goldman, Sachs & Co. or to any such agent or
underwriter, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Issuers by Goldman, Sachs & Co. or such underwriter expressly for use therein,
and (ii) reimburse the Issuers for any legal or other expenses reasonably
incurred by the Issuers in connection with investigating or defending any such
action or claim as such expenses are incurred; provided, however, that, in the
case of Securities held by Goldman, Sachs & Co. at the time of the Exchange
Offer, Goldman, Sachs & Co. shall not be required to undertake liability to any
person under this Section 6(c) for any amounts in excess of the dollar amount of
the proceeds to be received by Goldman, Sachs & Co. from the sale of such
Securities by Goldman, Sachs & Co. pursuant to the Market Making Shelf
Registration.
(d) Notices of Claims, Etc. Promptly after receipt by an indemnified party
under subsection (a), (b) or (c) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party otherwise than under the indemnification provisions of or
contemplated by Section 6(a), 6(b) or 6(c) hereof. In case any such action shall
be brought against any indemnified party and it shall notify an indemnifying
party of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, such indemnifying party shall
not be liable to such indemnified party for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an
23
<PAGE>
admission of fault, culpability or a failure to act by or on behalf of any
indemnified party. No indemnifying party shall be liable for the cost of any
settlement effected by an indemnified party without the written consent of such
indemnifying party, which consent shall not be unreasonably withheld.
(e) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a), 6(b) or 6(c) hereof are unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and the indemnified
party in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
Section 6(e) were determined by pro rata allocation (even if the holders or any
agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 6(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages, or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 6(e), neither any
holder nor, in the case of a Market Making Shelf Registration relating to the
sale by Goldman, Sachs & Co. of Securities held by it at the time of the
Exchange Offer, Goldman, Sachs & Co. shall be required to contribute any amount
in excess of the amount by which the dollar amount of the proceeds received by
such holder from the sale of any Registrable Securities or Goldman, Sachs & Co.
from the sale of any such Securities (after deducting any fees, discounts and
commissions applicable thereto) exceeds the amount of any damages which such
holder or Goldman, Sachs & Co., as applicable, have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission, and no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities, Securities or Exchange Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The holders', Goldman, Sachs &
Co.'s and any underwriters' obligations in this Section 6(e) to contribute shall
be several in proportion to the principal amount of Registrable Securities
registered or underwritten, as the case may be, by them and not joint.
24
<PAGE>
(f) The obligations of the Issuers under this Section 6 shall be in
addition to any liability which the Issuers may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
Goldman, Sachs & Co., each holder, agent and underwriter and each person, if
any, who controls Goldman, Sachs & Co., any holder, agent or underwriter within
the meaning of the Securities Act; and the obligations of the Goldman, Sachs &
Co., holders and any agents or underwriters contemplated by this Section 6 shall
be in addition to any liability which Goldman, Sachs & Co., the respective
holder, agent or underwriter may otherwise have and shall extend, upon the same
terms and conditions, to each officer and director of either of the Issuers
(including any person who, with his consent, is named in any registration
statement as about to become a director of the Issuers) and to each person, if
any, who controls the Issuers within the meaning of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall be designated
by Electing Holders holding at least a majority in aggregate principal amount of
the Registrable Securities to be included in such offering, provided that such
designated managing underwriter or underwriters is or are reasonably acceptable
to the Issuers.
(b) Participation by Holders. Each holder of Registrable Securities hereby
agrees with each other such holder that no such holder may participate in any
underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
The Issuers covenant to the holders of Registrable Securities and
Goldman, Sachs & Co., that to the extent it shall be required to do so under the
Exchange Act, the Issuers shall timely file the reports required to be filed by
it under the Exchange Act or the Securities Act (including the reports under
Sections 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of
Rule 144 adopted by the Commission under the Securities Act) and the rules and
regulations adopted by the Commission thereunder, and shall take such further
action as any holder of Registrable Securities or Goldman, Sachs & Co., may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities or Goldman, Sachs & Co., to sell
Securities or Exchange Securities without registration under the Securities Act
within the limitations of the exemption provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or any similar or
successor rule or regulation hereafter adopted by the Commission. Upon the
request of any holder of Registrable Securities or Goldman, Sachs & Co. in
connection with that holder's or Goldman, Sachs & Co.'s sale pursuant to Rule
144, the Issuers shall deliver to such holder or Goldman, Sachs & Co. a written
statement as to whether it has complied with such requirements.
25
<PAGE>
9. Miscellaneous.
(a) No Inconsistent Agreements. Each of the Issuers represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Registrable Securities, Securities or Exchange Securities
or any other securities which would be inconsistent with the terms contained in
this Exchange and Registration Rights Agreement.
(b) Specific Performance. The parties hereto acknowledge that there would
be no adequate remedy at law if the Issuers fail to perform any of their
obligations hereunder and that the Purchasers and the holders from time to time
of the Registrable Securities may be irreparably harmed by any such failure, and
accordingly agree that the Purchasers and such holders, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of the Issuers under this
Exchange and Registration Rights Agreement in accordance with the terms and
conditions of this Exchange and Registration Rights Agreement, in any court of
the United States or any State thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Issuers, to
them at P.O. Box 1167, 103 South Fifth Street, Mebane, NC 27302, and if to a
holder, to the address of such holder set forth in the security register or
other records of the Issuers, or to such other address as the Issuers or any
such holder may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
(d) Parties in Interest. All the terms and provisions of this Exchange and
Registration Rights Agreement shall be binding upon, shall inure to the benefit
of and shall be enforceable by the parties hereto and the holders from time to
time of the Registrable Securities and the respective successors and assigns of
the parties hereto and such holders. In the event that any transferee of any
holder of Registrable Securities shall acquire Registrable Securities, in any
manner, whether by gift, bequest, purchase, operation of law or otherwise, such
transferee shall, without any further writing or action of any kind, be deemed a
beneficiary hereof for all purposes and such Registrable Securities shall be
held subject to all of the terms of this Exchange and Registration Rights
Agreement, and by taking and holding such Registrable Securities such transferee
shall be entitled to receive the benefits of, and be conclusively deemed to have
agreed to be bound by all of the applicable terms and provisions of this
Exchange and Registration Rights Agreement. If the Issuers shall so request, any
such successor, assign or transferee shall agree in writing to acquire and hold
the Registrable Securities subject to all of the applicable terms hereof.
(e) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Exchange and Registration
Rights Agreement or made pursuant hereto shall remain in full force and effect
regardless of any investigation (or statement as to the results thereof) made by
or on behalf of Goldman, Sachs & Co. or any holder of Registrable Securities,
any director, officer or partner of Goldman, Sachs & Co. or such holder, any
agent or underwriter or any director, officer or partner thereof, or any
26
<PAGE>
controlling person of any of the foregoing, and shall survive delivery of and
payment for the Securities pursuant to the Purchase Agreement and the transfer
and registration of Securities by such holder or Goldman, Sachs & Co. and the
consummation of an Exchange Offer.
Anything herein to the contrary notwithstanding, the indemnity agreement of
the Issuers in Section 6(a) hereof, the representations and warranties in
Section 5(a) and Section 5(b) hereof and any representation or warranty as to
the accuracy of the Secondary Offer Registration Statement (or any preliminary,
final or summary prospectus contained therein) contained in any certificate
furnished by the Issuers pursuant to Section 3(d)(xvii) hereof, insofar as they
may constitute a basis for indemnification for liabilities (other than payment
by the Issuers of expenses incurred or paid in the successful defense of any
action, suit or proceeding) arising under the Securities Act, shall not extend
to the extent of any interest therein of a controlling person or partner of
Goldman, Sachs & Co. who is a director, officer or controlling person of the
Issuers when the Exchange Registration Statement or the Secondary Offer
Registration Statement has become effective, except in each case to the extent
that an interest of such character shall have been determined by a court of
appropriate jurisdiction as not against public policy as expressed in the
Securities Act. Unless in the opinion of counsel for the Issuers the matter has
been settled by controlling precedent, the Issuers will, if a claim for such
indemnification is asserted, submit to a court of appropriate jurisdiction the
question whether such interest is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(f) Governing Law. This Exchange and Registration Rights Agreement shall
be governed by and construed in accordance with the laws of the State of New
York.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are inserted for
convenience only, do not constitute a part of this Exchange and Registration
Rights Agreement and shall not affect in any way the meaning or interpretation
of this Exchange and Registration Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration Rights
Agreement and the other writings referred to herein (including the Indenture and
the form of Securities) or delivered pursuant hereto which form a part hereof
contain the entire understanding of the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement may be amended and the
observance of any term of this Exchange and Registration Rights Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Issuers and the
holders of at least a majority in aggregate principal amount of the Registrable
Securities at the time outstanding and Goldman, Sachs & Co.; provided, however,
that any such amendment or waiver affecting solely provisions of this Exchange
and Registration Rights Agreement relating to the Market Making Registration may
be effected by a written instrument duly executed solely by the Company and
Goldman, Sachs & Co. Each holder of any Registrable Securities at the time or
thereafter outstanding shall be bound by any amendment or waiver effected
pursuant to this Section 9(h), whether or not any notice, writing or marking
indicating such amendment or waiver appears on such Registrable Securities or is
delivered to such holder.
27
<PAGE>
(i) Inspection. For so long as this Exchange and Registration Rights
Agreement shall be in effect, this Exchange and Registration Rights
Agreement and a complete list of the names and addresses of all the holders
of Registrable Securities and the address of Goldman, Sachs & Co. shall be
made available for inspection and copying on any business day by Goldman,
Sachs & Co. or any holder of Registrable Securities for proper purposes
only (which shall include any purpose related to the rights of the holders
of Registrable Securities under the Securities, the Indenture and this
Agreement) at the offices of the Company at the address thereof set forth
in Section 9(c) above and at the office of the Trustee under the Indenture.
(j) Counterparts. This agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same
instrument.
If the foregoing is in accordance with your understanding, please sign
and return to us counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Purchasers, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Purchasers and the Issuers.
It is understood that your acceptance of this letter on behalf of each of the
Purchasers is pursuant to the authority set forth in a form of Agreement among
Purchasers, the form of which shall be submitted to the Issuers for examination
upon request, but without warranty on your part as to the authority of the
signers thereof.
[Signature page follows]
28
<PAGE>
Very truly yours,
Madison River Capital, LLC
By: /s/ J. Stephen Vanderwoude
--------------------------------------
Name: J. Stephen Vanderwoude
Title: Chief Executive Officer
Accepted as of the date hereof:
Goldman, Sachs & Co. Madison River Finance Corp.
Bear, Stearns & Co. Inc.
Chase Securities Inc.
Morgan Stanley & Co. Incorporated
By: /s/ Paul H. Sunu
--------------------------------------
Name: Paul H. Sunu
Title: Secretary & Treasurer
By: /s/ Goldman, Sachs & Co.
-------------------------------
(Goldman, Sachs & Co.)
Registration Rights Agreement
Signature Page
<PAGE>
Exhibit A
Madison River Capital, LLC
Madison River Finance Corp.
INSTRUCTION TO DTC PARTICIPANTS
-------------------------------
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE] *
------------------------------
The Depository Trust Company ("DTC") has identified you as a DTC Participant
through which beneficial interests in Madison River Capital, LLC (the "Company")
and Madison River Finance Corp. ("Madison River Finance" and, together with the
Company, the "Issuers") 13 1/4% Senior Notes due 2010 (the "Securities") are
held.
The Issuers are in the process of registering the Securities under the
Securities Act of 1933 for resale by the beneficial owners thereof. In order to
have their Securities included in the registration statement, beneficial owners
must complete and return the enclosed Notice of Registration Statement and
Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities receive a copy of the
- ------------------------------------------------------------------------------
enclosed materials as soon as possible as their rights to have the Securities
- --------------------------------------
included in the registration statement depend upon their returning the Notice
and Questionnaire by _________ [28 days after mailing]. Please forward a copy
of the enclosed documents to each beneficial owner that holds interests in the
Securities through you. If you require more copies of the enclosed materials or
have any questions pertaining to this matter, please contact the Issuers at P.O.
Box 1167, 103 South Fifth Street, Mebane, NC 27302.
________________
*Not less than 28 calendar days from date of mailing.
A-1
<PAGE>
Madison River Capital, LLC
Madison River Finance Corp.
Notice of Registration Statement
and
Selling Securityholder Questionnaire
------------------------------------
(Date)
Reference is hereby made to the Exchange and Registration Rights Agreement (the
"Exchange and Registration Rights Agreement") between Madison River Capital, LLC
(the "Company") and Madison River Finance Corp. ("Madison River Finance" and,
together with the Company, the "Issuers") and the Purchasers named therein.
Pursuant to the Exchange and Registration Rights Agreement, the Issuers have
filed with the United States Securities and Exchange Commission (the
"Commission") a registration statement on Form [__] (the "Shelf Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Issuers' 13 1/4% Senior Notes
due 2010 (the "Securities"). A copy of the Exchange and Registration Rights
Agreement is attached hereto. All capitalized terms not otherwise defined
herein shall have the meanings ascribed thereto in the Exchange and Registration
Rights Agreement.
Each beneficial owner of Registrable Securities (as defined below) is entitled
to have the Registrable Securities beneficially owned by it included in the
Shelf Registration Statement. In order to have Registrable Securities included
in the Shelf Registration Statement, this Notice of Registration Statement and
Selling Securityholder Questionnaire ("Notice and Questionnaire") must be
completed, executed and delivered to the Issuers' counsel at the address set
forth herein for receipt ON OR BEFORE _________ [28 days after mailing].
Beneficial owners of Registrable Securities who do not complete, execute and
return this Notice and Questionnaire by such date (i) will not be named as
selling securityholders in the Shelf Registration Statement and (ii) may not use
the Prospectus forming a part thereof for resales of Registrable Securities.
Certain legal consequences arise from being named as a selling securityholder in
the Shelf Registration Statement and related Prospectus. Accordingly, holders
and beneficial owners of Registrable Securities are advised to consult their own
securities law counsel regarding the consequences of being named or not being
named as a selling securityholder in the Shelf Registration Statement and
related Prospectus.
The term "Registrable Securities" is defined in the Exchange and Registration
----------------------
Rights Agreement.
A-2
<PAGE>
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable Securities
hereby elects to include in the Shelf Registration Statement the Registrable
Securities beneficially owned by it and listed below in Item (3). The
undersigned, by signing and returning this Notice and Questionnaire, agrees to
be bound with respect to such Registrable Securities by the terms and conditions
of this Notice and Questionnaire and the Exchange and Registration Rights
Agreement, including, without limitation, Section 6 of the Exchange and
Registration Rights Agreement, as if the undersigned Selling Securityholder were
an original party thereto.
Upon any sale of Registrable Securities pursuant to the Shelf Registration
Statement, the Selling Securityholder will be required to deliver to the Issuers
and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and
as Exhibit B to the Exchange and Registration Rights Agreement.
The Selling Securityholder hereby provides the following information to the
Issuers and represents and warrants that such information is accurate and
complete:
A-3
<PAGE>
QUESTIONNAIRE
(1) (a) Full Legal Name of Selling Securityholder:
_____________________________________________________________________
(b) Full Legal Name of Registered Holder (if not the same as in (a) above)
of Registrable Securities Listed in Item (3) below:
_____________________________________________________________________
(c) Full Legal Name of DTC Participant (if applicable and if not the same
as (b) above) Through Which Registrable Securities Listed in Item (3)
below are Held:
_____________________________________________________________________
(2) Address for Notices to Selling Securityholder:
______________________
______________________
______________________
Telephone: ______________________
Fax: ______________________
Contact Person: ______________________
(3) Beneficial Ownership of Securities:
Except as set forth below in this Item (3), the undersigned does not
beneficially own any Securities.
(a) Principal amount of Registrable Securities beneficially owned:
_____________________________________________________________________
CUSIP No(s). of such Registrable Securities:_________________________
(b) Principal amount of Securities other than Registrable Securities
beneficially owned:
_____________________________________________________________________
CUSIP No(s). of such other Securities:_______________________________
(c) Principal amount of Registrable Securities which the undersigned
wishes to be included in the Shelf Registration Statement:
_____________________________________________________________________
CUSIP No(s). of such Registrable Securities to be included in the
Shelf Registration Statement:________________________________________
(4) Beneficial Ownership of Other Securities of the Issuers:
Except as set forth below in this Item (4), the undersigned Selling
Securityholder is not the beneficial or registered owner of any other
securities of the Issuers, other than the Securities listed above in
Item (3).
State any exceptions here:
A-4
<PAGE>
(5) Relationships with the Issuers:
Except as set forth below, neither the Selling Securityholder nor any of
its affiliates, officers, directors or principal equity holders (5% or
more) has held any position or office or has had any other material
relationship with the Issuers (or its predecessors or affiliates) during
the past three years.
State any exceptions here:
(6) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder intends
to distribute the Registrable Securities listed above in Item (3) only as
follows (if at all): Such Registrable Securities may be sold from time to
time directly by the undersigned Selling Securityholder or, alternatively,
through underwriters, broker-dealers or agents. Such Registrable
Securities may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at varying prices determined
at the time of sale, or at negotiated prices. Such sales may be effected
in transactions (which may involve crosses or block transactions) (i) on
any national securities exchange or quotation service on which the
Registered Securities may be listed or quoted at the time of sale, (ii) in
the over-the-counter market, (iii) in transactions otherwise than on such
exchanges or services or in the over-the-counter market, or (iv) through
the writing of options. In connection with sales of the Registrable
Securities or otherwise, the Selling Securityholder may enter into hedging
transactions with broker-dealers, which may in turn engage in short sales
of the Registrable Securities in the course of hedging the positions they
assume. The Selling Securityholder may also sell Registrable Securities
short and deliver Registrable Securities to close out such short
positions, or loan or pledge Registrable Securities to broker-dealers that
in turn may sell such securities.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that it understands
its obligation to comply, and agrees that it will comply, with the provisions of
the Exchange Act and the rules and regulations thereunder, particularly
Regulation M.
In the event that the Selling Securityholder transfers all or any portion of the
Registrable Securities listed in Item (3) above after the date on which such
information is provided to the Issuers, the Selling Securityholder agrees to
notify the transferee(s) at the time of the transfer of its rights and
obligations under this Notice and Questionnaire and the Exchange and
Registration Rights Agreement.
By signing below, the Selling Securityholder consents to the disclosure of the
information contained herein in its answers to Items (1) through (6) above and
the inclusion of such information in the Shelf Registration Statement and
related Prospectus. The Selling Securityholder understands that such
information will be relied upon by the Issuers in connection with the
preparation of the Shelf Registration Statement and related Prospectus.
A-5
<PAGE>
In accordance with the Selling Securityholder's obligation under Section 3(d) of
the Exchange and Registration Rights Agreement to provide such information as
may be required by law for inclusion in the Shelf Registration Statement, the
Selling Securityholder agrees to promptly notify the Issuers of any inaccuracies
or changes in the information provided herein which may occur subsequent to the
date hereof at any time while the Shelf Registration Statement remains in
effect. All notices hereunder and pursuant to the Exchange and Registration
Rights Agreement shall be made in writing, by hand-delivery, first-class mail,
or air courier guaranteeing overnight delivery as follows:
(i) To the Issuers:
Madison River Capital, LLC
Madison River Finance Corp.
c/o Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, NC 27302
Attention: General Counsel
(ii) With a copy to:
Skadden, Arps, Slate, Meagher & Flom
333 W. Wacker Dr., Suite 2100
Chicago, IL 60606
Attention: Gary P. Cullen, Esq.
Once this Notice and Questionnaire is executed by the Selling Securityholder and
received by the Issuers' counsel, the terms of this Notice and Questionnaire,
and the representations and warranties contained herein, shall be binding on,
shall inure to the benefit of and shall be enforceable by the respective
successors, heirs, personal representatives, and assigns of the Issuers and the
Selling Securityholder (with respect to the Registrable Securities beneficially
owned by such Selling Securityholder and listed in Item (3) above. This
Agreement shall be governed in all respects by the laws of the State of New
York.
A-6
<PAGE>
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this
Notice and Questionnaire to be executed and delivered either in person or by its
duly authorized agent.
Dated: _________________
________________________________________________________________
Selling Securityholder
(Print/type full legal name of beneficial owner of Registrable
Securities)
By: ____________________________________________________________
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE _________ [28 DAYS AFTER MAILING]. TO THE COMPANY'S COUNSEL AT:
Skadden, Arps, Slate, Meagher & Flom
333 W. Wacker Dr., Suite 2100
Chicago, IL 60606
Attention: Gary P. Cullen, Esq.
A-7
<PAGE>
Exhibit B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
Norwest Bank Minnesota, National Association
Madison River Capital, LLC
Madison River Finance Corp.
c/o Norwest Bank Minnesota, National Association
Corporate Trust Services
Sixth and Marquette N9303-120
Minneapolis, MN 55479
Attention: Trust Officer
Re: Madison River Capital, LLC and
Madison River Finance Corp. (the "Issuers")
13 1/4 Senior Notes due 2010
Dear Sirs:
Please be advised that ___________ has transferred $________ aggregate principal
amount of the above-referenced Notes pursuant to an effective Registration
Statement on Form [______] (File No. 333-_________) filed by the Issuers.
We hereby certify that the prospectus delivery requirements, if any, of the
Securities Act of 1933, as amended, have been satisfied and that the above-named
beneficial owner of the Notes is named as a "Selling Holder" in the Prospectus
dated [________] or in supplements thereto, and that the aggregate principal
amount of the Notes transferred are the Notes listed in such Prospectus opposite
such owner's name.
Dated:
Very truly yours,
____________________________
(Name)
By: ____________________________
(Authorized Signature)
<PAGE>
EXHIBIT 10.1
CONTRIBUTION AND STOCK PURCHASE AGREEMENT
BY, BETWEEN AND AMONG
MADISON RIVER TELEPHONE COMPANY, LLC,
COASTAL COMMUNICATIONS, LLC,
COASTAL UTILITIES, INC.,
DANIEL M. BRYANT,
G. ALLAN BRYANT
AND
THE MICHAEL E. BRYANT LIFE TRUST
November 23, 1999
<PAGE>
CONTRIBUTION AND STOCK PURCHASE AGREEMENT
This Contribution and Stock Purchase Agreement is entered into this of
November 1999, by and among Madison River Telephone Company, LLC, a Delaware
limited liability company ("MRTC") and Coastal Communications, LLC, a Delaware
limited liability company (collectively, the "Buyer"); Daniel M. Bryant, G.
Allan Bryant and The Michael E. Bryant Life Trust (collectively, the "Sellers");
and Coastal Utilities, Inc., a Georgia corporation (the "Company"). The Buyer
and the Sellers are referred to collectively herein as the "Parties."
WHEREAS, the Sellers in the aggregate own all of the outstanding capital
stock of the Company.
WHEREAS, the Company is engaged in the operation of a local exchange
carrier telephone company providing comprehensive telecommunications services to
its customers (the "Business")
WHEREAS, this Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
outstanding capital stock of the Company on the terms and conditions set forth
herein.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
------------
Capitalized terms contained in this Agreement and not otherwise defined by
their context, are defined in Exhibit A, attached hereto and incorporated by
this reference.
2. Contribution and Sale of Company Shares.
----------------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of this
-----------------
Agreement, the Buyer agrees to acquire from each of the Sellers, and each of the
Sellers agrees to transfer to the Buyer, all of his or its Company Shares for
the consideration specified below in this Section 2.
(b) Consideration. Subject to the adjustments set forth in Section 2(e),
-------------
Section 6(e) and Section 6(f) below, the Buyer agrees to pay and deliver to the
Sellers at the Closing (i) One Hundred Thirty Million Dollars ($130,000,000)
less Long Term Debt by wire transfer or delivery of other immediately available
funds (the "Purchase Price") and (ii) the Coastal Communications Interests
(collectively, the "Consideration"). The Consideration shall be allocated among
the Sellers in proportion to their respective holdings of Company Shares as set
forth in Section 4(b) of the Disclosure Schedule.
(c) The Closing. The closing of the transactions contemplated by this
-----------
Agreement (the "Closing") shall take place at the offices of Ratcliffe, Smith &
Grinstead, P.C., located at
<PAGE>
103 North Main Street, Hinesville, GA. 31313, commencing at 9:00 a.m. local time
on the first business day following the satisfaction or waiver of all conditions
to the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions the respective Parties
will take at the Closing itself) or such other date as the Buyer and the Sellers
may mutually determine (the "Closing Date"); provided, however, that the Closing
Date shall be no later than March 31, 2000.
(d) Deliveries at the Closing. At the Closing, (i) Sellers will
-------------------------
contribute, transfer and deliver to Buyer the various certificates, instruments,
and documents referred to in Section 7(a) below, (ii) Buyer will deliver to
Sellers the various certificates, instruments, and documents referred to in
Section 7(b) below, (iii) each of the Sellers will contribute, transfer and
deliver to Buyer stock certificates representing all of his or its Company
Shares, endorsed in blank or accompanied by duly executed assignment documents,
and (iv) Buyer will deliver to Sellers the consideration specified in Section
2(b) above.
(e) Adjustments to Consideration.
----------------------------
(i) Within thirty (30) days following the Closing Date, Buyer's
accountants shall have reviewed the financial statements, books and records
of the Company and its Subsidiaries and shall have delivered a written
report of the results of such review to Sellers (the "Final Closing Date
Report"). The calculations of Buyer made pursuant to this Section shall be
made in accordance with GAAP. The Purchase Price is based upon the
following covenants of the Company and the Sellers: The Company shall at
the Closing Date have (A) a minimum of Five Million Dollars ($5,000,000) in
readily available cash or cash equivalents (neither of which is restricted
or dedicated for payment of a Company obligation); (B) a current ratio of
1.2; and (C) a minimum Net Worth of Ten Million Dollars ($10,000,000),
provided that the Illuminet stock presently held by the Company shall be
valued at the lesser of cost or fair market value for these purposes. The
Consideration shall be reduced by an amount equal to the sum of the
following: (i) the amount that cash is less than Five Million Dollars
($5,000,000); (ii) the amount equal to the current assets needed to
increase the numerator of the current ratio to achieve the minimum current
ratio and (iii) the amount that Net Worth is less than Ten Million Dollars
($10,000,000). Any reduction in consideration shall be made in the amount
of Consideration delivered at Closing based upon the parties good faith
estimate of the actual amounts required to be delivered under the
requirements of Section 2(e)(1)(A), Section 2(e)(ii)(B) and Section
2(e)(iii)(C) above. If, based upon the Final Closing Date Report additional
adjustments in the Consideration are required, Sellers shall each reimburse
Buyer their pro rata portion of the amount of the Purchase Price adjustment
by (i) wire transfer of immediately available funds to the account
specified by Buyer within five (5) business days after the date on which
the Final Closing Date Report is deemed final in accordance with this
Section 2(e); or (ii) a reduction of the amount of the CCL Class A Member
Interests received by Sellers. Buyer may stipulate the method of
reimbursement.
(ii) The Purchase Price shall be increased by an amount equal to the
amount that cash and cash equivalents is more than Five Million Dollars
($5,000,000), provided
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that the purchase price increase shall be limited to an amount such that
when the purchase price increase is deemed subtracted from cash and cash
equivalents, as calculated on the Final Closing Date Report, the financial
conditions as set forth in (e)(i) above all shall still be satisfied. Buyer
shall pay Sellers any such increase within five (5) business days after the
date in which the Final Closing Date Report is deemed final in accordance
with Section 2(e).
(iii) Not later than ten (10) business days following the delivery of
the Final Closing Date Report and the calculation of the Purchase Price
adjustment, Sellers may furnish Buyer with written notification of any
dispute concerning any items shown thereon or omitted therefrom together
with a detailed explanation in support of Sellers' position in respect
thereof. Sellers and Buyer shall consult to resolve any such dispute for a
period of fifteen (15) business days following the notification thereof. If
such fifteen (15) business day consultation period expires and the dispute
has not been resolved, the matter shall be referred to a nationally
recognized Big 5 independent public accounting firm mutually agreed upon by
Sellers and Buyer (the "Accountants"), which shall resolve the dispute and
shall render its decision (together with a brief explanation of the basis
therefor) to Buyer and Sellers not later than twenty (20) business days
following submission of the dispute to it; provided, however, that if Buyer
and Sellers are unable to mutually agree upon a nationally recognized Big 5
independent public accounting firm, then Buyer and Sellers shall each
choose a nationally recognized Big 5 independent public accounting firm and
those firms shall appoint a third nationally recognized Big 5 independent
public accounting firm to act as the Accountants. The adjustments to the
Purchase Price shall be made in the required manner within five (5)
business days after the delivery of a copy of such decision to Sellers and
Buyer. The fees and expenses of the Accountants shall be shared equally by
Sellers and Buyer. The Final Closing Date Report and the calculation of any
Purchase Price adjustments (to the extent not disputed within the specified
period by Sellers), any mutually agreed written settlement of any such
dispute concerning the Final Closing Date Report or the calculation of any
Purchase Price adjustments and any determination of disputed items by the
Accountants shall be final, conclusive and binding on the Parties hereto
absent manifest error.
(v) At the later of ninety (90) days after all restrictions lapse
on Illuminet stock or November 1, 2000 (the "Valuation Date"), Buyer shall
pay as additional purchase price fifty percent (50%) of the deemed gain on
Illuminet stock. Gain shall be calculated as the value of Illuminet stock
less (1) value ascribed to Illuminet stock in (e)(i) above and (2) federal
and state income taxes payable on the deemed sale. Illuminet value shall be
determined by the actual sale of Illuminet stock within 30 days of the
Valuation Date or, in case of a deemed sale, the average of the ten (10)
most recent closing prices of Illuminet stock on or prior to the Valuation
Date.
(vi) The Purchase Price shall be adjusted for split dollar insurance
in accordance with Section 5(k) hereof.
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3. Representations and Warranties Concerning the Transaction the
-------------------------------------------------------------
Transaction.
- -----------
(a) Representations and Warranties of the Sellers. Each of the Sellers
---------------------------------------------
severally represents and warrants to the Buyer that the statements contained in
this Section 3(a) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to himself or itself, except as set
forth in the Disclosure Schedule attached hereto.
(i) Organization of Certain Sellers. If the Seller is a trust, the
--------------------------------
Seller is validly existing under the trust and fiduciary laws of the State
of Georgia.
(ii) Authorization of Transaction. Each Seller has full power and
----------------------------
authority (including, if the Seller is a corporation, full corporate power
and authority) to execute and deliver this Agreement and to perform his or
its obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of each Seller, enforceable in accordance with its terms
and conditions. Except as set forth in Schedule 3(a)(ii), (and each such
exception shall be satisfied prior to the Closing Date), each Seller need
not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Seller is
subject or, if the Seller is a trust, any provision of its trust agreement
or (B) except as set forth in Schedule 3(a)(iii) (and each such exception
shall be satisfied prior to the Closing Date) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Seller is a party or by which
he or it is bound or to which any of his or its assets is subject.
(iv) Brokers' Fees. No Seller has any Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(v) Company Shares. As of the date hereof and as of the Closing, each
--------------
Seller holds of record and owns beneficially the number of Company Shares
set forth next to his or its name in Section 4(b) of the Disclosure
Schedule, free and clear of any restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. Except as set forth in Schedule
3(a)(v), (each such exception to be removed prior to the Closing Date). No
Seller is a party to any option,
4
<PAGE>
warrant, purchase right, or other contract or commitment that could require
such Seller to sell, transfer, or otherwise dispose of any capital stock of
the Company (other than this Agreement). No Seller is a party to any voting
trust, proxy, or other agreement or Understanding with respect to the
voting of any capital stock of the Company. Upon the consummation of the
transaction contemplated hereby, Buyer will acquire title to the Company
Shares, free and clear of all restrictions on transfer (other than any
restrictions under the Securities Act and state securities laws), Taxes,
Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands.
(vi) Each Seller (i) understands that the Coastal Communications
Interests have not been, and will not be, registered under the Securities
Act, or any state securities laws, and are being offered and transferred in
reliance upon federal and state exemptions for transactions not involving
any public offering, (ii) is acquiring the Coastal Communications Interests
solely for its own account for investment purposes, and not with a view to
the distribution thereof, (iii) is a sophisticated investor with knowledge
and experience in business and financial matters, (iv) has received
information concerning the Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the
risks inherent in holding the Coastal Communications Interests, (v) is able
to bear the economic risk and lack of liquidity inherent in holding the
Coastal Communications Interests, and (vi) is an Accredited Investor as
defined and set forth in Regulation D promulgated under the Securities Act.
(b) Representations and Warranties of the Buyer. The Buyer
-------------------------------------------
represents and warrants to Sellers that the statements contained in this
Section 3(b) are correct and complete as of the date of this Agreement and
will be correct and complete as of the Closing Date (as though made then
and as though the Closing Date were substituted for the date of this
Agreement throughout this Section 3(b).
(i) Organization of the Buyer. The Buyer is a limited liability
---------------------------
company duly organized, validly existing, and in good standing under the
laws of Delaware.
(ii) Authorization of Transaction. The Buyer has full power and
------------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. Except as
provided herein, Buyer need not give any notice to, make any filing with,
or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its Certificate of Formation or Limited
Liability Company Agreement (B) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate,
5
<PAGE>
modify, or cancel, or require any notice under any agreement, contract,
lease, license, instrument, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
-------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer is not acquiring the Company Shares with a
----------
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
4. Representations and Warranties Concerning the Company and Its
-------------------------------------------------------------
Subsidiaries.
- -------------
The Sellers jointly and severally represent and warrant to Buyer that the
statements contained in this Section 4 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Section 4), except as set forth in the disclosure
schedule delivered by Sellers to Buyer within ten (10) days of the date hereof,
initialed by the Parties and subject to the provisions of Section 5(L) attached
hereto as Exhibit B (the "Disclosure Schedule"). Nothing in the Disclosure
Schedule shall be deemed adequate to disclose an exception to a representation
or warranty made herein, however, unless the Disclosure Schedule identifies the
exception with particularity and describes the relevant facts in sufficient
detail to accurately apprise Buyer of the true nature of the circumstance or
situation. Without limiting the generality of the foregoing, the mere listing
(or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of the
document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 4.
(a) Organization, Qualification, and Corporate Power. Each of the Company
------------------------------------------------
and its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Company and its Subsidiaries is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such qualification is
required. Each of the Company and its Subsidiaries has full corporate power and
authority and all licenses, permits, operating authority, regulatory approvals
and authorizations necessary to carry on the Businesses in which it is engaged
and in which it presently proposes to engage and to own and use the properties
owned and used by it. Section 4(a) of the Disclosure Schedule lists the
directors and officers of each of the Company and its Subsidiaries. The Sellers
have delivered to Buyer correct and complete copies of the charter and bylaws of
each of the Company and its Subsidiaries (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of each of the Company and its Subsidiaries are correct
and complete. None of the Company and its Subsidiaries is in default under or in
violation of any provision of its charter or bylaws.
6
<PAGE>
(b) Capitalization. The entire authorized capital stock of the Company
--------------
consists of: (i) 300,000 shares of Class A Common Stock, par value-$10.00, of
which 52,860 shares are issued and outstanding, (ii) 900,000 shares of Class B
Common Stock, par value $10.00, of which 222,012 shares are issued and
outstanding; (iii) 50,000 shares of Class A Preferred Stock, par value $100.00,
of which 10,572 shares are issued and outstanding; and (iv) 20,000 shares of
Class B Preferred Stock, par value $100.00, of which 4,405 shares are issued and
outstanding. All of the issued and outstanding Company Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held of
record by the respective Sellers as set forth in Section 4(b) of the Disclosure
Schedule. There are no outstanding or authorized options, warrants, purchase
rights, subscription rights, conversion rights, exchange rights, or other
contracts or commitments that could require the Company to issue, sell, or
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of the Company.
(c) Noncontravention. Neither the execution and the delivery of this
----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Company and its Subsidiaries
is subject or any provision of the charter or bylaws of any of the Company and
its Subsidiaries or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
any of the Company and its Subsidiaries is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). Except as set forth in schedule 4(c), (each
such exception to be removed prior to the Closing Date), none of the Company and
its Subsidiaries must give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement.
(d) Brokers' Fees. None of the Company and its Subsidiaries has any
-------------
Liability or obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement.
(e) Title to Assets. The Company's and its Subsidiaries' assets include
---------------
all of the assets, properties and rights of every type and description, real,
personal and mixed, tangible and intangible, that are currently used in the
conduct of the Company's and its Subsidiaries' Business. The Company and its
Subsidiaries have good and marketable title to, or a valid leasehold interest
in, the properties and assets used by them, located on their premises, or shown
on the Most Recent Balance Sheet or acquired after the date thereof, free and
clear of all Security Interests, except as set forth in Section 4(e) of the
Disclosure Schedule.
(f) Subsidiaries. Section 4(f) of the Disclosure Schedule sets forth for
------------
each Subsidiary of the Company (i) its name and jurisdiction of incorporation,
(ii) the number of
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shares of authorized capital stock of each class of its capital stock, (iii) the
number of issued and outstanding shares of each class of its capital stock, the
names of the holders thereof, and the number of shares held by each such holder,
and (iv) the number of shares of its capital stock held in treasury. All of the
issued and outstanding shares of capital stock of -each Subsidiary of the
Company have been duly authorized and are validly issued, fully paid, and
nonassessable. The Company holds of record and owns beneficially all of the
outstanding shares of each Subsidiary of the Company, free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require any of the Company and its Subsidiaries to sell, transfer, or
otherwise dispose of any capital stock of any of its Subsidiaries or that could
require any Subsidiary of the Company to issue, sell, or otherwise cause to
become outstanding any of its own capital stock. There are no outstanding stock
appreciation, phantom stock, profit participation, or similar rights with
respect to any Subsidiary of the Company. There are no voting trusts, proxies,
or other agreements or understandings with respect to the voting of any capital
stock of any Subsidiary of the Company. Except as set forth in Section 4(f),
none of the Company and its Subsidiaries controls directly or indirectly or has
any direct or indirect equity participation in any corporation, partnership,
trust, or other business association which is not a Subsidiary of the Company.
(g) Financial Statements. Attached hereto as Exhibit B are the following
--------------------
financial statements (collectively the "Financial Statements"): (i) audited
consolidated and unaudited consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and for the fiscal
years ended December 31, 1997, and December 31, 1998 (the "Most Recent Fiscal
Year End") for the Company and its Subsidiaries; and (ii) unaudited balance
sheets and statement of income (die "Most Recent Financial Statements") as of
and for the nine months ended September 30, 1999 (the "Most Recent Fiscal Month
End") for the Company and its Subsidiaries. The Financial Statements referenced
in 4(g)(i) above (including the notes thereto) have been prepared from the books
and records of the Company and its Subsidiaries in accordance with GAAP applied
on a consistent basis throughout the periods covered thereby, present fairly the
financial condition of the Company and its Subsidiaries as of such dates and the
results of operations of the Company and its Subsidiaries for such periods, are
correct and complete, and are consistent with the books and records of the
Company and its Subsidiaries (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most
------------------------------------------------
Recent Fiscal Year End, there has not been any material adverse change in the
Business, financial condition, operations, results of operations, cash flows or
future prospects of any of the Company and its Subsidiaries, but excluding any
change in the United States general economic conditions. Without limiting the
generality of the foregoing, since that date, and except as set forth in Section
4(h) of the Disclosure Schedule:
(i) none of the Company and its Subsidiaries has sold, leased,
transferred, or assigned any of its assets, tangible or intangible, other
than for a fair consideration in the Ordinary Course of Business;
8
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(ii) none of the Company and its Subsidiaries has entered into any
agreement, contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) either involving more than $50,000 or
outside the Ordinary Course of Business;
(iii) no party (including any of the Company and its Subsidiaries)
has accelerated, terminated, modified, or cancelled any agreement,
contract, lease, or license (or series of related agreements, contracts,
leases, and licenses) involving more than $50,000 to which any of the
Company and its Subsidiaries is a party or by which any of them is bound;
(iv) none of the Company and its Subsidiaries has imposed any
Security Interest upon any of its assets, tangible or intangible;
(v) none of the Company and its Subsidiaries has made any capital
expenditure (or series of related capital expenditures) either involving
more than $50,000 or outside the Ordinary Course of Business;
(vi) none of the Company and its Subsidiaries has made any capital
investment in, any loan to, or any acquisition of the securities or assets
of, any other Person (or series of related capital investments, loans, and
acquisitions) either involving more than $50,000 or outside the Ordinary
Course of Business;
(vii) none of the Company and its Subsidiaries has issued any note,
bond, or other debt security or created, incurred, assumed, or guaranteed
any indebtedness for borrowed money or capitalized lease obligation either
involving more than $50,000 singly or $250,000 in the aggregate;
(viii) none of the Company and its Subsidiaries has delayed or
postponed the payment of accounts payable and other Liabilities outside the
Ordinary Course of Business;
(ix) none of the Company and its Subsidiaries has cancelled,
compromised, waived, or released any right or claim (or series of related
rights and claims) either involving more than $50,000 or outside the
Ordinary Course of Business;
(x) none of the Company and its Subsidiaries has granted any
license or sublicense of any rights under or with respect to any
Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of any of the Company and its Subsidiaries;
(xii) none of the Company and its Subsidiaries has issued, sold, or
otherwise disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon conversion,
exchange, or exercise) any of its capital stock;
9
<PAGE>
(xiii) none of the Company and its Subsidiaries has declared, set
aside, or paid any dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock;
(xiv) none of the Company and its Subsidiaries has made any loan to,
or entered into any other transaction with, any of its directors, officers,
and employees outside the Ordinary Course of Business;
(xv) one of the Company and its Subsidiaries has granted any
increase in the base compensation of any of its directors, officers, and
employees outside the Ordinary Course of Business;
(xvi) none of the Company and its Subsidiaries has adopted, amended,
modified, or terminated any bonus, profit-sharing, incentive, severance, or
other plan, contract, or commitment for the benefit of any of its
directors, officers, and employees (or taken any such action with respect
to any other Employee Benefit Plan);
(xvii) none of the Company and its Subsidiaries has made or pledged
to make any charitable or other capital contribution outside the Ordinary
Course of Business; and
(xviii) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving any of the Company and its Subsidiaries.
(i) Undisclosed Liabilities. None of the Company and its Subsidiaries has
-----------------------
any Liability (and to the Knowledge of Sellers there is no Basis for any present
or future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability), except for
(i) Liabilities set forth on the face of the Most Recent Fiscal Year End (rather
than in any notes thereto) and (ii) Liabilities which are current liabilities of
the Company and which have arisen after the Most Recent Fiscal Year End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(j) Legal Compliance. Each of the Company, its Subsidiaries, and their
----------------
respective predecessors and Affiliates has complied with all applicable laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof, including, but not limited to, the FCC
and the Georgia PSC), and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
any of them alleging any failure so to comply.
(k) Tax Matters.
-----------
10
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(i) Each of the Company and its Subsidiaries has filed all Tax
Returns that it was required to file. All such Tax Returns were correct and
complete in all respects. All Taxes owed by any of the Company and its
Subsidiaries (whether or not shown on any Tax Return) have been paid. None
of the Company and its Subsidiaries currently is the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where any of the Company and
its Subsidiaries does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction. There are no Security Interests on any of
the assets of any of the Company and its Subsidiaries that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) Each of the Company and its Subsidiaries has withheld and paid
all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder, or other third party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of any of the Company and its Subsidiaries expects any
authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim concerning any Tax
Liability of any of the Company and its Subsidiaries either (A) claimed or
raised by any authority in writing or (B) as to which any of the Sellers
and the directors and officers (and employees responsible for Tax matters)
of the Company and its Subsidiaries has knowledge based upon personal
contact with any agent of such authority. Section 4(k) of the Disclosure
Schedule lists all federal, state, local, and foreign income Tax Returns
filed with respect to any of the Company and its Subsidiaries for taxable
periods ended on or after December 31, 1993, indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are
the subject of audit. The Sellers have delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by any of the
Company and its Subsidiaries since December 31, 1993.
(iv) None of the Company and its Subsidiaries has waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(v) None of the Company and its Subsidiaries has filed a consent
under Code Section 341(f) concerning collapsible corporations. None of the
Company and its Subsidiaries has made any payments, is obligated to make
any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Code Section 280G. None of the Company and its
Subsidiaries has been a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during the applicable period
specified in Code Section 897(c)(1)(A)(ii). Each of the Company and its
Subsidiaries has disclosed on its federal income Tax Returns all positions
taken therein that could give rise to a substantial understatement of
federal income Tax within the meaning of Code Section 6662. None of the
Company and its Subsidiaries is a party to any Tax allocation or sharing
agreement. None of the Company and its Subsidiaries (A) has been a member
of an Affiliated Group
11
<PAGE>
filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company) or (B) has any Liability for the
Taxes of any Person (other than any of the Company and its Subsidiaries)
under Reg. Section 1. 1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise.
(vi) Section 4(k) of the Disclosure Schedule sets forth the
following information with respect to each of the Company and its
Subsidiaries (or, in the case of clause (B) below, with respect to each of
the Subsidiaries) as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Closing giving effect to the
consummation of the transactions contemplated hereby): (A) the basis of the
Company or Subsidiary in its assets; (B) the basis of the stockholder(s) of
each Subsidiary in its stock (or the amount of any Excess Loss Account);
(C) the amount of any net operating loss, net capital loss, unused
investment or other credit, unused foreign tax, or excess charitable
contribution allocable to the Company or Subsidiary; and (D) the amount of
any deferred gain or loss allocable to the Company or Subsidiary arising
out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of the Company and its Subsidiaries (A) did
not, as of the Most Recent Fiscal Month End, exceed the reserve for Tax
Liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the
face of the Most Recent Balance Sheet (rather than in any notes thereto)
and (B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of
the Company and its Subsidiaries in filing their Tax Returns.
(1) Real Property.
-------------
(i) Section 4(l)(i) of the Disclosure Schedule lists and describes
briefly all real property that any of the Company and its Subsidiaries
owns. Except as set forth in Section 4(l)(i) of the Disclosure Schedule,
with respect to each such parcel of owned real property:
(A) the identified owner has good and marketable title to the
parcel of real property, free and clear of any Security Interest,
easement, right-of-way, covenant, or other restriction, except for
installments of special assessments not yet delinquent and recorded
easements, covenants, and other restrictions which do not impair the
current use, occupancy, or value, or the marketability of title, of
the property subject thereto;
(B) there are no pending or, to the Knowledge of any of the
Sellers and the directors and officers (and employees with
responsibility for real estate matters) of the Company and its
Subsidiaries, threatened condemnation proceedings, lawsuits, or
administrative actions relating to the property or other matters
affecting adversely the current use, occupancy, or value thereof,
12
<PAGE>
(C) the legal description for the parcel contained in the deed
thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described
parcels of land, are not in violation in any material respect of
applicable setback requirements, zoning laws, and ordinances (and none
of the properties or buildings or improvements thereon are subject to
"permitted non-conforming use" or "permitted non-conforming structure"
classifications), and do not encroach on any easement which may burden
the land, and the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, and the property is not
located within any flood plain or subject to any similar type
restriction for which any permits or licenses necessary to the use
thereof have not been obtained;
(D) all facilities have received all approvals of governmental
authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations;
(E) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party or parties
the right of use or occupancy of any portion of the parcel of real
property;
(F) there are no outstanding options or rights of first refusal
to purchase the parcel of real property, or any portion thereof or
interest therein;
(G) there are no parties (other than the Company and its
Subsidiaries) in possession of the parcel of real property, other than
tenants under any leases disclosed in Section 4(l)(i) of the
Disclosure Schedule who are in possession of space to which they are
entitled;
(H) all facilities located on the parcel of real property are
supplied with utilities and other services necessary for the operation
of such facilities, including where necessary gas, electricity, water,
telephone, sanitary sewer, and storm sewer, all of which services are
adequate in accordance with all applicable laws, ordinances, rules,
and regulations and are provided via public roads or via permanent,
irrevocable, appurtenant easements benefiting the parcel of real
property; and
(I) each parcel of real property abuts on and has direct
vehicular access to a public road, or has access to a public road via
a permanent, irrevocable, appurtenant easement benefiting the parcel
of real property.
(ii) Section 4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to any of the Company and its
Subsidiaries. Section 4(l)(ii) of the Disclosure Schedule also identifies
the leased or subleased properties for which title insurance policies are
to be procured in accordance with Section 5(h)(ii) below. The Sellers have
delivered to the Buyer correct and complete copies of the leases and
13
<PAGE>
subleases listed in Section 4(l)(ii) of the Disclosure Schedule (as amended
to date). With respect to each lease and sublease listed in Section
4(l)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(C) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof,
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) none of the Company and its Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws,
rules, and regulations;
(I) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities; and
(J) the owner of the facility leased or subleased has good and
marketable title to the parcel of real property, free and clear of any
Security Interest, easement, covenant, or other restriction, except
for installments of special easements not yet delinquent and recorded
easements, covenants, and other restrictions which do not impair the
current use, occupancy, or value, or the marketability of title, of
the property subject thereto.
(iii) Section 4(l)(iii) of the Disclosure Schedule lists and describes
briefly all easements and rights-of-way held by the Company and its
Subsidiaries. Except as set forth in Section 4(l)(iii) of the Disclosure
Schedule, the Company and its Subsidiaries
14
<PAGE>
have good, marketable and indefeasible rights and title in such easements
and right-of-way, free and clear of Security Interests, and no Person is
disputing such right and title to such easements and rights-of-way.
(m) Intellectual Property.
---------------------
(i) The Company and its Subsidiaries own or have the right to use
pursuant to license, sublicense, agreement, or permission all Intellectual
Property necessary or desirable for the operation of the Businesses of the
Company and its Subsidiaries as presently conducted and as presently
proposed to be conducted. Each item of Intellectual Property owned or used
by any of the Company and its Subsidiaries immediately prior to the Closing
hereunder will be owned or available for use by the Company or the
Subsidiary on identical terms and conditions immediately subsequent to the
Closing hereunder. Each of the Company and its Subsidiaries has taken all
necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses.
(ii) None of the Company and its Subsidiaries has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of third parties or violated any
confidentiality agreements to which they are parties, and none of the
Sellers and the directors and officers (and employees with responsibility
for Intellectual Property matters) of the Company and its Subsidiaries has
ever received any charge, complaint, claim, demand, or notice alleging any
such interference, infringement, misappropriation, or violation (including
any claim that any of the Company and its Subsidiaries must license or
refrain from using any Intellectual Property rights of any third party). To
the Knowledge of any of the Sellers and the directors and officers (and
employees with responsibility for Intellectual Property matters) of the
Company and its Subsidiaries, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of any of the Company and its Subsidiaries.
(iii) Section 4(m)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to any of the Company and its
Subsidiaries with respect to any of its Intellectual Property, identifies
each pending patent application or application for registration which any
of the Company and its Subsidiaries has made with respect to any of its
Intellectual Property, and identifies each license, agreement, or other
permission which any of the Company and its Subsidiaries has granted to any
third party with respect to any of its Intellectual Property (together with
any exceptions). The Sellers have delivered to the Buyer correct and
complete copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and have made available to
the Buyer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item.
Section 4(m)(iii) of the Disclosure Schedule also identifies each trade
name or unregistered trademark used by any of the Company and its
Subsidiaries in connection with any of its Businesses. With respect to
each item of Intellectual Property required to be identified in Section
4(m)(iii) of the Disclosure Schedule:
15
<PAGE>
(A) the Company and its Subsidiaries possess all right, title,
and interest in and to the item, free and clear of any Security
Interest, license, or other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of
the Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and
its Subsidiaries, is threatened which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(D) none of the Company and its Subsidiaries has ever agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that any of the
Company and its Subsidiaries uses pursuant to license, sublicense,
agreement, or permission. The Sellers have delivered to the Buyer correct
and complete copies of all such licenses, sublicenses, agreements, and
permissions (as amended to date). With respect to each item of Intellectual
Property required to be identified in Section 4(m)(iv) of the Disclosure
Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in Section 2 above);
(C) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
16
<PAGE>
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of
the Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company and
its Subsidiaries, is threatened which challenges the legality,
validity, or enforceability of the underlying item of Intellectual
Property; and
(H) none of the Company and its Subsidiaries has granted any
sublicense or similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company and its Subsidiaries, none of the Company and its
Subsidiaries will interfere with, infringe upon, misappropriate, or
otherwise come into conflict with, any Intellectual Property rights of
third parties as a result of the continued operation of its Businesses as
presently conducted and as presently proposed to be conducted.
(n) Tangible Assets. The Company and its Subsidiaries own or lease all
---------------
buildings, machinery, Equipment, and other tangible assets necessary for the
conduct of their Businesses as presently conducted and as presently proposed to
be conducted. Each such tangible asset is free from defects (patent and, to the
knowledge of the Company and Sellers, latent), has been maintained in accordance
with normal industry practice, is in good operating condition and repair
(subject to normal wear and tear), and is suitable for the purposes for which it
presently is used and presently is proposed to be used.
(o) Inventory. Except as set forth in Section 4(o) of the Disclosure
---------
Schedule, the Inventory of the Company and its Subsidiaries consists of raw
materials and supplies fit for the purpose for which it was procured or
manufactured, and none of which is obsolete, damaged, or defective, subject only
to the reserve for Inventory writedown set forth on the face of the Most Recent
Fiscal Year End (rather than in any notes thereto) as adjusted for the passage
of time through the Closing Date in accordance with the past custom and practice
of the Company and its Subsidiaries. The Inventory is, and at the Closing Date
will be, at a level required to operate the Business consistent with past
practices of the Company and its Subsidiaries.
(p) Contracts. Section 4(p) of the Disclosure Schedule lists the following
---------
contracts and other agreements to which any of the Company and its Subsidiaries
is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of Fifty Thousand Dollars ($50,000) per annum;
17
<PAGE>
(ii) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or
other personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one (1) year,
result in a loss to any of the Company and its Subsidiaries, or involve
consideration in excess of Fifty Thousand Dollars ($50,000);
(iii) any agreement which causes the Company or any of its
Subsidiaries to be a member of a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of Fifty Thousand
Dollars ($50,000) or under which it has imposed a Security Interest on any
of its assets, tangible or intangible;
(v) any agreement binding the Company to confidentiality or
noncompetition;
(vi) any agreement with any of the Sellers and their Affiliates
(other than the Company and its Subsidiaries);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing annual compensation
in excess of Fifty Thousand Dollars ($50,000) or providing severance
benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees;
(xi) any agreement under which the consequences of a default or
termination could have a material adverse effect on the Business, financial
condition, operations, results of operations, or future prospects of any of
the Company and its Subsidiaries; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of Fifty Thousand
Dollars ($50,000).
The Sellers have delivered to the Buyer a correct and complete copy of each
written agreement listed in Section 4(p) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Section 4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and
18
<PAGE>
no event has occurred which with notice or lapse of time would constitute a
breach or default, or permit termination, modification, or acceleration, under
the agreement; (D) to the Sellers' knowledge no party is required to pay an
amount in excess of the fair market value for goods, services or leased property
or to sell goods or services at less than cost; and (E) no party has repudiated
any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and Accounts Receivable of
-----------------------------
the Company and its Subsidiaries are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims, are
current and collectible, and will be collected in accordance with their terms at
their recorded amounts, subject only to the reserve for bad debts set forth on
the face of the Most Recent Fiscal Year End (rather than in any notes thereto)
as adjusted for the passage of time through the Closing Date in accordance with
the past custom and practice of the Company and its Subsidiaries.
(r) Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of any of the Company and its Subsidiaries.
(s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
---------
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which any of ' the Company and its Subsidiaries
has been a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past 3 years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither any of the Company and its Subsidiaries nor any other party
to the policy is in breach or default (including with respect to the payment of
premiums or the giving of notices), and no event has occurred which, with notice
or the lapse of time, would constitute such a breach or default, or permit
termination, modification, or acceleration, under the policy; and (D) no party
to the policy has repudiated any provision thereof. Each of the Company and its
Subsidiaries has been covered during the past 3 years by insurance in scope and
19
<PAGE>
amount customary and reasonable for the Businesses in which it has engaged
during the aforementioned period. Section 4(s) of the Disclosure Schedule
describes any self-insurance arrangements affecting any of the Company and its
Subsidiaries.
(t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
----------
instance in which any of the Company and its Subsidiaries (i) is subject to any
outstanding injunction, judgment, order, decree, ruling, or charge or (ii) is a
party or, to the Knowledge of any of the Sellers and the directors and officers
(and employees with responsibility for litigation matters) of the Company and
its Subsidiaries, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or quasi-
judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator. None of the actions, suits, proceedings,
hearings, and investigations set forth in Section 4(t) of the Disclosure
Schedule could result in any material adverse change in the Business, financial
condition, operations, results of operations, or future prospects of any of the
Company and its Subsidiaries. None of the Sellers and the directors and officers
(and employees with responsibility for litigation matters) of the Company and
its Subsidiaries has any reason to believe that any such action, suit,
proceeding, hearing, or investigation may be brought or threatened against any
of the Company and its Subsidiaries.
(u) Product Warranty. Each product sold, leased, or delivered by any of
----------------
the Company and its Subsidiaries has been in conformity with all applicable
contractual commitments and all express and implied warranties, and none of the
Company and its Subsidiaries has any Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
for replacement or repair thereof or other damages in connection therewith,
subject only to the reserve for product warranty claims set forth on the face of
the Most Recent Balance Sheet (rather than in any notes thereto) as adjusted for
the passage of time through the Closing Date in accordance with the past custom
and practice of the Company and its Subsidiaries. No product sold, leased, or
delivered by any of the Company and its Subsidiaries is subject to any guaranty,
warranty, or other indemnity beyond the applicable standard terms and conditions
of sale or lease. Section 4(u) of the Disclosure Schedule includes copies of the
standard terms and conditions of sale or lease for each of the Company and its
Subsidiaries (containing applicable guaranty, warranty, and indemnity
provisions).
(v) Product Liability. To the Knowledge of any of the Sellers, none of the
-----------------
Company and its Subsidiaries has any Liability (and there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability)
arising out of any injury to individuals or property as a result of the
ownership, possession, or use of any product sold, leased, or delivered by any
of the Company and its Subsidiaries.
(w) Employees. To the Knowledge of any of the Sellers and the directors
---------
and officers (and employees with responsibility for employment matters) of the
Company and its Subsidiaries, no executive, key employee, or group of employees
has any plans to terminate employment with any of the Company and its
Subsidiaries. None of the Company and its Subsidiaries is a party to or bound by
any collective bargaining agreement, nor has any of them
20
<PAGE>
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes. None of the Company and its Subsidiaries has
committed any unfair labor practice. None of the Sellers and the directors and
officers (and employees with responsibility for employment matters) of the
Company and its Subsidiaries has any Knowledge of any organizational effort
presently being made or threatened by or on behalf of any labor union with
respect to employees of any of the Company and its Subsidiaries.
(x) Employee Benefits.
-----------------
(i) Section 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that any of the Company and its Subsidiaries maintains or to
which any of the Company and its Subsidiaries contributes or has any
obligation to contribute.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been timely filed and distributed appropriately
with respect to each such Employee Benefit Plan. The requirements of
COBRA have been met with respect to each such Employee Benefit Plan
which is a "group health plan7' under Section 4980B of the Code or
Section 607(l) or 609 of ERISA.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company and its Subsidiaries. All premiums
or other payments for all periods ending on or before the Closing Date
have been paid with respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
Section 401(a) is so qualified, has received a favorable determination
letter from the Internal Revenue Service and Seller is not aware of
any facts or circumstances that could result in the revocation of such
determination letter.
(E) Except as set forth in Section 4(x) of the Disclosure
Schedule, the market value of assets under each such Employee Benefit
Plan which is a "defined benefit" plan subject to Title IV of ERISA
(other than any Multiemployer Plan) equals or exceeds the present
value of all vested and nonvested Liabilities thereunder determined in
accordance with PBGC methods,
21
<PAGE>
factors, and assumptions applicable to such a plan terminating on the
date for determination.
(F) The Sellers have delivered or made available to the Buyer
correct and complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received from the
Internal Revenue Service, the most recent Form 5500 Annual Report, and
all related trust agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit Plan.
(G) There is no unfunded Liability for accrued benefits, whether
or not vested, under any funded Employee Benefit Plan, and all
contributions required to be made to or with respect to each Employee
Benefit Plan and all costs of administering each Employee Benefit Plan
have been completely and timely made or paid.
(ii) With respect to each Employee Benefit Plan that any of the
Company, its Subsidiaries, and any ERISA Affiliate maintains or ever has
maintained or to which any of them contributes, ever has contributed, or
ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or, to
the Knowledge of any of the Sellers and the directors and officers
(and employees with responsibility for employee benefits matters) of
the Company and its Subsidiaries, threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or, to the Knowledge of any of the
Sellers and the directors and officers (and employees with
responsibility for employee benefits matters) of the Company and its
Subsidiaries, threatened. None of the Sellers and the directors and
officers (and employees with responsibility for employee benefits
matters) of the Company and its Subsidiaries has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) Except as disclosed in Schedule 4(x) of the Disclosure
Schedule, none of the Company and its Subsidiaries has incurred, and
none of the Sellers and the directors and officers (and employees with
responsibility for employee
22
<PAGE>
benefits matters) of the Company and its Subsidiaries has any reason
to expect that any of the Company and its Subsidiaries will incur, any
Liability to the PBGC (other than PBGC premium payments) or otherwise
under Title IV of ERISA (including any withdrawal liability as defined
in ERISA Section 4201) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(iii) None of the Company, its Subsidiaries, and the other members of
the Controlled Group that includes the Company and its Subsidiaries
contributes to, ever has contributed to, or ever has been required to
contribute to any Multiemployer Plan or has any Liability (including
withdrawal liability as defined in ERISA Section 4201) under any
Multiemployer Plan.
(iv) Except as disclosed in Schedule 4(x) of the Disclosure
Schedule, none of the Company and its Subsidiaries maintains or ever has
maintained or contributes, ever has contributed, or ever has been required
to contribute to any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or their dependents
(other than in accordance with COBRA).
(y) Guaranties. Except as set forth in Section 4(y) of the Disclosure
----------
Schedule, none of the Company and its Subsidiaries is a guarantor or otherwise
is liable for any Liability or obligation (including indebtedness) of any other
Person.
(z) Environmental, Health, and Safely Matters.
-----------------------------------------
(i) Each of the Company, its Subsidiaries, and their respective
predecessors and Affiliates has complied and is in compliance in all
material respects with all Environmental, Health, and Safety Requirements.
(ii) Without limiting the generality of the foregoing, each of the
Company, its Subsidiaries and their respective Affiliates has obtained and
complied with, and is in compliance in all material respects with, all
permits, licenses and other authorizations that are required pursuant to
Environmental, Health, and Safety Requirements for the occupation of its
facilities and the operation of its Business; a list of all such permits,
licenses and other authorizations is set forth on the attached
"Environmental and Safety Permits Schedule."
(iii) Neither the Company, its Subsidiaries, nor their respective
predecessors or Affiliates has received any written or oral notice, report
or other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise), including any investigatory, remedial or corrective
obligations, relating to any of them or its facilities arising under
Environmental, Health, and Safety Requirements.
23
<PAGE>
(iv) None of the following exists at any property or facility owned
or operated by the Company or its Subsidiaries: (1) underground storage
tanks, (2) asbestos-containing material in any form or condition, (3)
materials or equipment containing polychlorinated biphenyls, or (4)
landfills, surface impoundments, or disposal areas.
(v) None of the Company, its Subsidiaries, or their respective
predecessors or Affiliates has treated, stored, disposed of, arranged for
or permitted the disposal of, transported, handled, or released any
substance, including, without limitation, any hazardous substance, or owned
or operated any property or facility (and no such property or facility is
contaminated by any such substance) in a manner that has given or would
give rise to liabilities, including any liability for response costs,
corrective action costs, personal injury, property damage, natural
resources damages or attorneys' fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Solid Waste. Disposal Act, as amended ("SVTDA") or any
other Environmental, Health, and Safety Requirements.
(vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for
site investigation or cleanup, or notification to or consent of government
agencies or third parties, pursuant to any of the so called "transaction-
triggered" or "responsible property transfer" Environmental, Health, and
Safety Requirements.
(vii) Neither the Company, its Subsidiaries, nor any of their
respective predecessors or Affiliates has, either expressly or by operation
of law, assumed or undertaken any liability, including, without limitation,
any obligation for corrective or remedial action, of any other Person
relating to Environmental, Health, and Safety Requirements.
(viii) To Sellers' knowledge, no facts, events or conditions relating
to the past or present facilities, properties or operations of the Company,
its Subsidiaries, or any of their respective predecessors or Affiliates
will prevent, hinder or limit continued compliance with Environmental,
Health, and Safety Requirements, give rise to any investigatory, remedial
or corrective obligations pursuant to Environmental, Health, and Safety
Requirements, or give rise to any other Liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise) pursuant to Environmental,
Health, and Safety Requirements, including, without limitation, any
relating to onsite or offsite releases or threatened releases of hazardous
materials, substances or wastes, personal injury, property damage or
natural resources damage.
(aa) Tariffs, FCC Licenses.
---------------------
(i) The regulatory tariffs applicable to the Business stand in
full force and effect on the date of this Agreement, and will stand in full
force and effect at Closing, in accordance with all of their terms, and
there is no outstanding notice of cancellation or termination or, to
Sellers' Knowledge, any threatened cancellation or termination in
connection therewith, nor is Seller subject to any restrictions or
conditions applicable to
24
<PAGE>
its regulatory tariffs that limit or would limit the operation of the
Business (other than restrictions or conditions generally applicable to
tariffs of that type). Each such tariff has been duly and validly approved
by the applicable regulatory agency. Neither the Company nor its
Subsidiaries are in default under the terms and conditions of any such
tariff and there is no basis for any claim of default by the Company or its
Subsidiaries in any respect under any such tariff. There are no
applications by the Company or its Subsidiaries or complaints or petitions
by others or proceedings pending or threatened before the Georgia PSC
relating to the Business or its operations or the regulatory tariffs. To
the knowledge of Sellers, there are no material violations by subscribers
or others under any such tariff. Section 4(aa)(i) of the Disclosure
Schedule sets forth all of the tariffs in force in connection with the
operation of the Business. A true and correct copy of each tariff
applicable to the Business has been delivered or made available to Buyer.
(ii) Listed on Section 4(aa)(ii) of the Disclosure Schedule are all of
the FCC licenses, permits, operating authority and regulatory approvals
held by the Company and its Subsidiaries that are used in the operation of
the Business. The licenses, permits, operating authority and regulatory
approvals set forth on Section 4(aa)(ii) of the Disclosure Schedule
constitute all of the licenses, permits, operating authority and regulatory
approvals which are required for the lawful conduct of the Business. Each
of such licenses, permits, operating authority and regulatory approvals are
in full force and effect in accordance with their terms on the date of this
Agreement, and will be in full force and effect in accordance with their
terms at the time of Closing, and there is no outstanding notice of
cancellation or termination or, to Sellers' Knowledge, any threatened
cancellation or termination in connection therewith, nor are any of such
licenses, permits, operating authority and regulatory approvals subject to
any restrictions or conditions that limit the operation of the Business
(other than restrictions or conditions generally applicable to licenses of
that type). Subject to the Communications Act of 1934, as amended, and the
regulations thereunder, such licenses and permits are free from all
Security Interests, claims and encumbrances of any nature whatsoever. There
are no applications by the Company or its Subsidiaries or complaints or
petitions by others or proceedings pending or threatened before the FCC or
any other governmental authority relating to the Business or such licenses,
permits, operating authority and regulatory approvals that would have a
material adverse impact on the Business.
(bb) Access Lines. T he number of Access Lines as of the Closing Date will
------------
not be less than 38,000.
(cc) Year 2000. To the Knowledge of Sellers, none of the computer
---------
software, computer firmware, computer hardware (whether general or special
purpose) or other similar or related items of automated, computerized or
software systems that are used or relied on by the Company or its Subsidiaries
in the conduct of their respective Businesses, and none of the products and
services sold, licensed, rendered, or otherwise provided by the Company and its
Subsidiaries in the conduct of their respective Businesses, is expected to
malfunction, cease to function, generate incorrect data or produce incorrect
results when processing, providing or receiving (i) date-related data from, into
and between the twentieth and twenty-first centuries or (ii) date-related data
in connection with any valid date in the twentieth and twenty-first centuries.
25
<PAGE>
At the direction of the Georgia PSC, Henderson Ridge Consulting has performed an
audit of the Company's Y2K. readiness and the report supports management's
representation that the Company is Y2K compliant. In the event the Company
incurs material Year 2000 problems prior to the Closing, Sellers shall have 45
days to cure the problems to Buyer's satisfaction.
Except as set forth in Section 4(cc) of the Disclosure Schedule, neither
the Company nor its Subsidiaries has made any representations or warranties
regarding the ability of any product or service sold, licensed, rendered, or
otherwise provided by the Company or its Subsidiaries in the conduct of their
respective Businesses to operate without malfunction, to operate without ceasing
to function, to generate correct data or to produce correct results when
processing, providing or receiving (i) date-related data from, into and between
the twentieth and twenty-first centuries and (ii) date-related data in
connection with any valid date in the twentieth and twenty-first centuries.
(dd) Certain Business Relationships with the Company and Its Subsidiaries.
--------------------------------------------------------------------
Except as set forth in Section 4(dd) of the Disclosure Schedule, none of the
Sellers and their Affiliates has been involved in any business arrangement or
relationship with any of the Company and its Subsidiaries within the past twelve
(12) months, and none of the Sellers and their Affiliates owns any asset,
tangible or intangible, which is used in the Business of any of the Company and
its Subsidiaries.
(ee) Disclosure. The representations and warranties contained in this
----------
Section 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading in any material respect.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
---------------------
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its best efforts to take
-------
all action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 7 below). Buyer will upon execution of this Agreement promptly complete
the requirements of the RTFC in order for the RTFC to evaluate Buyer's loan
request.
(b) Notices and Consents.
--------------------
(i) The Sellers will cause each of the Company and its Subsidiaries to
give any notices to third parties, and will cause each of the Company and
its Subsidiaries to use its best efforts to obtain any third party
consents, that the Buyer may request in connection with the matters
referred to in Section 4(c) above. Each of the Parties will (and the
Sellers will cause each of the Company and its Subsidiaries to) give any
notices to, make any filings with, and use its best efforts to obtain any
authorizations, consents, and approvals of governments and governmental
agencies in connection with the matters referred to in Section 3(a)(ii),
Section 3(b)(ii), and Section 4(c) above. Any requests for
26
<PAGE>
authorizations, consents or approvals needed by the Company and its
Subsidiaries will be submitted to Buyer for approval prior to forwarding to
a third party, government or governmental agency.
(ii) Promptly after the date hereof, Buyer and Sellers shall file any
notification required to be filed under the HSR Act to consummate the
transactions contemplated hereby, and shall request early termination of
the waiting period thereunder. Buyer and Sellers shall use all commercially
reasonable efforts to comply as promptly as practicable with any requests
made pursuant to the HSR Act for additional information. Buyer and Sellers
shall cooperate in such efforts to the extent commercially reasonable, and
each Party shall pay one-half of the filing fees incurred in connection
with the filings required under the HSR Act.
(iii) Promptly after the date hereof, Buyer and Sellers shall make
all filings required by the FCC and Georgia PSC, and take all actions
reasonably necessary to obtain all consents, permits and orders required by
the FCC and Georgia PSC as conditions to the obligations of Buyer and
Sellers to consummate the transactions hereunder. Buyer and Sellers shall
use all commercially reasonable efforts to comply as promptly as
practicable with any request made by the FCC or Georgia PSC for additional
information. Buyer and Sellers shall cooperate in such efforts to the
extent commercially reasonable. Each Party shall pay one-half of the fees
associated with the filings made by the Parties in order to comply with
this Section 5(b)(iii).
(c) Operation of Business. The Sellers will not cause or permit any of the
---------------------
Company and its Subsidiaries to engage in any practice, take any action, or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing, the Sellers will not cause or permit
any of the Company and its Subsidiaries to:
(i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or
otherwise acquire any of its capital stock other than the payment of One
Hundred Thousand Dollars ($100,000) as a 1999 year end dividend;
(ii) purchase, sell, lease, mortgage, pledge or otherwise acquire or
dispose of any of their assets, except for acquisitions and dispositions in
the Ordinary Course of Business consistent with past practices;
(iii) except with Buyer's prior written consent, increase or
otherwise change the rate or nature of the compensation (including wages,
salaries and bonuses) that is paid or payable to any Person, and enter
into, renew or allow the renewal of, any employment or consulting agreement
or other contract or arrangement with respect to the performance of
personal services;
(iv) except with Buyer's prior written consent, enter into, or
become obligated under, any contract, agreement or commitment on behalf of
the Company or any of its Subsidiaries, except in the Ordinary Course of
Business or change, amend, terminate or
27
<PAGE>
otherwise modify any material contract, agreement or commitment, except for
those which terminate or expire by their own terms;
(v) allow any policies of liability and casualty insurance carried
by the Company and its Subsidiaries to lapse;
(vi) except with Buyer's prior written consent, adopt or commit to
adopt, any pension, profit sharing, deferred compensation or similar plan,
program or trust on behalf of personnel of the Company and its
Subsidiaries, other than any such plan, program or trust currently
maintained by the Company and its Subsidiaries;
(vii) voluntarily agree to enter into or enter into any collective
bargaining agreement applicable to any employees of the Company and its
Subsidiaries or otherwise recognize any union as the bargaining
representative of any such employees;
(viii) take any action which could reasonably be expected to affect
in any adverse manner any of the permits, licenses, regulatory authority or
governmental approvals of the Company or its Subsidiaries; or
(ix) otherwise engage in any practice, take any action, or enter
into any transaction of the sort described in Section 4(h) above.
(d) Preservation of Business. The Sellers will cause each of the Company
------------------------
and its Subsidiaries to keep its Business and properties substantially intact,
including its present operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers, and employees.
(e) Full Access. Each of the Sellers will permit, and the Sellers will
-----------
cause each of the Company and its Subsidiaries to permit, representatives of the
Buyer to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company and its
Subsidiaries, to all premises, properties, personnel, books, records (including
Tax records), contracts, and documents of or pertaining to each of the Company
and its Subsidiaries.
(f) Notice of Developments. The Sellers will give prompt written notice to
----------------------
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in Section 4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his, or its own representations and warranties in Section 3
above. No disclosure by any Party pursuant to this Section 5(f), however, shall
be deemed to amend or supplement the Disclosure Schedule or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
(g) Financial and Management Reports. From the date of this Agreement
--------------------------------
until the earlier of the Closing or the termination of this Agreement pursuant
to Section 10, within twenty (20) days after the end of each month ending after
the date hereof, Sellers shall furnish Buyer with a copy of the monthly combined
financial statements and reports of the Company and its
28
<PAGE>
Subsidiaries prepared after the date of the Most Recent Financial Statements
(including the balance sheet and operating statement for each such month and the
fiscal year to the end of such month). In addition, Sellers shall furnish Buyer,
upon request, with copies of regular management reports, if any, concerning its
operation within ten (10) days after such reports are prepared. Sellers
understand that Buyer or one or more of its Affiliates (including the Company
after the Closing) may in the future prepare offering memoranda arid/or file
registration statements under the Securities Act and/or become a reporting
company under the Securities Exchange Act and that, in connection therewith, any
of such companies may be required to prepare financial statements of the Company
suitable for filing with the Securities and Exchange Commission for periods
prior to the Closing Date and such financial statements will need to be prepared
in accordance with Regulation S-X of the Securities Act or other applicable
legal requirements (the "S-X Financials"). Accordingly, Sellers shall furnish to
the Buyer (in addition to the Financial Statements) any information or documents
reasonably requested by the Buyer and in the Sellers' possession or to which
they have access, constituting, or necessary or desirable for the completion of,
such offering memoranda, registration statements and the S-X Financials
(including in response to Securities and Exchange Commission comments), and
Sellers agree, following the Closing, to execute, or cause to be executed, any
reasonably necessary management representation letters to permit Buyer, Sellers
or one of their respective Affiliates independent accountants to issue
unqualified reports with respect to the S-X Financials that are required to be
filed pursuant to applicable legal requirements.
(h) Title Insurance. The Sellers will cause the Company and its
---------------
Subsidiaries to obtain the following title insurance commitments, policies, and
riders in preparation for the Closing:
(i) with respect to each parcel of real estate that any of the
Company and its Subsidiaries owns, an ALTA Owner's Policy of Title
Insurance Form B-1987 (or equivalent policy acceptable to the Buyer if the
real property is located in a state in which an ALTA Owner's Policy of
Title Insurance Form B-1987 is not available) issued by a title insurer
satisfactory to the Buyer (and, if requested by the Buyer, reinsured in
whole or in part by one or more insurance companies and pursuant to a
direct access agreement acceptable to the Buyer), in such amount as the
Buyer may determine to be the fair market value of such real property
(including all improvements located thereon), insuring title to such real
property to be in the Company or its Subsidiary as of the Closing (subject
only to the title exceptions described above in Section 4(l)(i) and in
Section 4(l)(i) of the Disclosure Schedule); and
(ii) with respect to each parcel of real estate that any of the
Company and its Subsidiaries leases or subleases and which is listed on
Section 4(l)(ii) of the Disclosure Schedule as a property for which a title
insurance policy is to be procured, an ALTA Leasehold Owner's Policy of
Title Insurance-1987 (or equivalent policy acceptable to the Buyer if the
real property is located in a state in which an ALTA Leasehold Owner's
Policy of Title Insurance-1987 is not available) issued by a title insurer
satisfactory to the Buyer (and, if requested by the Buyer, reinsured in
whole or in part by one or more insurance companies and pursuant to a
direct access agreement acceptable to the Buyer) in such amount as the
Buyer may determine (taking into account the time cost of money using the
Applicable Rate as the discount rate and such other factors as whether the
fair
29
<PAGE>
market rental value of the premises exceeds the stipulated consideration in
the lease or sublease, whether the tenant or subtenant has any option to
renew or extend, whether the tenant or subtenant owns any improvements
located on the premises, whether the tenant or subtenant is permitted to
sublease, and whether the tenant or subtenant would owe any amount under
the lease or sublease if evicted), insuring title to the leasehold or
subleasehold estate to be in the Company or its Subsidiary as of the
Closing (subject only to the title exceptions described above in Section
4(l)(ii) and in 4(l)(ii) of the Disclosure Schedule).
Each title insurance policy delivered under Section 5(h)(i) and Section 5(h)(ii)
above shall (A) insure title to the real property and all recorded easements
benefiting such real property, (B) contain an "extended coverage endorsement"
insuring over the general exceptions contained customarily in such policies, (C)
contain an ALTA Zoning Endorsement 3.1 (or equivalent), (D) contain an
endorsement insuring that the real property described in the title insurance
policy is the same real estate as shown on the Survey delivered with respect to
such property, (E) contain an endorsement insuring that each street adjacent to
the real property is a public street and that there is direct and unencumbered
pedestrian and vehicular access to such street from the real property, (F)
contain an inflation endorsement providing for annual adjustments in the amount
of coverage corresponding to the annual percentage increase, if any, in the
United States Department of Commerce Composite Construction Cost Index (Base
Year = 1998), (G) if the real property consists of more than one record parcel,
contain a "contiguity" endorsement insuring that all of the record parcels are
contiguous to one another, and (H) contain a "non-imputation" endorsement to the
effect that title defects known to the officers, directors, and stockholders of
the owner prior to the Closing shall not be deemed "facts known to the insured"
for purposes of the policy.
(i) Surveys. With respect to each parcel of real property that any of the
-------
Company and its Subsidiaries owns, leases, or subleases, and as to which a title
insurance policy is to be procured pursuant to Section 5(h) above, the Sellers
will cause the Company and its Subsidiaries to procure in preparation for the
Closing a current survey of the real property certified to the Buyer, prepared
by a licensed surveyor and conforming to current ALTA Minimum Detail
Requirements for Land Title Surveys, disclosing the location of all
improvements, easements, party walls, sidewalks, roadways, utility lines, and
other matters shown customarily on such surveys, and showing access
affirmatively to public streets and roads (the "Survey"). The Survey shall not
disclose any survey defect or encroachment from or onto the real property which
has not been cured or insured over prior to the Closing.
(j) Exclusivity. None of the Sellers will (and the Sellers will not cause
-----------
or permit any of the Company and its Subsidiaries to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating to
the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets, of any of the Company and its Subsidiaries
(including any acquisition structured as a merger, consolidation, or share
exchange) or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. None of the Sellers will vote their Company Shares in favor of any
such acquisition structured as a merger, consolidation, or share exchange. The
Sellers will notify
30
<PAGE>
the Buyer immediately if any Person makes any proposal, offer, inquiry, or
contact with respect to any of the foregoing.
(k) Split Dollar Insurance. Prior to closing, Sellers shall structure up
----------------------
to $6,000,000 of cash surrender value in the Company to fund a split dollar
insurance policy satisfactory to Buyer to fully fund premiums and allow the
Company in the future years after closing to avoid recording a premium expense
under GAAP. The purchase price, as otherwise adjusted hereunder, shall be
reduced by the amount of the present value of the premium expense of such
insurance, based upon a discount rate of fourteen percent (14%) per annum.
(1) Buyer's Review of Disclosure Schedule. The Buyer shall have ten (10)
-------------------------------------
days from the date that Sellers deliver to Buyer a complete Disclosure Schedule
to review such disclosures. To the extent that Buyer is unwilling to accept a
disclosure which is an obligation of the Company or an exception to a
representation, such disclosure shall not be included on the Disclosure
Schedule.
6. Post-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
-------
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 8 below).
The Sellers acknowledge and agree that from and after the Closing the Buyer will
be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Company and
its Subsidiaries.
(b) Litigation Support. In the event and for so long as any Party actively
------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving any of the Company and its Subsidiaries, each of the other Parties
will cooperate with him, or it and his, hers or its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be necessary in connection with the contest
or defense, all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending Party is entitled to indemnification
therefor under Section 8 below).
(c) Transition. None of the Sellers will take any action that is designed
----------
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of any of the Company and its Subsidiaries
from maintaining the same business relationships with the Company and its
Subsidiaries after the Closing as it maintained with the Company and its
Subsidiaries prior to the Closing. Each of the Sellers will refer all customer
inquiries relating to the Businesses of the Company and its Subsidiaries to the
Buyer from and after the Closing.
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(d) Confidentiality. Each of the Sellers will treat and hold as such all
---------------
of the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in his or
its possession. In the event that any of the Sellers is requested or required
(by oral question or request for information or documents in any legal
proceeding, interrogatory, subpoena, civil investigative demand, or similar
process) to disclose any Confidential Information, that Seller will notify the
Buyer promptly of the request or requirement so that the Buyer may seek an
appropriate protective order or waive compliance with the provisions of this
Section 6(d). If, in the absence of a protective order or the receipt of a
waiver hereunder, any of the Sellers is, on the advice of counsel, compelled to
disclose any Confidential Information to any tribunal or else stand liable for
contempt, that Seller may disclose the Confidential Information to the tribunal;
provided, however, that the disclosing Seller shall use his or its best efforts
to obtain, at the reasonable request of the Buyer, an order or other assurance
that confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as the Buyer shall designate. The foregoing
provisions shall not apply to any Confidential Information which is generally
available to the public immediately prior to the time of disclosure.
(e) Certain Existing Compensation Agreements. In connection with the
----------------------------------------
execution of non-competition agreements in form and substance satisfactory to
the Buyer, Buyer shall honor the existing non-qualified Deferred Compensation
Agreements for Ed Haymans, M.L. Coffer and John Long, and the Company may amend
the Deferred Compensation Agreements prior to the Closing Date to provide for
payment to each without discount in the event that employment ceases prior to
age 65 for any reason.
7. Conditions to Obligation to Close.
---------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
-------------------------------------
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(a)
and Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) Sellers shall have performed and complied in all material
respects with all of their covenants hereunder through the Closing;
(iii) the Company and its Subsidiaries shall have procured all of the
third party consents specified in Section 5(b) above, all of the title
insurance commitments, policies, and riders specified in Section 5(h)
above, and all of the Surveys specified in Section 5(i) above;
(iv) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign
32
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jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation
of any of the transactions contemplated by this Agreement, (B) cause any of
the transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
Company Shares and to control the Company and its Subsidiaries, or (D)
affect adversely the right of any of the Company and its Subsidiaries to
own its assets and to operate its Businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) Sellers shall have delivered to the Buyer a certificate to the
effect that each of the conditions specified above in Section 7(a)(i)-(iv)
is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions thereof)
under the HSR Act shall have expired or otherwise been terminated and the
Parties, the Company, and its Subsidiaries shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(a)(ii), Section 3(b)(ii), and Section
4(c) above;
(vii) all applicable consents, permits and orders required by the
FCC, the Georgia PSC and any other governmental authority shall have been
obtained and become final;
(viii) the relevant parties shall have entered into Noncompetition.
Agreements and the same shall be in full force and effect;
(ix) Buyer shall have received from counsel to Sellers an opinion in
form and substance as set forth in Exhibit D attached hereto, addressed to
Buyer, and dated as of the Closing Date;
(x) Buyer shall have received the resignations, effective as of the
Closing, of each director and officer of the Company and its Subsidiaries;
(xi) Buyer shall have obtained from the Rural Telephone Finance
Cooperative or other institutional lender, on terms and conditions
satisfactory to it in its sole discretion, all of the financing it needs in
order to consummate the transactions contemplated hereby and fund the
working capital requirements of the Company and its Subsidiaries after the
Closing;
(xii) at the Closing, the Company shall have no less than Four
Million Dollars ($4,000,000) in readily-available cash, a minimum net worth
of Nine Million Dollars ($9,000,000) and a minimum current ratio of 1.2.
The Parties acknowledge that they will use best efforts to determine
compliance with this condition immediately prior to Closing and that the
final calculations and adjustments shall be made to reflect the actual
position of the Company in the Final Closing Date Report delivered to the
Sellers by Buyer thirty days after the Closing Date;
33
<PAGE>
(xiii) between the date of this Agreement and the Closing, there
shall have been no material adverse change (or event reasonably likely to
result in a material adverse change) in the financial condition, assets,
Business, operations, results of operation, cash flows or prospects of the
Company or any of its Subsidiaries as determined in the reasonable
discretion of the Buyer but excluding United States general economic
conditions;
(xiv) Sellers shall have delivered to Buyer such documents and
certificates of officers and public officials as shall be reasonably
requested by Buyer's counsel to establish the existence and good standing
of the Company and its Subsidiaries and the due authorization of this
Agreement and the transactions contemplated hereby by Sellers;
(xv) Buyer shall have obtained from its Board of Directors (i) due
authorization and approval of this Agreement, which is anticipated to be
ten days after completion of due diligence and (ii) final authorization and
approval of the transactions contemplated herein prior to Closing;
(xvi) Sellers shall deliver to Buyer at the Closing such other
documents as shall be effective to vest in Buyer good and marketable title
to the Company Shares, free and clear of any Security Interests,
encumbrances or restrictions;
(xvii) Seller shall exercise good faith efforts to obtain all
agreements, documents, instruments, consents, waivers, landlord estoppels,
subordination agreements, payoff letters, financial statements and other
items which are reasonably required by Buyer's counsel, lenders, or
investment bankers in connection with Closing; and
(xviii) all actions to be taken by Sellers in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to Buyer.
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Sellers. The obligation of Sellers to
---------------------------------------
consummate the transactions to be performed by them in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Section 3(b)
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) Buyer shall have performed and complied in all material
respects with all of its covenants hereunder through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign
34
<PAGE>
jurisdiction or before any arbitrator wherein an unfavorable injunction,
judgment, order, decree, ruling, or charge would (A) prevent consummation
of any of the transactions contemplated by this Agreement or (B) cause any
of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect);
(iv) Buyer shall have delivered to the Sellers a certificate to the
effect that each of the conditions specified above in Section 7(b)(i)-(iii)
is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof)
under the HSR Act shall have expired or otherwise been terminated and the
Parties, the Company, and its Subsidiaries shall have received all other
authorizations, consents, and approvals of governments and governmental
agencies referred to in Section 3(a)(ii), Section 3(b)(ii), and Section
4(c) above;
(vi) all applicable consents, permits and orders required by the
FCC, the Georgia PSC and any other governmental authority shall have been
obtained and become final;
(vii) Sellers shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit E attached hereto,
addressed to Sellers, and dated as of the Closing Date;
(viii) Buyer shall have delivered to Sellers such documents and
certificates of officers and public officials as shall be reasonably
requested by Seller's counsel to establish the existence and good standing
of the Company and its Subsidiaries and the due authorization of this
Agreement and the transactions contemplated hereby by Buyer;
(ix) Buyer and the members thereof shall have executed the limited
liability operating agreement of Coastal Communications, LLC reflecting the
understanding of the parties as outlined in the letter of intent between
the parties dated October 5, 1999, thereby making provision for the
transfer of the Coastal Communications Interest and for all rights and
priorities relating to such interest; and
(x) all actions to be taken by Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to Sellers; and
(xi) Sellers shall be satisfied as to the ability of Buyer to
fulfill its obligations under the limited liability operating agreement of
Buyer prior to December 14, 1999, or this condition shall be satisfied.
The Sellers may waive any condition specified in this Section 7(b) if they
execute a writing so stating at or prior to the Closing.
35
<PAGE>
8. Remedies for Breaches of This Agreement.
---------------------------------------
(a) Survival of Representations and Warranties. All of the representations
------------------------------------------
and warranties of the Sellers herein shall survive the Closing hereunder (even
if the Buyer knew or had reason to know of any misrepresentation or breach of
warranty at the time of Closing) and continue in full force and effect until
thirty (30) days following the date of delivery to Buyer of audited financial
statements for the first full year of ownership of the Company by Buyer
(currently estimated to be calendar year 2001 based upon a February 2000
Closing); provided, however., that the representations and warranties contained
in Section 3(a)(v) and Section 4(b) (related to the Company Shares and
capitalization), and Section 4(k) (related to tax matters shall survive the
Closing (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect thereafter (subject to any applicable statutes of
limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
---------------------------------------------------
(i) In the event any of the Sellers breaches (or in the event any
third party alleges facts that, if true, would mean any of the Sellers has
breached) any of their representations, warranties, and covenants contained
herein (except for any of his or its covenants in Section 2(a) above or any
of his-or its representations and warranties in Section 3(a) above), and,
if there is an applicable survival period pursuant to Section 8(a) above,
provided that the Buyer makes a written claim for indemnification against
the Sellers pursuant to Section 11(h) below within such survival period,
then the Sellers agree to indemnify the Buyer from and against the entirety
of any Adverse Consequences the Buyer may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences the
Buyer may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach); provided, however, that the Sellers shall
not have any obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or alleged breach) of any representation or
warranty of Sellers until Buyer has suffered Adverse Consequences by reason
of all such breaches (or alleged breaches) in excess of a One Million
Dollar ($1,000,000) aggregate threshold (at which point the Sellers will be
obligated to indemnify the Buyer from and against all such Adverse
Consequences relating back to the first dollar); and, provided further,
however., any single Adverse Consequence which is less than Twenty-Five
Thousand Dollars ($25,000) per occurrence shall not be counted toward such
One Million Dollar ($ 1,000,000) aggregate threshold;
(ii) In the event any of the Sellers breaches (or in the event any
third party alleges facts that, if true, would mean any of the Sellers has
breached) any of his or its covenants in Section 2 above or any of his or
its representations and warranties in Section 3(a) or Section 4(b) above,
and, if there is an applicable survival period pursuant to Section 8(a)
above, provided that the Buyer makes a written claim for indemnification
against the Seller pursuant to Section 11(h) below within such survival
period, then the Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer through and after
the date of the claim for
36
<PAGE>
indemnification (including any Adverse Consequences the Buyer may suffer
after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the
alleged breach).
(iii) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
any Liability of any of the Company and its Subsidiaries (x) for any Taxes
of the Company and its Subsidiaries with respect to any Tax year or portion
thereof ending on or before the Closing Date (or for any Tax year beginning
before and ending after the Closing Date to the extent allocable
(determined in a manner consistent with Section 9(c)) to the portion of
such period beginning before and ending on the Closing Date), to the extent
such Taxes are not reflected in the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Closing Balance
Sheet, and (y) for the unpaid Taxes of any Person (other than any of the
Company and its Subsidiaries) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(c) Indemnification Provisions for Benefit of the Sellers. In the event
-----------------------------------------------------
the Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to Section 8(a) above, provided that any of the Sellers makes a written
claim for indemnification against the Buyer pursuant to Section 11(h) below
within such survival period, then the Buyer agrees to indemnify each of the
Sellers from and against the entirety of any Adverse Consequences but not to
exceed the Purchase Price the Seller may suffer through and after the date of
the claim for indemnification (including any Adverse Consequences the Seller may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach).
(d) Matters Involving Third Parties.
-------------------------------
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 15 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer
37
<PAGE>
resulting from, arising out of, relating to, in the nature of, or caused by
the Third Party Claim, (B) the Indemnifying Party provides the Indemnified
Party with evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against the
Third Party Claim and fulfill its indemnification obligations hereunder,
(C) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential
custom or practice adverse to the continuing business interests of the
Indemnified Party, and (E) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in Section 8(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending against the
Third Party Claim (including attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 8.
(e) Determination of Adverse Consequences. The Parties shall take into
-------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this Section 8. All
indemnification payments under this Section 8 shall be deemed adjustments to the
Purchase Price.
(f) Other Indemnification Provisions. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy (including, without limitation, any such remedy
arising under Environmental, Health, and Safety Requirements) any Party may have
with respect to the Company, its Subsidiaries, or the transactions contemplated
by this Agreement. Each of the Sellers hereby agrees that he, she or it will not
make any claim for indemnification against any of the Company and its
Subsidiaries by reason of the fact that he, she or it was a director, officer,
employee, or agent of any such entity or was serving at the request of any such
entity as a partner, trustee, director, officer, employee,
38
<PAGE>
or agent of another entity (whether such claim is for judgments, damages,
penalties, fines, costs, amounts paid in settlement, losses, expenses, or
otherwise and whether such claim is pursuant to any statute, charter document,
bylaw, agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim, or demand brought by the Buyer against such Seller (whether
such action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise).
(g) Indemnification Coverage. For purposes of the indemnification
------------------------
obligations of Buyer and Seller hereunder, an indemnification of Buyer or Seller
shall include each parties directors, officers, employees, agents, trustees,
Affiliates, partners, successors and assigns.
(h) Limitation on Indemnity. The indemnification obligation of the Sellers
-----------------------
shall not exceed Twenty-One Million Dollars ($21,000,000) plus the Sellers'
member interests in Coastal Communications, LLC. Buyer shall have the right to
offset Sellers' liability under their indemnification obligation against
Sellers' member interests in Coastal Communications, LLC. Each Seller agrees
not to transfer to a third party an amount in excess of his or its pro-rata
share of the $21,000,000 referenced in this section, except for valuable
consideration, during the term of the indemnity obligation hereunder; provided
that Sellers shall not be prevented by this section from engaging in good faith
estate planning or addressing tax liability.
9. Tax Matters. The following provisions shall govern the allocation of
-----------
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. Buyer shall prepare
------------------------------------------------
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company and its Subsidiaries for all periods ending on or prior to the Closing
Date which are filed after the Closing Date other than income Tax Returns with
respect to periods for which a consolidated, unitary or combined income Tax
Return of Seller will include the operations of the Company and its
Subsidiaries. Buyer shall permit Sellers to review and comment on each such Tax
Return described in the preceding sentence prior to filing. Sellers shall
reimburse Buyer for Taxes of the Company and its Subsidiaries with respect to
such periods within fifteen (15) days after payment by Buyer or the Company and
its Subsidiaries of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet.
(b) Tax Periods Beginning Before and Ending After the Closing Date. Buyer
--------------------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company and its Subsidiaries for Tax periods which begin before
the Closing Date and end after the Closing Date. Sellers shall pay to Buyer
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the face of the Closing Balance Sheet. For
purposes of this Section, in the case of any Taxes that are imposed on a
periodic basis and are payable for a Taxable period that includes (but does not
end on) the Closing Date, the portion of such Tax which relates to the portion
of such Taxable period ending
39
<PAGE>
on the Closing Date shall (x) in the case of any Taxes other than Taxes based
upon or related to income or receipts, be deemed to be the amount of such Tax
for the entire Taxable period multiplied by a fraction the numerator of which is
the number of days in the Taxable period ending on the Closing Date and the
denominator of which is the number of days in the entire Taxable period, and (y)
in the case of any Tax based upon or related to income or receipts be deemed
equal to the amount which would be payable if the relevant Taxable period ended
on the Closing Date. Any credits relating to a Taxable period that begins before
and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company and its Subsidiaries.
(c) Cooperation on Tax Matters.
--------------------------
(i) Buyer, the Company and its Subsidiaries and Sellers shall
cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and
making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder.
The Company and its Subsidiaries and Sellers agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company and its
Subsidiaries relating to any taxable period beginning before the Closing
Date until the expiration of the statute of limitations (and, to the extent
notified by Buyer or Sellers, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements entered
into with any taxing authority, and (B) to give the other party reasonable
written notice prior to transferring, destroying or discarding any such
books and records and, if the other party so requests, the Company and its
Subsidiaries or Sellers, as the case may be, shall allow the other party to
take possession of such books and records.
(ii) Buyer and Sellers further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) Tax Sharing Agreements. All tax sharing agreements or similar
----------------------
agreements with respect to or involving the Company and its Subsidiaries shall
be terminated as of the Closing Date and, after the Closing Date, the Company
and its Subsidiaries shall not be bound thereby or have any liability
thereunder.
40
<PAGE>
(e) Certain Taxes. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement shall be paid by Sellers
when due, and Sellers will, at their own expense, file all necessary Tax Returns
and other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, Buyer will, and will cause its Affiliates to, join in the
execution of any such Tax Returns and other documentation.
10. Termination.
-----------
(a) Termination of Agreement. Certain of the Parties may terminate this
------------------------
Agreement as provided below:
(i) Buyer and Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written notice to
Sellers on or before December 14, 1999, if the Buyer is not reasonably
satisfied with the results of its continuing business, legal,
environmental, and accounting due diligence regarding the company and its
subsidiaries.
(iii) Buyer may terminate this Agreement by giving written notice to
Sellers at any time prior to the Closing (A) in the event any of Sellers
has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, the Buyer has notified Sellers
of the breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 1, 2000, by reason of the failure of any
condition precedent under Section 7(a) hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(iv) Sellers may terminate this Agreement by giving written notice
to Buyer at any time prior to the Closing (A) in the event Buyer has
breached any material representation, warranty, or covenant contained in
this Agreement in any material respect, any of Sellers has notified Buyer
of the breach, and the breach has continued without cure for a period of 30
days after the notice of breach or (B) if the Closing shall not have
occurred on or before June 1, 2000, by reason of the failure of any
condition precedent under Section 7(b) hereof (unless the failure results
primarily from any of the Sellers themselves breaching any representation,
warranty, or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
---------------------
to Section 10(a) above, all rights and obligations of the Parties hereunder
shall terminate without any Liability of any Party to any other Party (except
for any Liability of any Party then in breach).
41
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11. Miscellaneous.
-------------
(a) Nature of Certain Obligations.
-----------------------------
(i) The covenants of each of the Sellers in Section 2(a) above
concerning the sale of his or its Company Shares to Buyer and the
representations and warranties of each of the Sellers in Section 3(a) above
concerning the transaction are several obligations. This means that the
particular Seller making the representation, warranty, or covenant will be
solely responsible to the extent provided in Section 8 above for any
Adverse Consequences the Buyer may suffer as a result of any breach
thereof.
(ii) The remainder of the representations, warranties, and
covenants in this Agreement are joint and several obligations. This means
that each Seller will be responsible to the extent provided in Section 8
above for the entirety of any Adverse Consequences Buyer may suffer as a
result of any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of Buyer
and Sellers; provided, however, that any Party may make any public disclosure it
believes in good faith is required by applicable law or any listing or trading
agreement concerning its publicly-traded securities (in which case the
disclosing Party will use its best efforts to advise the other Parties prior to
making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties, the parties
designated in Section 9(g) and their respective successors and permitted
assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
----------------
herein) and the limited liability operating agreement of Buyer reflecting the
understanding of the parties as outlined in the letter of intent between the
parties dated October 5, 1999 to be executed will constitute the entire
agreement among the Parties and shall supersede any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and Sellers; provided, however, that Buyer may (i) assign
any or all of its rights and interests hereunder to one or more of its
Affiliates or its lenders and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
42
<PAGE>
(f) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All communications or notices required or permitted by this
-------
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the date when actually delivered to an officer of the other party, or
when sent by confirmed telecopy or facsimile machine to the number shown below,
or when properly deposited for delivery by a nationally recognized commercial
overnight delivery service, prepaid, or by deposit in the United States mail,
certified or registered mail, postage prepaid, return receipt requested, and
addressed as follows, unless and until either of such parties notifies the other
in accordance with this Section of a change of address or change of telecopy
number:
If to Buyer:
Coastal Communications, LLC
103 South Fifth Street
Mebane, North Carolina 27302
Attn: Paul H. Sunu, Manager
Telephone: (919) 563-8222
Telecopier: (919) 563-4993
With a copy to:
Madison River Telephone Company, LLC
103 South Fifth Street
Mebane, North Carolina 27302
Attn: Bruce F. Metge, Esq., General Counsel
Telephone: (919) 563-8247
Telecopier: (919) 563-4993
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
Attn: Larry E. Robbins, Esq.
Telephone: (919) 781-4000
Telecopier: (919) 781-4865
43
<PAGE>
If to Sellers:
Daniel M. Bryant
Post Office Box 280
Hinesville, GA 313 10
Telephone: (912) 877-1955
G. Allan Bryant
305 East Charlton
Savannah, GA 31401
Telephone: (912) 234-6539
The Michael E. Bryant Life Trust
103 North Main Street
Hinesville, GA 31313
Telephone: (912) 369-8000
Telecopier: (912) 368-2618
With a copy to:
Thomas J. Ratcliffe, Jr., Esq.
103 North Main Street
Hinesville, Georgia 31313
Telephone: (912) 369-8000
Telecopier: (912) 368-2618
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Georgia without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Georgia.
(j) Amendments and Waivers. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and Sellers. No waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(1) Expenses. Except as otherwise provided herein, or except as consented
--------
to by Buyer, each of the Parties, the Company, and its Subsidiaries will bear
his or its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the
44
<PAGE>
transactions contemplated hereby. The Sellers agree that none of the Company and
its Subsidiaries has borne or will bear any of the Sellers' costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including, without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits and Disclosure Schedule. The Exhibits and
-------------------------------------------------
Disclosure Schedule identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
--------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 10(p)
below), in addition to any other remedy to which they may be entitled, at law or
in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
--------------------------
jurisdiction of any federal court sitting in Atlanta, Georgia in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such courts. Each Party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
Parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other Party with respect thereto. Each Seller
appoints Thomas R. Ratcliffe, Jr., Esq. (the "Process Agent") as his or its
agent to receive on his or its behalf service of copies of the summons and
complaint and any other process that might be served in the action or
proceeding. Any Party may make service on any other Party by sending or
delivering a copy of the process (i) to the Party to be served at the address
and in the manner provided for the giving of notices in Section 10(h) above or
(ii) in the case of the Sellers, to the Party to be served in care of the
Process Agent at the address and in the
45
<PAGE>
manner provided for the giving of notices in Section 10(h) above. Each Party
agrees that a final judgment in any action or proceeding so brought shall be
conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or at equity and in any appropriate jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Contribution and Stock
Purchase Agreement as of the day and year first above written.
MRTC:
MADISON RIVER TELEPHONE COMPANY,
LLC
By: PAUL H. SUNU
--------------------------------------
Name: Paul H. Sunu
Title: Manager
BUYER:
------
COASTAL COMMUNICATIONS, LLC
By: PAUL H. SUNU
---------------------------------------
Name: Paul H. Sunu
Title: Manager
SELLERS:
--------
DANIEL M. BRYANT (SEAL)
----------------------------------
Daniel M. Bryant
G. ALLAN BRYANT (SEAL)
----------------------------------
G. Allan Bryant
THE MICHAEL E. BRYANT LIFE TRUST
By: G. ALLAN BRYANT (SEAL)
------------------------------
Co-Trustee
By: DANIEL M. BRYANT (SEAL)
------------------------------
Co-Trustee
By: THOMAS J. RATCLIFFE, JR. (SEAL)
------------------------------
Co-Trustee
46
<PAGE>
COMPANY:
--------
COASTAL UTILITIES, INC.
By: JAMES M. JOHNSON
------------------------------------
Name: James M. Johnson
Title: President and CEO
47
<PAGE>
EXHIBIT A
---------
DEFINITIONS
"Access Line" means any telephone line of the Business that is assigned a
-------------
customer account.
"Accountants" has the meaning set forth in Section 2(e)(ii) below.
-------------
"Accounts Payable" means all accounts payable of the Company and its
------------------
Subsidiaries as determined in accordance with GAAP.
"Accounts Receivable" means all accounts receivable of the Company and its
---------------------
Subsidiaries as determined in accordance with GAAP.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
---------------------
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
----------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs, attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule l2b-2 of the regulations
-----------
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
------------------
Section 1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Agreement" means this Stock Purchase Agreement, together with the
-----------
Schedules and Exhibits attached hereto, as the same shall be amended and/or
supplemented from time to time in accordance with the terms hereof.
"Applicable Rate" means the prime rate of interest publicly announced from
-----------------
time to time in the Wall Street Journal.
"Basis" means any past or present fact, situation, circumstance, status,
-------
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Business" has the meaning set forth in the preamble above.
----------
"Buyer" has the meaning set forth in the preamble above.
-------
<PAGE>
"CCL Class A Member Interest" shall mean a membership interest in Buyer
-----------------------------
having the rights, preferences and duties of a Class A Member Interest as set
forth in the Limited Liability Company Agreement of the Buyer.
"CCL Class B Member Interest" shall mean a membership interest in Buyer
-----------------------------
having the rights, preferences and duties of a Class B Member Interest as set
forth in the Limited Liability Company Agreement of the Buyer.
"CCL Class C Member Interest" shall mean a membership interest in Buyer
-----------------------------
having the rights, preferences and duties of a Class C Member Interest as set
forth in the Limited Liability Company Agreement of the Buyer.
"Closing" has the meaning set forth in Section 2(c) below.
---------
"Closing Date" has the meaning set forth in Section 2(c) below.
--------------
"Coastal Communications Interest" shall mean the equity portion of the
---------------------------------
Consideration to be received by Sellers pursuant to Section 2 hereof, which
shall be comprised of (i) a CCL Class A Member Interest with an initial capital
account value of Ten Million Dollars ($ 10,000,000) and (ii) a CCL Class B
Member Interest with an initial capital account of Five Million Dollars
($5,000,000) and having such rights, obligations and priorities as are to be set
forth in the limited liability operating agreement of Buyer.
"Code" means the Internal Revenue Code of 1986, as amended.
------
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of ERISA
-------
and Code Section 4980B.
"Company" has the meaning set forth in the preamble above.
---------
"Company Share" means any share of the Class A and Class B Common Stock,
---------------
par value $10.00 per share of the Company, and any share of the Class A and
Class B Preferred Stock, par value $ 100.00 per share, of the Company.
"Confidential Information" means any information concerning the Businesses
--------------------------
and affairs of the Company and its Subsidiaries that is not already generally
available to the public.
"Control" (including, with correlative meanings, the terms "Controlled by,"
---------
"Controlling" and "under common Control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through ownership of voting securities, by contract or otherwise.
"Controlled Group" has the meaning set forth in Code Section 1563.
------------------
2
<PAGE>
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
-----------------------------------
Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
---------------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
-----------------------
retirement plan or arrangement, (b) qualified defined contribution retirement
plan or arrangement which is an Employee Pension Benefit Plan, (c) qualified
defined benefit retirement plan or arrangement which is an Employee Pension
Benefit Plan (including any Multiemployer Plan), or (d) Employee Welfare Benefit
Plan or material fringe benefit or other retirement, bonus, or incentive plan or
program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Section
-------------------------------
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Section
-------------------------------
3(l).
"Environmental, Health, and Safety Requirements" shall mean all federal,
------------------------------------------------
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including, without limitation, all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended and as now or
hereafter in effect.
"Equipment" means all hardware, network equipment, switches, fiber optics,
-----------
machinery, equipment, furniture, fixtures, furnishings, parts and other items of
tangible personal property used or useable in the conduct of the Business of the
Company and its Subsidiaries.
"ERISX" means the Employee Retirement Income Security Act of 1974, as
-------
amended.
"ERISA Affiliate" means each entity which is treated as a single employer
-----------------
with Seller for purposes of Code Section 414.
"Excess Loss Account" has the meaning set forth in Reg. Section 1. 1502-19.
---------------------
"FCC" means the Federal Communications Commission.
-----
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
-----------
"Final Closing Date Report" shall have the meaning set forth in Section
---------------------------
2(e)(i) below.
"Financial Statement" has the meaning set forth in Section 4(g) below.
---------------------
3
<PAGE>
"GAAP" means generally accepted accounting principles applied on a basis
------
consistent with preceding years and throughout the periods involved.
"Georgia PSC" means the Georgia Public Service Commission and any other
-------------
similar or related Georgia regulatory agency.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
---------
as amended, and the regulations promulgated thereunder.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
-------------------
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
--------------------
"Intellectual Property" means (a) all inventions (whether patentable or
-----------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Inventory" means all raw materials, work-in-process and finished products,
-----------
including inventory in transit and other assets used to support the operation of
the Business, each of such items as used in the conduct of the Business of the
Company and its Subsidiaries.
"Knowledge" means actual knowledge after reasonable investigation.
-----------
"Liability" means any liability (whether known or unknown, whether asserted
-----------
or unasserted, whether absolute or contingent, whether accrued or uncured,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Long Term Debt" means (i) all indebtedness for borrowed money; (ii) that
----------------
portion of Capital leases that is properly classified as a liability on a
balance sheet in accordance with GAAP; (iii) notes payable and drafts accepted
representing extensions of credit whether or not representing obligations for
borrowed money; (iv) any obligation for all or any part of the deferred purchase
price of property or services, all liabilities, secured by any lien or any
property; -any letter of credit; any prepayment penalties; any earn out or
deferred portion of the purchase price of any tangible or intangible assets; any
noncompetition obligation; any taxes, and
4
<PAGE>
any other obligation required to be included in the long term debt section of
the Company's balance sheet as determined in accordance with GAAP. Sellers shall
be entitled to reduce this amount to reflect a credit for RTFC stock in an
amount not to exceed $1,800,000.
"Most Recent Balance Sheet" means the balance sheet contained within the
---------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
----------------------------------
4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(g)
------------------------------
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
-----------------------------
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
--------------------
"Net Worth" means the tangible assets of the Company less the Company's
-----------
liabilities.
"Noncompetition Agreements" shall mean noncompetition agreements to be
---------------------------
executed by senior officers of the Company and all shareholders effective as of
the date of execution of this Agreement.
"Ordinary Course of Business" means the ordinary course of business
-----------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preamble above.
-------
"PBGC" means the Pension Benefit Guaranty Corporation.
------
"Person" means an individual, a partnership, a corporation, an association,
--------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Process Agent" has the meaning set forth in Section 10(p) below.
---------------
"Prohibited Transaction" has the meaning set forth in ERISA Section 406 and
------------------------
Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2(b) below.
----------------
"Reportable Event" has the meaning set forth in ERISA Section 4043.
------------------
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended.
5
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-------------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preamble above.
--------
"Subsidiary" means any corporation with respect to which a specified Person
------------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Survey" has the meaning set forth in Section 5(i) below.
--------
"Tax" means any federal, state, local, or foreign income, gross receipts,
-----
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
------------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
-------------------
6
<PAGE>
EXHIBIT 10.1.1
FIRST AMENDMENT
TO
CONTRIBUTION AND STOCK PURCHASE AGREEMENT
This First Amendment ("First Amendment") to the Contribution and Stock
Purchase Agreement, dated November 23, 1999 ("Agreement"), is made and entered
into this 20/th/ day of March 2000 by, between and among MADISON RIVER TELEPHONE
COMPANY, LLC, a Delaware limited liability company ("WRTC"), COASTAL
CONMMUNICATIONS, LLC, a Delaware limited liability company ("CCLLC") (MRTC and
CCLLC are collectively referred to as the "Buyers"); DANIEL M. BRYANT, G. ALLAN
BRYANT and THE MICHAEL E. BRYANT LIFE TRUST (collectively the "Sellers") and
COASTAL UTILITIES, INC. a Georgia corporation (the "Company").
WHEREAS, the parties have entered into the Agreement, and
WHEREAS, the parties wish to amend the Agreement to further define certain
understandings and obligations of the parties.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Buyers, Sellers, and the
Company hereby amend the Agreement as follows:
1. The Agreement is amended by deleting Section 2(e)(v) in its entirety and
inserting the following; thereby causing Section 2(e)(v) to read in its entirety
as follows:
"(v) Reserved."
2. The Agreement is amended by adding the Mowing Section 8(b)(iv):
"8(b)(iv). Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer resulting
from, arising out of, relating to, in the nature of, or caused by any Liability
of any of the Company and its Subsidiaries (x) for any Adverse Consequences or
any Liability incurred by the Buyer or the Company relating in any respect to
matters which should or would have been made known to or available to Buyer from
a review of the minutes of the Company for the calendar years beginning in 1991
and ending in 1995. Matters to be indemnified under this section include, but
are not limited to, any obligations, commitments or Liabilities of the Company
which should have been included in such minutes, any issuance of securities not
disclosed to Buyer, and any potential, pending or threatened litigation or
administrative or governmental proceedings; and (y) for any Adverse Consequences
or Liabilities relating in any respect to the inaccuracy of the amount of access
revenues disclosed by Sellers to Buyer prior to or in connection with closing,
whether as an undisclosed liability, an adjustment to the historical financial
statements, any retroactive
<PAGE>
adjustment to the Company's regulatory tariffs, or a past failure to comply with
any local, state or federal applicable law (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings and charges
thereunder)."
[The Next Page is the Signature Page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to the Agreement on the date first written.
BUYERS
MADISON RIVER TELEPHONE
TELEPHONE COMPANY, LLC
By: PAUL H. SUNU
----------------------------
Its: MANAGING DIRECTOR-CHIEF
------------------------
FINANCIAL OFFICER
-----------------
Attested by: MATT SPRINGER
--------------
COASTAL COMMUNICATIONS, INC.
By: PAUL H. SUNU
------------------------------
Its: CHAIRMAN AND CHIEF EXECUTIVE
-----------------------------
OFFICER
-------
Attested by: MATT SPRINGER
--------------
SELLERS
DANIEL M. BRYANT
DANIEL M. BRYANT (SEAL)
--------------------
G. ALLAN BRYANT
G. ALLAN BRYANT (SEAL)
---------------------
<PAGE>
THE MICHAEL E. BRYANT LIFE TRUST
By: G. ALLAN BRYANT
------------------------
G. Allan Bryant, Trustee
By: DANIEL M. BRYANT
------------------------
Daniel M. Bryant, Trustee
By: THOMAS J. RATCLIFFE, JR.
------------------------
Thomas J. Ratcliffe, Jr., Trustee
COASTAL UTILITIES, INC.
By: JAMES M. JOHNSON
----------------------------
Its: PRESIDENT
---------------------------
<PAGE>
EXHIBIT 10.1.2
SECOND AMENDMENT
TO
CONTRIBUTION AND STOCK PURCHASE AGREEMENT
This Second Amendment ("Second Amendment") to the Contribution and
----------------
Stock Purchase Agreement, dated November 23, 1999, as amended by the First
Amendment to Contribution and Stock Purchase Agreement, dated March 20, 2000
("Agreement"), is made and entered into this 29th day of March 2000, by, between
- -----------
and among MADISON RIVER TELEPHONE COMPANY, LLC, a Delaware limited liability
company ("MRTC"), COASTAL COMMUNICATIONS, LLC, a Delaware limited liability
----
company ("CCL"), COASTAL COMMUNICATIONS, INC., a Delaware corporation ("CCI")
--- ---
(MRTC and CCI are collectively referred to as the "Buyers"); DANIEL M. BRYANT,
------
G. ALLAN BRYANT and THE MICHAEL E. BRYANT LIFE TRUST (collectively the
"Sellers") and COASTAL UTILITIES, INC. a Georgia corporation (the "Company").
------- -------
WHEREAS, the parties have entered into the Agreement, and
WHEREAS, the parties wish to amend the Agreement to further define
certain understandings and obligations of the parties.
NOW, THEREFORE, in consideration of the promises and mutual covenants
and agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Buyers, Sellers, and the
Company hereby amend the Agreement as follows:
1. The Agreement is amended by inserting the following Section 6(f):
"6(f) Transfer of Life Insurance. At or promptly following the
---------------------------
Closing, Buyer will use its best efforts to cause the following life
insurance policies (the "Seller Life Insurance") with the associated
---------------------
cash values to be assigned over to the respective named insureds, G.
Allan Bryant and Daniel M. Bryant:
-----------------------------------------------------------------
Policy Insured Company Policy Number Face Value
-----------------------------------------------------------------
G. Allan Bryant Mass Mutual 6638952 $2,000,000
-----------------------------------------------------------------
Mass Mutual 5788220 $1,000,000
-----------------------------------------------------------------
MONY 11327670 $1,000,000
-----------------------------------------------------------------
MONY 11904137 $1,652,792
-----------------------------------------------------------------
MONY 13018672 $ 913,857
-----------------------------------------------------------------
Northwestern 8169938 $1,000,000
Mutual Life
-----------------------------------------------------------------
-----------------------------------------------------------------
Daniel M. Bryant Mass Mutual 5788225 $1,000,000
-----------------------------------------------------------------
MONY 11290275 $1,000,000
-----------------------------------------------------------------
MONY 10701308 $1,000,000
-----------------------------------------------------------------
<PAGE>
-----------------------------------------------------------------
MONY 11904136 $ 650,000
-----------------------------------------------------------------
MONY 11918630 $1,002,792
-----------------------------------------------------------------
MONY 13018671 $1,656,216
-----------------------------------------------------------------
Northwestern 8169902 $1,000,000
Mutual Life
-----------------------------------------------------------------
The parties understand and agree that the foregoing transfer of the
Seller Life Insurance shall not reduce the Purchase Price; provided,
--------
however, the cash portion of the Purchase Price to be paid by Buyer at
-------
the Closing shall be reduced on a dollar-for-dollar basis by the
amount of the cash surrender values of the Seller Life Insurance as of
March _____, 2000 (such cash surrender values as of December 31, 1999
were $6,535,117). Such cash surrender values shall be determined after
Closing and adjustments made pursuant to Section 2(e) on the Final
Closing Date Report."
The parties hereto understand and agree that the Company shall have no
further obligations to pay any death benefits to G. Allan Bryant and
Daniel M. Bryant as of the date of this Second Amendment, and the
Company shall have no obligation to any Seller relating to continued
coverage under any life insurance policy.
2. The Agreement is amended by replacing Section 2(b) with the following,
thereby causing Section 2(b) to read in its entirety:
"2(b) Consideration. Subject to the adjustments set forth in Section
-------------
2(e), Section 6(e) and 6(f) below, the Buyer agrees to pay and deliver
to the Sellers at the Closing (i) One Hundred Thirty Million Dollars
($130,000,000) less Long Term Debt (the "Purchase Price") and (ii) the
Coastal Communications Interests (collectively, the "Consideration").
The Purchase Price shall be paid (y) by the assignment of the Seller
Life Insurance as set forth in Section 6(f), and (z) the balance by
wire transfer or delivery of other immediately available funds. The
Consideration shall be allocated among the Sellers in proportion to
their respective holdings of the Company Shares as set forth in
Section 4(b) of the Disclosure Schedule, and the Seller Life Insurance
cash value shall be netted against amounts otherwise payable in an
amount equal to the cash surrender value of the Seller Life Insurance
assigned to each Seller, if any."
3. Exhibit A to the Agreement is amended by inserting the following
additional defined terms:
"Seller Life Insurance" has the meaning set forth in Section 6(f).
----------------------
"Seller Real Property " has the meaning set forth in Section 6(g).
----------------------
4. The Agreement is amended by inserting the following Section 6(g):
<PAGE>
"6(g) Transfer of Real Estate. At or promptly following the Closing,
-----------------------
the parties agree that the Sellers will cause the real property known
as the Patriot's Trail property, which consists of approximately seven
(7) acres in Hinesville, Georgia (the "Seller Real Property") to be
sold to Buyer. The parties agree that CCI shall pay $3,640,000 for the
Seller Real Property as follows: $1,255,000 at Closing, and $2,385,000
to be financed by G. Allan Bryant, Daniel M. Bryant and related and/or
affiliated entities; such financing shall be amortized over thirty
(30) years with a six (6) year balloon payment ($2,237,732.78), at a
fixed eight percent (8%) annualized interest rate, with monthly
payments beginning May 1, 2000 in the amount of $17,500. All other
real property matters have been agreed to by the parties in interest."
5. The Agreement is amended by inserting the following Section 6(h):
"6(h) Dividend of Paging Licenses. Immediately prior to the Closing,
---------------------------
the parties agree that the Company will declare and pay a dividend to
the Sellers consisting of (i) the Company's paging licenses (KNK 960
and KVM 320), and (ii) the assets and equipment related to such paging
licenses. The parties further agree that at the Closing, they will
enter into (i) a Management Agreement in substantially the form of
Exhibit G attached hereto pursuant to which the Company will operate
the paging licenses; and (ii) an Asset Purchase Agreement in
substantially the form of Exhibit H attached hereto pursuant to which
the Sellers will sell the paging licenses and the related assets and
equipment to the Company upon the receipt of the required consent(s)
from the FCC."
6. The Agreement is amended by inserting the following Section
7(a)(xvix):
"7(a)(xvix) The Company and Sellers shall have entered into a
Management Agreement in substantially the form of Exhibit G attached
hereto and an Asset Purchase Agreement in substantially the form of
Exhibit H attached hereto."
7. The Agreement is amended by inserting the -following Section
"7(b)(xii):
"7(b)(xii) The Company and Sellers shall have entered into a Management
Agreement in substantially the form of Exhibit G attached hereto and an
Asset Purchase Agreement in substantially the form of Exhibit H attached
hereto."
8. The Agreement is amended by replacing all references to "Coastal
Communications, LLC", and "CCL" with "Coastal Communications, Inc." and "CCI",
respectively. Further, CCL shall have no liabilities or obligations under the
Agreement.
9. The Agreement is amended to reflect that the Disclosure Schedule has
been agreed upon by the parties.
<PAGE>
10. Except as set forth in Section 6(h), the holders of the Series A
Preferred Stock and the Series B Preferred Stock agree that no dividends shall
accrue or be payable to the Sellers on or after January 1, 2000.
11. The parties agree that the proper pension plan liability has been paid
or accrued as of the date hereof
[The Next Page Is The Signature Page]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to the Agreement on the date first written.
BUYERS
MADISON RIVER TELEPHONE
TELEPHONE COMPANY, LLC
By: J. STEPHEN VANDERWOUDE
--------------------------
Name: J. Stephen Vanderwoude
--------------------------
Title: Manager
--------------------------
COASTAL COMMUNICATIONS, LLC
By: PAUL H. SUNU
--------------------------
Name: Paul H. Sunu
--------------------------
Title: Manager
--------------------------
COASTAL COMMUNICATIONS, INC.
By: PAUL H. SUNU
--------------------------
Name: Paul H. Sunu
--------------------------
Title: Chairman/CEO
--------------------------
SELLERS
DANIEL M. BRYANT (SEAL)
----------------------------
Daniel M. Bryant
G. ALLAN BRYANT (SEAL)
----------------------------
G. Allan Bryant
THE MICHAEL E. BRYANT LIFE TRUST
By: G. ALLAN BRYANT
----------------------------------
Co-Trustee for Michael E. Bryant
<PAGE>
By: DANIEL M. BRYANT
----------------------------------
Co-Trustee for Michael E. Bryant
By: THOMAS J. RATCLIFFE, JR
-----------------------------------
Co-Trustee for Michael E. Bryant
COASTAL UTILITIES, INC.
By: JAMES M. JOHNSON
--------------------------
Name: James M. Johnson
--------------------------
Title: Acting Chairman
--------------------------
<PAGE>
EXHIBIT 10.1.3
SHAREHOLDERS AGREEMENT
COASTAL COMMUNICATIONS, INC.
THIS SHAREHOLDERS AGREEMENT is made and entered into effective this
30th day of March, 2000, by and among Coastal Communications, Inc., a Delaware
corporation (the "Company"), and the persons indicated on Exhibit A hereto
------- ---------
(individually a "Shareholder" and collectively the "Shareholders").
----------- ------------
RECITALS
--------
WHEREAS, the Shareholders are collectively the owners of all the
issued and outstanding capital stock of the Company; and
WHEREAS, the Company and the Shareholders wish to set forth the terms
and conditions under which the Series A and Series B Shareholders may sell to
the Company and the Company may purchase their Stock; and
WHEREAS, the Company and the Shareholders wish to set forth the terms
and conditions under which the Company may pay dividends to the Shareholders;
and
WHEREAS, the Company and the Shareholders realize that, in the event
of the sale, transfer or encumbrance of a Shareholder's stock in the Company,
should the stock of the Company owned by such Shareholder pass into the
ownership or control of a person or entity other than the remaining
Shareholders, it would tend to disrupt the harmonious and successful management
and control of the Company; and
WHEREAS, it is the earnest desire of the Company and the Shareholders
to assure to the remaining Shareholders a succession to the ownership and
control of the Company through the acquisition of the stock of a Shareholder
prior to such Shareholder's sale or encumbrance of the stock held by such
Shareholder.
NOW, THEREFORE, in consideration of the premises, the mutual promises
of the parties hereto and the mutual benefits to be gained by the performance
thereof, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Company, for its successors and permitted
assigns, and the Shareholders, for themselves, their heirs, personal
representatives and permitted assigns, hereby agree as follows.
ARTICLE I
Definitions
Whenever used in this Agreement, the following defined terms shall
have the meanings as set forth below in this Article:
1.01 "Affiliate" means any Person that, directly or indirectly, owns or
---------
Controls any other Person on an aggregate basis, including all beneficial
ownership and ownership or Control as a trustee, guardian or other fiduciary, or
that is controlled by or is under common control with such other Person.
<PAGE>
1.02 "Agreement" means this Shareholders Agreement and all schedules and
---------
exhibits hereto, if any, as from time to time hereafter further amended.
1.03 "Capital Contribution" means, with respect to a Shareholder, (i) any cash
--------------------
or cash equivalents contributed to the Company with respect to such
Shareholder's Stock as provided herein, and (ii) the agreed fair market value,
net of liabilities secured by that contributed property that the Company is
considered to assume or to which such property is subject at the time of its
contribution to the Company, of any other property contributed to the capital of
the Company with respect to that Shareholder's Stock.
1.04 "Change of Control" means a sale of all or substantially all of the assets
-------------------
and/or outstanding capital stock of MRTC and/or a merger in which MRTC is not
the surviving entity.
1.05 "Common Stock" means the Common Stock of the Company, no par value, which
------------
has the respective rights, preferences and restrictions specified with respect
to such Stock in this Agreement and the Certificate of Incorporation of the
Company.
1.06 "Closing Date" means the effective date on which the Company becomes the
------------
owner of more than fifty percent (50%) of all classes of stock of Coastal
Utilities, Inc., a Georgia corporation.
1.07 "Code" means the Internal Revenue Code of 1986, as amended and in effect
----
from time to time (and any corresponding provisions of succeeding law).
1.08 "Company" shall have the meaning set forth in the first paragraph of this
-------
Agreement.
1.09 "Control" (including, with correlative meanings, the terms "controlled
-------
by", "controlling" and "under common control with") means, as used with respect
to any Person, the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by contract or otherwise.
1.10 "Depository" shall have the meaning set forth in Section 4.07.
----------
1.11 "Determination Date" shall have the meaning set forth in Section 4.04.
------------------
1.12 "Entity" means any corporation, partnership, limited liability company,
------
trust or trustee on behalf of a trust, unincorporated organization, association
or other entity, whether foreign or domestic.
1.13 "Fiscal Year" means the calendar year.
-----------
1.14 "IPO" means an initial sale pursuant to an underwriting registration filed
---
under the Securities Act of 1933, as amended, of equity securities of an Entity.
1.15 "Lifetime Option Period" shall have the meaning set forth in Section 4.01.
----------------------
<PAGE>
1.16 "Liquidation Event" shall have the meaning set forth in Section 5.02.
-----------------
1.17 "MRC" means Madison River Capital, LLC, a Delaware limited liability
---
company, and any successor Entity thereof.
1.18 "MRTC" means Madison River Telephone Company, LLC, a Delaware limited
----
liability company, and any successor Entity thereof.
1.19 "Person" means an individual, a custodian for any individual under any
------
jurisdiction's Uniform Transfers to Minors Act or similar statute, a
guardianship or guardian on behalf of a guardianship, an estate, or an Entity.
1.20 "Risk Changing Event" means any of the following events occurring after
-------------------
November 23, 1999: (i) a change of control with respect to MRTC, the Company
(but only if such change in control results in one or more parties that are not
Affiliates of MRTC being in control of the Company), or Coastal Utilities, Inc.,
a Georgia corporation (other than the Company's acquisition of the stock
thereof); (ii) any sale of all or substantially all (as described in the
commentary to the Model Business Corporation Act) of the assets of MRTC and its
subsidiary Affiliates on a consolidated basis in one transaction or series of
related transactions (but excluding sales to Affiliates) for cash or marketable
securities; (iii) a merger, consolidation, unit exchange or other transaction
which accomplishes one or more of the foregoing; (iv) the issuance or the
refinancing of any publicly traded debt by MRTC; (v) the closing of an
additional acquisition of a business by MRTC, MRC or the Company for an
aggregate consideration in excess of fifty million dollars ($50,000,000); (vi)
an IPO of MRTC; (vii) an IPO of the Company; or (viii) the dissolution of the
Company.
1.21 "Securities Act" means the Securities Act of 1933, as amended.
--------------
1.22 "Series A Call Right" shall have the meaning set forth in Section 3.06.
-------------------
1.23 "Series A Exercise Price" means the amount to be paid to the Series A
-----------------------
Shareholders upon the exercise of the Series A Call Right or the Series A Put
Right, which amount is more fully set forth on Exhibit B hereto.
---------
1.24 "Series A Put Right" shall have the meaning set forth in Section 3.07.
------------------
1.25 "Series A Shareholder" means any Shareholder owning Series A Stock.
--------------------
"Series A Shareholders" means such Persons as a group.
- ----------------------
1.26 "Series A Stock" means the Series A Common Stock of the Company, no par
--------------
value, which has the respective rights, preferences and restrictions specified
with respect to such Stock in this Agreement and the Certificate of
Incorporation of the Company.
1.27 "Series B Call Right" shall have the meaning set forth in Section 3.02.
-------------------
1.28 "Series B Put Right" shall have the meaning set forth in Section 3.02.
------------------
<PAGE>
1.29 "Series B Shareholder" means any Shareholder owning Series B Stock.
--------------------
"Series B Shareholders" refers to such Persons as a group.
---------------------
1.30 "Series B Stock" means the Series B Common Stock of the Company, no par
--------------
value, which has the respective rights, preferences and restrictions specified
with respect to such Stock in this Agreement and the Certificate of
Incorporation of the Company.
1.31 "Series C Capital Contribution" means the amount of any Capital
-----------------------------
Contributions made to the Company by a Series C Shareholder.
1.32 "Series C Dividends" means, with respect to a Series C Shareholder, an
------------------
amount equal to 15% per annum (prorated for any partial year), compounded
annually, of the Series C Shareholder's total Unreturned Series C Capital
Contribution, outstanding from time to time during the period to which the
Series C Dividend relates. Series C Dividends shall accrue from and after the
Company's receipt of a Shareholder's Series C Capital Contribution.
1.33 "Series C Shareholder" means MRC.
--------------------
1.34 "Series C Stock" means the Series C Common Stock of the Company, no par
--------------
value, which has the respective rights, preferences and restrictions specified
with respect to such Stock in this Agreement and the Certificate of
Incorporation of the Company.
1.35 "Shareholder" shall have the meaning set forth in the first paragraph of
-----------
this Agreement.
1.36 "Stock" shall have the meaning set forth in Section 2.01.
-----
1.37 "Unpaid Series C Dividends" means, with respect to a Series C Shareholder,
-------------------------
an amount equal to the excess, if any, of: (i) that Shareholder's aggregate
accrued Series C Dividends, over (ii) the aggregate prior dividends paid to such
Shareholder by the Company that constitute a payment of Series C Dividends
pursuant to Section 5.01.
1.38 "Unreturned Series C Capital Contribution" means, with respect to a Series
----------------------------------------
C Shareholder on any day, an amount equal to the excess, if any, of: (i) the
aggregate amount of Series C Capital Contributions made by or with respect to
such Shareholder's Series C Stock; over (ii) the excess, of any, of (A) the
aggregate amount of prior dividends and other distributions paid by the Company
with respect to such Shareholder's Series C Stock over (B) the aggregate amount
of Series C Dividends accrued with respect to such Shareholder's Series C Stock.
ARTICLE II
Ownership
2.01 Ownership of Shares. The authorized capital stock of the
-------------------
Company consists of three thousand three hundred shares of no par value Common
Stock (the "Common Stock"), three hundred (300) shares of which is designated as
------------
Series A Common Stock (the "Series A Stock"), three hundred (300) shares of
--------------
which is designated as Series B Common Stock (the "Series B Stock") and two
--------------
thousand seven hundred (2,700) shares of which is designated as Series C Common
Stock (the "Series C Stock"), the issued and outstanding shares of which are
--------------
owned as of the date hereof
<PAGE>
by the Shareholders as shown and set forth in Exhibit A attached hereto. Exhibit
--------- -------
A shall be deemed automatically amended by the Shareholders to reflect any
- -
subsequent transfers of stock by or to them, or to add new shareholders, as
permitted by this Agreement. The shares of the Company's stock now or hereafter
owned by the Shareholders sometimes shall collectively be referred to herein as
the "Stock."
-----
2.02 Compliance with Securities Laws; Endorsement of Stock
-----------------------------------------------------
Certificates. Shareholders may transfer Stock hereunder only upon compliance
- ------------
with the terms of this Agreement and only if (a) such stock is registered under
the Securities Act of 1933, as amended (the "Securities Act"), and all
--------------
applicable state securities acts, or (b) an exemption from registration is
available and an opinion of counsel satisfactory to the Company to that effect
is obtained and the provisions of Section 4.03 hereof are satisfied. Upon the
execution of this Agreement, the stock certificates held by each of the
Shareholders representing the shares of Stock owned by each of them, if not
already so endorsed, shall be surrendered to the Company for endorsement
substantially as follows.
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
ACT AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH
REGISTRATION UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL
(WHICH MAY BE COUNSEL FOR THE CORPORATION) REASONABLY SATISFACTORY TO
IT THAT SUCH TRANSFER MAY BE MADE IN COMPLIANCE WITH APPLICABLE
FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND PROVISIONS OF AN AGREEMENT AMONG THE CORPORATION AND CERTAIN OF
ITS SHAREHOLDERS, AND ARE TRANSFERABLE ONLY IN ACCORDANCE WITH THE
TERMS AND CONDITIONS OF SUCH AGREEMENT. A COPY OF SUCH AGREEMENT MAY
BE EXAMINED IN THE OFFICE OF THE CORPORATION."
After endorsement, the certificates shall be returned to the
Shareholders. Any and all stock certificates hereinafter governed by this
Agreement shall bear the same endorsement and shall be subject to the terms and
conditions of this Agreement.
ARTICLE III
Put/Call Rights
3.01 Transfer of Shares. No Shareholder shall transfer, sell,
------------------
assign, encumber, pledge or in any way alienate any of the Stock, except as
provided herein. Any transfer or encumbrance or attempted transfer or
encumbrance in violation of the terms of this Agreement shall be void and of no
force or effect whatsoever, and shall not transfer any interest in or title to
the purported transferee. The Company shall not be required to transfer on its
books any Stock transferred in violation hereof or to treat as owner of such
Stock any transferee. Notwithstanding the foregoing, any Shareholder may
transfer all or any part of his Stock in the Company to the trustee(s) of a
revocable trust agreement established by such Shareholder so long as (a) such
Shareholder retains the right to amend or revoke such revocable trust agreement
at any time, and (b) the trustee of such revocable trust agreement agrees in
writing to be bound by the terms of this Agreement. All other
<PAGE>
transfers of the Stock must be approved by majority consent of the Series C
Shareholder, which approval shall not be unreasonably withheld.
3.02 Series B Put/Call Rights Generally. The Series B Stock shall
----------------------------------
carry certain rights whereby a holder of Series B Stock may require the Company
to purchase the Series B Stock (each a "Series B Put Right") and shall be
------------------
subject to certain provisions whereby a holder of Series B Stock may be required
to sell the Series B Stock (each a "Series B Call Right"), each as further
-------------------
described in this Article III. A Series B Put Right shall be exercised by the
Series B Shareholders giving written notice thereof to the Company, with a copy
to the holders of Series C Stock, in accordance with the provisions of Section
6.02. A Series B Call Right shall be exercised by the Company's giving written
notice thereof to the Series B Shareholders in accordance with the provisions of
Section 6.02. Upon valid exercise of a Series B Put Right or Series B Call
Right under this Article III, the Company shall pay cash to the Series B
Shareholders, in the amount of the put/call exercise price determined under this
Article III, by the date determined under Section 3.03; provided, however, the
-------- -------
Shareholders shall give any required notices to, make any filings with, and use
their best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with all puts and calls
exercised pursuant to this Agreement.
3.03 Series B Put/Call Payment Date.
------------------------------
(a) If a Series B Put Right or a Series B Call Right under this
Article III is validly exercised within one (1) year after the Closing Date, the
Company shall pay cash to the Series B Shareholders, in an amount equal to the
put/call exercise price determined under Sections 3.04 or 3.05. In the case of
the exercise of a Put Right, the price shall be paid on the first business day
(i.e., a day on which federally chartered banks in the States of North Carolina
and Georgia are open) after the second anniversary of the Closing Date. In the
case of the exercise of a Call Right, the price shall be paid within ten (10)
days of the exercise of the Call Right.
(b) If a Series B Put Right or a Series B Call Right under this
Article III is validly exercised after the first anniversary of the Closing Date
but within two (2) years after the Closing Date, the Company shall pay cash to
the Series B Shareholders, in an amount equal to the put/call exercise price
determined under Sections 3.04 or 3.05. In the case of the exercise of a Put
Right, the price shall be paid by the later of (i) the first business day (i.e.,
a day on which federally chartered banks in the States of North Carolina and
Georgia are open) after the second anniversary of the Closing Date, or (ii)
three (3) months following the exercise date. In the case of the exercise of a
Call Right, the price shall be paid within ten (10) days of the exercise of the
Call Right.
(c) If a Series B Put Right or a Series B Call Right under this
Article III is validly exercised after the second anniversary of the Closing
Date, the Company shall pay cash to the Series B Shareholders, in an amount
equal to the put/call exercise price determined under Sections 3.04 or 3.05. In
the case of the exercise of a Put Right, the price shall be paid by the later of
(i) December 31st following the exercise date or (ii) three (3) months following
the exercise date. In the case of the exercise of a Call Right, the price shall
be paid within ten (10) days of the exercise of the Call Right.
<PAGE>
3.04 Series B Put Rights.
-------------------
(a) Prior to the second anniversary of the Closing Date, the
Series B Put Rights shall be exercisable by the Series B Shareholders only
during (i) the nine (9)-month period beginning on the day after the occurrence
of a "Risk Changing Event", or (ii) if such "Risk Changing Event" shall have
-------------------
occurred after November 23, 1999, but before the Closing Date, then during the
nine (9)-month period beginning after the Closing Date. The put exercise price
for all of the Series B Stock, if the Series B Put Right is exercised during
this time period, shall be $35,000,000.
(b) Beginning on the day after the fourth anniversary of the
Closing Date, the Series B Put Right shall be exercisable by the Series B
Stockholders at any time. The put exercise price for all of the Series B Stock,
if the Series B Put Right is exercised during this time period, shall be
$60,000,000.
(c) The Series B Put Right may be exercised during a valid
exercise period under Sections 3.04(a) or (b) above only by the majority consent
of the Series B Shareholders, and the exercise of the Series B Put Right under
this Section 3.04(c) shall be binding on all Persons holding Series B Stock.
3.05 Series B Call Right.
-------------------
(a) On or prior to the first anniversary of the Closing Date,
the Series B Call Right shall be exercisable upon the majority consent of the
Series C Shareholder only upon an IPO of securities of MRTC, a successor Entity
thereto, or an Affiliate of MRTC holding a direct or indirect interest in the
Company. If the Series B Call Right is exercised during this time period, the
call exercise price shall be $35,000,000.
(b) For the period beginning on the day after the first
anniversary of the Closing Date and ending on the date that is four (4) years
after the Closing Date, the Series B Call Right shall be exercisable by majority
consent of the Series C Shareholder at any time. If the Series B Call Right is
exercised during this time period, but on or prior to the second anniversary of
the Closing Date, the call exercise price shall be $45,000,000; if the Series B
Call Right is exercised after the second anniversary, but on or prior to the
third anniversary of the Closing Date, the call exercise price shall be
$50,000,000; and if the Series B Call Right is exercised after the third
anniversary, but on or prior to the fourth anniversary of the Closing Date, the
call exercise price shall be $55,000,000.
(c) For the period beginning on the day after the fourth
anniversary of the Closing Date and ending on the date that is five (5) years
after the Closing Date, the Series B Call Right shall be exercisable by majority
consent of the Series C Shareholder only upon an IPO of securities of MRTC, a
successor Entity thereto, or an Affiliate of MRTC holding a direct or indirect
interest in the Company. If the Series B Call Right is exercised during this
time period, the call exercise price shall be $60,000,000.
(d) Beginning on the day after the fifth anniversary of the
Closing Date, the Series B Call Right shall be exercisable by majority consent
of the Series C Shareholder at any
<PAGE>
time. If the Series B Call Right is exercised during this time period, the call
exercise price shall be $60,000,000.
3.06 Series A Call Right. Subject to the payment conditions of
-------------------
Section 3.08, the Company may at any time require all holders of Series A Stock
to sell their Series A Stock to the Company in redemption of the entire Series A
Stock (a "Series A Call Right") by the Company's making payment to the Series A
-------------------
Shareholders of the Series A Exercise Price. A Series A Call Right shall be
exercised by the Company's giving written notice thereof to the Series A
Shareholders in accordance with the provisions of Section 6.02.
3.07 Series A Put Right.
------------------
(a) At any time after the fifth anniversary of the Closing
Date, the Series A Shareholders may require the Company to purchase all of the
Series A Stock (a "Series A Put Right"), as further described in this Article
------------------
III. A Series A Put Right shall be exercised by the Series A Shareholders giving
written notice thereof to the Company, with a copy to the Series C Shareholder,
in accordance with the provisions of Section 6.02. Upon the exercise of the
Series A Put Right, the Company shall redeem all of the Series A Stock by making
payment to the Series A Shareholders of the Series A Exercise Price.
(b) The Series A Put Right may be exercised during a valid
exercise period under this Section 3.07 only by the majority consent of the
Series A Shareholders, and the exercise of the Series A Put Right under this
Section 3.07(b) shall be binding on all Persons holding Series A Stock.
3.08 Series A Put/Call Payment Date.
------------------------------
(a) If a Series A Call Right under Section 3.06 is validly
exercised within one (1) year after the Closing Date, the Company shall pay cash
to the Series A Shareholders, in an amount equal to the Series A Exercise Price
determined under Section 3.06, by the later of (i) December 31st following the
exercise date or (ii) three (3) months following the exercise date.
(b) If a Series A Call Right under Section 3.06 is validly
exercised after the first anniversary of the Closing Date but within two (2)
years after the Closing Date, the Company shall pay cash to the Series A
Shareholders, in an amount equal to the Series A Exercise Price determined under
Section 3.06, by the later of (i) the first business day (i.e., a day on which
federally chartered banks in the States of North Carolina and Georgia are open)
after the second anniversary of the Closing Date or (ii) three (3) months
following the exercise date.
(c) If a Series A Call Right under Section 3.06 is validly
exercised after the second anniversary of the Closing Date or if a Series A Put
Right under Section 3.07 is validly exercised after the fifth anniversary of the
Closing Date, the Company shall pay cash to the Series A Shareholders, in an
amount equal to the Series A Exercise Price determined under Section 3.06 or
Section 3.07, by the later of (i) December 31st following the exercise date or
(ii) three (3) months following the exercise date.
3.09 Exercise of Put Upon Dissolution. The Series C Shareholder may
--------------------------------
voluntarily dissolve the Company by majority consent of the Series C Shareholder
(which, as provided in
<PAGE>
Section 1.19, shall be a Risk Changing Event), provided that prior to any such
voluntary dissolution, written notice thereof must be given to the Series A and
Series B Shareholders in accordance with the provisions of Section 6.02, and
such Series A and Series B Shareholders must be granted thirty (30) days from
the date of receipt of the written notice to exercise any put rights available
to them under this Agreement.
ARTICLE IV
Other Transfers
4.01 Manner of Transfer. Except for permitted transfers under
------------------
Section 3.01 of this Agreement, in the event that any Shareholder, or the estate
of a deceased Shareholder, desires to sell, exchange or otherwise convey for
consideration, or give, assign, pledge or otherwise transfer all or any part of
such Shareholder's Stock, including a voluntary or involuntary transfer in
connection with equitable distribution or similar proceedings, such Shareholder
shall first offer in writing for the period ending thirty (30) days after the
date of notice (the "Lifetime Option Period") all of such Shareholder's Stock to
----------------------
the Company; provided that, notwithstanding any prior acceptance of the offer by
--------
the Company, it may reject the offer within five (5) days of the determination
of the purchase price pursuant to Section 4.04 hereof. The method for allocating
the shares to be purchased by the Company shall be as described in Section 4.02.
If the Company does not accept such offer to purchase all such Stock
so offered, the remaining Shareholders shall have a thirty (30)-day right,
beginning on the later of the day after the expiration of the Lifetime Option
Period or the Company's express rejection of the offer following determination
of the purchase price, to purchase all such Stock. This offer shall be at a
price and on terms determined in accordance with the provisions of Sections 4.04
and 4.05 hereof; provided that, notwithstanding any prior acceptance of the
--------
offer by the remaining Shareholders, they may reject the offer within five (5)
days of the determination of the purchase price pursuant to Section 4.04 hereof.
If all such Stock is not accepted for purchase by the remaining
Shareholders or by the Company within said option periods, the Shareholder
desiring to sell or otherwise dispose of his Stock may sell or otherwise dispose
of such Shareholder's Stock to any other person or persons, but shall not sell
it for a lower price than that initially determined under Section 4.04 hereof
without first giving the remaining Shareholders the primary right, and the
Company a secondary right if the remaining Shareholders do not exercise their
primary right, for a period of thirty (30) days from notice of such right, to
purchase such Stock at the price and on the terms offered to such other persons.
Notwithstanding the forgoing, any transfer of Stock of the Company shall be
subject to the approval of the Series C Shareholder, which approval shall not be
unreasonably withheld.
Any transfer in accordance with this Section 4.01 shall also be
subject to the conditions set forth in Section 4.03, below.
4.02. Allocation of Shares among Purchasing Shareholders. In the
--------------------------------------------------
event any Stock is to be purchased by a group of Shareholders hereunder, such
Stock shall be purchasable by each Shareholder in the proportion that the shares
of Stock then owned by each such purchasing Shareholder bears to the shares of
Stock owned by all the remaining Shareholders (excluding the selling
Shareholder), unless otherwise mutually agreed among all remaining Shareholders.
If one or more of such Shareholders signify their intention to accept such
offer, and other Shareholders fail to
<PAGE>
accept such offer, then each of the accepting Shareholders shall have the right
to purchase all such Stock from the offeror, for a period of thirty (30) days
after the date the applicable option period otherwise would have expired (and
such option period shall automatically be extended by such thirty (30)-day
period), in the proportion that the shares of Stock then owned by such
purchasing Shareholder bears to the shares of Stock owned by all the purchasing
Shareholders, unless otherwise mutually agreed among all such purchasing
Shareholders.
4.03 Transferee Restrictions. Any transferee of Stock under this
-----------------------
Agreement must become a "Shareholder" party to this Agreement by executing any
instruments or documents that may be deemed necessary or advisable by counsel to
the Company to make such transferee a party to this Agreement, or such transfer
shall be deemed null and void.
4.04 Purchase Price for Stock. The purchase price to be paid for
------------------------
Stock purchased according to this Agreement shall be the amount offered in
writing to be paid for such Stock by the unaffiliated purchaser.
The determination date for the purpose of establishing the purchase
price hereunder shall be the date on which the transferring Shareholder offers
to transfer his stock to the remaining Shareholders, or the Company as the case
may be, according to Section 4.01 hereof (the "Determination Date").
------------------
4.05 Terms of Payment. In the event Stock shall be purchasable from
----------------
a Shareholder under Section 4.01 on account of the proposed sale of his Stock
during his lifetime or existence, the terms of sale of the Stock shall be the
terms offered in writing by the unaffiliated purchaser.
4.06 Title to Stock Under Installment Payment. Title to any Stock
----------------------------------------
subject to an installment payment shall be transferred to the purchaser(s).
However, until full payment of the purchase price of such Stock is made by the
purchaser(s), each purchaser shall at the closing of such purchase endorse the
share certificates for the Stock purchased by such purchaser in blank and
deposit such share certificates with the Depository, as hereinafter defined,
upon terms and conditions mutually acceptable to the seller, the purchaser and
the Depository as security for the obligations of the purchaser. Nevertheless,
so long as a purchaser is not in default hereunder or under the obligations
relating to payment for the Stock, such Stock shall be voted by such purchaser,
and all regular dividends declared and paid on such Stock or distributions made
to the purchaser, shall be applied, first, on account of any interest that may
be due from such purchaser and, second, on account of installments of the
purchase price in the inverse order of maturity. However, upon default of an
individual purchaser, and so long as a default of such individual purchaser
remains uncured, the transferring Shareholder or the personal representative of
the estate of a deceased Shareholder shall be permitted to vote such Stock, and
each purchaser shall execute at the time of transfer irrevocable proxies in
favor of the transferring Shareholder or the personal representative of the
estate of a deceased Shareholder to this effect. In the event of any default by
an individual purchaser, the seller of such Stock may direct the Depository, as
hereinafter defined, to sell all such individual purchaser's Stock at public or
private sale on notice to such purchaser. At such sale, the seller of such
Stock may become the purchaser of such Stock and apply on account of the bid
price any unpaid portion of the purchase price and interest due thereon. From
the net proceeds of such sale, after the payment of all expenses of the
Depository and all expenses of the sale, there shall be paid to the seller the
unpaid portion of the purchase price and all interest due thereon, and any
excess shall be paid to the purchaser. If there is any deficiency, the
purchaser shall
<PAGE>
remain liable to the seller. The foregoing remedy shall not be exclusive, and
the seller of such Stock may resort to any other legal as well as equitable
remedy available under the law.
4.07 Closing of Purchase. Within thirty (30) days following the
-------------------
offer and acceptance of an offer to sell Stock in accordance with the provisions
of Article IV of this Agreement, or within thirty (30) days following the
exercise of any option or options to purchase the Stock of a Shareholder, as the
case may be, the purchaser(s) of such Stock shall tender the purchase price for
such Stock, to counsel designated by the Company (hereinabove and hereinafter
referred to as the "Depository"), and the transferring Shareholder or the
----------
personal representative of a deceased Shareholder's estate, as the case may be,
shall deliver to the Depository:
(a) The certificate or certificates evidencing the Stock held
or owned by the transferor Shareholder either duly endorsed in blank or with
appropriate blank stock powers properly executed; and
(b) Any and all other documents that reasonably may be required
by the Company and remaining Shareholders in connection with the transfer of the
shares of the transferor.
Upon receipt of such certificates and other documents, the Depository
shall deliver the purchase price for such Stock to the transferor of such Stock
and shall deliver the stock certificates to the purchaser(s), and shall
thereupon be relieved of any and all further duties hereunder.
4.08 Indemnity of Transferring Shareholder. The remaining
-------------------------------------
Shareholders and the Company shall jointly and severally defend, indemnify and
hold harmless each Shareholder transferring shares hereunder to the remaining
Shareholders or to the Company from and against all claims, demands, suits,
obligations, liabilities, damages, losses and judgments, including out-of-pocket
costs and expenses and reasonable attorneys' fees incident thereto for which the
transferring Shareholder personally was a guarantor, pledgor, endorser or co-
signer and that were in any way connected with the debts and obligations of the
Company incurred in the ordinary course of business by the Company or upon
authorization of the Board of Directors of the Company.
ARTICLE V
Dividends and Liquidation
5.01 Dividends. Dividends by the Company to and among the
---------
Shareholders, other than dividends in connection with the liquidation and
winding up of the Company, shall be in accordance with the provisions of this
Section 5.01. Subject to any restrictions or limitations mandatorily imposed on
the Company by the Delaware General Corporation Law and any restrictions
contained in any financing agreements to which the Company or any of its
Affiliates is a party, the Board of Directors may, in its sole and absolute
discretion, cause the Company to pay dividends to the Shareholders at any time
and from time to time. Any such dividends shall first be applied to the payment
to the Series C Shareholder(s) of an amount equal to the Unpaid Series C
Dividends, if any, as determined immediately prior to such dividends (which, if
there is more than one Shareholder having Unpaid Series C Dividends at such
time, shall be distributed among all such Shareholders in proportion to their
respective amounts, if any, of Unpaid Series C Dividends). Any balance after
payment of the Unpaid Series C Dividends shall be paid ten percent (10%) to the
Series B Shareholders, to be paid among such Shareholders in proportion to
<PAGE>
their respective percentages of ownership of Series B Stock, and ninety percent
(90%) to the Series C Shareholder.
5.02 Events Causing Liquidation. The Company shall be liquidated
---------------------------
upon the first to occur of the following events (a "Liquidation Event"):
-----------------
(a) The sale or disposition of all or substantially all of the
assets (other than cash or cash equivalents) of the Company in a single
transaction or a series of related transactions, and the determination to
distribute all proceeds of any such transaction(s) in accordance with the terms
of this Agreement;
(b) The majority consent of the Series C Shareholder; provided,
--------
that prior to any such liquidation, written notice thereof must be given to the
Series A and Series B Shareholders in accordance with the provisions of Section
6.02, and such Series A and Series B Shareholders must be granted thirty (30)
days from the date of receipt of the written notice to exercise any put rights
available to them under this Agreement; or
(c) The entry of a decree of judicial dissolution of the
Company by a court of competent jurisdiction.
5.03 Liquidation. Upon the occurrence of a Liquidation Event, the
-----------
Board of Directors shall act as liquidator or may appoint another Person to act
as liquidator in the Board of Directors' sole discretion, which liquidator shall
be subject to the Board of Directors' direction and control. The liquidator
shall proceed diligently to wind up the affairs of the Company and make final
distributions as provided herein and under Delaware law. The costs of
liquidation shall be borne as a Company expense. Until such distribution, the
liquidator shall continue to operate the Company, subject to the direction and
control of the Board of Directors. The liquidator shall undertake the
following:
(a) as promptly as possible after dissolution and again after
final liquidation, the liquidator shall cause a proper accounting to be made, by
the Company's independent accountants, of the Company's assets, liabilities and
operations through the last day of the calendar month in which the liquidation
occurs or the final liquidation is completed, as applicable;
(b) the liquidator shall pay, satisfy or discharge from Company
funds all of the debts, liabilities and obligations of the Company or otherwise
make adequate provision for payment and discharge thereof (including, without
limitation, the establishment of a cash fund for contingent liabilities in such
amount and for such term as the liquidator may reasonably determine); and
(c) upon the payment of the debts, liabilities and obligations
of the Company, the liquidator shall distribute any balance to and among the
Shareholders as follows: so long as each Series of Stock shall be outstanding,
(1) 10% to the Series A Shareholders; (2) 20% to the Series B Shareholders; and
(3) 70% to the Series C Shareholder; provided, however, if any Series of Stock
-------- -------
is not outstanding, then such balance shall be proportionately recalculated and
distributed among the remaining Series of Stock. By way of example and not
limitation, if at the time of liquidation, the Series B Put Right has been
exercised, then the Series A Shareholders
<PAGE>
would be entitled to one-eighth of the balance that would have been paid to the
Series B Shareholder, with the Series A Shareholders receiving 12.5% and the
Series C Shareholder receiving 87.5%.
5.04 Reasonable Time for Winding Up. A reasonable time shall be
------------------------------
allowed for the orderly winding up of the business and affairs of the Company
and the liquidation of its assets pursuant to Section 5.03 in order to minimize
any losses otherwise attendant upon such winding up.
ARTICLE VI
Miscellaneous
6.01 Term. This Agreement shall continue as long as at least two (2)
----
of the Shareholders are living, organized and/or existing and own shares of
Stock.
This Agreement shall terminate upon the occurrence of:
(a) The bankruptcy, receivership or dissolution of the Company;
(b) The sale of all the Stock covered by this Agreement to the
Company;
(c) Upon the written agreement of the Company and the
Shareholders holding at least sixty-six and two-thirds
percent (66-2/3%) of each Series of Stock to that effect; or
(d) The effective date of a Company firm commitment IPO (which,
as provided in Section 1.20, shall be a Risk Changing
Event); provided that prior to any such IPO, written notice
--------
thereof must be given to all Shareholders in accordance with
the provisions of Section 6.02, and the Shareholders shall
have thirty (30) days from the date of receipt of the
written notice to exercise any put or call rights available
to them under this Agreement.
If and when all the Stock of a Shareholder shall have been transferred
in accordance with the terms and conditions of this Agreement, he or it shall
cease to be a party to this Agreement.
6.02 Notices. Any notice, offer, payment, demand, or other
-------
communication required or permitted to be given by any provision of this
Agreement shall be deemed to have been delivered and given for all purposes (i)
if delivered personally to the party or to an officer of the party to whom the
same is directed or (ii) whether or not the same is actually received, if sent
by confirmed telecopy or telex or by registered or certified mail, return
receipt requested, postage and charges prepaid, or sent by Federal Express or
similar overnight national courier, addressed as follows:
<PAGE>
If to the Company or MRC, at:
103 South Fifth Street
Mebane, North Carolina 27302
Telecopy No.: (919) 563-4993
With a copy to:
Madison River Capital, LLC
103 South Fifth Street
Mebane, North Carolina 27302
Attention: Vice President and General Counsel
Telecopy No.: (919) 563-4993
If to any other Shareholder, as follows:
Daniel M. Bryant G. Allan Bryant
P.O. Box 280 P.O. Box 899
Hinesville, Georgia 31310 Allenhurst, Georgia 31301
Telecopy No.:______________ Telecopy No.:_______________
The Michael E. Bryant Life Trust
c/o Thomas J. Ratcliffe, Jr.
P.O. Box 969
Hinesville, Georgia 31313
Telecopy No.:______________
Notices shall be deemed to have been given as of the date delivered or
sent, if delivered personally or sent by telecopy or telex, or the first
business day following deposit with Federal Express or similar overnight
courier, or seven (7) days after the date on which the same was deposited in a
regularly maintained receptacle for the deposit of mail, addressed and sent as
set forth above. Each party may change the address set forth above for notices
upon written notice to all other parties hereto.
6.03 Waiver of Breach. The waiver by any party hereto of a breach of any
----------------
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by any party.
6.04 Delegation; Assignment. Except as set forth in this Section, no party
----------------------
to this Agreement shall delegate or assign any duties or rights under this
Agreement without the prior written consent of all parties to this Agreement.
Any such delegation or assignment without the prior written consent of all
parties to this Agreement shall be void. No such consent of the parties to this
Agreement shall release the party delegating or assigning duties or rights from
his duties hereunder and such party shall continue to be jointly and severally
liable with the person to whom he has delegated duties for all defaults and
breaches of this Agreement by either of them. Notwithstanding the foregoing, if
a right arises in the Company to purchase any Stock, the Company may assign such
right to another person or entity, who need not be a Shareholder, and such
assignee may exercise the right of the Company hereunder with respect to such
purchase option as fully as the Company, subject to compliance with Section
4.03.
<PAGE>
6.05 Binding Effect. This Agreement shall inure to the benefit of, and be
--------------
binding upon, the parties hereto, their heirs, personal representatives,
successors and permitted assigns, and said parties agree to execute any
instrument in writing that may be necessary or proper in the carrying out of the
purposes and intent of this Agreement.
6.06 State Law. This Agreement shall be subject to and shall be construed
---------
under the Delaware General Corporation Law and other laws of the State of
Delaware, without regard to conflicts of law provisions.
6.07 Disputes; Deadlock; Arbitration. If a dispute should arise under this
-------------------------------
Agreement between two (2) or more parties, or if a Shareholder reasonably
determines that the Company is unable to act on any material matter due to an
irreconcilable conflict among the Shareholders having equal voting power, then
any such party may make a demand for binding arbitration before the American
Arbitration Association in accordance with its then applicable rules by filing a
demand, in writing, with the other party or parties. Any such arbitration shall
take place in Atlanta, Georgia, and the hearing before the arbitrator(s) of the
matter to be arbitrated shall be at the time and place within such county as is
selected by the arbitrator(s). A judgment confirming the award of the
arbitrator(s) may be rendered by any court having jurisdiction. Except as
otherwise specifically allocated under this Agreement, the costs of such
arbitration shall be borne by the party whose last position prior to the
commencement of the arbitration is farthest away from the decision of the
arbitrator(s), or in such proportions as the arbitrator(s) shall determine.
6.08 Specific Performance. The parties acknowledge that the actual damage
--------------------
that would be sustained upon breach of the stock transfer restrictions of this
Agreement by any of the parties hereto cannot be expressed in monetary terms
and, therefore, any party aggrieved by the breach or threatened breach of any
such provision shall be entitled to seek from any court of competent
jurisdiction an order for specific performance of all the terms and conditions
of this Agreement.
6.09 Effect of Noncompliance. In the event of any purported or attempted
-----------------------
transfer of Stock that does not comply with the provisions of this Agreement,
the attempted transfer shall be null and void and the purported transferee shall
not be deemed to be a shareholder of the Company and shall not be entitled to
receive a new stock certificate or any dividends or other distributions on or
with respect to the Stock. However, any such purported or attempted transfer of
Stock shall, in addition, be deemed to be an irrevocable offer to sell such
Stock to the Company and/or remaining Shareholders, which the Company and/or
remaining Shareholders may accept pursuant to and in accordance with the terms
of Section 4.01 hereof, except that such Shareholder attempting any such
transfer shall not be permitted to sell, assign, pledge, dispose or transfer
such Stock to any other person in the event the Company and/or remaining
Shareholders do not accept such offer except in accordance with Section 4.01
hereof.
6.10 Entire Agreement. This Agreement contains the entire understanding
----------------
among the parties with respect to the subject matter hereof and supersedes any
prior agreement between the parties hereto concerning the sale or exchange of
Stock of the Company and any prior agreement shall be rendered null and void
upon the execution of this Agreement.
6.11 Additional Securities. Except as otherwise provided herein, this
---------------------
Agreement shall apply with equal force to all shares of capital stock of the
Company that may be subsequently issued
<PAGE>
to the Shareholders, and furthermore, shall continue to apply to shares now
issued, notwithstanding any transfer of shares as contemplated herein.
6.12 Severability. The invalidity or unenforceability of any particular
------------
provision of this Agreement shall not affect the other provisions hereof, and
the Agreement shall be construed in all respects as if such invalid or
unenforceable provisions were omitted.
6.13 Purchase by the Company. Notwithstanding any provision set forth in
-----------------------
this Agreement to the contrary, in the event the Company purchases any stock
hereunder, all certificates evidencing the Stock so purchased shall be canceled
of record.
6.14 Construction. In the construction of this Agreement, the masculine
------------
gender shall include the feminine or the neuter in all cases where such meanings
would be appropriate. Any reference contained in this Agreement to specific
statutory or regulatory provisions or to specific governmental agencies or
entities shall include any successor statute or regulation, or agency or entity,
as the case may be. Unless otherwise specified, the references to "Section" and
"Article" in this Agreement are to the Sections and Articles of this Agreement.
When used in this Agreement, words such as "herein", "hereinafter", "hereof",
"hereto", and "hereunder" shall refer to this Agreement as a whole, unless the
context clearly requires otherwise. The use of the words "include" or
"including" in this Agreement shall be by way of example rather than by
limitation.
6.15 Amendment. This Agreement shall not be modified or amended, nor shall
---------
the operation of any provision hereof be waived, except (a) by a writing signed
by the party against whom enforcement is sought, or (b) by a writing signed by
the Shareholders holding at least sixty-six and two-thirds percent (66-2/3%) of
each Series of Stock, which modification or amendment shall be binding upon and
is hereby consented to by all Shareholders; provided, however, that no amendment
-------- -------
shall affect the Put/Call Rights contained in Article III of this Agreement
without the written consent of the Shareholders.
6.16 Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original hereof but all of which together constitute
one and the same instrument.
6.17 Debt to Equity Ratio and Prohibition on Transfer of Stock of Coastal
--------------------------------------------------------------------
Utilities, Inc. The Company shall not increase the debt/equity ratio of Coastal
- ---------------
Utilities, Inc. ("CUI") above such ratio as existed on the Closing Date without
---
the majority consent of each Series of Stock. For purposes of calculating
debt/equity ratio as of the Closing Date, debt shall include all of CUI?s
committed long- and short-term debt, whether or not advanced as of the Closing
Date. Except for existing pledges of the CUI stock to the Rural Telephone
Finance Cooperative (and pledges contemplated in connection with the closing of
the Company's purchase of all of the outstanding stock of CUI), for a period of
two (2) years from the Closing Date, the Company shall not create or permit any
lien, encumbrance, charge or security interest of any kind to exist on any of
the issued and outstanding stock of CUI.
[The next page is the signature page]
<PAGE>
IN WITNESS WHEREOF, the Company and the Shareholders have executed this
Shareholders Agreement effective as of the day and year first above written.
COMPANY:
-------
COASTAL COMMUNICATIONS, INC.
By: /s/ PAUL H. SUNU
--------------------------------
Name: Paul H. Sunu
------------------------------
Title: Chairman/CEO
-----------------------------
SHAREHOLDERS:
------------
MADISON RIVER CAPITAL, LLC
By: /s/ J. STEPHEN VANDERWOUDE
--------------------------------
Name: J. Stephen Vanderwoude
------------------------------
Title: Manager
-----------------------------
DANIEL M. BRYANT (SEAL)
------------------------------
Daniel M. Bryant
G. ALLAN BRYANT (SEAL)
------------------------------
G. Allan Bryant
MICHAEL E. BRYANT LIFE TRUST
By: G. ALLAN BRYANT
--------------------------------------
Co-Trustee for Michael E. Bryant
By: DANIEL M. BRYANT
--------------------------------------
Co-Trustee for Michael E. Bryant
By: THOMAS J. RATCLIFFE, JR
--------------------------------------
Co-Trustee for Michael E. Bryant
<PAGE>
Exhibit A
---------
SHAREHOLDERS AGREEMENT
ISSUED AND OUTSTANDING CAPITAL STOCK
AS OF
March 30, 2000
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Name of Shareholder Address Number of Shares Series of Stock
------------------- ------- ---------------- ---------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Daniel M. Bryant P.O. Box 280 100 Shares Series A
------------------------------------------------
Hinesville, Georgia 31310 100 Shares Series B
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
G. Allan Bryant P.O. Box 899 100 Shares Series A
------------------------------------------------
Allenhurst, Georgia 31301 100 Shares Series B
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
The Michael E. Bryant c/o Thomas J. Ratcliffe, Jr. 100 Shares Series A
Life Trust P.O. Box 969
------------------------------------------------
Hinesville, Georgia 31313 100 Shares Series B
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Madison River Capital, 103 South Fifth Street 2,700 Shares Series C
LLC Mebane, NC 27302
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit B
---------
SHAREHOLDERS AGREEMENT
SERIES A EXERCISE PRICE
In the event the Company exercises the Series A Call Right pursuant to
Section 3.06 of the Agreement, the Company shall pay the Series A Shareholders
as follows: (i) on or before the first anniversary of the execution of the
Agreement, $11,000,000; (ii) after the first anniversary, and on or before the
second anniversary of the execution of the Agreement, $12,100,000; (iii) after
the second anniversary, and on or before the third anniversary of the execution
of the Agreement, $13,300,000; (iv) after the third anniversary, and on or
before the fourth anniversary of the execution of the Agreement, $14,600,000;
(v) after the fourth anniversary, and on or before the fifth anniversary of the
execution of the Agreement, $16,100,000; and (vi) anytime after the fifth
anniversary of the execution of the Agreement, $17,700,000.
In the event the Series A Shareholders exercise the Series A Put Right
pursuant to Section 3.07 of the Agreement, the Company shall pay the Series A
Shareholders $17,700,000.
<PAGE>
EXHIBIT 10.2
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
MADISON RIVER TELEPHONE COMPANY, LLC
AND
GULF COAST SERVICES, INC.
May 9, 1999
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER is made and entered into this 9th day of May,
1999 (the "Agreement Date"), by and between MADISON RIVER TELEPHONE COMPANY,
LLC, a Delaware limited liability company ("Buyer"), and GULF COAST SERVICES.
INC., an Alabama corporation ("GCSI"). Buyer and GCSI are hereinafter sometimes
referred to, collectively, as the "Parties".
This Agreement contemplates a transaction in which Buyer will acquire for
cash all of the outstanding capital stock of GCSI through a reverse subsidiary
merger of Transitory Subsidiary (as defined below) with and into GCSI.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties and
covenants herein contained, the Parties agree as follows.
ARTICLE I
DEFINITIONS
"1999 Capital Budget" means GCSI and its Subsidiaries' 1999 Capital Budget
-------------------
attached hereto as Exhibit A.
"1999 Operating Budget" means GCSI and its Subsidiaries' 1999 Operating
---------------------
Budget attached hereto as Exhibit B.
"Additional Merger Consideration" means the sum of (i) the Capital
-------------------------------
Expenditures of GCSI made after the Agreement Date and on or prior to the
Effective Time not to exceed $10,000,000 and (ii) the Incentive Payment.
"Adjusted Long Term Debt" means Long Term Debt less (i) the Employee Stock
-----------------------
Ownership Plan loan guarantee, and (ii) cash and cash equivalents of GCSI and
its Subsidiaries in excess of $1,500, 000, determined on a consolidated basis
and in accordance with GAAP, consistently applied, as of the Effective Time.
"Agreement" means this Agreement and Plan of Merger.
---------
"Agreement Date" has the meaning set forth in the preface above.
--------------
"Alabama Business Corporation Act" means the Alabama Business Corporation
--------------------------------
Act, as codified at ALA. CODE (S) 10-2B- 1.01 et seq. (1994 Repl.).
"Articles of Merger" has the meaning set forth in Section 2.4.
------------------
"Audited Financial Statements" has the meaning set forth in Section 3.5.
----------------------------
"Benefit Plans" has the meaning set forth in Section 3.20.
-------------
<PAGE>
"Business" means all telecommunications related businesses conducted by
--------
GCSI and its Subsidiaries.
"Buyer" has the meaning set forth in the preface above.
----
"Capital Expenditures of GCSI" means amounts paid or disbursed by GCSI or
----------------------------
any of its Subsidiaries in connection with or for use in fiber projects.
"Closing" has the meaning set forth in Section 2.3.
-------
"Closing Date" has the meaning set forth in Section 2.3.
------------
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Confidential Information" means any information concerning the Business,
------------------------
GCSI or its Subsidiaries that is not already generally available to the public.
"Contracts" has the meaning set forth in Section 3.16.
---------
"Co-Trustees" 'has the meaning set forth in Sect on 7.2(a).
-----------
"Court Confirmation" has the meaning set forth in Section 7.2(a).
------------------
"DigiPH" the meaning set forth in Article IM The Parties acknowledge that
------
DigiPH is not a Subsidiary of GCSI as defined in this Agreement.
"DigiPH" Stock" has the meaning set forth in Article IX.
------
"Disclosure Schedules" has the meaning, set forth in Article HI.
--------------------
"Dissenting Share" means any GCSI Share with respect to which the GCSI
----------------
Stockholder of record has exercised his or her or its appraisal rights under the
Alabama Business Corporation Act.
"Effective Time" has the meaning set forth in Section 2.5(a).
--------------
"Environmental Law" means any federal, state or local law (including
-----------------
statutes, regulations, ordinances, codes, rules, judicial opinions and other
governmental restrictions and requirements) relating to the discharge of air
pollutants, water pollutants, noise or odors, the processing of waste water or
otherwise relating to the environment or hazardous or toxic substances.
"Equipment" has the meaning set forth in Section 3.9.
---------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
2
<PAGE>
"ESOP" means the Gulf Telephone Company Employee Stock Ownership Plan.
----
"ESOP Trustees" has the meaning set forth in Section 7.2(a).
-------------
"Financial Statements" has the meaning set forth in Section 3.5.
--------------------
"FCC" means the Federal Communications Commission.
---
"Financing Commitments" has the meaning set forth in Section 4.2.
---------------------
"GAAP" means United States generally accepted accounting principles as in
----
effect from time to time, subject to adjustments customary for the
telecommunications industry and, with respect to Interim Financial Statements,
year end and other consolidating adjustments.
"GCSI" has the meaning set forth in the preface above.
----
"GCSI Share" means a share of the issued and outstanding common stock,
----------
$1.00 par value per share, of GCSI.
"GCSI Stockholder" means any Person who or which is the holder of record of
----------------
any GCSI Shares.
"Governmental Entity" means any government or subdivision thereof, whether
-------------------
domestic or foreign, or any administrative, governmental or regulatory
authority, agency, department, division, commission, court, tribunal or body,
whether domestic, foreign or multinational.
"Hart-Scott-Rodino Act" means the Hart- Scott-Rodino Antitrust Improvements
---------------------
Act of 1976, as amended.
"Hazardous Substance" means any toxic or hazardous, substance that is
-------------------
regulated by or under the authority of any Environmental Law, including any
petroleum products, asbestos or polychlorinated biphenyls.
"Incentive Plan" means a sum of up to $5,000,000 computed according to the
--------------
following schedule:
<TABLE>
<CAPTION>
Lighted Sheath Miles Amount of Incentive
at the Effective Time Payment
<S> <C>
0-900 -$0
901-1033 $3,500,000
1034-1149 $4,000,000
1150-1278 $4,500,000
1279 and above $5,000,000
</TABLE>
3
<PAGE>
For the purpose of this definition of Incentive Payment, a Lighted Sheath
Mile shall mean a mile of fiber optic cable owned by, or subject to an IRU in
the name of, GCSI or one of its Subsidiaries with respect to which all of the
components listed on Exhibit C have been installed with respect to two or more
strands and said strands are capable of transmitting and receiving data or other
information at an OC 48 rate.
"Insurance Policies" has the meaning set forth in Section 3.26.
------------------
"Intellectual Property" has the meaning set forth in Section 3.12(a)-
---------------------
"Interim Financial Statements" has the meaning set forth in Section 3.5.
----------------------------
"Inventory" has the meaning set forth in Section 3-11.
---------
"Knowledge of Buyer" means the actual knowledge, without independent
------------------
investigation, of the officers of Buyer listed on Exhibit D.
"Knowledge of GCSI" means the actual knowledge, without independent
-----------------
investigation, of the officers of GCSI listed on Exhibit E.
"Leases" has the meaning forth in Section 3.15.
------
"Liens" mean mortgages, deeds of trust, pledges, liens, encumbrances,
-----
charges or other security interests, other than (i) purchase money Liens and
Liens securing rental payments under capital lease arrangements and CH) other
Liens arising in the Ordinary Course of Business and not incurred in connection
with the borrowing of money.
"Long Term Debt" means Long Term Debt and Capital Lease Obligations,
--------------
including the current portion, as reflected on the books and records of GCSI and
its Subsidiaries, determined on a consolidated basis and in accordance with
GAAP, consistently applied, as of the Effective Time; provided that Long Term
Debt shall include the outstanding principal balance owed pursuant to lines of
credit however reflected on said books, and records.
"Material Adverse Effect" means, with respect to Buyer or Transitory
-----------------------
Subsidiary or GCSI, as the case may be, a material adverse effect on (i) the
business, results of operations or financial condition of such party and its
Subsidiaries taken as a whole, other than any such effect attributable to or
resulting from (A) any change in law or any change in the rules or regulations
of or interpretations of law by the FCC, state public utility commissions or
other Governmental Entities, (B) any change in GAAP or regulatory accounting
principles, (C) any action or omission of GCSI or Buyer or any Subsidiary of
either of them taken with the express prior written consent of the other party
hereto, or (D) any expenses incurred by such party where such expenses are
contemplated by or reasonably incurred in connection with this Agreement or the
transactions contemplated hereby, or (ii) the ability of such party and its
Subsidiaries to consummate the transactions contemplated hereby.
"Merger" has the meaning set forth in Section 2.2.
------
4
<PAGE>
"Merger Consideration" means the sum of (i) $310,000,000 reduced by (A)
--------------------
Adjusted Long Term Debt as of the Closing Date and (B) unexpended and unincurred
capital budgeted items for fiber projects described in the 1999 Capital Budget
as of the Closing Date, (ii) the sales price of the Non-Business Real Estate as
provided in Section 6.10, and (iii) the sales price of the DigiPH Stock as
provided in Article IX.
"Millry" has the meaning set forth in Article IX
------
"Non-Business Real Estate" has the meaning set forth in Section 6. 10.
------------------------
"Ordinary Course of Business" means the ordinary course of business
---------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
-----
"Paving Agent" has the meaning set forth in Section 2.6(a).
------------
"Payment Fund" has the meaning set forth in Section 2.6(b).
------------
"Permits" has the meaning set forth in Section 3.23.
-------
"Permitted Liens," means (i) Liens for taxes, assessments or other
---------------
governmental charges or levies not yet due, (ii) statutory Liens of landlords
and Liens of carriers, warehousemen, mechanics, materialsmen and other liens
imposed by law and created in the Ordinary Course of Business, (iii) Liens
(other than any Lien imposed by ERISA) incurred or deposits made in the Ordinary
Course of Business in connection with worker's compensation, unemployment
insurance or other types of social security, (iv) minor defects of title,
easements, rights-of-way, restrictions and other similar charges or encumbrances
not materially detracting from the value of the Real Property or interfering
with the ordinary conduct of the Business, (v) Liens arising out of liabilities
reflected on the Financial Statements, and (vi) those Liens, if any, listed on
Schedule 3.8.
- ------------
"Person" means an individual, partnership, corporation, limited liability
------
company, association, joint stock company, trust, joint venture, unincorporated
organization or Governmental Entity.
"Real Property" means any interest of whatever nature or kind, in real
-------------
property owned by GCSI or its Subsidiaries or leased by GCSI or its Subsidiaries
as lessee, other than the Non-Business Real Estate.
"Requisite Stockholder Approval" means the affirmative vote of the holders
------------------------------
of two-thirds (2/3) of the GCSI Shares in favor of this Agreement and the
Merger.
"SEC" means the Securities and Exchange Commission.
---
5
<PAGE>
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-----------------------
amended.
"Software" means all material computer software used by GCSI or its
--------
Subsidiaries in the conduct of the Business.
"Official Meeting" has the meaning set forth in Section 6.3(a).
----------------
"Stockholder Materials" has the meaning set forth in Section 6.3 (a).
---------------------
"Subsidiary" means any corporation, partnership, limited liability company
----------
or other business entity with respect to which a specified Person (or a
Subsidiary thereof) owns a majority of the ownership interests therein or has
the power to vote or direct the voting of sufficient securities thereof to elect
a majority of its directors or other persons performing similar functions.
"Surviving Corporation" has the meaning set forth in Section 2.2.
---------------------
"Surviving Obligations" has the meaning set forth in Section 8.4.
---------------------
"Third-Party Consideration" has the meaning set forth in Section 6.8.
-------------------------
"Topping Fee" the meaning set forth in Section 6.8.
-----------
"Trademarks" has the meaning set forth in Section .3.12(a).
----------
"Transitory Subsidiary" mean an Alabama corporation to be formed by Buyer
---------------------
as provided in Section 2.1 which shall be merged with and into GCSI on and
subject to the terms and conditions of this Agreement.
ARTICLE II
PLAN OF MERGER
2.1 Formation of Transitory Subsidiary. Buyer shall organize a wholly
owned subsidiary corporation under the Alabama Business Corporation Act
"Transitory Subsidiary") to be merged with and into GCSI as set forth in
- -----------------------
Section 2.2. Transitory Subsidiary will be formed solely to facilitate solely
the Merger and will conduct no business or activity it other than in connection
with the Merger.
2.2 Merger. On and subject to the terms and conditions of this Agreement,
Transitory Subsidiary will merge with and into GCSI (the "Merger") at the
Effective Time. GCSI shall be the corporation surviving the Merger (the
"Surviving Corporation").
2.3 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the Magnolia Hotel, Foley,
Alabama, or such other place as the
6
<PAGE>
Parties may mutually determine, commencing at 9:00 a.m. local time on such day
as shall be mutually agreed to by the Parties following the satisfaction or
waiver of all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to actions
the respective Parties will take at the Closing itself (the "Closing Date");
provided, however, that the Closing Date shall be no later than September 30,
------------
1999.
2.4 Actions at Closing. At the Closing, (i) GCSI will deliver to Buyer the
various certificates, instruments and documents referred to in Section 7.1, (ii)
Buyer will deliver to GCSI the various certificates, instruments and documents
referred to in Section 7.2, (iii) Buyer will cause Transitory Subsidiary to
transfer the fun6 identified in clause (i)(A) of Section 2.6(b) to Paying Agent,
(iv) GCSI shall transfer the funds identified in clause (i)(B) of Section 2.6(b)
to Paying Agent, and (v) GCSI and Transitory Subsidiary shall cause Articles of
Merger in form and substance reasonably satisfactory the Parties (the "Articles
--------
of Merger") to be filed with the Secretary of State of the State of Alabama.
- ---------
2.5 Effect of Merger.
(a) General. The Merger shall become effective at the time (the
-------
"Effective Time") the Articles of Merger filed by GCSI and Transitory Subsidiary
with the Secretary of State of the State of Alabama become effective. The Merger
shall have the effect set forth in the Alabama Business Corporation Act. The
Surviving Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name and on behalf of
either GCSI or Transitory Subsidiary in order to carry out and effectuate the
transactions contemplated by this Agreement.
(b) Articles of Incorporation. The Articles of Incorporation of GCSI
-------------------------
as in effect at the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation.
(c) Bylaws. The Bylaws of GCSI as in effect at the Effective Time
------
shall be the Bylaws of the Surviving Corporation.
(d) Directors and Officers. The directors and officers of Transitory
----------------------
Subsidiary holding office at and as of the Effective Time shall be the directors
and officers of the Surviving Corporation (retaining their respective positions
and terms of office).
(e) Conversion of QQSI Shares. At and as of the Effective Time, (i)
-------------------------
each GCSI Share (other than any Dissenting Share) shall be converted into the
right to receive a prorata share (based on the number of issued and outstanding
GCSI Shares immediately before the Effective Time) of the Merger Consideration
and the Additional Merger Consideration and (ii) each Dissenting Share shall be
converted into the right to receive payment from the Surviving Corporation with
respect thereto in accordance with the provisions of the Alabama Business
Corporation Act. No GCSI Share shall be deemed to be outstanding or to have any
rights other than those set forth above in this Section 2.5(e) after the
Effective Time.
7
<PAGE>
(f) Conversion of Capital Stock of Transitory Subsidiary. At and
----------------------------------------------------
as of the Effective Time, each share of common stock, $0.01 par value per share,
of Transitory Subsidiary shall be converted into one share of common stock,
$1.00 par value per share, of the Surviving Corporation.
2.6 Procedure for Payment
(a) Letter of Transmittal. Prior to the Closing, Buyer will cause
---------------------
Regions Bank ("Paying Agent") to mail or otherwise deliver a letter of
------------
transmittal (with instructions for its use) in form and substance reasonably
satisfactory to the Parties to each GCSI Stockholder for such GCSI Stockholder
to use in surrendering the certificates which represented his, her or its GCSI
Shares against payment of the Merger Consideration and the right to receive
Additional Merger Consideration.
(b) Establishment of Payment Fund. Immediately prior to the Effective
Time, (i) Buyer will cause Transitory Subsidiary transfer to Paying Agent
pursuant to a paying agent agreement in form and substance reasonably
satisfactory to the Parties, immediately available funds in amounts equal to (A)
the Merger Consideration, less the portion thereof to be paid by GCSI pursuant
to subclause (B) of this clause (i), and (B) the Additional Merger Consideration
as estimated by GCSI, the computation of which has been reported to Buyer in
writing at least two (2) business days prior to the Closing, and (ii) GCSI shall
transfer to Paying Agent immediately available funds in an amount equal to the
aggregate sales prices of the Non-Business Real Estate and the DigiPH Stock
(collectively, the "Payment Fund").
(c) Investment of Payment Fund. Buyer may cause Paying Agent to
--------------------------
invest the cash included in the Payment Fund in one or more permitted
Investments reasonably satisfactory to the Parties; provided, however, that the
terms and conditions of the investments shall be such as to permit Paying Agent
to make prompt payment of the Merger Consideration and the Additional Merger
Consideration as necessary. Buyer may cause
Paying Agent to pay over to the Surviving Corporation any net earnings with
respect to the investments, and Buyer will cause the Surviving Corporation to
replace promptly any portion of the Payment Fund which Paying Agent loses
through investments. No interest will accrue or be paid to any holder of GCSI
Shares.
(d) Payment of Merger Consideration. (i) Upon surrender to Paying
-------------------------------
Agent of the certificate(s) representing GCSI Shares (other than Dissenting
Shares), Paying Agent shall pay to the GCSI Stockholder surrendering such
certificate(s) a prorata share (based on the number of issued and outstanding
GCSI Shares immediately prior to The Effective Time) of the sum of (A) the
Merger Consideration and (B) the estimated Capital Expenditures of GCSI made
after the Agreement Date and on or prior to the Effective Time not to exceed
$10,000,000.00, for each GCSI Share represented by the surrendered
certificate(s), which amount shall be paid by Paying Agent within one (1)
business day of its receipt of the surrendered certificate(s) by bank check or
other immediately available funds, and (ii) upon receipt of a disbursement
notice signed by Buyer and Marjorie Y. Snook, anticipated to be not later than
fifteen (15) days after the Closing, the Paying Agent shall pay to each GCSI
Stockholder that has previously surrendered,
8
<PAGE>
or subsequently surrenders, such certificate(s) (other than certificates
representing Dissenting Shares) a prorata share (based on the number of issued
and outstanding GCSI Shares immediately prior To the Effective Time) of the
estimated Incentive Payment, reduced by any overestimate, or increased by any
underestimate, of Capital Expenditures of GCSI made after the Agreement Date and
on or prior to The Effective Time, as reflected in said joint disbursement
notice, for each GCSI Share represented by the surrendered certificate(s), which
amount shall be paid by Paying Agent within one (1) business day of receipt of
the joint disbursement notice or, in the case of a subsequently surrendered
certificate, within one (1) business day of its receipt of the subsequently
surrendered certificate, by bank check or other immediately available funds.
(e) Return of Unpaid Payment Fund. Buyer may cause Paying Agent to
-----------------------------
pay over to the Surviving Corporation any portion of the Payment Fund (including
any earnings thereon) remaining unpaid one hundred eighty (180) days after the
Effective Time, and thereafter all former GCSI Stockholders shall look to the
Surviving Corporation for payment of the Merger Consideration and the Additional
Merger Consideration (subject to abandoned property, escheat and other similar
laws).
(f) Expenses of Paving Agent. Buyer shall cause the Surviving
------------------------
Corporation to pay all charges and expenses of Paying Agent.
2.7 Closing of Transfer Records. After the Effective Time, transfers of
GCSI Shares outstanding prior to the Effective Time shall riot be made on the
stock transfer books of the Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GCSI
GCSI represents and warrants to Buyer that the statements contained in this
Article III are correct and complete as of the Agreement Date and will be
correct and complete as of the Closing Date (as though made them and as though
the Closing Date were substituted for the Agreement Date throughout this Article
III), except as set forth in the disclosure schedules identified in this Article
III and to be delivered by GCSI to Buyer within thirty (30) days after the
Agreement Date (the "Disclosure Schedules"). The numbering of the Disclosure
--------------------
Schedules will correspond to the numbered paragraphs contained in this Article
III.
3.1 Organization, Qualification, and Corporate Power. GCSI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Alabama. Schedule 3.1 shall contain a list of GCSI's
Subsidiaries. Each Subsidiary of GCSI is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization. GCSI and
each of its Subsidiaries are duly authorized to conduct business and are in good
standing under the laws of each jurisdiction in which the character and location
of their respective properties or the nature of their respective businesses
require qualification, except where the lack of such qualification would not
have a Material Adverse Effect. GCSI and each of its Subsidiaries have full
corporate power and authority to own their respective properties and to carry on
that portion of the Business they presently are conducting.
9
<PAGE>
3.2 Capitalization; Constituent Documents. The entire authorized capital
of GCSI consists of 100,000 shares of common stock, S1.00 par value per share,
92,410 shares of which are issued and outstanding and constitute the GCSI
Shares. All of the GCSI Shares have been duly authorized and are validly issued,
fully paid and nonassessable. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, conversion rights, exchange
rights or other contracts or commitments that could require GCSI or any of its
Subsidiaries to issue, sell or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation or similar rights with respect to GCSI or
any of its Subsidiaries. True and complete copies of the Articles of
Incorporation and all amendments thereto, the bylaws as amended and currently in
force, all stock records and all corporate minute books and records of GCSI and
each of its Subsidiaries have been furnished for inspection by Buyer. Such stock
records accurately reflect all share transactions and the current stock
ownership of GCSI and each of its Subsidiaries. The corporate minute books and
records of GCSI and its Subsidiaries contain true and complete copies of all
resolutions adopted by the stockholders or the board of directors of GCSI and
its Subsidiaries, and any other action formally taken by GCSI and its
Subsidiaries.
3.3 Authorization of Transaction. The execution, delivery and performance
of this Agreement by GCSI has been duly authorized and approved by GCSI's board
of directors. GCSI has full power and authority (including full corporate power
and authority) to execute and deliver this Agreement and to perform its
obligations hereunder, provided, however, that GCSI cannot consummate the Merger
unless and until it receives the Requisite Stockholder Approval. This Agreement
constitutes the valid and legally binding obligation of GCSI, enforceable in
accordance with its terms and conditions.
3.4 Noncontravention. Except as shall be set forth on Schedule 3.4, to
the Knowledge of GCSI, neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will (i) violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge or other restriction of any Governmental Entity to which
any of GCSI or its Subsidiaries is subject or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument or
other arrangement to which GCSI or any of its Subsidiaries is a party, by which
GCSI or any of its Subsidiaries is bound or to which any of their assets are
subject (or result in the imposition of any Lien upon any of their assets),
except where the violation, conflict, breach, default acceleration, termination,
modification, cancellation, failure to give notice or Lien would not have a
Material Adverse Effect. Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will violate any
provision of the charter or bylaws (or similar governing documents) of GCSI or
any of its Subsidiaries. To the Knowledge of GCSI, and other than in connection
with (i) the provisions of the Hart-Scott-Rodino Act, the Alabama Business
Corporation Act, the Securities Act, the Securities Exchange Act and state
securities laws, (ii) the necessary notices to and approvals or consents, if
any, of the FCC, and (iii) the necessary notices to and approvals and consents,
if any, of state public utility commissions or similar state regulatory bodies
pursuant to applicable state laws regulating the telephone, commercial mobile
radio service or other telecommunications business, none of GCSI or its
Subsidiaries are required
10
<PAGE>
to give notice to, file with or obtain authorization, consent or approval of any
Governmental Entity in order for GCSI to perform its obligations under this
Agreement, except where the failure to give such notice, to file or to obtain
such authorization, consent or approval would not have a Material Adverse
Effect.
3.5 Financial Statements. GCSI has heretofore furnished or shall furnish
Buyer with true and complete copies of (i) the audited, consolidated financial
statements of GCSI and its Subsidiaries for fiscal years ended December 31,
1996, 1997 and 1998, consisting of the balance sheet at such dates and the
related statements of income, stockholders' equity and cash flow for said
periods, opined upon by Ernst & Young, LLP, GCSI's independent public
accountants (the "Audited Financial Statement"), and (ii) the unaudited
---------------------------
financial statements of GCSI and its Subsidiaries for the two month period ended
February 28, 1999 (the "Interim Financial Statements") (the Audited Financial
----------------------------
Statements and the Interim Financial Statements are hereinafter referred to,
collectively, as the "Financial Statements"). Except as disclosed therein, the
--------------------
Financial Statements present fairly, in all material respects, the financial
position and operating results of GCSI and its Subsidiaries as of the dates, and
during the periods, indicated therein, and were prepared in accordance with GAAP
consistently applied during such periods. Notwithstanding the foregoing, the
occurrence of any event or action, or the incurring of any claim or liability,
that adversely affects the financial position or operating results of GCSI or
its Subsidiaries as of the dates, and during the periods, covered by, and as
presented in, the Financial Statements shall not constitute a breach of or an
inaccuracy in this Section 3.5 if said event, action, claim or liability is the
subject of or is covered by another Section within this Article III (e.g.,
litigation is the subject of and is covered by Section 3.19) and the occurrence
or incurring thereof does not constitute a breach of or inaccuracy in such other
Section.
3.6 Absence of Changes. Except as shall be set forth on Schedule 3.6 and
------------
as contemplated hereby, since February 28, 1999, (i) none of GCSI or its
Subsidiaries have entered into any transaction that was not in the Ordinary
Course of Business; (ii) except for sales of goods and services in the Ordinary
Course of Business, the sale, or proposed sale, of the Non-Business Real. Estate
and the sale or otherwise transfer, or proposed sale or other transfer, of the
DigiPH Stock, there has been no sale, assignment, transfer, mortgage, pledge,
encumbrance or lease of any material asset or property of GCSI or any of its
Subsidiaries; (iii) there has been no declaration or payment of a dividend, or
any other declaration, payment or distribution of any type or nature to GCSI
Stockholders in respect of their GCSI Shares, whether in cash or property, and
no purchase or redemption of any GCSI Share; (iv) there has been no declaration,
payment or commitment for the payment, by GCSI or any of its Subsidiaries, of a
bonus or other additional salary, compensation or benefit to any employee of
GCSI or any of its Subsidiaries that was not in the Ordinary Course of Business;
(v) there has been no release, compromise, waiver or cancellation of any
material debt to, claim by, or right of GCSI or any of its Subsidiaries that was
not in the Ordinary Course of Business; (vi) there have been no capital
expenditures by GCSI or any of its Subsidiaries in excess of $100,000 for any
single item, or $500,000 in the aggregate, that were not included in the 1999
GCSI capital or operating budgets; (vii) there has been no change in accounting
methods or practices or revaluation of any asset of GCSI or any of its
Subsidiaries (other than accounts receivable written down in the Ordinary Course
of Business); (viii) there has been no material damage, destruction to or loss
of, physical property adversely affecting the Business taken as a whole; (ix)
there has been no material loan
11
<PAGE>
by GCSI or any of its Subsidiaries, or guaranty by GCSI or any of its
Subsidiaries of any loan, to any employee of GCSI or any of its Subsidiaries;
(x) none of GCSI or its Subsidiaries have ceased to transact business with any
customer that, as of the date of such cessation, represented more than five
percent (5%) of the annual gross revenues of GCSI; (xi) to the Knowledge of
GCSI, there has been no amendment or termination of any material oral or written
contract, agreement or license to which GCSI or any of its Subsidiaries is a
party or by which any of them are bound, except in the Ordinary Course of
Business, or except as expressly contemplated hereby; (xii) none of GCSI or its
Subsidiaries have failed to satisfy any of its debts, obligations or liabilities
related to the assets of GCSI as the same became due and payable (except for
accounts payable which are paid in accordance with past practices and in the
Ordinary Course of Business); and (xiii) there has been no agreement or
commitment by GCSI or any of its Subsidiaries to do any of the foregoing.
3.7 Undisclosed Liabilities. To the Knowledge of GCSI, none of GCSI or
its Subsidiaries has any debt, liability or obligation, whether accrued,
absolute or otherwise, including any liability or obligation on account of taxes
or any governmental charge or penalty, interest or fine, except (i) as shall be
set forth on Schedule 3.7, (ii) debts, liabilities and obligations incurred in
------------
the Ordinary Course of Business after February 28, 1999, that would not have a
Material Adverse Effect, (iii) liabilities reflected on the Financial
Statements, and (iv) those debts, liabilities or obligations incurred as a
result of the transactions contemplated hereby. Notwithstanding the foregoing,
no debt, liability or obligation shall constitute a breach of or an inaccuracy
in this Section 3.7 if said debt, liability or obligation is the subject of or
is covered by another Section within this Article III (e.g., litigation is the
subject of and is covered by Section 3.19) and the existence of said debt,
liability or obligation does not constitute a breach of or inaccuracy in such
other Section.
3.8 Title to Properties. Except as shall be set forth on Schedule 318,
GCSI and each of its Subsidiaries has good and marketable title to all its real
and tangible personal property and assets used in the Business, and good and
valid title to its leasehold interests, in each case free and clear of any and
all Liens other than Permitted Liens. The existence of mortgages, encumbrances
and other Liens, other than those expressly set forth in this Agreement, shall
not be objections to title, provided that properly executed instruments, in
recordable form, necessary to satisfy the same are delivered to Buyer at
Closing.
3.9 Equipment, etc. GCSI has heretofore furnished Buyer with a list of
all items of tangible personal property (including computer hardware) used in
the operation of the Business in the manner in which it is now operated by GCSI
and its Subsidiaries (the "Equipment"), except for items of personal property
---------
having a net book value of less than $1,000. Except as shall be set forth on
Schedule 3.9, the Equipment, in the aggregate, is in satisfactory condition and
- -------------
repair, ordinary wear and tear excepted, so as to operate the Business in the
manner in which it is now operated by GCSI and its Subsidiaries.
3.10 Receivables. All of the trade receivables and notes receivable which
are reflected on the Financial Statements or which arose subsequent to the date
of the Interim Financial Statements, arose out of bona fide, arms-length
transactions and, to the Knowledge of GCSI, all such receivables are good and
collectible (or have been collected) in the Ordinary Course of
12
<PAGE>
Business in accordance with their terms, and at the aggregate recorded amounts
thereof using normal collection practices, less the amount of applicable
reserves for doubtful accounts and for allowances and discounts. To the
Knowledge of GCSI, all such reserves, allowances and discounts were and are
adequate.
3.11 Inventory. To the Knowledge of GCSI, all inventory of GCSI and its
Subsidiaries which is held for sale or resale (the "Inventory") consists of
---------
items of a quantity and quality historically useable and/or saleable in the
Ordinary Course of Business, except for items of obsolete and slow-moving
material and materials which are below standard quality, all of which have been
written down on the Financial Statements to estimated net realizable value in
accordance with GAAP.
3.11 Intellectual Property.
(a) List of Intellectual Property. Schedule 3.12 shall identify all
------------------------------ -------------
of the following which are used in the Business or in which GCSI or any of its
Subsidiaries claims any ownership rights: (i) all trademarks, service marks,
trade names, trade dress and the like, including all common law marks
(collectively, together with the associated goodwill of each, "Trademarks")
----------
together with the information regarding all registrations and pending,
applications to register any such rights; (ii) all patents or the pending
applications to patent any technology or design; (iii) all copyrights and all
registrations of and applications to register copyrights; and (iv) all licenses
of rights in Trademarks, patents, copyrights and other intellectual property,
whether to or by GCSI or any of its Subsidiaries. The rights required to be so
identified, together with all licenses of rights in computer software and all
proprietary know how and trade secrets which are material to GCSI, any of its
Subsidiaries or the Business, are referred to herein collectively as the
"Intellectual Property."
- -----------------------
(b) Ownership of Intellectual Property. GCSI or one of its
----------------------------------
Subsidiaries is the owner of, or duly licensed to use the Intellectual Property,
and the Intellectual Property exists and has been maintained in good standing.
No third party has asserted ownership rights in any of the Intellectual Property
(except to the extent that such Intellectual Property has been properly licensed
to or by GCSI or one of its Subsidiaries). To the Knowledge of GCSI none of
GCSI's or its Subsidiaries' use of the Intellectual Property infringes any right
of any third party, nor is any third party infringing on GCSI's or its
Subsidiaries' tights in the Intellectual Property.
(c) Computer Software. GCSI bas heretofore furnished Buyer with a
-----------------
list of all Software. GCSI or one of its Subsidiaries currently licenses, or
otherwise has the legal right to use, all of the Software (including any upgrade
alteration or enhancement with respect thereto), and to the Knowledge of GCSI,
all of the Software is being used in compliance with applicable licenses or
other agreements.
3.13 Year 2000. G-CSI has developed a Year 2000 readiness assessment and
remediation plan consisting of the following three (3) phases: (i) developing an
inventory of systems and equipment that may be affected by the Year 2000 date
change, (ii) assessment and (iii) remediation. The first phase has been
completed and involved developing an inventory of all information technologies
and non-information technologies systems, software and business
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infrastructure systems and equipment that may be affected by the Year 2000 date
change. External parties, including customers, suppliers and service providers,
with which GTCS1 interacts and which may have Year 2000 readiness issues were
also identified. The second phase has also been completed and involved risk and
impact assessment, selection of appropriate remediation methods and
resource/cost assessment for compliance. This phase included contacting
suppliers or manufacturers for information regarding their Year 2000 readiness,
technical review of systems and compliance testing. The necessary actions to
bring each item into compliance were determined and remediation costs were
estimated. The third phase involves remediation for items found to be non-Year
2000 compliant. This phase includes replacement of equipment or upgrading
software or hardware and communications with GCSI's customers, suppliers and
service providers to determine Year 2000 issues as appropriate. Verification
testing has been, or will be, done to ensure the effectiveness of the
remediation efforts. Capital assets found to be non-compliant have been, or will
be, replaced or remediated in this phase. This phase is expected to be completed
by October, 1999. GCSI has estimated that the total cost of upgrading, replacing
and remediating its information technologies and non-information technologies
systems, software and business infrastructure systems and equipment is
approximately $7,500,000. These costs include Year 2000 remediation, integration
of business processes between operating companies and increasing capacity due to
projected growth of GCSI's services GCSI believes that these costs result from
adding additional system capacity and functionality, and that they are
capitalizable under GAAP. GCSI believes, based on currently available
information, that it will be able to properly manage its total Year 2000
exposure. There can be no assurance, however, that GCSI will be successful in
its effort or that the computer systems of other Persons on which GCSI relies
will be modified in a timely manner. Additionally, there can be no assurance
that a failure to modify such systems by another Person, or modifications that
are incompatible with GCSI's systems, would not have a Material Adverse Effect.
As a contingency plan to the Year 2000 plan, GCSI is investigating outsourcing
to third parties critical business functions.
3.14 Real Property.
(a) Schedule 3.14 shall contain a description of all Real Property.
(b) Except as shall be set forth on Schedule 3-14, there are no
parties in possession of any portion of the Real Property other than GCSI or its
Subsidiaries, whether as lessees, sublessees, tenants at will or trespassers.
(c) To the Knowledge of GCSI, there is no law, ordinance, order,
regulation or requirement now in existence or under active consideration by any
Governmental Entity, that would require, any material expenditure by GCSI or its
Subsidiaries to modify or improve any of the Real Property to bring it into
compliance therewith that would have a Material Adverse Effect.
(d) To the Knowledge of GCSI, the current uses of all buildings
and other structures utilized in the Business and located on the Real Property
substantially conform with an applicable federal, state and local governmental
building, zoning, health, safety, platting. subdivision or other laws,
ordinances or regulations, and no restrictive covenants to which the
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Real Property is subject are being violated by GCSI or its Subsidiaries, except
for nonconformities or violations which would not have a Material Adverse Effect
3.15 Leases. Schedule 3.15 shall contain a list of all material leases
-------------
pursuant to which GCSI or any of its Subsidiaries leases to or from a Person
other than GCSI or any of its Subsidiaries, as lessor or lessee, real or
tangible personal property used in operating: the Business or otherwise (the
"Leases"), true and complete copies of which have previously been provided to
Buyer. To the Knowledge of GCSI, all of the Leases are valid, binding and
enforceable against GCSI or its Subsidiaries and against the other parties
thereto, in accordance with their respective terms, and there is not under any
such Lease, any existing default by GCSI or its Subsidiaries, or by any other
party thereto, or any condition or event that, with notice or lapse of time or
both, would constitute a default. GCSI has not received notice that the lessor
of any of the Leases intends to cancel, suspend or terminate such Lease or to
exercise or not exercise any option thereunder. For purposes of inclusion on
Schedule 3.15, a Lease shall be deemed material if it is a lease for real
property or if it requires the payment by, or to, GCSI or its Subsidiaries of
$25,000 or more during any 12-month period for tangible personal property.
3.16 Contracts. Schedule 1.16 shall contain a list of all material
-------------
contracts, agreements and commitments (whether written or oral) to which GCSI or
any of its Subsidiaries is, directly or indirectly, a party (in its own name or
as a successor in interest), or by which it or any of its properties or assets
is otherwise bound, including any service agreements, customer agreements,
supplier agreements, agreements to lend or borrow money, shareholder agreements,
employment agreements, agreements relating to GCSI Intellectual Property and the
like (collectively, the "Contracts"). True and complete copies of the Contracts
---------
(or a true and complete narrative description of any oral Contract) previously
have been provided to Buyer. Neither GCSI or its Subsidiaries nor, to the
Knowledge of GCSI any other party to any of the Contracts (i) is in material
default under (nor does there exist any condition that, with notice or lapse of
time or both, would cause such a material default under) any of the Contracts,
or (ii) has waived any right it may have under any of the Contracts, the waiver
of which would have a Material Adverse Effect. To the Knowledge of GCSI, all of
the Contracts constitute the valid and binding obligations of GCSI or its
Subsidiaries, enforceable in accordance with their respective terms, and of the
other parties thereto. For purposes of inclusion on Schedule 3.16, a Contract
-------------
shall be deemed material if it requires payment by, or to, GCSI or its
Subsidiaries of $25,000 or more during any 12-month period.
3.17 Directors and Officers. Schedule 3.17 shall contain a list as of the
-------------
Agreement Date of the directors and officers of GCSI and its Subsidiaries.
3.18 Bank Accounts. Schedule 18 shall contain a list of each bank or other
-----------
financial institution in which GCSI or any of its Subsidiaries have an account,
safe deposit box or lock box arrangement, the name of GCSI or its Subsidiary in
whose name such account, box or arrangement is held, the identifying numbers or
symbols of the account, box or arrangement, and the name of each person
authorized to draw thereon or to have access thereto.
3.19 Litigation. Except as shall be set forth on Schedule 3.1.9 there is
no suit, action, claim, investigation or proceeding pending, or, to the
Knowledge of GCSI, threatened, against
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GCSI, any of its Subsidiaries or the Business, nor is there any judgment,
decree, injunction or order of any applicable Governmental Entity or arbitrator
outstanding against GCSI or any of its Subsidiaries which could have a Material
Adverse Effect
3.20 Employee Benefit Plans; Labor Relations.
(a) Benefit II Plans. Except as shall be set forth on Schedule 3.20
them are no employee benefit plan, agreements or arrangements maintained by GCSI
or its Subsidiaries, including (i) "employee benefit plans" within the meaning
of Section 3(3) of ERISA, (ii) current or deferred compensation, pension, profit
sharing, vacation or severance plans or programs, or (iii) medical, hospital,
accident, disability or death benefit plans (collectively "Benefit Plans"). All
-------------
Benefit Plans are administered in accordance with, and are in material
compliance with, all applicable laws and regulations. No material default
exists with respect to the obligations of GCSI or its Subsidiaries under any
Benefit Plan.
(b) Labor Relations. None of GCSI or its Subsidiaries are a party to
---------------
any collective bargaining agreement; no collective bargaining agent has been
certified as a representative of any of the employees of GCSI or any of its
Subsidiaries; no representation campaign or election is now in progress with
respect to any employee of GCSI or any of its Subsidiaries; and there are no
labor disputes, grievances, controversies, strikes or requests for union
representation pending, or, to the Knowledge of GCSL threatened, relating to or
affecting the Business. To the Knowledge of GCSI, no event has occurred that
could give rise to any such dispute, controversy, strike or request for
representation.
3.21 ERISA.
(a) Compliance of Benefit Plans. All Benefit Plans that are subject
---------------------------
to ERISA have been administered in accordance with, and are in material
compliance with, the applicable provisions of ERISA. Each of the Benefit Plans
that is intended to meet the requirements of Section 401(a) of the Code meets
the requirements of Section 401 (a) of the Code. As of June 8, 1994, the ESOP
has been determined by the Internal Revenue Service to meet such requirements
within the meaning of such provision and such determination has not been revoked
or withdrawn. No Benefit Plan is subject to Title IV of ERISA or Section 412 of
the Code. GCSI and its Subsidiaries have not engaged in any nonexempt
"prohibited transactions", as such term is defined in Section 4975 of the Code
or Section 406 of ERISA, involving the Benefit Plans that would subject GCSI or
its Subsidiaries to the penalty or tax imposed under Section 502(i) of ERISA or
Section 4975 of the Code, GCSI and its Subsidiaries have not engaged in any
transaction described in Section 4069 of ERISA within the last five (5) years.
Except as shall be set forth on Schedule 3.21 or pursuant to the terms of the
Benefit Plans, neither the execution and delivery hereof nor the consummation of
the transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation or golden parachute) becoming due to any
director, officer or other employee of GCSI, or (ii) increase any benefit
otherwise payable under any Benefit Plan or result in the acceleration of the
time of payment or vesting of any such benefit, which would require the
Surviving Corporation to make additional contributions to any Benefit Plan.
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(b) No Reportable Event. No notice of a "reportable event", within
-------------------
the meaning of Section 4043 of ERISA, for which the 30-day reporting requirement
has riot been waived, has been required to be filed for any Benefit Plan that is
an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA
and that is intended to meet the requirements of Section 401(a) of the Code, or
by GCSI or any entity that is considered one employer with GCSI under Section
4001 of ERISA or Section 414 of the Code, within the 12-month period ending on
the Closing Date. GCSI and its Subsidiaries have not incurred any liability to
the Pension Benefit Guaranty Corporation in respect of any Benefit Plan that
remains unpaid.
3.22 Taxes. Except as shall be set forth on Schedule 3.22, GCSI and its
Subsidiaries have duly and timely filed all federal, state and local income,
franchise, excise, real and personal property and other tax returns and reports,
including extensions, required to have been filed by GCSI or its Subsidiaries on
or prior to the Closing Date. All of such tax returns and reports are true,
complete and accurate in all material respects. GCSI and its Subsidiaries have
duly and timely paid all taxes and other governmental charges, and all interest
and penalties with respect thereto, shown on said returns or reports (whether by
way of withholding or otherwise) to any federal, state, local or other taxing
authority (except to the extent the same are being contested in good faith and
adequate reserves therefor have been provided in the Financial Statements). As
of the Closing Date, all deficiencies proposed as a result of any audit have
been paid or settled. GCSI and its Subsidiaries are not parties to, or bound
by, or otherwise in any way obligated under, any tax sharing or similar
agreement GCSI and its Subsidiaries have not consented to have the provisions of
Section 341(f)(2) of the Code (or comparable state law provisions) apply to it
and GCSI and its Subsidiaries have not agreed or been requested to make any
adjustment under Section 481(c) of the Code by reason of a change in accounting
method or otherwise.
3.23 Compliance with Applicable Laws. To the Knowledge of GCSI, GCSI and
its Subsidiaries hold all material permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities necessary to own, lease or
operate all of the assets and properties of GCSI and its Subsidiaries, as
appropriate, and to carry on the Business as presently conducted (the
"Permits"). To the Knowledge of GCSI, GCSI and its Subsidiaries are in material
compliance with (i) all applicable laws, ordinances and regulations applicable
to the Business, (ii) any court or administrative order or process applicable to
the Business, including, without limitation, those of the FCC, Occupational
Safety and Health Administration, Equal Employment Opportunity Commission, and
National Labor Relations Board, and (iii) the terms of the Permits. Except as
shall be set forth on Schedule 3.23. To the Knowledge of GCSI, none of the
Permits will be adversely impacted or affected by or as a result of the Merger.
The Permits shall be listed on Schedule 3.23; however, true and complete copies
of all Permits previously have been provided to Buyer.
3.24 Environmental Matters. Except as shall be set forth on Schedule 3.24,
-------------
to the Knowledge of GCSI, no Real. Property is contaminated with any Hazardous
Substance. GCSI and its Subsidiaries are not parties to any litigation or
administrative proceeding nor, to the Knowledge of GCSI, is any litigation or
administrative proceeding threatened against them, that, in either case, asserts
or alleges that GCSI or its Subsidiaries (i) violated any Environmental Law,
(ii) is required to clean up, remove or take remedial or other responsive action
due to the disposal, deposit, discharge, leak or other release of any Hazardous
Substance, or (iii) is required
17
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to pay all or a portion of the cost of any past, present or future cleanup,
removal or remedial or other action that arises out of or is related to the
disposal, deposit, discharge, leak or other release of any Hazardous Substance.
Except as shall be set forth on Schedule 3.24, to the Knowledge of GCSI, (i)
them am not any tanks or other facilities on, under or at any Real Property
containing materials that, if known to be present in soil or ground water, would
require cleanup, removal or other remedial action under any Environmental Law,
and (ii) GCSI and its Subsidiaries are not subject to any judgment, order or
citation related to or arising out of any Environmental Law and have not been
named or listed as potentially responsible parties by any Governmental Entity in
a matter related to or arising out of any Environmental Law.
3.25 Interest in Customers, Suppliers and Competitors. Except as shall be
set forth on Schedule 3.25, no officer or director of GCSI or its Subsidiaries,
-------------
no GCSI Stockholder owning five percent (.5%) or more of the GCSI Shares and, to
the Knowledge of GCSI, no spouse, parent, sibling or lineal descendent of any of
the foregoing, has any direct or indirect material interest in any material
customer, supplier or competitor of GCSI or its Subsidiaries, or in any Person
from whom or to whom GCSI or its Subsidiaries lease any real or personal
property, or in any other Person with whom GCSI or its Subsidiaries are doing
business, directly or indirectly (including as a debtor or creditor), whether in
existence as of the Closing Date or proposed, other than the ownership of stock
of publicly traded corporations and other entities,
3.26 Insurance. To the Knowledge of GCSI, GCSI or one of its Subsidiaries
currently maintains, in full force and effect a insurance policies that are
required or customarily maintained for the conduct of the Business or the
ownership of GCSI's and its Subsidiaries' property (both real and personal),
including, without limitation, workers compensation, and property and casualty
insurance (the "The Insurance Policies"). The Insurance Policies shall be
listed on Schedule 3.26, and true and complete copies of all Insurance Policies
-------------
previously have been provided to Buyer. GCSI or its Subsidiaries have paid all
premiums due thereunder and, to the Knowledge of GCSI, (i) are not in default
regarding any material provision of any Insurance Policy, and (ii) have not
failed to present any notice or material claim thereunder in a due and timely
fashion.
3.27 Bankruptcy. None of GCSI or its Subsidiaries have filed a petition or
request for reorganization or protection or relief under the bankruptcy laws of
the United States or any state or territory thereof, made any general assignment
for the benefit of creditors, or consented to the appointment of a receiver or
trustee, including a custodian under the United States bankruptcy laws, whether
such receiver or trustee was appointed in a voluntary or involuntary proceeding.
3.28 Brokers' Fees. None of GCSI or its Subsidiaries have any liability or
obligation to pay any fees or commissions to any broker, finder or agent, with
respect to the transactions contemplated by this Agreement; provided that Joseph
DeCosimo and Company, certified public accountants, have served as financial
consultants to GCSI and various of the GCSI Stockholders and the fees of Joseph
DeCosimo and Company have been, and will be, paid by GCSI as provided in Section
8.3.
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3.29 Absence of Other Warranties. Except as and to the extent expressly
set forth in this Agreement, GCSI does not make any representation or warranty
whatsoever, and disclaims any liability and responsibility for any statement or
information not contained in this Agreement or any Disclosure Schedule or any
document contemplated hereby made or communicated, by oversight or otherwise
(orally or in writing), to Buyer (including, without limitation, any opinion,
information, projection, statement or advice provided by any employee, officer,
agent, stockholder or other representative of GCSI or its Subsidiaries in
connection with the transactions contemplated hereby). Without limiting the
foregoing, Buyer acknowledges that any estimates of future profitability of the
Business based upon any financial statements or other financial information
provided to Buyer by GCSI or its Subsidiaries are inherently uncertain and
subject to a variety of variables which are difficult or impossible to predict.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer represents and warrants to GCSI that the statements contained in this
Article IV are correct and complete as of the Agreement Date and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the Agreement Date throughout this Article
IV).
4.1 Organization, Qualification, and Corporate Power. Buyer is a limited
liability company, and prior to the Closing Buyer shall cause Transitory
Subsidiary to be a corporation, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization or
incorporation. Buyer is, and prior to the Closing Buyer shall cause Transitory
Subsidiary to be, duly authorized to conduct business and in good standing under
the laws of each jurisdiction in which the character and location of its
properties or the nature of its business requires qualification, except where
the lack of such qualification would not have a Material Adverse Effect. Buyer
has, and Buyer shall cause Transitory Subsidiary to have, full power and
authority to own its properties and to carry on its business as presently
conducted.
4.2 Financing. Buyer possesses, and has furnished to GCSI, true and
complete copies of binding written commitments from financially responsible
lenders (the "Financial Commitments") to provide Buyer and Transitory Subsidiary
with all of the financing they will require in order to perform their
obligations under this Agreement, to consummate the Merger and to fund the
working capital needs of the Surviving Corporation and its Subsidiaries after
the Closing.
4.3 Authorization of Transaction. The execution, delivery and performance
of this Agreement by Buyer has been duly authorized and approved by Buyer's
board of directors. Buyer has full power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. This Agreement
constitutes the valid and legally binding obligation of Buyer, enforceable in
accordance with its terms and conditions.
4.4 Noncontravention. To the Knowledge of Buyer, neither the execution
and the delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will
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(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge or other restriction of any Governmental Entity to
which either Buyer is or Transitory Subsidiary will be, subject or (ii) conflict
with, result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate, terminate, modify
or cancel, or require any notice of consent under any agreement, contract,
lease, license, instrument or other arrangement to which either Buyer is, or
Transitory Subsidiary will be, a party or by which they are or will be bound or
to which any of their assets are or will be subject (or result in the imposition
of any Lien upon any of their assets), except where the violation, conflict,
breach, default, acceleration, termination, modification, cancellation, failure
to give notice or Lien would not have a Material Adverse Effect. Neither the
execution and delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will violate any provision of the articles of
organization, operating agreement, charter or bylaws of Buyer or Transitory
Subsidiary. To the Knowledge of Buyer and other than in connection with (i) the
provisions of the Hart-Scott-Rodino Act, the Alabama Business Corporation Ac4
the Securities Act, the Securities Exchange Act and state securities laws, (ii)
the necessary notices to and consents and approvals, if any, of the FCC, and
(iii) the necessary notices to and consents and approval if any, of state public
utility commissions or similar state regulatory bodies pursuant to applicable
state laws regulating the telephone, commercial mobile radio service or other
telecommunications business, Buyer is not, and Transitory Subsidiary will not
be, required to give any notice to, file with or obtain authorization, consent
or approval of any Governmental Entity in order for Buyer to perform its
obligations under this Agreement except where the failure to give such notice,
to file or to obtain such authorization, consent or approval would not have a
Material Adverse Effect
4.5 Investment The GCSI Shares are being acquired by Buyer in a private
transaction for its own account and not with a view to, or for offer or resale
in connection with, any distribution within the meaning of Section 2(l1) of the
Securities Act. Buyer hereby acknowledges that the GCSI Shares arc unregistered
and must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Buyer
acknowledges and agrees that it will not make any disposition of the GCSI Shares
which will or may involve GCSI or the GCSI Stockholders in a violation of the
Securities Act, the Securities Exchange Act or of any state securities laws.
4.6 Brokers' Fees. Buyer has no liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement for which GCSI or its Subsidiaries could become
liable or obligated.
4.7 Evaluation of Business. Buyer has made its ohm evaluation of the
Business and the GCSI Shares based upon information determined by Buyer to be
sufficiently complete and reliable for such purposes.
ARTICLE V
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES
5.1 Disclosure Schedules. The parties acknowledge that as of the date of
this
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Agreement, GCSI has not delivered the Disclosure Schedules. GCSI covenants and
agrees to deliver the Disclosure Schedules to Buyer no later than the close of
business on the date that is thirty (30) days after the Agreement Date, and that
the Disclosure Schedules are subject to the reasonable review of, and acceptance
by, Buyer, provided, that Buyer shall be deemed to have accepted the items or
matters identified on the Disclosure Schedules unless Buyer gives GCSI written
notice of its objection to any such item or matter within fifteen (15) days
after Buyer's receipt of the Disclosure Schedules. Notwithstanding anything in
this Agreement to the contrary, the mere inclusion of an item in the Disclosure
Schedules as an exception to a representation or warranty shall not be deemed an
admission by GCSI that such item represents a material exception or material
fact, event or circumstance or that such item has had or could be reasonably
expected to have a Material Adverse Effect.
5.2 Standards. No representation or warranty of GCSI contained in
Article III or of Buyer contained in Article IV shall be deemed untrue or
incorrect for any purpose under this Agreement as a consequence of the existence
or absence of any fact, circumstance or event unless such fact, circumstance or
event, individually or when taken together with all other facts, circumstances
or events inconsistent with such representation or warranty contained in Article
III, in the case of GCSI, or Article IV, in the case of Buyer, has had or could
be reasonably expected to have a Material Adverse Effect with respect to GCSI or
Buyer, respectively.
ARTICLE VI
COVENANTS
The Parties agree as follows with respect to the period commencing on the
Agreement Date and ending as of the Effective Time.
6.1 General. Each of the Parties will use its best efforts to take all
action and to do all things necessary in order to consummate and make effective
the transactions contemplated by this Agreement (including satisfaction, but not
waiver, of the closing conditions set forth in Article VII).
6.2 Notices and Consents. GCSI will give any notices (and will cause each
of its Subsidiaries to give any notices) to third parties, and will use its
reasonable best efforts to obtain (and will cause each of its Subsidiaries to
use its reasonable best efforts to obtain) any third party consents, that Buyer
reasonably may request in connection with the matters referred to in Section
3.4. Buyer will give any notices (and will cause Transitory Subsidiary to give
any notices.) to third parties, and will use its reasonable best efforts to
obtain (and will cause Transitory Subsidiary to use its reasonable best efforts
to obtain) any third party consents, that GCSI reasonably may request in
connection with the matters referred to in Section 4.4.
6.3 Regulatory Matters and Approvals. Each of the Parties will (and will
cause each of its Subsidiaries to) give any notices to, make any filings with,
and use its reasonable best efforts to obtain any authorizations, consents and
approvals of Governmental Entities in connection with the matters referred to in
Section 3.4 and Section 4.4. Without limiting the generality of the foregoing:
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(a) Alabama Business Corporation. GCSI will call a special meeting
----------------------------
of the GCSI Stockholders (the "Special Meeting") in order that the GCSI
Stockholders may consider and vote upon the adoption of this Agreement and
the approval of the Merger in accordance with the Alabama Business
Corporation Act. Within seven (7) days after entry of the Court
Confirmation, GCSI will mail or otherwise deliver to the GCSI Stockholders
(i) notice of the Special Meeting, (ii) a copy of this Agreement, (iii) a
certified copy of the resolutions of the board of directors of GCSI
approving this Agreement and the Merger and recommending the adoption of
this Agreement and the approval of the Merger to the GCSI Stockholders, and
(iv) such other documents as the board of directors of GCSI shall deem,
appropriate (the "Stockholder Materials").
(b) Hart-Scott-Rodino Act. Within fourteen (14) days after the
---------------------
Agreement Date, each of the Parties will file any Notification and Report
Forms and related material required to be filed with the Federal Trade
Commission and the Antitrust Division of the United States Department of
Justice under the Hart-Scott-Rodino Act, will use its reasonable best
efforts to obtain an early termination of the applicable waiting period,
and will make any further filings pursuant thereto that may be necessary,
proper or advisable.
(c) FCC and State Public Utility Commissions. Within fourteen (14)
----------------------------------------
days after the Agreement Date, the Parties shall file such individual or
joint applications which may be required, with the FCC and state public
utility commissions or similar state regulatory bodies in Alabama, Florida,
Louisiana and Mississippi to reflect the change of control of various
operating certificates, permits or other licenses held by GCSI or its
Subsidiaries. The Parties shall also file any post transaction notices as
may be required by such Governmental Entities within the time periods
prescribed by law.
6.4 Operation of Business. GCSI will not (and will not cause or
permit any of its Subsidiaries to) engage in any practice, take any action or
enter into any transaction outside the Ordinary Course of Business. Without
limiting the generality of the foregoing:
(a) none of GCSI or its Subsidiaries will authorize or effect
any change in its charter or bylaws;
(b) none of GCSI or its Subsidiaries will grant any options,
warrants or other rights to purchase: or obtain any of its capital
stock or issue, sell or otherwise dispose of any of its capital stock;
(c) none of GCSI or its Subsidiaries will declare, set aside or
pay any dividend or distribution with respect to its capital stock
(whether in cash or in kind), or redeem, repurchase or otherwise
acquire any of its capital stock;
(d) GCSI or its Subsidiaries will issue any note, bond or other
debt security or create, incur, assume or guarantee any indebtedness
for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business, except as issued, created, incurred,
assumed or guaranteed (i) in a transaction
22
<PAGE>
provided for in 1999 Operating Budget or the 1999 Capital Budget, or
(ii) with respect to intercompany loans or transfers among GCSI and
its Subsidiaries;
(e) none of GCSI or its Subsidiaries will sell, transfer, convey
or impose any Lien on any material assets outside the Ordinary Course
of Business, except for Liens imposed pursuant to a transaction
permitted by paragraph (d) of this Section 6.4;
(f) none of GCSI or its Subsidiaries will make any capital
investment in, make any loan to or acquire the securities or assets of
any other Person outside the Ordinary Course of Business, except with
respect to intercompany loans or transfers among GCSI and its
Subsidiaries;
(g) none of GCSI or its Subsidiaries will make any change in the
terms of employment applicable to any of its directors, officers or
employees outside the Ordinary Course of Business; and
(h) none of GCSI or its Subsidiaries will commit to any of the
foregoing.
6.5 Full Access. GCSI will (and will cause each of its Subsidiaries to)
permit representatives of Buyer to have full access, at all reasonable times and
in a manner so as not to interfere with the normal business operations of GCSI
and its Subsidiaries, to all premises, properties, personnel, books, records
(including tax records), contracts and documents of or pertaining to GCSI and
its Subsidiaries. Buyer will treat and hold as such any Confidential
Information it receives from GCSI or its Subsidiaries in the course of the
reviews contemplated by this Section 6.5, will not use any of the Confidential
Information except in connection with this Agreement and, if this Agreement is
terminated for any reason whatsoever, agrees to return to GCSI all tangible
embodiments (and all copies) thereof regardless of by whom generated which are
in its possession or the possession of its advisers, consultants, accountants or
attorneys.
6.6 Notice of Developments. Each Party will give prompt written notice to
the other of any breach of or inaccuracy in any of its own representations and
warranties in Article III or Article IV. Unless the other party has the right
to terminate this Agreement pursuant to Section 8.1 by reason thereof and
exercises such right within the earlier of ten (10) days after receipt of such
written notice or the Closing Date, the written notice shall be deemed to have
amended and qualified the representations and warranties in Article III or
Article IV, and to have cured any breach of or inaccuracy in a representation or
warranty that otherwise might have existed.
6.7 Exclusivity. GCSI will not (and will not cause or permit any of its
Subsidiaries to) initiate the submission of any proposal or offer from any
Person relating to the acquisition of all or substantially all of the capital
stock or assets of GCSI or its Subsidiaries (including any acquisition
structured as a merger, consolidation or share exchange); provided, however,
should (i) any Person other than Buyer submit a new proposal or offer for the
acquisition of all of the GCSI Shares (including merger, consolidation or share
exchange) prior to the Requisite
23
<PAGE>
Shareholder Approval, (ii) at the Special Meeting the GCSI Stockholders do not
vote a sufficient number of the GCSI Shares in favor of this Agreement and the
Merger in order to achieve the Requisite Shareholder Approval and (iii) within
six (6) months after the date of the Special Meeting, said Person agrees to
acquire all of the GCSI Shares for aggregate consideration (the "Third-Party
-----------
Consideration") greater than the aggregate of the Merger Consideration and the
- -------------
Additional Merger Consideration, GCSI shall pay to Buyer $10,000,000 (the
"Topping Fee").
6.8 Insurance and Indemnification.
(a) Director and Officer Insurance. Buyer shall provide each
------------------------------
individual serving as a director or officer of GCSI or any of its
Subsidiaries immediately prior to the Effective Time, or who had served in
any such capacity at any time during the period commencing three (3) years
prior to the Effective Time, with liability insurance for a period of
forty-eight (48) months after the Effective Time no less favorable in
coverage and amount than any comparable insurance GCSI maintained in
effect immediately prior to the Effective Time.
(b) Maintenance of Exculpatory and Indemnity Clause. Buyer will not
-----------------------------------------------
take any action to alter or impair any exculpatory or indemnification
provisions now existing in the charter or bylaws of GCSI or its
Subsidiaries for the benefit of any individual who served as a director or
officer of GCSI or any of its Subsidiaries at any time prior to the
Effective Time.
(c) Indemnity. Buyer will indemnify each individual who served as a
---------
director or officer of GCSI or any of its Subsidiaries at any time prior to
the Effective Time from and against any and all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims,
demands, injunctions, judgments, orders, decrees, rulings, damages, dues,
penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, liens, losses, expenses and fees, including, without
limitation, all court costs and attorneys' fees and expenses, resulting
from, arising out of, relating to, in the nature of or caused by this
Agreement or any of the transactions contemplated herein.
6.9 Real Estate Sale. On or before the Closing Date, GCSI shall
convey, or cause to be conveyed, to Marjorie Y. Snook,
individually, the real property Commonly known as the Magnolia
Hotel and the County Road 55 Farm Property, including all (i)
furniture, furnishings and other personal property situated on or
within such real property (collectively, the "Non-Business Real
-----------------
Estate") in accordance with the terms and conditions of the Real
------
Estate Sales Contract in form and substance reasonably
satisfactory to the Parties, and the proceeds of such sale
received by GCSI shall be transferred to Paying Agent for payment
to the GCSI Stockholders as part of the Merger Consideration.
6.10 Board Approval. The Board of Directors of GCSI shall recommend
that the GCSI Stockholders approve the Merger, and will not
terminate that
24
<PAGE>
recommendation unless there is a failure of a condition to
Closing set forth in Section 7.2.
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
7.1 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the transaction to be performed by it in connection with the Closing
is subject to the satisfaction of the following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Stockholder Approval;
(b) the representations and warranties of GCSI set forth in Article
III shall be true and correct in all material respects at and as of the
Closing Date;
(c) GCSI shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing;
(d) there shall not be any judgment, order, decree, stipulation,
injunction or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement;
(e) GCSI shall have delivered to Buyer (i) a Certificate of Existence
of GCSI issued by the Alabama Secretary of State, (ii) a Certificate of
Good Standing of GCSI issued by the Alabama Department of Revenue, (iii)
certified copies of the resolutions of the board of directors of GCSI and
the GCSI Stockholders approving the Merger and (iv) a noncompetition
agreement of Marjorie Y. Snook, Woodard S. Setzer, Harold Killian, Robert
H. Younce and Dale E. Younce in form and substance reasonably acceptable to
Buyer;
(f) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all other authorizations, consents and
approvals of Governmental Entities referred to in Section 3.4 and Section
4.4 above;
(g) Buyer shall have received from counsel to GCSI an opinion in form
and substance reasonably satisfactory to Buyer, addressed to Buyer and
dated as of the Closing Date; and
(h) all actions to be taken by GCSI in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to Buyer.
25
<PAGE>
Buyer may waive any condition specified in this Section 7.1 by a writing so
stating delivered to GCSI at or prior to the Closing.
7.2 Conditions to Obligation of GCSI. The obligation of GCSI to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
(a.) this Agreement and the Merger shall have received the Requisite
Stockholder Approval, The Parties acknowledge that Marjorie Y. Snook and
Lyman F. Holland. Jr., as co-trustees (the "Co-Trustees") of the John
-----------
McClure Snook Irrevocable Trust dated December 23, 1993, and the John
McClure Snook Testamentary Trust, under the Last Will and Testament of John
McClure Snook, deceased, intend to file a petition with the Circuit Court
of Baldwin County, Alabama within fourteen (14) days of the Agreement Date
requesting the Court to confirm the sale of the GCSI Shares held by such
trusts pursuant to the terms of this Agreement and the Merger (the "Court
-----
Confirmation"), and that if the Court fails to confirm said sale, the Co-
------------
Trustees will vote said GCSI Shares against this Agreement and the Merger,
and GCSI will not receive the Requisite Stockholder Approval;
(b) the trustees of the ESOP (the "ESOP Trustees') shall have
received from ESOP participants or former participants instructions, that
have not been revoked, to sell to Buyer a number of GCSI Shares greater
than fifty percent (50%) of the GCSI Shares allocated to the accounts of
ESOP participants or former participants;
(c) the ESOP Trustees shall have received a fairness opinion
reasonably acceptable to the ESOP Trustees with respect to the transactions
contemplated by this Agreement;
(d) the representations and warranties of Buyer set forth in Article
IV shall be true and correct in all material respects at and as of the
Closing Date;
(e) Buyer shall have performed and complied with all of its covenants
hereunder in all material respects through the Closing.
(f) there shall not be any judgment, order, decree, stipulation,
injunction or charge in effect preventing consummation of any of the
transactions contemplated by this Agreement-,
(g) Buyer shall have delivered to GCSI (i) a Certificate of Existence
of Buyer issued by the Delaware Secretary of State and of Transitory
Subsidiary issued by the Alabama Secretary of State, (ii) Certificates of
Good Standing of Buyer issued by the Delaware Secretary of State and of
Transitory Subsidiary issued by the Alabama Department of Revenue, and
(iii) certified copies of the resolutions of the board of directors of
Buyer and of the board of directors and shareholder of Transitory
Subsidiary approving the Merger,
26
<PAGE>
(h) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all other authorizations, consents and
approvals of Governmental Entities referred to in Section 3.4 and Section
4.4;
(i) GCSI shall have received from counsel to Buyer an opinion in form
and substance reasonably satisfactory to GCSI, addressed to GCSI and dated
as of the Closing Date;
(j) In the event Buyer contemplates refinancing all or any portion of
the Long Term Debt immediately following the Effective Time, GCSI shall
have received written evidence that all requirements of and conditions to
said refinancing have been satisfied; and
(k) all actions to be taken by Buyer in connection with the
consummation of the transactions contemplated hereby and all certificates.
opinions, instruments and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to GCSI.
Except for the conditions contained in paragraphs (a), (b), (c) and (h) of this
Section 7.2, GCSI may waive any condition specified in this Section 7.2 by a
writing so stating delivered to Buyer at or prior to the Closing.
7.3 Deemed Waiver. If either Party is not obligated a. Closing to perform
pursuant to this Agreement, the Party not so obligated may terminate this
Agreement by delivering to the other Party notice of termination in writing in
accordance with Article VIII. Provided, however, if either Party is not
obligated to perform pursuant to this Agreement but nevertheless elects to
perform, and the other Party is obligated to perform, the Parties shall proceed
with the consummation of this Agreement as if all Parties were obligated to do
so, and the Party who is not obligated to proceed but elects to do so shall be
deemed to have specifically waived in writing, as provided in Section 7.1 and
Section 7.2, as the case may be, the fulfillment of the condition or conditions,
the nonfulfillment of which excused the obligation of said Party to perform
pursuant to this Agreement as contemplated by Section 7.1 and Section 7.2, as
the case may be.
ARTICLE VIII
TERMINATION
8.1 Termination of Agreement. Either Party may terminate this Agreement
with the prior authorization of its board of directors (whether before or after
stockholder approval) as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent at any time prior to the Effective Time;
27
<PAGE>
(b) Buyer may terminate this Agreement by giving written notice to
GCSI at any time prior to Closing (i) in the event GCSI has breached any
material representation, warranty or covenant contained in this Agreement
in any material respect, Buyer has notified GCSI of the breach, and the
breach has continued without cure for a period of thirty (30) days after
the notice of breach, or (ii) if the Closing shall not have occurred on or
before September 30, 1999, by reason of the failure of any condition
precedent under Section 7.1 (unless the failure results primarily from
Buyer breaching any representation, warranty or covenant contained in this
Agreement);
(c) GCSI may terminate this Agreement by giving written notice to
Buyer at any time prior to Closing (i) in the event Buyer has breached any
material representation, warranty or covenant contained in this Agreement
in any material respect, GCSI has notified Buyer of the breach, and the
breach has continued 'without cure for a period of thirty (30) days after
the notice of breach or (ii) if the Closing shall not have occurred on or
before September 30, 1999, by reason of the failure of any condition
precedent under Section 7.2 (unless the failure, results primarily from
GCSI breaching any representation, warranty or covenant contained in this
Agreement); or
(d) either Party may terminate this Agreement by giving written
notice to the other Party at any time after the Special Meeting in the
event this Agreement and the Merger fail to receive the Requisite
Stockholder Approval.
8.2 Effect of Termination. Except as hereinafter provided, if either
Party terminates this Agreement pursuant to Section 8.1, all rights and
obligations of the Parties hereunder shall terminate without any liability of
either Party; provided, however, that the confidentiality provisions contained
in Section 6.5 and the provisions of Section 6.7 concerning the Topping Fee
shall survive any such termination. In the event either Party terminates this
Agreement because the other Party has materially breached or materially failed
to perform its agreements and covenants contained in Article II, VI or IX of
this Agreement, the nonbreaching Party shall be entitled to pursue all legal and
equitable remedies against the breaching Party for such breach or failure to
perform, including specific performance. All costs, fees and expenses
(including reasonable attorneys' fees and expenses) incurred by the nonbreaching
Party in connection with enforcing its rights hereunder with respect to such
breach or failure to perform shall be paid by the breaching Party.
8.3 Fees and Expenses. Except as otherwise provided herein, the
reasonable costs, fees and expenses incurred in connection with the negotiation,
drafting and execution of this Agreement, and the consummation of the
transactions contemplated hereby (including the reasonable fees and expenses of
counsel, accountants and appraisers) shall be paid by the Party incurring such
fees or expenses; provided that up to $1,500,000 of such costs, fees and
expenses incurred by the GCSI Stockholders and the ESOP shall be paid by GCSI at
the Closing, which payment shall not be deemed a reduction in the cash or cash
equivalents of GSLI as of the Effective Time.
8.4 Survival. Except for the provisions of Article II concerning payment
of the Merger Consideration and the Additional Merger Consideration, and the
provisions of Section
28
<PAGE>
6.8 concerning insurance and indemnification (the "Surviving Obligations"), none
---------------------
of the representations, warranties, agreements and covenants of the Parties
contained herein or in any Disclosure Schedule, certificate or other instrument
or writing delivered in connection herewith, shall survive the Closing. Except
as provided in Section 8-2, each Party's sole remedy on account of a breach
hereof by the other Party is the right to terminate this Agreement pursuant to
this Article VIE. After the Closing, neither Party shall have any liability or
obligation to the other except with respect to the Surviving Obligations and
each of GCSI and Buyer covenant never to institute, directly or indirectly, any
action or proceeding of any kind against the other or against any GCSI
Stockholder based on or arising out of, or in any manner related to, the breach
of a representation, warranty, agreement or covenant contained in this
Agreement, except with respect to the Surviving Obligations.
ARTICLE IX
DigiPH
Prior to Closing, GCSI shall sell or otherwise transfer the stock it owns (the
"DigiPH Stock") in DigiPH Holding Company, Inc., an Alabama corporation
------------
("DigiPH") which owns all of the issued and outstanding stock of DigiPH
------
Communications, Inc, a Delaware corporation which in turn owns all of the issued
and outstanding stock of DigiPH PCS, Inc., an Alabama corporation which holds
eight (8) FCC licenses to provide broadband PCS services in portions of the
States of Alabama, Florida and Mississippi, either to Millry Management
Corporation, an Alabama corporation ("Millry"), or another Person, consistent
------
with the terms of that certain Stockholder's Agreement dated March 13,1997 by
and among DigiPH, GCSI and Millry, and the proceeds of such sale or other
transfer received by GCSI shall be transferred to Paying Agent for payment to
the GCSI Stockholders as part of the Merger Consideration.
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Public Announcements. Neither Party shall issue
any press release or make any public announcement relating to the subject matter
of this Agreement without the prior written approval of the other Party;
provided, however, that either Party may make any public disclosure it believes
in good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party prior to making the
disclosure).
10.2 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions in
Article 11 concerning payment of the Merger Consideration and the Additional
Merger Consideration are intended for the benefit of the GCSI Stockholders and
(ii) the provisions in Section 6.9 concerning insurance and indemnification are
intended for the benefit of the individuals specified therein and their
respective legal representatives.
10.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings,
29
<PAGE>
agreements or representations by or among the Parties, written or oral, to the
extent they relate in anyway to the subject matter hereof.
10.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. Upon prior written notice to GCSI, Buyer may assign its
rights and obligations under this Agreement to a wholly-owned Subsidiary of
Buyer, provided that Buyer remains principally liable hereunder for the
performance of said obligations. Except as provided in the preceding sentence,
no Party may assign either this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other Parties.
10.5 Counterparts. This Agreement May be executed in one or more
counterparts, each of which shall be deemed an original but an of which together
will constitute one and the same instrument.
10.6 Readings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.7 Notices. All notices, requests, demands, claims and other
communications hereunder will be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly given if (and then two (2)
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to GCSI:
Gulf Coast Services, Inc.
P.O. Drawer 670
Foley, Alabama 36535
Attention: Marjorie Y. Snook, Chief Executive Officer
(334) 952-3350
(3-34) 943-7254 fax
With a copy to:
Marjorie Y. Snook, as a Trustee of the John McClure Snook
Irrevocable Trust and the John McClure Snook Testamentary
Trust
c/o M. Mort Swaim, Esq.
235 West Laurel Avenue
Foley, Alabama 36535
(334) 943-3999
(334) 943-3137 fax
[email protected] e-mail
Lyman F. Holland, Jr., as a Trustee of the John McClure
Snook
30
<PAGE>
Irrevocable Trust and the John McClure Snook Testamentary
Trust
Hand Arendall, L.L.C.
Suite 3000
10 National Bank Building
P.O. Box 123
Mobile, Alabama 36601
(334) 432-5511
(334) 361-6375 fax
[email protected] e-mail
Mark D. Wilkerson, Esq.
Brantley & Wilkerson, P.C.
P.O. Box 830
Montgomery, Alabama 36101-0830
(334) 265-1500
(334) 265-0319 fax
[email protected] e-mail
C. Fred Daniels, Esq.
Cabaniss, Johnston, Gardner, Dumas & O'Neal
2001 Park Place North
Suite 700
Birmingham, Alabama 35203
(205) 716-5200
(205) 716-5389 fax
[email protected] e-mail
H. William Wasden, Esq.
Pierce, Ledyard, Lata & Wasdan P.C.
Suite 400
41 North Beltline Highway
P.O. Box 16046
Mobile, Alabama 36616
(334) 344-5151
(334) 344-9696 fax
[email protected] e-mail
If to Buyer:
Madison River Telephone Company, LLC
6330 Quadrangle Drive, Suite 325
Chapel Hill, North Carolina 27514
Attention: Donald K. Roberton
(919) 563-0012
(919) 402-0151 fax
________________ e-mail
31
<PAGE>
With a copy to:
Bruce F. Metge, Vice Pres - General Counsel
Madison River Communications
6330 Quadrangle Drive, Suite 325
Chapel Hill, North Carolina 27514
(919) 493-7030 ext. 47
(919) 402-0151 fax
[email protected] e-mail
Larry E. Robbins
Wyrick, Robbins, Yates & Ponton, LLP
Suite 300
4101 Lake Boone Trail
Post Office Drawer 17803
Raleigh, North Carolina 27607
(919) 781-4000
Fax (919) 781-4865
[email protected] e-mail
David Ackerman
McBride, Baker & Coles
500 West Madison Street
40th Floor
Chicago, Illinois 60661-2511
(312) 715-5700
(312) 993-9650 fax
[email protected]. e-mail
Either Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail or electronic mail), but no such notice, request,
demand, claim or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient. Either
Party may change the address to which notices, requests, demands, claims and
other communications hereunder are to be delivered by giving the other Party
notice in the manner herein set fort
10.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Alabama without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Alabama or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Alabama.
10.9 Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time; provided, however,
that any amendment effected subsequent to the Requisite Stockholder Approval
will be subject to the restrictions
32
<PAGE>
contained in the Alabama Business Corporation Act. No amendment of any provision
of this Agreement shall be valid unless the same shall be in writing and signed
by each of the Parties. No waiver by either Party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent occurrence.
10.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
10.11 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring either Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
---------
10.12 Incorporation of Exhibits and Disclosure Schedules. The Exhibits
and Disclosure Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
33
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement and
Plan of Merger on the date first above written.
ATTEST: MADISON RIVER TELEPHONE
COMPANY, LLC
BRUCE F. METGE By: DONALD K. ROBERTON
- -------------- ---------------------------------
Its Secretary Its: Managing Director-Corporate Development
- ----------- ----------------------------------------
ATTEST: GULF COAST SERVICES, INC.
________________________________ By: MARJORIE Y. SNOOK
----------------------------
Its Secretary Its: Chief Executive Officer
--------------------------
34
<PAGE>
EXHIBIT 10.2.1
First Amendment to
Agreement and Plan of Merger
This First Amendment ("First Amendment") to the Agreement and Plan of
Merger dated May 9, 1999 ("Agreement") is made and entered into this 2/nd/ day
of July, 1999 between Madison River Telephone Company, LLC, a Delaware limited
liability company, ("Buyer") and Gulf Coast Services, Inc., an Alabama
corporation, ("GCSI"). All capitalized terms not defined herein shall have the
meaning as set forth in the Agreement.
Whereas the Parties have entered into the Agreement; and
Whereas Parties wish to amend the Agreement to further define certain
understandings and obligations of the Parties.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which hereby is acknowledged, Buyer and GCSI hereby
amend the Agreement as follows:
Agreement is amended by replacing the defined terms in Article I with the
following:
"Additional Merger Consideration" means the sum of (i) the reimbursement
not to exceed $10 million for the Capital Expenditures of GCSI specifically
for Group I Fiber Projects made after the Agreement Date and on or prior to
the Effective Time and (ii) the Incentive Payment.
"Adjusted Long Term Debt" means Long Term Debt less (i) the Employee Stock
Ownership Plan loan guarantee, (ii) cash and cash equivalents of GCSI and
its Subsidiaries in excess of the Minimum Cash Amount determined on a
consolidated basis and in accordance with GAAP, consistently applied, as of
the Effective Time, and (iii) the excess, if any, of the Capital
Expenditures of GCSI specifically for Group II Fiber Projects over $5
million.
"Merger Consideration" means the sum of (i) $3 10 million reduced by (A)
Adjusted Long Term Debt as of the Closing Date and (B) the excess, if any,
of $17,394,347 over the capital expenditures of GCSI for Group I Fiber
Projects (paid or recorded as a liability), made after December 31, 1998
and on or prior to the Closing Date, (11) the sales price of the Non-
Business Real Estate as provided in Section 6.9, and (iii) the sales price
of the DigiPH Stock as provided in Article Ix.
Agreement is further amended by inserting the following to the defined terms in
Article 1:
Under the definition of Incentive Payment, "Lighted Sheath Miles at the
Effective Time" is amended to "Lighted Sheath Miles for Group I Fiber
Projects at the Effective Time".
Agreement is further amended by adding the following defined terms to Article 1:
<PAGE>
"AS400 Billing System" has the meaning set forth in Section 6.11.
"Capital Expenditures of GCSI" means amounts Paid or Disbursed by GCSI or
any of its Subsidiaries in connection with or for use in fiber projects.
"Group I Fiber Projects" means fiber optic cable, electronics (repeaters,
FOTs, and/or OC 48 multiplexing), rack space necessary to mount optics
equipment, permits, and easements (between Montgomery and Billingsley,
Alabama and relating to Eglin Air Force Base) owned by or subject to an IRU
in the name of GCSI or one of its Subsidiaries and as more fully described
by City Pairings, Route Miles and Strand Count on Exhibit F.
"Group II Fiber Projects" means fiber optic cable, electronics (repeaters,
FOTs, and/or OC 48 multiplexing), rack space necessary to mount optics
equipment, permits, and easements -(between New Orleans and Jackson,
Louisiana) owned by or subject to an IRU in the name of GCSI or one of its
Subsidiaries and as more fully described by City Pairings, Route Miles and
Strand Count on Exhibit G.
"Minimum Cash Amount" means cash and cash equivalents (investments with a
maturity of three months or less at the date of purchase) in the amount of
$1.5 million plus the $500,000 amount in Section 6.11.
"Paid or Disbursed" means GCSI must have paid for that portion of the work
and/or material purchases giving rise to the Capital Expenditures of GCSI
that is then completed or invoiced.
Agreement is further amended as follows:
Replace Section 2.6 (d) with the following: "(i) Immediately following the
Effective Time, the Paying Agent shall first pay the expenses described in
Section 8.3(b); (ii) thereafter, upon surrender to Paying Agent of the
certificate(s) representing GCSI Shares (other than Dissenting Shares),
Paying Agent shall pay to the GCSI Stockholder surrendering such
certificate(s) a prorata share (based on the number of issued and
outstanding GCSI Shares immediately prior to the Effective Time) of an
amount equal to (A) the Merger Consideration; plus (B) the estimated
Capital Expenditures of GCSI specifically for Group I Fiber Projects, made
after the Agreement Date and on or prior to the Effective Time not to
exceed $10 million; less (C) the expenses paid pursuant to clause (i)
above, for each GCSI Share represented by the surrendered certificate(s),
which amount shall be paid by Paying Agent within one (1) business day of
its receipt of the surrendered certificate(s) by bank check or other
immediately available funds; and (iii) upon receipt of a disbursement
notice signed by Buyer and Marjorie Y. Snook, anticipated to be not later
than fifteen (15) days after the Closing, the Paying Agent shall pay to
each GCSI Stockholder that has previously surrendered, or subsequently
surrenders, such certificate(s) (other than certificates representing
Dissenting Shares) a prorata share (based on the number of issued and
outstanding GCSI Shares immediately
<PAGE>
prior to the Effective Time) of the estimated Incentive Payment, reduced by
any overestimate, or increased by any underestimate, of Capital
Expenditures of GCSI specifically for Group I Fiber Projects made after the
Agreement Date and on or prior to the Effective Time (with the amount of
any increase not to exceed $ 10 million when aggregated with the amounts in
(ii)(B) above), as reflected in said joint disbursement notice, for each
GCSI Share represented by the surrendered certificate(s), which amount
shall be paid by Paying Agent within one (1) business day of receipt of the
joint disbursement notice or, in the case of a subsequently surrendered
certificate, within one (1) business day of its receipt of the subsequently
surrendered certificate, by bank check or other immediately available
funds."
In Section 7.1 last sentence by inserting "except (i) above" so as to read:
"Buyer may waive any condition specified in this Section 7.1 except
(i) above by a writing so stating delivered to GCSI at or prior to
Closing."
Agreement is further amended by adding the following new Sections to the
Agreement:
6.4.1 GCSI shall (a) provide to Buyer regular reports at least twice
monthly on the progress of Group II Fiber Projects; and (b) obtain from
Buyer prior written approval on any capital expenditures for Group II Fiber
Projects in excess of $ 10,000, provided that Buyer shall use its best
efforts to respond in a timely fashion to such requests for approval.
6.11 Billing Software and System. GCSI shall no longer pursue the
---------------------------
conversion of the AS400 billing system currently being used by GCSI (AS400
Billing System) to a new billing software and system. GCSI shall use all
due diligence and make every effort to make the AS400 Billing System Year
2000 compliant. GCSI shall increase the Minimum Cash Amount by $500,000 to
an aggregate of $2 million. GCSI shall provide to Buyer regular reports at
least twice monthly on the progress of making the AS400 Billing System Year
2000 compliant.
7.1 (i) GCSI and its Subsidiaries shall possess the Minimum Cash Amount
after the payment of all fees and expenses of Section 8.3)(a).
Agreement is further amended by replacing Section 8.3 with the following:
Fees and Expenses. Except as otherwise provided herein, the reasonable
costs, fees and expenses incurred in connection with the negotiation,
drafting and execution of this Agreement and the consummation of the
transactions contemplated hereby (including the reasonable fees and
expenses of counsel, accountants and appraisers) shall be paid by the Party
incurring such fees or expenses; provided that (a) up to $1.5 million of
such costs, fees and expenses incurred by or on behalf of GCSI by the GCSI
stockholders and the ESOP may be paid by GCSI and any portion paid shall be
made no later than the Closing Date and any unpaid portion shall not be a
liability to or on the books of GCSI or Buyer and (b) any unpaid portion in
(a) above or any excess of such costs, fees and
<PAGE>
expenses incurred by or on behalf of GCSI in excess of $1.5 million shall
be paid by the Paying Agent as provided in Section 2.6 (d)(i).
Agreement is further amended by the incorporation of the attached Exhibit F and
Exhibit G.
IN WITNESS WHEREOF, the Parties hereto have executed this First Amendment to the
Agreement on the date first written.
Madison River Telephone Company, LLC Gulf Coast Services, Inc.
By: PAUL H. SUNU By: MARJORIE Y. SNOOK
---------------------------------- ------------------------------
Its: Managing Director & CFO Its: President & CEO
---------------------------------- ------------------------------
Attested by: Attested by:
BRUCE BECKER ANN BYRD, SECRETARY
- --------------------------------------- -----------------------------------
<PAGE>
EXHIBIT 10.2.2
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This Second Amendment ("Second Amendment") to the Agreement and Plan of
----------------
Merger, dated May 9,1999, as amended by the First Amendment to Agreement and
Plan of Merger, dated July 2, 1999 ("Agreement"), is made and entered into this
---------
24/th/ day of August, 1999, between MADISON RIVER TELEPHONE COMPANY, LLC, a
Delaware limited liability company ("Buyer"), and GULF COAST SERVICES, INC., an
Alabama corporation ("GCSI"). All capitalized terms not defined herein shall
have the meaning as set forth in the Agreement.
WHEREAS, the parties have entered into The Agreement; and
WHEREAS, pursuant to Section 5.1 of the Agreement, on June 2,1999, GCSI
delivered its Disclosure Schedules to Buyer; and
WHEREAS, pursuant to Section 5.1 of the Agreement, on June 21, 1999, Buyer
delivered its objections to the Disclosure Schedules to GCSI, and on July 27,
1999, Buyer delivered its restated objections to the Disclosure Schedules to
GCSI; and
WHEREAS, the parties wish to amend the Agreement to further define certain
understandings and obligations of the parties.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Buyer and GCSI hereby amend
the Agreement as follows:
The Agreement is amended by replacing the defined term "Merger
Consideration" in Article I with the following:
"Merger Consideration" means the sum of (i) $3 10 million reduced by
(A) Adjusted Long Term Debt as of the Closing Date, (B) the excess, if any,
of S 17,3 94,3 47 over the capital expenditures of GCSI for Group I Fiber
Projects (paid or recorded as a liability), made after December 31, 1998
and on or prior to the Closing Date and (C) $1,679,553, minus any unjust
enrichment penalty paid by GCSI or its Subsidiaries on or before the
Closing Date with respect to the LMDS license (call sign WPOH618), (ii) the
sales price of the Non-Business Real Estate as provided in Section 6.9, and
(iii) the sales price of the DigiPH Stock as provided in Article IX.
The Agreement is amended by deleting Section 5.1 and substituting the
following in lieu thereof:
(a) The Disclosure Schedules delivered by GCSI to Buyer, as modified
and supplemented through the date of this Second Amendment, have been
reviewed and,
<PAGE>
except as hereinafter provided in this Section 5, 1, the items and matters
identified on the Disclosure Schedules as submitted to Buyer through the
date hereof are hereby accepted by Buyer. The Disclosure Schedules are not
accepted to the extent that any matter disclosed therein creates between
the date hereof and the Closing Date a breach of any warranty,
representation or covenant not known by the parties as of the date hereof.
(b) In conjunction with Buyer's review of the Disclosure Schedules,
GCSI agrees to pay, or cause to be paid by its Subsidiaries, prior to
Closing and prior to the calculation of cash and cash equivalents of GCSI
and its Subsidiaries as of the Effective Time, or by the Paying Agent
pursuant to Section 2.6(d), the following: (i) any and all termination
penalties or other payments owed to Computer Enterprises, Inc., pursuant to
tile Agreement for Consulting Services, dated February 23, 1999, and listed
as Item 20 on Disclosure Schedule 3.6, and as Item 6 on Disclosure Schedule
3.7; (ii) any and all excise taxes, penalties and interest owed under
(S)(S) 4962 and 4979 of the Code with respect to the Benefit Plans and
listed as Item 4 on Disclosure Schedule 3.7; (iii) any and all fees for
corporate finance services due and owing by GCSI to Joseph Decosimo and
Company, Certified Public Accountants, pursuant to that certain engagement
letter dated May 4, 1999, and accepted on behalf of GCSI an June 2, 1999;
(iv) any and all federal and state taxes shown as due and owing on the
income tax returns of GCSI and its Subsidiaries for calendar year 1998, as
well as federal and state estimated tax payments in amounts sufficient to
cover such taxes of GCSI for estimated income through the Closing Date; (v)
any and all fees for Year 2000 remediation efforts, or accounting or
consulting services, incurred in connection with computer and related
systems and software due and owing by GCSI or its Subsidiaries to Ernst &
Young; and (vi) any and all fees for construction of the new GCSI
administrative building due and owing by GCSI under all applicable
construction agreements, minus any applicable retainage not to exceed five
percent (5%) of the aggregate contract price as disclosed to Buyer through
the date hereof.
(c) GCSI acknowledges: (i) Buyer has not accepted Item 140 under
"Material Contracts of GTC" on Disclosure Schedule 3.16 and Item 2 on
-------------------------
Disclosure Schedule 3.19, both of which arise out of the provision of
Enhanced Universal Emergency Number Services by Gulf Telephone Company to
the Baldwin County Emergency Communications District; (ii) Buyer does not
consent to the sale, transfer or liquidation after the date hereof of any
assets of GCSI and its Subsidiaries as proposed in the Disclosure
Schedules, including, but not limited to, the sale of any additional shares
of the common stock of Wireless One; and (iii) Buyer does not waive any
breach of a material representation, warranty or covenant resulting from
(A) any encumbrance or restriction on transfer affecting the GCSI Shares
disclosed in the summary stock register and stock certificates, including,
but not limited to, any option of the ESOP to acquire certain shares from
the John McClure Snook Irrevocable and Testamentary Trusts, and (B) any
corporate act or failure to act reflected in the minute books for GCSI and
its Subsidiaries and any other matters disclosed therein which were not
referenced in the Disclosure Schedules. Buyer does not waive any right to
claim a breach of a representation, warranty or covenant contained in the
Agreement relating to the level of trade payables as of the Closing Date.
<PAGE>
(d) GCSI and Buyer agree that Buyer will, in good faith, reasonably
attempt to obtain, at its expense, title insurance to cover the Real
Property listed on the Disclosure Schedules, and to the extent that Buyer
receives coverage over any matters that constitute, or could constitute,
defects in the good and marketable title to the Real Property, other than
Permitted Liens, Buyer will accept such matters relating to the Real
Property. To the extent affirmative coverage cannot be reasonably obtained
for such matters without the payment of money other than that required to
pay for the title insurance policy(ies), Buyer does not waive any potential
breach of the representation and warranty in Section 3.8 relating to title.
(e) Notwithstanding anything in this Agreement to the contrary, the
mere inclusion of an item in tile Disclosure Schedules as an exception to a
representation or warranty shall not be deemed an admission by GCSI that
such item represents a material exception or material fact, event or
circumstance or that such item has had or could be reasonably expected to
have a Material Adverse Effect.
The Agreement is amended by deleting clause (iv) of paragraph (e) of
Section 7.1 in its entirety.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to the Agreement on the date first written.
MADISON RIVER TELEPHONE GULF COAST SERVICES, INC.
COMPANY, LLC
By: PAUL H. SUNU By: MARJORIE Y. SNOOK
------------------------- -----------------------------
Its: Managing Director & CFO Its: President & CEO
------------------------- -----------------------------
Attested by: Attested by:
BRUCE BECKER ROBERT H. YOUNCE
- ------------------------------ ----------------------------------
<PAGE>
EXHIBIT 10.2.3
THIRD AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This Third Amendment ("Third Amendment") to the Agreement and Plan of
---------------
Merger, dated May 9, 1999, as amended by the First Amendment to Agreement and
Plan of Merger, dated July 2, 1999, and by the Second Amendment to Agreement and
Plan of Merger, dated August 24, 1999 ("Agreement"), is made and entered into
this 28/th/ day of September, 1999, between MADISON RIVER TELEPHONE COMPANY,
LLC, a Delaware limited liability company ("Buyer"), and GULF COAST SERVICES,
INC., an Alabama corporation ("GCSI"). All capitalized terms not defined herein
shall have the meaning as set forth in the Agreement.
WHEREAS, the parties have entered into the Agreement; and
WHEREAS, the parties wish to amend the Agreement to further define certain
understandings and obligations of the parties.
NOW, THEREFORE, in consideration of the promises and mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are acknowledged, Buyer and GCSI hereby amend
the Agreement as follows:
The Agreement is amended by adding the following defined terms to Article
I:
"Escrow Committee" means a committee consisting of the following members: a
representative of Buyer, a representative of the GCSI Stockholders and a
third party designated by the members of the Escrow Committee. The third
member of the Escrow Committee shall be a qualified person with prior
judicial experience or with other relevant experience. Such third member
shall not have previously represented the Buyer, GCSI or its subsidiaries,
or any shareholder or ESOP participant. The reasonable fees and expenses of
such third member shall be paid out of the Escrow pursuant to the terms of
a written agreement approved by the other members of the Escrow Committee.
Such third member may be removed by agreement of the Buyer and the
representative of the GCSI Stockholders, for any or no reason, upon seven
(7) days' notice. The representative of the majority shareholders, who
shall initially be selected by Marjorie Y. Snook, shall be replaced only
upon nomination of a replacement by Ms. Snook and confirmed by a majority
vote of the GCSI Stockholders voting. The representative of the GCSI
Stockholders and the Buyer may receive reimbursement for all expenses
associated with their work on the Escrow Committee, as provided herein.
Except as otherwise if specified herein, all actions taken by the Escrow
Committee must be confirmed in writing by a majority of all members.
"Final Closing Date Financial Statements" means financial statements of
GCSI up
<PAGE>
to and through the Closing Date, which Buyer will cause to be prepared and
delivered to the Parties as soon, as possible after the Closing Date, but
not later than January 31, 2000.
"Escrow Fund" means Twenty-Five Million Dollars ($25,000,000).
The Agreement is amended by replacing the defined terms "Long Term Debt"
and "Merger Consideration" in Article I with the following:
'Long Term Debt" means long term debt including the current portion
but excluding Capital Lease Obligations, as reflected on the books and records
of GCSI and its Subsidiaries, determined on a consolidated basis and in
accordance with GAA.P, consistently applied, as of the Effective Time; provided
Long Term Debt shall include the outstanding principal balances owed pursuant to
lines of credit however reflected on said books and records.
"Merger Consideration" means the sum of (1) $312,558,656 reduced by
Adjusted Long Term Debt as of the Closing Date, (ii) the sales price of the
Non-Business Real Estate as provided in Section 6.9, and (iii) the sales
price of the DigiPH Stock as provided in Article IX.
The defined term "Transitory Subsidiary" is amended to read as follows:
"Transitory Subsidiary" means Gulf Merger Corporation, an Alabama corporation
---------------------
formed by Buyer as provided in Section 2.1 which shall be merged with and into
GCSI on and subject to the terms and conditions of this Agreement.
The Agreement is amended by deleting Section 2.6(b) and inserting the
following, thereby causing Section 2.6(b) to read in its entirety as follows:
(b) Establishment of Payment Fund. Immediately prior to the Effective
-----------------------------
Time, (1) Buyer will cause Transitory Subsidiary to transfer to Paying
Agent, pursuant to a paying agent agreement in form and substance
reasonably satisfactory to the Parties, immediately available funds in
amounts equal to the Merger Consideration, less the portion thereof to be
paid by GCSI pursuant to clause (11) of this Section 2.6(b), and (11) GCSI
shall transfer to Paying Agent Immediately available funds in an amount
equal to the aggregate sales price of the Non-Business Real Estate and the
DigiPH Stock (collectively, the "Payment Fund").
------------
The Agreement is amended by deleting Section 2.6(d) and inserting the
following thereby causing Section 2.6(d) to read in its entirety as follows:
(d) Payment of Merger Consideration. (1) Immediately following the
-------------------------------
Effective Time, the Paying Agent shall first pay out of the Payment Fund
(A) $25,000,000 (the "Escrow Fund") to Regions Bank (the "Escrow Agent") to
----------- ------------
be held pursuant to the terms of the escrow agreement (the "Escrow
------
Agreement") of even date herewith and (B) the expenses described in Section
---------
5. 1 (b), if any remain unpaid, and Section 8.3)(b); (11)
<PAGE>
thereafter, upon surrender to Paying Agent of the certificate(s)
representing GCSI Shares (other than Dissenting Shares), Paying Agent shall
pay to the GCSI Stockholder surrendering such certificate(s) a pro rata
share (based on the number of and outstanding GCSI Shares immediately prior
to the Effective Time) of an amount equal to (A) the Merger Consideration;
less (B) the sum of the Escrow Fund and the expenses paid pursuant to
clause (1)(B) above for each GCSI Share represented by the surrendered
certificate(s), which amount shall be paid by Paying Agent within one (1)
business day of its receipt of the surrendered certificate(s) by bank check
or other immediately available funds.
The Agreement is amended by adding the following Section 6.12:
6.12 Escrow Amount. The Parties agree that the Escrow Amount shall be
held and disbursed by Paying Agent under the following terms and conditions:
(a) Through a disbursement notice signed only by Buyer, Buyer may draw
upon the Escrow Amount to pay expenses not paid under GCSI's directors and
officers liability policy, when presented for payment, (including, but riot
limited to, attorneys' fees but excluding any allocation of costs of Buyer
or GCSI salary or general overhead expenses) incurred by Buyer, GCSI or any
of their subsidiaries or affiliates, in connection with investigating,
defending, settling or prosecuting any action, suit, proceeding,
declaratory judgment action, claim, counterclaim, dispute or litigation
(other than claims covered under the workers' compensation laws of the
State of Alabama) (individually or collectively, "Proceedings") which:
(1) as of this date have a court docket number; or
(2) (i) arise from claims, counterclaims, crossclaims or
circumstances referenced in any Proceedings described in (1)
above; and (ii) which are filed on behalf of any current or
future claimant in such Proceedings described in (1) above or
any similarly situated claimant in any future Proceedings.
Buyer shall give the Escrow Committee advance notice of at least fifteen
(15) business days prior to any such payments, along with copies of
supporting invoices. The Escrow Committee shall have the right to object to
any payment which it decides is not a bona fide payment to a third party,
and shall have the right to obtain reimbursement of such payments either
from the payee or the party on whose behalf payment was made.
(b) The Escrow Amount may also be drawn upon to pay any or all of the
following amounts, through a disbursement notice signed by a majority of
the members of the Escrow Committee:
(1) any deficiency in the Minimum Cash Amount as determined by the
Final Closing Date Financial Statements;
<PAGE>
(2) unpaid obligations of GCSI (or amounts required to settle any
such matters) set forth in subsections 5. 1 (b)(i), (ii) and
(iii) of the Merger Agreement, as determined by the Final Closing
Date Financial Statements; and
(3) amounts constituting or satisfying any and all actions, suits,
proceedings, claims, liabilities, demands, settlements,
assessments, judgments, interest, penalties, costs and expenses,
including reasonable attorneys' fees (whether or not incurred in
connection with investigating, defending, settling or prosecuting
any action, suit, proceeding or claim against Buyer GCSI, the
ESOP, or any of their affiliates, officers, directors, trustees
or employees or hereunder), incident to any Proceedings referred
to in Section 6.12(a) above.
(c) In its sole discretion, and through a disbursement notice signed only
by Buyer, Buyer may, upon confirmation of irrevocable insurance coverage,
without reservation, instruct Paying Agent to release an amount equal to
the directors and officers insurance coverage in place and available to
satisfy any amounts payable under each of the provisions of this Section
6.12.
(d) The Escrow Amount shall, upon notice to the Paying Agent by Buyer, be
drawn upon to satisfy any final non-appealable judgment, plus post-judgment
interest, if applicable, against Buyer, GCSI, the ESOP or any of their
affiliates, officers, directors, or trustees, or employees in any
Proceedings referred to in Section 6.12(a), to the extent not paid by
directors and officers liability insurance coverage when presented for
payment.
(e) After (and not before) the earlier of. (1) a final, non-appealable
resolution of all Proceedings referred subsection 6.12(a) filed within
three (3) years from the date hereof, (ii) a final non-appealable
resolution of all claims arising from claims or circumstances described in
any Proceedings which as of this date have a court docket number and which
is binding, as a matter of law, on all Claimants; or (iii) three (3) years,
in the event that no claims referred to in subsection 6.12(a) are pending
and no claims described in (e)(ii) above are filed within such three (3)
year period; and upon finalization and payment of all matters to be
determined under this Section 6.12 above, the Escrow Committee shall cause
the Paying Agent to disburse the remainder of the Escrow Amount. Upon
receipt of a disbursement notice signed by all members of the Escrow
Committee, the Paying Agent shall pay to Buyer any amounts due under this
Agreement, and thereafter, to each GCSI Stockholder that has previously
surrendered, or subsequently surrenders, such certificate(s) (other than
certificates representing Dissenting Shares) a pro rata share (based on the
number of issued and outstanding GCSI Shares immediately prior to the
Effective Time) of the remaining Escrow Amount for each GCSI Share
represented by the surrendered certificate(s), which amount shall be paid
by Paying Agent within five (5) business days of receipt of the
disbursement notice.
(f) For amounts referenced in subsections 6.12(b)(1) and (2), such amounts
must
<PAGE>
exceed a threshold of $25,000.00 per item and such amounts may not exceed
$2,000,000 in the aggregate.
The Agreement is amended by adding the following Section 6.8(d):
(d) In connection with any request for, and prior to obtaining, indemnity
from the Buyer under this Section 6.8, an individual shall agree, in
writing, to reasonably cooperate with Buyer in connection with the subject
matter of the requested indemnity. if any individual who obtains indemnity
from the Buyer subsequently ceases to reasonably cooperate with Buyer,
Buyer shall no longer have any obligation to indemnify such individual.
The agreements, covenants, references and definitions of the parties
referenced or contained in this Third Amendment which are required to
support this Third Amendment shall survive the Closing Date.
The Agreement is amended by replacing Section 10.2 with the following:
10.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns; provided, however, that
(1) the provisions in Article H concerning payment of the Merger
Consideration are intended for the benefit of the GCSI Stockholders,
and (ii) the provisions in Section 6.8 concerning insurance and
indemnification are intended for the benefit of the individuals
identified therein and their respective legal representatives.
The Agreement is amended by deleting in their entireties the concepts of
Additional Merger Consideration and Incentive Payment and related language,
including, but not limited to, the following:
A. Deleting the definitions "Additional Merger Consideration" and
"Incentive Payment" in Article I of the Merger Agreement;
B. Deleting "and the Additional Merger Consideration" from clause (i) of
Section 2.5(e);
C. Deleting "and the right to receive Additional Merger Consideration"
from Section 2.6(a), Section 2.6(c), Section 2.6(e), clause (iii) of
Section 6.7, and Section 8.4; and
D. Deleting clauses (iv), (v) and (vi) from Section 5.1(b).
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
to the Agreement on the date first written.
MADISON RIVER TELEPHONE GULF COAST SERVICES, INC.
COMPANY, LLC
By: J. STEPHEN VANDERWOUDE By: MARJORIE Y. SNOOK
------------------------ -----------------------
Its: Chairman & CEO Its: President and CEO
------------------------ -----------------------
Attested by:
PAUL H. SUNU WILLIAM H. KRAMER
- ---------------------------- ----------------------------
<PAGE>
EXHIBIT 10.3
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT, dated as of April 21, 1998, is among Central
Telephone Company of Illinois, an Illinois corporation ("Seller"), Centel
Corporation, a Kansas corporation ("Seller Parent"), Gallatin River
Communications L.L.C., a Delaware limited liability company ("Buyer"), and
Madison River Telephone Company, LLC, a Delaware limited liability company
("Buyer Parent").
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from Seller and Seller desires to sell
to Buyer all of the Purchased Assets, and Buyer is willing to assume all of the
Assumed Liabilities, all upon the terms and conditions hereinafter set forth;
and
WHEREAS, Buyer and Seller desire to make certain representations,
warranties, covenants and agreements in connection with the purchase and sale of
the Purchased Assets and assignment and assumption of the Assumed Liabilities,
and prescribe various conditions thereto;
NOW, THEREFORE, for good, valid and binding consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
ARTICLE I
TERMS OF THE TRANSACTION
1.1 Sale of Purchased Assets. On the terms and subject to the conditions
------------------------
contained in this Agreement, at the Closing, Seller shall sell, assign, convey,
transfer and deliver to Buyer, and Buyer shall purchase, receive and accept from
Seller, as they exist on the Closing Date, the Business, the goodwill of Seller
relating to the Business and the Purchased Assets. "Purchased Assets" shall be
comprised of:
(i) The tangible assets and properties and interests in tangible assets
and properties owned, leased, licensed or held by Seller that are located within
the Territory, or that are used exclusively in, or that relate exclusively to,
the conduct of the Business, including the following, in each case only to the
extent they are located within the Territory or are used exclusively in, or
relate exclusively to, the conduct of the Business:
(a) All right, title and interest of Seller in and to real property
owned by Seller, including the real property described on Schedule 1.1 (a),
together with all buildings, plants, facilities, installations, fixtures
and other structures and improvements situated or located thereon
(collectively, the "Owned Real Property");
(b) All right, title and interest of Seller in and to leasehold
interests in real property (collectively, the "Leased Real Property"),
including those leasehold interests of the Leased Real Property set forth
on Schedule 1.1(b);
<PAGE>
(c) All right, title and interest of Seller in and to the
easements, rights-of-way and similar interests (collectively, the
"Easements"), including those Easements set forth on Schedule 1.1(c);
(d) All right, title and interest of Seller in and to any and all
buildings, plants, facilities, installations, fixtures and other structures
and improvements situated or located on the Leased Real Property;
(e) All right, title and interest of Seller in and to tangible
personal property, hardware, network equipment and other equipment leased
to Seller (the "Leased Personal Property"), including the Leased Personal
Property set forth on Schedule 2.9.2;
(f) All right, title and interest of Seller in and to tangible
personal property, hardware, network equipment and other equipment, other
than the Leased Personal Property (collectively, the "Owned Personal
Property"), including the Owned Personal Property set forth on Schedule 1.1
(f);
(g) All right, title and interest of Seller in and to automobiles,
trucks and motor vehicles ("Vehicles"), including the Vehicles set forth on
Schedule 1.1 (g); and
(h) All supplies and sundry items;
(ii) All Accounts Receivable;
(iii) All Prepaid Expenses;
(iv) All Inventory and Sales Work in Progress;
(v) All right, title and interest of Seller in and to the licenses set
forth on Schedule 1.1(v) (the "Licenses") and the intellectual property governed
by such Licenses (the "Licensed Intellectual Property");
(vi) All right, title and interest of Seller in and to the Customer
Contracts, the Assumed Leases, the Collective Bargaining Agreements, the
Contracts set forth on Schedule 1.1 (vi), the Material Contracts and any other
Contract existing on the Closing Date and relating exclusively to the conduct of
the Business, as any of the foregoing may be amended prior to the date hereof or
as permitted by Section 4.3.2. between the date hereof and the Closing Date
(collectively, the "Assumed Contracts");
(vii) All of the Information and Records;
(viii) To the extent transferable, all of Seller's rights under Permits
relating exclusively to the ownership of the Purchased Assets or the conduct of
the Business (other than Permits described in Section 1.2(m)) (collectively, the
"Assumed Permits"), including those Permits listed on Schedule 1.1(viii);
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(ix) All right, title and interest of Seller and SPA in and to (i) the
Assumed Directories, (ii) any Contracts (or portions thereof) with customers for
directory advertising in Assumed Directories, (iii) any accounts receivable or
other rights to receive revenues for directory advertising in Assumed
Directories and (iv) all information, records, Contracts and other assets and
information used exclusively in or relating exclusively to the publication or
distribution of Assumed Directories; and
(x) All cash located within pay phones owned or leased by Seller in the
Territory.
1.2 Excluded Assets. Notwithstanding any other provision of this
---------------
Agreement, the following assets shall not be included in the Purchased Assets to
be sold or acquired pursuant to this Agreement (collectively, "Excluded
Assets"):
(a) All cash (other than cash transferred pursuant to Section 1. 1
(x)), Cash Equivalents or marketable securities, including, without
limitation, any funds or assets held by any Employee Benefit Plan;
(b) All trademarks and service marks of the Seller, Sprint or any
Other Affiliate including any right, title or interest in or to the
"Sprint" trademark or to the trade name "Sprint" or any variations of
either;
(c) All assets of any Employee Benefit Plan, and originals of all
personnel, employee compensation and benefits and labor relations records
relating to the Employees, provided that Buyer shall be entitled, to the
extent permitted by Law, to copies of all personnel, employee compensation
and benefits and labor relations records with respect to each (i) Affected
Employee and (ii) Collective Bargaining Agreement;
(d) All Excluded Accounts Receivable;
(e) All stationary, and readily removable signage on buildings, plant
or facilities of Seller, which stationary or signage displays any
trademarks or service marks of Seller, Sprint or any Other Affiliate;
(f) All right, title and interest of Seller in any insurance policies
covering Seller, the Business or the Purchased Assets prior to the Closing
Date;
(g) All right, title and interest of Seller in all equipment (and
associated software and other Intellectual Property) located outside of the
Territory, including but not limited to mainframe and distributed software
systems and out of Territory switches;
(h) All Contracts relating to the borrowing of funds by, or extension
of credit or financing to, Seller;
(i) All Contracts of Seller listed on Schedule 1.2(i) (the "Excluded
Contracts");
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(j) Any right, title and interest of Seller in any national or
regional Contract with any supplier or vendor to Seller, Sprint or any
Other Affiliate, including such Contracts set forth on Schedule 1.2(i);
(k) All right, title and interest of Seller in and to Intellectual
Property, hardware, network equipment and other assets owned, leased or
licensed by Seller set forth on Schedule 1.2(k);
(1) All stock books, stock ledgers, minute books, corporate seals or
other corporate records, and financial records and files, and books and
records relating to Taxes for all periods prior to the Closing Date,
provided that Buyer shall be entitled to copies of the foregoing Tax books
and records relating to the Business, but only if and to the extent the Tax
records are relevant to the determination of Taxes for the Business for a
period ending after the Closing Date;
(m) Any certificate of authority or Permit issued to Seller by the
ICC or FCC except for FCC licenses listed on Schedule 1.1 (viii);
(n) Any Tax refunds or other amounts receivable with respect to Taxes
of Seller;
(o) All right, title and interest of Seller in (i) any Contracts or
arrangements with SPA, (ii) any Contracts with customers for directory
advertising in Excluded Directories, and (iii) any accounts receivable or
other rights to receive revenues for directory advertising in Excluded
Directories;
(p) All Waived Assets;
(q) Any right, title and interest of Seller in any Contracts with
Multi-Location Equipment Customers entered into prior to the Closing Date
(the "Multi-Location Equipment Contracts"); and
(r) All Excluded Inventory.
1.3 Purchase Price.
--------------
1.3.1 Price; Payment. In consideration for the Purchased Assets, (1)
--------------
Buyer shall assume the Assumed Liabilities, and (ii) Buyer Parent shall, or
Buyer Parent shall cause Buyer to, pay the sum of Two Hundred Thirty Million
Dollars ($230,000,000) (the "Purchase Price") plus or minus any required
Purchase Price Adjustment to be paid by Buyer or Seller pursuant to Section 1.4.
At the Closing, Buyer Parent shall, or Buyer Parent shall cause Buyer to, pay
the Purchase Price to Seller by wire transfer of immediately available funds to
the bank account described as Seller's account in wire transfer instructions
provided by Seller to Buyer prior to the Closing.
1.3.2 Allocation of Purchase Price. The Purchase Price, the Assumed
----------------------------
Liabilities
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and the Purchase Price Adjustment shall be allocated among the Purchased Assets
as set forth on Schedule 1.3.2 (the "Allocation Statement"). Buyer and Seller
shall file and cause to be filed all Returns, and execute such other documents
as may be required by any taxing authority, in a manner consistent with the
Allocation Statement.
1.4 Purchase Price Adjustment.
-------------------------
1.4.1 Adjustment Statement. As soon as reasonably practicable, but no
--------------------
earlier than forty-five (45) days before and no later than sixty (60) days after
the Closing Date, Seller shall deliver to Buyer a statement in the form set
forth on Schedule 1.4.1 and prepared on a basis consistent with the Pro Forma
Adjustment Statement set forth on Schedule 2.5.2 (the "Adjustment Statement");
provided that the amounts for Inventory on line 2 of the Adjustment Statement
and Sales Work in Progress on line 33 of the Adjustment Statement shall be
determined pursuant to a physical inventory (in the case of Inventory) and a
review of pending sales (in the case of Sales Work in Progress) to be performed
by Seller with the participation of Buyer at Closing and provided further that
the amount for SPA Reimbursable Expenses on line 5 of the Adjustment Statement
shall be determined by the Parties prior to the Closing, who shall use good
faith efforts to resolve any dispute with respect to such amount. Within thirty
(30) days after receipt of the Adjustment Statement, Buyer shall inform Seller
in writing either (a) that the Adjustment Statement is acceptable to Buyer or
(b) that Buyer objects to the Adjustment Statement, which objections shall be
set forth in reasonable detail together with the basis for those objections in
reasonable detail (an "Objection Notice"). If Buyer so objects, and the Parties
do not resolve such objections on a mutually agreeable basis within thirty (30)
days after Seller's receipt of the Objection Notice, the disagreement shall be
resolved within an additional period of Sixty (60) days by one of the largest
five (5) national accounting firms, which accounting firm shall be jointly
selected by the Parties (the "Independent Firm"). If the Parties are unable to
agree upon an Independent Firm, each Party will select one of the largest five
(5) national accounting firms and those two firms shall agree upon a third firm
from the largest five (5) national accounting firms which third firm shall be
the Independent Firm. The decision of the Independent Firm shall be final and
binding upon the Parties. Upon the agreement of the Parties or the decision of
the Independent Firm, or if Buyer fails to deliver an Objection Notice to Seller
within the first thirty (30) day period provided above, the Adjustment Statement
(as adjusted, if applicable, by the agreement of the Parties or the decision of
the Independent Firm) shall be deemed final. Each Party shall bear the fees,
costs and expenses of its own accountants, including any fees paid to such
accountants in connection with the selection of the Independent Firm, shall
share equally the fees, costs and expenses of the Independent Firm and shall
permit each other and each other's accountants access to the books and records
reasonably necessary to prepare and audit the Adjustment Statement.
1.4.2 Post-Closing Adjustment Procedure. At the Closing, Buyer Parent
---------------------------------
shall, or Buyer Parent shall cause Buyer to, pay to Seller Two Million Dollars
($2,000,000) as a prepayment for the adjustments required under this Section
1.4.2. Upon the Adjustment Statement being deemed final in accordance with
Section 1.4.1, a payment shall be made by Buyer or Seller, as applicable, in an
amount equal to the amount set forth on either line 13 or 14, whichever is
applicable, of the Adjustment Statement (the "Purchase Price Adjustment"),
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provided, that as noted on line 12 of the Adjustment Statement, any Purchase
Price Adjustment to be paid by Buyer or Seller pursuant to this Section 1.4.2
has been reduced or increased, as applicable, by a $3,000,000 prepayment credit.
The Purchase Price Adjustment shall be made by wire transfer of immediately
available funds to the account specified by the recipient Party within five (5)
business days after the date on which the Adjustment Statement is deemed final
in accordance with Section 1.4.1.
1.5 Assumption of Liabilities. On the Closing Date, Seller shall assign
-------------------------
and Buyer shall assume, become liable for and agree to pay, discharge and
perform, as the case may be, the following Liabilities (collectively, "Assumed
Liabilities"), provided that Buyer's assumption of the Assumed Liabilities shall
not affect Buyer's rights to indemnification from Seller or Seller Parent under
Article 10:
(a) Accounts and trade payables and accrued and unpaid expenses of
Seller as of the Closing Date relating to the Business or the Purchased
Assets which are not described in Section 1.6 (collectively, the "Assumed
Payables");
(b) Liabilities and obligations associated with the Assumed Contracts
(collectively, "Assumed Contract Liabilities");
(c) Liabilities and obligations of Seller to return each Customer
Deposit to the relevant depositor in accordance with the terms of the
respective Customer Contract;
(d) The obligations of Seller under the Equipment Warranties with
less than two (2) years remaining thereon or as described on Schedule
1.5(d);
(e) Liabilities of Seller related to the Business or the Purchased
Assets with respect to the Environment and Environmental Laws
(collectively, "Assumed Environmental Liabilities"); and
(f) Liabilities and obligations associated with Advance Billings and
Payments.
1.6 Excluded Liabilities. Buyer shall not assume any, and Seller shall
--------------------
retain each, of the following Liabilities pursuant to this Agreement
(collectively, "Excluded Liabilities"):
(a) Any and all Liabilities, direct or indirect, fixed or contingent,
for Taxes of Seller or any member of Seller's Affiliated Group;
(b) Any intercompany Liabilities payable by Seller to Sprint or any
Other Affiliate;
(c) Any costs and expenses incurred by Seller in connection with the
negotiation, execution or performance of this Agreement and the
transactions contemplated hereby;
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(d) Liabilities and obligations relating to any Employee Benefit Plan
including any claims for welfare benefits and any disability or workers'
compensation claims;
(e) Liabilities and obligations relating to Waived Assets; and
(f) Any other Liabilities, other than the Assumed Liabilities,
arising prior to the Closing Date.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER AND SELLER PARENT
Seller and Seller Parent, Jointly and severally, make the following
representations and warranties to Buyer:
2.1 Organization; Power and Authority. Seller is a corporation duly
---------------------------------
organized, validly existing and in good standing under the laws of the State of
Illinois. Seller Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Kansas. Seller and Seller Parent
have all corporate power needed to execute, deliver and perform their respective
obligations under this Agreement and the other agreements contemplated hereby
and to consummate the transactions contemplated hereby and thereby to be
consummated by them. Except as set forth on Schedule 2. 1, Seller does not
conduct any business other than the Business.
2.2 Authorization; Execution and Validity. The execution, delivery and
-------------------------------------
performance by Seller and Seller Parent of this Agreement and the other
agreements contemplated hereby and the consummation by Seller and Seller Parent
of the transactions contemplated hereby and thereby to be consummated by them
have been duly authorized by all necessary corporate action of Seller and any
Affiliate of Seller. This Agreement and the other agreements contemplated hereby
have been duly and validly executed and delivered by Seller and Seller Parent,
as applicable, constitute valid and binding obligations of Seller and Seller
Parent, as applicable, and are enforceable against Seller and Seller Parent, as
applicable, in accordance with their respective terms, except to the extent that
the enforcement hereof or thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally, and (ii) general principles of equity
regardless of whether enforceability is considered in a proceeding in equity or
at law.
2.3 Capitalization. Except as set forth on Schedule 2.3, Sprint owns all
--------------
of the outstanding capital stock of Seller Parent, Seller Parent owns all of the
outstanding capital stock of Central Telephone Company, a Delaware corporation,
and Central Telephone Company owns all of the outstanding capital stock of
Seller. Except as set forth on Schedule 23, Seller does not own any capital
stock or other equity interest in any other Person,
2.4 Officers. Schedule 2.4 sets forth a list of all of the corporate
--------
officers of Seller. Each such officer executing this Agreement has authority to
execute and deliver this Agreement on behalf of Seller.
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2.5 Business Financial and Working Capital Information.
--------------------------------------------------
2.5.1 Financial Information. Schedule 2.5.1 sets forth (i) an
---------------------
unaudited balance sheet of Seller as of February 28, 1998, and (ii) an unaudited
statement of Seller's results of operations for the two-month period ended
February 28, 1998, each of which has two additional columns, with the third
column constituting an unaudited balance sheet of the Business as of February
28, 1998, or statement of results of operation, of the Business for the two-
month period ended February 28, 1998, respectively, and the second column
setting forth adjustments made to the financial statements set forth in the
first column to present the third column (the financial statements referred to
in clauses (i) and (ii) (including all three columns) are referred to herein as
the "Business Financial Information"). The information set forth in the first
column of the Business Financial Information has been prepared by management of
Seller, is derived from financial statements that were prepared in accordance
with GAAP, and (except for the balances shown under the captions "Inventories"
and "Sales Work in Progress") fairly presents (i) Seller's financial condition
as of the date specified above, and (ii) the results of operations for the
period specified above, except, in each case, as set forth in notes thereto and
for normal year-end . adjustments. The information set forth in the third column
of the Business Financial Information has been prepared by management of Seller
and (except for the balances shown under the captions "Inventories" and "Sales
Work in Progress") fairly presents (i) the financial condition of the Business
as of the date specified above, and (ii) the results of operations of the
Business for the period specified above.
2.5.2 Pro Forma Adjustment Statement. Schedule 2.5.2 sets forth an
------------------------------
unaudited statement of current assets included in the Purchased Assets and
current liabilities Included in the Assumed Liabilities as of February 28, 1998
(the "Pro Forma Adjustment Statement"), consisting of Accounts Receivable,
Inventory, Sales Work in Process, Prepaid Expenses, SPA Reimbursable Expenses,
Assumed Payables, Advanced Billings and Payments, Customer Deposits, and
Reserves for Warranty, in each case as of February 28, 1998, and to the extent
included in Purchased Assets or Assumed Liabilities, as applicable. The Pro
Forma Adjustment Statement has been prepared in accordance with the books and
records of Seller, except for such adjustments and exceptions as are set forth
in the notes to the Pro Forma Adjustment Statement.
2.6 Absence of Certain Changes. Except as set forth on Schedule 2.6, since
--------------------------
December 31, 1997, (a) there has been no event or occurrence that has had a
Material Adverse Effect, (b) there has been no material destruction, damage or
other loss to any of the Purchased Assets, and (c) Seller has taken no action
described in Section 4.3.2 which cannot be taken by Seller after the date hereof
without the prior written consent of Buyer.
2.7 No Conflict: Seller Consents. Except as set forth on Schedule 2.7, the
----------------------------
execution, delivery and performance by Seller and Seller Parent of this
Agreement and the consummation by Seller and Seller Parent of the transactions
contemplated hereby to be consummated by them will not (a) violate any Law in
any material respect, (b) violate any Charter Document of Seller, (c) violate
any Order to which Seller is a party or by which it or any Purchased Asset is
bound in any material respect, (d) require any material Consent from any
Governmental Authority, except (i) to comply with the HSR Act, (ii) to obtain
consents and authorizations required by the ICC
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and the FCC, and (iii) for actions required to be taken by Buyer, (e) materially
breach any Material Contract, Material Lease or material Permit relating to the
Business, (f) materially breach any other Assumed Contract, Assumed Lease or
Permit relating to the Business or (g) result in the creation of any material
Lien on any of the Purchased Assets.
2.8 Real Property and Easements.
---------------------------
2.8.1 Owned Real Property. Schedule 1.1(a) sets forth a true and
-------------------
complete legal description of all of the real property owned by Seller within
the Territory. Except as set forth on Schedule 1.1 (a), Seller has good,
marketable and indefeasible fee simple title to all of the Owned Real Property,
free and clear of Liens (other than Permitted Liens). Seller does not own any
real property located outside of the Territory which is used primarily in, or
relates primarily to, the Business. Seller has heretofore delivered to Buyer the
most recent title insurance policy, if any, and survey, if any, relating to each
parcel of Owned Real Property.
2.8.2 Leased Real Property. Schedule 1.1(b) lists all of the real
--------------------
property within the Territory leased to Seller. All Material Leases of Leased
Real Property are valid and binding and in full force and effect in all material
respects. There has been no material breach of any Lease of Leased Real Property
by Seller or, to Seller's Knowledge, any other Person, which breach has not been
cured or waived. Seller does not lease any real property located outside of the
Territory which is used primarily in, or relates primarily to, the Business.
2.8.3 Easements. Schedule 1. 1 (c) lists all of the Material Easements
---------
which constitute a portion of the Purchased Assets. To Seller's Knowledge,
except as set forth on Schedule 1.1(c), Seller has good, marketable and
indefeasible right and title in the Material Easements, free and clear of Liens
(other than Permitted Liens). To Seller's Knowledge, no Person is disputing such
right and title to any Material Easement.
2.8.4 Sufficiency to Conduct Business. The Owned Real Property, the
-------------------------------
Leased Real Property and the Easements (collectively, the "Real Property")
constitute all of the land, other real property and real property interests
owned by the Seller and located in the Territory, which are related to or
necessary for the operation of the Business.
2.9 Personal Property.
-----------------
2.9.1 Owned Personal Property. Subject to Permitted Liens, Seller has
-----------------------
good marketable and indefeasible title to all Owned Personal Property and all
Vehicles. Each item of Owned Personal Property having a book value of at least
$5,000 on the books and records of Seller is set forth on Schedule 1.1(f).
2.9.2 Leased Personal Property. Schedule 2.9.2 lists all of the Leased
------------------------
Personal Property leased to Seller pursuant to a Material Lease. All such
Material Leases of Leased Personal Property are valid and binding and in full
force and effect in all material respects. There has been no material breach of
any Lease of Leased Personal Property by Seller or, to Seller's Knowledge, any
other Person, which breach has not been cured or waived.
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2.10 Accounts Receivable. All Accounts Receivable of the Seller that are
-------------------
reflected in the accounting records of the Seller as of the Closing Date
represent or will represent valid obligations arising from sales actually made
or services actually performed or billed for in the ordinary course of the
Business.
2.11 Contracts. Except for (a) Leases, (b) Easements, (c) Employee Benefit
---------
Plans, and (d) Contracts which constitute Excluded Assets or Excluded
Liabilities, Schedule 2.11 sets forth all of the Contracts of each of the
following classes ("Material Contracts") (x) to which Seller is a party and
which relate exclusively to the Business or (y) by which any of the Purchased
Assets are bound or subject to: (i) Contracts with any Affiliate of Seller not
pertaining to the borrowing of money, (ii) Contracts creating material Liens;
(iii) Contracts creating Guarantees; (iv) Contracts other than Collective
Bargaining Agreements relating to material employment or consulting services;
(v) Contracts relating to any single capital expenditure in excess of $50,000;
(vi) Contracts for the purchase or sale of real property or any interest
therein, any business or line of business or for any merger or consolidation;
(vii) joint ventures, partnership agreements or minority investments in any type
of entity; (viii) Contracts that individually require by their respective terms
after the date hereof the payment or receipt of $10,000 or more during any
twelve (12) month period; (ix) Contracts having a term of more than two (2)
years or that are not terminable by Seller upon less than ninety (90) days'
notice, (x) any billing and collection Contract, term and volume agreement or
Contract or arrangement with any local exchange carrier, interexchange carrier
or other carrier or vendor of telecommunications services or products, (xi) any
Contract that imposes restrictions on competition within the Territory, and
(xii) any Contract not otherwise described above which is material to the
Business. All Assumed Contracts are valid and binding and in full force and
effect in all material respects. There has been no material breach of any
Assumed Contract by Seller or, to Seller's Knowledge, any other Person, which
breach has not been cured or waived.
2.12 Litigation; Orders. Except as set forth on Schedule 2.12, there is no
------------------
materially adverse Action by or before any Governmental Authority that is
pending or, to Seller's Knowledge, threatened in writing by, against or
affecting Seller, the Business or any of the Purchased Assets. Except as set
forth on Schedule 2.12, Seller is not subject to any materially adverse Order.
2.13 Environmental Laws.
------------------
2.13.1 Compliance. Except as set forth on Schedule 2.13.1, solely
----------
with respect to the ownership, lease or operation of the Real Property and the
Business, Seller has not failed to (a) comply in any material respect with any
Environmental Law, (b) maintain in effect and comply in any material respect
with any material Permit required by any Environmental Law, or (c) comply in any
material respect with any consent agreement or Order to which it is a party or
by which it is bound that relates to any Environmental Law, which agreements or
Orders are set forth on Schedule 2.13.1. Schedule 2.13.1 sets forth all of the
material Permits required for the conduct of the Business by any Environmental
Law and consent agreements and Orders to which Seller is a party or by which
Seller or any Purchased Asset is bound that relate to any Environmental Law.
Seller is not subject to any pending or, to Seller's Knowledge, threatened
material Actions related to any Environmental Law. Except as set forth on
Schedule 2.13.1, there
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have been no material releases of any of the following materials ("Materials")
into the Environment at or from any parcel of Owned Real Property or Leased Real
Property while owned or leased by Seller, or to Seller's Knowledge: chemicals,
pollutants, contaminants, hazardous substances (as defined under the
Comprehensive Environmental Response Compensation and Liability Act of 1980),
solid wastes and hazardous wastes (as such terms are defined under the Federal
Resources Conservation and Recovery Act), toxic materials, oil, petroleum,
petroleum products or any other material subject to regulation under any
Environmental Law.
2.13.2 Exclusivity. Except as set forth in this Section 2.13, Seller
-----------
makes no express or implied representation or warranty in this Agreement
concerning Environmental matters.
2.14 Other Laws. Solely with respect to the ownership of the Purchased
----------
Assets or operation of the Business, Seller has not failed to (a) comply in all
material respects with any Other Law or (b) maintain in effect and comply in all
material respects with any Permit required by any Other Law.
2.15 Intellectual Property. All Licenses are valid and in full force and
---------------------
effect in all material respects. There is no pending or, to Seller's Knowledge,
threatened, material Action against Seller contesting its rights to or the
validity of any such Licensed Intellectual Property or the validity of any
License and, to Seller's Knowledge, no Person is materially infringing or
misappropriating any Licensed Intellectual Property. Seller has not materially
breached, and no event has occurred that with the passage of time or giving of
notice would constitute a material breach of, any License. To Seller's
Knowledge, Seller has not infringed or misappropriated any Intellectual Property
of any other Person.
2.16 Employees.
---------
2.16.1 Employees. Schedule 2.16.1 sets forth the name and current
---------
position or job classification of each employee of Seller who works primarily
for the Business in the Territory as of the date indicated thereon (which date
is not more than thirty (30) days prior to the date hereof). Seller has provided
Buyer with a separate, confidential list of wage or salary and bonus information
for each Employee. No more than five (5) days prior to the Closing Date, Seller
shall deliver to Buyer a supplement and update of Schedule 2.16.1, which shall
be deemed accepted by Buyer pursuant to Section 4.7 (subject to such reasonable
objections or exceptions to such supplement and update of Schedule 2.16.1 that
may be raised by Buyer in connection with any failure by Seller to comply with
the requirements relating to a Replacement Employee set forth in clause (b)
below), and which shall as of the date thereof (a) name any person set forth on
the original Schedule 2.16.1 who has died, resigned, retired or been otherwise
terminated from employment with Seller (each, a "Lost Employee") and (b) name
each person hired by Seller to replace a Lost Employee (a "Replacement
Employee"), which Replacement Employee shall be employed in the same or lower
position or job classification as the Lost Employee replaced and whose
compensation and benefits, in each case, shall not exceed in any material
respect those paid or provided to the Lost Employee replaced.
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2.16.2 Unions. Schedule 2.16.2 sets forth each collective bargaining
------
or other labor union agreement applicable to any Employees (collectively, the
"Collective Bargaining Agreements"). As of the date hereof, no material work
stoppage or material labor dispute against Seller in connection with the
Business is pending or, to Seller's Knowledge, threatened and, to Seller's
Knowledge, there is no related organizational activity by any Employees. As of
the date hereof, Seller has not, except as set forth on Schedule 2.16.2,
received any written notice of any unfair labor practice in connection with the
Business, and, to Seller's Knowledge, no such complaints are pending before the
National Labor Relations Board or other similar Governmental Authority.
2.17 Employee Benefits.
-----------------
2.17.1 Employee Benefit Plans. Schedule 2.17.1 lists, as of the date
----------------------
hereof, each pension, retirement, profit-sharing, deferred compensation, bonus,
incentive, performance, stock option, stock appreciation, phantom stock, stock
purchase, restricted stock, medical, hospitalization, vision, dental or other
health, life, disability, severance, termination or other employee benefit plan,
program, arrangement, agreement or policy (including each plan that is subject
to ERISA) that is sponsored, maintained or contributed to or required to be
contributed to by Seller or by any trade or business, whether or not
incorporated (an "ER1SA Affiliate") that together with Seller would be deemed a
"single employer" within the meaning of Section 4001 (b) of ERISA, or to which
Seller or an ERISA Affiliate is party, whether written or oral, for the benefit
of any Employee or former Employee (each, an "Employee Benefit Plan"). Each
Employee Benefit Plan complies in all material respects, and has been operated
and administered in all material respects, in accordance with all applicable
requirements of all Laws, including ERISA and the Code, and no "reportable
event" (as such term is defined in ERISA and the Code, as applicable) or
termination has occurred with respect to any Employee Benefit Plan. Neither
Seller, any Employee Benefit Plan, any trust created thereunder, nor any trustee
or administrator thereof has engaged in a transaction in connection with which
Seller, any Employee Benefit Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any Employee Benefit Plan or
any such trust could be subject to either a penalty assessed pursuant to Section
406 or 502(1) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the
Code. Each Employee Benefit Plan intended to qualify under Section 401(a) of the
Code has received a ruling or determination letter concluding that such Employee
Benefit Plan so qualifies, and no event has occurred, amendment been adopted or
action been taken that would cause such Employee Benefit Plan to lose its
qualified status.
2.17.2 Records. Seller has made available to Buyer copies of each
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Employee Benefit Plan (or in the case of an unwritten plan, a full and complete
description thereof) and any amendments thereto and any related trust agreement,
funding agreement and insurance contract relating thereto and, if applicable,
the most recent IRS Determination Letter and Form 5500 for the two most
recently completed plan years, the summary plan description currently in effect
for each Employee Benefit Plan, and all material modifications thereto.
2.17.3 Actions. As of the date hereof, there are no Actions pending
-------
(other than routine claims for benefits) or, to Seller's Knowledge, threatened
or anticipated, with respect to any Employee Benefit Plan.
12
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2.17.4 Funding. All contributions required by applicable Law or the
-------
Employee Benefit Plan to be made by Seller or any ERISA Affiliate to an Employee
Benefit Plan have been made within the time prescribed by the applicable Law or
Employee Benefit Plan. As of the date hereof, there does not exist any
accumulated funding deficiency within the meaning of either Section 412 of the
Code or Section 302 of ERISA as to any Employee Benefit Plan nor would there
exist any such deficiency but for the application of an alternative minimum
funding standard. There has not been issued any waiver of the minimum funding
standards imposed by the Code with respect to any such Employee Benefit Plan.
Except as set forth on Schedule 2.17.4, on the date hereof, the fair market
value of the assets of each Employee Benefit Plan that is a funded defined
benefit pension plan equals or exceeds the actuarial present value of all
accrued benefits under such Employee Benefit Plan, including early retirement
subsidies, plant closing benefits and all other amounts considered to be benefit
liabilities upon a standard termination of a defined benefit plan subject to
Title IV of ERISA, with the said actuarial present value being determined by
application of the actuarial methods and assumptions applied by such, Employee
Benefit Plan's enrolled actuary at the most recent annual valuation of such
Employee Benefit Plan, plus all administrative expenses, fiduciaries' fees and
similar charges payable by such Employee Benefit Plan, plus all Taxes, if any,
payable from plan assets. The Pension Benefit Guaranty Corporation has not
instituted proceedings to terminate any Employee Benefit Plan that is subject to
Title IV of ERISA and no condition exists that presents a material risk that
such proceeding will be instituted.
2.17.5 Multiemployer Plans and Multiple Employer Plans. Except as set
-----------------------------------------------
forth on Schedule 2.17.5 (a) no Employee Benefit Plan is a "multiple employer"
plan within the meaning of Section 4063 or 4064 of ERISA, (b) no Employee
Benefit Plan is a "multiemployer plan" within the meaning of Section 400 1
(a)(3) of ERISA or other applicable employee benefit legislation, (c) Seller
does not have either primary or secondary liability under the provisions of
Section 4204 of ERISA or any agreement entered into in accordance with the
provisions of that Section and (d) Seller has not (i) engaged in any transaction
that could result in the imposition of any material liability pursuant to
Section 4069 or 4212 of ERISA or (ii) incurred any material liability under or
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of
the Code relating to employee benefit plans, and no event or condition exists
with respect to Seller that may result in the imposition of any material
liability with respect to Buyer pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to Employee Benefit Plans.
2.17.6 Acceleration of Benefits. The consummation of the transactions
------------------------
contemplated by this Agreement will not, either alone or in combination with
another event, result in any increase in the amount of compensation or benefits
payable by Seller or accelerate the vesting or timing, of payment of any
benefits payable by Seller to or in respect of any Employee or former Employee
or the beneficiary or dependent of any Employee or former Employee.
2.18 Taxes. To Seller's Knowledge, all federal, state and local tax
-----
returns, reports, declarations and forms ("Returns") relating to Seller or any
combined, consolidated, affiliated or unitary tax group of which Seller is or
has been a member (an "Affiliated Group") that were
13
<PAGE>
required to be filed prior to the date hereof have been accurately prepared in
all material respects and timely filed. Except for Taxes that are being
contested in good faith and by appropriate proceeding, the following Taxes have
been duly and timely paid: (a) all Taxes shown to be due on the Returns; and (b)
all deficiencies and assessments for any material amount of Taxes that, to
Seller's Knowledge, are or would become payable by Seller or chargeable as a
Lien upon any of the Purchased Assets.
2.19 Permits. Schedule 1.1(viii) sets forth all Assumed Permits. Each
-------
Assumed Permit is in full force and effect. Schedule 2.19 sets forth each Permit
relating primarily to the Business or the Purchased Assets which is not an
Assumed Permit. The Permits set forth on Schedule 1.1(viii), 2.13.1 and 2.19
constitute all of the Permits which are required for tile lawful ownership of
the assets of the Business and the lawful conduct of the Business, as such
assets have been owned and as such Business has been conducted by Seller during
the twelve (12) months prior to the date hereof. No material Action is pending
or, to Seller's Knowledge, threatened to revoke or limit any such Permit.
2.20 Access Lines. The number of Access Lines of the Business as of
------------
December 31, 1997 was not less than 79,000.
2.21 Brokers. No Person is or will become entitled to receive any brokerage
-------
or finder's fee, advisory fee or other similar payment for the transactions
contemplated by this Agreement by virtue of having been engaged by or acted on
behalf of Seller or Seller Parent.
2.22 No Other Warranties. EXCEPT AS OTHERWISE SPECIFICALLY SET FORTH IN
-------------------
THIS AGREEMENT, SELLER MAKES NO EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE, OR ANY OTHER WARRANTY AS TO THE CONDITION
OR OPERATION OF ANY ASSETS.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER PARENT
Buyer and Buyer Parent, jointly and severally, make the following
representations and warranties to Seller:
3.1 Organization; Power and Authority. Buyer is a limited liability
---------------------------------
company duly organized, validly existing and in good standing under the laws of
Delaware. Buyer Parent is a limited liability company duly organized, validly
existing and in good standing under the laws of Delaware. Buyer and Buyer Parent
have all power needed to execute, deliver and perform their respective
obligations under this Agreement and the other agreements contemplated hereby
and to consummate the transactions contemplated hereby and thereby to be
consummated by it.
3.2 Authorization; Execution and Validity. The execution, delivery and
-------------------------------------
performance by Buyer and Buyer Parent of this Agreement and the other agreements
contemplated hereby and the consummation by Buyer and Buyer Parent of the
transactions contemplated hereby and thereby to be consummated by them have been
duly authorized by all necessary action. This
14
<PAGE>
Agreement and the other agreements contemplated hereby have been duly and
validly executed and delivered by Buyer and Buyer Parent, constitute valid and
binding obligations of Buyer and Buyer Parent, as applicable, and are
enforceable against Buyer and Buyer Parent, as applicable, in accordance with
their respective terms, except to the extent that the enforcement hereof and
thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) general principles of equity regardless of whether
enforceability is considered in a proceeding in equity or at law.
3.3 No Conflict; Buyer Consents. Except as set forth on Schedule 3.3, the
---------------------------
execution, delivery and performance by Buyer and Buyer Parent of this Agreement
and the consummation by Buyer and Buyer Parent of the transactions contemplated
hereby to be consummated by them will not (a) violate any Law in any material
respect, (b) violate any Charter Document of Buyer, (c) violate any Order to
which Buyer is a party or by which it is bound, (d) require any Consent from any
Governmental Authority except (i) to comply with the HSR Act, (ii) to obtain
consents and authorizations required by the ICC and the FCC and (iii) for
actions to be taken by Seller, or (e) breach any Contract to which Buyer is a
party or by which it is bound, except for breaches or Liens that would not,
individually or in the aggregate, have a material adverse effect on the ability
of Buyer or Buyer Parent to consummate the transactions contemplated by this
Agreement.
3.4 Litigation; Orders. There is no materially adverse Action by or before
------------------
any Governmental Authority that is pending or, to the knowledge of Buyer or
Buyer Parent, threatened in writing by, against or affecting Buyer or Buyer
Parent or any of their respective properties, assets, operations or business
which would have a material adverse effect on Buyer's or Buyer Parent's ability
to consummate the transactions contemplated by this Agreement, nor is Buyer or
Buyer Parent subject to any materially adverse Order which would have any such
effect.
3.5 Financing Commitment.
--------------------
(a) True and complete copies of (i) a debt financing commitment
letter executed by one or more financial institutions (collectively, the
"Financing Commitment Letter") which has been redacted to exclude certain
information regarding interest payments and amortization, and (ii) letters or
other documentation evidencing commitments to contribute equity capital to Buyer
(collectively, the "Capital Commitments"), have been previously provided by
Buyer and Buyer Parent to Seller and Seller Parent. The per annum interest rate
(other than any applicable default rate) provided for in the Financing
Commitment Letter for Facility A is equal to the lender's "Base Rate" plus a
"Margin;" the lender's Base Rate, as of the date hereof, does not exceed 8% and
the Margin will not exceed 200 basis points; the Buyer and the Buyer Parent have
the right to convert the interest rate for Facility A to a fixed rate, which
rate would not exceed, on the date hereof, 10% for any term of fifteen or fewer
years. The per annum variable interest rate (other than any applicable default
rate) provided for in the Financing Commitment Letter for Facility B would not,
as of the date hereof, exceed 10%. The funds available pursuant to the Financing
Commitment Letter, together with the Capital Commitments on hand, are sufficient
to pay the Purchase Price at the Closing and costs of the transactions
15
<PAGE>
contemplated by this Agreement and to provide a $10 million line of credit
facility for the purpose of providing working capital for Buyer's operation of
the Business after the Closing and shall not, and cannot under their respective
terms, be used or committed for any other purpose prior to the termination of
this Agreement. Schedule 3.5(a) sets forth (i) an unaudited balance sheet of
Buyer as of March 3) 1, 1998 ("Buyer Balance Sheet"), and (ii) an unaudited
consolidated balance sheet of Buyer Parent as of February 28, 1998 ("Buyer
Parent Balance Sheet"). The Buyer Balance Sheet and Buyer Parent Balance Sheet
were prepared by the respective management of Buyer and Buyer Parent, were
prepared in accordance with GAAP, and fairly present the respective financial
condition of Buyer and Buyer Parent, as of the dates set forth above, except as
provided for in the notes thereto and for normal year-end adjustments. Schedule
3.5(a) also sets forth an unaudited pro forma balance sheet of Buyer which will
form a part of the Buyer's filing with the ICC and which reflects the completion
of the financing provided for in the Financing Commitment Letter, the
contributions of equity capital provided for in the Capital Commitments, and the
completion of the transactions contemplated hereby.
(b) Since March 31, 1998 through the date hereof, neither Buyer
Parent nor any of its Affiliates has incurred or undertaken any liability or
obligation (whether fixed or contingent, matured or unmatured, direct or
indirect) or guarantee of any liability or obligation, except as disclosed on
Schedule 3.5(b) or except as contemplated by the Financing Commitment Letter or
the transactions contemplated hereby. Since March 31, 1998, Buyer has not
incurred or undertaken any liability or obligation (whether fixed or contingent,
matured or unmatured, direct or indirect) or guarantee of any liability or
obligation, except as disclosed on Schedule 3.5(b) or except as contemplated by
the Financing Commitment Letter or except in connection with the transactions
contemplated hereby.
3.6 Brokers. No Person is or will become entitled to receive any brokerage
-------
or finder's fee, advisory fee or other similar payment for the transactions
contemplated by this Agreement by virtue of having been engaged by or acted on
behalf of Buyer or Buyer Parent.
ARTICLE 4
COVENANTS OF SELLER AND SELLER PARENT
4.1 Cooperation by Seller. From the date hereof through the Closing Date,
---------------------
Seller and Seller Parent shall use all commercially reasonable efforts to take
all actions and to do all things necessary or advisable to consummate the
transactions contemplated by this Agreement and to cooperate with Buyer in
connection with the foregoing, including using commercially reasonable efforts
to obtain all of the Consents necessary to effect the transactions contemplated
by this Agreement and the transfer of the Assumed Permits and to assist Buyer in
obtaining a substitute Permit for any Permit held by Seller which is not an
Assumed Permit, provided, however, that Seller and Seller Parent shall not be
required to pay or commit to pay any amount to (or incur any obligation in favor
of) any Person from whom any such Consent may be required (other than customary
transfer fees and governmental filing fees which shall be paid in accordance
with Section 6.6 and Section 12.7).
4.2 Pre-Closing Access to Information. From the date hereof through the
---------------------------------
Closing Date, Seller shall afford to Buyer, its accountants and its counsel
reasonable access and permit
16
<PAGE>
them to make such inspections as they may reasonably require during normal
business hours, including all available environmental reviews or audits, to
their respective properties, books, contracts, commitments and records
(excluding information that is subject to attorney-client privilege or
confidentiality agreements, or the disclosure of which would violate the Law).
Seller shall furnish or cause to be furnished to Buyer such financial and
operating data and other information with respect to the Business, as Buyer may
from time to time reasonably request, and Buyer and its representatives shall be
entitled, in consultation with Seller, to such access to the representatives,
officers and employees of Seller as Buyer may reasonably request. No later than
the 25th day of each calendar month prior to the Closing (beginning with May 25,
1998), Seller shall provide to Buyer an unaudited balance sheet of the Seller as
of the last day of the prior month and an unaudited Statement of Seller's
results of operations for the prior month, prepared by management of Seller.
Buyer shall direct all requests for information to:
Paul W. Schieber, Jr.
Assistant Vice President -- Corporate Audit Services
Sprint Corporation
1200 Main Street, 10th Floor
Kansas City, MO 64105
Telephone: (816) 854-3973
Facsimile: (816) 854-4592
4.3 Conduct of Business.
-------------------
4.3.1 Ordinary Course. From the date hereof through the Closing Date,
---------------
Seller, in connection with the conduct of the Business, shall use commercially
reasonable efforts to: (a) preserve substantially its relationships with
suppliers, customers and Employees; (b) maintain substantially the same amounts
and kinds of existing insurance coverage; (c) perform its obligations under the
Material Contracts and material Permits in all material respects; (d) comply
with all applicable Laws in all material respects; and (e) carry on the Business
including maintenance and repair of the plant and equipment, in the ordinary
course and consistent with past practice, except that the capital expenditure
budget for 1998 will be approximately $9,600,000.
4.3.2 Prohibited Actions. Unless otherwise required or permitted by
------------------
this Agreement or set forth on Schedule 4.3.2, Seller shall not, in connection
with the conduct of, or in relation to, the Business, without the prior written
consent of Buyer:
(i) incur or guaranty any indebtedness for borrowed money
relating to the Business in excess of $500,000 in the aggregate, except
intercompany debt;
(ii) sell, lease, assign, dispose of or transfer, or permit the
creation of any Lien on, any of the Purchased Assets, except for any such
assets disposed of in the ordinary course of business consistent with past
practice;
(iii) enter into any Contract or Lease involving obligations in
excess of $50,000;
17
<PAGE>
(iv) amend or terminate any Material Contract or Material
Lease involving obligations of Seller in excess of $50,000 or any material
Assumed Permit;
(v) except for customary merit, cost-of-living and
promotional increases to Employees in the ordinary course of business
consistent with past practice, increase the rate of compensation or benefit
levels for any Employee;
(vi) waive any material right, forgive any material debt
(other than intercompany debt) or release any material claim relating to
the Business, except with respect to customers and vendors in the ordinary
course of business consistent with past practice;
(vii) accelerate or delay the billing or sale of services or
equipment constituting the conduct of the Business or the collection of
accounts receivable of the Business outside the ordinary course of business
consistent with past practice;
(viii) purchase or lease any assets, other than assets purchased
or leased in the ordinary course of business consistent with past practice;
(ix) accelerate or delay the payment of trade payables, except
in the ordinary course of business consistent with past practice;
(x) enter into any agreement which restricts the Seller's
ability to conduct the Business or utilize the Purchased Assets;
(xi) except in the ordinary course of business consistent with
past practice, remove any Purchased Asset from the Territory if such
removal would cause the Purchased Asset to no longer be a Purchased Asset;
(xii) take any action that would, or that could reasonably be
expected to, result in any of the representations or warranties of Seller
or Seller Parent set forth in this Agreement to become untrue in any
material respect; or
(xiii) agree to take any of the actions described in Sections
4.3.2(1) through 4.3.2(xii).
4.3.3 Buyer's Consent. If Seller gives written notice to Buyer
---------------
that Seller proposes to take any action for which Buyer's consent is required
under-Section 4.3.2 and if Buyer has not delivered to Seller a written objection
to such proposed action within five (5) business days of Seller's notice, Buyer
shall be deemed to have consented to such proposed action. Buyer's consent to
any such proposed action shall not be unreasonably withheld.
4.4 Environmental Remediation. Seller shall remediate, or shall cause the
-------------------------
remediation of, the releases of Materials into the Environment set forth on
Schedule 2.13.1 or any supplement thereto. If such remediation is not completed
prior to the Closing, Seller shall complete such
18
<PAGE>
remediation as soon as reasonably practicable after the Closing Date and Buyer
shall provide Seller and Seller's employees, agents, contractors, subcontractors
and consultants with access, during normal business hours and in a manner that
will not unreasonably interfere with the operations and conduct of the Business,
to Buyer's real property, facilities, personnel and records to the extent
reasonably required to consummate such remediation.
4.5 Further Assurances. Subject to the other terms and conditions of this
------------------
Agreement, at any time and from time to time, whether before or after the
Closing, Seller shall execute and deliver all instruments and documents and take
all other action that Buyer may reasonably request to consummate or to evidence
the consummation of the transactions contemplated by this Agreement.
4.6 Cooperation. From the date hereof and continuing until six (6) months
-----------
after the Closing Date, Seller shall provide commercially reasonable cooperation
to Buyer and shall take all actions that are commercially reasonable and
requested by Buyer to ensure a smooth transition of the Business from Seller to
Buyer, including permitting Buyer to use the Sprint Names (as defined in the
License Agreement) in advertising, with Seller's prior written consent, to
facilitate the transition.
4.7 Supplements to Schedules. If, to Seller's Knowledge, any event occurs
------------------------
or condition changes that causes any of its representations or warranties in
this Agreement to be inaccurate, Seller shall notify Buyer thereof in writing.
Seller may amend or supplement the Schedules to account for any such event or
change. If Seller gives written notice to Buyer of any proposed amendment or
supplement to the Schedules and Buyer falls to deliver a written objection to
such proposed amendment or supplement within five (5) business days of Seller's
notice, Buyer shall be deemed to have consented to such proposed amendment or
supplement.
4.8 Assumed Directories. (a) Notwithstanding any other provision of this
-------------------
Agreement, Seller and SPA shall permit Buyer to (i) publish the Assumed
Directories; (ii) design the cover of the Assumed Directories, which shall
contain the Gallatin River Communications L.L.C. name and corporate logo and
(iii) determine the form, content and style of the Assumed Directories, as long
as the timing of such determination does not affect the timely publication of
the Assumed Directories; provided however that (x) Reimbursable Expenses
incurred by SPA prior to the Closing in connection with the Assumed Directories
shall be credited to Seller on line 5 of the Adjustment Statement, and (y) if
the Closing Date does not occur on or prior to September 15, 1998, Seller shall
be entitled to include in the Assumed Directories any information that Seller,
or its respective Affiliates, is required to include therein by law. Buyer and
SPA shall cooperate with each other to the extent appropriate or reasonably
required to ensure a smooth transition of the Assumed Directories from SPA to
Buyer.
(b) From the date hereof until the Closing Date, Seller and SPA agree to
permit Buyer access to, and permission to use in connection with Buyer's sale of
advertising in and publication of the Assumed Directories, all customer lists,
contracts, copyrights and other information and records related to the
production and publication of such Assumed Directories.
(c) SPA hereby grants to Buyer a perpetual, non-terminable, non-
transferable (except as otherwise provided in Section 12.2), royalty-free, fully
paid-up and nonexclusive right and
19
<PAGE>
license to use in the Assumed Directories any ad copy, graphics and other
materials in which SPA holds or claims a copyright interest and which relate
specifically to the Assumed Directories.
ARTICLE 5
COVENANTS OF BUYER AND BUYER PARENT
5.1 Cooperation by Buyer and Buyer Parent. From the date hereof through
-------------------------------------
the Closing Date, Buyer and Buyer Parent shall use commercially reasonable
efforts to take all actions and to do all things necessary or advisable to
consummate the transactions contemplated by this Agreement and to cooperate with
Seller in connection with the foregoing, including using commercially reasonable
efforts to obtain all of the Consents necessary to effect the transactions
contemplated by this Agreement and the transfer of the Assumed Permits;
provided, however, that Buyer and Buyer Parent shall not be required to pay or
commit to pay any amount to (or incur any obligation in favor of) any Person
from whom any such Consent may be required (other than customary transfer fees
and governmental filing fees which shall be paid in accordance with Section 6.6
and Section 12.7).
5.2 Pre-Closing Access to Information. Buyer and Buyer Parent shall comply
---------------------------------
with the limitations on the disclosure and use of information set forth in the
Non-Disclosure Agreement with respect to the information that Seller provides to
Buyer and Buyer Parent in and pursuant to this Agreement. Neither Buyer nor
Buyer Parent shall conduct any soil, groundwater or other environmental sampling
in connection with the transactions contemplated hereby without the prior
written consent of Seller, which consent shall not be unreasonably withheld.
Buyer and Buyer Parent shall refrain from unreasonably interfering with the
operations and conduct of the Business prior to Closing.
5.3 Further Assurances. Subject to the other terms and conditions of this
------------------
Agreement, at any time and from time to time, whether before or after the
Closing, Buyer and Buyer Parent shall execute and deliver all instruments and
documents and take all other action that Seller may reasonably request to
consummate or to evidence the consummation of the transactions contemplated by
this Agreement.
5.4 Notice of Breach. If at any time on or before the Closing Date, Buyer
----------------
or Buyer Parent obtains any knowledge (whether through investigation or
otherwise) of any fact, condition or event constituting a breach of any
representation or warranty of Seller set forth herein or any document referred
to herein, then Buyer or Buyer Parent, as the case may be, shall immediately
upon obtaining such knowledge inform Seller thereof and of such breach.
5.5 Excluded Directories. Buyer acknowledges and agrees that the Excluded
--------------------
Directories shall be published and owned by SPA, that SPA shall be entitled to
all revenues and receivables associated with such Excluded Directories
notwithstanding the fact that a portion of such receivables may be paid by
directory advertisers after the Closing. Between the date hereof and Closing,
Buyer and SPA agree to negotiate in good faith an agreement setting forth terms
under which Buyer would bill and collect for SPA receivables for directory
advertising in the Excluded Directories. If Buyer and SPA are unable to agree on
such terms for billing and
20
<PAGE>
collections, then SPA shall continue to bill and collect such directory
advertisers for amounts due with respect to Excluded Directories.
5.6 Business of Buyer Prior to Closing. Prior to the Closing Date, Buyer
----------------------------------
shall not engage in any business or take any action other than in connection
with the transactions contemplated by this Agreement, the Financing Commitment
Letter and the Capital Commitments.
ARTICLE 6
MUTUAL COVENANTS
6.1 Taxes. Seller and Buyer shall provide each other with such
-----
commercially reasonable assistance as may be requested by them in connection
with the preparation of any Return, any Tax audit or other examination by any
Governmental Authority, or any Judicial or administrative proceedings related to
liability for Taxes. Seller and Buyer shall retain and provide each other upon
written request with records or information which may be relevant to such
preparation, audit, examination, proceeding or determination. Such assistance
shall include making employees available on a mutually convenient basis to
provide and explain such records and information and shall include providing
copies of any relevant Returns and supporting work schedules. The Party
requesting assistance hereunder shall reimburse the other for reasonable out-of-
pocket expenses incurred in providing such assistance. With respect to any Lien
for Taxes which is a Permitted Lien because such Taxes are being contested in
good faith by appropriate proceedings and as to which adequate reserves have
been established in accordance with GAAP, consistently applied, the amount of
such reserves shall be held by Seller for the benefit of Buyer until such time
as the Lien has been fully discharged and released, and promptly paid over to
Buyer to the extent necessary to reimburse any amounts required to be paid by
Buyer to prevent enforcement of such Lien.
6.2 Books and Records.
-----------------
6.2.1 Access. For a period of six (6) years after the Closing, each
------
Party shall provide the other Party with commercially reasonable access during
normal business hours to its books and records relating to the Business (other
than books and records protected by the attorney-client privilege or a
confidentiality agreement or the disclosure of which would violate the Law) to
the extent that they relate to the condition or operation of the Business prior
to the Closing and are requested by such Party to prepare its Returns, to
respond to Third Party Claims or for any other legitimate purpose specified in
writing. Each Party shall have the right, at its own expense, to make copies of
any such books and records.
6.2.2 Destruction. Other than in the ordinary course of business and
-----------
consistent with past practices, for a period of six (6) years after the Closing,
neither Party shall dispose of or destroy any books and records relating
primarily to the Business to the extent that they relate to the conduct of the
Business prior to the Closing without first offering to turn over possession
thereof to the other Party by written notice at least thirty (30) days prior to
the proposed date of disposition or destruction.
21
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6.2.3 Confidentiality. Each Party may take such action which it deems
---------------
to be commercially reasonable to separate or redact information unrelated to the
Business from documents and other materials requested and made available
pursuant to this Section 6.2 and may condition the other Party's access to
documents and other materials that it deems confidential to the execution and
delivery of an agreement by the other Party not to disclose or misuse such
information.
6.2.4 Assistance. Each Party shall, upon receipt of a commercially
----------
reasonable request in writing and at the requesting Party's expense, make
personnel reasonably available to assist in locating and obtaining any books and
records relating to the Business to the extent that they relate to the condition
or operation of the Business prior to the Closing and make personnel reasonably
available whose assistance, participation or testimony is reasonably required in
anticipation of, preparation for or the prosecution or defense of any Third
Party Claim in which the other Party does not have any adverse interest.
6.3 No Required Dispositions or Other Adverse Actions. Notwithstanding any
-------------------------------------------------
other provision of this Agreement to the contrary, neither any Party nor their
respective Affiliates shall be obligated, in order to obtain any Permit or other
approval by any Governmental Authority that is necessary to consummate the
transactions contemplated hereby, to (i) hold, separate, sell or otherwise
dispose or make reductions in the scope or use of their respective businesses,
assets or properties, (ii) materially prejudice the benefits to be received from
the transactions contemplated hereby, or (iii) take any action or refrain from
taking any action that may have a material adverse effect on their respective
business, assets, results of operations or financial condition.
6.4 Certain Consents. Notwithstanding anything to the contrary in this
----------------
Agreement, this Agreement shall not constitute an agreement to assign or
transfer any interest in any Contract or Permit or other instrument or
arrangement or any claim, right or benefit, or an agreement to assume any
liability, obligation or commitment arising thereunder or resulting therefrom,
if an assignment or transfer or an attempt to make such an assignment or
transfer without the Consent of a third party would constitute a breach or
violation thereof or a violation of Law, or affect adversely the rights of Buyer
or Seller thereunder; and any transfer or assignment to, or any assumption by,
Buyer of any interest in, or liability, obligation or commitment under, any such
Contract or Permit or other instrument or arrangement that requires the Consent
of a third party shall be made subject to such Consent being obtained.
6.5 Collection of Accounts. Seller agrees that after the Closing Date,
----------------------
Buyer shall have the right and authority to collect all Accounts Receivables and
to endorse with the name of Seller any checks received on account of such
receivables, and Seller shall promptly deliver to Buyer any payments received by
Seller on account of the Accounts Receivables. Buyer agrees that after the
Closing Date, Seller shall have the right and authority to collect all Excluded
Accounts Receivables and to endorse with the name of Buyer any checks received
on account of such receivables, and Buyer shall promptly deliver to Seller any
payments received by Buyer on account of the Excluded Accounts Receivables.
6.6 Governmental Matters.
--------------------
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6.6.1 HSR Act Compliance. Promptly after the date hereof, Buyer and
------------------
Seller shall file any notification required to be filed under the HSR Act to
consummate the transactions contemplated hereby, and shall request early
termination of the waiting period thereunder. Buyer and Seller shall use all
commercially reasonable efforts to comply as promptly as practicable with any
request made pursuant to the HSR Act for additional information. Buyer and
Seller shall cooperate in such efforts to the extent commercially reasonable,
and each Party shall pay one-half of the filing fees incurred in connection with
the filings required under the HSR Act.
6.6.2 ICC and FCC Approvals. Promptly after the date hereof, Buyer and
---------------------
Seller shall make all filings required by the ICC and the FCC, and take all
actions reasonably necessary to obtain all Consents, Permits and Orders required
by the ICC and the FCC as conditions to the obligations of Buyer and Seller
under Sections 7.1.5 and 7.2.5. Buyer and Seller shall use all commercially
reasonable efforts to comply as promptly as practicable with any request made by
the ICC or the FCC for additional information. Buyer and Seller shall cooperate
in such efforts to the extent commercially reasonable. Each Party shall pay one-
half of the fees associated with the filings made by the Parties in order to
comply with this Section 6.6.2.
6.6.3 Other Governmental Approvals. Buyer and Seller shall comply with
----------------------------
any other Laws which are applicable to any of the transactions contemplated
- ---
hereby or pursuant to which government notification or approval of such
transaction is necessary. Buyer and Seller shall cooperate in any manner that is
commercially reasonable in providing any information which is required for this
purpose and in promptly filing, separately or jointly, any applications for such
government notification or approval. Buyer and Seller shall use all commercially
reasonable efforts to resolve such objections, if any, as may be asserted by any
Governmental Authority with respect to the transactions contemplated hereby.
6.7 Financing. Buyer hereby agrees to use commercially reasonable efforts
---------
(i) to negotiate definitive agreements with lenders in accordance with the terms
and conditions of the Financing Commitment Letter and (ii) to satisfy all
conditions applicable to Buyer in such definitive agreements to the extent that
the satisfaction of such conditions are within the control of Buyer.
6.8 Directories. In the event this Agreement is terminated, Buyer, SPA and
-----------
Seller agree that the transactions contemplated by Sections 4.8 and 5.5 of this
Agreement shall be unwound. To effect such unwinding (i) any information,
records, contracts, copyrights and other assets and information assigned,
conveyed, transferred or delivered by SPA to Buyer or Buyer's directory
publisher shall be assigned, conveyed, transferred or delivered to SPA; (ii) any
Contracts with customers for advertising in directories entered into between
such customers and Buyer or Buyer's directory publisher shall be assigned and
delivered to SPA; (iii) SPA shall pay to Buyer its Reimbursable Expenses
incurred in connection with the Assumed Directories; and (iv) Buyer, Seller and
SPA shall make any and all further adjustments and payments, and take any and
all further actions, necessary to restore Buyer, Seller and SPA to the positions
in which they would have been had the actions provided for in Sections 4.8 and
5.5 of this Agreement not been taken.
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<PAGE>
ARTICLE 7
CONDITIONS PRECEDENT TO CLOSING
7.1 Conditions Precedent to Buyer's Obligations. The obligation of Buyer
-------------------------------------------
to consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction of the following conditions, any of which may be waived in
writing by Buyer.
7.1.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Seller and Seller Parent set forth in this Agreement that are
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, as of the date
hereof and as of the time of the Closing as though made as of such time, except
to the extent such representations expressly relate to an earlier date (in which
case such representations and warranties qualified as to materiality shall be
true and correct, and those not so qualified shall be true and correct in all
material respects, on and as of such earlier date); provided, however, that
solely for the purposes of this Section 7.1.1 (and not for purposes of Article
10) there shall not be deemed to be a breach or inaccuracy in any of the
representations and warranties of Seller and Seller Parent set forth in Sections
2.7(f), 2.7(g), 2.8.2 (the second and third sentences), 2.9.2 (the last two
sentences), 2.11 (the last two sentences), 2.12, 2.13.1 (the first, third and
fourth sentences), 2.15 (the second and fourth sentences) or 2.19 (the last
sentence) unless any such inaccuracy or breach, individually or in the
aggregate, has a Material Adverse Effect.
7.1.2 Performance of Covenants. Seller, Seller Parent and SPA shall
------------------------
have performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed by Seller, Seller Parent
or SPA, as applicable, prior to or at the Closing.
7.1.3 Deliveries. Seller shall have delivered to Buyer the documents
----------
required by Section 8.2.
7.1.4 Compliance with HSR Act. All applicable waiting periods under
-----------------------
the HSR Act-shall have expired or been terminated.
7.1.5 Consents and Authorizations of ICC and FCC. Subject to Section
------------------------------------------
6.3, (i) all applicable Consents, Permits and Orders required by the FCC and any
other Governmental Authority (other than the ICC) to consummate the transactions
contemplated hereby, and (ii) an Order or Orders of the ICC (A) approving
Seller's sale and Buyer's purchase of the assets of Seller pursuant to this
Agreement, (B) granting Buyer a certificate of exchange service authority under
Section 13-405 of the Illinois Public Utilities Act, 220 ILCS 5/7-102 ("Public
Utilities Act") for the exchanges currently served by Seller in the Territory,
and (C) authorizing Seller to discontinue its provision of noncompetitive local
exchange services in the Territory under Section 13-406 of the Public Utilities
Act, shall have been obtained and become final.
7.1.6 No Order. No Order shall be in effect forbidding or enjoining
--------
the consummation of the transactions contemplated hereby.
24
<PAGE>
7.1.7 Third Party Consents. All third-party consents listed on
--------------------
Schedule 7.1.7 which are required to consummate the transactions contemplated by
this Agreement shall have been obtained.
7.2 Conditions Precedent to Seller's Obligations. The obligation of Seller
--------------------------------------------
to consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction of the following conditions, any of which may be waived in
writing by Seller.
7.2.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Buyer and Buyer Parent set forth in this Agreement that are
qualified as to materiality shall be true and correct, and those not so
qualified shall be true and correct in all material respects, as of the date
hereof and as of the time of the Closing as though made as of such time, except
to the extent such representations expressly relate to an earlier date (in which
case such representations and warranties qualified as to materiality shall be
true and correct, and those not so qualified shall be true and correct in all
material respects, on or as of such earlier date).
7.2.2 Performance of Covenants. Buyer and Buyer Parent shall have
------------------------
performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed by Buyer or Buyer Parent,
as applicable, prior to or at the Closing.
7.2.3 Deliveries. Buyer shall have delivered to Seller the payments
----------
and documents required by Section 8.3.
7.2.4 Compliance with HSR Act. All applicable waiting periods under
-----------------------
the HSR Act shall have expired or been terminated.
7.2.5 Consents and Authorizations of 1CC and FCC. Subject to Section
------------------------------------------
6.3, (i) all applicable Consents, Permits and Orders required by the FCC and any
other Governmental Authority (other than the ICC) to consummate the transactions
contemplated hereby, and (ii) an Order or Orders of the ICC (A) approving
Seller's sale and Buyer's purchase of the assets of Seller pursuant to this
Agreement, (B) granting Buyer a certificate of exchange service authority under
the Public Utilities Act for the exchanges currently served by Seller in the
Territory, and (C) authorizing Seller to discontinue its provision of
noncompetitive local exchange services in the Territory under Section 13-406 of
the Public Utilities Act, shall have been obtained and become final.
7.2.6 No Order. No Order shall be in effect forbidding or enjoining
--------
the consummation of the transactions contemplated hereby.
7.2.7 Third Party Consents. All third-party consents listed on
--------------------
Schedule 7.2.7 which are required to consummate the transactions contemplated by
this Agreement shall have been obtained other than consents required in
connection with Contracts, Licenses or Permits included in Purchased Assets for
which such Consents have not been obtained prior to the Closing and which Buyer
has notified Seller in writing prior to Closing of Buyer's election that such
assets be excluded from Purchased Assets ("Waived Assets").
25
<PAGE>
ARTICLE 8
CLOSING
8.1 Time and Place. On the terms and subject to the conditions of this
--------------
Agreement, the Closing shall take place at the offices of Stinson, Mag &
Fizzell, P.C., 1201 Walnut Street, Suite 2800, Kansas City, Missouri 64106, or
at such other place as the Parties shall agree upon in writing, at 10:00 a.m.
local time on the first Month End Date which is at least three (3) Business
Days after all of the conditions precedent set forth in Article 7 have been
satisfied or waived by the appropriate Party, or at such other time and date as
the Parties shall agree upon in writing (the "Closing Date") effective as of
12:01 a.m. on the following day; provided, however, that such Closing Date shall
be no later than January 31, 1999.
8.2 Deliveries by Seller. At the Closing, Seller shall deliver to Buyer
--------------------
the following:
(a) Executed deeds, bills of sale, endorsements, assignments,
registrations and other instruments of assignment, transfer and conveyance,
all in form and substance reasonably satisfactory to counsel for Buyer, as
shall be effective to vest in Buyer all of the right, title and interest of
Seller in the Purchased Assets, free and clear of all Liens (other than
Permitted Liens), together with all Contracts, Leases and other assets,
books and records constituting the Purchased Assets;
(b) The recorded Charter Documents of Seller, recently certified by
the Secretary of State of the State of Illinois and a Certificate of Good
Standing of Seller dated within ten (10) business days of the Closing Date
issued by the Secretary of State of the State of Illinois;
(c) A certificate of the Secretary or Assistant Secretary of Seller
dated the Closing Date certifying (i) Seller's Charter Documents and good
standing, (ii) the adoption of resolutions by Seller's board of directors
authorizing the transactions contemplated by this Agreement, and (iii) the
incumbency and signatures of Seller's officers, all in form and substance
reasonably satisfactory to Buyer;
(d) A certificate of an executive officer of Seller dated the Closing
Date certifying to the fulfillment of the conditions specified in Section
7.1.1 and Section 7.1.2;
(e) A written opinion addressed to Buyer from counsel for Seller
substantially in the form annexed hereto as Exhibit A, it being understood
that counsel to Buyer shall be entitled to rely on such opinion for the
purpose of rendering an opinion or opinions to the entity or entities
providing the financing contemplated by the Financing Commitment Letter;
(f) An Assignment and Bill of Sale and Assumption of Liabilities,
substantially in the form annexed hereto as Exhibit B (the "Bill of Sale"),
executed by Seller;
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(g) A Non-Competition Agreement in substantially the form annexed
hereto as Exhibit C (the "Non-Competition Agreement"), executed by Sprint;
(h) A License Agreement in substantially the form annexed hereto as
Exhibit D (the "License Agreement"), executed by Sprint; and
(i) Such other documents, instruments and certificates as Buyer may
reasonably request for the transactions contemplated by this Agreement.
8.3 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller
-------------------
the following:
(a) The Purchase Price, in the manner required by Section 1.3.1;
(b) The Bill of Sale, executed by Buyer;
(c) The recorded Charter Documents of Buyer, recently certified by
the Secretary of State of the State of Delaware and a Certificate of Good
Standing of Buyer dated within ten (10) business days of the Closing Date
issued by the Secretary of State of the State of Delaware;
(d) A certificate of a Manager of Buyer dated the Closing Date
certifying (i) Buyer's Charter Documents and good standing, (ii) the
adoption of resolutions by Buyer's Managers authorizing the transactions
contemplated by this Agreement, and (iii) the incumbency and signatures of
Buyer's Managers, all in form and substance reasonably satisfactory to
Seller;
(e) A certificate of a Manager of Buyer and dated the Closing Date
certifying to the fulfillment of the conditions specified in Section 7.2.1
and Section 7.2.2;
(f) A written opinion addressed to Seller from counsel for Buyer,
substantially in the form annexed hereto as Exhibit E;
(g) The Non-Competition Agreement, executed by Buyer;
(h) The License Agreement, executed by Buyer;
(i) A certificate of Buyer, dated the Closing Date, substantially in
the form annexed hereto as Exhibit F; and
(j) Such other documents, instruments and certificates as Seller may
reasonably request for the transactions contemplated by this Agreement.
ARTICLE 9
TERMINATION PRIOR TO CLOSING DATE
27
<PAGE>
9.1 Termination. This Agreement may be terminated prior to the Closing
-----------
Date only as follows:
(a) By the mutual written consent of the Parties;
(b) By either Party immediately upon written notice to the other
Party if an Order is issued forbidding or enjoining the consummation of the
transactions contemplated hereby and such Order has become final and non-
appealable; or
(c) (i) By Buyer upon written notice to Seller if any of the
conditions in Section 7.1 has not been satisfied as of December 31, 1998 or if
satisfaction of such a condition is or becomes impossible (other than primarily
through the failure of Buyer or Buyer Parent to comply with its obligations
under this Agreement) and Buyer has not waived such condition on or before
December 31, 1998; or (ii) by Seller upon written notice to Buyer, if any of the
conditions in Section 7.2 has not been satisfied as of December 31, 1998 or if
satisfaction of such a condition is or becomes impossible (other than primarily
through the failure of Seller, Seller Parent or SPA to comply with its
obligations under this Agreement) and Seller has not waived such condition on or
before December 31, 1998.
9.2 Effect of Termination. If this Agreement terminates pursuant to
---------------------
Section 9.1, no party hereto shall have any liability or obligation to any other
party hereunder, other than the confidentiality obligations set forth in the
Non-Disclosure Agreement. However, such termination shall not relieve any party
of liability for any breach of this Agreement except that no party shall be
liable for Consequential Damages.
ARTICLE 10
INDEMNIFICATION AND PROCEDURES
10.1 Indemnification by Seller and Seller Parent. Subject to the other
-------------------------------------------
provisions of this Article 10, from and after the Closing Date, Seller and
Seller Parent shall, jointly and severally, indemnify and hold Buyer, its
Affiliates and their respective employees, officers, directors and agents (the
"Buyer Indemnitees") harmless from and against any and all Damages suffered by
any Buyer Indemnitee arising out of or relating to:
(a) the breach of any representation or warranty made by Seller or
Seller Parent in this Agreement, by Sprint in the Non-Competition Agreement
or the License Agreement, or by Seller in any certificate required to be
executed and delivered by Seller at the Closing pursuant to this Agreement;
provided, however, that solely for purposes of this Article 10, the
representations and warranties set forth in the second sentence of Section
2.8.3 shall be deemed not to be qualified by Seller's Knowledge,
(b) the failure of Seller, Seller Parent or SPA to perform any
covenant or obligation by Seller, Seller Parent or SPA contained in this
Agreement (including Section 12.7) or by Seller or any Affiliate of Seller
in any other agreement required to be
28
<PAGE>
executed and delivered by Seller or such Affiliate of Seller at the Closing
pursuant to this Agreement;
(c) the failure of Seller to pay or perform any of the Excluded
Liabilities; or
(d) any Excluded Asset.
10.2 Indemnification by Buyer and Buyer Parent. Subject to the other
-----------------------------------------
provisions of this Article 10, from and after the Closing Date, Buyer and Buyer
Parent shall, jointly and severally, indemnify and hold Seller, its Affiliates
and their respective employees, officers, directors and agents (the "Seller
Indemnitees") harmless from and against any and all Damages suffered by any
Seller Indemnitee arising out of or relating to:
(a) the breach of any representation or warranty made by Buyer or
Buyer Parent in this Agreement, or by Buyer in the Non-Competition
Agreement, the License Agreement or any certificate required to be executed
and delivered by Buyer at the Closing pursuant to this Agreement;
(b) the failure of Buyer or Buyer Parent to perform any covenant or
obligation by Buyer or Buyer Parent contained in this Agreement or any
other agreement required to be executed and delivered by Buyer or Buyer
Parent at the Closing pursuant to this Agreement;
(c) the failure of Buyer to pay or perform any of the Assumed
Liabilities; or
(d) (i) the ownership, operation or conduct of the Business following
the Closing Date, or (ii) any Assumed Contract.
10.3 Notice and Resolution of Claims.
-------------------------------
10.3.1 Notice. Each Person entitled to indemnification pursuant to
------
Section 10.1 or Section 10.2 (an "Indemnitee") shall provide reasonably prompt
written notice to the indemnifying party after obtaining knowledge of any claim
that it may have pursuant to this Article 10; provided that the failure to
provide reasonably prompt notice shall not extinguish the rights of an
Indemnitee entitled to indemnification hereunder except to the extent that such
failure materially prejudices the dollar amount of any such claim for
indemnification or materially prejudices the ability of the indemnifying party
to defend such claim. Such notice shall set forth in reasonable detail the claim
and the basis for indemnification.
10.3.2 Right to Assume Defense. If such claim for indemnity shall
-----------------------
arise from a claim or Action involving a third party (a "Third Party Claim"),
the Indemnitee shall permit the indemnifying party to assume its defense. If the
indemnifying party assumes the defense of such Third Party Claim, it shall take
all steps necessary to investigate, defend or settle such Third Party Claim and
shall, subject to Section 10.4, hold the Indemnitee harmless from and against
any and all Damages caused by or arising out of any settlement approved by the
indemnifying party or any judgment in connection with such Third Party Claim.
Without the written consent of
29
<PAGE>
the Indemnitee, the indemnifying party or its Affiliates shall not consent to
entry of any judgment or enter into any settlement that does not include an
unconditional and complete release of the Indemnitee by the claimant or
plaintiff making the Third Party Claim. The Indemnitee may participate in such
defense or settlement through its own counsel, but at its own expense.
10.3.3 Failure to Assume Defense. Failure by the indemnifying party to
-------------------------
notify Indemnitee of its election to assume the defense of any Third Party Claim
within thirty (30) days after its receipt of notice thereof pursuant to Section
10.3.1 shall be deemed a waiver by the indemnifying party of its right to assume
the defense of such Third Party Claim. In such event the Indemnitee may defend
against such Third Party Claim in any manner it deems appropriate. The
Indemnitee may settle such Third Party Claim or consent to the entry of any
judgment with respect thereto, provided that it acts in good faith and in a
commercially reasonable manner.
10.4 Limits on Indemnification.
-------------------------
10.4.1 Basket. Seller and Seller Parent shall be liable to the Buyer
------
Indemnitees for Damages that are indemnifiable pursuant to Section 10.1(a), and
Buyer and Buyer Parent shall be liable to the Seller Indemnitees for Damages
that are indemnifiable pursuant to Section 10.2(a), only if the aggregate amount
of such Damages to all Buyer Indemnitees or all Seller Indemnitees,
respectively, exceeds $3,000,000 (the "Basket"), but in the event that such
Damages incurred by all Buyer Indemnitees or all Seller Indemnitees, as the case
may be, are in excess of the Basket, indemnification shall be made for all such
Damages from the first Dollar; provided, however, that this Section 10.4.1 shall
not apply to (a) the breach of any representation or warranty in Section 2.2,
the second sentence of Section 2.8.1, Section 2.9.1, Section 2.18 or Section 3.2
or (b) the intentional breach of any representation and warranty, the Damages
for either of which shall be payable from the first Dollar without regard to the
Basket.
10.4.2 Limit of Liability. The total aggregate liability of Seller and
------------------
Seller Parent for any claims for Damages arising under Section 10. 1 (a) of this
Agreement (exclusive of Damages arising from (a) the breach of any
representation or warranty in Section 2.2, the second sentence of Section 2.8.
1, Section 2.9. 1, Section 2.18 or Section 3.2 or (b) the intentional breach of
any representation and warranty) shall not exceed $100,000,000. Notwithstanding
any other provision of this Agreement or other source of liability, the total
aggregate liability of Seller Parent to all Buyer Indemnitees for any claims for
Damages arising under any provision of this Agreement or arising out of or in
connection with the transactions contemplated by this Agreement, the Business or
the Purchased Assets shall not exceed the Purchase Price.
10.4.3 Survival. Seller and Seller Parent shall have no obligation to
--------
indemnify any Buyer Indemnitee pursuant to Section 10. 1 (a), and Buyer and
Buyer Parent shall have no obligation to indemnify any Seller Indemnitee
pursuant to Section 10.2(a), for the breach of any representation or warranty
unless such Indemnitee has in good faith commenced an action or suit for such
breach prior to the expiration of fifteen (15) months following the Closing
Date, in the case of all representations and warranties except (a) those
representations and warranties set forth in Section 2.18, Section 2.13 and
Section 2.17, in respect of which such action or suit must be commenced prior to
the sixth anniversary of the Closing Date, and (b) those representations
30
<PAGE>
and warranties set forth in Section 2.2, the second sentence of Section 2.8.1,
Section 2.9.1 or Section 3.2, in respect of which such action or suit may be
commenced at any time after the Closing Date within the applicable statute of
limitations period .
10.4.4 Actual Knowledge. Neither Seller and Seller Parent, on the one
----------------
hand, nor Buyer and Buyer Parent, on the other hand, shall have any liability
hereunder for Damages arising from or relating to a breach or inaccuracy of any
representation or warranty set forth in this Agreement if (i) the other Party or
any of its Affiliates had knowledge on or before the time of Closing of the
fact, condition or event constituting such breach or inaccuracy (a "Known
Breach"), and (ii) the extent of the Damages relating to such Known Breach known
by the other Party or any of its Affiliates on or before the time of the Closing
prevented the satisfaction of the condition set forth in Section 7.1.1 or
Section 7.2.1, as the case may be, and therefore the other Party was not
obligated to consummate the transactions contemplated by this Agreement. Upon
request in writing delivered on or prior to the time of Closing by either Party
to the other Party, the other Party shall be required to declare whether any
Known Breach of such other Party is sufficient to prevent satisfaction of the
condition set forth in Section 7.1.1 or Section 7.2.1, as the case may be.
10.4.5 Consequential Damages: Mitigation. Neither Seller and Seller
---------------------------------
Parent, on the one hand, nor Buyer and Buyer Parent, on the other hand, shall
have any obligation to indemnify any Seller Indemnitee or Buyer Indemnitee for
(a) any Consequential Damages, or (b) any other Damages that are (i) caused,
contributed to or exacerbated by the actions or failure to act of any Buyer
Indemnitee (in the case of Seller's or Seller Parent's indemnification
obligations) or any Seller Indemnitee (in the case of Buyer's or Buyer Parent's
indemnification obligations), (ii) recovered by the Indemnitee from any third
party (including insurers to the extent recovered, except to the extent of an
increase in premiums or similar fees or amounts resulting from any such
recovery), or (iii) offset by tax savings realized on account of such Damages by
the Indemnitee or any of its Affiliates (to the extent and at the time of such
tax savings).
10.4.6 Exclusive Remedy. This Article 10 sets forth the exclusive
----------------
remedy for monetary damages owing from Seller and Seller Parent to the Buyer
Indemnitees and from Buyer and Buyer Parent to Seller Indemnitees that arise
from the matters described in Sections 10.1 and 10.2 other than damages arising
out of actual fraud. Except for claims otherwise permitted by Article 10, and
claims for damages arising out of actual fraud, each of Seller, Seller Parent,
Buyer and Buyer Parent hereby waives any claim or cause of action for monetary
damages that it might assert against another, with respect to the matters
described in Sections 10.1 and 10.2, whether under common law or under any
Environmental Law, trade regulation or other Law.
10.5 Indemnity Payments. All payments made pursuant to this Article 10
------------------
(other than interest payments) shall be treated by the Parties on all Returns as
an additional payment or rebate, as the case may be, of the Purchase Price.
10.6 Payment and Assignment of Claims. Upon final determination by the
--------------------------------
Parties or by a court of competent jurisdiction that an Indemnitee is entitled
to indemnification under this
31
<PAGE>
Article 10, the indemnitors shall, jointly and severally, promptly pay or
reimburse, as appropriate, the Indemnitee for any Damages to which it is
entitled to be indemnified hereunder. Neither Party nor its Affiliates shall
permit any exercise of any right of set-off against the other Party or its
Affiliates until such final determination is made.
10.7 Other Indemnitees. Buyer and Buyer Parent shall cause the Buyer
-----------------
Indemnitees, and Seller and Seller Parent shall cause the Seller Indemnitees, to
comply with the provisions and to abide by the limitations set forth in this
Article 10.
ARTICLE 11
EMPLOYEE MATTERS
11.1 Offer of Employment and Continuing Compensation. Effective as of the
-----------------------------------------------
Closing Date, Buyer shall make an offer of employment to each Employee who (i)
is not subject to a Collective Bargaining Agreement or (ii) is subject to a
Collective Bargaining Agreement for which a Labor Consent has been obtained in
accordance with Section 11.4, in either case except as set forth on Schedule
11.1. For purposes of this Agreement, those Employees receiving such an offer
(whether or not subject to a Collective Bargaining Agreement) who complete
reasonable and customary employment forms (including releases of personnel
records) and who accept employment with Buyer shall be referred to herein as
"Affected Employees." Notwithstanding the foregoing, nothing contained herein,
express, or implied, is intended to confer upon any Affected Employee (a) any
right to continued employment for any period by reason of this Agreement, or (b)
any particular term or condition of employment other than as expressly referred
to in this Agreement. Except as set forth on Schedule 11.1, each Affected
Employee shall work at at least the same rate of pay and in substantially the
same positions and at the same locations as such Employees were employed by
Seller as of the Closing Date.
11.2 Continuing Benefits. With respect to Affected Employees who are not
-------------------
subject to a Collective Bargaining Agreement, Buyer shall (i) cause such
employment to continue for a period of at least one (1) year following the
Closing Date, subject to the ability of any such Affected Employee to
voluntarily terminate such employment, and to the ability of Buyer to terminate
such Affected Employee's employment for cause; and (ii) except as set forth in
Schedule 11.2(a), continue to pay or make available for a period of at least one
(1) year following the Closing Date to such Affected Employees compensation,
employee benefit plans and programs which shall provide such Affected Employees
with compensation and benefits that are, in the aggregate, substantially
comparable to the compensation, benefits and programs provided by Seller as of
the date hereof to such Affected Employees, and in no event less favorable, in
the aggregate, than the compensation, benefits and programs provided as of the
date hereof by Buyer to its employees having substantially similar
responsibilities as the Affected Employees; provided, however, that Buyer, in
providing such substantially comparable benefits, shall not be required to
provide or maintain any particular plan or benefit which was provided to or
maintained for such Affected Employees prior to the Closing. Following the first
anniversary of the Closing Date, Buyer shall have no obligations pursuant to
this Agreement with respect to the employment, compensation or benefits of
Affected Employees who are not subject to a Collective Bargaining Agreement. A
description of each of the benefits to be provided to the Affected Employees who
are not subject to a Collective Bargaining Agreement is included in
32
<PAGE>
Schedule 11.2(b), and a true and correct copy of each written plan and each
summary plan description therefor will be provided to Seller prior to the
Closing.
11.3 Credit for Service. Buyer shall take all actions required so that
------------------
Affected Employees who are not subject to a Collective Bargaining Agreement will
receive credit for their respective periods of service with Seller or any Other
Affiliate prior to the Closing Date under any employee benefit plans or programs
established, maintained, continued or made available by Buyer after the Closing
for purposes of eligibility for participation and vesting, including eligibility
for or vesting with respect to early retirement and post-retirement medical
benefits. With respect to Affected Employees who are not subject to a Collective
Bargaining Agreement, Buyer will not be required to recognize any periods of
service rendered to the Seller or any Other Affiliate prior to the Closing Date
for purposes of determining the amount of any benefit accrual under any defined
benefit pension plan or post-retirement medical benefit plan established or
maintained by Buyer.
11.4 Collective Bargaining Agreements. Prior to the Closing, the Parties
--------------------------------
shall use commercially reasonable efforts to obtain the consent (a "Labor
Consent") of each labor organization which is a party to a Collective Bargaining
Agreement (each, a "Union") to the assignment by Seller of the Collective
Bargaining Agreement to which it is a party to Buyer and the assumption by Buyer
of the liabilities and obligations which accrue or arise after the Closing Date
pursuant to such Collective Bargaining Agreement. Each such Labor Consent shall
not be subject to any condition required to be performed or satisfied by Buyer
or any Affiliate of Buyer (including the assumption of any Excluded Liability),
and shall provide that (i) the respective Union accepts the employee benefits
plans set forth in Schedule 11.4 in lieu of the Employee Benefit Plans
theretofore provided by Seller and Affiliates of Seller, and (ii) Buyer shall
take all actions required so that Affected Employees who are subject to a
Collective Bargaining Agreement for which a Labor Consent is obtained will
receive credit for their respective periods of service and, except with respect
to such Affected Employees who are also Conditional Employees or Retired
Employees, seniority with Seller or any Other Affiliate prior to the Closing
Date under the employee benefits plans set forth in Schedule 11.4 for purposes
of eligibility for participation and vesting, including eligibility for or
vesting with respect to early retirement and post-retirement medical benefits,
provided that Buyer will not be required to recognize any periods of service
rendered to the Seller or any Other Affiliate prior to the Closing Date for
purposes of determining the amount of any benefit accrual under any defined
benefit pension plan or post-retirement medical benefit plan established or
maintained by Buyer. In the event that a Labor Consent with respect to any
Collective Bargaining Agreement cannot be obtained by the Parties in accordance
with this Section 11.4, such Collective Bargaining Agreement shall become an
Excluded Contract and set forth on Schedule 1.2(i) and Buyer shall not be
required to make an offer of employment pursuant to Section 11.1 to any Employee
subject to such Collective Bargaining Agreement. The terms and conditions of
employment with respect to Affected Employees who are subject to a Collective
Bargaining Agreement for which a Labor Consent is obtained in accordance with
this Section 11.4 shall, following the Closing, continue to be governed by the
provisions of such Collective Bargaining Agreement, except as specifically
provided above with respect to employee benefits plans. Notwithstanding the
foregoing, Buyer and Buyer Parent shall in no event be liable for any employee
benefit that accrues on or prior to the Closing Date with respect to any
Employee governed by a Collective
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Bargaining Agreement, including any retroactive increase in benefits levels
under a defined benefit pension plan or any subsidy for early retirement benefit
prescribed by any Collective Bargaining Agreement.
11.5 WARN Act. Seller shall comply with all applicable provisions of the
--------
Worker Adjustment and Retraining Notification Act of 1988 (the "WARN Act") and
any similar state or local Law prior to and on the Closing Date. Buyer shall
comply with all applicable provisions of the WARN Act and any similar state or
local Law following the Closing Date. Prior to the Closing Date and upon Buyer's
request, Seller shall deliver WARN Act notices to Employees identified by Buyer,
such notices to be in a form determined solely by Buyer (the "WARN Act
Notices"). Seller shall have no liability under the WARN Act or similar state or
local Laws with respect to any claims arising out of the WARN Act Notices and/or
Buyer's failure to offer employment to any of the Employees in accordance with
this Article II or Seller's failure to continue the employment of any Employees
after the Closing, and Buyer shall indemnify in accordance with the procedures
set forth in Section 10.3, Section 10.6 and Section 10.7 and hold Seller
harmless with respect to any such claims. Seller shall have no obligation to
employ any Employee after the Closing.
11.6 401(k) Loan Transfers. In the event that (i) Buyer and Seller agree to
---------------------
a plan-to-plan transfer of assets with respect to employee benefit plans
qualified under Section 401(k) of the Code for Affected Employee accounts and
(ii) the Buyer Parent Retirement Savings Plan accepts outstanding participant
loan transfers, Seller agrees that it will provide Buyer and/or Buyer Parent
with all original notes, loan documentation and security with respect to each
loan to an Affected Employee that is transferred from a Section 401(k)-qualified
Seller plan to the Buyer Parent Retirement Savings Plan.
ARTICLE 12
MISCELLANEOUS
12.1 Severability. If any provision of this Agreement as applied to any
------------
party or to any circumstance shall be held invalid, illegal or unenforceable by
any court of competent jurisdiction, (i) the validity, legality and
enforceability of the remaining provisions of this Agreement will remain in full
force and effect and (ii) the application of such provision to any other party
or to any other circumstance shall not be affected or impaired thereby.
12.2 Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the parties; provided, however, that neither this Agreement nor any
of the rights or obligations thereunder may be assigned by any party without the
prior written consent of each other party, except that (a) Buyer shall have the
right to assign its rights hereunder to one or more of its Affiliates without
the consent of any other party, which assignment shall not result in a release
of any of Buyer's obligations or liabilities under this Agreement, provided that
Buyer and each such Affiliate execute and deliver to Seller an Assignment
Agreement in substantially the form annexed hereto as Exhibit G (with the blanks
therein appropriately completed); and (b) Buyer shall have the right to assign
its rights and obligations under Article II to Madison River Communications,
Inc., a Delaware corporation, without the prior written consent of any other
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party, which assignment shall not result in a release of any of Buyer's
obligations or liabilities under Article 11. In connection with the arrangement
and consummation of the financing contemplated by the Financing Commitment
Letter, each party hereto hereby consents to Buyer's assignment, effective
immediately after the Closing, to Buyer's financing sources thereunder its
rights pursuant to and any claims under this Agreement and any other document or
agreement executed and delivered by Seller, Seller Parent or Sprint in
connection with this Agreement.
12.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall for all purposes be deemed to be an original
and all of which, when taken together, shall constitute one and the same
agreement.
12.4 Headings. The table of contents, captions and headings used in this
--------
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction or
interpretation hereof
12.5 Waiver. Any of the terms or conditions of this Agreement may be waived
------
in writing at any time by the parties which are entitled to the benefits thereof
No waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of such provision at any time in the future or a wavier of
any other provision hereof The rights and remedies of the parties are cumulative
and not alternative. Neither the failure nor any delay by any party in
exercising any right, power or privilege under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege.
12.6 No Third-Party Beneficiaries. Nothing in this Agreement, express or
----------------------------
implied, shall create or confer upon any Person (including but not limited to
any Employees), other than the parties or their respective successors and
permitted assigns, any legal or equitable rights, remedies, obligations,
liabilities or claims under or with respect to this Agreement, except as
expressly provided herein.
12.7 Sales and Transfer Taxes. The Parties shall each be responsible for
------------------------
one-half of all sales, transfer, deed, duties, stamp, notary public and other
similar taxes, duties and transfer fees applicable to the transactions
contemplated by this Agreement, including fees to record transfer documents.
12.8 Other Expenses. Except as otherwise expressly provided herein, each of
--------------
the parties shall each pay all costs and expenses incurred by it or on its
behalf in connection with this Agreement and the transactions contemplated
hereby, including fees and expenses of its own agents, representatives,
financial consultants, accountants and legal counsel.
12.9 Notices. Unless otherwise provided herein, any notice, request,
-------
waiver, instruction, consent or other document or communication required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed to have been duly given and received when (a) delivered by hand (with
written confirmation of receipt), (b) when received by the addressee, if sent by
a nationally-recognized overnight delivery service or (c) when received
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by the addressee, if mailed by registered or certified mail, postage prepaid,
return receipt requested, as follows:
If to Seller:
Sprint Corporation
2330 Shawnee Mission Park-way
Westwood, KS 66205
Attn: Rick McRae
Telephone: (913) 624-3116
Facsimile: (913) 624-3676
with a copy to:
Sprint Corporation
2330 Shawnee Mission Parkway
Westwood, KS 66205
Attn: Thomas A. Gerke
Telephone: (913) 624-2589
Facsimile: (913) 624-8361
If to Buyer:
Gallatin River Communications L.L.C.
6330 Quadrangle Drive, Suite 325
Chapel Hill, NC 27514
Attn: Paul Sunu
Telephone: (919) 493-7030 (Ext. 22)
Facsimile: (919) 402-0151
with a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Suite 2100
Chicago, IL 60606
Attn: Gary P. Cullen
Telephone: (312) 407-0680
Facsimile: (312) 407-0411
or at such other address or facsimile number for a party as shall be specified
in writing by that party.
12.10 Governing Law. This Agreement shall be construed in accordance with
-------------
and governed by the Laws of the State of Illinois applicable to agreements made
and to be performed wholly within such Jurisdiction, without regard to conflicts
of law principles.
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12.11 Interpretation.
--------------
12.11.1 Unless specifically stated otherwise, references to
Articles, Sections, Exhibits and Schedules refer to Articles, Sections, Exhibits
and Schedules in this Agreement. References to "includes" and "including" mean
"includes without limitation" and "including without limitation."
12.11.2 Each party is a sophisticated legal entity that was
advised by experienced counsel and, to the extent it deemed necessary, other
advisors in connection with this Agreement. Accordingly, each party hereby
acknowledges that no party has relied or will rely in respect of this Agreement
or the transactions contemplated hereby upon any document or written or oral
information previously furnished to or discovered by it or its representatives,
other than this Agreement or the documents and instruments delivered at the
Closing
12.11.3 No provision of this Agreement shall be interpreted in
favor of, or against, any of the parties by reason of the extent to which any
such party or its counsel participated in the drafting thereof or by reason of
the extent to which any such provision is inconsistent with any prior draft
hereof or thereof
12.11.4 The inclusion of any information in any disclosure
schedule (i) shall not be deemed an admission that any such information is
material for purposes of the representation and warranty to which it relates or
any other representation and warranty, (ii) shall not be deemed an admission
that any such disclosed matter is or may give rise to a breach of any Contract
or violation of Law, or for any other purpose related to the Agreement or the
transactions contemplated thereby, including, without limitation, for purposes
of any covenants, closing conditions, indemnification or any other remedies the
parties may have, and (iii) shall not be used or interpreted in any manner to
create a standard of materiality for any such purpose.
12.12 Public Announcements. Seller and Buyer shall agree on the terms of
--------------------
any press releases or other public announcements and certain other
communications related to this Agreement and shall consult with each other
before issuing any press releases or other public announcements related to this
Agreement; provided, however, that any party may make a public disclosure if in
the opinion of such party's counsel it is required by Law or the rules of the
New York Stock Exchange or the Nasdaq National Market System to make such
disclosure. The parties agree, to the extent practicable, to consult with each
other regarding any such public announcement in advance thereof In addition, the
parties agree to consult with, and provide commercially reasonable cooperation
to, each other with respect to the form and content of any communication to
Employees, customers, suppliers and others having dealings with Seller, Sprint
and Other Affiliates concerning this Agreement and the transactions contemplated
thereby through the Closing Date.
12.13 Exclusive Jurisdiction and Consent to Service of Process. The par-
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ties agree that any Action arising out of or relating to this Agreement or the
transactions contemplated hereby shall be instituted in a federal or state court
sitting in Chicago, Illinois, which shall be the exclusive venue of any such
Action. Each party waives any objection which such party may now
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or hereafter have to the laying of venue of any such Action, and irrevocably
consents and submits to the jurisdiction of any such court (and the appropriate
appellate courts) in any such Action. Any and all service of process and any
other notice in any such Action shall be effective against such party when
transmitted in accordance with Section 12.9. Nothing contained herein shall be
deemed to affect the right of any party to serve process in any manner permitted
by Law.
12.14 Entire Agreement. This Agreement, together with the Schedules and
----------------
Exhibits hereto, the Non-Competition Agreement, the License Agreement and the
Non-Disclosure Agreement, constitutes the sole understanding of the parties with
respect to the matters contemplated hereby and thereby and supersedes and
renders null and void all prior agreements and understandings, written and oral,
between the parties with respect to the subject matter hereof and thereof. No
party shall be liable or bound to any other party in any manner by any promises,
conditions, representations, warranties, covenants, agreements and
understandings, except as specifically set forth herein or therein.
12.15 Amendment. No amendment, modification or alteration of the terms or
---------
provisions of this Agreement, including any Schedules and Exhibits, shall be
binding unless the same shall be in writing and duly executed by the parties
against whom such amendment, modification or alteration is sought to be
enforced.
ARTICLE 13
DEFINITIONS
13.1 Definitions. For purposes of this Agreement, the terms set forth
-----------
below shall have the following meanings:
"Access Line " means a telephone line reaching to the premises of a
customer of the Business that is assigned to a customer account and billed for
on a recurring basis.
"Accounts Receivable" means all accounts receivable, trade receivables,
notes receivables and other receivables, including trade accounts receivable
with Sprint or any of its Affiliates, which are receivable as a result of goods
sold or services provided, or billed for, by Seller in connection with the
Business other than Excluded Accounts Receivable; provided that, for purposes of
determining the value to be used in the Adjustment Statement and the Pro Forma
Adjustment Statement for such Accounts Receivable, the value shall be net of an
allowance for doubtful accounts (which allowance is calculated with respect to
the categories of accounts included in Accounts Receivable consistent with past
practice and in accordance with GAAP (which practice is generally described on
Schedule 13. 1 (a)). The foregoing categories are the basis for the calculation
of "Accounts Receivable" in the Pro Forma Adjustment Statement and shall be the
basis for the calculation of "Accounts Receivable" in the Adjustment Statement.
"Action" means any action, suit, arbitration, inquiry, proceeding or
investigation by or before any Governmental Authority or arbitrator.
"Adjustment Statement" shall have the meaning set forth in Section 1.4.1.
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"Advance Billings and Payments" means the liability reflected on the
regularly prepared balance sheet of the Seller under the caption "Current
Liabilities-Advance billings and payments."
"Affected Employees" shall have the meaning set forth in Section 11.1.
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by, or under common control with such Person. For
purposes of this Agreement, the term "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with" as used with
respect to any Person) means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of such
Person whether through ownership of voting securities, by contract or otherwise.
"Affiliated Group" shall have the meaning set forth in Section 2.18.
"Agreement" means this Asset Purchase Agreement, together with the
Schedules and Exhibits hereto.
"Allocation Statement" shall have the meaning set forth Section 1.3.2.
"Assumed Contract Liability" shall have the meaning set forth in Section
1.5(b).
"Assumed Contracts" shall have the meaning set forth in Section 1.1(vi).
"Assumed Directories" means all Directors published or distributed for use
in the Territory on or after November 1, 1998, including Directories published
for the following cities (with month of scheduled publication): (i) Dixon
(November 1998 and thereafter), (ii) Savanna (November 1998 and thereafter),
(iii) Galesburg (January 1999 and thereafter), (iv) Staunton (February 1999 and
thereafter), (v) Lacon (March 1999 and thereafter), (vi) Pekin (May 1999 and
thereafter), and (vii) Havana (October 1999 and thereafter).
"Assumed Environmental Liability" shall have the meaning set forth in
Section 1.5(e).
"Assumed Lease" means any Lease pursuant to which Seller leases any Leased
Real Property or any Leased Personal Property.
"Assumed Liabilities" shall have the meaning set forth in Section 1.5.
"Assumed Payable" shall have the meaning set forth in Section 1.5(a).
"Assumed Permits" shall have the meaning set forth in Section 1.1 (viii).
"Basket" shall have the meaning set forth in Section 10.4.1.
"Bill of Sale" shall have the meaning set forth in Section 8.2(f).
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"Business" means (a) the local wireline telecommunications business
previously conducted and conducted as of the Closing Date by Seller in the
Territory pursuant to the certificates of exchange service authority set forth
on Schedule 13.1(b), including the provision of local exchange telephone
services, intra-LATA toll and access services, billing and collection services,
public pay phone services and directory assistance services, and (b) the sale,
lease and maintenance of telecommunications equipment as conducted by Seller
prior to Closing and as of the Closing Date from locations within the Territory
or by Seller's employees based within the Territory.
"Business Financial Information " shall have the meaning set forth in
Section 2.5.1.
"Buyer" shall have the meaning set forth in the first paragraph of this
Agreement.
"Buyer Balance Sheet" shall have the meaning set forth in Section 3.5(a).
"Buyer Indemnitees" shall have the meaning set forth in Section 10.1.
"Buyer Parent" shall have the meaning set forth in the first paragraph of
this Agreement.
"Buyer Parent Balance Sheet" shall have the meaning set forth in Section
3.5(a).
"Capital Commitments" shall have the meaning set forth in Section 3.5(a).
"Cash Equivalents" means short-term, highly liquid investments that are
both readily convertible to known amounts of cash and so near maturity that they
present insignificant risk of change in value, including without limitation
Treasury bills, commercial paper and money market funds.
"Charter Documents" means (a) in the case of any corporation, its articles
or certificate of incorporation and its by-laws, (b) in the case of any
partnership, its partnership agreement and partnership certificate, if any, and
(c) in the case of any other Person, its organic and governing documents, as
each has been amended or supplemented from time to time.
"Closing" means the consummation of the transactions contemplated hereby.
"Closing Date" shall have the meaning set forth in Section 8.1.
"Code" means the Internal Revenue Code of 1986, as am ended from time to
time.
"Collective Bargaining Agreements" shall have the meaning set forth in
Section 2.16.2.
"Conditional Employee" shall mean an Employee who, as of the Closing Date,
(i) is on approved leave of absence or (ii) is receiving benefits, is eligible
to receive benefits or has applied for benefits under Seller's long-term
disability program or short-term disability program.
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"Consent" means a consent, approval, authorization, waiver or notification
from any Person, including any Governmental Authority.
"Consequential Damages" means Damages arising out of any interruption of
business, loss of profits, loss of use of facilities, claims of customers, loss
of goodwill or any indirect, incidental or special Damages.
"Contracts" means all contracts, agreements, instruments, Leases, licenses,
commitments and arrangements, except Permits.
"Customer Contracts" means all customer contracts, equipment leases, term
and volume agreements, pay phone agreements, purchase orders or other Contracts
for the sale or provision by Seller of goods and/or services that relate
exclusively to the conduct of the Business, other than Multi-Location Equipment
Contracts and Contracts listed on Schedule 1.2(1),
"Customer Deposits" means all deposits of customers of the Business held by
Seller.
"Damages" means all losses, claims, damages, costs, fines, penalties,
obligations, payments and liabilities (including those arising out of any
Action), together with all reasonable costs and expenses (including reasonable
outside attorneys' fees and reasonable out-of-pocket expenses) incurred in
connection with any of the foregoing.
"Directories" means any and all telephone directories (including white
pages telephone listings and yellow pages telephone listings and advertising) in
which residential and business customers in the Territory are entitled to a free
listing as part of regulated local exchange service.
"Dollars" or "$" means lawful currency of the United States.
"Easements" shall have the meaning set forth in Section 1.1(i)(c).
"Employee " means each of the individuals set forth on Schedule 2.16.1, as
supplemented pursuant to Section 2.16.1, and which shall include any Retired
Employee.
"Employee Benefit Plan " shall have the meaning set forth in Section
2.17.1.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply, stream sediments, ambient air
(including indoor air), plant and animal life, and any other environmental
medium or natural resource.
"Environmental Laws " means any Law that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual releases of pollutants or hazardous substances or
materials, violations of discharge
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limits, or other prohibitions and of the commencements of activities that
could have a significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other potentially
harmful substances;
(g) cleaning up pollutants that have been released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting self-
appointed representatives of the public interest to recover for injuries
done to public assets, including, the Federal Water Pollution Control Act,
the Clean Air Act, the Toxic Substances Control Act, the Solid Waste
Disposal Act, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, the Emergency Planning and Community Right-To-Know
Act and the Safe Drinking Water Act, and the rules and regulations
thereunder promulgated in final form prior to the date hereof as
interpreted in accordance with public announcements made prior to the date
hereof.
"Equipment Warranties" means any warranty given by Seller in the ordinary
course of its Business with respect to any equipment or Inventory sold by
Seller, or leased by Seller, to a customer of Seller in the Business, other than
to a Multi-Location Equipment Customer.
"ERISA " means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" shall have the meaning set forth in Section 2.17.1.
"Excluded Accounts Receivable" means accounts receivable, trade
receivables, notes receivables and other receivables (i) set forth on Schedule
13.1(c), (ii) owed by customers of Seller for the receipt of local wireline
telecommunications services from Seller who on or prior to the Closing Date have
had their services discontinued or disconnected by Seller, (iii) resulting from
Excluded Contracts or Multi-Location Equipment Contracts, (iv) owed with respect
to pay station dial-around calls, or (v) owed by an Affiliate of Seller other
than for goods sold or services provided.
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"Excluded Assets" shall have the meaning set forth in Section 1.2.
"Excluded Contracts" shall have the meaning set forth in Section 1.2(1).
"Excluded Directories" means all Directories published (or scheduled for
publication) or distributed for use in the Territory on or prior to October 31,
1998, including (i) the Directory for Galesburg published in January 1998, (ii)
the Directory for Staunton published in February 1998, (iii) the Directory for
Lacon published in March 1998, (iv) the Directory for Pekin scheduled to be
published in May 1998, and (v) the Directory for Havana scheduled to be
published in October 1998.
"Excluded Inventory" means any inventory of Seller in the Territory that
(a) bears, has affixed to it or otherwise displays any trademarks or service
marks of Sprint, Seller or any Other Affiliate, (b) is obsolete inventory, or
(c) is that portion of the inventory of Seller not described in (a) and (b)
above that in the aggregate has a value in excess of $500,000 on the books and
records of Seller from which is derived the regularly prepared balance sheet of
the Seller.
"Excluded Liabilities" shall have the meaning set forth in Section 1.6.
"Facility A " shall have the meaning set forth in the Financing Commitment
Letter.
"Facility B" shall have the meaning set forth in the Financing Commitment
Letter.
"FCC" means the Federal Communications Commission.
"Financing Commitment Letter" shall have the meaning set forth in Section
3.5(a).
"GAAP " means U.S. generally accepted accounting principles at the time in
effect, consistently applied.
"Governmental Authority" means any federal, state or local government, any
of its subdivisions, agencies, authorities, commissions, boards or bureaus, any
federal, state or local court or tribunal and any arbitrator.
"Guarantee" means any guarantee, any indemnification obligation and any
other contingent obligation to purchase, to provide funds for payment or to
supply funds to invest in any Person or otherwise to assure a creditor against
loss.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the regulations promulgated thereunder.
"ICC" means the Illinois Commerce Commission.
"Indemnitee " shall have the meaning set forth in Section 10.3.1.
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"Independent Firm " shall have the meaning set forth in Section 1.4.1.
"Information and Records" means all of Seller's books, records, information
relating to Purchased Assets, the Business and customers and markets in the
Territory of the Business that is relevant to the conduct of the Business
contained in files and/or databases or otherwise, (including such information
contained in those databases set forth on Schedule 13.1(d)), plans,
specifications, technical information, price lists, promotional materials,
advertising copy and data, marketing research and information, sales records,
service records, customer lists and files (including customer credit,
collection, deposit and complaint information), customer profiles, customer
proprietary network information, customer telephone numbers, customer telephone
number lists, customer calling card numbers, other customer information, wide
and local area network documentation and architecture configuration, and, to the
extent permitted by Law, copies of personnel, employee compensation and benefits
and labor relations records with respect to each Affected Employee and each
Collective Bargaining Agreement and all other information that is used
exclusively in, or relates exclusively to, the Business-, provided that
Information and Records shall not include any of the foregoing which relate
exclusively to Excluded Assets.
"Intellectual Property" means patents, patent applications, software,
registered copyrights and applications therefor.
"Inventory" means the assets other than the Excluded Inventory reflected on
the regularly prepared balance sheet of the Seller under the captions "Current
Assets-Inventories" that relate exclusively to the conduct of the Business,
which are includable in the calculation of "Inventory" in the Pro Forma
Adjustment Statement and in the Adjustment Statement.
"Known Breach" shall have the meaning set forth in Section 10.4.4.
"Labor Consent " shall have the meaning set forth in Section 11.4.
"Law" means any federal, state, local or other statute, rule, regulation or
ordinance.
"Lease " means any lease or sublease of real or personal property.
"Leased Personal Property" shall have the meaning set forth in Section
1.1(i)(e).
"Leased Real Property" shall have the meaning set forth in Section
1.1(i)(b).
"Liabilities" shall mean all liabilities and obligations of any kind,
nature or description, whether known or unknown, accrued or unaccrued,
liquidated or unliquidated, direct or indirect, due or to become due, actual or
contingent.
"License Agreement" shall have the meaning set forth in Section 8.2(h).
"Licensed Intellectual Property" shall have the meaning set forth in
Section 1.1(v).
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"Licenses" shall have the meaning set forth in 1.1(v).
"Lien " means any lien, mortgage, deed of trust, security interest, charge,
pledge, retention of title agreement, easement, encroachment, condition,
reservation, covenant or other encumbrance affecting title.
"Lost Employee " shall have the meaning set forth in Section 2.16.1.
"Material Adverse Effect" means a material adverse effect on (a) the
business, financial condition or results of operations of the Business, taken as
a whole, or (b) the ability of Seller to consummate the transactions
contemplated by this Agreement.
"Material Contracts" shall have the meaning set forth in Section 2.11.
"Material Easements" means an Easement upon which equipment or other
personal property (other than equipment located in a host central office) owned
or leased by Seller having value in excess of $100,000 is located.
"Material Lease " means a Lease involving (a) a term of more than two (2)
years or which is not terminable upon less than ninety (90) days' notice or (b)
rental obligations exceeding $25,000 per annum.
"Materials" shall have the meaning set forth in Section 2.13.1.
"Month End Date" means the last day of a calendar month, provided, that if
such day is not a business day, then the Month End Date shall be the first
business day thereafter.
"Multi-Location Equipment Contract" shall have the meaning set forth in
Section 1.2(q).
"Multi-Location Equipment Customer" shall mean a customer of Sprint or its
Affiliates who (i) is headquartered at a location outside of the Territory, (ii)
conducts the majority of its business outside of the Territory and (iii) enters
into an agreement to purchase or lease telecommunications equipment or obtain
maintenance services for telecommunications equipment from Sprint or its
Affiliates, where the sales activity is conducted and the customer's decision to
purchase or lease such equipment or obtain such service is made from a location
outside the Territory.
"Non-Competition Agreement" shall have the meaning set forth in Section
8.2(g).
"Non-Disclosure Agreement" means the Agreement for Use and Non-Disclosure
of Proprietary Information dated as of July 21, 1997 between Buyer and Sprint.
"Objection Notice" shall have the meaning set forth in Section 1.4.1.
"Order" means any order, judgment, injunction, decree, determination or
award of any Governmental Authority.
45
<PAGE>
"Other Affiliates" means Affiliates of Sprint other than Seller.
"Other Law" means any Law applicable to the Business other than an
Environmental Law or a law relating to (a) Taxes or (b) ERISA.
"Owned Personal Property" shall have the meaning set forth in Section 1. 1
(i)(f).
"Owned Real Property" shall have the meaning set forth in Section
1.1(i)(a).
"Party" means each of Seller and Buyer and "Parties" means Seller and Buyer
collectively.
"Permit" means any permit, license, certificate (including a certificate of
occupancy) registration, authorization or approval issued by a Governmental
Authority.
"Permitted Liens" means (a) Liens for Taxes that are not yet due and
payable or that are being contested in good faith by appropriate proceedings and
as to which adequate reserves have been established in accordance with GAAP,
consistently applied, (b) workers', repairmens' and similar Liens imposed by Law
that have been incurred in the ordinary course of business, (c) Liens and other
title defects, easements, encroachments and encumbrances that do not,
individually or in the aggregate, materially impair the value or continued use
of the property (as currently used) to which they relate, and (d) the rights of
others to Customer Deposits.
"Person" means any natural person, corporation, partnership, limited
liability company, trust, unincorporated organization or other entity.
"Prepaid Expenses" means all prepaid expenses of Seller, other than prepaid
expenses that relate to insurance policies described in Section 1.2(o, which are
includable in the categories included in the calculation of "Prepaid Expenses"
in the Pro Forma Adjustment Statement and the Adjustment Statement.
"Pro Forma Adjustment Statement" shall have the meaning set forth in
Section 2.5.2.
"Public Utilities Act" shall have the meaning set forth in Section 7.1.5.
"Purchase Price" shall have the meaning set forth in Section 13.1.
"Purchase Price Adjustment" shall have the meaning set forth in Section
1.4.2.
"Purchased Assets" shall have the meaning set forth in Section 1.1.
"Real Property" shall have the meaning set forth in Section 2.8.4.
"Reimbursable Expenses" shall mean all direct and out-of-pocket expenses
reasonably incurred by a party in the ordinary course of the directory business
and in the manner consistent with the past practices of such party in connection
with the publication and distribution of
46
<PAGE>
telephone directories, which expenses are of the type set forth on Schedule
13.1(e) and which are presented in writing to the party charged with making a
reimbursement of such expenses under this Agreement not later than ten (10)
business days prior to the date upon which such reimbursement is to be made
under this Agreement.
"Replacement Employee" shall have the meaning set forth in Section 2.16.1.
"Reserves for Warranty" means the amount reflected on the regularly
prepared balance sheet of the Seller under the caption "Current Liabilities--
Reserve for Warranty" with respect to the Equipment Warranties described in
Section 1.5(d).
"Retired Employee " shall mean any individual set forth on Schedule 2.16.1,
as supplemented pursuant to Section 2.16.1, who retires from Seller within five
(5) days prior to the Closing Date.
"Returns" shall have the meaning set forth in Section 2.18.
"Sales Work in Process" means the assets reflected on the regularly
prepared balance sheet of the Seller under the captions "Sales Work in Process"
that relate exclusively to the conduct of the Business, which are includable in
the calculation of Sales Work in Process in the Pro Forma Adjustment Statement
and in the Adjustment Statement.
"Seller" shall have the meaning set forth in the first paragraph of this
Agreement.
"Seller Indemnitees" shall have the meaning set forth in Section 10.2.
"Seller Parent" shall have the meaning set forth in the first paragraph of
this Agreement.
"Seller's Knowledge" means the actual knowledge as of the applicable date
without any duty to inquire or make an investigation, of any of the individuals
named on Schedule 13.1 (f).
"SPA" means Sprint Publishing and Advertising, Inc., a Delaware
corporation.
"Sprint" means Sprint Corporation, a Kansas corporation.
"Tax" or "Taxes" means all income, profits, franchise, gross receipts,
capital, sales, use, withholding, value added, ad valorem, transfer, employment,
social security, disability, occupation, property, severance, production, excise
and other taxes, duties and similar governmental charges and assessments imposed
by or on behalf of any Governmental Authority (including interest and penalties
thereon).
"Tax Laws" means the Code and all other Laws relating to Taxes.
"Territory" means the geographic areas authorized by the certificates of
exchange service authority set forth on Schedule 13.1(b).
47
<PAGE>
"Third Party Claim" shall have the meaning set forth in Section 10.3.2.
"Union" shall have the meaning set forth in Section 10.3.2.
"Vehicles" shall have the meaning set forth in Section 1.1(I)(g).
"Waived Assets" shall have the meaning set forth in Section 7.2.7.
"WARN Act" shall have the meaning set forth in Section 11.5.
"WARN Act Notices" shall have the meaning set forth in Section 11.5.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
as of the date first written above.
CENTRAL TELEPHONE COMPANY OF ILLINOIS
By: RICHARD D. MCRAE
-------------------------------------------------
Richard D. McRae, Vice President - Financial
Support
CENTEL CORPORATION
By: DON A. JENSEN
-------------------------------------------------
Don A. Jensen, Vice President and Secretary
GALLATIN RIVER COMMUNICATIONS L.L.C.
By: J. STEPHEN VANDERWOUDE
-------------------------------------------------
J. Stephen Vanderwoude, Manager
MADISON RIVER TELEPHONE COMPANY, LLC
By: J. STEPHEN VANDERWOUDE
-------------------------------------------------
J. Stephen Vanderwoude, Chairman and Chief
Executive Officer
<PAGE>
Solely for purposes of agreeing to the terms and covenants set forth in
Sections 1.1(ix), 4.8, 5.5 and 6.8, Spring Publishing and Advertising, Inc. has
caused this Agreement to be executed as of the date first written above.
SPRING PUBLISHING AND ADVERTISING, INC.
By: /s/ ROBERT J. WALSH
-------------------------------
Robert J. Walsh, President
39
<PAGE>
EXHIBIT 10.3.1
AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT
-------------------------------------------
This AMENDMENT NO. 1 TO ASSET PURCHASE AGREEMENT is made as of the 22nd day
of September, 1998 by and between GALLATIN RIVER COMMUNICATIONS, L.L.C., a
Delaware limited liability company ("Buyer"), MADISON RIVER TELEPHONE COMPANY,
L.L.C., a Delaware limited liability company ("Buyer Parent"), CENTRAL TELEPHONE
COMPANY OF ILLINOIS, an Illinois corporation ("Seller"), and CENTEL CORPORATION,
a Kansas corporation ("Seller Parent").
WHEREAS, Buyer, Buyer Parent, Seller, and Seller Parent have entered into a
certain Asset Purchase Agreement, dated as of April 21, 1998, the ("Asset
Purchase Agreement"), pursuant to which Buyer has agreed to purchase, and Seller
has agreed to sell, the Purchased Assets;
WHEREAS, Buyer and Seller desire to make certain amendments to the Asset
Purchase Agreement.
NOW THEREFORE, in consideration of mutual warranties, representations,
covenants, and agreements contained in the Asset Purchase Agreement and herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Purchaser and Seller hereby agree as follows:
Section 1. Amendments to Asset Purchase Agreement.
--------------------------------------
1.1 Certain Computer Equipment.
--------------------------
(a) The following provision is hereby added as Section 6.9 of the
Asset Purchase Agreement:
"6.9 Certain Computer Equipment.
------------------------------
(a) Seller agrees to permit Buyer to: (i) take possession of
certain computer equipment identified on Schedule 6.9(a)
prior to the Closing, (ii) move such equipment out of the
Territory, and (iii) place such equipment into service as
part of Buyer's computer network; provided, however, that:
-------- -------
(1) Such equipment shall remain the property of the Seller
until such time as the Closing occurs.
(2) Buyer shall pay all costs and expenses associated with
taking possession and moving such equipment, including
shipping, handling and installation.
(3) Buyer shall clearly mark or tag each piece of such
<PAGE>
equipment with the following notice:
"Property of Central Telephone Company of Illinois. Do
not move, discard, sell, lease, or make any alterations
or modifications to this equipment."
(4) Buyer shall keep and maintain such equipment in as good
a condition and working order as such equipment is in
at the time Buyer takes possession and shall promptly
notify Seller of any damage or loss with respect to
such equipment, and, after consultation with Seller,
shall repair or replace any such damaged or lost
equipment.
(5) Buyer shall notify Seller in writing of the exact
location where such equipment is installed or used on
Buyer's premises.
(b) Seller agrees to permit Buyer to: (i) take possession of
certain computer equipment. identified on Schedule 6.9(b)
prior to the Closing, (ii) move such equipment to other
locations within the Territory, and (iii) place such
equipment into service as part of Buyer's computer network;
provided, however, that:
(1) Such equipment shall remain the property of the Seller
until such time as the Closing occurs.
(2) Buyer shall pay all costs and expenses associated with
taking possession and moving such equipment, including
shipping, handling and installation.
(3) Buyer shall clearly mark or tag each piece of such
equipment with the following notice:
"Property of Central Telephone Company of Illinois. Do
not move, discard, sell, lease, or make any alterations
or modifications to this equipment."
(4) Buyer shall keep and maintain such equipment in as good
a condition and working order as such equipment is in
at the time Buyer takes possession and shall promptly
notify Seller of any damage or loss with respect to
such equipment, and, after consultation with Seller,
shall repair or replace any such damaged or lost
equipment.
(5) Buyer shall notify Seller in writing of the exact
location where such equipment is installed.
<PAGE>
(c) In the event this Agreement is terminated, Buyer shall, at Seller's
sole option with respect to each separately identified piece of
equipment on Schedule 6.9(a), either (i) return such equipment, at
Buyer's sole expense, to the Seller by such shipping arrangements and
to the location which Seller reasonably requests, or (ii) pay to Buyer
the amount of cash indicated next to the applicable piece of equipment
on Schedule 6.9.
(d) In the event this Agreement is terminated, Buyer shall return each
piece of equipment identified on Schedule 6.9(b) that is moved by
Buyer pursuant to Section 6.9(b), at Buyer's sole expense, to the
Seller by shipping arrangements and to the location within the
Territory which Seller requests."
1.2 Accounts Receivable.
-------------------
(a) The definition of "Accounts Receivable" in Section 13.1 is hereby
deleted in its entirety and the following substituted in lieu thereof.
"'Accounts Receivable' means all accounts receivable from active end user
customers billed through Seller's customer record and billing system (CRB),
which are receivable as a result of goods sold or services provided, or
billed for, by Seller in connection with the Business other than Excluded
Accounts Receivable; provided that, for purposes of determining the value
to be used in the Adjustment Statement and the Pro Forma Adjustment
Statement for such Accounts Receivable, the value shall be net of an
allowance for doubtful accounts (which allowance is calculated with respect
to the accounts included in Accounts Receivable consistent with past
practice and in accordance with GAAP (which practice is generally described
on Schedule 13.1(a)). The foregoing definition of Accounts Receivable is
the basis for the calculation of "Accounts Receivable" in the Pro Forma
Adjustment Statement and shall be the basis for the calculation of
"Accounts Receivable" in the Adjustment Statement."
(b) The definition of "Excluded Accounts Receivable" in Section 13.1 is
hereby deleted in its entirety and the following substituted in lieu thereof.
"'Excluded Accounts Receivable' means all accounts receivable, trade
receivables, notes receivables and other receivables, other than accounts
receivable from active end user customers billed through Seller's customer
record and billing system (CRB), including receivables (i) set forth on
Schedule 13.1(c), (ii) owed by customers of Seller for the receipt of local
wireline telecommunication services from Seller who on or prior to the
Closing Date have had their services discontinued or disconnected by
Seller, (iii) resulting from Excluded Contracts or Multi-Location Equipment
Contracts, (iv) owed with respect to pay station dial-around calls, (v)
owed by an Affiliate of Seller, or (vi) owed by interexchange carriers or
connecting companies."
<PAGE>
(c) The following provision is hereby added as Section 1.6(g) of the
Asset Purchase Agreement:
"(g) trade payables payable in connection, with the Business to
interexchange carriers and connecting companies."
Section 2. Miscellaneous.
--------------
2.1 Definitions. Capitalized terms used in this Agreement and not
-----------
otherwise defined herein shall have the meanings ascribed to them in the Asset
Purchase Agreement.
2.2 Full Force and Effect. All provisions of the Asset Purchase
---------------------
Agreement not specifically affected by this Amendment shall remain in full force
and effect without alteration or modification.
2.3 Counterparts. This Amendment may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties have signed this Amendment as of the date
first written above.
CENTEL CORPORATION
By: /s/ DON A. JENSEN
------------------------------------
Don A. Jensen, Vice President and
Secretary
CENTRAL TELEPHONE COMPANY OF ILLINOIS
By: /s/ RICHARD D. MCRAE
------------------------------------
Richard D. McRae, Vice President -
Financial Support
MADISON RIVER TELEPHONE COMPANY, LLC
By: /s/ J. STEPHEN VANDERWOUDE
-------------------------------------------
Name: J. Stephen Vanderwoude
Title: Chairman & Chief Executive Officer
<PAGE>
GALLATIN RIVER COMMUNICATIONS L.L.C.
By: /s/ J. STEPHEN VANDERWOUDE
-----------------------------------------
Name: J. Stephen Vanderwoude
Title: Chairman & Chief Executive Officer
<PAGE>
EXHIBIT 10.3.2
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
This AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT is made as of the 29th day of
October, 1998 by and between GALLATIN RIVER COMMUNICATIONS, L.L.C., a Delaware
limited liability company ("Buyer"), MADISON RIVER TELEPHONE COMPANY, L.L.C., a
Delaware limited liability company ("Buyer Parent"), CENTRAL TELEPHONE COMPANY
OF ILLINOIS, an Illinois corporation ("Seller"), and CENTEL CORPORATION, a
Kansas corporation ("Seller Parent").
WHEREAS, Buyer, Buyer Parent, Seller, and Seller Parent have entered into a
certain Asset Purchase Agreement, dated as of April 21, 1998, and amended
pursuant to Amendment No. 1 to Asset Purchase Agreement dated as of September
22, 1998, as amended the ("Asset Purchase Agreement"), pursuant to which Buyer
has agreed to purchase, and Seller has agreed to sell, the Purchased Assets;
WHEREAS, Buyer and Seller desire to make certain further amendments to the
Asset Purchase Agreement.
NOW THEREFORE, in consideration of mutual warranties, representations,
covenants, and agreements contained in the Asset Purchase Agreement and herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Purchaser and Seller hereby agree as follows:
Section 1. Amendments to Asset Purchase Agreement.
--------------------------------------
1.1 Accounts Payable.
----------------
(a) Section 1.5(a) is hereby deleted in its entirety and the following
substituted in lieu thereof:
"(a) Accounts and trade payables and accrued and unpaid expenses of
Seller as of the Closing Date relating to the Business or the
Purchased Assets only to the extent: (i) the goods or services
to which such payables relate are delivered after the Closing
Date; (ii) not described in Section 1.6; or (iii) with respect
to accrued (but not due) property taxes, related to periods
prior to the Closing (collectively the "Assumed Payables")."
(b) The following provision is hereby added as Section 1.6(h) of the
Asset Purchase Agreement:
"(h) Accounts and trade payables and accrued and unpaid expenses
which relate to goods or services received by Seller prior to
the Closing Date."
1.2 Accounts Receivable.
-------------------
<PAGE>
(a) The definition of "Accounts Receivable" in Section 13.1 is hereby
deleted in its entirety and the following substituted in lieu thereof:
"Accounts Receivable" means (i) all accounts receivable from active end
user customers billed through Seller's customer record and billing system
(CRB), which are receivable as a result of goods sold or services provided,
or billed for, by Seller in connection with the Business, and (ii) accounts
receivable from business customers billed in connection with the Business
through Seller's miscellaneous billing system (MBS) and recorded in the
ordinary course of business consistent with past practices in the "CPE
Sales via MBS" account, other than Excluded Accounts Receivable; provided
that, for purposes of determining the value to be used in the Adjustment
Statement and the Pro Forma Adjustment Statement for such Accounts
Receivable, the value shall be net of an allowance for doubtful accounts
(which allowance is calculated with respect to the accounts included in
Accounts Receivable consistent with past practice and in accordance with
GAAP (which practice, in the case of CRB only, is generally described on
Schedule 13. 1 (a)). The above-referenced systems (CRB and MBS) are the
only customer record and billing systems employed by Seller and or its
Affiliates with respect to accounts receivable of the Business other than
Excluded Accounts Receivable. The foregoing definition of Accounts
Receivable is the basis for the calculation of "Accounts Receivable" in the
Pro Forma Adjustment Statement and shall be the basis for the calculation
of "Accounts Receivable" in the Adjustment Statement."
(b) The definition of "Excluded Accounts Receivable" in Section 13.1 is
hereby deleted in its entirety and the following substituted in lieu thereof:
"Excluded Accounts Receivable" means all accounts receivable, trade
receivables, notes receivables and other receivables, other than (i)
accounts receivable from active end user customers billed through Seller's
customer record and billing system (CRB) and (ii) accounts receivable from
business customers billed in connection with the Business through Seller's
miscellaneous billing system (MBS) and recorded in the ordinary course of
business consistent with past practices in the "CPE Sales via MBS" account,
including receivables (i) set forth on Schedule 13.1(c), (ii) owed by
customers of Seller for the receipt of local wireline telecommunication
services from Seller who on or prior to the Closing Date have had their
services discontinued or disconnected by Seller, (iii) resulting from
Excluded Contracts or Multi-Location Equipment Contracts, (iv) owed with
respect to pay station dial-around calls, (v) owed by an Affiliate of
Seller, or (vi) owed by interexchange carriers or connection companies."
(c) Schedule 13.1(c) is hereby deleted in its entirety and replaced by the
Schedule 13.1(c) attached to this Amendment No. 2.
1.3 CAMS License, Handheld Units.
----------------------------
<PAGE>
(a) The following provision is added as Section 1.2(s) to the Asset
Purchase Agreement:
"(s) All right, title and interest of Seller in and to the
Equipment listed on Schedule 1.2(s)."
(b) The following provision is added as Section 8.2(j) to the Asset
Purchase Agreement:
"(j) The Software License Agreement in the form annexed hereto as
Exhibit X (the "Software License Agreement"), executed by the
Licensor thereunder."
(c) The following provision is added as Section 8.3(k) to the Asset
Purchase Agreement:
"(k) The Software License Agreement exe Licensee thereunder."
Section 2. Miscellaneous.
-------------
2.1 Definitions. Capitalized terms used in this Agreement and not
-----------
otherwise defined herein shall have the meanings ascribed to them in the Asset
Purchase Agreement.
2.2 Full Force and Effect. All provisions of the Asset Purchase
---------------------
Agreement not specifically affected by this Amendment shall remain in full force
and effect without alteration or modification.
2.3 Counterparts. This Amendment may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Section 2. Miscellaneous.
-------------
2.1 Definitions. Capitalized terms used in this Agreement and not
-----------
otherwise defined herein shall have the meanings ascribed to them in the Asset
Purchase Agreement.
2.2 Full Force and Effect. All provisions of the Asset Purchase
---------------------
Agreement not specifically affected by this Amendment shall remain in full force
and effect without alteration or modification.
2.3 Counterparts. This Amendment may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Amendment as of the date
first written above.
CENTEL CORPORATION
By: DON A. JENSEN
---------------------------------------
Don A. Jensen, Vice President and
Secretary
CENTRAL TELEPHONE COMPANY OF
ILLINOIS
By: RICHARD D. MCRAE
-----------------------------------------
Richard D. McRae, Vice President AND
Financial Support
MADISON RIVER TELEPHONE
COMPANY, LLC
By: J. STEPHEN VANDERWOUDE
----------------------------------------
Name: J. Stephen Vanderwoude
Title: Chairman & Chief Executive Officer
GALLATIN RIVER COMMUNICATIONS L.L.C.
By: PAUL H. SUNU
------------------------------------------
Name: Paul Sunu
Title: Executive Vice President
<PAGE>
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
By and Among
MEBCOM COMMUNICATIONS, INC.,
ITS STOCKHOLDERS
And
MADISON RIVER TELEPHONE COMPANY, LLC
September 12, 1997
<PAGE>
STOCK PURCHASE AGREEMENT
------------------------
This STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as of
---------
September 12, 1997, by and among MebCom Communications, Inc., a North Carolina
corporation (the "Company"), the stockholders of the Company ("Sellers") and
------- -------
Madison River Telephone Company, a Delaware limited liability company ("Buyer").
-----
WHEREAS, the Company has a capitalization consisting of 60,000 authorized
shares of Class A Common Stock, $1.00 par value per share (the "Class A Common
--------------
Stock"), of which 480 shares (the "Class A Shares") are issued and outstanding;
- ----- ------- ---------
110,000 shares of Class B Common Stock, $1.00 par value per share (the "Class B
-------
Common Stock"), of which 1,920 shares are issued and outstanding (the "Class B
- ------------ -------
Shares"); and 30,000 shares of 8% Non-voting, Non-cumulative Class B Preferred
- ------
Stock, $100.00 par value per share the "Preferred Stock"), of which 989.69
---------------
shares are issued and outstanding (the "Preferred Shares") all of which Class A
----------------
Shares, Class B Shares and Preferred Shares (collectively, the "Shares") are
------
owned by Sellers in the respective amounts set forth opposite each Seller's name
on Exhibit A hereto; and
WHEREAS, Sellers desire to sell the Shares to Buyer, and Buyer desires to
purchase the Shares from Sellers.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained in this Agreement, Sellers and Buyer agree as
follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Transfer of Stock. On the Closing Date (as defined below) and subject
-----------------
to the terms and conditions set forth in this Agreement, Sellers will sell,
assign, transfer and deliver to Buyer the Shares, in each case free and clear of
all options, pledges, security interests, liens, charges or other encumbrances
or restrictions on transfer ("Encumbrances") of any kind whatsoever, other than
------------
the restrictions imposed by federal and state securities laws.
1.2 Consideration. On the Closing Date and subject to the terms and
-------------
conditions set forth in this Agreement, in reliance on the representations,
warranties, covenants and agreements of the parties contained herein and in
consideration of the sale, assignment, transfer and delivery of the Shares,
Buyer will pay to Sellers $23,340.000 in the aggregate (the "Purchase Price") by
--------------
wire transfer of immediately available funds to an account or accounts
designated by Sellers; provided however, that, subject to Section 5. 12 hereof,
----------------
in the event that on the Closing Date the Company shall hold less than
$2,600,000 in cash and cash equivalents, Buyer shall have the option to pay a
portion of the Purchase Price, equal to the difference between $2,600,000 and
the amount of cash and cash equivalents held by the Company on the Closing Date,
with a term note issued by the Company to the order of Mr. William R. Hupman,
Jr. (the "Note"), which Note shall bear no interest and the principal amount of
----
which shall be payable on the date which is seventy (70) days after the Closing
Date The specific amounts to be paid to each Seller on account of each Seller's
Class A Shares, Class B Shares and Preferred Shares are enumerated on Exhibit A
hereto, provided, however, that in the event that a portion of the Purchase
-------- -------
Price is paid
<PAGE>
with the Note, the amount payable to each Seller other than Mr. William R.
Hupman, Jr. shall be payable only in immediately available funds and the amount
payable to Mr. William R. Hupman, Jr. shall be payable: first, with the Note and
second, in immediately available funds.
1.3 Post-Closing Adjustment Based on Certain Assets and Liabilities.
---------------------------------------------------------------
Buyer shall, prepare and present not later than twenty (20) business days after
the Closing (as defined below) a special purpose statement (the "Special
-------
Purchase Statement") which shall set forth Buyer's true and correct
- ------------------
determination of the Net Asset Value (as defined below) as of the Closing Date.
The Purchase Price shall be adjusted as provided below to the extent that the
Net Asset Value as reflected in the Special Purpose Statement differs from the
Net Asset Value as reflected on the May 31, 1997 adjusted consolidated balance
sheet of the Company (the "May 31 1997 Adjusted Balance Sheet") attached hereto
----------------------------------
as Section 1.3 of the Disclosure Schedule relating to this Agreement (the
"Disclosure Schedule").
-------------------
The Special Purpose Statement shall be certified by the Company as being
prepared on a basis consistent with that of the 1996 Audited Financial
Statements (as hereinafter defined), except for the adjustments identified in
the May 31, 1997 Adjusted Balance Sheet. In the event that Sellers shall make a
preliminary determination that the Special Purpose Statement has not been
prepared in accordance with the previous sentence such that an adjustment to the
Purchase Price is required to be made pursuant to the next to the last paragraph
of this Section 1.3, Sellers shall have ten business days after receipt of such
statement to notify Buyer in writing thereof. The parties shall then have
fifteen (15) business days to resolve the matter. If the matter cannot be
resolved in this manner during the 15 business day period, the parties shall
submit the matter to the North Carolina office (if possible) of a nationally
recognized certified public accounting firm mutually agreed upon by the parties
hereto (the "Auditor"). The Auditor shall have fifteen (15) business days to
-------
audit the Special Purpose Statement. The audit will be performed using generally
accepted auditing standards and will address whether the information contained
in the Special Purpose Statement presents fairly, in all material respects, the
Net Asset Value as of the Closing Date in accordance with generally accepted
accounting principles on a basis consistent with the 1996 Audited Financial
Statements, except for the adjustments identified in the May 31, 1997 Adjusted
Balance Sheet. The costs of retaining the Auditor, including their reasonable
out-of-pocket expenses (collectively, the "Accounting Costs"), in connection
----------------
with the procedures set forth in this Section 1.3 shall be shared equally by
Sellers, on the one hand, and Buyer, on the other.
In accordance with the procedures set forth above, within fifteen (15)
business days of the final determination of the amounts to be reflected on the
Special Purpose Statement, the Purchase Price shall be (i) increased and prompt
payment made on a dollar for dollar basis by Buyer to Sellers on a pro rata
basis determined with reference to the number of Class A Shares and/or Class B
Shares set forth opposite the name of each of the Sellers on Exhibit A hereto (a
"Pro Rata Basis") to the extent the Net Asset Value as set forth on the May 31,
--------------
1997 Adjusted Balance Sheet is less than the Net Asset Value as set forth on the
Special Purpose Statement, or, as the case may be, (ii) decreased and prompt
payment made on a dollar for dollar basis by Sellers on a Pro Rata Basis to
Buyer to the extent the Net Asset Value as set forth on the May 31, 1997
Adjusted Balance Sheet is greater than the Net Asset Value as set forth on the
Special
2
<PAGE>
Purpose Statement; provided, however, that such adjustment shall be made only if
-------- -------
such difference exceeds $50,000.
For purposes of this Section 1.3, "Net Asset Value" as of any date shall
---------------
mean the amount determined by subtracting the aggregate amount of liabilities of
the Company on a consolidated basis from the aggregate amount of assets of the
Company on a consolidated basis, in each case taking into account the
adjustments of the same character and nature identified in the May 31, 1997
Adjusted Balance Sheet, in each case as such liabilities and assets arc
reflected in the May 31, 1997 Adjusted Balance Sheet or the Special Purpose
Statement, as the case may be.
1.4 The Closing. The closing (the "Closing") of the transactions
----------- -------
contemplated in this Agreement shall take place at the offices of Wilson &
Waller, P.A., Attorneys for Sellers, 4600 Marriott Drive, Suite 400, Raleigh,
North Carolina 27612 on the later of the last day of the calendar month in which
the second business day following the satisfaction or waiver of all of the
conditions set forth in Article IV and Article V (with the exception of
paragraph 5. 11) hereof falls or January 2, 1998 (the "Closing Date"), or at
------------
such other place and time as may be agreed upon by Sellers and Buyer. In the
event that the Closing Date is January 2, 1998, the pre-closing shall be held on
December 30, 1997 at the offices of Wilson & Waller, P.A. specified above, or at
such other time or other place as may be agreed upon by Sellers and Buyer.
(a) Deliveries of Sellers. At or prior to the Closing, Seller shall
---------------------
deliver or cause to be delivered to Buyer the following:
(i) certificates evidencing the Shares, which certificates
shall be properly endorsed for transfer or accompanied by duly executed stock
powers, in either case executed in blank or in favor of Buyer or its nominee as
Buyer may have directed prior to the Closing Date, and otherwise in a form
acceptable for transfer on the books of the Company; and
(ii) all other previously undelivered documents required to be
delivered by Sellers or the Company to Buyer at or prior to the Closing Date in
connection with the transactions contemplated hereby.
(b) Deliveries by Buyer. At or prior to the Closing, Buyer shall
-------------------
deliver or cause to be delivered to Sellers the following:
(i) the Purchase Price by wire transfer of immediately
available funds to an account or accounts designated by Sellers;
(ii) An amount calculated to the Closing Date in accordance with
the Employment Agreement as attached in Section 1.4 of the Disclosure Schedule
(the "Employment Agreement") estimated to be $1,021,000, less amounts withheld
--------------------
by the Company in accordance with Section 4.1 of such Employment Agreement in
order to comply with all federal, state and local tax laws, by wire transfer of
immediately available funds of the Company to an account designated by Mr. H.
McClure Hupman in full satisfaction of the obligations of Mebtel, Inc., a wholly
owned subsidiary of the Company, to Mr. H. McClure Hupman excluding continuing
obligations provided other employees separated from service from the Company
(e.g., COBRA);
3
<PAGE>
(iii) $369,000 by wire transfer of immediately available funds
to accounts designated by Mr. Samuel Hupman in full satisfaction of the
obligations of the Company to Mr. Samuel Hupman and
(iv) all other previously undelivered documents required to be
delivered by Buyer to Sellers at or prior to the Closing Date in connection with
the transactions contemplated hereby.
1.5 Life Insurance Policies. Within ten (10) days after Closing, W.
-----------------------
Robert Hupman, Jr. and H. McClure Hupman shall have the option to purchase from
-------
the Company the split dollar life insurance policies on their respective lives,
which are set forth on Section 1.5 of the Disclosure Schedule, at a cost equal
to the then current cash values. The Buyer agrees to provide Company cooperation
as reasonably requested to effectuate the purchase should either insured
exercise this option.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND SELLERS
The Company and Sellers, jointly and severally, represent and warrant to
Buyer as follows:
2.1 Corporate Organization. The Company is duly organized, validly
----------------------
existing and in good standing under the laws of the State of North Carolina and
has full corporate power and authority to own and operate its properties and
assets and to carry on its business as it is now being conducted. The Company is
duly qualified or licensed to do business as a foreign corporation in good
standing in the jurisdictions in which the ownership of property or the conduct
of its business requires such qualification, except jurisdictions 'in which the
failure to be so qualified would not, individually or in the aggregate, have a
material adverse effect on the business, operations, prospects, assets,
liabilities or financial condition of the Company and its Subsidiaries (as
defined below), taken as a whole, or on the ability to consummate the
transactions contemplated hereby (hereinafter referred to as a "Material Adverse
----------------
Effect"). Sellers have previously delivered to Buyer complete and correct copies
- ------
of the charter and all amendments thereto to the date hereof and the bylaws as
presently in effect of each of the Company and its Subsidiaries. Section 2.1 of
the Disclosure Schedule sets forth a list of each of the Company's subsidiaries
(the "Subsidiaries"). Each Subsidiary is a corporation duly organized. validly
------------
existing and in good standing under the laws of the jurisdiction of its
incorporation and has full corporate power and authority to own and operate its
properties and assets and to carry on its business as it is now being conducted.
Except as set forth in Section 2.1 of the Disclosure Schedule, the Company does
not own, directly or indirectly, any capital stock or other equity securities of
any corporation or have any direct or indirect equity or ownership interest in
any partnership, joint venture or other business.
2.2 Capital Stock. The authorized capital stock of the Company consists
-------------
of 60,000 shares of Class A Common Stock, of which only the Class A Shares are
issued and outstanding;
4
<PAGE>
110,000 shares of Class B Common Stock, of which only the Class B Shares are
issued and outstanding; and 30,000 shares of Preferred Stock, of which only the
Preferred Shares are issued and outstanding. As of the Closing there will be no,
and, except as set forth in Section 2.3 of the Disclosure Schedule, there are as
of the date hereof no, subscriptions, options, warrants, calls, rights,
contracts, commitments, understandings, restrictions or arrangements relating to
the issuance, sale or transfer by Sellers, the Company or any of its
Subsidiaries of any shares of such capital stock, including any rights of
conversion or exchange under any outstanding securities or other instruments.
All outstanding shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights. As of the Closing there will be no, and, except as set forth in Section
2.3 of the Disclosure Schedule, there are as of the date hereof no, accrued and
unpaid dividends or other amounts due and owing with respect to the Preferred
Shares. All of the issued and outstanding shares of each Subsidiary are owned by
the Company, free and clear of all Encumbrances of any kind whatsoever, other
than the restrictions imposed by the federal and state securities laws, and all
such shares have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights.
2.3 Ownership of Stock. The Shares are owned by Sellers (as more
------------------
specifically set forth in Exhibit A hereto) and, as of the Closing, the Shares
shall be free and clear of all Encumbrances of any kind whatsoever, other than
the restrictions imposed by federal and state securities laws. Except as set
forth in Section 2.3 of the Disclosure Schedule. the Shares are, as of the date
hereof, free and clear of all Encumbrances of any kind whatsoever, other than
the restrictions imposed by federal and state securities laws. Upon the
consummation of the transactions contemplated hereby, Buyer will acquire title
to the Shares, free and clear of all Encumbrances of any kind whatsoever except
any encumbrances relating to then existing Company debt if assumed by Buyer,
other than the restrictions imposed by federal and state securities laws.
2.4 Authorization, Etc. Each Seller has full power, authority and
------------------
capacity, and the Company has full corporate power and authority, to execute and
deliver this Agreement and to carry out the transactions contemplated hereby.
The Board of Directors of the Company has duly approved and authorized the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, and no other corporate proceedings on the part
of Sellers or the Company are necessary to approve and authorize the execution
and delivery of this Agreement by Sellers and the Company and, except as set
forth in Section 2.4 of the Disclosure Schedule, the consummation by Sellers and
the Company of the transactions contemplated hereby. This Agreement constitutes
a valid and binding agreement of each of Sellers and of the Company enforceable
against Sellers and the Company in accordance with its terms, except that the
enforcement hereof may be limited by (i) bankruptcy, insolvency, reorganization,
creditor arrangement, moratorium, fraudulent conveyance, or other similar state
or federal debtor relief laws now or hereafter in effect relating to creditors'
rights or the collection of debtor's obligations generally and (ii) general
principles of equity (including the possible unavailability of specific
performance or injunctive relief) regardless of whether enforceability is
considered in a proceeding in equity or at law.
5
<PAGE>
2.5 Financial Statements. The audited consolidated financial statements
--------------------
of the Company for the year ended December 31, 1996 (the "1996 Audited Financial
----------------------
Statements") and the unaudited consolidated financial statements of the Company
- ----------
for the five months ended May 31, 1997 (the "May 31, 1997 Internal Financial
-------------------------------
Statements") are set forth in Section 2.5 of the Disclosure Schedule. The 1996
- ----------
Audited Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied. The 1996 Audited Financial
Statements and the May 31, 1997 Internal Financial Statements fairly present the
financial condition of the Company and the consolidated results of operations of
the Company for the periods indicated, except as set forth in the notes thereto.
To the best of Sellers' knowledge after reasonable and prudent investigation,
except as disclosed in the Financial Statements or Section 2.5 of the Disclosure
Schedule, neither the Company nor any of its Subsidiaries has any liabilities or
obligations, whether accrued, absolute, contingent or otherwise, which (i) would
be required to be disclosed on a financial statement prepared in conformity with
generally accepted accounting principles or (ii) are material to the
consolidated business or operations of the Company and its Subsidiaries (the
"Business"), except for obligations incurred or paid in connection with
--------
transactions since May 31, 1997 by the Company and its Subsidiaries in the
ordinary course of business consistent with past practice.
2.6 No Approvals or Conflicts. Except as set forth in Section 2.6 of the
-------------------------
Disclosure Schedule, neither the execution and delivery by Sellers and the
Company of this Agreement nor the consummation by Sellers and the Company of the
transactions contemplated hereby will violate, conflict with or result in a
breach of any provision of the charter or bylaws of any of the Company and its
Subsidiaries. To the best of Sellers' knowledge after reasonable and prudent
investigation, except as set forth in Section 2.6 of the Disclosure Schedule,
neither the execution and delivery by Sellers and the Company of this Agreement
nor the consummation by Sellers and the Company of the transactions contemplated
hereby will (i) conflict with or result in a breach of any provision of, or
constitute a default under, or result in the termination or cancellation of, or
accelerate the performance required by, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties of any of
the Company and its Subsidiaries or upon any Seller's interest in the Shares
under, any note, bond, mortgage, indenture, deed of trust, license, franchise,
permit, lease, contract, agreement or other instrument or commitment or
obligation to which any Seller or any of the Company and its Subsidiaries or any
of their respective properties may be bound or affected, (ii) violate any order,
writ, injunction, decree, judgment, ruling, law, rule or regulation of any court
or governmental authority, domestic or foreign, applicable to any Seller or any
of the Company and its Subsidiaries or any of their respective properties, or
(iii) except for approvals of the Federal Communications Commission (the "FCC")
and the North Carolina Utilities Commission (the "NCUC") require any consent,
----
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority in connection with
the execution, delivery and performance of this Agreement by any Seller or the
Company or to enable the Company and its Subsidiaries to continue fully to
conduct the Business after the Closing Date in a manner which is in all material
respects consistent with that in which it is presently conducted, which, in the
case of clauses (i), (ii) and (iii) above, would, individually or in the
aggregate, be reasonably likely to have a Material Adverse Effect.
6
<PAGE>
2.7 Compliance with Law; Governmental Authorizations. To the best of
------------------------------------------------
Sellers' knowledge after reasonable and prudent investigation, neither the
Company nor any of its Subsidiaries is in violation in any material respect of
any applicable law, statute, order, rule or regulation (including those relating
to the protection of the environment) promulgated or judgment entered by any
federal, state, local or United States court or governmental authority relating
to or affecting the operation, conduct or ownership of any property or business
of any of the Company and its Subsidiaries. Except as set forth in Section 2.7
of the Disclosure Schedule, the licenses, permits and other governmental
authorizations held by the Company and its Subsidiaries are valid and sufficient
for the conduct of the Business as currently conducted.
2.8 Litigation. To the best of Sellers' knowledge after reasonable and
----------
prudent investigation, except as otherwise set forth in Section 2.8 of the
Disclosure Schedule, there are no claims, actions, proceedings or investigations
pending or, to the best knowledge of Sellers and the Company, threatened against
the Company or any of its Subsidiaries before any court or governmental or
regulatory authority or body which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect. Neither the Company, its
Subsidiaries nor any of their respective properties is subject to any order,
judgment, injunction or decree which, individually or in the aggregate, would be
likely to have a Material Adverse Effect.
2.9 Changes. Since May 31, 1997 except as otherwise disclosed in Section
-------
2.9 of the Disclosure Schedule:
(a) the Business has been conducted only in the ordinary course and
consistent with past practice in all material respects;
(b) neither the Company nor its Subsidiaries has suffered any
Material Adverse Effect; and
(c) the Company has not taken any action which would require the
consent of Buyer under Section 6. l(b) had such action been taken by the Company
after the date hereof.
2.10 Taxes. (a) The Company, or an affiliate or other representative of
-----
the Company on its behalf, has (i) duly filed with the appropriate Federal,
state, local and foreign taxing authorities all material Tax Returns (as defined
below) required to be filed by or with respect to the Company and its
Subsidiaries, and (ii) paid or made provision for in the May 31, 1997 Internal
Financial Statements all material Taxes (as defined below) due and required to
be paid by the Company and its Subsidiaries regardless of whether shown as being
owed on such required Tax Returns. Except as set forth in Section 2.10 of the
Disclosure Schedule, as of the date of this Agreement, (i) neither Sellers, the
Company nor any affiliate or, to the Company's knowledge, other representative
of the Company has received any written notice of deficiency or assessment from
any Federal, state, local or foreign taxing authority with respect to
liabilities for material Taxes of the Company or any Subsidiary or any member of
the consolidated, combined or unitary group, of which the Company or any
Subsidiary is or was at any time a member (a "Tax Group") which have not been
---------
paid or finally settled and any such deficiency or assessment disclosed in
Section 2.10 of the Disclosure Schedule is being contested in good faith through
appropriate proceedings; (ii) no audit of any Tax Return concerning the Company
or any
7
<PAGE>
member of a Tax Group is pending, being conducted, or, to the knowledge of the
Company and the Sellers, threatened to be instituted by a Tax authority; (iii)
no extension of the statute of limitations on the assessment of any Taxes has
been granted to the Company or any member of a Tax Group and is currently in
effect; (iv) no consent under Section 341(f) of the Internal Revenue Code of
1986, as amended (the "Code"), has been filed with respect to the Company or any
----
member of a Tax Group; (v) neither the Company nor any Subsidiary is a party to
any agreement or arrangement that would result, separately or in the aggregate,
in the actual or deemed payment by the Company of any "excess parachute
payments" within the meaning of Section 280G of the Code; (vi) neither the
Company nor any Subsidiary has been at any time a member of any partnership or
joint venture or the holder of a beneficial interest in any trust for any period
for which the statute of limitations for any Tax has not expired; (vii) neither
the Company nor any Subsidiary has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (viii)
neither the Company nor any Subsidiary is doing business in or engaged in a
trade or business in any jurisdiction in which it has not filed all required
income or franchise Tax Returns; (ix) all Taxes required to be withheld,
collected or deposited by or with respect to the Company and each Subsidiary
have been timely withheld, collected or deposited, as the case may be, and, to
the extent required, have been paid to the relevant taxing authority; (x) no
power of attorney that is currently in force has been granted with respect to
any matter relating to Taxes that could materially affect the Tax liability of
the Company or any Subsidiary; (xi) neither the Company nor any Subsidiary is a
party to any written or unwritten tax sharing agreement or indemnity agreement
or agreement executed or agreed to on or prior to the date of this Agreement;
(xii) Section 2. 10 of the Disclosure Schedule sets forth, to Sellers' and the
Company's best knowledge as of the date of this Agreement, the actual and
estimated tax bases of the Company's inventory and property, plant and equipment
as of December 31, 1996 and the date of this Agreement; and (xiii) the Company
has no liability for the Taxes of any person other than the Company and the
Subsidiaries under Treasury regulation section 1. 1502-6 (or any similar
provision of state, local or foreign law).
(b) For purposes of this Agreement, "Taxes" shall mean all taxes,
-----
charges, fees, levies, penalties or other assessments imposed by any United
States Federal, state, local or foreign taxing authority, including, but not
limited to, income, gross receipts, service, leasing, occupation, excise,
property, sales and use, transfer, gains, franchise, payroll, withholding,
social security or other taxes, including any interest, penalties or additions
attributable thereto.
(c) For purposes of this Agreement, "Tax Return" shall mean any
----------
return, amended return, report, information return or other document (including
any related or supporting information) filed or required to be filed with any
taxing authority with respect to Taxes.
2.11 Employee Benefits. (a) Section 2.11 of the Disclosure Schedule sets
-----------------
forth a true and complete list of each employee benefit or compensation plan,
program and contract, including, but not limited to, any employee benefit plan
within the meaning of Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"),and any multiemployer plan within the meaning
-----
of Section 3(37) of ERISA, to which the Company or its subsidiary is a party,
under which any employee or former employee of the Company or its
8
<PAGE>
subsidiary has any present or future right to benefits, with respect to which
the Company or its subsidiary could incur liability under ERISA or the Code that
is maintained for employees or former employees of the Company or its subsidiary
and to which the Company or any trade or business, whether or not incorporated,
that together with the Company would be deemed a "single employer" within the
meaning of Section 4001(b) of ERISA (an "ERISA Affiliate"), is obligated to
---------------
contribute (the "Plans"). Each Plan has been maintained in substantial
-----
compliance with all applicable laws and has been operated in all material
respects in compliance with its terms. Except as set forth in Section 2.11 of
the Disclosure Schedule, (i) no Plan has an accumulated or waived funding
deficiency within the meaning of Section 412 of the Code, and (ii) no
proceedings have been instituted to amend or terminate any Plan that is subject
to Title IV of ERISA. Any Plan intended to be "qualified" (within the meaning of
Section 401(a) of the Code) either (x) has received a favorable Determination
Letter from the Internal Revenue Service and, to the knowledge of Sellers and
the Company, no event has occurred nor condition exists which could reasonably
be expected to result in the revocation of such Determination Letter, or (y) is
the subject of an application for such a Determination Letter.
(b) No event has occurred which would subject the Company to liability
under the terms of any Plan (including solely for this purpose, any Plan
maintained by any ERISA Affiliate of the Company) under ERISA, the Code or any
other applicable law which, individually or in the aggregate, would reasonably
be expected to have a Material Adverse Effect.
2.12 Labor Relations. Except as set forth in Section 2.12 of the
---------------
Disclosure Schedule, neither the Company nor any of its Subsidiaries is a party
to any collective bargaining agreement, labor contract or letter of
understanding with a union or labor organization applicable to employees of the
Company or any of its Subsidiaries nor are any of their employees represented by
any other union or labor organization. Except as set forth in Section 2.12 of
the Disclosure Schedule, (i) the Company is in material compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours, (ii) the Company is not engaged in
any unfair labor practice which, individually or in the aggregate, has had or is
reasonably expected to have a Material Adverse Effect, and (iii) there is no
labor strike, material slowdown or stoppage or material labor dispute actually
pending or, to the knowledge of the Company, threatened against the Company.
2.13 Contracts and Leases. Section 2.13 of the Disclosure Schedule
--------------------
identifies each of the material contracts, leases, agreements and understandings
to which any of the Company and its Subsidiaries is a party or by which any of
their respective assets or operations may be bound (except for any tariff or
terms and conditions pursuant to which any of the Company and its Subsidiaries
provides telephone service to a customer) (a "Material Contract"). Except as
-----------------
otherwise disclosed in Section 2.13 of the Disclosure Schedule, each Material
Contract is in full force and effect, except where the failure to be in full
force and effect would not have a Material Adverse Effect. There are no existing
defaults by any of the Company and its Subsidiaries under any Material Contract,
which defaults would, individually or in the aggregate, result in a Material
Adverse Effect. As of the date hereof, the Employment Agreement is, and as of
the Closing will be, in full force and effect and there are, as of the date
hereof, and will be, as of the Closing, no existing defaults by any of the
Company and its Subsidiaries thereunder.
9
<PAGE>
2.14 Environmental Matters. To the best knowledge of Sellers and the
---------------------
Company after reasonable and prudent investigation, except as set forth in
Section 2.14 of the Disclosure Schedule, none of the Sellers, the Company nor
any of its Subsidiaries has received any written notice alleging the violation
of any applicable federal, state and local laws and regulations related to the
protection of the environment ("Environmental Laws"), and (i) each of the
------------------
Company and its Subsidiaries is in compliance in all material respects with all
Environmental Laws; (ii) each of the Company and its Subsidiaries has obtained
and complies in all material respects with all required governmental
environmental permits with respect to the Business as currently conducted; (iii)
no storage, treatment or disposal of hazardous waste, substance or material on
the real estate owned, leased or managed by any of the Company and its
Subsidiaries has been made except in compliance with applicable Environmental
Laws, and (iv) each of the Company and its Subsidiaries has lawfully disposed of
its hazardous waste products with respect to the operations of the Business. All
underground storage tanks located on the real estate owned by any of the Company
and its Subsidiaries have been duly registered with the appropriate governmental
authorities, to the extent required by law.
2.15 Title to Assets and Leases. (a) On May 31, 1997, either the Company
--------------------------
or a Subsidiary had and, except with respect to assets disposed of in the
ordinary course of business since May 31, 1997, now has, good and marketable
title to all real property and all other properties and assets reflected on the
May 31, 1997 Internal Financial Statements or which would have been reflected
thereon had they not been fully depreciated, free and clear of all Encumbrances
except for (i) Encumbrances which secure indebtedness or obligations which are
properly reflected on the May 31, 1997 Internal Financial Statements; (ii) liens
for Taxes accrued but not yet payable; (iii) liens arising as a matter of law in
the ordinary course of business, provided that the obligations secured by such
liens are not delinquent or are being contested in good faith; (iv) such
imperfections of title and encumbrances, if any, as do not materially interfere
with the present use of any of its properties and assets; and (v) leases, if
any, to third parties which, if material, are set forth on Section 2.15 of the
Disclosure Schedule. Either the Company or a Subsidiary owns, or has valid
leasehold interests in, all material properties and assets used in the conduct
of the Business.
(b) Neither the Company nor any of its Subsidiaries has any legal
obligation, absolute or contingent, to any other person to sell or otherwise
dispose of any substantial part of its assets, or to sell or otherwise dispose
of any of its assets, except in the ordinary course of business.
2.16 Number of Access Lines. As of June 30, 1997, the Company and its
----------------------
Subsidiaries provide local exchange telephone service to not less than 8720
access lines.
2.17 Intellectual Property. (a) Except as set forth on Section 2.17 of the
---------------------
Disclosure Schedule, the Company and its Subsidiaries own no patents,
trademarks, tradenames or other intellectual property and has not filed any
applications or registrations therefor.
(b) To the best knowledge of Sellers and the Company after reasonable
and prudent investigation, neither the Company nor any of its Subsidiaries is,
in any material respect,
10
<PAGE>
infringing or violating any patents, trademarks, service marks, trade names,
copyrights, royalty rights, design rights, or applications or registrations
therefor, foreign or domestic, of any person or entity.
2.18 Insurance. (a) Set forth on Section 2.18 of the Disclosure Schedule
---------
is a list of all material policies and binders of insurance held by or on behalf
of the Company and/or its Subsidiaries or relating to their respective
businesses and properties (specifying the amount of the coverage, the type of
the coverage and any pending claims thereunder). Each of these policies and
binders is valid and enforceable in accordance with its terms and is outstanding
and duly in force.
(b) Neither the Company nor any of its Subsidiaries is in material
default with respect to any provision contained in any such policy or binder,
nor has there been any failure to give notice or to present any claim relating
to the Company or any of its Subsidiaries under any such policy or binder in a
timely fashion or in the manner or detail required by the policy or binder.
There are no outstanding unpaid premiums (except premiums not yet due and
payable), and no notice of cancellation or nonrenewal with respect to, or
disallowance of any claim under, any such policy or binder has been received by
the Company or any of its Subsidiaries.
2.19 Regulatory Rate Base. Neither the Company nor any of its Subsidiaries
--------------------
has any inventory, plant or equipment that has been disallowed from regulatory
rate base or excluded from the revenue calculations for any pool (unless due to
the deregulation of the service for which such assets are used) in any rate
order issued by the NCUC or the FCC or any determination by an administrator of
an interstate or intrastate pool, or received notification that the NCUC or the
FCC or any pool administrator proposes to exclude any assets from rate base or
revenue calculations for the pools.
2.20 No Brokers' or Other Fees. No broker, finder or investment banker is
-------------------------
entitled to any brokerage, finder or other fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of any Seller, the Company or any affiliate thereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
3.1 Organization. Buyer is a limited liability company duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware,
and authorized to do business in the State of North Carolina.
3.2 Authorization, Etc. Buyer has full power and authority to execute and
------------------
deliver this Agreement and to carry out the transactions contemplated hereby.
The Managers (Members) of Buyer have duly approved and authorized the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, and no other proceedings on the part of
11
<PAGE>
Buyer are necessary to approve and authorize the execution and delivery of this
Agreement by Buyer and the consummation by Buyer of the transactions
contemplated hereby. This Agreement constitutes a valid and binding obligation
of Buyer enforceable against Buyer in accordance with its terms, except that the
enforcement hereof may be limited by (i) bankruptcy, insolvency, reorganization,
creditors arrangement, moratorium, fraudulent conveyance, or other similar state
or federal debtor relief laws now or hereafter in effect relating to creditors'
rights or the collection of debtor's obligations generally and (ii) general
principles of equity (including the possible unavailability of specific
performance or injunctive relief) regardless of whether enforceability is
considered in a proceeding at law or in equity.
3.3 No Approvals or Conflicts. Except as set forth in Section 3.3 of the
-------------------------
Disclosure Schedule, neither the execution and delivery by Buyer of this
Agreement nor the consummation by Buyer of the transactions contemplated hereby
will (i) violate, conflict with or result in a breach of any provision of the
organizational documents of Buyer, (ii) violate, conflict with or result in a
breach of any provision of, or constitute a default under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any Encumbrance upon any
of Buyer's properties under, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, lease, contract, agreement or other instrument or
commitment or obligation to which Buyer or any of its properties may be bound or
affected, (iii) violate any order, writ, injunction, decree, judgment, ruling,
law, rule or regulation of any court or governmental authority, domestic or
foreign, applicable to Buyer or any of its properties, or (iv) except for
approvals of the FCC and the NCUC, require any consent, approval or
authorization of, or notice to, or declaration, filing or registration with, any
governmental or regulatory authority in connection with the execution, delivery
and performance of this Agreement by Buyer, which, in the case of clauses (ii),
(iii) and (iv) above, would, individually or in the aggregate, reasonably likely
have a material adverse effect on the business, assets, liabilities, operations
or financial condition of Buyer (a "Buyer Material Adverse Effect").
-----------------------------
3.4 No Distribution. The Shares will be acquired by Buyer for investment
---------------
purposes only and not with a view to the resale or other distribution thereof,
and will not be transferred except in a transaction registered or exempt from
registration under the Securities Act of 1933, as amended.
3.5 Litigation. Except as set forth in Section 3.5 of the Disclosure
----------
Schedule, to the best of Buyer's knowledge, there are no claims, actions,
proceedings or investigations pending or, to the best knowledge of Buyer,
threatened against the Buyer or any of its Subsidiaries before any court or
governmental or regulatory authority or body which, individually or in the
aggregate, is reasonably likely to have a Buyer Material Adverse Effect. Neither
Buyer nor any of its respective properties is subject to any order, judgment,
injunction or decree which, individually or in the aggregate, would be likely to
have a Buyer Material Adverse Effect.
3.6 Environmental Inspections. Buyer represents and warrants that Buyer
-------------------------
has conducted a limited inspection of the real property owned by the Company,
and the results thereof have been made available to Company and Sellers. As of
the date hereof, Buyer does not have any present intention of conducting
additional environmental inspections of the real property owned by the Company.
12
<PAGE>
3.7 No Brokers' or Other Fees. No broker, finder or investment banker is
-------------------------
entitled to any brokerage, finder or other fee or commission in connection with
the transactions contemplated hereby based upon arrangements made by or on
behalf of Buyer.
ARTICLE IV
CONDITIONS TO SELLERS' OBLIGATIONS
The obligations of Sellers under this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
unless waived in writing by Sellers.
4.1 Representations and Warranties. The representations and warranties
------------------------------
made by Buyer in this Agreement that are qualified by materiality shall be true
and correct in all respects on the Closing Date as though such representations
and warranties were made at such date, except to the extent such representations
and warranties speak as of an earlier date, in which case they shall be true in
all respects as of such earlier date, and the representations and warranties
made by Buyer in this Agreement that are not qualified by materiality shall be
true and correct in all material respects as though such representations and
warranties were made at such date, except to the extent such representations and
warranties speak as of an earlier date, in which case they shall be true in all
material respects as of such earlier date, except in either case for changes
expressly permitted by the terms of this Agreement.
4.2 Performance. Buyer shall have performed and complied in all material
-----------
respects with all agreements, obligations and conditions required by this
Agreement to be so performed or complied with by Buyer prior to the Closing.
4.3 Officer's Certificate. Buyer shall have delivered to Seller a
---------------------
certificate, dated the date of the Closing and executed by the Chief Executive
or Managing Director of Buyer, certifying to the fulfillment of the conditions
specified in Sections 4.1 and 4.2 hereof.
4.4 Government Approvals. All approvals of the FCC and the NCUC, and any
--------------------
other applicable governmental approvals, shall have been received.
4.5 Injunctions. On the Closing Date there shall be no injunction, writ,
-----------
preliminary restraining order or other order in effect of any nature issued by a
court or governmental agency of competent jurisdiction directing that the
transactions provided for herein not be consummated as provided herein.
4.6 Closing Deliveries. In addition to the Purchase Price, the payments
------------------
referred to in clauses (ii) and (iii) of Section 1.4 hereof and any and all
other documents required to be delivered by Buyer hereunder, Sellers shall have
received from Buyer the following documents:
(i) a copy of the organizational documents of Buyer certified as
of a date within 30 days of the Closing Date by the Secretary of State of the
State of Delaware, and further separately certified by the Manager(s) of Buyer
as to the absence of any amendments to
13
<PAGE>
such documents between the date of certification by the Secretary of State of
the State of Delaware and the Closing Date;
(ii) a certificate from the Secretary of State of the State of
Delaware as to the good standing of Buyer in Delaware, and a certificate of the
Secretary of State of North Carolina as to the authority of Buyer to do business
in North Carolina certified as of a date within ten days of the Closing Date;
and
(iii) a certificate of the Manager(s) of Buyer attaching thereto a
true and correct copy of the resolutions of the Board of Directors of Buyer
authorizing this Agreement and the consummation of the transactions contemplated
hereby.
4.7 Opinion of Counsel to Buyer. Skadden, Arps, Slate, Meagher & Flom
---------------------------
(Illinois), counsel for Buyer, shall have delivered an opinion dated the Closing
Date with respect to this Agreement and the transactions contemplated hereby in
substantially the form attached hereto as Exhibit B.
4.8 Consents. All Consents referred to in Section 6.3(b) hereof shall
--------
have been obtained.
ARTICLE V
CONDITIONS TO BUYER'S OBLIGATIONS
The obligations of Buyer under this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
unless waived in writing by Buyer.
5.1 Representations and Warranties. The representations and warranties
------------------------------
made by Sellers and the Company in this Agreement that are qualified by
materiality shall be true and correct in all respects on (he Closing Date as
though such representations and warranties were made at such date, except to the
extent such representations and warranties speak as of an earlier date, in which
case they shall be true in all respects as of such earlier date, and the
representations and warranties made by Sellers and the Company in this Agreement
that are not qualified by materiality shall be true and correct in all material
respects as though such representations and warranties were made at such date,
except to the extent such representations and warranties speak as of an earlier
date, in which case they shall be true in all material respects as of such
earlier date, except in either case for changes expressly permitted by the terms
of this Agreement.
5.2 Performance. Sellers and the Company shall have performed and
-----------
complied in all material respects with all agreements, obligations and
conditions required by this Agreement to be so performed or complied with by
Sellers and the Company prior to the Closing.
5.3 Officer's Certificate. Sellers and the Company shall have delivered
---------------------
to Buyer a certificate, dated the date of the Closing and executed by the
President of the Company, certifying to the fulfillment of the conditions
specified in Sections 5.1 and 5.2 hereof.
14
<PAGE>
5.4 Government Approvals. All approvals of the FCC and the NCUC, and any
--------------------
other applicable governmental approvals, shall have been received.
5.5 Injunctions. On the Closing Date there shall be no injunction, writ,
-----------
preliminary restraining order or other order in effect of any nature issued by a
court or governmental agency of competent jurisdiction directing that the
transactions provided for herein not be consummated as provided herein.
5.6 Closing Deliveries. In addition to the delivery of the Shares and any
------------------
and all other documents required to be delivered by the Sellers or the Company
hereunder, Buyer shall have received from Sellers or the Company the following
documents:
(i) a copy of the charter of each of the Company and its
Subsidiaries, each certified as of a date within 30 days of the Closing Date by
the Secretary of State of North Carolina, further, separately certified by its
respective corporate secretary as to the absence of any amendments to such
charter between the date of such certification and the Closing Date;
(ii) good standing certificates for each of the Company and its
Subsidiaries, each certified as of a date within ten days of the Closing Date by
the Secretary of State of North Carolina; and
(iii) a certificate of the corporate secretary of the Company
attaching thereto true and correct copies of the bylaws of each of the Company
and its Subsidiaries and the resolutions of the Board of Directors of the
Company authorizing this Agreement and the consummation of the transactions
contemplated hereby.
5.7 Consents. All consents referred to in Section 6.3(b) hereof shall
--------
have been obtained.
5.8 Non-Competition Agreements. William R. Hupman, Jr. shall have entered
--------------------------
into a non-competition and confidentiality agreement in substantially the form
attached hereto as Exhibit C hereto.
5.9 Opinion of Counsel to Sellers. Wilson & Waller, P.A., counsel to
-----------------------------
Sellers, shall have delivered an opinion, dated the Closing Date, with respect
to this Agreement and the transactions contemplated hereby in substantially the
form attached hereto as Exhibit D. Jerry W. Amos, Amos & Jefferies, LLP,
Greensboro, North Carolina shall have delivered an opinion, dated the Closing
Date, with respect to regulatory approvals required in connection with this
Agreement and the transactions contemplated hereby. Any fees and expenses of Mr.
Amos incurred in connection with the delivery of such opinion shall be borne
exclusively by the Sellers.
5.10 Certain Receipts and Releases. Sellers shall have delivered to Buyer
-----------------------------
a receipt and release in form and substance satisfactory to Buyer executed by
each of Messrs. H. McClure
15
<PAGE>
Hupman and Mr. Samuel Hupman with respect to the payments referred to in clauses
(ii) and (iii) of Section 1.4(b) hereof.
5.11 Transition Cooperation Agreement. Both parties anticipate the need
--------------------------------
for cooperation during transition after Closing. Upon reasonable notice and
subject to schedule constraints, Seller agrees to provide cooperation and
transition assistance through Mr. William R. Hupman, Jr. and/or Mr. Don Flowe
(provided he is then employed by Mr. William R. Hupman, Jr. or an entity
controlled by him) for a period not to exceed twelve (12) weeks after Closing
for no more than five (5) hours per week collectively.
5.12 Cash and Cash Equivalents. On the Closing Date, the Company shall
-------------------------
have not less than $2,300,000 in cash and cash equivalents.
ARTICLE VI
COVENANTS AND AGREEMENTS
6.1 Conduct of Business. Sellers and the Company covenant that, except
--------------------
for actions specifically contemplated hereby or as consented to in writing by
Buyer, from and after the date of this Agreement and until the Closing Date they
shall:
(a) use reasonable efforts consistent with good business
judgment to: (i) preserve intact the present business organization of the
Company and its Subsidiaries; (ii) keep available the services of employees of
the Company and its Subsidiaries; (iii) preserve the present relationships of
the Company and its Subsidiaries with entities or persons having business
dealings with them; and (iv) operate the Company and its Subsidiaries in the
ordinary course consistent with prior practice;
(b) except as otherwise provided in Section 6.1 of the
Disclosure Schedule, not (i) issue or sell any shares of capital stock or other
securities of the Company or any of its Subsidiaries or any options, warrants or
commitments of any kind with respect thereto; (ii) directly or indirectly
purchase, redeem or otherwise acquire or dispose of any shares of capital stock
of the Company or any of its Subsidiaries; (iii) declare, set aside or pay any
dividend or other distribution or advance on its capital stock or make any other
distribution to its stockholders; (iv) borrow or agree to borrow any funds or
incur, whether directly or by way of guarantee, any obligation for borrowed
money; (v) subject any of the property or assets of the Company or any of its
Subsidiaries (real, personal or mixed, tangible or intangible) to any
Encumbrance or otherwise permit or allow the sale or other disposition of any
material property or assets of the Company or any of its Subsidiaries (real,
personal or mixed, tangible or intangible), other than the sale of products in
the ordinary course of business consistent with past practice; (vi) make any
change in its accounting policies from those applied in the preparation of the
1996 Audited Financial Statements and the May 31, 1997 Internal Financial
Statements; (vii) make any capital expenditures not set forth in the budget set
forth in Section 6.1 of the Disclosure Schedule, except for capital expenditures
not in excess of $10,000 individually or $50,000 in the aggregate; (viii) modify
or change in any material respect, or enter into or terminate, any material
contract or commitment; (ix) acquire an equity interest in, or the assets
16
<PAGE>
of, any other corporation or entity; (x) waive any claims or rights relating to
the Company's business, except in the ordinary course of business and consistent
with past practice in an amount not to exceed $10,000 in the aggregate; (xi)
increase the compensation payable or to become payable to any of the directors,
officers or employees of the Company or any of its Subsidiaries or take any
action with respect to the grant or payment of any severance or termination pay,
or stay bonus or other bonus or incentive arrangement except in the normal
course of business consistent with past practice (other than required pursuant
to benefit plans and policies in effect on the date of this Agreement) or pay or
agree to pay any subscriptions or membership fees or dues for or behalf of any
of the directors, officers or employees of the Company or any of its
Subsidiaries; (xii) make any material Tax election, other than in the ordinary
course of business consistent with past practice or pay any amounts under, or in
respect of, any tax sharing agreement or arrangement; (xiii) amend the charter
or bylaws of the Company or any of its Subsidiaries; (xiv) enter into any
agreements or arrangements with any affiliate; (xv) take any action that would,
or that could reasonably be expected to, result in any of the representations or
warranties of Sellers or the Company set forth in this Agreement to become
untrue; (xvi) enter into agreements with or take any action to file or petition
to the NCUC, FCC or any other governmental or regulatory agency without prior
discussion with and approval of Buyer or (xvii) agree to do any of the
foregoing; and
(c) maintain the books and records of the Company and its
Subsidiaries in accordance with prior practice.
6.2 Access to Books and Records. Upon reasonable written notice to
---------------------------
Sellers Representative and subject to operational considerations, the Company
shall, and shall cause each of its Subsidiaries to, afford to Buyer, and to
Buyer's accountants, counsel and other representatives, reasonable access to and
permit them to make such inspections of, as they may reasonably require during
normal business hours, including all available environmental reviews or audits,
for reasonable periods during the period from the date of this Agreement through
the Closing, their respective properties, books, contracts, commitments and
records. The Company and its Subsidiaries shall furnish or cause to be furnished
to Buyer such financial and operating data and other information with respect to
the business and properties of the Company and its Subsidiaries, including
access to the work papers of the Company's independent auditors, as Buyer may
from time to time reasonably request, and Buyer and its representatives shall be
entitled, in consultation with the Company, to such access to the
representatives, officers and employees of the Company and its Subsidiaries as
Buyer may reasonably request. Buyer will hold, and will cause its affiliates,
associates and representatives to hold, any nonpublic information in accordance
with the terms of the Confidentiality Agreement, dated as of July 1, 1997,
between Buyer and the Company (the "Confidentiality Agreement"). The Company
-------------------------
shall, and shall cause each of its subsidiaries to, afford to Buyer and Buyer's
attorneys and consultants, access to the real property of the Company and its
subsidiaries to conduct environmental assessments of said real property. Said
environmental assessments may include, without limitation, the collection and
analysis of soil samples, subsurface soil samples, surface water samples,
groundwater samples, sediment samples, and suspect asbestos-containing building
materials. Said environmental assessments may be conducted in phases, at the
discretion of the Buyer.
17
<PAGE>
6.3 Approvals and Consents. After the execution hereof, each of the
----------------------
Company and Sellers, on the one hand, and Buyer, on the other: (a) shall
promptly prepare and make any required filings under the regulations of the FCC
and the NCUC, as required, and (b) shall use all reasonable efforts to obtain
and to cooperate in obtaining any consent, approval, authorization or order of,
or in making any registration or filing with, any governmental agency or body
required in connection with the execution, delivery or performance of this
Agreement. The Company shall be represented in connection with such approvals
and consents by its utility counsel, Jerry W. Amos, Amos & Jefferies, LLP,
Greensboro, North Carolina and the first $15,000 of costs for such counsel,
approvals and consents shall be borne equally by Buyer and Sellers, the balance
of such costs to be borne by the Buyer; provided, however, that the Sellers
-------------------
shall bear no such costs hereunder in the event that the Closing does not occur
as a result of Buyer's failure to satisfy the conditions set forth in Article IV
hereof and each Seller has satisfied the conditions set forth in Article V
hereof. The Company and Buyer will furnish to one another such necessary
information and reasonable assistance as may be requested in connection with the
preparation of necessary filings or submissions under the regulations of the FCC
and the NCUC. Sellers and Buyer will supply to one another copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between Buyer or Sellers or their respective representatives,
on the one hand, and the Federal Trade Commission, the FCC, the NCUC or any
other governmental agency or authority or their respective staffs, on the other
hand, with respect to this Agreement or the transactions contemplated hereby,
other than confidential or proprietary information therein. Sellers and the
Company shall use reasonable best efforts to obtain at the earliest practicable
date and prior to the Closing all consents, waivers and/or approvals required in
connection with the performance of this Agreement and the consummation of the
transactions contemplated thereby pursuant to the terms of (i) all Material
Contracts and (ii) any other contracts, leases, agreements and understandings to
which any of the Company and its Subsidiaries is a party or by which any of
their respective assets or operations may be bound, except in the case of this
clause (ii) for any consents, waivers and/or approvals the failure to obtain
would not impair in any material respect the consummation of the transactions
contemplated hereby or the ability of the Company and its Subsidiaries to
operate the Business following the Closing. The Sellers and the Company shall
also proceed in good faith to obtain prior to the Closing all other consents
that may be required in connection with the performance of this Agreement
pursuant to the terms of other agreements or instruments of the Company and its
Subsidiaries.
6.4 Further Assurances. After the Closing, each party hereto shall from
------------------
time to time, at the request of the other party and at the cost and expense of
the requesting party (including reimbursement of the other party for its
reasonable out-of-pocket expenses in connection therewith), execute and deliver
or cause to be executed and delivered such other instruments of conveyance and
transfer and such other certificates and other documents and take such other
actions as such requesting party may reasonably request in order to more
effectively consummate the transactions contemplated hereby.
6.5 Confidentiality Agreement. The Confidentiality Agreement will survive
-------------------------
and remain in full force and effect following the Closing or the termination of
this Agreement.
18
<PAGE>
6.6 Tax Matters. (a) Sellers Indemnification. Sellers shall be liable
----------- --------------------------
for, and shall indemnify and hold Buyer, the Company and their affiliates
harmless against, all Taxes (i) imposed on any person (other than the Company or
the Subsidiaries) under Treas. Reg. (S) 1. 1502-6 (or any similar provision
under state, local or foreign law) (including as a transferee or successor, by
contract or otherwise) and (ii) of the Company or the Subsidiaries for any
taxable year or taxable period ending on or before the Closing Date due or
payable with respect to the income, operations, assets or business of the
Company or the Subsidiaries on or before the Closing Date, but only to the
extent that the aggregate amount of such Taxes exceeds the amount of Taxes that
have been reserved for on the Special Purpose Statement. In order to
appropriately apportion any income Taxes relating to any taxable year beginning
before (and ending after) the Closing Date, the parties hereto shall apportion
such income Taxes to the taxable period ending on or before the Closing Date by
a closing of the Company's and Subsidiaries' books, except that exemptions,
allowances or deductions that are calculated on a time basis, such as the
deduction for depreciation, shall be apportioned on a time basis. In order to
appropriately apportion any non-income Taxes relating to any taxable year
beginning before (and ending after) the Closing Date, the parties hereto shall
apportion such non-income taxes to the taxable period ending on or before the
Closing Date as follows: (x) ad valorem Taxes (including, without limitation,
----------
real and personal property Taxes) shall be accrued on a monthly basis over the
period for which the Taxes are levied, or if it cannot be determined over what
period the Taxes are being levied, over the fiscal period of the relevant taxing
authority, in each case irrespective of the lien or assessment date of such
Taxes, (y) all Taxes relating to actions outside the ordinary course of business
occurring on or prior to the Closing Date shall be apportioned to the period
ending on or prior to Closing, and (z) franchise and other privilege taxes not
measured by income shall be accrued on a monthly basis over the period to which
the privilege relates. Any tax allocation agreement or arrangement between the
Company and Sellers or any of their affiliates in effect prior to Closing (other
than this Agreement) shall cease to exist as of the Closing Date.
(b) Company's Indemnification. Except as otherwise provided in
-------------------------
Section 6.6(a) hereof, the Company and Buyer shall be liable for, and shall
indemnify and hold Sellers or any affiliate of Sellers harmless against, any and
all Taxes imposed on the Company or the Subsidiaries relating to any taxable
year ending after the Closing Date.
(c) Refunds or Credits. The Company shall promptly pay to
------------------
Sellers any refunds or credits of Taxes for which the Sellers may be liable
under Section 6.6(a) hereof; provided, however, that the Company shall not be
required to pay to Sellers any refunds or credits not actually received. Upon
the reasonable request of Sellers, the Company shall prepare and file, or cause
to be prepared and filed, all claims for refunds relating to such Taxes;
provided, however, that the Company shall not be required to file such claims
for refund to the extent such claims for refund would have a material adverse
effect on the Company and its Subsidiaries in future periods or to the extent
the claims for refund relates to a carryback of an item. The Company shall be
entitled to all other refunds or credits of Taxes.
(d) Mutual Cooperation. As soon as practicable, but in any
------------------
event within 15 days after either Sellers' or Buyer's request, as the case may
be, Buyer shall deliver to Sellers or Sellers shall deliver to Buyer, as the
case may be, such information and other data relating to the Tax Returns and
Taxes of the Company and the Subsidiaries and shall provide such other
19
<PAGE>
assistance as may reasonably be requested, to cause the completion and filing of
all Tax Returns or to respond to audits by any taxing authorities with respect
to any Tax Returns or taxable periods or to otherwise enable Sellers, Buyer or
the Company to satisfy their accounting or tax requirements. For a period of
five years from and after the Closing, Buyer shall, and shall cause the Company
to, maintain and make available to Seller, on Seller's reasonable request,
copies of any and all information, books and records referred to in this Section
6.6(d). After such five-year period, Buyer or the Company may dispose of such
information, books and records, provided that prior to such disposition Buyer
shall give Sellers the opportunity to take possession of such information, books
and records. The Company shall be responsible for preparing and filing the 1997
tax return, provided that, prior to filing the 1997 tax return, William R.
Hupman, Jr. and or his advisors shall be provided ten (10) business days to
review said return and all back-up information, and, in the event of questions
or disagreement as to information on the return the parties agree to cooperate
to resolve such questions or disagreements. If a resolution cannot be reached,
then the provisions of Section 6.6(f) below shall apply.
(e) Contests. Whenever any taxing authority asserts a claim,
--------
makes an assessment, or otherwise disputes the amount of Taxes for which Sellers
are or may be liable under this Agreement, Buyer shall, if informed of such an
assertion, promptly inform Sellers, and Sellers shall have the right to control
any resulting proceedings and to determine whether and when to settle any such
claim, assessment or dispute to the extent such proceedings or determinations
affect the amount of Taxes for which Sellers are liable under this Agreement.
Whenever any taxing authority asserts a claim, makes an assessment or otherwise
disputes the amount of Taxes for which Buyer is liable under this Agreement,
Sellers shall, if informed of such an assertion, promptly inform Buyer, and
Buyer shall have the right to control any resulting proceedings and to determine
whether and when to settle any such claim, assessment or dispute, except to the
extent such proceedings affect the amount of Taxes for which Sellers are liable
under this Agreement.
(f) Resolution of Disagreements Between Sellers and Buyer. If
-----------------------------------------------------
Sellers and Buyer disagree as to the amount of Taxes for which Sellers or Buyer
may be liable under this Agreement, Sellers and Buyer shall promptly consult
each other in an effort to resolve such dispute. If any such point of
disagreement cannot be resolved within thirty (30) days of the date of
consultation, Sellers and Buyer shall within ten (10) days after such 60-day
period jointly select a nationally recognized independent public accounting firm
mutually agreed upon by the parties hereto which has not, except pursuant to
this Section 6.6(f), performed any services since January 1, 1992, for either
Sellers or Buyer or their respective subsidiaries, to act as an arbitrator to
resolve, within thirty (30) days after their selection, all points of
disagreement concerning tax matters with respect to this Agreement and presented
to such accounting firm at the time of its selection. If the parties cannot
agree on the selection of an accounting firm within such ten-day period, within
two business days after such ten-day period the parties shall petition the Chief
Judge of the United States District Court for the Middle District of North
Carolina to select such accounting firm. The cost of any such independent public
accounting firm shall be paid equally by the parties.
20
<PAGE>
(g) Survival of Obligations. The obligations of the parties
-----------------------
set forth in this Section 6.6 shall be unconditional and absolute, and shall
remain in effect without limitation as to time or amount of recovery.
6.7 Employee Matters.
----------------
(a) A schedule shall be delivered to Buyer by the Company prior
to the Closing Date, setting forth the name and position of each person employed
(excluding those employees listed in Section 6.7 of the Disclosure Schedule) on
a full-time or part-time basis by the Company and/or its Subsidiaries and the
aggregate compensation (including salary, bonuses and commissions) paid to each
such person for the period commencing January 1, 1997, and ending with the pay
period not more than 30 days prior to the Closing Date, together with the date
of most recent commencement of service of each such person and the accrued
holiday, vacation, sick leave, long-service entitlement (if any) of each such
person and permitted time off due as compensation for additional time worked by
each person .
(b) Subject to the obligations under Section 6.1 (a), none of
the Sellers nor Company will take any action to solicit for employment outside
the Company or its subsidiaries other than those individuals set forth in
Section 6.7 of the Disclosure Schedule.
6.8 WARN Act. Buyer and Sellers agree that for purposes of the United
--------
States Worker Adjustment and Retraining Notification Act (the "WARN Act"), the
--------
Closing Date shall be the "effective date" as such term is used in the WARN Act.
Buyer acknowledges and represents that it has no present intent to effectuate a
"mass layoff" or "plant closing" with respect to the Company as defined in the
WARN Act. Buyer agrees that from and after the Closing Date the Company shall be
responsible for any notification required under the WARN Act with respect to the
Company and the Company and Buyer shall indemnify the Sellers and hold the
Sellers harmless from and against all fines and other payments which may become
due under the WARN Act with respect to the Company.
6.9 Employee Benefits. Immediately after the Closing, the Company shall
-----------------
have the same responsibilities and rights with respect to any employee benefit
plan or labor contract, plan, program, agreement, policy or arrangement
including any employment agreement, severance agreement, option agreement or
collective bargaining agreement in effect and disclosed to Buyer on the date
hereof as the Company had prior to the Closing.
6.10 Supplements to Disclosure Schedule. From time to time prior to the
----------------------------------
Closing, Sellers, the Company and Buyer will promptly supplement or amend the
sections of the Disclosure Schedule relating to their respective representations
and warranties in this Agreement with respect to any material matter, condition
or occurrence hereafter arising which, if existing or occurring at the date of
this Agreement, would have been required to be set forth or described in their
respective sections of the Disclosure Schedule. Except with respect to a
supplement or amendment not objected to in writing by Sellers, the Company or
Buyer within ten business days after receipt thereof, no supplement or amendment
by Sellers, the Company or Buyer shall have any effect for the purpose of (i)
determining satisfaction by Sellers of the conditions set forth in
21
<PAGE>
Sections 4.1 and 4.2 hereof or (ii) determining satisfaction by Buyer of the
conditions set forth in Sections 5.1 and 5.2 hereof.
6.11 Covenant to Satisfy Conditions. Each party agrees to use all
------------------------------
reasonable efforts to insure that the conditions set forth in Article IV and
Article V hereof are satisfied, insofar as such matters are within the control
of such party.
6.12 Director and Officer Liability and Indemnification. For a period of
--------------------------------------------------
five years after the Closing, Buyer shall not permit the Company to amend,
repeal or modify any provision in its charter or bylaws relating to the
exculpation or indemnification of former officers and directors (unless required
by law), it being the intent of the parties that the officers and directors of
the Company prior to the Closing shall continue to be entitled to such
exculpation and indemnification to the fullest extent permitted under applicable
law. Notwithstanding the foregoing, the provisions of this Section 6.12 may not
be relied upon by Sellers to avoid liability in connection with any
indemnification claim made by a Buyer Indemnified Party (as defined herein)
pursuant to Section 8.1 of this Agreement.
6.13 Financing. The Company and Sellers acknowledge that Buyer desires to
---------
obtain outside financing in connection with the transactions contemplated
hereby. It is agreed and understood by the Buyer that the financing contemplated
hereby is not a condition precedent to Closing. In connection therewith, the
Company and its officers and appropriate employees will provide reasonable
cooperation in connection with the arrangement of the financing contemplated
hereby (the "Financing") as may be reasonably requested by Buyer, including the
---------
execution of such certificates and other documents and the provision of such
legal opinions as the tender in the Financing shall require as a condition for
consummation of the Financing. Buyer hereby agrees to use its reasonable best
efforts (i) in the negotiation of definitive agreements with lenders and (ii) to
satisfy all conditions applicable to Buyer in such definitive agreements to the
extent that the satisfaction of such conditions are within the control of Buyer.
Buyer will keep the Company informed of the status of its efforts to arrange the
Financing, including making reports to Sellers with respect to significant
developments.
6.14 Affiliated Transactions. Except as set forth in Section 6.14 of the
-----------------------
Disclosure Schedule, prior to or concurrently with the Closing, all contracts,
arrangements or obligations between the Company or any of its Subsidiaries, on
the one hand, and Sellers or any of their affiliates, on the other hand, shall
be terminated without the payment of any monies by the Company or its
Subsidiaries.
6.15 Financial Statements and Reports. As promptly as practicable, the
--------------------------------
Company shall provide to Buyer true and complete copies of the Company's monthly
unaudited consolidated balance sheets and consolidated statements of income,
stockholders' equity and cash flows, together with the notes thereto, if any
(the "Interim Financial Statements"). The Interim Financial Statements shall be
----------------------------
prepared on a basis consistent with the May 31, 1997 Internal Financial
Statements and shall fairly present the financial position and results of
operations of the Company as of the dates and for the periods set forth in such
Interim Financial Statements. As promptly as practicable, the Company shall
deliver to Buyer true and complete copies of such
22
<PAGE>
other regularly prepared financial statements, reports and analyses as may be
prepared by the Company and delivered to the Company's existing lenders under
its credit facilities.
6.16 Disclosure. Sellers and the Company shall promptly notify Buyer of,
----------
and furnish Buyer with any information Buyer may reasonably request with respect
to the occurrence, to the best knowledge of Sellers and the Company, of any
event or condition or the existence of any fact that would cause any of the
conditions to Buyer's obligations to consummate the transactions contemplated by
this Agreement not to be fulfilled. Buyer shall promptly notify Sellers of, and
furnish Sellers with any information the Sellers may reasonably request with
respect to the occurrence, to the best knowledge of Buyer, of any event or
condition or the existence of any fact that would cause any of the conditions to
Sellers' obligations to consummate the transactions contemplated by this
Agreement not to be fulfilled.
ARTICLE VII
TERMINATION
7.1 Termination. This Agreement may be terminated and abandoned at any
-----------
time prior to Closing:
(a) by the mutual consent of Sellers and Buyer;
(b) by written notice by Sellers delivered to Buyer no later
than October 6, 1997, in the event that the redacted copy of the commitment
letter referred to in Section 6.13 hereof is not provided to Sellers on or prior
to October 1, 1997;
(c) by either Sellers or Buyer in the event the Closing has not
occurred by January 31, 1998 (the "Cutoff Date"), unless the failure of such
-----------
consummation shall be due to the failure of the party seeking to terminate this
Agreement to comply in all material respects with the agreements and covenants
contained herein to be performed by such party on or before the Cutoff Date; or
(d) by either Sellers or Buyer in the event any court of competent
jurisdiction in the United States or other federal, state or local governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the transactions contemplated
hereby and such order, decree or ruling or other action shall have become final
and nonappealable.
7.2 Effect of Termination. In the event of any termination of this
---------------------
Agreement, neither party to this Agreement will have any liability to the other,
except for (i) any breach of any provisions of this Agreement and (ii)
obligations arising out of the Confidentiality Agreement.
23
<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Sellers. Sellers jointly and severally (including
--------------------------
their successors and assigns) agree to indemnify promptly Buyer, its successors
and assigns, and any officer, director, employee or affiliate of Buyer
(collectively, the "Buyer Parties") against and hold the Buyer Parties harmless
-------------
from and in respect of any and all assessments, liens, losses, claims, damages,
fines, penalties, judgments, settlements, liabilities, costs, reasonable
expenses (including, without limitation, expenses of investigation and defense
fees and disbursements of counsel and other professionals) and any other
obligations of any nature whatsoever (collectively the "Losses") which may be
------
incurred by any of the Buyer Parties directly or indirectly by virtue of or
resulting from the breach of (i) any covenant or agreement made by the Company
or Sellers in this Agreement, (ii) any of the representations and warranties
contained in Sections 2.2, 2.3, 2.10, and 2.11 hereof (which are the only
representations and warranties of the Company or Sellers which survive the
Closing) and (iii) agreements to which the Company or any Subsidiary is a party,
including indemnification agreements, which were not provided to Buyer;
provided, however, that the provisions of this Article VIII shall not apply to
- -------- --------
the covenants and agreements contained in Section 6.6 hereof, which shall be
controlled by the terms therein; provided, further, that indemnification for
-------- -------
breaches of the representations and warranties listed in clause (ii) of this
Section 8.1 shall not be available except with respect to claims of breaches
made thereunder by any Buyer Party prior to the 18 month anniversary of the
Closing Date, except that indemnification for breaches of the representations
and warranties contained in Sections 2.10 and 2.11 herein shall survive until 30
days following the expiration of the relevant statute of limitations (including
extensions thereof).
8.2 Indemnification by Buyer. Buyer (including its successors and
------------------------
assigns) agrees to indemnify promptly Sellers, their successors and assigns, and
any affiliate of any of Sellers (collectively the "Seller Parties") against arid
--------------
hold the Seller Parties harmless from and in respect of any and all Losses which
may be incurred by any of the Seller Parties directly or indirectly by virtue of
or resulting from the breach of any covenant or agreement of Buyer in this
Agreement; provided, however, that the provisions of this Article VIII shall not
-------
apply to the covenants and agreements contained in Section 6.6 hereof, which
shall be controlled by the terms therein.
8.3 Notification of Claims. (a) A party entitled to be indemnified
----------------------
pursuant to Section 8.1 or 8.2 hereof (the "Indemnified Party") shall notify the
-----------------
party liable for such indemnification (the "Indemnifying Party") in writing of
------------------
any claim or demand which the Indemnified Party has determined has given or
could give rise to a right of indemnification under this Agreement. Such notice
must be given, in the case of a third-party claim, within thirty (30) days after
actual receipt by the Indemnified Party of written notice of the third-party
claim; provided, however, that the Indemnified Party shall in any event give
-------- -------
written notice to the Indemnifying Party within such reasonable period of time
as shall be necessary to allow the Indemnifying Party to respond to any judicial
pleading or other document for which a timely response is required.
(b) If the Indemnified Party shall notify the Indemnifying Party of
any claim or demand pursuant to Section 8.3(a) hereof, and if such claim or
demand relates to a claim or
24
<PAGE>
demand asserted by a third party against the Indemnified Party which the
Indemnifying Party acknowledges is a claim or demand for which it must indemnify
or hold harmless the Indemnified Party under Section 8.1 or 8.2 hereof, the
Indemnifying Party shall have the right to employ counsel reasonably acceptable
to the Indemnified Party to defend any such claim or demand asserted against the
Indemnified Party, the parties acknowledging that the respective counsel in this
transaction are, and will be, acceptable. The Indemnified Party shall have the
right to cooperate in the defense of any such claim or demand at its own
expense. The Indemnifying Party shall notify the Indemnified Party in writing,
within 30 days after the date of the notice of claim given by the Indemnified
Party to the Indemnifying Party under Section 8.3(a) hereof, of its election to
defend in good faith any such third-party claim or demand. So long as the
Indemnifying Party is defending in good faith any such claim or demand asserted
by a third party against the Indemnified Party, the Indemnified Party shall not
settle or compromise such claim or demand. The Indemnified Party shall make
available to the Indemnifying Party or its agents all records and other
materials in the Indemnified Party's possession reasonably required by it for
its use in contesting any third-party claim or demand. If the Indemnifying Party
does not assume the defense of a third-party claim or demand, the Indemnified
Party shall defend such claim or demand and the Indemnifying Party shall have
the right to participate in such defense. The Indemnified Party shall not, in
such defense, settle or compromise such claim or demand, except with the written
consent of the Indemnifying Party.
ARTICLE IX
MISCELLANEOUS
9.1 Termination of Representations and Warranties. Except as set forth in
---------------------------------------------
Section 8.1 hereof, the respective representations and warranties of the
Company, Sellers and Buyer contained herein or in any certificates or other
documents delivered prior to or at the Closing shall expire with and be
terminated and extinguished as of the Closing, and thereafter neither Sellers
nor Buyer nor any officer, director or principal thereof shall be under any
liability whatsoever with respect to any such representation or warranty.
9.2 Fees and Expenses. All of the parties shall bear their own expenses
-----------------
in connection with the negotiation and consummation of the transactions
contemplated by this Agreement. If any of the parties has retained a broker or
finder in connection with the transactions contemplated herein, such party shall
bear the fees and expenses of such broker or finder; provided,_that Sellers
--------
shall be solely responsible for the fees and expenses of any broker or finder
employed by or on behalf of Sellers, the Company or any of its Subsidiaries.
9.3 Governing Law. This Agreement shall be construed under and governed
-------------
by the laws of the State of North Carolina without regard to the conflicts-of-
laws provisions thereof, and the parties hereto agree that exclusive
jurisdiction and venue for all disputes between or among them arising out of or
connected with the Agreement or the transactions contemplated hereby, and
whether arising in contract, tort, equity or otherwise shall be the State or
Federal Courts located in Raleigh, North Carolina.
25
<PAGE>
9.4 Amendment. This Agreement may not be amended, modified or
---------
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
9.5 No Assignment. Neither this Agreement nor any of the rights,
-------------
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other parties; provided, that Buyer may assign
--------
its rights and obligations hereunder to an affiliate of Buyer without the
consent of any other party.
9.6 Waiver. Any of the terms or conditions of this Agreement which may be
------
lawfully waived may be waived in writing at any time by the party which is
entitled to the benefits thereof. Any waiver of any of the provisions of this
Agreement by any party hereto shall be binding only if set forth in an
instrument in writing signed on behalf of such party. No failure to enforce any
provision of this Agreement shall be deemed to or shall constitute a waiver of
such provision, and no waiver of any of the provisions of this Agreement shall
be deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
9.7 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given by hand,
overnight delivery service, delivery, telex, telecopier or mail (registered or
certified mail, postage prepaid, return receipt requested) to the respective
parties as follows:
If to Buyer:
Madison River Telephone Company, LLC
6330 Quadrangle Drive, Suite 325
Chapel Hill, North Carolina 27514
Attention: Chairman and Chief Executive
(919) 402-0151 (telecopier)
(919) 493-7030 (telephone)
with copies to:
Madison River Telephone Company, LLC
6330 Quadrangle Drive, Suite 325
Chapel Hill, North Carolina 27514
Attention: Managing Director Finance and General Counsel
(919) 402-0151 (telecopier)
(919) 493-7030 (telephone)
and
Gary P. Cullen, Esq.
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
26
<PAGE>
(312) 407-0411 (telecopier)
(312) 407-0680 (telephone)
If to Sellers:
Mr. William R. Hupman, Jr.
P.O. Box 8
Mebane, NC 27301
or
Mr. William R. Hupman, Jr.
114 W. Center Street
Mebane, NC 27302
(919) 563-9773 (telecopier)
(919) 563-3333 (telephone)
with a copy to:
Thomas J. Wilson, Esq.
Wilson & Waller, P.A.
4600 Marriott Drive, Suite 400
P.O. Box 31447
Raleigh, NC 27622
(919) 787-7710 (telecopier)
(919) 787-7711 (telephone)
or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner.
Notices shall be deemed given, in the case of hand delivery, upon receipt,
in the case of overnight delivery service, on the second business day after
delivery to a recognized overnight delivery service, in the case of telex and
telecopy, upon telephonic confirmation of transmission and, in the case of mail,
upon the fifth business day after deposit with the U.S. mail.
9.8 Complete Agreement. This Agreement, the Disclosure Schedule, the
------------------
Confidentiality Agreement and the other documents and writings referred to
herein or delivered pursuant hereto contain the entire understanding of the
parties with respect to its subject matter. There are no restrictions,
agreements, promises, warranties, covenants or undertakings other than those
expressly set forth in such documents between the Company and Buyer with respect
to the subject matter of this Agreement. Except for the Confidentiality
Agreement, which shall remain in full force and effect, this Agreement
supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to this subject matter. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors.
27
<PAGE>
9.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.10 Publicity. No publication and/or press release of any nature shall be
---------
issued pertaining to this Agreement or the transactions contemplated hereby (a)
until Mr. William R. Hupman, Jr. has been provided an opportunity to address the
employees of the Company with respect to this Agreement and the transactions
contemplated hereby and (b) without the prior consent of the parties hereto
(which shall not be unreasonably withheld), except, in either case, as may be
required by applicable law.
9.11 Headings. The headings contained in this Agreement are for reference
--------
only and shall not affect in any way the meaning or interpretation of this
Agreement.
9.12 Severability. Any provision of this Agreement which is invalid,
------------
illegal or unenforceable in any jurisdiction shall, as to that Jurisdiction, be
ineffective to the extent of such invalidity, illegality, or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
9.13 Arbitration. Any dispute arising out of or relating to this Agreement
-----------
or the breach or validity hereof shall be finally settled and exclusively
resolved by arbitration in the Raleigh-Durham, North Carolina Metropolitan
Statistical Area, by three arbitrators, one of whom shall be appointed by the
Buyer, one of whom shall be appointed by the Seller and the third of whom shall
be appointed by the first two arbitrators so chosen. If either the Buyer or the
Seller fails to appoint an arbitrator within twenty (20) days of a request in
writing by the other to do so, or if the first two arbitrators cannot agree on
the appointment of a third arbitrator within twenty (20) days after the second
arbitrator is designated, then such arbitrator shall be appointed by the Chief
Judge of the United States District Court located in the city of Raleigh, North
Carolina or by the American Arbitration Association. Following the selection of
arbitrators as set forth above, the arbitration shall be conducted promptly and
expeditiously and in accordance with the rules of the American Arbitration
Association so as to enable the arbitrators to render an award within ninety
(90) days after the three arbitrators have been appointed. The arbitrators shall
not be empowered to award punitive damages or other damages in excess of a
party's actual damages, and each party hereby irrevocably waives any damages in
excess of actual damages. The arbitrators shall award the prevailing party
interest for the period from the date that the loss or damage occurred to the
date of payment to the prevailing party. Judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction therefor. Each party
shall bear the expenses of the arbitrator it selects and shall jointly and
equally share with the other expenses for the third arbitrator and the
arbitration proceeding, including without limitation, any expenses of the
arbitrators, but excluding legal, expert, accountant and other professional fees
of the other side.
28
<PAGE>
IN WITNESS WHEREOF, Buyer, Seller and the Company have executed or caused
this Agreement to be executed by their duly authorized officers as of the day
and year first above written.
MEBCOM COMMUNICATIONS, INC.
WILLIAM R. HUPMAN, JR
-----------------------------------
By: William R. Hupman
-------------------------------
Title: President
----------------------------
MADISON RIVER TELEPHONE COMPANY, LLC
J. STEPHEN VANDERWOUDE
-----------------------------------
By: J. Stephen Vanderwoude
-------------------------------
Title:______________________________
SELLERS:
WILLIAM R. HUPMAN, JR.
-----------------------------------
William R. Hupman, Jr.
ROBERT L. WILSON
-----------------------------------
Robert L. Wilson, Trustee
U/T/A dated 12/31/92 fbo
William R. Hupman, III
ROBERT L. WILSON
-----------------------------------
Robert L. Wilson, Trustee
U/T/A dated 12/31/92 fbo
Samuel McClure Hupman, III
ROBERT L. WILSON
-----------------------------------
Robert L. Wilson, Trustee
U/T/A dated 12/31/92 fbo
29
<PAGE>
Matthew Hart Hupman
ROBERT L. WILSON
-----------------------------------
Robert L. Wilson, Trustee
U/T/A dated 12/31/92 fbo
Caitlyn Crosby Hupman
ROBERT L. WILSON
-----------------------------------
Robert L. Wilson, Trustee
U/T/A dated 12/31/92 fbo
Jennifer Caroline Elizabeth Hupman
MARY M. HUPMAN
-----------------------------------
Mary M. Hupman, Custodian for
William R. Hupman, III under UGTMA
MARY M. HUPMAN
-----------------------------------
Mary M. Hupman, Custodian for
Samuel McClure Hupman, III under UGTMA
MARY M. HUPMAN
-----------------------------------
Mary M. Hupman, Custodian for
Matthew Hart Hupman under UGTMA
MARY M. HUPMAN
-----------------------------------
Mary M. Hupman, Custodian for
Caitlyn Crosby Hupman under UGTMA
MARY M. HUPMAN
-----------------------------------
Mary M. Hupman, Custodian for
Jennifer Caroline Elizabeth Hupman under UGTMA
30
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of April 17, 1996 by and among Madison River
Telephone Company LLC, a Delaware limited liability company ("Holdings"), and J.
Stephen Vanderwoude ("Executive").
RECITALS
--------
Holdings is being formed to identify for acquisition rural telephone companies
and, if identified, to raise capital sufficient to consummate an acquisition of
such companies.
Holdings has two classes of equity, Class A equity and Class B equity, and the
Class A equity will be entitled to distributions prior to the Class B equity.
The parties have agreed that the aggregate fair market value of all Class B
equity to be distributed is $10,000 as of the date hereof.
In order to induce Executive to agree to serve as Chief Executive Officer and
Executive Manager of Holdings, Holdings desires to provide Executive with
compensation and other benefits (including the right to purchase Class B equity
of Holdings) on the terms and conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform services for
Holdings on the terms and conditions set forth in this Agreement.
It is therefore hereby agreed by the parties as follows:
1. Employment.
----------
(a) Subject to the terms and conditions of this Agreement, Holdings agrees to
employ Executive during the term hereof as Chief Executive Officer and Executive
Manager. In his capacity as Chief Executive Officer and Executive Manager of
Holdings, Executive shall have the customary powers, responsibilities and
authorities of Chief Executive Officer and Executive Manager of corporations of
the size, type and nature of Holdings, as they exist from time to time.
Executive shall also be Chief Executive Officer and Executive Manager of all of
Holdings' subsidiaries unless otherwise agreed by Executive.
(b) Holdings shall, as long as Executive is employed in his capacity as Chief
Executive Officer and Executive Manager, use its best efforts to cause the
election and retention of Executive to the Board of Members of Holdings (the
"Board") as its Chairman of the Board. Holdings shall, as long as Executive is
employed in his capacity as Chief Executive Officer and Executive Manager, cause
Executive to be elected Chairman of the Board of all of Holdings' subsidiaries
unless otherwise agreed by Executive.
(c) Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment as Chief Executive Officer and Executive Manager of Holdings
and agrees to devote his full working time and efforts, to the best of his
ability, experience and talent, to the performance of services, duties and
responsibilities in connection therewith. Nothing in this Agreement shall
preclude Executive from
1
<PAGE>
engaging, consistent with his duties and responsibilities hereunder, in
charitable and community affairs, from managing his personal investments,
including Secret Keel Farm, LLC or, except as otherwise provided in Section 12
hereof, from serving as a member of boards of directors or as a trustee of other
companies, associations or entities.
2. Term of Employment.
------------------
Executive's term of employment under this Agreement shall commence on the date
(the "Approval Date") that the business plan for Holdings was approved by
Madison Dearborn Capital Partners, L.P. ("Madison Dearborn") (as contemplated by
the Agreement in Principle and Summary of Preliminary Terms, dated April 17,
1996 (as amended or otherwise modified from time to time, the "LOI"), among
Executive, Madison Dearborn, James D. Ogg, Terry E. Troughton and, if
applicable, certain other investors in Holdings) and, subject to the terms
hereof, shall terminate on the fourth anniversary of the First Acquisition
Closing Date (as defined herein) (unless and until extended from time to time by
mutual written agreement of the parties, the "Termination Date"); provided that,
notwithstanding the foregoing, the Termination Date shall be the date that the
enterprise contemplated by the LOI is abandoned or otherwise terminated in
accordance with the terms of the LOI, if the Termination Date has not previously
occurred.
3. Compensation.
------------
3.1 Initial Base Salary. Beginning on the Approval Date and continuing
-------------------
until the closing of the Company's first acquisition of a business (in any form)
(the "First Acquisition Closing Date") Holdings shall pay Executive a base
salary ("Base Salary") at the annual rate of $100,000. The Base Salary shall be
payable in accordance with the ordinary payroll practices of Holdings but in no
event less often than monthly in arrears.
3.2 Adjustments to Base Salary. Beginning on the First Acquisition Closing
--------------------------
Date, the Base Salary shall be increased from time to time as the Board shall
determine taking into account the success of Holdings, the performance of
Executive, the size, revenues, and earnings of the businesses held or operated,
or contemplated to be held or operated, by Holdings and other market factors.
Once so increased, the increased amount shall constitute Executive's Base Salary
hereunder.
3.3 Compensation Plans and Programs. Executive shall participate in any
-------------------------------
compensation plan or program, annual or long-term, maintained by Holdings and
participated in by senior executives of the Company generally on terms taking
into account Executive's title and position with the Company.
3.4 Expenses. Executive is authorized to incur reasonable expenses in
--------
carrying out his duties and responsibilities on behalf of the Company under this
Agreement, including, without limitation, expenses for travel and similar items
related to such responsibilities which are consistent with Holdings' policies in
effect from time to time with respect to travel and other business expenses.
Holdings will reimburse Executive for all such expenses upon presentation by
Executive from time to time of an itemized account of such expenditures;
provided that such expenses are in compliance with any other Holdings' policies
in effect from time to time with respect to reporting and documentation of such
expenses; it being understood, furthermore, that the cost of commuting between
Executive's residence and Holdings' prinipal place of business shall not be
reimbursed. Notwithstanding anything contained herein to the contrary (except
for (i) the legal fees referred to in Section 8 hereof which shall not require
further approval and (ii) the costs of the directors and officers insurance
referred to in Section 13(b) hereof and other insurance (including property and
casualty) which is reasonably deemed necessary by Executive and is approved by
the Board (which approval shall not be unreasonably withheld)), prior to
2
<PAGE>
the First Acquisition Closing Date, Executive is authorized to incur, and shall
be reimbursed, only for items approved by Madison Dearborn, and prior to the
Approval Date, Executive is authorized to incur, and shall be reimbursed, only
for his out-of-pocket costs described in Section 14(b) of the LOI and only to
the extent separately approved by Madison Dearborn (it being understood that the
listing of such costs in a budget attached to the LOI that has been approved by
Madison Dearborn constitutes approval by Madison Dearborn).
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. During the term of his
----------------------------------------------
employment hereunder, Holdings shall provide to Executive coverage under any
employee benefit programs, plans and practices (commensurate with his position
in Holdings and to the extent possible under any employee benefit plan), in
accordance with the terms hereof, which Holdings makes available to its senior
executive officers generally, including but not limited to (i) retirement,
pension and profit-sharing, and (ii) medical, dental, hospitalization, life
insurance, short-and long-term disability, accidental death and dismemberment
and travel accident coverage.
4.2 Vacation and Fringe Benefits.
----------------------------
(a) Executive shall be entitled to paid vacation each calendar year of no less
than 20 working days. Holdings may grant additional vacation time to Executive.
(b) In addition, Executive shall be entitled to all of the other perquisites and
fringe benefits accorded the senior officers of Holdings generally.
5. Incentive Equity.
----------------
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings ("Incentive Equity") equal to 30%
of the total Incentive Equity of Holdings for an aggregate purchase price of
$3,000. Within 30 days after each time that Executive exercises its right to
purchase Incentive Equity, the Executive will make an effective election with
the Internal Revenue Service under Section 83(b) of the Internal Revenue Code
and the regulations promulgated thereunder. The parties hereto agree that the
fair market value of the Incentive Equity allocated to Executive as of the date
hereof and for a period of at least five business days thereafter is $3,000 and
that they shall use that value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date. All unvested Incentive Equity will become fully
vested immediately prior to the occurrence of a Liquidity Event. "Liquidity
Event" means (i) any sale of all or substantially all of the assets of Holdings
on a consolidated basis in one transaction or series of related transactions
(but excluding sales to affiliates) for cash or marketable securities, (ii) any
sale of 50% or more of the Investor Equity (as defined in the LOI) in one
transaction or series of related transactions (but excluding sales to affiliates
and, with respect to individuals, related persons) for cash or marketable
securities or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
5.2 Distributions. Executive's unvested Incentive Equity outstanding at
-------------
the time of any dividend or other distribution to Incentive Equity will be
entitled to receive the same distributions per
3
<PAGE>
unit as vested Incentive Equity.
5.3 Repurchase.
----------
(a) Executive's unvested Incentive Equity will be subject to repurchase in
whole by Holdings, at its option (which option to repurchase must be elected in
writing by Holdings within ten days of termination and, subject to such
repurchase option being suspended as provided below, consummation of such
repurchase must be effected within 80 days thereafter), at the lower of its
original cost (less all amounts distributed in respect of Executive's unvested
Incentive Equity) or its Fair Market Value at the time of termination if
Executive ceases to be employed by Holdings for any reason. Notwithstanding
anything in this agreement to the contrary, in the event that Executive's
employment is terminated for any reason including due to death or Disability
(but other than by the Executive without Good Reason) and (i) at or prior to
such termination Holdings has entered into an agreement or agreements regarding
a transaction or has publicly announced its intention to consummate a
transaction (including, but not limited to, a public announcement of an
intention to seek to consummate a transaction), which upon consummation would
trigger a Liquidity Event (as defined in the LOI), or (ii) at or within six
months prior to such termination is or was in active negotiations regarding a
transaction, which upon consummation would trigger a Liquidity Event, then in
either case Holdings' repurchase right pursuant to the foregoing sentence will
be suspended and if any such transaction is consummated then Executive's
unvested Incentive Equity shall immediately prior to the consummation of such
transaction become fully vested and all distributions that would have been
payable to Executive on account of such unvested Incentive Equity subsequent to
Executive's termination and prior to such vesting shall be made to Executive,
with interest on each such distribution at a rate per annum equal to the prime
rate in effect at the time of each such distribution, at such time (and any
repurchase by Holdings of such Incentive Equity in connection with Executive's
termination of employment shall be governed by Section 5.3(b)), it being
understood and agreed that, upon exercise of the repurchase option, during such
suspension and prior to any such vesting hereunder, distributions that would
have been payable to Executive on account of such unvested Incentive Equity
shall not be for the account of Executive unless and until such Incentive Equity
shall become vested; provided that if none of such transactions is consummated
within two years after Executive's termination of employment, or within such
two-year period another transaction is consummated which constitutes a Liquidity
Event, then Holdings' above repurchase rights shall be reinstated. "Fair Market
Value" shall mean, with respect to any security, the amount that would be paid
to the holder thereof with respect to such security if all of the assets of
Holdings were sold for fair value to a willing buyer in exchange for cash, all
of the debt and other liabilities not assumed by the buyer were paid in full,
all of the convertible debt and other convertible securities were repaid or
converted (whichever yields more cash to the holders), and then Holdings were
completely liquidated.
(b) Executive's vested Incentive Equity will be subject to repurchase in whole
or in part by Holdings, at its option, at its Fair Market Value at the time of
termination if Executive ceases to be employed by Holdings for any reason other
than due to death or Disability (with repurchase being mandatory in the case of
death or Disability). If Executive's employment is terminated by Holdings
without Cause (as defined herein) or by Executive for Good Reason (as defined
herein), and Holdings exercises this repurchase option, then, at Holdings
option, the purchase price will be paid (i) in cash, (ii) by a promissory note
bearing interest at a rate per annum equal to the prime rate in effect at the
time Holdings exercises this repurchase option, having a two-year maturity and
payable in two equal annual installments of principal, together with accrued
interest thereon, or (iii) by a combination of cash and a promissory note having
the terms described above. Notwithstanding the foregoing, if Holdings does not
exercise this repurchase option within 90 days after Executive's employment is
terminated by Holdings without Cause or by Executive for Good Reason (or, if
applicable, 90 days after the Liquidity Event under circumstances described in
Section 5.3(a) above), then Executive shall retain such vested Incentive Equity
and such vested Incentive Equity shall not be subject to Holdings' repurchase
option. If
4
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Executive's employment is terminated by Holdings for Cause, or by Executive
without Good Reason, and Holdings elects to exercise this repurchase option, or
if Executive's employment is terminated due to death or Disability, the purchase
price will be paid by a Holdings promissory note bearing interest at a rate per
annum equal to the prime rate in effect at the time Holdings exercises this
repurchase option, or at the time that the holder's employment is terminated due
to death or Disability (due, on a pro rata basis, at such times as distributions
are made on other Incentive Equity; provided that, in the case of death,
payments on such promissory note to cover income and estate taxes due with
respect to such repurchase will also be due at the time such taxes are due).
Notwithstanding the foregoing, any notes that are issued by Holdings pursuant to
this Section 5.3(b) shall be subject to (and may be modified to conform with)
any restrictive covenants to which Holdings is subject at the time of such
repurchase.
5.4 Investors' Agreement. Holdings shall enter into an investors'
--------------------
agreement (the "Investors' Agreement"), registration agreement, and certain
other agreements with Executive and the other members of Holdings (collectively,
the "Investors") embodying the relevant terms set forth in the LOI.
5.5 Restrictions on Transfer of Incentive Equity. Other than pursuant to
--------------------------------------------
Tag-Along Rights, Registration Rights, and Other Exit Rights (as such terms are
defined in the LOI and as such concepts may be incorporated in the agreements
referred to in Section 5.4), Executive may not transfer its Incentive Equity at
any time (subject to the LLC Agreement as contemplated by the LOI (the "LLC
Agreement"), other than transfers of Incentive Equity for estate-planning
purposes to immediate family members and trusts and/or other vehicles for the
benefit of immediate family members) without the approval of a majority of the
members of the Board who do not have a pecuniary interest in such transfer,
which majority shall include, if provided for pursuant to the Investors'
Agreement or LLC Agreement, a majority of the Madison Dearborn members of the
Board.
6. Termination of Employment.
-------------------------
6.1 Termination Not for Cause or Termination for Good Reason.
--------------------------------------------------------
(a) (i) Holdings may terminate Executive's employment at any time, and
Executive may terminate his employment at any time. If Executive's employment is
terminated by Holdings other than for Cause (as defined herein) or due to
Executive's death or Disability (as defined herein) or Executive terminates his
employment for Good Reason prior to the Termination Date, Executive shall be
entitled to receive from Holdings continued Base Salary (payable in accordance
with the last sentence of Section 3.1 hereof) for three months after date of the
termination plus, on the sixtieth day following the end of the fiscal year
during which the termination of Executive's employment pursuant to this Section
6.1(a) occurs, an amount in respect of any bonus for the period employed for the
fiscal year in which Executive's employment is terminated calculated on a pro
rata basis.
(ii) In addition, Executive shall (1) be entitled to receive, within a
reasonable period of time after the date of termination, a cash lump sum equal
to (A) any compensation payments deferred by Executive, together with any
applicable interest or other accruals thereon; and (B) any unpaid amounts, as of
the date of such termination, in respect of any bonus for the fiscal year ending
before the fiscal year in which such termination occurs; (2) for the period from
the date of termination of Executive's employment until the one year anniversary
of the Termination Date (as then in effect), continue to be covered under and
participate in Holdings' employee benefit programs, plans and practices with
respect to medical, dental, hospitalization, life insurance and disability
benefits described in Section 4.1 hereof or under such other plans of Holdings
which provide for equivalent coverage to the extent and on the terms in effect
on the Executive's last day of employment; and (3) have such rights to payments
under applicable plans or programs, accrued to Executive on date of termination
including, without limitation, those described in Section 3.3 hereof as may be
determined pursuant to the terms of such plans or
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programs.
(b) For purposes of this Agreement, "Good Reason" shall mean the occurrence of
any of the following events without Executive's express prior written
consent:
(i) the assignment to Executive by Holdings of duties not appropriate
to Executive's positions, responsibilities, titles and offices as set forth in
Section 1 hereof, or any material reduction by Holdings of Executive's duties or
responsibilities or any removal of Executive as the Chief Executive Officer and
Executive Manager, except in connection with the termination of Executive's
employment;
(ii) a reduction by Holdings in Executive's Base Salary as in effect at
the commencement of employment hereunder or as the same may be increased from
time to time during the terms of this Agreement;
(iii) any material breach by Holdings of any provision of this Agreement
(not cured after 15 days' prior notice);
(iv) requiring Executive to relocate his primary residence or locating
the principal executive office of the Company outside the United States of
America.
6.2 Disability. If (i) Executive shall fail for a period of six
----------
consecutive months during the term of his employment hereunder, because of
illness, physical or mental disability or other similar incapacity, to
effectively and actively render the services provided for by this Agreement or
(ii) at such earlier time as Executive submits satisfactory medical evidence
that he has or the Board in its reasonable judgment determines that Executive
has an illness, physical or mental disability or other incapacity which is
expected to prevent him from returning to the performance of his work duties for
six months or longer ("Disability"), Holdings or Executive may terminate
Executive's employment upon written notice thereof, setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under this Section 6.2, and Executive shall receive or
continue to receive, as the case may be:
(a) as soon as practicable after the date of termination of Executive's
employment pursuant to this Section 6.2, a cash lump sum equal to any
compensation payments deferred by Executive, together with any applicable
interest or other accruals thereon;
(b) any unpaid amounts, as of the date of such termination, in respect
of any bonus for the fiscal year ending before such termination, which shall be
payable on the date on which such bonus would otherwise be payable;
(c) on the sixtieth day following the end of the fiscal year during
which the termination of Executive's employment pursuant to this Section 6.2
occurs, an amount in respect of any bonus for the period employed for such
fiscal year calculated on a pro rata basis;
(d) for a period of one year after termination for Disability, amounts,
payable on Holdings' regular payroll schedule, equal to no less than 60% of
Executive's then annual Base Salary, reduced by any amounts received by
Executive under any disability insurance policies with respect to which Holdings
paid the premiums;
(e) such rights to payments under applicable plans or programs, accrued
to Executive on the date of termination including, without limitation, those
described in Section 3.3 hereof, as may be appropriate pursuant to the terms of
such plans or programs.
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6.3 Death. In the event of Executive's death during the term of his
-----
employment hereunder, Executive's estate or designated beneficiaries shall
receive:
(a) payments of Base Salary for a period of three months after his date of
death;
(b) as soon as practicable after the date of Executive's death, a cash
lump sum equal to any compensation payments deferred by Executive, together with
any applicable interest or other accruals thereon;
(c) any unpaid amounts, as of the date of Executive's death, in respect of
any bonus for the fiscal year ending before his death, which shall be payable on
the date on which such bonus would otherwise be payable;
(d) on the sixtieth day following the end of the fiscal year during which
Executive's death occurs, an amount in respect of any bonus during period
employed for such fiscal year calculated on a pro rata basis;
(e) any death benefits provided under the employee benefit programs, plans
and practices described in Section 4.1 hereof, in accordance with their terms;
and
(f) such other payments under applicable plans or programs accrued to
Executive on date of termination, including, but not limited to those described
in Section 3.3 hereof, as may be appropriate pursuant to the terms of such plans
or programs.
6.4 Voluntary Termination by Executive; Discharge for Cause.
-------------------------------------------------------
(a) In the event that Executive's employment is terminated by Holdings for
Cause, as hereinafter defined, or by Executive other than for Good Reason or
other than as a result of Disability or death, prior to the Termination Date,
Executive shall be entitled to receive all salary and benefits to which
Executive is entitled up to and including the date of Executive's termination of
employment hereunder. The obligations of Holdings under this Agreement to make
any further payments, or provide any benefits specified herein, to Executive
shall cease and terminate on the date on which Executive's employment is
terminated by Holdings for Cause or by Executive other than for Good Reason or
other than as a result of Permanent Disability or death. Termination of
Executive in accordance with this Section 6.4 shall be communicated to Executive
pursuant to a notice of a resolution of a majority of the Board determining that
Executive is subject to discharge for Cause as defined herein.
(b) As used herein, the term "Cause" shall mean commission of a felony or
crime involving moral turpitude, repeated failure to comply with the Board's
instructions (after 30 days' prior notice), and any other material breach of
this Agreement by Executive (after 30 days' prior notice).
6.5 Termination Prior to First Acquisition Closing Date. Notwithstanding
---------------------------------------------------
anything in this Agreement to the contrary, in the event that the LOI is
terminated in accordance with the terms thereof prior to the First Acquisition
Closing Date (such date being referred to herein as the "LOI Termination Date"),
then Executive shall not be entitled to any amounts pursuant to Section 3 (other
than accrued and unpaid amounts through the LOI Termination Date pursuant to
Section 3.4), Section 4 or this Section 6, other than salary and benefits
accrued but unpaid as of the date of the termination of the LOI.
7. Notices. All notices or communications hereunder shall be in
-------
writing, addressed as
7
<PAGE>
follows:
To Holdings: Madison River Telephone Company LLC
2316 Youngs Road
Southern Pines, NC 28387
Attn: Board of Members
Facsimile: (910) 695-2221
Confirmation: (910) 695-2222
To Executive: J. Stephen Vanderwoude
Any such notice or communication shall be sent certified or registered mail,
return receipt requested, postage prepaid, or by facsimile (with confirmation of
receipt) addressed as above (or to such other address as such receiving party
may have designated in a notice duly delivered as described above), and the
actual date of mailing shall constitute the time at which notice was given
(except, in the case of facsimile, the time and date of confirmation shall be
the time at which notice was given).
8. Separability; Legal Fees; Arbitration. If any provision of this
-------------------------------------
Agreement shall be declared to be invalid or unenforceable, in whole or in part,
such invalidity or unenforceability shall not affect the remaining provisions
hereof, which shall remain in full force and effect. In addition, Holdings
shall bear or reimburse Executive up to a maximum amount of $60,000 for all
legal fees and expenses incurred in connection with entering into this Agreement
and any other agreements being simultaneously entered into by Holdings and
Executive. Any controversy or claim arising out of or relating to this
Agreement or the breach of this Agreement (other than Section 12 hereof) that
cannot be resolved by Executive on the one hand and Holdings on the other,
including any dispute as to the calculation of Executive's benefits or any
payments hereunder, shall be submitted to arbitration in Chicago, Illinois in
accordance with Illinois law and the procedures of the American Arbitration
Association. The determination of the arbitrators shall be conclusive and
binding on Holdings and Executive, and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The expense of such
arbitration including reasonable legal fees in connection therewith shall be
borne in accordance with the direction of the arbitrators.
9. No Obligation to Mitigate Damages. Executive shall not be required to
---------------------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise.
10. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executives and the assigns and
successors of Holdings, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by Executive (except
by will or by operation of the laws of intestate succession) or by Holdings,
except that Holdings may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets
or businesses of Holdings.
11. Amendment. This Agreement may only be amended by written agreement of
---------
the Board and Executive.
12. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
8
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(a) From and after the date hereof and at all times thereafter (except as
otherwise provided in Section 12(e)), Executive shall not, without the prior
written consent of Holdings, at any time divulge, disclose, use to the detriment
of Holdings or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information, except (i) while
employed by Holdings, in the business of and for the benefit of Holdings and to
the extent such use or disclosure is required or deemed advisable by Executive
in the performance of his assigned duties (provided that any Confidential
Information disclosed pursuant to this clause (i) shall remain Confidential
Information hereunder, except as provided below), or (ii) when required to do so
by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of Holdings, or by any administrative
body or legislative body (including a committee thereof) with purported or
apparent jurisdiction to order Executive to divulge, disclose or make accessible
such information. Executive agrees to notify Holdings if Executive discloses
such information and to take reasonable efforts to preserve the confidential
nature of such information. For purposes of this Section 12(a), "Confidential
Information" shall mean information concerning Holdings' and its subsidiaries'
financial data, strategic business plans, business development (or other
proprietary product data), marketing plans, know-how, customer lists,
information about potential acquisition targets, acquisition strategies and
targets and other non-public, proprietary and confidential information of
Holdings, provided that Confidential Information shall not include information
if and solely to the extent that such information is or has become publicly
available through no wrongful act or breach of confidentiality by Executive.
(b) Executive agrees that he shall not directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, member,
investor, lender or employee or in any other capacity, carry on, be engaged in
or have any financial interest in, (i) during the time that Executive is
employed hereunder and for a period of three months thereafter, any business
that is engaged in the telephone or telecommunications industry and (ii) for a
period of 12 months after such three-month period, any business which is in
competition with the business of Holdings and/or its subsidiaries in a
geographic market where Holdings and/or its subsidiaries do business. In
addition, during the time that Executive is employed hereunder and for a period
of 15 months thereafter, Executive agrees that, without the prior written
consent of Holdings, he shall not solicit for employment any person who at any
time during Executive's employment hereunder was an employee of Holdings or any
of its subsidiaries.
(c) For purposes of Section 12(b)(ii) hereof, a business shall be deemed
in competition with Holdings and/or its subsidiaries if at the time of
Executive's proposed relationship with such business, such business is rendering
services being rendered by Holdings and/or its subsidiaries in one or more areas
that, at the time of Executive's termination hereunder, in the aggregate
accounted for more than 5% of operating gross annual sales of Holdings and its
subsidiaries. Nothing in this Section 12 shall be construed so as to preclude
Executive from investing in publicly traded securities of any company provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive and Holdings agree that the foregoing covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of such covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 12 would irreparably injure Holdings. Accordingly, Holdings may, in
addition to pursuing any other remedies it may have in law or in equity, obtain
an injunction against Executive from any court having jurisdiction over the
matter, restraining any further violation of this Section 12 by Executive.
9
<PAGE>
(e) Executive hereby assigns and from time to time assigns to Holdings all
right, title and interest in and to any Intellectual Property conceived,
contributed to or made by Executive at any time prior to or during his
employment with Holdings (whether alone or jointly with others) to the extent
such Intellectual Property is not owned by Holdings as a matter of law.
Executive shall thereafter promptly and fully communicate to Holdings all such
Intellectual Property and shall cooperate with Holdings to protect Holdings'
interests in such Intellectual Property. Any copyrightable work prepared in
whole or in part by Executive in the course of his employment with Holdings
shall be deemed "a work made for hire" under the copyright laws, and Holdings
shall own all of the rights comprised in the copyright therein. This
cooperation shall include providing assistance in securing patent protection and
copyright registrations and signing all documents reasonably requested by
Holdings, even if such request occurs after termination of his employment with
Holdings. Executive understands that this Agreement does not apply to an
invention for which no equipment, supplies, facilities or trade secret
information of Holdings was used and which was developed entirely on his own
time, unless: (a) the invention relates (i) to the business (actual or
reasonably proposed) of Holdings or its subsidiaries, or (ii) to Holdings' or
its subsidiaries' research or development (actual or reasonably proposed); or
(b) the invention results from any work performed by Executive for Holdings or
its subsidiaries. "Intellectual Property" shall mean patent applications,
copyrightable works, mask works and applications for registration related
thereto, all Confidential Information, and all other intellectual property
rights created, conceived or owned by, Holdings or any of its subsidiaries or
for the benefit of an enterprise similar to Holdings or any of its subsidiaries.
Notwithstanding anything in this Agreement to the contrary, if the LOI is
terminated in accordance with its terms or the transactions contemplated thereby
are otherwise abandoned by Holdings, Holdings acknowledges and agrees that it
shall have no right to the Intellectual Property and the Intellectual Property
may be used by Executive and each of the other Investors in pursuit of an
enterprise similar to Holdings in accordance with Section 14(ii) of the LOI and,
further, Executive shall have no further obligations pursuant to this Section
12.
(f) Executive shall deliver to Holdings and, if the First Acquisition
Closing Date has not occurred prior to Executive's termination, each of the
other Investors upon request at the termination of his employment, or at any
other time Holdings may request, all Intellectual Property in his possession and
control, and all copies thereof, in whatever form or medium. If the First
Acquisition Closing Date has occurred prior to Executive's termination and if
Holdings requests, Executive shall sign a written confirmation that Executive
has returned all such materials. Executive agrees that the limitations in this
Section 12 are reasonable and necessary to protect the legitimate business
interests of Holdings and its affiliates.
10
<PAGE>
13. Indemnification; Director and Officer Insurance.
-----------------------------------------------
(a) Holdings hereby agrees, commencing on the date hereof, to indemnify
and hold harmless Executive to the same extent as the fullest extent permitted
under Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), excluding subsection (f) thereof, as the same now exists or may
hereafter be amended, substituted or replaced (but, in the case of any such
amendment, only to the extent that such amendment permits Holdings to provide
broader indemnification rights than DGCL permitted prior to such amendment),
against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, excise taxes or penalties) reasonably incurred or suffered by
Executive in connection with serving as an officer, director, employee or agent
of Holdings or for serving at the request of Holdings as an officer, director,
employee or agent of another corporation, partnership, joint venture, limited
liability company, trust or other enterprise. Expenses, including attorneys'
fees, incurred by Executive in defending a proceeding shall be paid by Holdings
in advance of the final disposition of such proceeding, including any appeal
therefrom, upon receipt of an undertaking by or on behalf of Executive to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by Holdings. This Section 13(a) shall survive termination of this
Agreement.
(b) Holdings agrees that commencing as soon as practicable after the date
hereof it will maintain director and officer liability insurance for the purpose
of covering all actions taken by Executive as an officer, director, employee or
agent of Holdings which insurance is reasonably deemed necessary by Executive
and is approved by the Board (which approval shall not be unreasonably
withheld).
14. Beneficiaries; References. Executive shall be entitled to select (and
-------------------------
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder in
accordance with the terms hereof following Executive's death, and may change
such election, in either case by giving Holdings written notice thereof. In the
event of Executive's death or a judicial determination of his incompetence,
reference in this Agreement to Executive shall be deemed, where appropriate, to
refer to his beneficiary, estate or other legal representative. Prior to
Madison Dearborn or an affiliate thereof becoming a party to the LLC Agreement,
(i) all references to an action, decision, determination or approval of the
Board shall only be made with the prior consent of Madison Dearborn and (ii)
Madison Dearborn shall be a third party beneficiary under this Agreement.
15. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted and
-------------
governed in accordance with the laws of the State of Delaware, without reference
to rules relating to conflict of laws.
17. Withholding. Holdings shall be entitled to withhold from any payment
-----------
hereunder any amount required by law to be withheld.
18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original.
19. Executive Representations. Executive hereby represents and warrants
-------------------------
to Holdings that (i)
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the Incentive Equity will be acquired for the Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any applicable
state securities laws, and the Incentive Equity will not be disposed of in
contravention of the Securities Act or any applicable state securities laws,
(ii) the Executive is an executive officer of Holdings, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in the Incentive Equity, (iii) the Executive is able to bear the
economic risk of his investment in the Incentive Equity for an indefinite period
of time and the Executive understands that the Incentive Equity has not been
registered under the Securities Act and, therefore, cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available and all other applicable restrictions on transfer have
been satisfied, (iv) the Executive has participated significantly in the
structuring of the equity of Holdings, has had an opportunity to ask questions
and receive answers concerning the terms and conditions of the offering of the
Incentive Equity and has had full access to such other information concerning
Holdings as he has requested, (v) the execution, delivery, and performance of
this Agreement by Executive does not and will not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (vi) Executive is
not a party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other Person and (vii) upon the execution and
delivery of this Agreement by the Company, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that he has consulted with
independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
20. Executive agrees that (i) in the event that any of Executive's equity
interest in Holdings is evidenced by a certificate, such certificate shall
contain an appropriate legend referring to this Agreement and (ii) no transfers
of any equity interest or portion thereof in Holdings shall be made except in
compliance with applicable securities laws.
21. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein (including, without limitation, the LOI) and other documents
of even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among Holdings and Executive, written or oral, which may
have related to the subject matter hereof in any way. No waiver of this
Agreement or of any of the terms or provisions hereof shall be binding upon
either party hereto unless confirmed by a written instrument signed by such
party. No waiver by Executive or Holdings of any term or provision of this
Agreement or of any default hereunder, nor any failure or delay in exercising
any right, option, power or privilege hereunder, shall affect Executive's or
Holdings' respective rights hereafter to enforce such term or provision or to
exercise any such right, option, power or privilege, or to exercise any right or
remedy in the event of any other default, whether or not similar.
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<PAGE>
IN WITNESS WHEREOF, Executive and Holdings have caused this Employment Agreement
to be executed as of the date first written above.
MADISON RIVER TELEPHONE COMPANY LLC
By: JAMES D. OGG
---------------------------------
J. STEPHEN VANDERWOUDE
------------------------------------
Executive
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EXHIBIT 10.5.1
The First Amendment to the Employment Agreement
This First Amendment October 8, 1996 is made between Madison River Telephone
Company, LLC ("Holdings") and J. Stephen Vanderwoude, ("Executive") pursuant to
paragraph 11 of the Employment Agreement between Holdings and Executive dated
April 17, 1996 ("Employment Agreement").
1. The last sentence of Section 3.4 of the Employment Agreement shall be
amended and restated in its entirety to read as follows:
"Notwithstanding anything contained herein to the contrary (except for
(i) the legal fees referred to in Section 8 hereof which shall not
require further approval and (ii) the costs of the directors and
officers insurance referred to in Section 13 (b) hereof and other
insurance (including property and casualty) which is reasonably deemed
necessary by Executive and is approved by the Board (which approval
shall not be unreasonably withheld)), prior to the First Acquisition
Closing Date, Executive is authorized to incur, and shall be
reimbursed, only for items approved by all of the Institutional
Investors (as defined in the LOI) (it being understood that the listing
of such costs in a budget attached to the LOI that has been approved by
all of the Institutional Investors constitutes approval by all
Institutional Investors)."
2. Section 5.5 of the Employment Agreement shall be amended and restated in
its entirety to read a follows:
"5.5 Restrictions on Transfer of Incentive Equity. Other than
--------------------------------------------
pursuant to Tag-Along Rights, Registration Rights, and Other Exit
Rights with respect to his vested Incentive Equity (as such terms are
defined in the LOI and as such concepts may be incorporated in the
agreements referred to in Section 5.4), Executive may not transfer his
Incentive Equity at any time (other than transfers of Incentive Equity
for estate-planning purposes to immediate family members and trusts
and/or other vehicles for the benefit of immediate family members)
without the approval of members of the Board holding a majority of the
votes of all members of the Board who do not have a pecuniary interest
in such transfer, which majority shall include approval by members of
the Board holding a majority of the votes of all of the members of the
Board designated by the Institutional Investors."
3. Section 6.1(b)(i) of the Employment Agreement shall be amended by adding
the following parenthetical to the end of such Section 6.1 (b) (i):
"(and not cured after 15 days prior notice to all of the members of the
Board)."
4. Section 6.5 of the Employment Agreement shall be amended and restated to
read as follows:
"6.5 Termination Prior to First Acquisition Closing Date.
---------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, in the event
that the enterprise contemplated by the LOI is abandoned or otherwise
terminated in accordance with the terms of the LOI prior to the First
Acquisition Closing Date (such date being referred to herein as the "LOI
Termination Date"), then Executive shall not be entitled to any amounts
pursuant to Section 3 (other than accrued and unpaid amounts
<PAGE>
through the LOI Termination Date pursuant to Section 3.4), Section 4 or
this Section 6, other than salary and benefits accrued but unpaid as of
the LOI Termination Date."
5. The last sentence of Section 14 of the Employment Agreement shall be
amended and restated to read as follows:
"Prior to all of the Institutional Investors becoming a party to the
LLC Agreement, (i) all references to an action, decision,
determination or approval of the Board shall only be made with the
prior consent of all of the Institutional Investors and (ii) all of
the Institutional Investors shall be a third party beneficiary under
this Agreement."
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this First Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: Paul H. Sunu
--------------------------
J. Stephen Vanderwoude
------------------------------
Executive
<PAGE>
EXHIBIT 10.5.2
The Second Amendment to the Employment Agreement
This Second Amendment dated January 24, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and J. Stephen Vanderwoude, ("Executive")
pursuant to paragraph 11 of the Employment Agreement between Holdings and
Executive dated April 17, 1996 ("Employment Agreement").
1. Section 3.1 of the Employment Agreement shall be amended by adding the
following paragraph 3.11:
"Beginning February 1, 1997 and continuing until the closing of the
Company's First Acquisition Closing Date, Executive shall accrue but
not vest in any base salary compensation. Executive shall accrue his
unvested base salary compensation at the rate of $8,333.33 per month
for full months and pro-rata amount for partial months. Executive shall
vest in his accrued base salary compensation on the First Acquisition
Closing Date. In the event there is no first acquisition of a business
in any form by the Company or the enterprise contemplated in the LOI is
abandoned or terminated, Executive will not vest in his accrued base
salary compensation and Holdings shall not owe any base salary
compensation to Executive and the Executive shall have no claims for
any base salary compensation against Holdings. Beginning after the
First Acquisition Date, Holdings shall pay Executive a base salary
("Base Salary") at the annual rate of $100,000 under paragraph 3.1
above unless adjusted under paragraph 3.2."
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Second Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: PAUL H. SUNU
----------------------------
J. STEPHEN VANDERWOUDE
-------------------------------
Executive
<PAGE>
EXHIBIT 10.5.3
The Third Amendment to the Employment Agreement
This Third Amendment dated October 16, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and J. Stephen Vanderwoude, ("Executive")
pursuant to paragraph 11 of the Employment Agreement between Holdings and
Executive dated April 17, 1996 ("Employment Agreement").
1. Section 3.1 of the Employment Agreement shall be amended by inserting the
following after the first full sentence:
"Notwithstanding the foregoing, the closing of MebCom Communications,
Inc. shall not be considered the first acquisition and its closing date
shall not be considered the First Acquisition Closing Date for purposes
of paragraph 2 (Term of Employment), this paragraph 3 (Compensation)
and paragraph 6 (Termination of Employment)."
2. Section 8, third sentence shall be amended by replacing the place of
arbitration submission from "Chicago, Illinois" to "Raleigh-Durham
metropolitan area of North Carolina" and by replacing the language "in
accordance with Illinois law" with "in accordance with Delaware law".
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Second Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: PAUL H. SUNU
--------------------------
J. STHEPHEN VANDERWOUDE
-----------------------------
Executive
<PAGE>
EXHIBIT 10.5.4
Fourth Amendment to the Employment Agreement
This Fourth Amendment dated September 15, 1999 is made between Madison River
Telephone Company, LLC ("Holdings") and J. Stephen Vanderwoude, ("Executive")
pursuant to paragraph 11 of that certain agreement for employment between
Holdings and Executive dated April 17, 1996 ("Employment Agreement").
Section 5.1 and 5.3(b) of the Employment Agreement shall be amended by replacing
said sections with the following:
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings equal to 30% of the total Class B
equity of Holdings for an aggregate purchase price of $3,000 and Class C equity
of Holdings equal to 15.5% of the total Class C equity of Holdings for an
aggregate purchase price of $1,550. Hereafter, Class B and Class C equity
collectively shall be referred to as "Incentive Equity"). Within 30 days after
each time that Executive exercises its right to purchase Incentive Equity, the
Executive will make an effective election with the Internal Revenue Service
under Section 83(b) of the Internal Revenue Code and the regulations promulgated
thereunder. The parties hereto agree that the fair market value of the Incentive
Equity allocated to Executive as of the initial Employment Agreement date for
Class B is $3,000 and as of the Gulf Closing Date for Class C and for a period
of at least five business days thereafter is $1,150 and that parties shall use
such value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date and ending with the Closing Date for Gulf Coast
Services, Inc. ("Gulf Closing Date") and any unvested remainder after the Gulf
Closing Date shall vest on a daily basis over a new four-year period beginning
with the Gulf Closing Date. All unvested Incentive Equity will become fully
vested immediately prior to the occurrence of a Liquidity Event. "Liquidity
Event" means (i) any sale of all or substantially all of the assets of Holdings
on a consolidated basis in one transaction or series of related transactions
(but excluding sales to affiliates) for cash or marketable securities, (ii) any
sale of 50% or more of the Investor Equity (as defined in the LOI) in one
transaction or series of related transactions (but excluding sales to affiliates
and, with respect to individuals, related persons) for cash or marketable
securities or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
5.3 Repurchase.
----------
(b) Executive's vested Incentive Equity will not be subject to repurchase in
whole or in part by Holdings.
<PAGE>
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Fourth Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: PAUL H. SUNU
-----------------------
J. STEPHEN VANDERWOUDE
--------------------------
Executive
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of June 4, 1996 by and among Madison River
Telephone Company LLC, a Delaware limited liability company ("Holdings"), and
James D. Ogg ("Executive").
RECITALS
--------
Holdings is being formed to identify for acquisition rural telephone companies
and, if identified, to raise capital sufficient to consummate an acquisition of
such companies.
Holdings has two classes of equity, Class A equity and Class B equity, and the
Class A equity will be entitled to distributions prior to the Class B equity.
The parties have agreed that the aggregate fair market value of all Class B
equity to be distributed is $10,000 as of the date hereof.
In order to induce Executive to agree to serve as Managing Director Operations
Support of Holdings, Holdings desires to provide Executive with compensation and
other benefits (including the right to purchase Class B equity of Holdings) on
the terms and conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform services for
Holdings on the terms and conditions set forth in this Agreement.
It is therefore hereby agreed by the parties as follows:
1. Employment.
----------
(a) Subject to the terms and conditions of this Agreement, Holdings agrees to
employ Executive during the term hereof as Managing Director Operations Support.
In his capacity as Managing Director Operations Support of Holdings, Executive
shall have the customary powers, responsibilities and authorities of Managing
Director Operations Support of corporations of the size, type and nature of
Holdings, as they exist from time to time. Executive shall also be Managing
Director Operations Support of all of Holdings' subsidiaries unless otherwise
agreed by Executive.
(b) Holdings shall, as long as Executive is employed in his capacity as
Managing Director Operations Support, use its best efforts to cause the election
and retention of Executive to the Board of Members of Holdings (the "Board") as
a member of the Board. Holdings shall, as long as Executive is employed in his
capacity as Managing Director Operations Support, cause Executive to be elected
a member of the Board of Directors of all of Holdings' subsidiaries unless
otherwise agreed by Executive.
(c) Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment as Managing Director Operations Support of Holdings and
agrees to devote his full working time and efforts, to the best of his ability,
experience and talent, to the performance of services, duties and
responsibilities in connection therewith. Nothing in this Agreement shall
preclude Executive from engaging, consistent with his duties and
responsibilities hereunder, in charitable and community affairs,
1
<PAGE>
from managing his personal investments or, except as otherwise provided in
Section 12 hereof, from serving as a member of boards of directors or as a
trustee of other companies, associations or entities.
2. Term of Employment.
------------------
Executive's term of employment under this Agreement shall commence on the date
(the "Approval Date") that the business plan for Holdings was approved by
Madison Dearborn Capital Partners, L.P. ("Madison Dearborn") (as contemplated by
the Agreement in Principle and Summary of Preliminary Terms, dated April 17,
1996 (as amended or otherwise modified from time to time, the "LOI"), among
Executive, Madison Dearborn, J. Stephen Vanderwoude, Terry E. Troughton and, if
applicable, certain other investors in Holdings) and, subject to the terms
hereof, shall terminate on the fourth anniversary of the First Acquisition
Closing Date (as defined herein) (unless and until extended from time to time by
mutual written agreement of the parties, the "Termination Date"); provided that,
notwithstanding the foregoing, the Termination Date shall be the date that the
enterprise contemplated by the LOI is abandoned or otherwise terminated in
accordance with the terms of the LOI, if the Termination Date has not previously
occurred.
3. Compensation.
------------
3.1 Initial Base Salary. Beginning on the Approval Date and continuing
-------------------
until the closing of the Company's first acquisition of a business (in any form)
(the "First Acquisition Closing Date") Holdings shall pay Executive a base
salary ("Base Salary") at the annual rate of $100,000. The Base Salary shall be
payable in accordance with the ordinary payroll practices of Holdings but in no
event less often than monthly in arrears.
3.2 Adjustments to Base Salary. Beginning on the First Acquisition
--------------------------
Closing Date, the Base Salary shall be increased from time to time as the Board
shall determine taking into account the success of Holdings, the performance of
Executive, the size, revenues, and earnings of the businesses held or operated,
or contemplated to be held or operated, by Holdings and other market factors.
Once so increased, the increased amount shall constitute Executive's Base Salary
hereunder.
3.3 Compensation Plans and Programs. Executive shall participate in any
-------------------------------
compensation plan or program, annual or long-term, maintained by Holdings and
participated in by senior executives of the Company generally on terms taking
into account Executive's title and position with the Company.
3.4 Expenses. Executive is authorized to incur reasonable expenses in
--------
carrying out his duties and responsibilities on behalf of the Company under this
Agreement, including, without limitation, expenses for travel and similar items
related to such responsibilities which are consistent with Holdings' policies in
effect from time to time with respect to travel and other business expenses.
Holdings will reimburse Executive for all such expenses upon presentation by
Executive from time to time of an itemized account of such expenditures;
provided that such expenses are in compliance with any other Holdings' policies
in effect from time to time with respect to reporting and documentation of such
expenses; it being understood, furthermore, that the cost of commuting between
Executive's residence and Holdings' principal place of business shall not be
reimbursed. Notwithstanding anything contained herein to the contrary (except
for (i) the legal fees referred to in Section 8 hereof which shall not require
further approval and (ii) the costs of the directors and officers insurance
referred to in Section 13(b) hereof and other insurance (including property and
casualty) which is reasonably deemed necessary by Executive and is approved by
the Board (which approval shall not be unreasonably withheld)), prior to the
First Acquisition Closing Date, Executive is authorized to incur, and shall be
reimbursed, only for items approved by Madison Dearborn, and prior to the
Approval Date, Executive is authorized to incur,
2
<PAGE>
and shall be reimbursed, only for his out-of-pocket costs described in Section
14(b) of the LOI and only to the extent separately approved by Madison Dearborn
(it being understood that the listing of such costs in a budget attached to the
LOI that has been approved by Madison Dearborn constitutes approval by Madison
Dearborn).
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. During the term of his
----------------------------------------------
employment hereunder, Holdings shall provide to Executive coverage under any
employee benefit programs, plans and practices (commensurate with his position
in Holdings and to the extent possible under any employee benefit plan), in
accordance with the terms hereof, which Holdings makes available to its senior
executive officers generally, including but not limited to (i) retirement,
pension and profit-sharing, and (ii) medical, dental, hospitalization, life
insurance, short-and long-term disability, accidental death and dismemberment
and travel accident coverage.
4.2 Vacation and Fringe Benefits.
----------------------------
(a) Executive shall be entitled to paid vacation each calendar year of no less
than 20 working days. Holdings may grant additional vacation time to Executive.
(b) In addition, Executive shall be entitled to all of the other perquisites and
fringe benefits accorded the senior officers of Holdings generally.
5. Incentive Equity.
----------------
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings ("Incentive Equity") equal to 15%
of the total Incentive Equity of Holdings for an aggregate purchase price of
$1,500. Within 30 days after each time that Executive exercises its right to
purchase Incentive Equity, the Executive will make an effective election with
the Internal Revenue Service under Section 83(b) of the Internal Revenue Code
and the regulations promulgated thereunder. The parties hereto agree that the
fair market value of the Incentive Equity allocated to Executive as of the date
hereof and for a period of at least five business days thereafter is $1,500 and
that they shall use that value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date. All unvested Incentive Equity will become fully
vested immediately prior to the occurrence of a Liquidity Event. "Liquidity
Event" means (i) any sale of all or substantially all of the assets of Holdings
on a consolidated basis in one transaction or series of related transactions
(but excluding sales to affiliates) for cash or marketable securities, (ii) any
sale of 50% or more of the Investor Equity (as defined in the LOI) in one
transaction or series of related transactions (but excluding sales to affiliates
and, with respect to individuals, related persons) for cash or marketable
securities or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
5.2 Distributions. Executive's unvested Incentive Equity outstanding at
-------------
the time of any dividend or other distribution to Incentive Equity will be
entitled to receive the same distributions per unit as vested Incentive Equity.
3
<PAGE>
5.3 Repurchase.
----------
(a) Executive's unvested Incentive Equity will be subject to repurchase in
whole by Holdings, at its option (which option to repurchase must be elected in
writing by Holdings within ten days of termination and, subject to such
repurchase option being suspended as provided below, consummation of such
repurchase must be effected within 80 days thereafter), at the lower of its
original cost (less all amounts distributed in respect of Executive's unvested
Incentive Equity) or its Fair Market Value at the time of termination if
Executive ceases to be employed by Holdings for any reason. Notwithstanding
anything in this agreement to the contrary, in the event that Executive's
employment is terminated for any reason including due to death or Disability
(but other than by the Executive without Good Reason) and (i) at or prior to
such termination Holdings has entered into an agreement or agreements regarding
a transaction or has publicly announced its intention to consummate a
transaction (including, but not limited to, a public announcement of an
intention to seek to consummate a transaction), which upon consummation would
trigger a Liquidity Event (as defined in the LOI), or (ii) at or within six
months prior to such termination is or was in active negotiations regarding a
transaction, which upon consummation would trigger a Liquidity Event, then in
either case Holdings' repurchase right pursuant to the foregoing sentence will
be suspended and if any such transaction is consummated then Executive's
unvested Incentive Equity shall immediately prior to the consummation of such
transaction become fully vested and all distributions that would have been
payable to Executive on account of such unvested Incentive Equity subsequent to
Executive's termination and prior to such vesting shall be made to Executive,
with interest on each such distribution at a rate per annum equal to the prime
rate in effect at the time of each such distribution, at such time (and any
repurchase by Holdings of such Incentive Equity in connection with Executive's
termination of employment shall be governed by Section 5.3(b)), it being
understood and agreed that, upon exercise of the repurchase option, during such
suspension and prior to any such vesting hereunder, distributions that would
have been payable to Executive on account of such unvested Incentive Equity
shall not be for the account of Executive unless and until such Incentive Equity
shall become vested; provided that if none of such transactions is consummated
within two years after Executive's termination of employment, or within such
two-year period another transaction is consummated which constitutes a Liquidity
Event, then Holdings' above repurchase rights shall be reinstated. "Fair Market
Value" shall mean, with respect to any security, the amount that would be paid
to the holder thereof with respect to such security if all of the assets of
Holdings were sold for fair value to a willing buyer in exchange for cash, all
of the debt and other liabilities not assumed by the buyer were paid in full,
all of the convertible debt and other convertible securities were repaid or
converted (whichever yields more cash to the holders), and then Holdings were
completely liquidated.
(b) Executive's vested Incentive Equity will be subject to repurchase in whole
or in part by Holdings, at its option, at its Fair Market Value at the time of
termination if Executive ceases to be employed by Holdings for any reason other
than due to death or Disability (with repurchase being mandatory in the case of
death or Disability). If Executive's employment is terminated by Holdings
without Cause (as defined herein) or by Executive for Good Reason (as defined
herein), and Holdings exercises this repurchase option, then, at Holdings
option, the purchase price will be paid (i) in cash, (ii) by a promissory note
bearing interest at a rate per annum equal to the prime rate in effect at the
time Holdings exercises this repurchase option, having a two-year maturity and
payable in two equal annual installments of principal, together with accrued
interest thereon, or (iii) by a combination of cash and a promissory note having
the terms described above. Notwithstanding the foregoing, if Holdings does not
exercise this repurchase option within 90 days after Executive's employment is
terminated by Holdings without Cause or by Executive for Good Reason (or, if
applicable, 90 days after the Liquidity Event under circumstances described in
Section 5.3(a) above), then Executive shall retain such vested Incentive Equity
and such vested Incentive Equity shall not be subject to Holdings' repurchase
option. If Executive's employment is terminated by Holdings for Cause, or by
Executive without Good Reason, and Holdings elects to exercise this repurchase
option, or if Executive's employment is terminated due to death or Disability,
the purchase price will be paid by a Holdings promissory note bearing interest
at a rate per annum equal to the prime rate in effect at the time Holdings
exercises this repurchase option, or at the time that the holder's employment is
terminated due to
4
<PAGE>
death or Disability (due, on a pro rata basis, at such times as distributions
are made on other Incentive Equity; provided that, in the case of death,
payments on such promissory note to cover income and estate taxes due with
respect to such repurchase will also be due at the time such taxes are due).
Notwithstanding the foregoing, any notes that are issued by Holdings pursuant to
this Section 5.3(b) shall be subject to (and may be modified to conform with)
any restrictive covenants to which Holdings is subject at the time of such
repurchase.
5.4 Investors' Agreement. Holdings shall enter into an investors'
--------------------
agreement (the "Investors' Agreement"), registration agreement, and certain
other agreements with Executive and the other members of Holdings (collectively,
the "Investors") embodying the relevant terms set forth in the LOI.
5.5 Restrictions on Transfer of Incentive Equity. Other than pursuant to
--------------------------------------------
Tag-Along Rights, Registration Rights, and Other Exit Rights (as such terms are
defined in the LOI and as such concepts may be incorporated in the agreements
referred to in Section 5.4), Executive may not transfer its Incentive Equity at
any time (subject to the LLC Agreement as contemplated by the LOI (the "LLC
Agreement"), other than transfers of Incentive Equity for estate-planning
purposes to immediate family members and trusts and/or other vehicles for the
benefit of immediate family members) without the approval of a majority of the
members of the Board who do not have a pecuniary interest in such transfer,
which majority shall include, if provided for pursuant to the Investors'
Agreement or LLC Agreement, a majority of the Madison Dearborn members of the
Board.
6. Termination of Employment.
-------------------------
6.1 Termination Not for Cause or Termination for Good Reason.
--------------------------------------------------------
(a) (i) Holdings may terminate Executive's employment at any time, and
Executive may terminate his employment at any time. If Executive's employment is
terminated by Holdings other than for Cause (as defined herein) or due to
Executive's death or Disability (as defined herein) or Executive terminates his
employment for Good Reason prior to the Termination Date, Executive shall be
entitled to receive from Holdings continued Base Salary (payable in accordance
with the last sentence of Section 3.1 hereof) for three months after date of the
termination plus, on the sixtieth day following the end of the fiscal year
during which the termination of Executive's employment pursuant to this Section
6.1(a) occurs, an amount in respect of any bonus for the period employed for the
fiscal year in which Executive's employment is terminated calculated on a pro
rata basis.
(ii) In addition, Executive shall (1) be entitled to receive, within a
reasonable period of time after the date of termination, a cash lump sum equal
to (A) any compensation payments deferred by Executive, together with any
applicable interest or other accruals thereon; and (B) any unpaid amounts, as of
the date of such termination, in respect of any bonus for the fiscal year ending
before the fiscal year in which such termination occurs; (2) for the period from
the date of termination of Executive's employment until the one year anniversary
of the Termination Date (as then in effect), continue to be covered under and
participate in Holdings' employee benefit programs, plans and practices with
respect to medical, dental, hospitalization, life insurance and disability
benefits described in Section 4.1 hereof or under such other plans of Holdings
which provide for equivalent coverage to the extent and on the terms in effect
on the Executive's last day of employment; and (3) have such rights to payments
under applicable plans or programs, accrued to Executive on date of termination
including, without limitation, those described in Section 3.3 hereof as may be
determined pursuant to the terms of such plans or programs.
5
<PAGE>
(b) For purposes of this Agreement, "Good Reason" shall mean the occurrence of
any of the following events without Executive's express prior written
consent:
(i) the assignment to Executive by Holdings of duties not
appropriate to Executive's positions, responsibilities, titles and offices as
set forth in Section 1 hereof, or any material reduction by Holdings of
Executive's duties or responsibilities or any removal of Executive as the
Managing Director Operations Support, except in connection with the termination
of Executive's employment;
(ii) a reduction by Holdings in Executive's Base Salary as in effect
at the commencement of employment hereunder or as the same may be increased from
time to time during the terms of this Agreement;
(iii) any material breach by Holdings of any provision of this
Agreement (not cured after 15 days' prior notice);
(iv) requiring Executive to relocate his primary residence or
locating the principal executive office of the Company outside the United States
of America.
6.2 Disability. If (i) Executive shall fail for a period of six
----------
consecutive months during the term of his employment hereunder, because of
illness, physical or mental disability or other similar incapacity, to
effectively and actively render the services provided for by this Agreement or
(ii) at such earlier time as Executive submits satisfactory medical evidence
that he has or the Board in its reasonable judgment determines that Executive
has an illness, physical or mental disability or other incapacity which is
expected to prevent him from returning to the performance of his work duties for
six months or longer ("Disability"), Holdings or Executive may terminate
Executive's employment upon written notice thereof, setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under this Section 6.2, and Executive shall receive or
continue to receive, as the case may be:
(a) as soon as practicable after the date of termination of
Executive's employment pursuant to this Section 6.2, a cash lump sum equal to
any compensation payments deferred by Executive, together with any applicable
interest or other accruals thereon;
(b) any unpaid amounts, as of the date of such termination, in
respect of any bonus for the fiscal year ending before such termination, which
shall be payable on the date on which such bonus would otherwise be payable;
(c) on the sixtieth day following the end of the fiscal year during
which the termination of Executive's employment pursuant to this Section 6.2
occurs, an amount in respect of any bonus for the period employed for such
fiscal year calculated on a pro rata basis;
(d) for a period of one year after termination for Disability,
amounts, payable on Holdings' regular payroll schedule, equal to no less than
60% of Executive's then annual Base Salary, reduced by any amounts received by
Executive under any disability insurance policies with respect to which Holdings
paid the premiums;
(e) such rights to payments under applicable plans or programs,
accrued to Executive on the date of termination including, without limitation,
those described in Section 3.3 hereof, as may be appropriate pursuant to the
terms of such plans or programs.
6.3 Death. In the event of Executive's death during the term of his
-----
employment hereunder,
6
<PAGE>
Executive's estate or designated beneficiaries shall receive:
(a) payments of Base Salary for a period of three months after his date of
death;
(b) as soon as practicable after the date of Executive's death, a cash
lump sum equal to any compensation payments deferred by Executive, together with
any applicable interest or other accruals thereon;
(c) any unpaid amounts, as of the date of Executive's death, in respect of
any bonus for the fiscal year ending before his death, which shall be payable on
the date on which such bonus would otherwise be payable;
(d) on the sixtieth day following the end of the fiscal year during which
Executive's death occurs, an amount in respect of any bonus during period
employed for such fiscal year calculated on a pro rata basis;
(e) any death benefits provided under the employee benefit programs, plans
and practices described in Section 4.1 hereof, in accordance with their terms;
and
(f) such other payments under applicable plans or programs accrued to
Executive on date of termination, including, but not limited to those described
in Section 3.3 hereof, as may be appropriate pursuant to the terms of such plans
or programs.
6.4 Voluntary Termination by Executive; Discharge for Cause.
-------------------------------------------------------
(a) In the event that Executive's employment is terminated by Holdings for
Cause, as hereinafter defined, or by Executive other than for Good Reason or
other than as a result of Disability or death, prior to the Termination Date,
Executive shall be entitled to receive all salary and benefits to which
Executive is entitled up to and including the date of Executive's termination of
employment hereunder. The obligations of Holdings under this Agreement to make
any further payments, or provide any benefits specified herein, to Executive
shall cease and terminate on the date on which Executive's employment is
terminated by Holdings for Cause or by Executive other than for Good Reason or
other than as a result of Permanent Disability or death. Termination of
Executive in accordance with this Section 6.4 shall be communicated to Executive
pursuant to a notice of a resolution of a majority of the Board determining that
Executive is subject to discharge for Cause as defined herein.
(b) As used herein, the term "Cause" shall mean commission of a felony or
crime involving moral turpitude, repeated failure to comply with the Board's
instructions (after 30 days' prior notice), and any other material breach of
this Agreement by Executive (after 30 days' prior notice).
6.5 Termination Prior to First Acquisition Closing Date. Notwithstanding
---------------------------------------------------
anything in this Agreement to the contrary, in the event that the LOI is
terminated in accordance with the terms thereof prior to the First Acquisition
Closing Date (such date being referred to herein as the "LOI Termination Date"),
then Executive shall not be entitled to any amounts pursuant to Section 3 (other
than accrued and unpaid amounts through the LOI Termination Date pursuant to
Section 3.4), Section 4 or this Section 6, other than salary and benefits
accrued but unpaid as of the date of the termination of the LOI.
7. Notices. All notices or communications hereunder shall be in writing,
-------
addressed as follows:
7
<PAGE>
To Holdings: Madison River Telephone Company LLC
2316 Youngs Road
Southern Pines, NC 28387
Attn: Board of Members
Facsimile: (910) 695-2221
Confirmation: (910) 695-2222
To Executive: James D. Ogg
Any such notice or communication shall be sent certified or registered mail,
return receipt requested, postage prepaid, or by facsimile (with confirmation of
receipt) addressed as above (or to such other address as such receiving party
may have designated in a notice duly delivered as described above), and the
actual date of mailing shall constitute the time at which notice was given
(except, in the case of facsimile, the time and date of confirmation shall be
the time at which notice was given).
8. Separability; Legal Fees; Arbitration. If any provision of this
-------------------------------------
Agreement shall be declared to be invalid or unenforceable, in whole or in part,
such invalidity or unenforceability shall not affect the remaining provisions
hereof, which shall remain in full force and effect. In addition, Holdings
shall bear or reimburse Executive up to a maximum amount of $60,000 for all
legal fees and expenses incurred in connection with entering into this Agreement
and any other agreements being simultaneously entered into by Holdings and
Executive. Any controversy or claim arising out of or relating to this
Agreement or the breach of this Agreement (other than Section 12 hereof) that
cannot be resolved by Executive on the one hand and Holdings on the other,
including any dispute as to the calculation of Executive's benefits or any
payments hereunder, shall be submitted to arbitration in Chicago, Illinois in
accordance with Illinois law and the procedures of the American Arbitration
Association. The determination of the arbitrators shall be conclusive and
binding on Holdings and Executive, and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The expense of such
arbitration including reasonable legal fees in connection therewith shall be
borne in accordance with the direction of the arbitrators.
9. No Obligation to Mitigate Damages. Executive shall not be required to
---------------------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise.
10. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executives and the assigns and
successors of Holdings, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by Executive (except
by will or by operation of the laws of intestate succession) or by Holdings,
except that Holdings may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets
or businesses of Holdings.
11. Amendment. This Agreement may only be amended by written agreement of
---------
the Board and Executive.
12. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
8
<PAGE>
(a) From and after the date hereof and at all times thereafter (except as
otherwise provided in Section 12(e)), Executive shall not, without the prior
written consent of Holdings, at any time divulge, disclose, use to the detriment
of Holdings or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information, except (i) while
employed by Holdings, in the business of and for the benefit of Holdings and to
the extent such use or disclosure is required or deemed advisable by Executive
in the performance of his assigned duties (provided that any Confidential
Information disclosed pursuant to this clause (i) shall remain Confidential
Information hereunder, except as provided below), or (ii) when required to do so
by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of Holdings, or by any administrative
body or legislative body (including a committee thereof) with purported or
apparent jurisdiction to order Executive to divulge, disclose or make accessible
such information. Executive agrees to notify Holdings if Executive discloses
such information and to take reasonable efforts to preserve the confidential
nature of such information. For purposes of this Section 12(a), "Confidential
Information" shall mean information concerning Holdings' and its subsidiaries'
financial data, strategic business plans, business development (or other
proprietary product data), marketing plans, know-how, customer lists,
information about potential acquisition targets, acquisition strategies and
targets and other non-public, proprietary and confidential information of
Holdings, provided that Confidential Information shall not include information
if and solely to the extent that such information is or has become publicly
available through no wrongful act or breach of confidentiality by Executive.
(b) Executive agrees that he shall not directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, member,
investor, lender or employee or in any other capacity, carry on, be engaged in
or have any financial interest in, (i) during the time that Executive is
employed hereunder and for a period of three months thereafter, any business
that is engaged in the telephone or telecommunications industry other than as a
passive stockholder of The Grand Oaks Corporation and (ii) for a period of 12
months after such three-month period, any business which is in competition with
the business of Holdings and/or its subsidiaries in a geographic market where
Holdings and/or its subsidiaries do business. In addition, during the time that
Executive is employed hereunder and for a period of 15 months thereafter,
Executive agrees that, without the prior written consent of Holdings, he shall
not solicit for employment any person who at any time during Executive's
employment hereunder was an employee of Holdings or any of its subsidiaries.
(c) For purposes of Section 12(b)(ii) hereof, a business shall be deemed
in competition with Holdings and/or its subsidiaries if at the time of
Executive's proposed relationship with such business, such business is rendering
services being rendered by Holdings and/or its subsidiaries in one or more areas
that, at the time of Executive's termination hereunder, in the aggregate
accounted for more than 5% of operating gross annual sales of Holdings and its
subsidiaries. Nothing in this Section 12 shall be construed so as to preclude
Executive from investing in publicly traded securities of any company provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive and Holdings agree that the foregoing covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of such covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 12 would irreparably injure Holdings. Accordingly, Holdings may, in
addition to pursuing any other remedies it may have in law or in equity, obtain
an injunction against Executive from any court having jurisdiction over the
matter, restraining any further violation of this Section 12 by Executive.
9
<PAGE>
(e) Executive hereby assigns and from time to time assigns to Holdings all
right, title and interest in and to any Intellectual Property conceived,
contributed to or made by Executive at any time prior to or during his
employment with Holdings (whether alone or jointly with others) to the extent
such Intellectual Property is not owned by Holdings as a matter of law.
Executive shall thereafter promptly and fully communicate to Holdings all such
Intellectual Property and shall cooperate with Holdings to protect Holdings'
interests in such Intellectual Property. Any copyrightable work prepared in
whole or in part by Executive in the course of his employment with Holdings
shall be deemed "a work made for hire" under the copyright laws, and Holdings
shall own all of the rights comprised in the copyright therein. This cooperation
shall include providing assistance in securing patent protection and copyright
registrations and signing all documents reasonably requested by Holdings, even
if such request occurs after termination of his employment with Holdings.
Executive understands that this Agreement does not apply to an invention for
which no equipment, supplies, facilities or trade secret information of Holdings
was used and which was developed entirely on his own time, unless: (a) the
invention relates (i) to the business (actual or reasonably proposed) of
Holdings or its subsidiaries, or (ii) to Holdings' or its subsidiaries' research
or development (actual or reasonably proposed); or (b) the invention results
from any work performed by Executive for Holdings or its subsidiaries.
"Intellectual Property" shall mean patent applications, copyrightable works,
mask works and applications for registration related thereto, all Confidential
Information, and all other intellectual property rights created, conceived or
owned by, Holdings or any of its subsidiaries or for the benefit of an
enterprise similar to Holdings or any of its subsidiaries. Notwithstanding
anything in this Agreement to the contrary, if the LOI is terminated in
accordance with its terms or the transactions contemplated thereby are otherwise
abandoned by Holdings, Holdings acknowledges and agrees that it shall have no
right to the Intellectual Property and the Intellectual Property may be used by
Executive and each of the other Investors in pursuit of an enterprise similar to
Holdings in accordance with Section 14(ii) of the LOI and, further, Executive
shall have no further obligations pursuant to this Section 12.
(f) Executive shall deliver to Holdings and, if the First Acquisition
Closing Date has not occurred prior to Executive's termination, each of the
other Investors upon request at the termination of his employment, or at any
other time Holdings may request, all Intellectual Property in his possession and
control, and all copies thereof, in whatever form or medium. If the First
Acquisition Closing Date has occurred prior to Executive's termination and if
Holdings requests, Executive shall sign a written confirmation that Executive
has returned all such materials. Executive agrees that the limitations in this
Section 12 are reasonable and necessary to protect the legitimate business
interests of Holdings and its affiliates.
10
<PAGE>
13. Indemnification; Director and Officer Insurance.
-----------------------------------------------
(a) Holdings hereby agrees, commencing on the date hereof, to indemnify
and hold harmless Executive to the same extent as the fullest extent permitted
under Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), excluding subsection (f) thereof, as the same now exists or may
hereafter be amended, substituted or replaced (but, in the case of any such
amendment, only to the extent that such amendment permits Holdings to provide
broader indemnification rights than DGCL permitted prior to such amendment),
against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, excise taxes or penalties) reasonably incurred or suffered by
Executive in connection with serving as an officer, director, employee or agent
of Holdings or for serving at the request of Holdings as an officer, director,
employee or agent of another corporation, partnership, joint venture, limited
liability company, trust or other enterprise. Expenses, including attorneys'
fees, incurred by Executive in defending a proceeding shall be paid by Holdings
in advance of the final disposition of such proceeding, including any appeal
therefrom, upon receipt of an undertaking by or on behalf of Executive to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by Holdings. This Section 13(a) shall survive termination of this
Agreement.
(b) Holdings agrees that commencing as soon as practicable after the date
hereof it will maintain director and officer liability insurance for the purpose
of covering all actions taken by Executive as an officer, director, employee or
agent of Holdings which insurance is reasonably deemed necessary by Executive
and is approved by the Board (which approval shall not be unreasonably
withheld).
14. Beneficiaries; References. Executive shall be entitled to select (and
-------------------------
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder in
accordance with the terms hereof following Executive's death, and may change
such election, in either case by giving Holdings written notice thereof. In the
event of Executive's death or a judicial determination of his incompetence,
reference in this Agreement to Executive shall be deemed, where appropriate, to
refer to his beneficiary, estate or other legal representative. Prior to
Madison Dearborn or an affiliate thereof becoming a party to the LLC Agreement,
(i) all references to an action, decision, determination or approval of the
Board shall only be made with the prior consent of Madison Dearborn and (ii)
Madison Dearborn shall be a third party beneficiary under this Agreement.
15. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted and
-------------
governed in accordance with the laws of the State of Delaware, without reference
to rules relating to conflict of laws.
17. Withholding. Holdings shall be entitled to withhold from any payment
-----------
hereunder any amount required by law to be withheld.
18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original.
19. Executive Representations. Executive hereby represents and warrants to
-------------------------
Holdings that (i)
11
<PAGE>
the Incentive Equity will be acquired for the Executive's own account and not
with a view to, or intention of, distribution thereof in violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any applicable
state securities laws, and the Incentive Equity will not be disposed of in
contravention of the Securities Act or any applicable state securities laws,
(ii) the Executive is an executive officer of Holdings, is sophisticated in
financial matters and is able to evaluate the risks and benefits of the
investment in the Incentive Equity, (iii) the Executive is able to bear the
economic risk of his investment in the Incentive Equity for an indefinite period
of time and the Executive understands that the Incentive Equity has not been
registered under the Securities Act and, therefore, cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available and all other applicable restrictions on transfer have
been satisfied, (iv) the Executive has participated significantly in the
structuring of the equity of Holdings, has had an opportunity to ask questions
and receive answers concerning the terms and conditions of the offering of the
Incentive Equity and has had full access to such other information concerning
Holdings as he has requested, (v) the execution, delivery, and performance of
this Agreement by Executive does not and will not conflict with, breach, violate
or cause a default under any contract, agreement, instrument, order, judgment or
decree to which Executive is a party or by which he is bound, (vi) Executive is
not a party to or bound by any employment agreement, non-compete agreement or
confidentiality agreement with any other Person and (vii) upon the execution and
delivery of this Agreement by the Company, this Agreement shall be the valid and
binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that he has consulted with
independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
20. Executive agrees that (i) in the event that any of Executive's equity
interest in Holdings is evidenced by a certificate, such certificate shall
contain an appropriate legend referring to this Agreement and (ii) no transfers
of any equity interest or portion thereof in Holdings shall be made except in
compliance with applicable securities laws.
21. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein (including, without limitation, the LOI) and other documents
of even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among Holdings and Executive, written or oral, which may
have related to the subject matter hereof in any way. No waiver of this
Agreement or of any of the terms or provisions hereof shall be binding upon
either party hereto unless confirmed by a written instrument signed by such
party. No waiver by Executive or Holdings of any term or provision of this
Agreement or of any default hereunder, nor any failure or delay in exercising
any right, option, power or privilege hereunder, shall affect Executive's or
Holdings' respective rights hereafter to enforce such term or provision or to
exercise any such right, option, power or privilege, or to exercise any right or
remedy in the event of any other default, whether or not similar.
12
<PAGE>
IN WITNESS WHEREOF, Executive and Holdings have caused this Employment Agreement
to be executed as of the date first written above.
MADISON RIVER TELEPHONE COMPANY LLC
By: J. STEPHEN VANDERWOUDE
---------------------------------
JAMES D. OGG
---------------------------------
Executive
13
<PAGE>
Exhibit 10.6.1
The First Amendment to the Employment Agreement
This First Amendment dated October 8, 1996 is made between Madison River
Telephone Company, LLC ("Holdings") and James D. Ogg, ("Executive") pursuant to
paragraph 11 of the Employment Agreement between Holdings and Executive dated
April 17, 1996 ("Employment Agreement").
1. The last sentence of Section 3.4 of the Employment Agreement shall be
amended and restated in its entirety to read as follows:
"Notwithstanding anything contained herein to the contrary (except for
(i) the legal fees referred to in Section 8 hereof which shall not
require further approval and (ii) the costs of the directors and
officers insurance referred to in Section 13 (b) hereof and other
insurance (including property and casualty) which is reasonably deemed
necessary by Executive and is approved by the Board (which approval
shall not be unreasonably withheld)), prior to the First Acquisition
Closing Date, Executive is authorized to incur, and shall be
reimbursed, only for items approved by all of the Institutional
Investors (as defined in the LOI) (it being under stood that the
listing of such costs in a budget attached to the LOI that has been
approved by all of the Institutional Investors constitutes approval by
all Institutional Investors)."
2. Section 5.5 of the Employment Agreement shall be amended and restated in
its entirety to read a follows:
"5.5 Restrictions on Transfer of Incentive Equity. Other than pursuant
--------------------------------------------
to Tag-Along Rights, Registration Rights, and Other Exit Rights with
respect to his vested Incentive Equity (as such terms are defined in
the LOI and as such concepts may be incorporated in the agreements
referred to in Section 5.4), Executive may not transfer his Incentive
Equity at any time (other than transfers of Incentive Equity for
estate-planning purposes to immediate family members and trusts and/or
other vehicles for the benefit of immediate family members) without
the approval of members of the Board holding a majority of the votes
of all members of the Board who do not have a pecuniary interest in
such transfer, which majority shall include approval by members of the
Board holding a majority of the votes of all of the members of the
Board designated by the Institutional Investors."
3. Section 6.1(b)(i) of the Employment Agreement shall be amended by adding
the following parenthetical to the end of such Section 6.1(b)(i):
"(and not cured after 15 days prior notice to all of the members of
the Board)."
4. Section 6.5 of the Employment Agreement shall be amended and restated to
read as follows:
"6.5 Termination Prior to First Acquisition Closing Date.
---------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, in the
event that the enterprise contemplated by the LOI is abandoned or
otherwise terminated in accordance with the terms of the LOI prior to
the First Acquisition Closing Date (such date being referred to herein
as the "LOI Termination Date"), then Executive shall not be entitled
to any amounts pursuant to Section 3 (other than accrued and unpaid
amounts
<PAGE>
through the LOI Termination Date pursuant to Section 3.4), Section 4
or this Section 6, other than salary and benefits accrued but unpaid
as of the LOI Termination Date."
5. The last sentence of Section 14 of the Employment Agreement shall be
amended and restated to read as follows:
"Prior to all of the Institutional Investors becoming a party to the
LLC Agreement, (i) all references to an action, decision,
determination or approval of the Board shall only be made with the
prior consent of all of the Institutional Investors and (ii) all of
the Institutional Investors shall be a third party beneficiary under
this Agreement."
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this First Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: J. STEPHEN VANDERWOUDE
---------------------------------
JAMES D. OGG
------------------------------------
Executive
<PAGE>
Exhibit 10.6.2
The Second Amendment to the Employment Agreement
This Second Amendment dated January 24, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and James D. Ogg, ("Executive") pursuant to
paragraph 11 of the Employment Agreement between Holdings and Executive dated
April 17, 1996 ("Employment Agreement").
1. Section 3.1 of the Employment Agreement shall be amended by adding the
following paragraph 3.11:
"Beginning May 1, 1997 and continuing until the closing of the
Company's First Acquisition Closing Date, Executive shall accrue but
not vest in any base salary compensation. Executive shall accrue his
unvested base salary compensation at the rate of $8,333.33 per month
for full months and pro-rata amount for partial months. Executive
shall vest in his accrued base salary compensation on the First
Acquisition Closing Date. In the event there is no first acquisition
of a business in any form by the Company or the enterprise
contemplated in the LOI is abandoned or terminated, Executive will not
vest in his accrued base salary compensation and Holdings shall not
owe any base salary compensation to Executive and the Executive shall
have no claims for any base salary compensation against Holdings.
Beginning after the First Acquisition Date, Holdings shall pay
Executive a base salary ("Base Salary") at the annual rate of $100,000
under paragraph 3.1 above unless adjusted under paragraph 3.2."
2. Section 7.0 is amended to reflect the new address for Executive:
James D. Ogg
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Second Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: J. STEPHEN VANDERWOUDE
---------------------------------
JAMES D. OGG
-------------------------------------
Executive
<PAGE>
Exhibit 10.6.3
The Third Amendment to the Employment Agreement
This Third Amendment dated October 16, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and James D. Ogg, ("Executive") pursuant to
paragraph 11 of the Employment Agreement between Holdings and Executive dated
April 17, 1996 ("Employment Agreement").
1. Section 3.1 of the Employment Agreement shall be amended by inserting the
following after the first full sentence:
"Notwithstanding the foregoing, the closing of MebCom Communications,
Inc. shall not be considered the first acquisition and its closing
date shall not be considered the First Acquisition Closing Date for
purposes of paragraph 2 (Term of Employment), this paragraph 3
(Compensation) and paragraph 6 (Termination of Employment)."
2. Section 8, third sentence shall be amended by replacing the place of
arbitration submission from "Chicago, Illinois" to "Raleigh-Durham
metropolitan area of North Carolina" and by replacing the language "in
accordance with Illinois law" with "in accordance with Delaware law".
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Second Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: J. STEPHEN VANDERWOUDE
-------------------------------
JAMES D. OGG
-----------------------------------
Executive
<PAGE>
EXHIBIT 10.6.4
Fourth Amendment to the Employment Agreement
This Fourth Amendment dated September 15, 1999 is made between Madison River
Telephone Company, LLC ("Holdings") and James D. Ogg, ("Executive") pursuant to
paragraph 11 of that certain agreement for employment between Holdings and
Executive dated April 17, 1996 ("Employment Agreement").
Section 5.1 and 5.3(b) of the Employment Agreement shall be amended by replacing
said sections with the following:
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings equal to 15% of the total Class B
equity of Holdings for an aggregate purchase price of $1,500 and Class C equity
of Holdings equal to 11.50% of the total Class C equity of Holdings for an
aggregate purchase price of $1,150. Hereafter, Class B and Class C equity
collectively shall be referred to as "Incentive Equity"). Within 30 days after
each time that Executive exercises its right to purchase Incentive Equity, the
Executive will make an effective election with the Internal Revenue Service
under Section 83(b) of the Internal Revenue Code and the regulations promulgated
thereunder. The parties hereto agree that the fair market value of the Incentive
Equity allocated to Executive as of the initial Employment Agreement date for
Class B is $1,500 and as of the Gulf Closing Date for Class C and for a period
of at least five business days thereafter is $1,150 and that parties shall use
such value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date and ending with the Closing Date for Gulf Coast
Services, Inc. ("Gulf Closing Date") and any unvested remainder after the Gulf
Closing Date shall vest on a daily basis over a new four-year period beginning
with the Gulf Closing Date. All unvested Incentive Equity will become fully
vested immediately prior to the occurrence of a Liquidity Event. "Liquidity
Event" means (i) any sale of all or substantially all of the assets of Holdings
on a consolidated basis in one transaction or series of related transactions
(but excluding sales to affiliates) for cash or marketable securities, (ii) any
sale of 50% or more of the Investor Equity (as defined in the LOI) in one
transaction or series of related transactions (but excluding sales to affiliates
and, with respect to individuals, related persons) for cash or marketable
securities or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
5.3 Repurchase.
----------
(b) Executive's vested Incentive Equity will not be subject to repurchase in
whole or in part by Holdings.
<PAGE>
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Fourth Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: /s/ PAUL H. SUNU
---------------------------------------
/s/ JAMES D. OGG
------------------------------------------
Executive
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of August 1, 1996 by and among Madison River
Telephone Company LLC, a Delaware limited liability company ("Holdings"), and
Donald K. Roberton ("Executive").
RECITALS
--------
Holdings is being formed to identify for acquisition rural telephone companies
and, if identified, to raise capital sufficient to consummate an acquisition of
such companies.
Holdings has two classes of equity, Class A equity and Class B equity, and the
Class A equity will be entitled to distributions prior to the Class B equity.
The parties have agreed that the aggregate fair market value of all Class B
equity to be distributed is $10,000 as of the date hereof.
In order to induce Executive to agree to serve as Managing Director - Corporate
Development of Holdings, Holdings desires to provide Executive with compensation
and other benefits (including the right to purchase Class B equity of Holdings)
on the terms and conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform services for
Holdings on the terms and conditions set forth in this Agreement.
It is therefore hereby agreed by the parties as follows:
1. Employment.
----------
(a) Subject to the terms and conditions of this Agreement, Holdings agrees to
employ Executive during the term hereof as Managing Director - Corporate
Development. In his capacity as Managing Director - Corporate Development,
Executive shall have the customary powers, responsibilities and authorities of
Managing Director - Corporate Development of corporations of the size, type and
nature of Holdings, as they exist from time to time. Executive shall also be
Managing Director - Corporate Development of all of Holdings' subsidiaries
unless otherwise agreed by Executive.
(b) Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment as Managing Director - Corporate Development of Holdings and
agrees to devote his full working time and efforts, to the best of his ability,
experience and talent, to the performance of services, duties and
responsibilities in connection therewith. Nothing in this Agreement shall
preclude Executive from engaging, consistent with his duties and
responsibilities hereunder, in charitable and community affairs, from managing
his personal investments or, except as otherwise provided in Section 12 hereof,
from serving as a member of boards of directors or as a trustee of other
companies, associations or entities. Executive shall be permitted to serve as a
consultant to Hungarian Telephone and Cable Corporation for a period not
exceeding 200 hours per year for the next five years.
1
<PAGE>
2. Term of Employment.
------------------
Executive's term of employment under this Agreement shall commence on August 1,
1996 (the "Commencement Date") and, subject to the terms hereof, shall terminate
on the fourth anniversary of the First Acquisition Closing Date (as defined
herein) (unless and until extended from time to time by mutual written agreement
of the parties, the "Termination Date"); provided that, notwithstanding the
foregoing, the Termination Date shall be the date that the enterprise
contemplated by the Agreement in Principle and Summary of Preliminary Terms,
dated April 17, 1996 (as amended or otherwise modified from time to time, the
"LOI") is abandoned or otherwise terminated in accordance with the terms of the
LOI, if the Termination Date has not previously occurred.
3. Compensation.
------------
3.1 Initial Compensation and Base Salary.
------------------------------------
(a) Beginning on the Commencement Date and continuing until the closing
of the Company's first acquisition of a business (in any form) (the "First
Acquisition Closing Date"), Executive shall accrue but not vest in any base
salary compensation. Executive shall accrue his unvested base salary
compensation at the rate of $8,333.33 per month for full months and pro-rata
amount for partial months. Executive shall vest in his accrued base salary
compensation on the First Acquisition Closing Date. In the event there is no
first acquisition of a business in any form by the Company or the enterprise
contemplated in the LOI is abandoned or terminated, Executive will not vest in
his accrued base salary compensation and Holdings shall not owe any base salary
compensation to Executive and the Executive shall have no claims for any base
salary compensation against Holdings. Beginning after the First Acquisition
Date, Holdings shall pay Executive a base salary ("Base Salary") at the annual
rate of $100,000. The Base Salary shall be payable in accordance with the
ordinary payroll practices of Holdings but in no event less often than monthly
in arrears.
(b) In the event of death of Executive prior to the First Acquisition
Closing Date and the Company closes its first acquisition of a business (in any
form), Executive's unvested base salary compensation shall vest for the period
beginning the Commencement Date and ending the date of death.
3.2 Adjustments to Base Salary. Beginning on the First Acquisition
--------------------------
Closing Date, the Base Salary shall be increased from time to time as the Board
shall determine taking into account the success of Holdings, the performance of
Executive, the size, revenues, and earnings of the businesses held or operated,
or contemplated to be held or operated, by Holdings and other market factors.
Once so increased, the increased amount shall constitute Executive's Base Salary
hereunder.
3.3 Compensation Plans and Programs. Executive shall participate in any
-------------------------------
compensation plan or program, annual or long-term, maintained by Holdings and
participated in by senior executives of the Company generally on terms taking
into account Executive's title and position with the Company.
3.4 Expenses. Notwithstanding anything contained herein to the contrary
--------
(except the cost of the directors and officers insurance referred to in Section
13 (b) hereof and other insurance (including property and casualty) which is
reasonably deemed necessary by Executive and is approved by the Board (which
approval shall not be unreasonably withheld)), prior to the First Acquisition
Closing Date, Executive is authorized to incur, and shall be reimbursed, only
for items approved by all of the Institutional Investors (as defined in the LOI)
(it being understood that the listing of such costs in a budget attached to the
LOI that has been approved by all of the Institutional Investors constitutes
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approval by all Institutional Investors).
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. During the term of
----------------------------------------------
his employment hereunder, Holdings shall provide to Executive coverage under any
employee benefit programs, plans and practices (commensurate with his position
in Holdings and to the extent possible under any employee benefit plan), in
accordance with the terms hereof, which Holdings makes available to its senior
executive officers generally, including but not limited to (i) retirement,
pension and profit-sharing, and (ii) medical, dental, hospitalization, life
insurance, short-and long-term disability, accidental death and dismemberment
and travel accident coverage.
4.2 Vacation and Fringe Benefits.
----------------------------
(a) Executive shall be entitled to paid vacation each calendar year of no less
than 20 working days. Holdings may grant additional vacation time to Executive.
(b) In addition, Executive shall be entitled to all of the other perquisites and
fringe benefits accorded the senior officers of Holdings generally.
5. Incentive Equity.
----------------
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings ("Incentive Equity") equal to 10%
of the total Incentive Equity of Holdings for an aggregate purchase price of
$1,000. Within 30 days after each time that Executive exercises its right to
purchase Incentive Equity, the Executive will make an effective election with
the Internal Revenue Service under Section 83(b) of the Internal Revenue Code
and the regulations promulgated thereunder. The parties hereto agree that the
fair market value of the Incentive Equity allocated to Executive as of the date
hereof and for a period of at least five business days thereafter is $1,000 and
that they shall use that value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date. All unvested Incentive Equity will become fully
vested immediately prior to the occurrence of a Liquidity Event. "Liquidity
Event" means (i) any sale of all or substantially all of the assets of Holdings
on a consolidated basis in one transaction or series of related transactions
(but excluding sales to affiliates) for cash or marketable securities, (ii) any
sale of 50% or more of the Investor Equity (as defined in the LOI) in one
transaction or series of related transactions (but excluding sales to affiliates
and, with respect to individuals, related persons) for cash or marketable
securities or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
5. 2 Distributions. Executive's unvested Incentive Equity outstanding at
--------------
the time of any dividend or other distribution to Incentive Equity will be
entitled to receive the same distributions per unit as vested Incentive Equity.
5.3 Repurchase.
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(a) Executive's unvested Incentive Equity will be subject to repurchase in
whole by Holdings, at its option (which option to repurchase must be elected in
writing by Holdings within ten days of termination and, subject to such
repurchase option being suspended as provided below, consummation of such
repurchase must be effected within 80 days thereafter), at the lower of its
original cost (less all amounts distributed in respect of Executive's unvested
Incentive Equity) or its Fair Market Value at the time of termination if
Executive ceases to be employed by Holdings for any reason. Notwithstanding
anything in this agreement to the contrary, in the event that Executive's
employment is terminated for any reason including due to death or Disability
(but other than by the Executive without Good Reason) and (i) at or prior to
such termination Holdings has entered into an agreement or agreements regarding
a transaction or has publicly announced its intention to consummate a
transaction (including, but not limited to, a public announcement of an
intention to seek to consummate a transaction), which upon consummation would
trigger a Liquidity Event (as defined in the LOI), or (ii) at or within six
months prior to such termination is or was in active negotiations regarding a
transaction, which upon consummation would trigger a Liquidity Event, then in
either case Holdings' repurchase right pursuant to the foregoing sentence will
be suspended and if any such transaction is consummated then Executive's
unvested Incentive Equity shall immediately prior to the consummation of such
transaction become fully vested and all distributions that would have been
payable to Executive on account of such unvested Incentive Equity subsequent to
Executive's termination and prior to such vesting shall be made to Executive,
with interest on each such distribution at a rate per annum equal to the prime
rate in effect at the time of each such distribution, at such time (and any
repurchase by Holdings of such Incentive Equity in connection with Executive's
termination of employment shall be governed by Section 5.3(b)), it being
understood and agreed that, upon exercise of the repurchase option, during such
suspension and prior to any such vesting hereunder, distributions that would
have been payable to Executive on account of such unvested Incentive Equity
shall not be for the account of Executive unless and until such Incentive Equity
shall become vested; provided that if none of such transactions is consummated
within two years after Executive's termination of employment, or within such
two-year period another transaction is consummated which constitutes a Liquidity
Event, then Holdings' above repurchase rights shall be reinstated. "Fair Market
Value" shall mean, with respect to any security, the amount that would be paid
to the holder thereof with respect to such security if all of the assets of
Holdings were sold for fair value to a willing buyer in exchange for cash, all
of the debt and other liabilities not assumed by the buyer were paid in full,
all of the convertible debt and other convertible securities were repaid or
converted (whichever yields more cash to the holders), and then Holdings were
completely liquidated.
(b) Executive's vested Incentive Equity will be subject to repurchase in whole
or in part by Holdings, at its option, at its Fair Market Value at the time of
termination if Executive ceases to be employed by Holdings for any reason other
than due to death or Disability (with repurchase being mandatory in the case of
death or Disability). If Executive's employment is terminated by Holdings
without Cause (as defined herein) or by Executive for Good Reason (as defined
herein), and Holdings exercises this repurchase option, then, at Holdings
option, the purchase price will be paid (i) in cash, (ii) by a promissory note
bearing interest at a rate per annum equal to the prime rate in effect at the
time Holdings exercises this repurchase option, having a two-year maturity and
payable in two equal annual installments of principal, together with accrued
interest thereon, or (iii) by a combination of cash and a promissory note having
the terms described above. Notwithstanding the foregoing, if Holdings does not
exercise this repurchase option within 90 days after Executive's employment is
terminated by Holdings without Cause or by Executive for Good Reason (or, if
applicable, 90 days after the Liquidity Event under circumstances described in
Section 5.3(a) above), then Executive shall retain such vested Incentive Equity
and such vested Incentive Equity shall not be subject to Holdings' repurchase
option. If Executive's employment is terminated by Holdings for Cause, or by
Executive without Good Reason,
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and Holdings elects to exercise this repurchase option, or if Executive's
employment is terminated due to death or Disability, the purchase price will be
paid by a Holdings promissory note bearing interest at a rate per annum equal to
the prime rate in effect at the time Holdings exercises this repurchase option,
or at the time that the holder's employment is terminated due to death or
Disability (due, on a pro rata basis, at such times as distributions are made on
other Incentive Equity; provided that, in the case of death, payments on such
promissory note to cover income and estate taxes due with respect to such
repurchase will also be due at the time such taxes are due). Notwithstanding the
foregoing, any notes that are issued by Holdings pursuant to this Section 5.3(b)
shall be subject to (and may be modified to conform with) any restrictive
covenants to which Holdings is subject at the time of such repurchase.
5.4 Investors' Agreement. Holdings shall enter into an investors'
--------------------
agreement (the "Investors' Agreement"), registration agreement, and certain
other agreements with Executive and the other members of Holdings (collectively,
the "Investors") embodying the relevant terms set forth in the LOI.
5.5 Restrictions on Transfer of Incentive Equity. Other than pursuant to
--------------------------------------------
Tag-Along Rights, Registration Rights, and Other Exit Rights with respect to his
vested Incentive Equity (as such terms are defined in the LOI and as such
concepts may be incorporated in the agreements referred to in Section 5.4),
Executive may not transfer his Incentive Equity at any time (other than
transfers of Incentive Equity for estate-planning purposes to immediate family
members and trusts and/or other vehicles for the benefit of immediate family
members) without the approval of the members of the Board holding a majority of
the votes of all members of the Board who do not have pecuniary interest in such
transfer, which majority shall include approval by members of the Board holding
a majority of the votes of all of the members of the Board designated by the
Institutional Investors.
6. Termination of Employment.
-------------------------
6.1 Termination Not for Cause or Termination for Good Reason.
--------------------------------------------------------
(a) (i) Holdings may terminate Executive's employment at any time, and
Executive may terminate his employment at any time. If Executive's employment is
terminated by Holdings other than for Cause (as defined herein) or due to
Executive's death or Disability (as defined herein) or Executive terminates his
employment for Good Reason prior to the Termination Date, Executive shall be
entitled to receive from Holdings continued Base Salary (payable in accordance
with the last sentence of Section 3.1 hereof) for three months after date of the
termination plus, on the sixtieth day following the end of the fiscal year
during which the termination of Executive's employment pursuant to this Section
6.1(a) occurs, an amount in respect of any bonus for the period employed for the
fiscal year in which Executive's employment is terminated calculated on a pro
rata basis.
(ii) In addition, Executive shall (1) be entitled to receive, within a
reasonable period of time after the date of termination, a cash lump sum equal
to (A) any compensation payments deferred by Executive, together with any
applicable interest or other accruals thereon; and (B) any unpaid amounts, as of
the date of such termination, in respect of any bonus for the fiscal year ending
before the fiscal year in which such termination occurs; (2) for the period from
the date of termination of Executive's employment until the one year anniversary
of the Termination Date (as then in effect), continue to be covered under and
participate in Holdings' employee benefit programs, plans and practices with
respect to medical, dental, hospitalization, life insurance and disability
benefits described in Section 4.1 hereof or under such other plans of Holdings
which provide for equivalent coverage to the extent and on the terms in effect
on the Executive's last day of employment; and (3) have such rights to payments
under applicable plans or programs, accrued to Executive on date of termination
including, without limitation,
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those described in Section 3.3 hereof as may be determined pursuant to the terms
of such plans or programs.
(b) For purposes of this Agreement, "Good Reason" shall mean the occurrence of
any of the following events without Executive's express prior written
consent:
(i) the assignment to Executive by Holdings of duties not
appropriate to Executive's positions, responsibilities, titles and offices as
set forth in Section 1 hereof, or any material reduction by Holdings of
Executive's duties or responsibilities or any removal of Executive as the
Managing Director - Corporate Development, except in connection with the
termination of Executive's employment (and not cured after 15 days prior notice
to all of the members of the Board);
(ii) a reduction by Holdings in Executive's Base Salary as in effect
at the commencement of employment hereunder or as the same may be increased from
time to time during the terms of this Agreement;
(iii) any material breach by Holdings of any provision of this
Agreement (not cured after 15 days' prior notice);
(iv) requiring Executive to relocate his primary residence or
locating the principal executive office of the Company outside the United States
of America.
6.2 Disability. If (i) Executive shall fail for a period of six
----------
consecutive months during the term of his employment hereunder, because of
illness, physical or mental disability or other similar incapacity, to
effectively and actively render the services provided for by this Agreement or
(ii) at such earlier time as Executive submits satisfactory medical evidence
that he has or the Board in its reasonable judgment determines that Executive
has an illness, physical or mental disability or other incapacity which is
expected to prevent him from returning to the performance of his work duties for
six months or longer ("Disability"), Holdings or Executive may terminate
Executive's employment upon written notice thereof, setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under this Section 6.2, and Executive shall receive or
continue to receive, as the case may be:
(a) as soon as practicable after the date of termination of
Executive's employment pursuant to this Section 6.2, a cash lump sum equal to
any compensation payments deferred by Executive, together with any applicable
interest or other accruals thereon;
(b) any unpaid amounts, as of the date of such termination, in
respect of any bonus for the fiscal year ending before such termination, which
shall be payable on the date on which such bonus would otherwise be payable;
(c) on the sixtieth day following the end of the fiscal year during
which the termination of Executive's employment pursuant to this Section 6.2
occurs, an amount in respect of any bonus for the period employed for such
fiscal year calculated on a pro rata basis;
(d) for a period of one year after termination for Disability,
amounts, payable on Holdings' regular payroll schedule, equal to no less than
60% of Executive's then annual Base Salary, reduced by any amounts received by
Executive under any disability insurance policies with respect to which Holdings
paid the premiums;
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(e) such rights to payments under applicable plans or programs, accrued
to Executive on the date of termination including, without limitation, those
described in Section 3.3 hereof, as may be appropriate pursuant to the terms of
such plans or programs.
6.3 Death. In the event of Executive's death during the term of his
-----
employment hereunder, Executive's estate or designated beneficiaries shall
receive:
(a) payments of Base Salary for a period of three months after his date
of death;
(b) as soon as practicable after the date of Executive's death, a cash
lump sum equal to any compensation payments deferred by Executive, together with
any applicable interest or other accruals thereon;
(c) any unpaid amounts, as of the date of Executive's death, in respect
of any bonus for the fiscal year ending before his death, which shall be payable
on the date on which such bonus would otherwise be payable;
(d) on the sixtieth day following the end of the fiscal year during which
Executive's death occurs, an amount in respect of any bonus during period
employed for such fiscal year calculated on a pro rata basis;
(e) any death benefits provided under the employee benefit programs,
plans and practices described in Section 4.1 hereof, in accordance with their
terms; and
(f) such other payments under applicable plans or programs accrued to
Executive on date of termination, including, but not limited to those described
in Section 3.3 hereof, as may be appropriate pursuant to the terms of such plans
or programs.
6.4 Voluntary Termination by Executive; Discharge for Cause.
-------------------------------------------------------
(a) In the event that Executive's employment is terminated by Holdings
for Cause, as hereinafter defined, or by Executive other than for Good Reason or
other than as a result of Disability or death, prior to the Termination Date,
Executive shall be entitled to receive all salary and benefits to which
Executive is entitled up to and including the date of Executive's termination of
employment hereunder. The obligations of Holdings under this Agreement to make
any further payments, or provide any benefits specified herein, to Executive
shall cease and terminate on the date on which Executive's employment is
terminated by Holdings for Cause or by Executive other than for Good Reason or
other than as a result of Permanent Disability or death. Termination of
Executive in accordance with this Section 6.4 shall be communicated to Executive
pursuant to a notice of a resolution of a majority of the Board determining that
Executive is subject to discharge for Cause as defined herein.
(b) As used herein, the term "Cause" shall mean commission of a felony or
crime involving moral turpitude, repeated failure to comply with the Board's
instructions (after 30 days' prior notice), and any other material breach of
this Agreement by Executive (after 30 days' prior notice).
6.5 Termination Prior to First Acquisition Closing Date. Notwithstanding
---------------------------------------------------
anything in this Agreement to the contrary, in the event that the enterprise
contemplated by the LOI is abandoned or otherwise terminated in accordance with
the terms of the LOI prior to the First Acquisition Closing Date (such date
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being referred to herein as the "LOI Termination Date"), then Executive shall
not be entitled to any amounts pursuant to Section 3 (other than accrued and
unpaid amounts through the LOI Termination Date pursuant to Section 3.4),
Section 4 or this Section 6, other than salary and benefits accrued but unpaid
as of the LOI Termination Date.
7. Notices. All notices or communications hereunder shall be in writing,
-------
addressed as follows:
To Holdings: Madison River Telephone Company LLC
2316 Youngs Road
Southern Pines, NC 28387
Attn: Board of Members
Facsimile: (910) 695-2221
Confirmation: (910) 695-2222
To Executive: Donald K. Roberton
Any such notice or communication shall be sent certified or registered mail,
return receipt requested, postage prepaid, or by facsimile (with confirmation of
receipt) addressed as above (or to such other address as such receiving party
may have designated in a notice duly delivered as described above), and the
actual date of mailing shall constitute the time at which notice was given
(except, in the case of facsimile, the time and date of confirmation shall be
the time at which notice was given).
8. Separability; Legal Fees; Arbitration. If any provision of this
-------------------------------------
Agreement shall be declared to be invalid or unenforceable, in whole or in part,
such invalidity or unenforceability shall not affect the remaining provisions
hereof, which shall remain in full force and effect. Any controversy or claim
arising out of or relating to this Agreement or the breach of this Agreement
(other than Section 12 hereof) that cannot be resolved by Executive on the one
hand and Holdings on the other, including any dispute as to the calculation of
Executive's benefits or any payments hereunder, shall be submitted to
arbitration in Chicago, Illinois in accordance with Illinois law and the
procedures of the American Arbitration Association. The determination of the
arbitrators shall be conclusive and binding on Holdings and Executive, and
judgment may be entered on the arbitrators' award in any court having
jurisdiction. The expense of such arbitration including reasonable legal fees
in connection therewith shall be borne in accordance with the direction of the
arbitrators.
9. No Obligation to Mitigate Damages. Executive shall not be required to
---------------------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise.
10. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executives and the assigns and
successors of Holdings, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by Executive (except
by will or by operation of the laws of intestate succession) or by Holdings,
except that Holdings may assign
8
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this Agreement to any successor (whether by merger, purchase or otherwise) to
all or substantially all of the stock, assets or businesses of Holdings.
11. Amendment. This Agreement may only be amended by written agreement of
---------
the Board and Executive.
12. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
(a) From and after the date hereof and at all times thereafter (except as
otherwise provided in Section 12(e)), Executive shall not, without the prior
written consent of Holdings, at any time divulge, disclose, use to the detriment
of Holdings or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information, except (i) while
employed by Holdings, in the business of and for the benefit of Holdings and to
the extent such use or disclosure is required or deemed advisable by Executive
in the performance of his assigned duties (provided that any Confidential
Information disclosed pursuant to this clause (i) shall remain Confidential
Information hereunder, except as provided below), or (ii) when required to do so
by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of Holdings, or by any administrative
body or legislative body (including a committee thereof) with purported or
apparent jurisdiction to order Executive to divulge, disclose or make accessible
such information. Executive agrees to notify Holdings if Executive discloses
such information and to take reasonable efforts to preserve the confidential
nature of such information. For purposes of this Section 12(a), "Confidential
Information" shall mean information concerning Holdings' and its subsidiaries'
financial data, strategic business plans, business development (or other
proprietary product data), marketing plans, know-how, customer lists,
information about potential acquisition targets, acquisition strategies and
targets and other non-public, proprietary and confidential information of
Holdings, provided that Confidential Information shall not include information
if and solely to the extent that such information is or has become publicly
available through no wrongful act or breach of confidentiality by Executive.
(b) Executive agrees that he shall not directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, member,
investor, lender or employee or in any other capacity, carry on, be engaged in
or have any financial interest in, (i) during the time that Executive is
employed hereunder and for a period of three months thereafter, any business
that is engaged in the telephone or telecommunications industry and (ii) for a
period of 12 months after such three-month period, any business which is in
competition with the business of Holdings and/or its subsidiaries in a
geographic market where Holdings and/or its subsidiaries do business. In
addition, during the time that Executive is employed hereunder and for a period
of 15 months thereafter, Executive agrees that, without the prior written
consent of Holdings, he shall not solicit for employment any person who at any
time during Executive's employment hereunder was an employee of Holdings or any
of its subsidiaries.
(c) For purposes of Section 12(b)(ii) hereof, a business shall be deemed
in competition with Holdings and/or its subsidiaries if at the time of
Executive's proposed relationship with such business, such business is rendering
services being rendered by Holdings and/or its subsidiaries in one or more areas
that, at the time of Executive's termination hereunder, in the aggregate
accounted for more than 5% of operating gross annual sales of Holdings and its
subsidiaries. Nothing in this Section 12 shall be construed so as to preclude
Executive from investing in publicly traded securities of any company provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive and Holdings agree that the foregoing covenant not to
compete is a reasonable
9
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covenant under the circumstances, and further agree that if in the opinion of
any court of competent jurisdiction such restraint is not reasonable in any
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of such covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant as so
amended. Executive agrees that any breach of the covenants contained in this
Section 12 would irreparably injure Holdings. Accordingly, Holdings may, in
addition to pursuing any other remedies it may have in law or in equity, obtain
an injunction against Executive from any court having jurisdiction over the
matter, restraining any further violation of this Section 12 by Executive.
(e) Executive hereby assigns and from time to time assigns to Holdings
all right, title and interest in and to any Intellectual Property conceived,
contributed to or made by Executive at any time prior to or during his
employment with Holdings (whether alone or jointly with others) to the extent
such Intellectual Property is not owned by Holdings as a matter of law.
Executive shall thereafter promptly and fully communicate to Holdings all such
Intellectual Property and shall cooperate with Holdings to protect Holdings'
interests in such Intellectual Property. Any copyrightable work prepared in
whole or in part by Executive in the course of his employment with Holdings
shall be deemed "a work made for hire" under the copyright laws, and Holdings
shall own all of the rights comprised in the copyright therein. This cooperation
shall include providing assistance in securing patent protection and copyright
registrations and signing all documents reasonably requested by Holdings, even
if such request occurs after termination of his employment with Holdings.
Executive understands that this Agreement does not apply to an invention for
which no equipment, supplies, facilities or trade secret information of Holdings
was used and which was developed entirely on his own time, unless: (a) the
invention relates (i) to the business (actual or reasonably proposed) of
Holdings or its subsidiaries, or (ii) to Holdings' or its subsidiaries' research
or development (actual or reasonably proposed); or (b) the invention results
from any work performed by Executive for Holdings or its subsidiaries.
"Intellectual Property" shall mean patent applications, copyrightable works,
mask works and applications for registration related thereto, all Confidential
Information, and all other intellectual property rights created, conceived or
owned by, Holdings or any of its subsidiaries or for the benefit of an
enterprise similar to Holdings or any of its subsidiaries. Notwithstanding
anything in this Agreement to the contrary, if the LOI is terminated in
accordance with its terms or the transactions contemplated thereby are otherwise
abandoned by Holdings, Holdings acknowledges and agrees that it shall have no
right to the Intellectual Property and the Intellectual Property may be used by
Executive and each of the other Investors in pursuit of an enterprise similar to
Holdings in accordance with Section 14(ii) of the LOI and, further, Executive
shall have no further obligations pursuant to this Section 12.
(f) Executive shall deliver to Holdings and, if the First Acquisition
Closing Date has not occurred prior to Executive's termination, each of the
other Investors upon request at the termination of his employment, or at any
other time Holdings may request, all Intellectual Property in his possession and
control, and all copies thereof, in whatever form or medium. If the First
Acquisition Closing Date has occurred prior to Executive's termination and if
Holdings requests, Executive shall sign a written confirmation that Executive
has returned all such materials. Executive agrees that the limitations in this
Section 12 are reasonable and necessary to protect the legitimate business
interests of Holdings and its affiliates.
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13. Indemnification; Director and Officer Insurance.
-----------------------------------------------
(a) Holdings hereby agrees, commencing on the date hereof, to indemnify
and hold harmless Executive to the same extent as the fullest extent permitted
under Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), excluding subsection (f) thereof, as the same now exists or may
hereafter be amended, substituted or replaced (but, in the case of any such
amendment, only to the extent that such amendment permits Holdings to provide
broader indemnification rights than DGCL permitted prior to such amendment),
against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, excise taxes or penalties) reasonably incurred or suffered by
Executive in connection with serving as an officer, director, employee or agent
of Holdings or for serving at the request of Holdings as an officer, director,
employee or agent of another corporation, partnership, joint venture, limited
liability company, trust or other enterprise. Expenses, including attorneys'
fees, incurred by Executive in defending a proceeding shall be paid by Holdings
in advance of the final disposition of such proceeding, including any appeal
therefrom, upon receipt of an undertaking by or on behalf of Executive to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by Holdings. This Section 13(a) shall survive termination of this
Agreement.
(b) Holdings agrees that commencing as soon as practicable after the date
hereof it will maintain director and officer liability insurance for the purpose
of covering all actions taken by Executive as an officer, director, employee or
agent of Holdings which insurance is reasonably deemed necessary by Executive
and is approved by the Board (which approval shall not be unreasonably
withheld).
14. Beneficiaries; References. Executive shall be entitled to select (and
-------------------------
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder in
accordance with the terms hereof following Executive's death, and may change
such election, in either case by giving Holdings written notice thereof. In the
event of Executive's death or a judicial determination of his incompetence,
reference in this Agreement to Executive shall be deemed, where appropriate, to
refer to his beneficiary, estate or other legal representative. Prior to all of
the Institutional Investors becoming a party to the LLC Agreement, (i) all
references to an action, decision, determination or approval of the Board shall
only be made with the prior consent of all of the Institutional Investors and
(ii) all of the Institutional Investors shall be a third party beneficiary under
this Agreement.
15. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted and
-------------
governed in accordance with the laws of the State of Delaware, without reference
to rules relating to conflict of laws.
17. Withholding. Holdings shall be entitled to withhold from any payment
-----------
hereunder any amount required by law to be withheld.
18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of
11
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which shall be deemed an original.
19. Executive Representations. Executive hereby represents and warrants
-------------------------
to Holdings that (i) the Incentive Equity will be acquired for the Executive's
own account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities laws, and the Incentive Equity will not be
disposed of in contravention of the Securities Act or any applicable state
securities laws, (ii) the Executive is an executive officer of Holdings, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Incentive Equity, (iii) the Executive is able
to bear the economic risk of his investment in the Incentive Equity for an
indefinite period of time and the Executive understands that the Incentive
Equity has not been registered under the Securities Act and, therefore, cannot
be sold unless subsequently registered under the Securities Act or an exemption
from such registration is available and all other applicable restrictions on
transfer have been satisfied, (iv) the Executive has participated significantly
in the structuring of the equity of Holdings, has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of the Incentive Equity and has had full access to such other
information concerning Holdings as he has requested, (v) the execution,
delivery, and performance of this Agreement by Executive does not and will not
conflict with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Executive is a party or by which
he is bound, (vi) Executive is not a party to or bound by any employment
agreement, non-compete agreement or confidentiality agreement with any other
Person and (vii) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and binding obligation of Executive,
enforceable in accordance with its terms. Executive hereby acknowledges and
represents that he has consulted with independent legal counsel regarding his
rights and obligations under this Agreement and that he fully understands the
terms and conditions contained herein.
20. Executive agrees that (i) in the event that any of Executive's equity
interest in Holdings is evidenced by a certificate, such certificate shall
contain an appropriate legend referring to this Agreement and (ii) no transfers
of any equity interest or portion thereof in Holdings shall be made except in
compliance with applicable securities laws.
21. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein (including, without limitation, the LOI) and other documents
of even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among Holdings and Executive, written or oral, which may
have related to the subject matter hereof in any way. No waiver of this
Agreement or of any of the terms or provisions hereof shall be binding upon
either party hereto unless confirmed by a written instrument signed by such
party. No waiver by Executive or Holdings of any term or provision of this
Agreement or of any default hereunder, nor any failure or delay in exercising
any right, option, power or privilege hereunder, shall affect Executive's or
Holdings' respective rights hereafter to enforce such term or provision or to
exercise any such right, option, power or privilege, or to exercise any right or
remedy in the event of any other default, whether or not similar.
12
<PAGE>
IN WITNESS WHEREOF, Executive and Holdings have caused this Employment Agreement
to be executed as of the date first written above.
MADISON RIVER TELEPHONE COMPANY LLC
By J. STEPHEN VANDERWOUDE
--------------------------------
DONALD K. ROBERTON
-----------------------------
Executive
13
<PAGE>
EXHIBIT 10.7.1
The First Amendment to the Employment Agreement
This First Amendment dated January 24, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and Donald K. Roberton, ("Executive")
pursuant to paragraph 11 of the Employment Agreement between Holdings and
Executive dated August 1, 1996 ("Employment Agreement").
1. The beginning of Section 3.4 of the Employment Agreement shall be amended
by adding the following:
3.4 Expenses. "Executive is authorized to incur reasonable expenses
--------
in carrying out his duties and responsibilities on behalf of the
Company under this Agreement, including, without limitation, expenses
for travel and similar items related to such responsibilities which
are consistent with Holdings' policies in effect from time to time
with respect to travel and other business expenses. Holdings will
reimburse Executive for all such expenses upon presentation by
Executive from time to time of an itemized account of such
expenditures; provided that such expenses are in compliance with any
other Holdings' policies in effect from time to time with respect to
reporting and documentation of such expenses; it being understood,
furthermore, that the cost of commuting between Executive's residence
and Holdings' principal place of business shall not be reimbursed."
2. Section 7.0 is amended to reflect the new address for Executive:
Donald K. Roberton
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this First Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: /s/ J. STEPHEN VANDERWOUDE
--------------------------
DONALD K. ROBERTON
-------------------------------
Executive
<PAGE>
EXHIBIT 10.7.2
The Second Amendment to the Employment Agreement
This Second Amendment dated October 16, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and Donald K. Roberton, ("Executive")
pursuant to paragraph 11 of the Employment Agreement between Holdings and
Executive dated August 1, 1996 ("Employment Agreement").
1. Section 3.1 of the Employment Agreement shall be amended by inserting the
following after the first full sentence:
"Notwithstanding the foregoing, the closing of MebCom Communications,
Inc. ("MebCom") shall not be considered the first acquisition and its
closing date shall not be considered the First Acquisition Closing
Date for purposes of paragraph 2 (Term of Employment), this paragraph
3 (Compensation) and paragraph 6 (Termination of Employment). In the
event the closing of MebCom is chronologically the closing prior to
the First Acquisition Closing Date for Holdings, Executive shall vest
at the closing of MebCom $75,000 of his unvested and accrued
compensation and said vested amount shall be paid at or soon after the
closing of MebCom."
2. Section 8, third sentence shall be amended by replacing the place of
arbitration submission from "Chicago, Illinois" to "Raleigh-Durham
metropolitan area of North Carolina" and by replacing the language "in
accordance with Illinois law" with "in accordance with Delaware law".
3. Section 7.0 is amended to reflect the new address for Executive:
Donald K. Roberton
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this First Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: /s/ J. STEPHEN VANDERWOUDE
--------------------------
DONALD K. ROBERTON
-------------------------------
Executive
<PAGE>
EXHIBIT 10.7.3
Fourth Amendment to the Employment Agreement
This Fourth Amendment dated September 15, 1999 is made between Madison River
Telephone Company, LLC ("Holdings") and Donald K. Roberton, ("Executive")
pursuant to paragraph 11 of that certain agreement for employment between
Holdings and Executive dated August 1, 1996 ("Employment Agreement").
Section 5.1 and 5.3(b) of the Employment Agreement shall be amended by replacing
said sections with the following:
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings equal to 10% of the total Class B
equity of Holdings for an aggregate purchase price of $1,000 and Class C equity
of Holdings equal to 11.50% of the total Class C equity of Holdings for an
aggregate purchase price of $1,150. Hereafter, Class B and Class C equity
collectively shall be referred to as "Incentive Equity"). Within 30 days after
each time that Executive exercises its right to purchase Incentive Equity, the
Executive will make an effective election with the Internal Revenue Service
under Section 83(b) of the Internal Revenue Code and the regulations promulgated
thereunder. The parties hereto agree that the fair market value of the
Incentive Equity allocated to Executive as of the initial Employment Agreement
date for Class B is $1,000 and as of the Gulf Closing Date for Class C and for a
period of at least five business days thereafter is $1,150 and that parties
shall use such value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date and ending with the Closing Date for Gulf Coast
Services, Inc. ("Gulf Closing Date") and any unvested remainder after the Gulf
Closing Date shall vest on a daily basis over a new four-year period beginning
with the Gulf Closing Date. All unvested Incentive Equity will become fully
vested immediately prior to the occurrence of a Liquidity Event. "Liquidity
Event" means (i) any sale of all or substantially all of the assets of Holdings
on a consolidated basis in one transaction or series of related transactions
(but excluding sales to affiliates) for cash or marketable securities, (ii) any
sale of 50% or more of the Investor Equity (as defined in the LOI) in one
transaction or series of related transactions (but excluding sales to affiliates
and, with respect to individuals, related persons) for cash or marketable
securities or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
5.3 Repurchase.
----------
(b) Executive's vested Incentive Equity will not be subject to repurchase in
whole or in part by Holdings.
<PAGE>
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Fourth Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: PAUL H. SUNU
----------------------------------
DONALD K. ROBERTON
-----------------------------------
Executive
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of June 4, 1996 by and among Madison River
Telephone Company LLC, a Delaware limited liability company ("Holdings"), and
Paul H. Sunu ("Executive").
RECITALS
--------
Holdings is being formed to identify for acquisition rural telephone companies
and, if identified, to raise capital sufficient to consummate an acquisition of
such companies.
Holdings has two classes of equity, Class A equity and Class B equity, and the
Class A equity will be entitled to distributions prior to the Class B equity.
The parties have agreed that the aggregate fair market value of all Class B
equity to be distributed is $10,000 as of the date hereof.
In order to induce Executive to agree to serve as Managing Director of Finance
and General Counsel of Holdings, Holdings desires to provide Executive with
compensation and other benefits (including the right to purchase Class B equity
of Holdings) on the terms and conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform services for
Holdings on the terms and conditions set forth in this Agreement.
It is therefore hereby agreed by the parties as follows:
1. Employment.
----------
(a) Subject to the terms and conditions of this Agreement, Holdings agrees to
employ Executive during the term hereof as Managing Director of Finance and
General Counsel. In his capacity as Managing Director of Finance and General
Counsel, Executive shall have the customary powers, responsibilities and
authorities of Managing Director of Finance (also known as chief financial
officer) and General Counsel of corporations of the size, type and nature of
Holdings, as they exist from time to time. Executive shall also be Managing
Director of Finance and General Counsel of all of Holdings' subsidiaries unless
otherwise agreed by Executive.
(b) Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment as Managing Director of Finance and General Counsel of
Holdings and agrees to devote his full working time and efforts, to the best of
his ability, experience and talent, to the performance of services, duties and
responsibilities in connection therewith. Nothing in this Agreement shall
preclude Executive from engaging, consistent with his duties and
responsibilities hereunder, in charitable and community affairs, from managing
his personal investments or, except as otherwise provided in Section 12 hereof,
from serving as a member of boards of directors or as a trustee of other
companies, associations or entities. Executive may devote time as necessary to
properly transition from RHR International Company. This transition shall be
completed by September 15, 1996, unless Executive and Holding mutually agree to
an extension.
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<PAGE>
2. Term of Employment.
------------------
Executive's term of employment under this Agreement shall commence on the date
(the "Approval Date") that the business plan for Holdings was approved by
Madison Dearborn Capital Partners, L.P. ("Madison Dearborn") (as contemplated by
the Agreement in Principle and Summary of Preliminary Terms, dated April 17,
1996 (as amended or otherwise modified from time to time, the "LOI"), among
Executive, Madison Dearborn, J. Stephen Vanderwoude, James D. Ogg, Terry E.
Troughton and, if applicable, certain other investors in Holdings) and, subject
to the terms hereof, shall terminate on the fourth anniversary of the First
Acquisition Closing Date (as defined herein) (unless and until extended from
time to time by mutual written agreement of the parties, the "Termination
Date"); provided that, notwithstanding the foregoing, the Termination Date shall
be the date that the enterprise contemplated by the LOI is abandoned or
otherwise terminated in accordance with the terms of the LOI, if the Termination
Date has not previously occurred.
3. Compensation.
------------
3.1 Initial Base Salary. Beginning on the Approval Date and continuing
-------------------
until the closing of the Company's first acquisition of a business (in any form)
(the "First Acquisition Closing Date") Holdings shall pay Executive a base
salary ("Base Salary") at the annual rate of $100,000. The Base Salary shall be
payable in accordance with the ordinary payroll practices of Holdings but in no
event less often than monthly in arrears.
3.2 Adjustments to Base Salary. Beginning on the First Acquisition
--------------------------
Closing Date, the Base Salary shall be increased from time to time as the Board
shall determine taking into account the success of Holdings, the performance of
Executive, the size, revenues, and earnings of the businesses held or operated,
or contemplated to be held or operated, by Holdings and other market factors.
Once so increased, the increased amount shall constitute Executive's Base Salary
hereunder.
3.3 Compensation Plans and Programs. Executive shall participate in any
-------------------------------
compensation plan or program, annual or long-term, maintained by Holdings and
participated in by senior executives of the Company generally on terms taking
into account Executive's title and position with the Company.
3.4 Expenses. Executive is authorized to incur reasonable expenses in
--------
carrying out his duties and responsibilities on behalf of the Company under this
Agreement, including, without limitation, expenses for travel and similar items
related to such responsibilities which are consistent with Holdings' policies in
effect from time to time with respect to travel and other business expenses.
Holdings will reimburse Executive for all such expenses upon presentation by
Executive from time to time of an itemized account of such expenditures;
provided that such expenses are in compliance with any other Holdings' policies
in effect from time to time with respect to reporting and documentation of such
expenses; it being understood, furthermore, that the cost of commuting between
Executive's residence and Holdings' principal place of business shall not be
reimbursed. Notwithstanding anything contained herein to the contrary (except
for (i) the legal fees referred to in Section 8 hereof which shall not require
further approval and (ii) the costs of the directors and officers insurance
referred to in Section 13(b) hereof and other insurance (including property and
casualty) which is reasonably deemed necessary by Executive and is approved by
the Board (which approval shall not be unreasonably withheld)), prior to the
First Acquisition Closing Date, Executive is authorized to incur, and shall be
reimbursed, only for items approved by Madison Dearborn, and prior to the
Approval Date, Executive is authorized to incur, and shall be reimbursed, only
for his out-of-pocket costs described in Section 14(b) of the LOI and only to
the extent separately approved by Madison Dearborn (it being understood that the
listing of such costs in a budget attached to the LOI that has been approved by
Madison Dearborn constitutes approval by
2
<PAGE>
Madison Dearborn).
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. During the term of
----------------------------------------------
his employment hereunder, Holdings shall provide to Executive coverage under any
employee benefit programs, plans and practices (commensurate with his position
in Holdings and to the extent possible under any employee benefit plan), in
accordance with the terms hereof, which Holdings makes available to its senior
executive officers generally, including but not limited to (i) retirement,
pension and profit-sharing, and (ii) medical, dental, hospitalization, life
insurance, short-and long-term disability, accidental death and dismemberment
and travel accident coverage.
4.2 Vacation and Fringe Benefits.
----------------------------
(a) Executive shall be entitled to paid vacation each calendar year of no less
than 20 working days. Holdings may grant additional vacation time to Executive.
(b) In addition, Executive shall be entitled to all of the other perquisites and
fringe benefits accorded the senior officers of Holdings generally.
5. Incentive Equity.
----------------
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings ("Incentive Equity") equal to 10%
of the total Incentive Equity of Holdings for an aggregate purchase price of
$1,000. Within 30 days after each time that Executive exercises its right to
purchase Incentive Equity, the Executive will make an effective election with
the Internal Revenue Service under Section 83(b) of the Internal Revenue Code
and the regulations promulgated thereunder. The parties hereto agree that the
fair market value of the Incentive Equity allocated to Executive as of the date
hereof and for a period of at least five business days thereafter is $1,000 and
that they shall use that value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date. All unvested Incentive Equity will become fully vested
immediately prior to the occurrence of a Liquidity Event. "Liquidity Event"
means (i) any sale of all or substantially all of the assets of Holdings on a
consolidated basis in one transaction or series of related transactions (but
excluding sales to affiliates) for cash or marketable securities, (ii) any sale
of 50% or more of the Investor Equity (as defined in the LOI) in one transaction
or series of related transactions (but excluding sales to affiliates and, with
respect to individuals, related persons) for cash or marketable securities or
(iii) a merger, share exchange or similar transaction which accomplishes one of
the foregoing.
5.2 Distributions. Executive's unvested Incentive Equity outstanding at
-------------
the time of any dividend or other distribution to Incentive Equity will be
entitled to receive the same distributions per unit as vested Incentive Equity.
5.3 Repurchase.
----------
(a) Executive's unvested Incentive Equity will be subject to repurchase in
whole by Holdings, at its
3
<PAGE>
option (which option to repurchase must be elected in writing by Holdings within
ten days of termination and, subject to such repurchase option being suspended
as provided below, consummation of such repurchase must be effected within 80
days thereafter), at the lower of its original cost (less all amounts
distributed in respect of Executive's unvested Incentive Equity) or its Fair
Market Value at the time of termination if Executive ceases to be employed by
Holdings for any reason. Notwithstanding anything in this agreement to the
contrary, in the event that Executive's employment is terminated for any reason
including due to death or Disability (but other than by the Executive without
Good Reason) and (i) at or prior to such termination Holdings has entered into
an agreement or agreements regarding a transaction or has publicly announced its
intention to consummate a transaction (including, but not limited to, a public
announcement of an intention to seek to consummate a transaction), which upon
consummation would trigger a Liquidity Event (as defined in the LOI), or (ii) at
or within six months prior to such termination is or was in active negotiations
regarding a transaction, which upon consummation would trigger a Liquidity
Event, then in either case Holdings' repurchase right pursuant to the foregoing
sentence will be suspended and if any such transaction is consummated then
Executive's unvested Incentive Equity shall immediately prior to the
consummation of such transaction become fully vested and all distributions that
would have been payable to Executive on account of such unvested Incentive
Equity subsequent to Executive's termination and prior to such vesting shall be
made to Executive, with interest on each such distribution at a rate per annum
equal to the prime rate in effect at the time of each such distribution, at such
time (and any repurchase by Holdings of such Incentive Equity in connection with
Executive's termination of employment shall be governed by Section 5.3(b)), it
being understood and agreed that, upon exercise of the repurchase option, during
such suspension and prior to any such vesting hereunder, distributions that
would have been payable to Executive on account of such unvested Incentive
Equity shall not be for the account of Executive unless and until such Incentive
Equity shall become vested; provided that if none of such transactions is
consummated within two years after Executive's termination of employment, or
within such two-year period another transaction is consummated which constitutes
a Liquidity Event, then Holdings' above repurchase rights shall be reinstated.
"Fair Market Value" shall mean, with respect to any security, the amount that
would be paid to the holder thereof with respect to such security if all of the
assets of Holdings were sold for fair value to a willing buyer in exchange for
cash, all of the debt and other liabilities not assumed by the buyer were paid
in full, all of the convertible debt and other convertible securities were
repaid or converted (whichever yields more cash to the holders), and then
Holdings were completely liquidated.
(b) Executive's vested Incentive Equity will be subject to repurchase in whole
or in part by Holdings, at its option, at its Fair Market Value at the time of
termination if Executive ceases to be employed by Holdings for any reason other
than due to death or Disability (with repurchase being mandatory in the case of
death or Disability). If Executive's employment is terminated by Holdings
without Cause (as defined herein) or by Executive for Good Reason (as defined
herein), and Holdings exercises this repurchase option, then, at Holdings
option, the purchase price will be paid (i) in cash, (ii) by a promissory note
bearing interest at a rate per annum equal to the prime rate in effect at the
time Holdings exercises this repurchase option, having a two-year maturity and
payable in two equal annual installments of principal, together with accrued
interest thereon, or (iii) by a combination of cash and a promissory note having
the terms described above. Notwithstanding the foregoing, if Holdings does not
exercise this repurchase option within 90 days after Executive's employment is
terminated by Holdings without Cause or by Executive for Good Reason (or, if
applicable, 90 days after the Liquidity Event under circumstances described in
Section 5.3(a) above), then Executive shall retain such vested Incentive Equity
and such vested Incentive Equity shall not be subject to Holdings' repurchase
option. If Executive's employment is terminated by Holdings for Cause, or by
Executive without Good Reason, and Holdings elects to exercise this repurchase
option, or if Executive's employment is terminated due to death or Disability,
the purchase price will be paid by a Holdings promissory note bearing interest
at a rate per annum equal to the prime rate in effect at the time Holdings
exercises this repurchase option, or at the time that the holder's employment is
terminated due to death or Disability (due, on a pro rata basis,
4
<PAGE>
at such times as distributions are made on other Incentive Equity; provided
that, in the case of death, payments on such promissory note to cover income and
estate taxes due with respect to such repurchase will also be due at the time
such taxes are due). Notwithstanding the foregoing, any notes that are issued by
Holdings pursuant to this Section 5.3(b) shall be subject to (and may be
modified to conform with) any restrictive covenants to which Holdings is subject
at the time of such repurchase.
5.4 Investors' Agreement. Holdings shall enter into an investors'
--------------------
agreement (the "Investors' Agreement"), registration agreement, and certain
other agreements with Executive and the other members of Holdings (collectively,
the "Investors") embodying the relevant terms set forth in the LOI.
5.5 Restrictions on Transfer of Incentive Equity. Other than pursuant to
--------------------------------------------
Tag-Along Rights, Registration Rights, and Other Exit Rights (as such terms are
defined in the LOI and as such concepts may be incorporated in the agreements
referred to in Section 5.4), Executive may not transfer its Incentive Equity at
any time (subject to the LLC Agreement as contemplated by the LOI (the "LLC
Agreement"), other than transfers of Incentive Equity for estate-planning
purposes to immediate family members and trusts and/or other vehicles for the
benefit of immediate family members) without the approval of a majority of the
members of the Board who do not have a pecuniary interest in such transfer,
which majority shall include, if provided for pursuant to the Investors'
Agreement or LLC Agreement, a majority of the Madison Dearborn members of the
Board.
6. Termination of Employment.
-------------------------
6.1 Termination Not for Cause or Termination for Good Reason.
--------------------------------------------------------
(a) (i) Holdings may terminate Executive's employment at any time, and
Executive may terminate his employment at any time. If Executive's employment is
terminated by Holdings other than for Cause (as defined herein) or due to
Executive's death or Disability (as defined herein) or Executive terminates his
employment for Good Reason prior to the Termination Date, Executive shall be
entitled to receive from Holdings continued Base Salary (payable in accordance
with the last sentence of Section 3.1 hereof) for three months after date of the
termination plus, on the sixtieth day following the end of the fiscal year
during which the termination of Executive's employment pursuant to this Section
6.1(a) occurs, an amount in respect of any bonus for the period employed for the
fiscal year in which Executive's employment is terminated calculated on a pro
rata basis.
(ii) In addition, Executive shall (1) be entitled to receive, within a
reasonable period of time after the date of termination, a cash lump sum equal
to (A) any compensation payments deferred by Executive, together with any
applicable interest or other accruals thereon; and (B) any unpaid amounts, as of
the date of such termination, in respect of any bonus for the fiscal year ending
before the fiscal year in which such termination occurs; (2) for the period from
the date of termination of Executive's employment until the one year anniversary
of the Termination Date (as then in effect), continue to be covered under and
participate in Holdings' employee benefit programs, plans and practices with
respect to medical, dental, hospitalization, life insurance and disability
benefits described in Section 4.1 hereof or under such other plans of Holdings
which provide for equivalent coverage to the extent and on the terms in effect
on the Executive's last day of employment; and (3) have such rights to payments
under applicable plans or programs, accrued to Executive on date of termination
including, without limitation, those described in Section 3.3 hereof as may be
determined pursuant to the terms of such plans or programs.
(b) For purposes of this Agreement, "Good Reason" shall mean the occurrence of
any of the following events without Executive's express prior written
consent:
5
<PAGE>
(i) the assignment to Executive by Holdings of duties not appropriate to
Executive's positions, responsibilities, titles and offices as set forth in
Section 1 hereof, or any material reduction by Holdings of Executive's duties or
responsibilities or any removal of Executive as the Managing Director of Finance
and General Counsel, except in connection with the termination of Executive's
employment;
(ii) a reduction by Holdings in Executive's Base Salary as in effect at
the commencement of employment hereunder or as the same may be increased from
time to time during the terms of this Agreement;
(iii) any material breach by Holdings of any provision of this Agreement
(not cured after 15 days' prior notice);
(iv) requiring Executive to relocate his primary residence or locating the
principal executive office of the Company outside the United States of America.
It is contemplated that Executive will relocate to the vicinity of Charlotte,
North Carolina, where Holdings expects to have its headquarters.
6.2 Disability. If (i) Executive shall fail for a period of six
----------
consecutive months during the term of his employment hereunder, because of
illness, physical or mental disability or other similar incapacity, to
effectively and actively render the services provided for by this Agreement or
(ii) at such earlier time as Executive submits satisfactory medical evidence
that he has or the Board in its reasonable judgment determines that Executive
has an illness, physical or mental disability or other incapacity which is
expected to prevent him from returning to the performance of his work duties for
six months or longer ("Disability"), Holdings or Executive may terminate
Executive's employment upon written notice thereof, setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under this Section 6.2, and Executive shall receive or
continue to receive, as the case may be:
(a) as soon as practicable after the date of termination of Executive's
employment pursuant to this Section 6.2, a cash lump sum equal to any
compensation payments deferred by Executive, together with any applicable
interest or other accruals thereon;
(b) any unpaid amounts, as of the date of such termination, in respect of
any bonus for the fiscal year ending before such termination, which shall be
payable on the date on which such bonus would otherwise be payable;
(c) on the sixtieth day following the end of the fiscal year during which
the termination of Executive's employment pursuant to this Section 6.2 occurs,
an amount in respect of any bonus for the period employed for such fiscal year
calculated on a pro rata basis;
(d) for a period of one year after termination for Disability, amounts,
payable on Holdings' regular payroll schedule, equal to no less than 60% of
Executive's then annual Base Salary, reduced by any amounts received by
Executive under any disability insurance policies with respect to which Holdings
paid the premiums;
(e) such rights to payments under applicable plans or programs, accrued
to Executive on the date of termination including, without limitation, those
described in Section 3.3 hereof, as may be appropriate pursuant to the terms of
such plans or programs.
6.3 Death. In the event of Executive's death during the term of his
-----
employment hereunder, Executive's estate or designated beneficiaries shall
receive:
6
<PAGE>
(a) payments of Base Salary for a period of three months after his date of
death;
(b) as soon as practicable after the date of Executive's death, a cash
lump sum equal to any compensation payments deferred by Executive, together with
any applicable interest or other accruals thereon;
(c) any unpaid amounts, as of the date of Executive's death, in respect of
any bonus for the fiscal year ending before his death, which shall be payable on
the date on which such bonus would otherwise be payable;
(d) on the sixtieth day following the end of the fiscal year during which
Executive's death occurs, an amount in respect of any bonus during period
employed for such fiscal year calculated on a pro rata basis;
(e) any death benefits provided under the employee benefit programs, plans
and practices described in Section 4.1 hereof, in accordance with their terms;
and
(f) such other payments under applicable plans or programs accrued to
Executive on date of termination, including, but not limited to those described
in Section 3.3 hereof, as may be appropriate pursuant to the terms of such plans
or programs.
6.4 Voluntary Termination by Executive; Discharge for Cause.
-------------------------------------------------------
(a) In the event that Executive's employment is terminated by Holdings for
Cause, as hereinafter defined, or by Executive other than for Good Reason or
other than as a result of Disability or death, prior to the Termination Date,
Executive shall be entitled to receive all salary and benefits to which
Executive is entitled up to and including the date of Executive's termination of
employment hereunder. The obligations of Holdings under this Agreement to make
any further payments, or provide any benefits specified herein, to Executive
shall cease and terminate on the date on which Executive's employment is
terminated by Holdings for Cause or by Executive other than for Good Reason or
other than as a result of Permanent Disability or death. Termination of
Executive in accordance with this Section 6.4 shall be communicated to Executive
pursuant to a notice of a resolution of a majority of the Board determining that
Executive is subject to discharge for Cause as defined herein.
(b) As used herein, the term "Cause" shall mean commission of a felony or
crime involving moral turpitude, repeated failure to comply with the Board's
instructions (after 30 days' prior notice), and any other material breach of
this Agreement by Executive (after 30 days' prior notice).
6.5 Termination Prior to First Acquisition Closing Date. Notwithstanding
---------------------------------------------------
anything in this Agreement to the contrary, in the event that the LOI is
terminated in accordance with the terms thereof prior to the First Acquisition
Closing Date (such date being referred to herein as the "LOI Termination Date"),
then Executive shall not be entitled to any amounts pursuant to Section 3 (other
than accrued and unpaid amounts through the LOI Termination Date pursuant to
Section 3.4), Section 4 or this Section 6, other than salary and benefits
accrued but unpaid as of the date of the termination of the LOI.
7. Notices. All notices or communications hereunder shall be in writing,
-------
addressed as follows:
7
<PAGE>
To Holdings: Madison River Telephone Company LLC
2316 Youngs Road
Southern Pines, NC 28387
Attn: Board of Members
Facsimile: (910) 695-2221
Confirmation: (910) 695-2222
To Executive: Paul H. Sunu
Any such notice or communication shall be sent certified or registered mail,
return receipt requested, postage prepaid, or by facsimile (with confirmation of
receipt) addressed as above (or to such other address as such receiving party
may have designated in a notice duly delivered as described above), and the
actual date of mailing shall constitute the time at which notice was given
(except, in the case of facsimile, the time and date of confirmation shall be
the time at which notice was given).
8. Separability; Legal Fees; Arbitration. If any provision of this
-------------------------------------
Agreement shall be declared to be invalid or unenforceable, in whole or in part,
such invalidity or unenforceability shall not affect the remaining provisions
hereof, which shall remain in full force and effect. In addition, Holdings shall
bear or reimburse Executive up to a maximum amount of $60,000 for all legal fees
and expenses incurred in connection with entering into this Agreement and any
other agreements being simultaneously entered into by Holdings and Executive.
Any controversy or claim arising out of or relating to this Agreement or the
breach of this Agreement (other than Section 12 hereof) that cannot be resolved
by Executive on the one hand and Holdings on the other, including any dispute as
to the calculation of Executive's benefits or any payments hereunder, shall be
submitted to arbitration in Chicago, Illinois in accordance with Illinois law
and the procedures of the American Arbitration Association. The determination of
the arbitrators shall be conclusive and binding on Holdings and Executive, and
judgment may be entered on the arbitrators' award in any court having
jurisdiction. The expense of such arbitration including reasonable legal fees in
connection therewith shall be borne in accordance with the direction of the
arbitrators.
9. No Obligation to Mitigate Damages. Executive shall not be required to
---------------------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise.
10. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executives and the assigns and
successors of Holdings, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by Executive (except
by will or by operation of the laws of intestate succession) or by Holdings,
except that Holdings may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets
or businesses of Holdings.
11. Amendment. This Agreement may only be amended by written agreement of
---------
the Board and Executive.
12. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
8
<PAGE>
(a) From and after the date hereof and at all times thereafter (except as
otherwise provided in Section 12(e)), Executive shall not, without the prior
written consent of Holdings, at any time divulge, disclose, use to the detriment
of Holdings or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information, except (i) while
employed by Holdings, in the business of and for the benefit of Holdings and to
the extent such use or disclosure is required or deemed advisable by Executive
in the performance of his assigned duties (provided that any Confidential
Information disclosed pursuant to this clause (i) shall remain Confidential
Information hereunder, except as provided below), or (ii) when required to do so
by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of Holdings, or by any administrative
body or legislative body (including a committee thereof) with purported or
apparent jurisdiction to order Executive to divulge, disclose or make accessible
such information. Executive agrees to notify Holdings if Executive discloses
such information and to take reasonable efforts to preserve the confidential
nature of such information. For purposes of this Section 12(a), "Confidential
Information" shall mean information concerning Holdings' and its subsidiaries'
financial data, strategic business plans, business development (or other
proprietary product data), marketing plans, know-how, customer lists,
information about potential acquisition targets, acquisition strategies and
targets and other non-public, proprietary and confidential information of
Holdings, provided that Confidential Information shall not include information
if and solely to the extent that such information is or has become publicly
available through no wrongful act or breach of confidentiality by Executive.
(b) Executive agrees that he shall not directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, member,
investor, lender or employee or in any other capacity, carry on, be engaged in
or have any financial interest in, (i) during the time that Executive is
employed hereunder and for a period of three months thereafter, any business
that is engaged in the telephone or telecommunications industry and (ii) for a
period of 12 months after such three-month period, any business which is in
competition with the business of Holdings and/or its subsidiaries in a
geographic market where Holdings and/or its subsidiaries do business. In
addition, during the time that Executive is employed hereunder and for a period
of 15 months thereafter, Executive agrees that, without the prior written
consent of Holdings, he shall not solicit for employment any person who at any
time during Executive's employment hereunder was an employee of Holdings or any
of its subsidiaries.
(c) For purposes of Section 12(b)(ii) hereof, a business shall be deemed
in competition with Holdings and/or its subsidiaries if at the time of
Executive's proposed relationship with such business, such business is rendering
services being rendered by Holdings and/or its subsidiaries in one or more areas
that, at the time of Executive's termination hereunder, in the aggregate
accounted for more than 5% of operating gross annual sales of Holdings and its
subsidiaries. Nothing in this Section 12 shall be construed so as to preclude
Executive from investing in publicly traded securities of any company provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive and Holdings agree that the foregoing covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of such covenant as to the
court shall appear not reasonable and to enforce the remainder of the covenant
as so amended. Executive agrees that any breach of the covenants contained in
this Section 12 would irreparably injure Holdings. Accordingly, Holdings may, in
addition to pursuing any other remedies it may have in law or in equity, obtain
an injunction against Executive from any court having jurisdiction over the
matter, restraining any further violation of this Section 12 by Executive.
(e) Executive hereby assigns and from time to time assigns to Holdings all
right, title and
9
<PAGE>
interest in and to any Intellectual Property conceived, contributed to or made
by Executive at any time prior to or during his employment with Holdings
(whether alone or jointly with others) to the extent such Intellectual Property
is not owned by Holdings as a matter of law. Executive shall thereafter promptly
and fully communicate to Holdings all such Intellectual Property and shall
cooperate with Holdings to protect Holdings' interests in such Intellectual
Property. Any copyrightable work prepared in whole or in part by Executive in
the course of his employment with Holdings shall be deemed "a work made for
hire" under the copyright laws, and Holdings shall own all of the rights
comprised in the copyright therein. This cooperation shall include providing
assistance in securing patent protection and copyright registrations and signing
all documents reasonably requested by Holdings, even if such request occurs
after termination of his employment with Holdings. Executive understands that
this Agreement does not apply to an invention for which no equipment, supplies,
facilities or trade secret information of Holdings was used and which was
developed entirely on his own time, unless: (a) the invention relates (i) to the
business (actual or reasonably proposed) of Holdings or its subsidiaries, or
(ii) to Holdings' or its subsidiaries' research or development (actual or
reasonably proposed); or (b) the invention results from any work performed by
Executive for Holdings or its subsidiaries. "Intellectual Property" shall mean
patent applications, copyrightable works, mask works and applications for
registration related thereto, all Confidential Information, and all other
intellectual property rights created, conceived or owned by, Holdings or any of
its subsidiaries or for the benefit of an enterprise similar to Holdings or any
of its subsidiaries. Notwithstanding anything in this Agreement to the contrary,
if the LOI is terminated in accordance with its terms or the transactions
contemplated thereby are otherwise abandoned by Holdings, Holdings acknowledges
and agrees that it shall have no right to the Intellectual Property and the
Intellectual Property may be used by Executive and each of the other Investors
in pursuit of an enterprise similar to Holdings in accordance with Section
14(ii) of the LOI and, further, Executive shall have no further obligations
pursuant to this Section 12.
(f) Executive shall deliver to Holdings and, if the First Acquisition
Closing Date has not occurred prior to Executive's termination, each of the
other Investors upon request at the termination of his employment, or at any
other time Holdings may request, all Intellectual Property in his possession and
control, and all copies thereof, in whatever form or medium. If the First
Acquisition Closing Date has occurred prior to Executive's termination and if
Holdings requests, Executive shall sign a written confirmation that Executive
has returned all such materials. Executive agrees that the limitations in this
Section 12 are reasonable and necessary to protect the legitimate business
interests of Holdings and its affiliates.
13. Indemnification; Director and Officer Insurance.
-----------------------------------------------
(a) Holdings hereby agrees, commencing on the date hereof, to indemnify
and hold harmless Executive to the same extent as the fullest extent permitted
under Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), excluding subsection (f) thereof, as the same now exists or may
hereafter be amended, substituted or replaced (but, in the case of any such
amendment, only to the extent that such amendment permits Holdings to provide
broader indemnification rights than DGCL permitted prior to such amendment),
against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, excise taxes or penalties) reasonably incurred or suffered by
Executive in connection with serving as an officer, director, employee or agent
of Holdings or for serving at the request of Holdings as an officer, director,
employee or agent of another corporation, partnership, joint venture, limited
liability company, trust or other enterprise. Expenses, including attorneys'
fees, incurred by Executive in defending a proceeding shall be paid by Holdings
in advance of the final disposition of such proceeding, including any appeal
therefrom, upon receipt of an undertaking by or on behalf of Executive to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by Holdings. This Section 13(a) shall survive termination of this
Agreement.
10
<PAGE>
(b) Holdings agrees that commencing as soon as practicable after the date
hereof it will maintain director and officer liability insurance for the purpose
of covering all actions taken by Executive as an officer, director, employee or
agent of Holdings which insurance is reasonably deemed necessary by Executive
and is approved by the Board (which approval shall not be unreasonably
withheld).
14. Beneficiaries; References. Executive shall be entitled to select (and
-------------------------
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder in
accordance with the terms hereof following Executive's death, and may change
such election, in either case by giving Holdings written notice thereof. In the
event of Executive's death or a judicial determination of his incompetence,
reference in this Agreement to Executive shall be deemed, where appropriate, to
refer to his beneficiary, estate or other legal representative. Prior to
Madison Dearborn or an affiliate thereof becoming a party to the LLC Agreement,
(i) all references to an action, decision, determination or approval of the
Board shall only be made with the prior consent of Madison Dearborn and (ii)
Madison Dearborn shall be a third party beneficiary under this Agreement.
15. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted and
-------------
governed in accordance with the laws of the State of Delaware, without reference
to rules relating to conflict of laws.
17. Withholding. Holdings shall be entitled to withhold from any payment
-----------
hereunder any amount required by law to be withheld.
18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original.
19. Executive Representations. Executive hereby represents and warrants
-------------------------
to Holdings that (i) the Incentive Equity will be acquired for the Executive's
own account and not with a view to, or intention of, distribution thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
any applicable state securities laws, and the Incentive Equity will not be
disposed of in contravention of the Securities Act or any applicable state
securities laws, (ii) the Executive is an executive officer of Holdings, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Incentive Equity, (iii) the Executive is able
to bear the economic risk of his investment in the Incentive Equity for an
indefinite period of time and the Executive understands that the Incentive
Equity has not been registered under the Securities Act and, therefore, cannot
be sold unless subsequently registered under the Securities Act or an exemption
from such registration is available and all other applicable restrictions on
transfer have been satisfied, (iv) the Executive has participated significantly
in the structuring of the equity of Holdings, has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of the Incentive Equity and has had full access to such other
information concerning Holdings as he has requested, (v) the execution,
delivery, and performance of this Agreement by Executive does not and will not
conflict with, breach, violate or cause a default under any contract, agreement,
instrument, order, judgment or decree to which Executive is a party or by which
he is bound, (vi) Executive is not a party to or bound by any employment
agreement, non-compete agreement or confidentiality agreement with any other
Person and (vii) upon the execution and delivery of this Agreement by the
Company, this Agreement shall be the valid and
11
<PAGE>
binding obligation of Executive, enforceable in accordance with its terms.
Executive hereby acknowledges and represents that he has consulted with
independent legal counsel regarding his rights and obligations under this
Agreement and that he fully understands the terms and conditions contained
herein.
20. Executive agrees that (i) in the event that any of Executive's equity
interest in Holdings is evidenced by a certificate, such certificate shall
contain an appropriate legend referring to this Agreement and (ii) no transfers
of any equity interest or portion thereof in Holdings shall be made except in
compliance with applicable securities laws.
21. Complete Agreement. This Agreement, those documents expressly
------------------
referred to herein (including, without limitation, the LOI) and other documents
of even date herewith embody the complete agreement and understanding among the
parties and supersede and preempt any prior understandings, agreements or
representations by or among Holdings and Executive, written or oral, which may
have related to the subject matter hereof in any way. No waiver of this
Agreement or of any of the terms or provisions hereof shall be binding upon
either party hereto unless confirmed by a written instrument signed by such
party. No waiver by Executive or Holdings of any term or provision of this
Agreement or of any default hereunder, nor any failure or delay in exercising
any right, option, power or privilege hereunder, shall affect Executive's or
Holdings' respective rights hereafter to enforce such term or provision or to
exercise any such right, option, power or privilege, or to exercise any right or
remedy in the event of any other default, whether or not similar.
12
<PAGE>
IN WITNESS WHEREOF, Executive and Holdings have caused this Employment Agreement
to be executed as of the date first written above.
MADISON RIVER TELEPHONE COMPANY LLC
By: /s/ J. STEPHEN VANDERWOUDE
--------------------------
PAUL H. SUNU
------------------------------
Executive
13
<PAGE>
EXHIBIT 10.8.1
The First Amendment to the Employment Agreement
This First Amendment dated October 8, 1996 is made between Madison River
Telephone Company, LLC ("Holdings") and Paul H. Sunu, ("Executive") pursuant to
paragraph 11 of the Employment Agreement between Holdings and Executive dated
June 4, 1996 ("Employment Agreement").
1. The last sentence of Section 3.4 of the Employment Agreement shall be
amended and restated in its entirety to read as follows:
"Notwithstanding anything contained herein to the contrary (except for
(i) the legal fees referred to in Section 8 hereof which shall not
require further approval and (ii) the costs of the directors and
officers insurance referred to in Section 13 (b) hereof and other
insurance (including property and casualty) which is reasonably deemed
necessary by Executive and is approved by the Board (which approval
shall not be unreasonably withheld)), prior to the First Acquisition
Closing Date, Executive is authorized to incur, and shall be
reimbursed, only for items approved by all of the Institutional
Investors (as defined in the LOI) (it being understood that the
listing of such costs in a budget attached to the LOI that has been
approved by all of the Institutional Investors constitutes approval by
all Institutional Investors)."
2. Section 5.5 of the Employment Agreement shall be amended and restated in
its entirety to read a follows:
"5.5 Restrictions on Transfer of Incentive Equity. Other than pursuant
--------------------------------------------
to Tag-Along Rights, Registration Rights, and Other Exit Rights with
respect to his vested Incentive Equity (as such terms are defined in
the LOI and as such concepts may be incorporated in the agreements
referred to in Section 5.4), Executive may not transfer his Incentive
Equity at any time (other than transfers of Incentive Equity for
estate-planning purposes to immediate family members and trusts and/or
other vehicles for the benefit of immediate family members) without
the approval of members of the Board holding a majority of the votes
of all members of the Board who do not have a pecuniary interest in
such transfer, which majority shall include approval by members of the
Board holding a majority of the votes of all of the members of the
Board designated by the Institutional Investors."
3. Section 6.1(b)(i) of the Employment Agreement shall be amended by adding
the following parenthetical to the end of such Section 6.1 (b) (i):
"(and not cured after 15 days prior notice to all of the members of
the Board)."
4. Section 6.5 of the Employment Agreement shall be amended and restated to
read as follows:
"6.5 Termination Prior to First Acquisition Closing Date.
---------------------------------------------------
Notwithstanding anything in this Agreement to the contrary, in the
event that the enterprise contemplated by the LOI is abandoned or
otherwise terminated in accordance with the terms of the LOI prior to
the First Acquisition Closing Date (such date being referred to herein
as the "LOI Termination Date"), then Executive shall not be entitled
to any amounts pursuant to Section 3 (other than accrued and unpaid
amounts
<PAGE>
through the LOI Termination Date pursuant to Section 3.4), Section 4
or this Section 6, other than salary and benefits accrued but unpaid
as of the LOI Termination Date."
5. The last sentence of Section 14 of the Employment Agreement shall be
amended and restated to read as follows:
"Prior to all of the Institutional Investors becoming a party to the
LLC Agreement, (i) all references to an action, decision,
determination or approval of the Board shall only be made with the
prior consent of all of the Institutional Investors and (ii) all of
the Institutional Investors shall be a third party beneficiary under
this Agreement."
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this First Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: J. STEPHEN VANDERWOUDE
----------------------------
PAUL H. SUNU
--------------------------------
Executive
<PAGE>
EXHIBIT 10.8.2
The Second Amendment to the Employment Agreement
This Second Amendment dated January 24, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and Paul H. Sunu, ("Executive") pursuant to
paragraph 11 of the Employment Agreement between Holdings and Executive dated
April 17, 1996 ("Employment Agreement").
1. Section 3.1 of the Employment Agreement shall be amended by adding the
following paragraph 3.11:
"Beginning May 1, 1997 and continuing until the closing of the
Company's First Acquisition Closing Date, Executive shall accrue but
not vest in any base salary compensation. Executive shall accrue his
unvested base salary compensation at the rate of $8,333.33 per month
for full months and pro-rata amount for partial months. Executive
shall vest in his accrued base salary compensation on the First
Acquisition Closing Date. In the event there is no first acquisition
of a business in any form by the Company or the enterprise
contemplated in the LOI is abandoned or terminated, Executive will not
vest in his accrued base salary compensation and Holdings shall not
owe any base salary compensation to Executive and the Executive shall
have no claims for any base salary compensation against Holdings.
Beginning after the First Acquisition Date, Holdings shall pay
Executive a base salary ("Base Salary") at the annual rate of $100,000
under paragraph 3.1 above unless adjusted under paragraph 3.2."
2. Section 7.0 is amended to reflect the new address for Executive:
Paul H. Sunu
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Second Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: J. STEPHEN VANDERWOUDE
----------------------------
PAUL H. SUNU
-------------------------------
Executive
<PAGE>
EXHIBIT 10.8.3
The Third Amendment to the Employment Agreement
This Third Amendment dated October 16, 1997 is made between Madison River
Telephone Company, LLC ("Holdings") and Paul H. Sunu, ("Executive") pursuant to
paragraph 11 of the Employment Agreement between Holdings and Executive dated
April 17, 1996 ("Employment Agreement").
1. Section 3.1 of the Employment Agreement shall be amended by inserting the
following after the first full sentence:
"Notwithstanding the foregoing, the closing of MebCom Communications,
Inc. shall not be considered the first acquisition and its closing
date shall not be considered the First Acquisition Closing Date for
purposes of paragraph 2 (Term of Employment), this paragraph 3
(Compensation) and paragraph 6 (Termination of Employment)."
2. Section 8, third sentence shall be amended by replacing the place of
arbitration submission from "Chicago, Illinois" to "Raleigh-Durham
metropolitan area of North Carolina" and by replacing the language "in
accordance with Illinois law" with "in accordance with Delaware law".
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Second Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: J. STEPHEN VANDERWOUDE
--------------------------
PAUL H. SUNU
-----------------------------
Executive
<PAGE>
EXHIBIT 10.8.4
Fourth Amendment to the Employment Agreement
This Fourth Amendment dated September 15, 1999 is made between Madison River
Telephone Company, LLC ("Holdings") and Paul H. Sunu, ("Executive") pursuant to
paragraph 11 of that certain agreement for employment between Holdings and
Executive dated April 17, 1996 ("Employment Agreement").
Section 5.1 and 5.3(b) of the Employment Agreement shall be amended by replacing
said sections with the following:
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class B equity of Holdings equal to 10% of the total Class B
equity of Holdings for an aggregate purchase price of $1,000 and Class C equity
of Holdings equal to 11.50% of the total Class C equity of Holdings for an
aggregate purchase price of $1,150. Hereafter, Class B and Class C equity
collectively shall be referred to as "Incentive Equity"). Within 30 days after
each time that Executive exercises its right to purchase Incentive Equity, the
Executive will make an effective election with the Internal Revenue Service
under Section 83(b) of the Internal Revenue Code and the regulations promulgated
thereunder. The parties hereto agree that the fair market value of the
Incentive Equity allocated to Executive as of the initial Employment Agreement
date is $1,000 for Class B and as of the Gulf Closing Date for Class C and for a
period of at least five business days thereafter is $1,150 and that parties
shall use such value for all Federal income tax purposes.
(b) Twenty percent (20%) of Executive's Incentive Equity will vest on the First
Acquisition Closing Date and, provided that (except in the case of vesting
pursuant to Section 5.3(a)) Executive is still employed by Holdings, the
remainder on a daily basis over a four-year period beginning with the First
Acquisition Closing Date and ending with the Closing Date for Gulf Coast
Services, Inc. ("Gulf Closing Date") and any unvested remainder after the Gulf
Closing Date shall vest on a daily basis over a new four-year period beginning
with the Gulf Closing Date. All unvested Incentive Equity will become fully
vested immediately prior to the occurrence of a Liquidity Event. "Liquidity
Event" means (i) any sale of all or substantially all of the assets of Holdings
on a consolidated basis in one transaction or series of related transactions
(but excluding sales to affiliates) for cash or marketable securities, (ii) any
sale of 50% or more of the Investor Equity (as defined in the LOI) in one
transaction or series of related transactions (but excluding sales to affiliates
and, with respect to individuals, related persons) for cash or marketable
securities or (iii) a merger, share exchange or similar transaction which
accomplishes one of the foregoing.
5.3 Repurchase.
----------
(b) Executive's vested Incentive Equity will not be subject to repurchase in
whole or in part by Holdings.
<PAGE>
All other provisions of the Employment Agreement remain in full force and
effect.
IN WITNESS WHEREOF, Executive and Holdings have caused this Fourth Amendment to
the Employment Agreement to be executed as of the date first written above.
Madison River Telephone Company, LLC
by: J. STEPHEN VANDERWOUDE
---------------------------------
PAUL H. SUNU
------------------------------------
Executive
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
EMPLOYMENT AGREEMENT, dated as of September 28, 1999 by and among Madison River
Telephone Company LLC, a Delaware limited liability company ("Holdings"), and
Bruce J. Becker ("Executive").
RECITALS
--------
Holdings has two classes of equity, Class A equity and Incentive Equity further
divided as Class B equity and Class C equity, and the Class A equity will be
entitled to distributions prior to Incentive Equity of Class B equity and Class
C equity.
The parties have agreed that the aggregate fair market value of all Class C
equity to be distributed is $10,000 as of the date hereof.
In order to induce Executive to agree to serve as Managing Director - Chief
Technology Officer, Holdings desires to provide Executive with compensation and
other benefits (including the right to purchase Class C equity of Holdings) on
the terms and conditions set forth in this Agreement.
Executive is willing to enter into such employment and perform services for
Holdings on the terms and conditions set forth in this Agreement.
It is therefore hereby agreed by the parties as follows:
1. Employment.
----------
(a) Subject to the terms and conditions of this Agreement, Holdings agrees to
employ Executive in Madison River Communications, Inc., a subsidiary of
Holdings, ("MRCI") during the term hereof as Managing Director - Chief
Technology Officer. In his capacity as Managing Director - Chief Technology
Officer, Executive shall have the customary powers, responsibilities and
authorities of Managing Director - Chief Technology Officer of corporations of
the size, type and nature of Holdings, as they exist from time to time.
Executive shall also be Managing Director - Chief Technology Officer of
Holdings' subsidiaries as appointed by Holdings.
(b) Subject to the terms and conditions of this Agreement, Executive hereby
accepts employment as Managing Director - Chief Technology Officer and agrees to
devote his full working time and efforts, to the best of his ability, experience
and talent, to the performance of services, duties and responsibilities in
connection therewith. Nothing in this Agreement shall preclude Executive from
engaging, consistent with his duties and responsibilities hereunder, in
charitable and community affairs, from managing his personal investments or,
except as otherwise provided in Section 12 hereof, from serving as a member of
boards of directors or as a trustee of other companies, associations or
entities.
1
<PAGE>
2. Term of Employment.
------------------
Executive's term of employment under this Agreement shall commence on the date
of the closing of Gulf Coast Services, Inc. (the "Commencement Date") and,
subject to the terms hereof, shall terminate on the fourth anniversary of the
Commencement Date ("Termination Date").
3. Compensation.
------------
3.1 Initial Compensation and Base Salary.
------------------------------------
Beginning on the Commencement Date, Executive shall be an employee of MRCI and
shall receive his pay and benefits from MRCI in accordance with the normal
business practices and policies of MRCI. Executive's base salary compensation
shall be $160,000 per year; however, may be increased or decreased based on
Executive and Holding's performance ("Base Salary"). The Base Salary shall be
payable in accordance with the ordinary payroll practices of MRCI but in no
event less often than monthly in arrears.
3.2 Adjustments to Base Salary. Base Salary shall be increased or
--------------------------
decreased from time to time as the Board shall determine taking into account the
success of Holdings, the performance of Executive, the size, revenues, and
earnings of the businesses held or operated, or contemplated to be held or
operated, by Holdings and other market factors. Once so increased or decreased,
the increased amount shall constitute Executive's Base Salary hereunder.
3.3 Compensation Plans and Programs. Executive shall participate in any
-------------------------------
compensation plan or program, annual or long-term, maintained by Holdings and
participated in by senior executives of the Company generally on terms taking
into account Executive's title and position with the Company.
3.4 Expenses. Notwithstanding anything contained herein to the contrary
--------
(except the cost of the directors and officers insurance referred to in Section
13 (b) hereof, Executive is authorized to incur, and shall be reimbursed, only
for items approved by and in accordance with the policies and procedures of
MRCI.
4. Employee Benefits.
-----------------
4.1 Employee Benefit Programs, Plans and Practices. During the term of his
----------------------------------------------
employment hereunder, MRCI shall provide to Executive coverage under any
employee benefit programs, plans and practices (commensurate with his position
in Holdings and to the extent possible under any employee benefit plan), in
accordance with the terms hereof, which Holdings makes available to its senior
executive officers generally through MRCI, including but not limited to (i)
retirement, pension and profit-sharing, and (ii) medical, dental,
hospitalization, life insurance, short-and long-term disability, accidental
death and dismemberment and travel accident coverage.
4.2 Vacation and Fringe Benefits.
----------------------------
(a) Executive shall be entitled to paid vacation each calendar year of no less
than 20 working days. MRCI may grant additional vacation time to Executive.
(b) In addition, Executive shall be entitled to all of the other perquisites and
fringe benefits accorded the senior officers of Holdings generally.
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5. Incentive Equity.
----------------
5.1 Purchase Rights; Vesting.
------------------------
(a) As of the date hereof, Executive shall have the right to purchase at any
time from Holdings Class C equity of Holdings ("Incentive Equity") equal to
7.70% of the total Incentive Equity of Holdings for an aggregate purchase price
of $770. Within 30 days after each time that Executive exercises its right to
purchase Incentive Equity, the Executive will make an effective election with
the Internal Revenue Service under Section 83(b) of the Internal Revenue Code
and the regulations promulgated thereunder. The parties hereto agree that the
fair market value of the Incentive Equity allocated to Executive as of the date
hereof and for a period of at least five business days thereafter is $770 and
that they shall use that value for all Federal income tax purposes.
(b) As long as Executive is employed by Holdings, Executive's Incentive Equity
shall vest (except in the case of vesting pursuant to Section 5.3(a)) on a daily
basis over a four-year period beginning with the Commencement Date. All
unvested Incentive Equity will become fully vested immediately prior to the
occurrence of a Liquidity Event. "Liquidity Event" means (i) any sale of all or
substantially all of the assets of Holdings on a consolidated basis in one
transaction or series of related transactions (but excluding sales to
affiliates) for cash or marketable securities, (ii) any sale of 50% or more of
the Investor Equity (as defined in the LOI) in one transaction or series of
related transactions (but excluding sales to affiliates and, with respect to
individuals, related persons) for cash or marketable securities or (iii) a
merger, share exchange or similar transaction which accomplishes one of the
foregoing.
5.2 Distributions. Executive's unvested Incentive Equity outstanding at
-------------
the time of any dividend or other distribution to Incentive Equity will be
entitled to receive the same distributions per unit as vested Incentive Equity.
5.3 Repurchase.
----------
(a) Executive's unvested Incentive Equity will be subject to repurchase in
whole by Holdings, at its option (which option to repurchase must be elected in
writing by Holdings within ten days of termination and, subject to such
repurchase option being suspended as provided below, consummation of such
repurchase must be effected within 80 days thereafter), at the lower of its
original cost (less all amounts distributed in respect of Executive's unvested
Incentive Equity) or its Fair Market Value at the time of termination if
Executive ceases to be employed by Holdings for any reason. Notwithstanding
anything in this agreement to the contrary, in the event that Executive's
employment is terminated for any reason including due to death or Disability
(but other than by the Executive without Good Reason) and (i) at or prior to
such termination Holdings has entered into an agreement or agreements regarding
a transaction or has publicly announced its intention to consummate a
transaction (including, but not limited to, a public announcement of an
intention to seek to consummate a transaction), which upon consummation would
trigger a Liquidity Event (as defined in the LOI), or (ii) at or within six
months prior to such termination is or was in active negotiations regarding a
transaction, which upon consummation would trigger a Liquidity Event, then in
either case Holdings' repurchase right pursuant to the foregoing sentence will
be suspended and if any such transaction is consummated then Executive's
unvested Incentive Equity shall immediately prior to the consummation of such
transaction become fully vested and all distributions that would have been
payable to Executive on account of such unvested Incentive Equity subsequent to
Executive's termination and prior to such vesting shall be made to Executive,
with interest on each such distribution at a rate per annum equal to the prime
rate in effect at the time of each
3
<PAGE>
such distribution, at such time, it being understood and agreed that, upon
exercise of the repurchase option, during such suspension and prior to any such
vesting hereunder, distributions that would have been payable to Executive on
account of such unvested Incentive Equity shall not be for the account of
Executive unless and until such Incentive Equity shall become vested; provided
that if none of such transactions is consummated within two years after
Executive's termination of employment, or within such two-year period another
transaction is consummated which constitutes a Liquidity Event, then Holdings'
above repurchase rights shall be reinstated. "Fair Market Value" shall mean,
with respect to any security, the amount that would be paid to the holder
thereof with respect to such security if all of the assets of Holdings were sold
for fair value to a willing buyer in exchange for cash, all of the debt and
other liabilities not assumed by the buyer were paid in full, all of the
convertible debt and other convertible securities were repaid or converted
(whichever yields more cash to the holders), and then Holdings were completely
liquidated.
(b) Executive's vested Incentive Equity will not be subject to repurchase in
whole or in part by Holdings.
5.4 Investors' Agreement. Holdings shall enter into an investors'
--------------------
agreement (the "Investors' Agreement"), registration agreement, and certain
other agreements with Executive and the other members of Holdings (collectively,
the "Investors") embodying the relevant terms set forth in the LOI.
5.5 Restrictions on Transfer of Incentive Equity. Other than pursuant to
--------------------------------------------
Tag-Along Rights, Registration Rights, and Other Exit Rights with respect to his
vested Incentive Equity (as such terms are defined in the LOI and as such
concepts may be incorporated in the agreements referred to in Section 5.4),
Executive may not transfer his Incentive Equity at any time (other than
transfers of Incentive Equity for estate-planning purposes to immediate family
members and trusts and/or other vehicles for the benefit of immediate family
members) without the approval of the members of the Board holding a majority of
the votes of all members of the Board who do not have pecuniary interest in such
transfer, which majority shall include approval by members of the Board holding
a majority of the votes of all of the members of the Board designated by the
Institutional Investors.
6. Termination of Employment.
-------------------------
6.1 Termination Not for Cause or Termination for Good Reason.
--------------------------------------------------------
(a) (i) Holdings may terminate Executive's employment at any time, and
Executive may terminate his employment at any time. If Executive's employment is
terminated by Holdings other than for Cause (as defined herein) or due to
Executive's death or Disability (as defined herein) or Executive terminates his
employment for Good Reason prior to the Termination Date, Executive shall be
entitled to receive from Holdings continued Base Salary (payable in accordance
with the last sentence of Section 3.1 hereof) for three months after date of the
termination plus, on the sixtieth day following the end of the fiscal year
during which the termination of Executive's employment pursuant to this Section
6.1(a) occurs, an amount in respect of any bonus for the period employed for the
fiscal year in which Executive's employment is terminated calculated on a pro
rata basis.
(ii) In addition, Executive shall (1) be entitled to receive, within a
reasonable period of time after the date of termination, a cash lump sum equal
to (A) any compensation payments deferred by Executive, together with any
applicable interest or other accruals thereon; and (B) any unpaid amounts, as of
the date of such termination, in respect of any bonus for the fiscal year ending
before the fiscal year in which such termination occurs; (2) for the period from
the date of termination of Executive's employment until the one year anniversary
of the Termination Date (as then in effect), continue to be
4
<PAGE>
covered under and participate in Holdings' employee benefit programs, plans and
practices with respect to medical, dental, hospitalization, life insurance and
disability benefits described in Section 4.1 hereof or under such other plans of
Holdings which provide for equivalent coverage to the extent and on the terms in
effect on the Executive's last day of employment; and (3) have such rights to
payments under applicable plans or programs, accrued to Executive on date of
termination including, without limitation, those described in Section 3.3 hereof
as may be determined pursuant to the terms of such plans or programs.
(b) For purposes of this Agreement, "Good Reason" shall mean the occurrence of
any of the following events without Executive's express prior written
consent:
(i) the assignment to Executive by Holdings of duties not appropriate
to Executive's positions, responsibilities, titles and offices as set forth in
Section 1 hereof, or any material reduction by Holdings of Executive's duties or
responsibilities or any removal of Executive as the Managing Director - Chief
Technology Officer, except in connection with the termination of Executive's
employment (and not cured after 15 days prior notice to all of the members of
the Board);
(ii) a reduction by Holdings in Executive's Base Salary as in effect at
the commencement of employment hereunder or as the same may be increased from
time to time during the terms of this Agreement;
(iii) any material breach by Holdings of any provision of this Agreement
(not cured after 15 days' prior notice).
6.2 Disability. If (i) Executive shall fail for a period of six
----------
consecutive months during the term of his employment hereunder, because of
illness, physical or mental disability or other similar incapacity, to
effectively and actively render the services provided for by this Agreement or
(ii) at such earlier time as Executive submits satisfactory medical evidence
that he has or the Board in its reasonable judgment determines that Executive
has an illness, physical or mental disability or other incapacity which is
expected to prevent him from returning to the performance of his work duties for
six months or longer ("Disability"), Holdings or Executive may terminate
Executive's employment upon written notice thereof, setting forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under this Section 6.2, and Executive shall receive or
continue to receive, as the case may be:
(a) as soon as practicable after the date of termination of Executive's
employment pursuant to this Section 6.2, a cash lump sum equal to any
compensation payments deferred by Executive, together with any applicable
interest or other accruals thereon;
(b) any unpaid amounts, as of the date of such termination, in respect of
any bonus for the fiscal year ending before such termination, which shall be
payable on the date on which such bonus would otherwise be payable;
(c) on the sixtieth day following the end of the fiscal year during which
the termination of Executive's employment pursuant to this Section 6.2 occurs,
an amount in respect of any bonus for the period employed for such fiscal year
calculated on a pro rata basis;
(d) for a period of one year after termination for Disability, amounts,
payable on Holdings' regular payroll schedule, equal to no less than 60% of
Executive's then annual Base Salary, reduced by
5
<PAGE>
any amounts received by Executive under any disability insurance policies with
respect to which Holdings paid the premiums;
(e) such rights to payments under applicable plans or programs, accrued to
Executive on the date of termination including, without limitation, those
described in Section 3.3 hereof, as may be appropriate pursuant to the terms of
such plans or programs.
6.3 Death. In the event of Executive's death during the term of his
-----
employment hereunder, Executive's estate or designated beneficiaries shall
receive:
(a) payments of Base Salary for a period of three months after his date of
death;
(b) as soon as practicable after the date of Executive's death, a cash
lump sum equal to any compensation payments deferred by Executive, together with
any applicable interest or other accruals thereon;
(c) any unpaid amounts, as of the date of Executive's death, in respect of
any bonus for the fiscal year ending before his death, which shall be payable on
the date on which such bonus would otherwise be payable;
(d) on the sixtieth day following the end of the fiscal year during which
Executive's death occurs, an amount in respect of any bonus during period
employed for such fiscal year calculated on a pro rata basis;
(e) any death benefits provided under the employee benefit programs, plans
and practices described in Section 4.1 hereof, in accordance with their terms;
and
(f) such other payments under applicable plans or programs accrued to
Executive on date of termination, including, but not limited to those described
in Section 3.3 hereof, as may be appropriate pursuant to the terms of such plans
or programs.
6.4 Voluntary Termination by Executive; Discharge for Cause.
-------------------------------------------------------
(a) In the event that Executive's employment is terminated by Holdings for
Cause, as hereinafter defined, or by Executive other than for Good Reason or
other than as a result of Disability or death, prior to the Termination Date,
Executive shall be entitled to receive all salary and benefits to which
Executive is entitled up to and including the date of Executive's termination of
employment hereunder. The obligations of Holdings under this Agreement to make
any further payments, or provide any benefits specified herein, to Executive
shall cease and terminate on the date on which Executive's employment is
terminated by Holdings for Cause or by Executive other than for Good Reason or
other than as a result of Permanent Disability or death. Termination of
Executive in accordance with this Section 6.4 shall be communicated to Executive
pursuant to a notice of a resolution of a majority of the Board determining that
Executive is subject to discharge for Cause as defined herein.
(b) As used herein, the term "Cause" shall mean commission of a felony or
crime involving moral turpitude, repeated failure to comply with the Board's
instructions (after 30 days' prior notice), and any other material breach of
this Agreement by Executive (after 30 days' prior notice).
6.5 [Deleted ].
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6
<PAGE>
7. Notices. All notices or communications hereunder shall be in
-------
writing, addressed as follows:
To Holdings: Madison River Telephone Company LLC
P. O. Box 1167
103 South Fifth Street
Mebane, North Carolina 27302
Attn: Board of Members
Facsimile: (919) 562-4993
Confirmation: (919) 563-1500
To Executive: Bruce J. Becker
Any such notice or communication shall be sent certified or registered mail,
return receipt requested, postage prepaid, or by facsimile (with confirmation of
receipt) addressed as above (or to such other address as such receiving party
may have designated in a notice duly delivered as described above), and the
actual date of mailing shall constitute the time at which notice was given
(except, in the case of facsimile, the time and date of confirmation shall be
the time at which notice was given).
8. Separability; Legal Fees; Arbitration. If any provision of this
-------------------------------------
Agreement shall be declared to be invalid or unenforceable, in whole or in part,
such invalidity or unenforceability shall not affect the remaining provisions
hereof, which shall remain in full force and effect. Any controversy or claim
arising out of or relating to this Agreement or the breach of this Agreement
(other than Section 12 hereof) that cannot be resolved by Executive on the one
hand and Holdings on the other, including any dispute as to the calculation of
Executive's benefits or any payments hereunder, shall be submitted to
arbitration in Raleigh-Durham metropolitan area of North Carolina in accordance
with Delaware law and the procedures of the American Arbitration Association.
The determination of the arbitrators shall be conclusive and binding on Holdings
and Executive, and judgment may be entered on the arbitrators' award in any
court having jurisdiction. The expense of such arbitration including reasonable
legal fees in connection therewith shall be borne in accordance with the
direction of the arbitrators.
9. No Obligation to Mitigate Damages. Executive shall not be required to
---------------------------------
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise.
10. Assignment. This contract shall be binding upon and inure to the
----------
benefit of the heirs and representatives of Executives and the assigns and
successors of Holdings, but neither this Agreement nor any rights hereunder
shall be assignable or otherwise subject to hypothecation by Executive (except
by will or by operation of the laws of intestate succession) or by Holdings,
except that Holdings may assign this Agreement to any successor (whether by
merger, purchase or otherwise) to all or substantially all of the stock, assets
or businesses of Holdings.
7
<PAGE>
11. Amendment. This Agreement may only be amended by written agreement of
---------
the Board and Executive.
12. Nondisclosure of Confidential Information; Non-Competition.
----------------------------------------------------------
(a) From and after the date hereof and at all times thereafter (except as
otherwise provided in Section 12(e)), Executive shall not, without the prior
written consent of Holdings, at any time divulge, disclose, use to the detriment
of Holdings or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information, except (i) while
employed by Holdings, in the business of and for the benefit of Holdings and to
the extent such use or disclosure is required or deemed advisable by Executive
in the performance of his assigned duties (provided that any Confidential
Information disclosed pursuant to this clause (i) shall remain Confidential
Information hereunder, except as provided below), or (ii) when required to do so
by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of Holdings, or by any administrative
body or legislative body (including a committee thereof) with purported or
apparent jurisdiction to order Executive to divulge, disclose or make accessible
such information. Executive agrees to notify Holdings if Executive discloses
such information and to take reasonable efforts to preserve the confidential
nature of such information. For purposes of this Section 12(a), "Confidential
Information" shall mean information concerning Holdings' and its subsidiaries'
financial data, strategic business plans, business development (or other
proprietary product data), marketing plans, know-how, customer lists,
information about potential acquisition targets, acquisition strategies and
targets and other non-public, proprietary and confidential information of
Holdings, provided that Confidential Information shall not include information
if and solely to the extent that such information is or has become publicly
available through no wrongful act or breach of confidentiality by Executive.
(b) Executive agrees that he shall not directly or indirectly, either as
principal, manager, agent, consultant, officer, stockholder, partner, member,
investor, lender or employee or in any other capacity, carry on, be engaged in
or have any financial interest in, (i) during the time that Executive is
employed hereunder and for a period of three months thereafter, any business
that is engaged in the telephone or telecommunications industry and (ii) for a
period of 12 months after such three-month period, any business which is in
competition with the business of Holdings and/or its subsidiaries in a
geographic market where Holdings and/or its subsidiaries do business. In
addition, during the time that Executive is employed hereunder and for a period
of 15 months thereafter, Executive agrees that, without the prior written
consent of Holdings, he shall not solicit for employment any person who at any
time during Executive's employment hereunder was an employee of Holdings or any
of its subsidiaries.
(c) For purposes of Section 12(b)(ii) hereof, a business shall be deemed
in competition with Holdings and/or its subsidiaries if at the time of
Executive's proposed relationship with such business, such business is rendering
services being rendered by Holdings and/or its subsidiaries in one or more areas
that, at the time of Executive's termination hereunder, in the aggregate
accounted for more than 5% of operating gross annual sales of Holdings and its
subsidiaries. Nothing in this Section 12 shall be construed so as to preclude
Executive from investing in publicly traded securities of any company provided
Executive's beneficial ownership of any class of such company's securities does
not exceed 5% of the outstanding securities of such class.
(d) Executive and Holdings agree that the foregoing covenant not to
compete is a reasonable covenant under the circumstances, and further agree that
if in the opinion of any court of competent jurisdiction such restraint is not
reasonable in any respect, such court shall have the right, power and authority
to excise or modify such provision or provisions of such covenant as to the
court shall appear
8
<PAGE>
not reasonable and to enforce the remainder of the covenant as so amended.
Executive agrees that any breach of the covenants contained in this Section 12
would irreparably injure Holdings. Accordingly, Holdings may, in addition to
pursuing any other remedies it may have in law or in equity, obtain an
injunction against Executive from any court having jurisdiction over the matter,
restraining any further violation of this Section 12 by Executive.
(e) Executive hereby assigns and from time to time assigns to Holdings all
right, title and interest in and to any Intellectual Property conceived,
contributed to or made by Executive at any time prior to or during his
employment with Holdings (whether alone or jointly with others) to the extent
such Intellectual Property is not owned by Holdings as a matter of law.
Executive shall thereafter promptly and fully communicate to Holdings all such
Intellectual Property and shall cooperate with Holdings to protect Holdings'
interests in such Intellectual Property. Any copyrightable work prepared in
whole or in part by Executive in the course of his employment with Holdings
shall be deemed "a work made for hire" under the copyright laws, and Holdings
shall own all of the rights comprised in the copyright therein. This
cooperation shall include providing assistance in securing patent protection and
copyright registrations and signing all documents reasonably requested by
Holdings, even if such request occurs after termination of his employment with
Holdings. Executive understands that this Agreement does not apply to an
invention for which no equipment, supplies, facilities or trade secret
information of Holdings was used and which was developed entirely on his own
time, unless: (a) the invention relates (i) to the business (actual or
reasonably proposed) of Holdings or its subsidiaries, or (ii) to Holdings' or
its subsidiaries' research or development (actual or reasonably proposed); or
(b) the invention results from any work performed by Executive for Holdings or
its subsidiaries. "Intellectual Property" shall mean patent applications,
copyrightable works, mask works and applications for registration related
thereto, all Confidential Information, and all other intellectual property
rights created, conceived or owned by, Holdings or any of its subsidiaries or
for the benefit of an enterprise similar to Holdings or any of its subsidiaries.
Notwithstanding anything in this Agreement to the contrary, if the LOI is
terminated in accordance with its terms or the transactions contemplated thereby
are otherwise abandoned by Holdings, Holdings acknowledges and agrees that it
shall have no right to the Intellectual Property and the Intellectual Property
may be used by Executive and each of the other Investors in pursuit of an
enterprise similar to Holdings in accordance with Section 14(ii) of the LOI and,
further, Executive shall have no further obligations pursuant to this Section
12.
(f) Executive shall deliver to Holdings at any time Holdings may request,
all Intellectual Property in his possession and control, and all copies thereof,
in whatever form or medium. At Holdings' request, Executive shall sign a written
confirmation that Executive has returned all such materials. Executive agrees
that the limitations in this Section 12 are reasonable and necessary to protect
the legitimate business interests of Holdings and its affiliates.
9
<PAGE>
13. Indemnification; Director and Officer Insurance.
-----------------------------------------------
(a) Holdings hereby agrees, commencing on the date hereof, to indemnify
and hold harmless Executive to the same extent as the fullest extent permitted
under Section 145 of the General Corporation Law of the State of Delaware (the
"DGCL"), excluding subsection (f) thereof, as the same now exists or may
hereafter be amended, substituted or replaced (but, in the case of any such
amendment, only to the extent that such amendment permits Holdings to provide
broader indemnification rights than DGCL permitted prior to such amendment),
against all expenses, liabilities and losses (including attorneys' fees,
judgments, fines, excise taxes or penalties) reasonably incurred or suffered by
Executive in connection with serving as an officer, director, employee or agent
of Holdings or for serving at the request of Holdings as an officer, director,
employee or agent of another corporation, partnership, joint venture, limited
liability company, trust or other enterprise. Expenses, including attorneys'
fees, incurred by Executive in defending a proceeding shall be paid by Holdings
in advance of the final disposition of such proceeding, including any appeal
therefrom, upon receipt of an undertaking by or on behalf of Executive to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by Holdings. This Section 13(a) shall survive termination of this
Agreement.
(b) Holdings agrees that commencing as soon as practicable after the date
hereof it will maintain director and officer liability insurance for the purpose
of covering all actions taken by Executive as an officer, director, employee or
agent of Holdings which insurance is reasonably deemed necessary by Executive
and is approved by the Board (which approval shall not be unreasonably
withheld).
14. Beneficiaries; References. Executive shall be entitled to select (and
-------------------------
change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder in
accordance with the terms hereof following Executive's death, and may change
such election, in either case by giving Holdings written notice thereof. In the
event of Executive's death or a judicial determination of his incompetence,
reference in this Agreement to Executive shall be deemed, where appropriate, to
refer to his beneficiary, estate or other legal representative.
15. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
provisions of this Section 15 are in addition to the survivorship provisions of
any other section of this Agreement.
16. Governing Law. This Agreement shall be construed, interpreted and
-------------
governed in accordance with the laws of the State of Delaware, without reference
to rules relating to conflict of laws.
17. Withholding. Holdings shall be entitled to withhold from any payment
-----------
hereunder any amount required by law to be withheld.
18. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original.
19. Executive Representations. Executive hereby represents and warrants to
-------------------------
Holdings that (i) the Incentive Equity will be acquired for the Executive's own
account and not with a view to, or intention
10
<PAGE>
of, distribution thereof in violation of the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws, and the
Incentive Equity will not be disposed of in contravention of the Securities Act
or any applicable state securities laws, (ii) the Executive is an executive
officer of Holdings, is sophisticated in financial matters and is able to
evaluate the risks and benefits of the investment in the Incentive Equity, (iii)
the Executive is able to bear the economic risk of his investment in the
Incentive Equity for an indefinite period of time and the Executive understands
that the Incentive Equity has not been registered under the Securities Act and,
therefore, cannot be sold unless subsequently registered under the Securities
Act or an exemption from such registration is available and all other applicable
restrictions on transfer have been satisfied, (iv) the Executive has
participated significantly in the structuring of the equity of Holdings, has had
an opportunity to ask questions and receive answers concerning the terms and
conditions of the offering of the Incentive Equity and has had full access to
such other information concerning Holdings as he has requested, (v) the
execution, delivery, and performance of this Agreement by Executive does not and
will not conflict with, breach, violate or cause a default under any contract,
agreement, instrument, order, judgment or decree to which Executive is a party
or by which he is bound, (vi) Executive is not a party to or bound by any
employment agreement, non-compete agreement or confidentiality agreement with
any other Person and (vii) upon the execution and delivery of this Agreement by
the Company, this Agreement shall be the valid and binding obligation of
Executive, enforceable in accordance with its terms. Executive hereby
acknowledges and represents that he has consulted with independent legal counsel
regarding his rights and obligations under this Agreement and that he fully
understands the terms and conditions contained herein.
20. Executive agrees that (i) in the event that any of Executive's equity
interest in Holdings is evidenced by a certificate, such certificate shall
contain an appropriate legend referring to this Agreement and (ii) no transfers
of any equity interest or portion thereof in Holdings shall be made except in
compliance with applicable securities laws.
21. Complete Agreement. This Agreement, those documents expressly referred
------------------
to herein (including, without limitation, the LOI) and other documents of even
date herewith embody the complete agreement and understanding among the parties
and supersede and preempt any prior understandings, agreements or
representations by or among Holdings and Executive, written or oral, which may
have related to the subject matter hereof in any way. No waiver of this
Agreement or of any of the terms or provisions hereof shall be binding upon
either party hereto unless confirmed by a written instrument signed by such
party. No waiver by Executive or Holdings of any term or provision of this
Agreement or of any default hereunder, nor any failure or delay in exercising
any right, option, power or privilege hereunder, shall affect Executive's or
Holdings' respective rights hereafter to enforce such term or provision or to
exercise any such right, option, power or privilege, or to exercise any right or
remedy in the event of any other default, whether or not similar.
11
<PAGE>
IN WITNESS WHEREOF, Executive and Holdings have caused this Employment Agreement
to be executed as of the date first written above.
MADISON RIVER TELEPHONE COMPANY LLC
By PAUL H. SUNU
------------------------------
BRUCE J. BECKER
------------------------------
Executive
12
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Exhibit 10.10
Madison River Telephone Company, LLC
Long Term Incentive Plan
Plan Provisions and Features
MRTC would establish the Long Term Incentive Plan effective November 1, 1998:
. Help to attract, retain and reward highly-qualified employees who will
contribute in exceptional ways to the long-term financial success of the
Company and its subsidiaries;
. Provide employees with a greater financial stake in the future of the
Company and its subsidiaries through incentive based compensation
consistent with the objectives of investors.
Key Features and Concepts:
- --------------------------
Incentive awards shall be paid from a Pool funded through 35% of the Class B
member interest of MRTC.
Process:
. Based on management recommendation, the Board will review and
approve a Participant's Grant.
. Board may review and approve Grants at any time during the year.
Grant recommendations are based on that Participant's base salary at
the time of recommendation, and are expressed in dollars as the
maximum amount that could be paid out.
. Participant's approved Grant is divided by 12 and awarded over the
next 12 months.
. No amount of Grant that has been awarded to the participant is
vested until the Vesting
. Vesting Event and then only if the Participant is an employee at the
time of pay-out.
. Vesting Event is defined as the time when the Pool is actually
funded with distributions from Class B incentive shares and such
distributions are free and clear of any and all restrictions
encumbering pay-outs to Participants.
. Participant pay-out will be the lesser of:
1. The sum of that Participant's Grants approved by the Board
during Participant's service with the Company; or
2. In the event there is not enough in the Pool to fulfill all
Grants, a Participant receives a pro-rata share using as the
numerator the sum of that Participant's Grants (as described
above) and using as the denominator the sum of all Grants in
the Plan multiplied by the amount available for pay-out to
all Participants.
. Pay-out may be in the form of securities, notes or cash based on the
form of funding for the Vesting Event. The terms of this Plan may be
changed or amended in order to accommodate such funding.
. In the event a Participant has unawarded Grants at that time of pay-
out, Plan shall provide a delayed pay-out for the unawarded
portions.
. In the event funds remain in the incentive pool after all
Participant awards have been paid in full, management will recommend
to the Board for approval awards to non-participating employees.
. Termination of service, retirement or death will result in loss of
Grants or awards. There are no beneficiary designation requirements
for Participants.
. The Plan shall be administered by the Board with recommendation of
management.
. The plan may be amended by the Board at any time
. There is no taxable event at the time of the grant, however, at
payout of grant, appropriate payroll taxes will apply. For further
details it is suggested that the employee seek personal tax advice.
<PAGE>
Exhibit 10.11
RURAL TELEPHONE FINANCE COOPERATIVE
UNSECURED REVOLVING LINE OF CREDIT AGREEMENT
("Agreement')
COASTAL UTILITIES, INC. a Georgia corporation ("Borrower") located at P.O. Box
585, 100Ryan Avenue, Hinesville, GA 31310-0585, hereby agrees to borrow from
RURAL TELEPHONEFINANCE COOPERATIVE ("RTFC" or "Lender"), a South Dakota
cooperative association,pursuant to the terms of this Agreement, dated as of
March 29, 2000, for a revolvingline of credit loan in an amount not to exceed
ten million dollars ($10,000,000). In consideration of their mutual premises
hereunder and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Lender and Borrower agree to the following terms and
conditions:
1. Revolving Credit and Term. Lender agrees to make advances to the Borrower
pursuant to the terms of this Agreement ("Advances"). The maximum principal
amount outstanding at any point in time shall not exceed $10,000,000.
Within such limits, the Borrower may borrow, repay and reborrow at any time
or from time to time for a period up to five (5) years from the date hereof
( the "Maturity Date").
2. Requisitions. The Borrower shall give Lender such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. Interest Rate and Payment. The Borrower unconditionally promises and agrees
to pay, as and when due, interest on all amounts advanced hereunder from
the date of each Advance and to repay all amounts advanced hereunder with
interest on the Maturity Date. Interest shall be due and payable quarterly
on the first day of each January, April, July, and October, commencing on
the first such date after such initial Advance; except that if Lender gives
notice thereof to the Borrower before the first day of any month, interest
shall thereafter be due and payable on the 15th day of such month and each
month thereafter. Lender shall invoice the Borrower at least five (5)days
prior to the due date of any such interest payment. All amounts shall be
payable at RTFC's main office at Woodland Park, 2201 Cooperative Way,
Herndon, Virginia 201713025 or at such other location as designated by
Lender from time to time.
The interest rate on all Advances will be equal to RTFC's standard line of
credit as established from time to time by Lender pursuant to its policies
and procedures plus one hundred (100) basis points. However, in no event
shall the interest rate exceed the Prevailing Bank Prime Rate (as defined
herein), plus one and one-half percent per annum. Interest will be computed
on the basis of a year of 365 days. The interest rate will be adjusted as
determined from time to time by Lender, provided that no such adjustment
may be effective on a date other than the first or sixteenth day of any
month, and will remain in effect until a subsequent change in rate occurs.
<PAGE>
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which Lender
determines in its discretion to be the representative bank prime rate on
the day preceding the day on which an adjustment in the interest rate
hereof shall become effective. If such preceding day is not a publication
day for The Wall Street Journal then the Prevailing Bank Prime Rate shall
be established by reference to such "Money Rates" column as of the last
publication day next preceding the day on which such adjustment shall
become effective; provided if The Wall Street Journal shall cease to be
published, then the Prevailing Bank Prime Rate shall be determined by RTFC
by reference to another publication reporting bank prime rates in a similar
manner.
4. RTFC Accounts. Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower
resulting from each Advance made from time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In any
legal action or proceeding in respect of this Agreement, the entries made
in such account or accounts (whether stored on computer memory, microfilm,
invoices or otherwise) shall be presumptive evidence (absent manifest
error) of the existence and amounts of the Borrower's transactions therein
recorded.
5. Corporate and Regulatory Approvals. Borrower represents that it has
obtained any and all necessary corporate and regulatory approvals for
Borrower to execute and perform pursuant to this Agreement.
6. Reports. Borrower agrees to deliver to Lender, promptly upon their becoming
available, a copy of (i) any annual audit report prepared subsequent to the
submission of this Agreement; (ii) its monthly operating report within
thirty (30) days for any month in which there are advances outstanding
pursuant to this Agreement; and (iii) any other reports which Lender
reasonably requests during the term of this Agreement.
7. Covenants/Financial Ratios. Until the later of (i) all Advances and fees
hereunder having been repaid or (ii) the Maturity Date, Borrower agrees to
honor and be bound by the affirmative and negative covenants, and financial
ratios, (collectively, the "Covenants") contained in Sections 6 and 7 of
the Loan Agreement by and between Borrower and Lender dated as of even date
herewith, as it may be amended from time to-time (the "Loan Agreement"),
and such Covenants shall be incorporated by reference as if fully stated
herein.
8. Fees. If any amount outstanding and due hereunder shall not be paid when
due, Borrower agrees to pay on demand Lender's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at Lender's
office in Herndon, Virginia, or such other location designated by Lender
within five (5) business days after the due date thereof (such unpaid
amount of principal and/or interest being herein called the "delinquent
amount, "and the period beginning after such due date being herein called
the "late-payment period"), Borrower will pay to Lender, on demand, in
<PAGE>
addition to all other amounts due under the terms of this Agreement, any
late-payment charge as may then be in effect pursuant to Lender's policy on
the delinquent amount for the late payment period.
9. Credit Support. This Agreement may not be used as credit support for any
other financings without Lender's prior written approval.
10. Notices,. Acceleration of Debt and Waivers. While any amount hereunder is
outstanding, Borrower agrees to notify Lender of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition, and if any representation or warranty made
in this Agreement has become untrue in any respect having a material
adverse effect on the financial condition or business of the Borrower.
Lender may declare at any time all outstanding amounts hereunder
immediately due and payable in full with accrued interest, without
presentment or demand, and may withhold advances of funds upon the
occurrence of any of the following: (i) any delinquency or default in
payment of any sum due the Lender under the Agreement; (ii) a court shall
enter a decree or order for relief with respect to Borrower or any
subsidiary or guarantor in an insolvency or bankruptcy or appoint a
receiver, liquidator, trustee or similar official and such order remains in
effect for a period of ninety (90) days; (iii) Borrower or any subsidiary
shall commence a voluntary case under bankruptcy, insolvency or similar law
or consent to the appointment of a receiver, liquidator, or trustee; (iv)
the dissolution or liquidation of Borrower or subsidiary or guarantor or
failure to forestall or remove any execution, garnishment or attachment of
such consequence as to impair its ability to continue business and such
execution, garnishment or attachment shall not be vacated within thirty
(30) days; or (v) any other event as a result of which any holder of
indebtedness in excess of five percent (5%) of Borrower's total assets may
declare the same due and payable shall occur and continue for more than any
applicable grace period.
If any representation or warranty herein shall become untrue, or Borrower
shall fail to comply with any term of this Agreement or if the financial
condition of Borrower shall have changed to the extent that such change in
the reasonable judgment of RTFC, materially increases RTFC's risk
hereunder, then RTFC at its discretion may withhold advances of funds
and/or declare all outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand.
The Borrower waives the defense of usury and all rights to set off,
counterclaim, deduction or recoupment.
11. Purpose, Repayments and Deposit. Borrower agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Borrower
relating to its operations. Borrower agrees that this loan shall be
repayable out of Borrower's general funds and that loan proceeds will not
be deposited in any other account dedicated for secured financing advances.
<PAGE>
12. Additional Indebtedness. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to Lender or permitted pursuant to
the Loan Agreement, Borrower agrees that it will not, without the prior
written consent of Lender, (i) make distributions of cash to its
shareholders, if applicable, or (ii) create, incur, assume, guarantee or
otherwise become obligated for any additional indebtedness, other than as
provided for in the Loan Agreement except that the Borrower may borrow
against another loan previously approved by Lender.
13. Survival of Representations, Warranties and Payment Obligations. Borrower
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
14. Representations and Warranties. Except as set forth in writing and attached
hereto, Borrower represents and warrants as of the date of its application
and on the date of each and every Advance hereunder that:
(a) The Borrower has and will meet all obligations and be in
compliance with all instruments under which it is bound and that all
information submitted in support of its application is true, complete
and correct except where the failure to so comply or the inaccuracy of
any such information could not, in either case, be reasonably be
expected to have a Material Adverse Effect (as defined in the Loan
Agreement);
(b) There has been no material adverse change in the Borrower's
business or financial condition from that set forth in its most recent
audited financial statements provided to Lender;
(c) The Borrower has no outstanding loans from sources other than
Lender;
(d) The Borrower is not in default in any material respect of any
of its obligations and no litigation is threatened or pending which
would have a material adverse impact on the Borrower's ability to
perform under this Agreement; and
(e) The Borrower has no lines of credit with any other lenders.
15. Consent to Patronage Capital Distributions. Borrower hereby consents that
the amount of any distributions with respect to Borrower's patronage which
are made in written notices of allocation (as defined in Section 1388 of
the Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
16. Severability. If any term, provision or condition, or any part thereof, of
this Agreement shall for any reason be found or held invalid or
unenforceable by any court or
<PAGE>
governmental agency of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term, provision or
condition nor any other term, provision or condition, and this Agreement
shall survive and be construed as if such invalid or unenforceable term,
provision or condition had not been contained therein.
17. Setoff. Lender is hereby authorized at any time and from time to time
without prior notice to the Borrower to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by Lender
or owed to the Borrower or for the credit or account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing hereunder. Lender agrees to notify the Borrower promptly after any
such setoff or recoupment and the application thereof, provided that the
failure to give such notice shall not affect the validity of such setoff,
recoupment or application. The rights of Lender under this section are in
addition to any other rights and remedies (including other rights of setoff
or recoupment) which Lender may have.
18. Additional Terms and Conditions. Additional terms and conditions set forth
herein or attached hereto as Exhibit A are an integral part of this
Agreement.
19. Integration. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and signed
by both parties.
20. Headings. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
21. RESERVED.
22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed
this Agreement under seal as of the date first above written.
COASTAL UTILITIES, INC.
By: PAUL H. SUNU
-----------------------------
Title: Executive Vice President
--------------------------
<PAGE>
(SEAL)
Attest: MATT SPRINGER
-------------------
Assistant Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: /s/ William Knecht, III
----------------------------------
Assistant Secretary-Treasurer
(SEAL)
Attest: BLUEPENDER SELIGAL
-----------------------------
Assistant Secretary-Treasurer
<PAGE>
EXHIBIT A
Reduce Balance to Zero. Within 360 days of the first Advance, Borrower will
reduce to zero for a period of at least five consecutive business days, (the
last day of such five day period being herein called the "Zero Balance Date")
amounts outstanding hereunder, and will reduce to zero for a period of at least
five consecutive business days (the last day of such five business day period
being called the "Subsequent Zero Balance Date") amounts outstanding hereunder
within 360 days from the Zero Balance Date or Subsequent Zero Balance Date, as
appropriate.
<PAGE>
Exhibit 10.12
RURAL TELEPHONE FINANCE COOPERATIVE
SECURED REVOLVING LINE OF CREDIT AGREEMENT
("Agreement")
Gulf Telephone Company, Inc., an Alabama corporation ("Borrower") located at
P.O. Drawer 670, 116 North Alston Street, Foley, Alabama 36535, hereby agrees to
borrow from Rural Telephone Finance Cooperative ("RTFC" or "Lender"), a South
Dakota cooperative association, pursuant to the terms of this Agreement, dated
as of September 29, 1999, for a revolving line of credit loan in an amount not
to exceed ten million dollars ($10,000,000). In consideration of their mutual
premises hereunder and other valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, Lender and Borrower agree to the following
terms and conditions:
1. Revolving Credit and Term. Lender agrees to make advances to the Borrower
pursuant to the terms of this Agreement ("Advances"). The maximum principal
amount outstanding at any point in time shall not exceed $10,000,000.
Within such limits, the Borrower may borrow, repay and reborrow at any time
or from time to time for a period up to five (5) years from the date hereof
( the "Maturity Date").
2. Requisitions. The Borrower shall give Lender such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. Interest Rate and Payment. The Borrower unconditionally promises and agrees
to pay, as and when due, interest on all amounts advanced hereunder from
the date of each Advance and to repay all amounts advanced hereunder with
interest on the Maturity Date. Interest shall be due and payable quarterly
on the first day of each January, April, July, and October, commencing on
the first such date after such initial Advance; except that if Lender gives
notice thereof to the Borrower before the first day of any month, interest
shall thereafter be due and payable on the 15th day of such month and each
month thereafter. Lender shall invoice the Borrower at least five days
prior to the due date of any such interest payment. All amounts shall be
payable at RTFC's main office at Woodland Park, 2201 Cooperative Way,
Herndon, Virginia 20171-3025 or at such other location as designated by
Lender from time to time.
The interest rate on all Advances will be equal to RTFC's standard line of
credit as established from time to time by Lender pursuant to its policies
and procedures plus fifty (50) basis points. However, in no event shall the
interest rate exceed the Prevailing Bank Prime Rate (as defined herein),
plus one and one-half percent per annum.
Interest will be computed on the basis of a year of 365 days. The interest
rate will be adjusted as determined from time to time by Lender, provided
that no such adjustment may be effective on a date other than the first or
sixteenth day of any month, and will remain in effect until a subsequent
change in rate occurs.
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which Lender
determines in its
<PAGE>
discretion to be the representative bank prime rate on the day preceding
the day on which an adjustment in the interest rate hereof shall become
effective. If such preceding day is not a publication day for The Wall
Street Journal then the Prevailing Bank Prime Rate shall be established by
reference to such "Money Rates" column as of the last publication day next
preceding the day on which such adjustment shall become effective; provided
if The Wall Street Journal shall cease to be published, then the Prevailing
Bank Prime Rate shall be determined by RTFC by reference to another
publication reporting bank prime rates in a similar manner.
4. RTFC Accounts. Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower
resulting from each Advance made from time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In any
legal action or proceeding in respect of this Agreement, the entries made
in such account or accounts (whether stored on computer memory, microfilm,
invoices or otherwise) shall be presumptive evidence (absent manifest
error) of the existence and amounts of the Borrower's transactions therein
recorded.
5. Corporate and Regulatory Approvals. Borrower represents that it has
obtained any and all necessary corporate and regulatory approvals for
Borrower to execute and perform pursuant to this Agreement.
6. Reports. Borrower agrees to deliver to Lender, promptly upon their becoming
available, a copy of (i) any annual audit report prepared subsequent to the
submission of this Agreement; (ii) its monthly operating report within
thirty (30) days for any month in which there are advances outstanding
pursuant to this Agreement; and (iii) any other reports which Lender
reasonably requests during the term of this Agreement.
7. Covenants/Financial Ratios. Until the later of (i) all Advances and fees
hereunder having been repaid or (ii) the Maturity Date, Borrower agrees to
honor and be bound by the affirmative and negative covenants, and financial
ratios, (collectively, the "Covenants") contained in Sections 6 and 7 of
the Loan Agreement by and between Borrower and Lender dated as of even date
herewith, as it may be amended from time to-time (the "Loan Agreement"),
and such Covenants shall be incorporated by reference as if fully stated
herein.
8. Fees. If any amount outstanding and due hereunder shall not be paid when
due, Borrower agrees to pay on demand Lender's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at Lender's
office in Herndon, Virginia, or such other location designated by Lender
within five (5) business days after the due date thereof (such unpaid
amount of principal and/or interest being herein called the "delinquent
amount," and the period beginning after such due date being herein called
the "late- payment period"), Borrower will pay to Lender, on demand, in
addition to all other amounts due under the
2
<PAGE>
terms of this Agreement, any late-payment charge as may then be in effect
pursuant to Lender's policy on the delinquent amount for the late payment
period.
9. Credit Support. This Agreement may not be used as credit support for any
other financings without Lender's prior written approval.
10. Notices, Acceleration of Debt and Waivers. While any amount hereunder is
outstanding, Borrower agrees to notify Lender of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition, and if any representation or warranty made
in this Agreement has become untrue in any respect having a material
adverse effect on the financial condition or business of the Borrower.
Lender may declare at any time all outstanding amounts hereunder
immediately due and payable in full with accrued interest, without
presentment or demand, and may withhold advances of funds upon the
occurrence of any of the following: (i) any delinquency or default in
payment of any sum due the Lender under the Agreement; (ii) a court shall
enter a decree or order for relief with respect to Borrower or any
subsidiary or guarantor in an insolvency or bankruptcy or appoint a
receiver, liquidator, trustee or similar official and such order remains in
effect for a period of ninety (90) days; (iii) Borrower or any subsidiary
shall commence a voluntary case under bankruptcy, insolvency or similar law
or consent to the appointment of a receiver, liquidator, or trustee; (iv)
the dissolution or liquidation of Borrower or subsidiary or guarantor or
failure to forestall or remove any execution, garnishment or attachment of
such consequence as to impair its ability to continue business and such
execution, garnishment or attachment shall not be vacated within thirty
(30) days; or (v) any other event as a result of which any holder of
indebtedness in excess of five percent (5%) of Borrower's total assets may
declare the same due and payable shall occur and continue for more than any
applicable grace period.
If any representation or warranty herein shall become untrue, or Borrower
shall fail to comply with any term of this Agreement or if the financial
condition of Borrower shall have changed to the extent that such change in
the reasonable judgment of RTFC, materially increases RTFC's risk
hereunder, then RTFC at its discretion may withhold advances of funds
and/or declare all outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand.
The Borrower waives the defense of usury and all rights to set off,
counterclaim, deduction or recoupment.
11. Purpose, Repayments and Deposit. Borrower agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Borrower
relating to its operations. Borrower agrees that this loan shall be
repayable out of Borrower's general funds and that loan proceeds will not
be deposited in any other account dedicated for secured financing advances.
3
<PAGE>
12. Additional Indebtedness. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to Lender or permitted pursuant to
the Loan Agreement, Borrower agrees that it will not, without the prior
written consent of Lender, (i) make distributions of cash to its
shareholders, if applicable, or (ii) create, incur, assume, guarantee or
otherwise become obligated for any additional indebtedness, other than as
provided for in the Loan Agreement except that the Borrower may borrow
against another loan previously approved by Lender.
13. Survival of Representations, Warranties and Payment Obligations. Borrower
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
14. Representations and Warranties. Except as set forth in writing and attached
hereto, Borrower represents and warrants as of the date of its application
and on the date of each and every Advance hereunder that:
(a) The Borrower has and will meet all obligations and be in compliance
with all instruments under which it is bound and that all information
submitted in support of its application is true, complete and correct
except where the failure to so comply or the inaccuracy of any such
information could not, in either case, be reasonably be expected to
have a Material Adverse Effect (as defined in the Loan Agreement);
(b) There has been no material adverse change in the Borrower's business
or financial condition from that set forth in its most recent audited
financial statements provided to Lender;
(c) The Borrower has no outstanding loans from sources other than Lender;
(d) The Borrower is not in default in any material respect of any of its
obligations and no litigation is threatened or pending which would
have a material adverse impact on the Borrower's ability to perform
under this Agreement; and
(e) The Borrower has no lines of credit with any other lenders.
15. Consent to Patronage Capital Distributions. Borrower hereby consents that
the amount of any distributions with respect to Borrower's patronage which
are made in written notices of allocation (as defined in Section 1388 of
the Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
16. Severability. If any term, provision or condition, or any part thereof, of
this Agreement
4
<PAGE>
shall for any reason be found or held invalid or unenforceable by any court
or governmental agency of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term, provision or
condition nor any other term, provision or condition, and this Agreement
shall survive and be construed as if such invalid or unenforceable term,
provision or condition had not been contained therein.
17. Setoff. Lender is hereby authorized at any time and from time to time
without prior notice to the Borrower to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by Lender
or owed to the Borrower or for the credit or account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing hereunder. Lender agrees to notify the Borrower promptly after any
such setoff or recoupment and the application thereof, provided that the
failure to give such notice shall not affect the validity of such setoff,
recoupment or application. The rights of Lender under this section are in
addition to any other rights and remedies (including other rights of setoff
or recoupment) which Lender may have.
18. Additional Terms and Conditions. Additional terms and conditions set forth
herein or attached hereto as Exhibit A are an integral part of this
Agreement.
19. Integration. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and signed
by both parties.
20. Headings. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
21. Security. All Advances hereunder shall be secured by a security interest in
certain of Borrower's properties pursuant to a Mortgage and Security
Agreement and Pledge and Security Agreement by and between Borrower and
RTFC entered into as of even date herewith, which has been filed along with
UCC-1 financing statements in all such locations necessary to provide RTFC
with a first priority, perfected lien (except as permitted by the Mortgage)
on all of Borrower's Mortgaged Property (as defined in the Mortgage). Such
Mortgage and Security Agreement, Pledge and Security Agreement and UCC-1
financing statements shall continually exist until the later of (i) all
Advances and fees hereunder having been repaid or (ii) the Maturity Date.
Borrower agrees that, with respect to the Collateral which is subject to
Article 9 of the Uniform Commercial Code, the Lender shall have, but not be
limited to, all the rights and remedies of a secured party under the
Uniform Commercial Code.
22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
5
<PAGE>
23. Special Conditions. Advances under this Agreement shall not occur unless
and until (i) closing on the acquisition of Gulf Coast Services, Inc. and
Gulf Telephone Company, Inc. has occurred, and (ii) the Loan Agreement has
been funded and all prerequisites to advances thereunder have been
satisfied.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
GULF TELEPHONE COMPANY
By: PAUL H. SUNU
----------------------------------
Title: CFO
(SEAL)
Attest: BRUCE F. METGE
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Asst. Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: ROBIN C. REED
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Title: Assistant Secretary-Treasurer
(SEAL)
Attest: KENNETH FRIED
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Assistant Secretary-Treasurer
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<PAGE>
EXHIBIT A
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Reduce Balance to Zero. Within 360 days of the first Advance, Borrower will
reduce to zero for a period of at least five consecutive business days, (the
last day of such five day period being herein called the "Zero Balance Date")
amounts outstanding hereunder, and will reduce to zero for a period of at least
five consecutive business days (the last day of such five business day period
being called the "Subsequent Zero Balance Date") amounts outstanding hereunder
within 360 days from the Zero Balance Date or Subsequent Zero Balance Date, as
appropriate.
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<PAGE>
EXHIBIT 10.13
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of January 16th, 1998, by and
between MEBTEL, INC., a North Carolina corporation ("Borrower"), and RURAL
TELEPHONE FINANCE COOPERATIVE, a South Dakota cooperative association
("Lender").
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan to Borrower
described in Schedule 1 hereto; and
WHEREAS, Lender is willing to make the Loan upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, Borrower and Lender do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement, unless
the context otherwise requires, when used herein, the following terms shall have
the following meanings:
"Adjustment Date" shall mean the last date of the term (or rate period) of
the applicable Fixed Rate, after the date of the initial Advance to the Maturity
Date.
"Advance" shall mean an advance as defined in Section 2.02.
"Business Day" shall mean any day that Lender is open for business.
"Cash Margins" for any year shall mean net income plus depreciation,
amortization and any other non-cash charges, less any non-cash credits and
principal on long-term debt payable in such year, as calculated on a
consolidated basis for Borrower and all its Subsidiaries.
"Certified" shall mean that the information, statement, schedule, report or
other document required to be "Certified" shall contain a representation of a
duly authorized officer of Borrower that such information, statement, schedule,
report or other document is true and correct and complete.
"Closing" shall mean the first date on which funds are advanced to Borrower
hereunder.
"Collateral" shall mean the Mortgaged Property, as such term is defined in
the Mortgage, and all proceeds, cash and non-cash, including insurance proceeds,
of the foregoing, whether in the possession of Borrower or any other person.
<PAGE>
"Commitment" shall have the meaning set forth in Schedule 1 hereto.
"Debt Service Coverage Ratio" or "DSC" for any year shall mean (a) total
net income or margins plus depreciation and amortization expense and interest on
long-term debt for such year, divided by (b) principal and interest on long-term
debt payable in such year, as calculated on a consolidated basis for the
Borrower and all its Subsidiaries.
"Event of Default" shall mean any of the events described in Section 8
hereof.
"Fixed Rate" shall mean the interest rate per annum provided for in Section
2.03 of this Agreement, plus 50 basis points (or plus 25 basis points beginning
on the January 1st immediately following the fiscal year-end in which Borrower
achieves a Leverage Ratio of 3.0 or less).
"Leases" shall mean any lease of property by which Borrower shall be
obligated for rental or other payments which in the aggregate for any fiscal
year are in excess of $100,000 other than such equipment leases which are in
form and substance substantially in conformity with lease agreements in general
use in Borrower's industry by companies of size and character similar to
Borrower.
"Leverage Ratio" for any year shall mean (a) total long- and short-term
debt payable during such year divided by (b) the sum of : (i) total net income
or margins, (ii) income taxes, (iii) interest expense payable on long-term debt
for such year, (iv) depreciation and amortization expense where pre-tax income
or loss excludes any extraordinary gains, (v) the write-up of any asset, (vi)
any investment income or losses, as measured on a consolidated basis for
Borrower and all its Subsidiaries and (vii) payments made to Hugh McClure Hupman
pursuant to his employment agreement with the Borrower.
"Lien" shall mean any statutory or common law consensual or non-consensual
mortgage, pledge, security interest, encumbrance, lien, right of set-off, claim
or charge of any kind, including, without limitation, any conditional sale or
other title retention transaction, any lease transaction in the nature thereof
and any secured transaction under the Uniform Commercial Code of any
jurisdiction.
"Loan" shall mean the loan by the Lender to Borrower, pursuant to this
Agreement and the Note, in an aggregate principal amount not to exceed the
Commitment.
"Make-Whole Premium" shall mean the excess, if any, of (i) the present
value of the amount of interest that would have accrued during the applicable
Fixed Rate period on that portion of the Loan to be prepaid or converted over
(ii) the present value of the amount of interest Lender would earn if that
portion of the Loan to be prepaid or converted was reinvested for the remainder
of the applicable Fixed Rate period in U.S. Treasury obligations with a maturity
comparable to the remaining term of the applicable Fixed Rate period. For
purposes of calculating the present value in (i) and (ii) above, the discount
rate will be the rate of interest accruing on the U.S. Treasury obligations in
(ii) above.
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<PAGE>
"Material Adverse Effect" shall mean any event or circumstance which, in
Lender's reasonable discretion, has a material and adverse effect upon the
business, operations, assets or properties or financial condition of the
Borrower and its Subsidiaries, taken as a whole.
"Maturity Date" shall mean the maturity date defined in the Note.
"Minimum Net Worth Test" shall be calculated on a consolidated basis for
the Borrower and all its Subsidiaries, and shall mean an equity to total asset
ratio of at least forty percent (40%). Equity shall be determined by subtracting
total liabilities from total assets.
"Mortgage" shall mean the mortgage and security agreement described in
Schedule 1.
"Net Worth" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries taken as a whole and arrived at by subtracting total
liabilities from total assets.
"Note" shall mean the Note executed and delivered by Borrower at or prior
to Closing pursuant to Subsection 5.02(a) hereof, and all renewals, replacements
and extensions thereof.
"Obligations" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender by
Borrower under this Agreement, the Note, the Other Agreements, all present and
future obligations of Borrower to the Lender for the payment of money under this
Agreement, the Note, the Other Agreements, extending to all principal amounts,
interest, late charges and all other charges and sums, as well as all costs and
expenses payable by Borrower under this Agreement, the Note, the Other
Agreements, and any and all other present and future monetary liabilities of
Borrower to the Lender, whether direct or indirect, contingent or noncontingent,
matured or unmatured, accrued or not accrued, related or unrelated to this
Agreement, whether or not of the same character or class as Borrower's
obligations under this Agreement and the Note, whether or not secured under any
other document, instrument or statutory or common law provision, as well as all
renewals, refinancings, consolidations, recastings and extensions of any of the
foregoing.
"Other Agreements" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower and executed and/or delivered pursuant to this Agreement or
guaranteeing, securing or in any other manner relating to any of the
Obligations, including, the instruments and documents referred to in Subsection
5.02 hereof.
"Payment Date" shall mean the last day of each of the months referred to in
Schedule 1 hereto.
"Payment Notice" shall mean the notice furnished to the Borrower at least
quarterly indicating the precise amount of principal and/or interest due on the
next ensuing Payment Date, such notice to be sent to the Borrower at least ten
(10) days before such Payment Date.
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<PAGE>
"Person" shall include natural persons, corporations, associations,
partnerships, joint ventures, trusts, governments and agencies and departments
thereof, and every other entity of every kind.
"Subordinated Capital Certificate" or "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the Borrower
in connection with the Loan.
"Subsidiary" at any time means any entity which is at the time beneficially
owned or controlled directly or indirectly by the Borrower, by one or more such
entities or by the Borrower and one or more such entities.
"Termination Date" shall mean that date which is two (2) years from the
date hereof.
"Times Interest Earned Ratio" or "TIER" for any year shall mean (a) total
net income or margins plus income taxes plus interest payable on long-term debt
for such year, divided by (b) interest on long-term debt payable in such year,
as measured on a consolidated basis for the Borrower and all its Subsidiaries.
"Total Plant" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries and shall mean the total of all assets included in
property, plant and equipment pursuant to generally accepted accounting
principles and shall exclude any goodwill or plant acquisition adjustments.
"Variable Rate" shall mean the variable rate established by the Lender from
time to time for loans similarly classified pursuant to Lenders policies and
procedures then in effect, plus 50 basis points (or plus 25 basis points
beginning on the January 1st immediately following the fiscal year-end in which
Borrower achieves a Leverage Ratio of 3.0 or less).
2. LOAN
2.01 Loan. The Lender agrees to make the Loan to Borrower subject to all of
the terms and conditions of this Agreement and the Other Agreements.
2.02 Advances. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time to
time at the office of the Lender in Herndon, Virginia, or at such other place as
the Lender may designate, not to exceed the Commitment. The Borrower shall give
the Lender at least one Business Day prior written notice of the date on which
each Advance is to be made. On the Termination Date the Lender may stop
advancing funds and reduce the Commitment to the aggregate amount theretofore
advanced. The obligation of the Borrower to repay the Advances shall be
evidenced by the Note.
2.03 Payment, Amortization and Interest Rate.
(a) Payment. The Borrower shall pay on each Payment Date quarterly
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installments, in an amount as determined by the Lender, of principal and/or
interest as shown in the Payment
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Notice, except that, if not sooner paid, any balance of the principal amount and
interest accrued thereon and all other amounts due hereunder shall be due and
payable on the Maturity Date. Payment of principal hereunder shall commence on
the date which is one-year after the first full quarter following the initial
Advance of funds as set forth in Schedule 1 and on each subsequent Payment Date
until the Maturity Date or such earlier date as all amounts due hereunder and on
account of the Note shall have been paid in full. Payment of interest hereunder
is due on each Payment Date in which a principal balance is outstanding.
Principal will be amortized in accordance with the method stated in Schedule 1
hereto.
The Lender will use, for purposes of calculating the amortization of principal,
one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect
on the Adjustment Date; or
(ii) If the Borrower elects the Variable Rate, the Variable Rate in
effect when amortization begins; or
(iii) If the Borrower elects to convert from one interest rate program
to another pursuant to the provisions hereunder, the interest
rate then in effect for the elected program.
At the Lender's option, all payments shall be applied first to late payment
charges due, as hereinafter provided, then to interest accrued to the date of
such payment, and then to the reduction of principal balance outstanding.
No provision of this Agreement or the Note shall require the payment, or permit
the collection, of interest in excess of the highest rate permitted by
applicable law.
(b) Interest Rate. Each Advance shall be initially made at the Variable
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Rate. Interest shall be computed from the actual number of days elapsed on the
basis of a year of 365 days until the first Payment Date following the initial
Advance. Thereafter, interest shall continue to be computed for the actual
number of days elapsed on the basis of a year of 365 days unless a Fixed Rate is
applicable to the Loan, in which case interest shall be computed on the basis of
a 30-day month and 360-day year.
(i) Variable Rate. If Advances are made at the Variable Rate, it
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shall apply until the Maturity Date, except as provided herein
below.
(ii) Fixed Rate. If the Borrower elects a Fixed Rate, such Fixed Rate
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as is available and in effect for loans similarly classified
pursuant to Lender's policies and procedures there in effect at
the time of the election shall apply to such Advance until the
Adjustment Date. Upon notice given by the Borrower five (5)
Business Days prior to such Adjustment Date, Borrower may elect
to reset the interest rate to such Fixed Rate as is available and
in effect at the time of such Adjustment Date. Such reset
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<PAGE>
Fixed Rate shall apply to that portion of the outstanding
principal balance of the Loan elected to have a Fixed Rate from
the Adjustment Date until a new Adjustment Date or the Maturity
Date. If Borrower does not elect to reset the Fixed Rate, the
Variable Rate shall apply to the outstanding principal balance of
the Loan that had been bearing interest at the Fixed Rate prior
to such Adjustment Date, from such Adjustment Date to the
Maturity Date.
(iii) Conversion to Different Interest Program.
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(A) Variable Rate to Fixed Rate. Subject to the conditions set forth
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herein, the Borrower may convert from the Variable Rate to the
Fixed Rate for any portion or all of the principal amount of the
Commitment then outstanding at any time provided the Lender
offers a Fixed Rate at such time for similarly classified loans.
(B) Fixed Rate to Variable Rate. The Borrower may convert from a
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Fixed Rate to the Variable Rate: (1) on an Adjustment Date or (2)
at any other time, provided that the Borrower shall pay Lender
any applicable Make-Whole Premium.
2.04 Prepayment. In the event the Borrower prepays all or part of the
Loan, the Borrower shall pay any prepayment fee required pursuant to the terms
of this Section 2.04. All prepayments shall be accompanied by payment of accrued
and unpaid interest on the amount of and to the date of the prepayment. All
prepayments shall be applied first to fees, second to the payment of accrued and
unpaid interest, and then to the unpaid balance of the principal amount of the
Loan. If the Loan bears interest at the Variable Rate the Borrower may prepay
the Loan or any portion thereof, as the case may be, at any time subject to the
terms hereof and said prepayment fee shall be in an amount equal to fifty (50)
basis points times the amount being prepaid. If the Loan bears interest at the
Fixed Rate, the Borrower may prepay the Loan only on an Adjustment Date or any
such other date provided that the Borrower shall pay a prepayment fee in an
amount equal to fifty (50) basis points times the amount being prepaid plus any
applicable Make-Whole Premium (which Make-Whole Premium shall only be paid to
the extent any Fixed Rate Loan is prepaid on any date other than an Adjustment
Date). Notwithstanding anything to the contrary herein, if Borrower shall make a
permitted prepayment pursuant to the terms hereto, then, upon Borrower's
request, Lender shall reamortize the Loan pursuant to the method of amortization
designated in Section 2.03 (a).
2.05 5% Subordinated Capital Certificate. The Borrower shall purchase SCCs
which in the aggregate shall not exceed the amount specified in Schedule 1
hereto. Unless otherwise requested in writing by the Borrower prior to the
initial Advance and approved by the Lender, the Borrower agrees to purchase SCCs
either: (1) with each Advance in the amount of five percent (5%) of each such
Advance, and each such SCC shall be paid for with proceeds of such Advance, or
(2) by making payments with Borrower's own funds in twenty (20) equal quarterly
installments, commencing on the first Payment Date following the initial
Advance. If the Borrower elects to pay for SCCs other than from Loan funds, the
amount of the Commitment
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<PAGE>
will be correspondingly reduced by said amount when the SCCs are fully paid. If
the Borrower obtains Advances hereunder other than for the purpose of purchasing
SCCs and fails to pay for the SCCs, then the Lender may make Advances for the
account of the Borrower to purchase the SCCs. The Lender agrees to deliver the
SCCs on or about the date on which the SCCs have been paid for in full. The SCCs
shall bear no interest and shall mature in accordance with the terms thereof.
3. SECURITY
As security for the payment and performance of all of the Obligations,
Borrower has entered into the Mortgage pledging and granting to the Lender a
prior and continuing security interest in the Collateral that may be secured by
the Mortgage that shall continually exist until all Obligations have been paid
in full. If reasonably required by the Lender at any time, Borrower shall make
notations, satisfactory to the Lender, on its books and records disclosing the
existence of the Lender's security interest in the Collateral. Borrower agrees
that, with respect to the Collateral, which is subject to Article 9 of the
Uniform Commercial Code, the Lender shall have, but not be limited to, all the
rights and remedies of a secured party under the Uniform Commercial Code. The
Lender shall have no liability or duty, either before or after the occurrence of
an Event of Default hereunder, on account of loss of or damage to, or to collect
or enforce any of its rights against, the Collateral, or to preserve any rights
against account debtors or other parties with prior interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents
and warrants to the Lender as of the date of this Agreement that:
4.01 Good Standing. Borrower is a corporation duly organized validly
existing and in good standing under the laws of the state of its incorporation,
has the power to own its property and to carry on its business, is duly
qualified to do business, and is in good standing in each jurisdiction in which
the transaction of its business makes such qualification necessary, except to
the extent such lack of qualification would not have a Material Adverse Effect.
4.02 Authority. Borrower has corporate power and authority to enter into
this Agreement and the Mortgage, to make the borrowing hereunder, to execute and
deliver all documents and instruments required hereunder and to incur and
perform the obligations provided for herein, in the Mortgage, and in the Note,
all of which have been duly authorized by all necessary and proper corporate and
other action, and no consent or approval of any person, including, without
limitation, stockholders and members of Borrower and any public authority or
regulatory body, which has not been obtained is required as a condition to the
validity or enforceability hereof or thereof.
4.03 Binding Agreement. This Agreement has been duly and properly executed
by Borrower, constitutes the valid and legally binding obligation of Borrower
and is fully enforceable against Borrower in accordance with its terms, subject
only to laws affecting the rights of creditors generally, the exercise of
judicial discretion in accordance with general
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principles of equity or because waivers of statutory or common law rights or
remedies may be limited.
4.04 No Conflicting Agreements. The execution, delivery of and performance
by Borrower of this Agreement, the Mortgage and the Note, and the transactions
contemplated hereby or thereby, will not: (a) violate any material provision of
law, any order, rule or regulation of any court or other agency of government,
any material award of any arbitrator, the charter or by-laws of Borrower, or any
indenture, contract, agreement, mortgage, deed of trust or other instrument to
which Borrower is a party or by which it or any of its property is bound; or (b)
be in conflict with, result in a breach of or constitute (with due notice and/or
lapse of time) a default under, any such material award, indenture, contract,
agreement, mortgage, deed of trust or other instrument, or result in the
creation or imposition of any Lien (other than contemplated hereby) upon any of
the property or assets of Borrower.
4.05 Litigation. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, which may result in a Material Adverse
Effect, and Borrower is not, to its knowledge, in default with respect to any
judgment, order, writ, injunction, decree, rule or regulation of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which could reasonably
be expected to have a Material Adverse Effect.
4.06 Financial Condition. The financial statements of Borrower as at the
date set forth in Schedule 1 hereto, heretofore delivered to the Lender, are
complete and correct in all material respects, fairly present the financial
condition of Borrower and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. There are no
material liabilities of Borrower, direct or indirect, fixed or contingent, as of
the date of such statements which are not reflected therein. There has been no
material adverse change in the financial condition or operations of the Borrower
from that set forth in said financial statements except changes previously
disclosed in writing to the Lender prior to the date hereof.
4.07 Taxes. Borrower has paid or caused to be paid all federal, state and
local taxes to the extent that such taxes have become due, unless the Borrower
is contesting in good faith any such tax. Borrower has filed or caused to be
filed all federal, state and local tax returns which are required to be filed by
Borrower.
4.08 Title to Properties. Borrower has good and marketable title to all of
its real properties and owns all of its other properties and assets free and
clear of any liens, except (i) the lien of the Mortgages and taxes or
assessments not yet due; (ii) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
(iii) deposits or pledges to secure performance of bids, tenders, contracts
(other than contracts for the payment of borrowed money), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business, and (iv)
easements, rights of way, zoning and similar restrictions and encumbrances not
interfering with the ordinary conduct of the business of Borrower and which
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<PAGE>
do not detract materially from the value of such property or asset to which they
attach or impair materially Borrower's use thereof or materially adversely
affect Lender's lien thereon.
4.09 Licenses and Permits. Borrower has duly obtained and now holds all
licenses, permits, certifications, approvals and the like necessary to own and
operate its property and business that are required by federal, state and local
laws of the jurisdictions in which Borrower conducts its business and each
remains valid and in full force and effect except to the extent the failure to
hold such licenses, permits, certifications or approvals or the lack of validity
of the foregoing could not, in each case, be reasonably expected to have a
Material Adverse Effect.
4.10 Subsidiaries. Borrower has no Subsidiaries other than Subsidiaries
heretofore disclosed to the Lender, or hereafter formed or acquired with the
prior written consent of the Lender.
4.11 Certain Indebtedness. There is no material indebtedness of Borrower
owing to any employee, officer, stockholder or director of the board of Borrower
other than accrued salaries, commissions and the like and any indebtedness
subordinated to the Obligations pursuant hereto.
4.12 Location of Office. The chief place of business of the Borrower and
the office where its records concerning accounts and contract rights are kept is
identified in Schedule 1 hereto.
4.13 Required Approvals. No license, consent, permit or approval of any
governmental agency or authority is required to enable the Borrower to enter
into this Agreement or to perform any of its obligations provided for herein
except as disclosed on Schedule 1 hereto and except with respect to regulatory
approvals which may be required in connection with the Lender's enforcement of
certain remedies hereunder.
4.14 ERISA. Each pension plan of Borrower and its Subsidiaries providing
benefits for employees of Borrower or such Subsidiary covered by Title IV of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereto ("ERISA"), is in compliance with ERISA in all material respects, and no
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or to a
multiemployer plan has been, or is expected by Borrower or its Subsidiaries to
be, incurred by Borrower or such Subsidiary.
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance to
Borrower hereunder unless, as of the date of Closing, each of the following
conditions precedent shall be satisfied as provided below or otherwise waived by
the Lender:
5.01 Legal Matters. All legal matters incident to the consummation of the
transactions hereby contemplated shall be satisfactory to counsel for the Lender
and to such local counsel as counsel for the Lender may retain.
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5.02 Documents. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory to
the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all such
corporate documents and proceedings of the Borrower authorizing
the transactions herein contemplated.
(c) A written opinion from Borrower's counsel addressing such legal
matters as the Lender or its counsel shall reasonably require.
(d) The Borrower shall have (i) executed the Mortgage(s); (ii) if any
real property is owned by Borrower, recorded a valid and binding
Mortgage granting Lender a first lien in all real property owned
by Borrower; (iii) filed financing statements in all
jurisdictions necessary to provide Lender a first priority,
perfected security interest in all Collateral which may be
perfected by the filing of financing statements; and (iv)
delivered such other documents as are necessary to create or
continue a perfected security interest in favor of the Lender in
the Collateral.
5.03 Government Approvals. The Borrower shall have furnished to the Lender
true and correct copies of all certificates, authorizations and consents,
including without limitation the consents referred to in Section 4.13 hereof,
necessary for the execution, delivery or performance by the Borrower of this
Agreement, the Note and the Mortgage.
5.04 Representations, Warranties and Material Change. At Closing and at
the date of every subsequent Advance hereunder, all covenants, representations
and warranties set forth in this Agreement shall be true and correct on and as
of such time with the same effect as though such covenants, representations and
warranties had been made on and as of such date; no Event of Default specified
in Section 8 and no event which, with the lapse of time or the notice and lapse
of time specified in Section 8 would become such an Event of Default, shall have
occurred and be continuing or will have occurred after giving effect to the
Advance on the books of the Borrower; there shall have occurred no material
adverse changes in the business or condition, financial or otherwise, of the
Borrower; and nothing shall have occurred which in the opinion of the Lender
materially and adversely affects the Borrower's ability to meet its obligations
hereunder.
5.05 Special Conditions. At Closing and at the time of every subsequent
Advance hereunder, the Lender and its counsel shall be fully satisfied that the
Borrower has complied and will continue to comply with any special conditions
identified in Schedule 1 hereto.
5.06 Requisitions. The Borrower will request Advances in form and
substance satisfactory to the Lender. Pursuant to the terms and conditions
hereof, the Lender will wire the proceeds of the requested Advance to an account
as directed by the Borrower.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of the
Obligations have been paid in full, Borrower will:
6.01 Membership. Remain or an affiliate thereof will remain, a member in
good standing of the Lender.
6.02 Financial Statements and Other Information. Furnish to the Lender: (a)
financial statements as required by the Mortgage; (b) such other information,
reports or statements concerning the operations, business affairs and/or
financial condition of Borrower as the Lender may reasonably request from time
to time; and (c) promptly upon their becoming available information, in form and
substance satisfactory to Lender, of any and all material changes or
modification of licenses, permits, certifications, approvals and the like
necessary for Borrower to own or operate its business or a substantial part of
its business.
6.03 Financial Ratios. Subject to applicable laws and rules and orders of
regulatory bodies, and to events which in the reasonable judgment of the Lender
are beyond the control of the Borrower, so operate and manage its business as to
achieve minimum annual DSC and TIER Ratios, and a maximum annual Leverage Ratio,
in the following amount in each case as of the last calendar day of any fiscal
year:
<TABLE>
<CAPTION>
Period Minimum Minimum DSC Maximum
TIER Ratio Leverage Ratio
Requirement Requirement
- ---------------------------------------------------------------------
<S> <C> <C> <C>
1998 N/A N/A 6.5
1999 1.25 1.10 6.0
2000 1.50 1.25 5.5
2001 1.50 1.35 5.0
2002-Maturity Date 1.50 1.50 4.5
- ---------------------------------------------------------------------
</TABLE>
6.04 Annual Certificate. Within one hundred twenty (120) days after the
close of each calendar year, commencing with the year in which the initial
Advance hereunder shall have been made, deliver to the Lender a written
statement signed by the general manager stating that to the best of said
person's knowledge, the Borrower has fulfilled all of its Obligations under this
Agreement, the Note, and the Mortgage throughout such year or, if there has been
a default in the fulfillment of any such Obligations, specifying each such
default known to said person and the nature and status thereof.
6.05 Use of Proceeds. Use Advances made hereunder and under the Note only
for the purpose identified in Schedule 1 hereto and for the payment of the
costs, expenses and fees
11
<PAGE>
incident to this Agreement and for no other purpose
whatsoever without the prior written consent of the Lender.
6.06 Special Affirmative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special affirmative covenants identified in Schedule
1 hereto.
6.07 Mortgage Filing. Within thirty (30) days of acquiring any real
property, the Borrower shall cause a mortgage and security agreement,
substantially in the form of the Mortgage to be duly recorded as a first
mortgage on all such real property and such mortgage and security agreement or
other appropriate documentation shall have been duly filed, recorded or indexed
as a security interest in personal property wherever the Lender shall have
reasonably requested, all in accordance with applicable law, and the Borrower
shall have caused satisfactory evidence thereof to be furnished to the Lender.
7. NEGATIVE COVENANTS.
7.01 Notice. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without giving written notice to the Lender
thirty (30) days prior to the effective date of any change:
(a) Change Location of Chief Place of Business. Change location of
------------------------------------------
the Borrower's chief place of business.
(b) Change of Name. Change the name of Borrower.
--------------
7.02 Consent. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without the prior written consent of the
Lender (such consent not to be unreasonably withheld):
(a) Control. Alter or permit alteration of control of the Borrower.
-------
Control shall be as defined by regulations for telephone
companies issued by the Federal Communications Commission
("FCC").
(b) Subsidiaries. Form or acquire any Subsidiaries.
------------
(c) Additional Indebtedness. Borrow money on a secured or unsecured
-----------------------
basis from any other lender or incur any additional secured or
unsecured indebtedness (other than indebtedness incurred under
and pursuant to the Secured Revolving Line of Credit Agreement,
dated as of the date hereof, between Borrower and Lender, as the
same may be amended, restated, supplemented or otherwise modified
from time to time); or enter into or allow any of its
Subsidiaries to enter into any Leases, unless at that time
Borrower meets the Minimum Net Worth Test; provided, however,
-------- -------
Borrower and its Subsidiaries, may grant purchase money secured
indebtedness or incur unsecured trade debt or pay other current
operating
12
<PAGE>
liabilities that arise in the ordinary course of business so long
as the aggregate total of such debt does not exceed five percent
(5%) of Borrower's consolidated total assets. If Borrower meets
the Minimum Net Worth Test, then Borrower and its Subsidiaries
may incur additional indebtedness or enter into Leases without
prior written approval of Lender as provided in the foregoing
sentence, provided the Borrower meets the Minimum Net Worth Test
--------
after incurring such additional indebtedness or entering into
such Leases; provided, further, however, Borrower
-------- ------- -------
must give at least thirty (30) days written notice to Lender
prior to incurring any additional indebtedness or entering into
any such Leases which exceed five percent (5%) of Borrower's
consolidated total assets.
7.03 Dividends and Other Cash Distributions. The Borrower Will not, in any
one calendar year, without the prior approval in writing of the Lender (i)
declare or pay any dividends or make any other distribution to its stockholders
with respect to its capital stock; (ii) purchase or redeem or retire any of its
capital stock; or (iii) increase the management fee factor above the management
fee factor contained in the Mebcom Communications Financial Model dated November
25, 1997, unless with respect to any of the foregoing (after giving effect to
such transaction) Borrower meets the Minimum Net Worth Test, and the payment of
such dividend, the making of such distribution, or the purchase, redemption or
retirement of such stock, individually or in the aggregate, does not exceed
fifty percent (50%) of the prior fiscal year-end Cash Margins in any one
calendar year. In no event may the Borrower make any such distribution or
payment when there is unpaid any due installment of principal and/or interest on
the Note or if the Borrower is otherwise in material default of any provision of
this Agreement or would be in material default hereunder as a result of such
distribution or payment.
7.04 Special Negative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special negative covenants identified in Schedule 1
hereto.
7.05 Limitations on Loans, Investments and Other Obligations:
(a) The Borrower shall not, without first obtaining the written approval
of Lender, (i) purchase or make any commitment to purchase any stock,
bonds, notes, debentures or other securities or obligations of or
beneficial interest in, (ii) make any other investment in, (iii) make
any loan to, or (iv) guarantee, assume, or otherwise become liable for
any obligation of, any corporation, association, partnership, joint
venture, trust, government or any agency or department thereof, or any
other entity of any kind if the aggregate amount of all such
purchases, investments, loans and guarantees exceeds in any twelve
(12) month period the greater of ten percent (10%) of Total Plant or
thirty percent (30%) of Net Worth.
(b) The following shall not be included in the limitation on purchases
investments, loans and guarantees in (a) above: (i) bonds, notes,
debentures, stock, or other securities or obligations issued by or
guaranteed by the United States government or any
13
<PAGE>
agency or instrumentality thereof; (ii) bonds, notes, debentures, stock,
commercial paper, subordinated capital certificates, or other security or
obligation of institutions whose senior unsecured debt obligations are
rated by at least two nationally recognized rating organizations in either
or its two highest categories; (iii) investments incidental to loans made
by RTFC; (iv) bonds, notes, debentures, commercial paper or any other
security of the National Rural Utilities Cooperative Finance Corporation;
and (v) any deposit that is fully insured by the Federal Government.
7.06 Limitations on Contracts; Deposits of Funds: The Borrower will not,
without the approval in writing of the Lender: (a) enter into any contract or
contracts (i) for management of its business or any part thereof (except in
connection with any management contract for which the fees are permitted by
Section 7.03 above); (ii) for the operation or maintenance of all or any
substantial part of its property, (iii) for the use by others of any of the
Mortgaged Property in excess of $100,000; or (iv) with other companies;
provided, however, that such approval shall not be required for any contract
- ----------
which in form and substance substantially conforms with contracts in general use
in the Mortgagors industry by companies of size and character similar to
Mortgagor or which substantially conform to contracts which are currently in
existence that Mortgagor is a party to; or (b) except as permitted by Section
7.05 above, deposit any of its funds, regardless of the source thereof, in any
bank which is not insured by the Federal Deposit Insurance Corporation or the
successor thereof.
7.07 Preservation of Corporate Existence and Franchises; Compliance with
Laws; Limitations on Mergers, Transfers and Purchases: The Mortgagor will at all
times, so long as any of the Notes shall be outstanding, take or cause to be
taken all such action as from time to time may be necessary to preserve its
corporate existence and to preserve and renew all franchises, rights of way,
easements, permits and licenses necessary to the conduct of its business, and
will materially comply with all valid laws, ordinances, regulations and
requirements applicable to it or its property.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
(a) Representation and Warranties. Any representation or warranty made
herein, in any of the Other Agreements or in any statement, report,
certificate, opinion, financial statement or other document furnished
or to be furnished in connection with this Agreement or the Other
Agreements shall be false or misleading in any material respect.
(b) Payment. Failure of Borrower to make any of the payment Obligations,
including, without limitation, any sum due the Lender under this
Agreement or any of the Other Agreements, when and as the same shall
become due, whether at the due date thereof, by demand, by
acceleration or otherwise.
14
<PAGE>
(c) Other Covenants. Failure of Borrower to observe or perform any warranty,
covenant or condition to be observed or performed by Borrower under this
Agreement or any of the Other Agreements.
(d) Corporate Existence. The Borrower shall forfeit or otherwise be deprived
of its corporate charter, franchises, permits, easements, consents or
licenses required to carry on any material portion of its business.
(e) Other Obligations. Default, after giving effect to any applicable
grace period, by the Borrower in the payment when due of any money
owed by the Borrower, whether principal, interest, premium or
otherwise, under any other agreement for borrowing money in an amount
in excess of five percent (5%) of total assets, whether or not such
borrowing is secured.
(f) Bankruptcy. A court shall enter a decree or order for relief with
respect to the Borrower or any Subsidiary or guarantor (if any) in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official, or ordering the winding up or liquidation of its affairs,
and such decree or order shall remain unstayed and in effect for a
period of sixty (60) consecutive days or the Borrower or any
Subsidiary or guarantor (if any) shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or under any such law, or consent to the
appointment or taking of possession by a receiver, liquidator,
assignee, custodian or trustee, of a substantial part of Its prop", or
make any general assignment for the benefit of creditors.
(g) Dissolution or Liquidation. Other than as provided in subsection (f)
above, the dissolution or liquidation of the Borrower or any
Subsidiary or guarantor (if any), or failure by the Borrower or any
Subsidiary or guarantor promptly to forestall or remove any execution,
garnishment or attachment of such consequence as will impair its
ability to continue its business or fulfill its obligations and such
execution, garnishment or attachment shall not be vacated within sixty
(60) days.
(h) Final Judgment. A final non-appealable judgment In excess of $100,000
shall be entered against the Borrower and shall remain unsatisfied or
without a stay for a period of sixty (60) days.
9. RIGHTS AND REMEDIES
9.01 Rights and Remedies of the Lender. Upon the occurrence of an Event of
Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time Borrower shall
have the opportunity to cure said Event of Default except with respect
to Obligations pursuant to 8(b), 8(f) and 8(g) above which shall
require no notice or demand
15
<PAGE>
and shall have no period to cure; and
(ii) compliance, if required, with the rules and regulations of the FCC and
any state public service or utilities commission having jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies available
to the Lender under applicable law, all such rights and remedies being
cumulative and enforceable alternatively, successively or concurrently:
(a) Declare all unpaid principal outstanding on the Note, all accrued and
unpaid interest thereon, and all other Obligations to be immediately
due and payable and the same is shall thereupon become immediately due
and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the Obligations
owed to, or any Liens in favor of the Lender.
(c) Pursue all rights and remedies available to the Lender that are
contemplated by the Mortgage in the manner, upon the conditions, and
with the effect provided in the
Mortgage, including but not limited to a suit for specific
performance, injunctive relief or damages.
(d) Pursue any other rights and remedies available to the Lender at law or
in equity.
9.02 Cumulative Nature of Remedies. Nothing herein shall limit the right of
the Lender, subject to notice and right to cure provisions contained herein, to
pursue all rights and remedies available to a creditor following the occurrence
of an Event of Default subject to compliance, if required, with the rules and
regulations of the FCC and any state public service or utilities commission
having jurisdiction. Each right, power and remedy of the Lender in this
Agreement and/or the Other Agreements shall be cumulative and concurrent, and
recourse to one or more rights or remedies shall not constitute a waiver of any
other right, power or remedy.
9.03 Costs and Expenses. Borrower agrees to pay and to be liable for any
and all reasonable expenses, including attorneys' fees and court costs, incurred
by the Lender in exercising or enforcing any of its rights hereunder or under
the Other Agreements, together with interest thereon at the rate and determined
in the manner provided in the Mortgage. Subject to the Mortgage and applicable
law, the Lender may apply all Collateral and proceeds of all Collateral to the
Obligations in any manner which the Lender, in its sole discretion, deems
appropriate, and Borrower will continue to be liable for any deficiency.
9.04 Late Payment Charges. If payment of any principal and/or interest due
under the terms of the Note is not received at the office of the Lender in
Herridon, Virginia, or as the Lender may otherwise designate to the Borrower,
within such time period as the Lender may
16
<PAGE>
prescribe from time to time in its policies in connection with any late payment
charges (such unpaid amount of principal and/or interest being herein called the
"delinquent amount" and the period beginning after such due date until payment
of the delinquent amount being herein called the "late-payment period"), the
Borrower will pay to the Lender, in addition to all other amounts due under the
terms of the Note, the Mortgage, and this Agreement, any late-payment charge as
may be fixed by the Lender from time to time, on the delinquent amount for the
late-payment period.
9.05 Lenders, Setoff. The Lender shall have the right, in addition to all
other rights and remedies available to it, to setoff and to recover against any
or all of the Obligations due to Lender, any monies now and hereafter owing to
Borrower by the Lender. Borrower waives all rights of setoff, deduction,
recoupment and counterclaim.
10. MISCELLANEOUS
10.01 Performance for Borrower. Borrower agrees and hereby authorizes that
the Lender may, in its sole discretion, but the Lender shall not be obligated
to, advance funds on behalf of Borrower without prior notice to Borrower, in
order to insure Borrower's compliance with any material covenant, warranty,
representation or agreement of Borrower made in or pursuant to this Agreement or
any of the Other Agreements, to preserve or protect any right or interest of the
Lender in the Collateral or under or pursuant to this Agreement or any of the
Other Agreements, including without limitation, the payment of any insurance
premiums or taxes and the satisfaction or discharge of any judgment or any Lien
upon the Collateral or other property or assets of Borrower; provided, however
(1) prior to making any such advance, the Lender shall give the Borrower prior
written notice of its intent to make such advances and, unless there is some
imminent danger of the occurrence of a Material Adverse Effect, the Borrower
shall have fifteen (15) Business Days to rectify the issue set forth In such
notice, and (ii) that the making of any such advance by the Lender shall not
constitute a waiver by the Lender of any Event of Default with respect to which
such advance is made nor relieve Borrower of any such Event or Default, Borrower
shall pay to the Lender upon demand all such advances made by the Lender with
interest thereon at the rate and determined in the manner provided in the Note.
All such advances shall be deemed to be included in the Obligations and secured
by the security interest granted the Lender hereunder to the extent permitted by
law.
10.02 Expenses and Filing Fees. Whether or not any of the transactions
contemplated hereby shall be consummated, Borrower agrees to pay to the Lender
at Closing or thirty (30) days after the execution and delivery hereof,
whichever is earlier, all expenses of the Lender in connection with the filing
or recordation of all financing statements and instruments as may be required by
the Lender at the time of, or subsequent to, the execution of this Agreement,
including, without limitation, all documentary stamps, recordation and transfer
taxes and other costs and taxes incident to recordation of any document or
instrument in connection herewith. Borrower agrees to save harmless and
indemnify the Lender from and against any liability resulting from the failure
to pay any required documentary stamps, recordation and transfer taxes,
recording costs, or any other expenses incurred by the Lender in connection with
this Agreement. The provisions of this Subsection 10.02 shall survive the
execution and delivery of this Agreement and the payment of all other
Obligations.
17
<PAGE>
10.03 Waivers by Borrower. Borrower hereby waives, to the extent the same
may be waived under applicable law: (a) in the event the Lender seeks to
repossess any or all of the Collateral by judicial proceedings, any bond(s) or
demand(s) for possession which otherwise may be necessary or required; (b)
presentment, demand for payment, protest and notice of non-payment and all
exemptions; and (c) substitution, impairment, exchange or release of any
collateral security for any of the Obligations, Borrower agrees that the Lender
may exercise any or all of its rights and/or remedies hereunder and under the
Other Agreements without resorting to and without regard to security or sources
of liability with respect to any of the Obligations.
10.04 Waivers by the Lender. Neither any failure nor any delay on the part
of the Lender in exercising any right, power or remedy hereunder or under any of
the Other Agreements shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy, been mailed, postage prepaid, to
Borrower, the Lender shall receive written notice of specific objection thereto.
10.06 Modifications. No modification or waiver of any provision of this
Agreement, the Note or any of the Other Agreements, and no consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand upon Borrower in any case shall entitle Borrower to any other or further
notice or demand in the same, similar or other circumstances.
10.07 Notices. All notices, requests and other communications provided for
herein including, without limitation, any modifications of, or waivers, requests
or consents under, this Agreement shall be given or made in writing (including,
without limitation, by telecopy) and delivered to the intended recipient at the
"Address for Notices" specified below; or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when personally delivered or, in the case of a
mailed or telecopied notice, upon receipt, in each case given or addressed as
provided for herein. The Address for Notices of the respective parties are as
follows:
The Lender:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 20171-3025
Attention: Loan Officer
Fax: 703-709-6776
The Borrower:
Mebtel Inc.
18
<PAGE>
103 South 7th Street
PO Box 9
Mebane, North Carolina 27303
With a copy to:
Mebtel, Inc.
c/o Madison River Telephone Company
6330 Quadrangle Drive
Chapel Hill, North Carolina 27514
Attn: Managing Director, Finance and General Counsel
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF VIRGINIA.
(b) BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE ESTABLISHING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
10.09 Holiday Payments. If any payment to be made by the Borrower hereunder
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall be
included in computing any interest in respect of such payment.
10.10 Consent to Patronage Capital Distributions. The Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in Section
1388 of the Internal Revenue Code of 1986, as amended ("Code") including any
other comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
19
<PAGE>
10.11 Right to Inspect. The Borrower shall permit representatives of the
Lender at any time during normal business hours to inspect and make abstracts
from the books and records pertaining to the Collateral, and permit
representatives of the Lender to be present at Borrower's place of business to
receive copies of all communications and remittances relating to the Collateral,
all in such manner as the Lender may reasonably require, provided, that prior to
--------
the occurrence and continuance of an Event of Default the Lender shall not
exercise its rights pursuant to this Section 10.11 more than one time per
calendar quarter.
10.12 Survival; Successors and Assigns. All covenants, agreements,
representations and warranties made herein and in the Other Agreements shall
survive Closing and the execution and delivery to the Lender of the Note, and
shall continue in full force and effect until all of the Obligations have been
paid in full. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on behalf
of Borrower which are contained in this Agreement and the Other Agreements shall
inure to the benefit of the successors and assigns of the Lender.
10.13 Assignment. The Lender may assign its rights and obligations under
this Agreement and the Other Agreements without the consent of the Borrower;
provided, however, that no such assignment shall effect any of the material
terms of this agreement (other than the name of the Lender and the address for
notices and payments) or otherwise result in terms or conditions less favorable
to Borrower. The Borrower may not assign any of its rights of obligations under
this Agreement or the Other Agreements without the prior written consent of the
Lender.
10.14 Severability. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any reason
be found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term, provision or
condition, and this Agreement, the Note, and the Other Agreements shall survive
and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
10.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counter-parts shall together constitute one and the same instrument.
10.16 Headings/Use of Terms. The headings and sub-headings contained in
this Agreement are intended to be used for convenience only and do not
constitute part of this Agreement. The use of any gender or the neuter herein
shall also refer to the other gender or the neuter and the use of the plural
shall also refer to the singular, and vice versa.
10.17 Further Assurances. The Borrower will, upon demand of the Lender,
make, execute, acknowledge and deliver all such further and supplemental
indentures of mortgage,
20
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deeds of trust, mortgages, financing statements,
continuation statements, security agreements and/or any other instruments and
conveyances as may be reasonably requested by the Lender to effectuate the
intention of this Agreement and to provide for the securing and payment of the
principal of and interest on the Note according to the terms thereof.
10.18 Lender's Approval. Wherever prior written approval of Lender is
required under the terms and conditions of this Agreement, Lender hereby agrees
to not unreasonably withhold said approval.
10.19 Merger and Integration. This Agreement and the attached exhibits and
matters incorporated by reference contain the entire agreement of the parties
hereto with respect to the matters covered and the transactions contemplated
hereby, and no other agreement, statement or promise made by any party hereto,
or by any employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid or binding.
10.20 Schedule 1. Schedule 1 attached hereto is an integral part of this
Agreement.
21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
MEBTEL, INC.
By: PAUL H. SUNU
-------------------------------
Title: EXECUTIVE VICE PRESIDENT
----------------------------
(SEAL)
Attest: EARL D. BISHOP
------------------------------
Assistant Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: ROBIN C. REED
-------------------------------
Title: Assistant Secretary-Treasurer
(SEAL)
Attest: FAUN ZARI
-----------------------------
Assistant Secretary-Treasurer
22
<PAGE>
SCHEDULE 1
1. The "Commitment" shall mean $23,290,526.
2. The Mortgage is the Mortgage and Security Agreement by and between
Borrower and Lender dated as of even date herewith.
3. The months relating to the Payment Date are February, May, August and
November.
4. The method of amortization referred to in Section 2.03 shall be based
upon the method indicated below.
X level principal plus interest (one year
-----
interest only and principal deferral)
_____ level debt service
5. The amount referred to in Section 2.05 is $1,164,526.
6. The date of Borrower's financial statement referred to in Section 4.06 is
December 31, 1996.
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is PO Box 9, 103 South 7th Street,
Mebane, NC 27302.
8. The government authorities referred to in Section 4.13 are the North
Carolina Utilities Commission and the Federal Communications Commission.
9. The special conditions referred to in Section 5.05 are as follows:
1. Prior to the initial Advance of funds from this Loan, Lender shall
receive, in form and content satisfactory to Lender, the following:
a) Evidence of a common equity capital contribution equal to the
greater of: (i) $7,159,000 or (ii) 25% of the total transaction
costs, including debt replacement, of the acquisition
contemplated herein but excluding any costs incurred in
connection with the Subordinated Capital Certificates;
b) Evidence of the approval of the acquisition and of the financing
contemplated herein by the North Carolina Utilities Commission;
c) A copy of the draft Promissory Note to be issued to the
shareholders of MEBCOM Communications, Inc. ("MEBCOM") to
facilitate closing on the acquisition of the MEBCOM stock
pursuant to the Stock Purchase Agreement dated September 12, 1997
("Seller Note"); and
23
<PAGE>
d) Copies of all documentation related to Madison River Telephone
Company's newly-formed acquisition company's merger into MEBCOM
and subsequent merger into MEBTEL, Inc.
2. All funds for the purpose of refinancing existing debt of MEBTEL, Inc.
will be wired directly to the Rural Utilities Service ("RUS"). Within
30 Business Days of such Advance, Lender shall receive evidence that
all obligations of MEBTEL, Inc. have been satisfied and all liens
related thereto have been released.
10. The purpose referred to in Section 6.05 is to (i) fund up to 70% of the
total costs to acquire the stock of MEBTEL, INC., (ii) refinance all of
Borrower's outstanding debt with RUS and the Rural Telephone Bank, and
(iii) to purchase SCCs.
11. The special affirmative covenants referred to in Section 6.06 are as
follows:
Within 5 Business Days of Closing, Lender shall receive evidence that the
Seller Note has been fully repaid and all obligations thereunder have been
satisfied.
12. The special negative covenants referred to in Section 7.04 are not
applicable.
24
<PAGE>
SECURED PROMISSORY NOTE
$23,290,526 January 16, 1998
MEBTEL, INC., a North Carolina corporation (herein called the "Borrower"), for
value received hereby promises to pay, without setoff, deduction, recoupment or
counterclaim, to the order of RURAL TELEPHONE FINANCE COOPERATIVE (herein called
the "Payee") at the Payee's office in Hemdon, Virginia, or such other location
as the Payee may designate, in lawful money of the United States, the sum of the
aggregate unpaid principal amount of all Advances made by the Payee pursuant to
that certain Loan Agreement dated as of even date herewith, between the Borrower
and the Payee as it may be amended from time to time (herein called the "Loan
Agreement"), on the dates provided for in the Loan Agreement (except that if not
sooner paid, any balance shall be due and payable an a date fifteen (15) years
after the date hereof, such date being the "Maturity Date"), with interest
thereon in like money from the respective dates of each Advance (as defined in
the Loan Agreement) hereunder, at the rate or rates and payable at the times
provided in said Loan Agreement together with any other amount payable under the
Loan Agreement.
This Note is secured under a Mortgage and Security Agreement dated as of even
date herewith by and between the Borrower and the Payee, as It may have been or
shall be supplemented, amended, restated or consolidated from time to time
(herein called the "Mortgage"). This Note is the Note referred to in, and has
been executed and delivered pursuant to, the Loan Agreement.
The principal hereof and interest accrued thereon and any other amount due under
the Loan Agreement may be declared to be forthwith due and payable in the
manner, upon the conditions, and with the effect provided in the Mortgage or
Loan Agreement.
The Borrower waives demand, presentment for payment, notice of dishonor,
protest, notice of protest, and notice of non-payment of this Note.
IN WITNESS WHEREOF the Borrower has caused this Note to be signed in its
corporate name and its corporate seal to be hereunto affixed and to be attested
by its authorized officers, all as of the day and year first above written.
MEBTEL, INC.
By: PAUL H. SUNU
------------------------------
Title EXECUTIVE VICE PRESIDENT
----------------------------
(SEAL)
Attest: EARL D. BISHOP
----------------
Assistant Secretary
Loan No.: NC 508-A-01
25
<PAGE>
Exhibit 10.14
RURAL TELEPHONE FINANCE COOPERATIVE
SECURED REVOLVING LINE OF CREDIT AGREEMENT
("Agreement")
MEBTEL, INC., a North Carolina corporation ("Borrower") located at
_________________, hereby agrees to borrow from Rural Telephone Finance
Cooperative ("RTFC" or "Lender"), a South Dakota cooperative association,
pursuant to the terms of this Agreement, dated as of January 16, 1998, for a
revolving line of credit loan in an amount not to exceed one million dollars
($1,000,000). In consideration of their mutual premises hereunder and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Lender and Borrower agree to the following terms and conditions:
1. Revolving Credit and Term. Lender agrees to make advances to the Borrower
pursuant to the terms of this Agreement ("Advances"). The maximum principal
amount outstanding at any point in time shall not exceed $1,000,000. Within
such limits, the Borrower may borrow, repay and reborrow at any time or
from time to time for a period up to five (5) years from the date hereof
(the "Maturity Date").
2. Requisitions. The Borrower shall give Lender such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. Interest Rate and Payment. The Borrower unconditionally promises and agrees
to pay, as and when due, interest on all amounts advanced hereunder from
the date of each Advance and to repay all amounts advanced hereunder with
interest on the Maturity Date. Interest shall be due and payable quarterly
on the first day of each January, April, July, and October, commencing on
the first such date after such initial Advance; except that if Lender gives
notice thereof to the Borrower before the first day of any month, interest
shall thereafter be due and payable on the 15th day of such month and each
month thereafter. Lender shall invoice the Borrower at least five days
prior to the due date of any such interest payment. All amounts shall be
payable at RTFC's main office at Woodland Park, 2201 Cooperative Way,
Herndon, Virginia 20171-3025 or at such other location as designated by
Lender from time to time.
The interest rate on all Advances will be equal to the Prevailing Bank
Prime Rate (as defined herein), plus one and one-half percent per annum or
such lesser total rate per annum as may be fixed by Lender from time to
time. Interest will be computed on the basis of a year of 365 days. The
interest rate will be adjusted as determined from time to time by Lender,
provided that no such adjustment may be effective on a date other than the
first or sixteenth day of any month, and will remain in effect until a
subsequent change in rate occurs.
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which Lender
determines in its discretion to be the representative bank prime rate on
the day preceding the day on which an adjustment in the interest rate
hereof shall become effective. If such preceding day is not a publication
day for The Wall Street Journal then the Prevailing Bank Prime Rate
1
<PAGE>
shall be established by reference to such "Money Rates" column as of the
last publication day next preceding the day on which such adjustment shall
become effective; provided if The Wall Street Journal shall cease to be
published, then the Prevailing Bank Prime Rate shall be determined by RTFC
by reference to another publication reporting bank prime rates in a similar
manner.
4. RTFC Accounts. Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower
resulting from each Advance made from time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In any
legal action or proceeding in respect of this Agreement, the entries made
in such account or accounts (whether stored on computer memory, microfilm,
invoices or otherwise) shall be presumptive evidence (absent manifest
error) of the existence and amounts of the Borrowers transactions therein
recorded.
5. Corporate and Regulatory Approvals. Borrower represents that it has
obtained any and all necessary corporate and regulatory approvals for
Borrower to execute and perform pursuant to this Agreement.
6. Reports. Borrower agrees to deliver to Lender, promptly upon their becoming
available, a copy of (i) any annual audit report prepared subsequent to the
submission of this Agreement; (ii) its monthly operating report within
thirty (30) days for any month in which there are advances outstanding
pursuant to this Agreement; and (iii) any other reports which Lender
reasonably requests during the term of this Agreement.
7. Covenants/Financial Ratios. Until the Maturity Date, Borrower agrees to
honor and be bound by the affirmative and negative covenants, and financial
ratios, (collectively, the "Covenants") contained in Sections 6 and 7 of
the Loan Agreement by and between Borrower and Lender dated as of even date
herewith, as it may be amended from time to-time (the "Loan Agreement"),
and such covenants shall be incorporated by reference as if fully stated
herein.
8. Fees. If any amount outstanding and due hereunder shall not be paid when
due, Borrower agrees to pay on demand Lenders reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at Lender's
office in Herndon, Virginia, or such other location designated by Lender
within five (5) business days after the due date thereof (such unpaid
amount of principal and/or interest being herein called the "delinquent
amount," and the period beginning after such due date being herein called
the "late-payment period"), Borrower will pay to Lender, on demand, in
addition to all other amounts due under the terms of this Agreement, any
late-payment charge as may then be in effect pursuant to Lender's policy on
the delinquent amount for the late payment period.
9. Credit Support. This Agreement may not be used as credit support for any
other financings without Lender's prior written approval.
2
<PAGE>
10. Notices, Acceleration of Debt and Waivers. While any amount hereunder is
outstanding, Borrower agrees to notify Lender of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition, and if any representation or warranty made
in this Agreement has become untrue in any respect having a material
adverse effect on the financial condition or business of the Borrower.
Lender may declare at any time all outstanding amounts hereunder
immediately due and payable in full with accrued interest, without
presentment or demand, and may withhold advances of funds upon the
occurrence of any of the following: (i) any delinquency or default in
payment of any sum due the Lender under the Agreement; (ii) a court shall
enter a decree or order for relief with respect to Borrower or any
subsidiary or guarantor in an insolvency or bankruptcy or appoint a
receiver, liquidator, trustee or similar official and such order remains in
effect for a period of ninety (90) days; (iii) Borrower or any subsidiary
shall commence a voluntary case under bankruptcy, insolvency or similar law
or consent to the appointment of a receiver, liquidator, or trustee; (iv)
the dissolution or liquidation of Borrower or subsidiary or guarantor or
failure to forestall or remove any execution, garnishment or attachment of
such consequence as to impair its ability to continue business and such
execution, garnishment or attachment shall not be vacated within thirty
(30) days; or (v) any other event as a result of which any holder of
indebtedness in excess of five percent (5%) of Borrower's total assets may
declare the same due and payable shall occur and continue for more than any
applicable grace period.
If any representation or warranty herein shall become untrue, or Borrower
shall fail to comply with any term of this Agreement or if the financial
condition of Borrower shall have changed to the extent that such change in
the reasonable judgment of RTFC, materially increases RTFC's risk
hereunder, then RTFC at its discretion may withhold advances of funds
and/or declare all outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand.
The Borrower waives the defense of usury and all rights to set off,
counterclaim, deduction or recoupment.
11. Purpose, Repayments and Deposit. Borrower agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Borrower
relating to its operations.
Borrower agrees that this loan shall be repayable out of Borrowers general
funds and that loan proceeds will not be deposited in any other account
dedicated for secured financing advances.
12. Additional Indebtedness. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to Lender or permitted pursuant to
the Loan Agreement, Borrower agrees that it will not, without the prior
written consent of Lender, (i) make
3
<PAGE>
distributions of cash to its shareholders, if applicable, or (ii) create,
incur, assume, guarantee or otherwise become obligated for any additional
indebtedness, other than to Lender except that the Borrower may borrow
against another loan previously approved by Lender.
13. Survival of Representations, Warranties and Payment Obligations. Borrower
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
14. Representations and Warranties. Except as set forth in writing and attached
hereto, Borrower represents and warrants as of the date of its application
and on the date of each and every Advance hereunder that:
(a) The Borrower has and will meet all obligations and be in compliance
with all instruments under which it is bound and that all information
submitted in support of its application is true, complete and correct
except where the failure to so comply or the inaccuracy of any such
information could not, in either case, be reasonably be expected to
have a Material Adverse Effect (as defined in the Loan Agreement);
(b) There has been no material adverse change in the Borrower's business
or financial condition from that set forth in its most recent audited
financial statements provided to Lender;
(c) The Borrower has no outstanding loans from sources other than Lender;
(d) The Borrower is not in default in any material respect of any of its
obligations and no litigation is threatened or pending which would
have a material adverse impact on the Borrowers ability to perform
under this Agreement; and
(e) The Borrower has no lines of credit with any other lenders.
15. Consent to Patronage Capital Distributions. Borrower hereby consents that
the amount of any distributions with respect to Borrower's patronage which
are made in written notices of allocation (as defined in Section 1388 of
the Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
16. Severability. If any term, provision or condition, or any part thereof, of
this Agreement shall for any reason be found or held invalid or
unenforceable by any court or governmental agency of competent
jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term,
provision or condition, and this Agreement shall survive and be construed
as if such
4
<PAGE>
invalid or unenforceable term, provision or condition had not been
contained therein.
17. Setoff. Lender is hereby authorized at any time and from time to time
without prior notice to the Borrower to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by Lender
or owed to the Borrower or for the credit or account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing hereunder. Lender agrees to notify the Borrower promptly after any
such setoff or recoupment and the application thereof, provided that the
failure to give such notice shall not affect the validity of such setoff,
recoupment or application. The rights of Lender under this section are in
addition to any other rights and remedies (including other rights of setoff
or recoupment) which Lender may have.
18. Additional Terms and Conditions. Additional terms and conditions set forth
herein or attached hereto as Exhibit A are an integral part of this
Agreement.
19. Integration. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and signed
by both parties.
20. Headings. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
21. Security. All Advances hereunder shall be secured by a security interest in
certain of Borrower's properties pursuant to a Mortgage and Security
Agreement by and between Borrower and RTFC entered into as of even date
herewith, which has been filed along with UCC-1 financing statements in all
such locations necessary to provide RTFC with a first priority, perfected
lien (except as permitted by the Mortgage) on all of Borrower's Mortgaged
Property (as defined in the Mortgage). Such Mortgage and Security Agreement
and UCC-1 financing statements shall continually exist until the later of
(i) all Advances and fees hereunder having been repaid or (ii) the Maturity
Date. Borrower agrees that, with respect to the Collateral which is subject
to Article 9 of the Uniform Commercial Code, the Lender shall have, but not
be limited to, all the rights and remedies of a secured party under the
Uniform Commercial Code.
22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
23. Special Conditions. None.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
MEBTEL, INC.
By: PAUL H. SUNU
------------------------------
Title: EXECUTIVE VICE PRESIDENT
----------------------------
(SEAL)
Attest: EARL D. BISHOP
-------------------------
Assistant Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: ROBIN C. REED
-------------------------------
Title: Assistant Secretary-Treasurer
(SEAL)
Attest: FAUN ZARI
-----------------------------
Assistant Secretary-Treasurer
6
<PAGE>
Exhibit 10.15
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of October 30, 1998, by and between
GALLATIN RIVER COMMUNICATIONS, LLC, a Delaware limited liability company
("Borrower"), and RURAL TELEPHONE FINANCE COOPERATIVE, a South Dakota
cooperative association ("Lender").
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan to Borrower
described in Schedule 1 hereto; and
WHEREAS, Lender is willing to make the Loan upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, Borrower and Lender do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement, unless
the context otherwise requires, when used herein, the following terms shall have
the following meanings:
"Adjustment Date" shall mean the last date of the term (or rate period) of
the applicable Fixed Rate, after the date of the initial Advance to the Maturity
Date.
"Advance" shall mean an advance as defined in Section 2.02.
"Business Day" shall mean any day that Lender is open for business.
"Cash Margins" for any year shall mean net income plus depreciation,
amortization and any other non-cash charges, less any non-cash credits and
principal on long-term debt payable in such year, as calculated on a
consolidated basis for Borrower and all its Subsidiaries.
"Certified" shall mean that the information, statement, schedule, report or
other document required to be "Certified" shall contain a representation of a
duly authorized officer of Borrower that such information, statement, schedule,
report or other document is true and correct and complete.
"Closing" shall mean the first date on which funds are advanced to Borrower
hereunder.
"Collateral" shall mean the Mortgaged Property, as such term is defined in
the Mortgage, and all proceeds, cash and non-cash, including insurance proceeds,
of the foregoing, whether in the possession of Borrower or any other person.
<PAGE>
"Commitment" shall have the meaning set forth in Schedule 1 hereto.
"Current Ratio" for any year shall mean the ratio of total current assets
to total current liabilities, as calculated by dividing total current assets by
total current liabilities, on a consolidated basis for Borrower and all its
Subsidiaries.
"Debt Service Coverage Ratio" or "DSC" for any year shall mean (a) total
net income or margins plus depreciation and amortization expense and interest on
long-term debt for such year, divided by (b) principal and interest on long-term
debt payable in such year, as calculated on a consolidated basis for the
Borrower and all its Subsidiaries.
"Event of Default" shall mean any of the events described in Section 8
hereof.
"Fixed Rate" shall mean the interest rate per annum provided for in Section
2.03 of this Agreement, plus 75 basis points (or plus 50 basis points beginning
on the January 1st immediately following the fiscal year-end in which Borrower
achieves a Leverage Ratio of 5.0 or less, or plus 25 basis points beginning on
the January 1st immediately following the fiscal year-end in which Borrower
achieves a Leverage Ratio of 3.0 or less).
"Leases" shall mean any lease of property by which Borrower shall be
obligated for rental or other payments which in the aggregate for any fiscal
year are in excess of $100,000 other than such equipment leases which are in
form and substance substantially in conformity with lease agreements in general
use in Borrower's industry by companies of size and character similar to
Borrower.
"Leverage Ratio" for any year shall mean (a) total debt divided by (b) the
sum of: (i) total net income or margins, (ii) income taxes, (iii) interest
expense payable on long-term debt for such year, (iv) depreciation and
amortization expense where pre-tax income or loss excludes any extraordinary
gains, (v) the write-up of any asset, and (vi) any investment income or losses
(including all Lender patronage capital allocations), as measured on a
consolidated basis for Borrower and all its Subsidiaries.
"Lien" shall mean any statutory or common law consensual or non-consensual
mortgage, pledge, security interest, encumbrance, lien, right of set-off, claim
or charge of any kind, including, without limitation, any conditional sale or
other title retention transaction, any lease transaction in the nature thereof
and any secured transaction under the Uniform Commercial Code of any
jurisdiction.
"Loan" shall mean the loan by the Lender to Borrower, pursuant to this
Agreement and the Note, in an aggregate principal amount not to exceed the
Commitment.
"Make-Whole Premium" shall mean the excess, if any, of (i) the present
value of the amount of interest that would have accrued during the applicable
Fixed Rate period on that portion of the Loan to be prepaid or converted over
(ii) the present value of the amount of interest Lender would earn if that
portion of the Loan to be prepaid or converted was reinvested
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<PAGE>
for the remainder of the applicable Fixed Rate period in U.S. Treasury
obligations with a maturity comparable to the remaining term of the applicable
Fixed Rate period. For purposes of calculating the -present value in (i) and
(ii) above, the discount rate will be the rate of interest accruing on the U.S.
Treasury obligations in (ii) above.
"Material Adverse Effect" shall mean any event or circumstance which, in
Lender's reasonable discretion, has a material and adverse effect upon the
business, operations, assets or properties or financial condition of the
Borrower and its Subsidiaries, taken as a whole.
"Maturity Date" shall mean the maturity date defined in the Note.
"Minimum Net Worth Test" shall be calculated on a consolidated basis for
the Borrower and all its Subsidiaries, and shall mean an equity to total asset
ratio of at least forty percent (40%). Equity shall be determined by subtracting
total liabilities from total assets.
"Mortgage" shall mean the mortgage and security agreement described in
Schedule 1.
"Net Worth" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries taken as a whole and arrived at by subtracting total
liabilities from total assets.
"Note" shall mean the Note executed and delivered by Borrower at or prior
to Closing pursuant to Subsection 5.02(a) hereof, and all renewals, replacements
and extensions thereof.
"Obligations" shall include the full and punctual performance of all
present and future covenants and responsibilities due to the Lender by Borrower
under this Agreement, the Note, the Other Agreements, all present and future
obligations of Borrower to the Lender for the payment of money under this
Agreement, the Note, the Other Agreements, extending to all principal amounts,
interest, late charges and all other charges and sums, as well as all costs and
expenses payable by Borrower under this Agreement, the Note, the Other
Agreements, and any and all other present and future monetary liabilities of
Borrower to the Lender, whether direct or indirect, contingent or noncontingent,
matured or unmatured, accrued or not accrued, related or unrelated to this
Agreement whether or not of the same character or class as Borrower's
obligations under this Agreement and the Note, whether or not secured under any
other document, instrument or statutory or common law provision, as well as all
renewals, refinancings, consolidations, recastings and extensions of any of the
foregoing.
"Other Agreements" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower and executed and/or delivered pursuant to this Agreement or
guaranteeing, securing or in any other manner relating to any of the
Obligations, including, the instruments and documents referred to in Subsection
5.02 hereof.
"Payment Date" shall mean the last day of each of the months referred to in
Schedule 1 hereto.
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<PAGE>
"Payment Notice" shall mean the notice furnished to the Borrower at least
quarterly indicating the precise amount of principal and/or interest due on the
next ensuing Payment Date, notice to be sent to the Borrower at least ten (10)
days before such Payment Date.
"Person" shall include natural persons, corporations, associations,
partnerships, limited liability companies, joint ventures, trusts, governments
and agencies and departments thereof, and every other entity of companies, every
kind.
"Subordinated Capital Certificate" or "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the Borrower
in connection with the Loan.
"Subsidiary" at any time means any entity which is at the time beneficially
owned or controlled directly or indirectly by the Borrower, by one or more such
entities or by the Borrower and one or more such entities.
"Termination Date" shall mean that date which is two (2) years from the
date hereof.
"Times Interest Earned Ratio" or "TIER" for any year shall mean (a) total
net income or margins plus income taxes plus interest payable on long-term debt
for such year, divided by (b) interest on long-term debt payable in such year,
as measured on a consolidated basis for the Borrower and all its Subsidiaries.
"Total Plant" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries and shall mean the total of all assets included in
property, plant and equipment pursuant to generally accepted accounting
principles and shall exclude any goodwill or plant acquisition adjustments.
"Variable Rate" shall mean the variable rate established by the Lender from
time to time for loans similarly classified pursuant to Lender's policies and
procedures then in effect, plus 75 basis points (or plus 50 basis points
beginning on the January 1st immediately following the fiscal year-end in which
Borrower achieves a Leverage Ratio of 5.0 or less, or plus 25 basis points
beginning on the January 1st immediately following the fiscal year-end in which
Borrower achieves a Leverage Ratio of 3.0 or less).
2. LOAN
2.01 Loan. The Lender agrees to make the Loan to Borrower subject to all
of the terms and conditions of this Agreement and the Other Agreements.
2.02 Advances. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time to
time at the office of the Lender in Herndon, Virginia, or at such other place as
the Lender may designate, not to exceed the Commitment. The Borrower shall give
the Lender at least one Business Day prior written notice of the date on which
each Advance is to be made. On the Termination Date, the Lender may stop
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<PAGE>
advancing funds and reduce the Commitment to the aggregate amount theretofore
advanced. The obligation of the Borrower to repay the Advances shall be
evidenced by the Note.
2.03 Payment, Amortization and Interest Rate.
(a) Payment. The Borrower shall pay on each Payment Date quarterly
-------
installments, in an amount as determined by the Lender, of principal and/or
interest as shown in the Payment Notice, except that, if not sooner paid, any
balance of the principal amount and interest accrued thereon and all other
amounts due hereunder shall be due and payable on the Maturity Date. Payment of
principal hereunder shall commence on the date which is one-year after the first
full quarter following the initial Advance of funds as set forth in Schedule 1
and on each subsequent Payment Date until the Maturity Date or such earlier date
as all amounts due hereunder and on account of the Note shall have been paid in
full. Payment of interest hereunder is due on each Payment Date in which a
principal balance is outstanding. Principal will be amortized in accordance with
the method stated in Schedule 1 hereto.
The Lender will use, for purposes of calculating the amortization of principal,
one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect on
the Adjustment Date; or
(ii) If the Borrower elects the Variable Rate, the Variable Rate in effect
when amortization begins; or
(iii) If the Borrower elects to convert from one interest rate program to
another pursuant to the provisions hereunder, the interest rate then
in effect for the elected program.
At the Lender's option, all payments shall be applied first to late payment
charges due, as hereinafter provided, then to interest accrued to the date of
such payment, and then to the reduction of principal balance outstanding.
No provision of this Agreement or the Note shall require the payment, or permit
the collection, of interest in excess of the highest rate permitted by
applicable law.
(b) Interest Rate. Each Advance shall be initially made at the Variable
---------------
Rate. Interest shall be computed from the actual number of days elapsed on the
basis of a year of 365 days until the first Payment Date following the initial
Advance. Thereafter, interest shall continue to be computed for the actual
number of days elapsed on the basis of a year of 365 days unless a Fixed Rate is
applicable to the Loan, in which case interest shall be computed on the basis of
a 30-day month and 360-day year.
(i) Variable Rate. If Advances are made at the Variable Rate, it shall
-------------
apply until the Maturity Date, except as provided herein below.
5
<PAGE>
(ii) Fixed Rate. If the Borrower elects a Fixed Rate, such Fixed Rate as
----------
is available and in effect for loans similarly classified pursuant
to Lender's policies and procedures there in effect at the time of
the election shall apply to such Advance until the Adjustment Date.
Upon notice given by the Borrower five (5) Business Days prior to
such Adjustment Date, Borrower may elect to reset the interest rate
to such Fixed Rate as is available and in effect at the time of such
Adjustment Date. Such reset Fixed Rate shall apply to that portion
of the outstanding principal balance of the Loan elected to have a
Fixed Rate from the Adjustment Date until a new Adjustment Date or
the Maturity Date. If Borrower does not elect to reset the Fixed
Rate, the Variable Rate shall apply to the outstanding principal
balance of the Loan that had been bearing interest at the Fixed Rate
prior to such Adjustment Date, from such Adjustment Date to the
Maturity Date.
(iii) Conversion to Different Interest Program.
-----------------------------------------
(A) Variable Rate to Fixed Rate. Subject to the conditions set forth
----------------------------
herein, the Borrower may convert from the Variable Rate to the Fixed
Rate for any portion or all of the principal amount of the
Commitment then outstanding at any time provided the Lender offers a
Fixed Rate at such time for similarly classified loans.
(B) Fixed Rate to Variable Rate. The Borrower may convert from a
----------------------------
Fixed Rate to the Variable Rate: (1) on an Adjustment Date or (2) at
any other time, provided that the Borrower shall pay Lender any
applicable Make-Whole Premium.
2.04 Prepayment. In the event the Borrower prepays all or part of the Loan,
the Borrower shall pay any prepayment fee required pursuant to the terms of this
Section 2.04. All prepayments shall be accompanied by payment of accrued and
unpaid interest on the amount of and to the date of the prepayment. All
prepayments shall be applied first to fees, second to the payment of accrued and
unpaid interest, and then to the unpaid balance of the principal amount of the
Loan; provided, however, Borrower may at its option allocate principal
-----------------
prepayment between amounts outstanding on Variable Rate Loans and Fixed Rate
Loans. If the Loan bears interest at the Variable Rate the Borrower may prepay
the Loan or any portion thereof, as the case may be, at any time subject to the
terms hereof and said prepayment fee shall be in an amount equal to fifty (50)
basis points times the amount being prepaid. If the Loan bears interest at the
Fixed Rate, the Borrower may prepay the Loan only on an Adjustment Date or any
such other date provided that the Borrower shall pay a prepayment fee in an
amount equal to fifty (50) basis points times the amount being prepaid plus any
applicable Make-Whole Premium (which Make-Whole Premium shall only be paid to
the extent any Fixed Rate Loan is prepaid on any date other than an Adjustment
Date). Notwithstanding anything to the contrary herein, if Borrower shall make a
permitted prepayment pursuant to the terms hereto, then, upon Borrower's
request, Lender shall re-amortize the Loan pursuant to the method of
amortization designated in Section 2.03 (a).
2.05 5% Subordinated Capital Certificate. The Borrower shall purchase SCCs
which in the aggregate shall not exceed the amount specified in Schedule 1
hereto. Unless otherwise
6
<PAGE>
requested in writing by the Borrower prior to the initial Advance and approved
by the Lender, the Borrower agrees to purchase SCCs either: (1) with each
Advance in the amount of five percent (5%) of each such Advance, and each such
SCC shall be paid for with proceeds of such Advance, or (2) by making payments
with Borrowers own funds in twenty (20) equal quarterly installments, commencing
on the first Payment Date following the initial Advance. If the Borrower elects
to pay for SCCs other than from Loan funds, the amount of the Commitment will be
correspondingly reduced by said amount when the SCCs are fully paid. If the
Borrower obtains Advances hereunder other than for the purpose of purchasing
SCCs and fails to pay for the SCCs, then the Lender may make Advances for the
account of the Borrower to purchase the SCCs. The Lender agrees to deliver the
SCCs on or about the date on which the SCCs have been paid for in full. The SCCs
shall bear no interest and shall mature in accordance with the terms thereof.
3. SECURITY
As security for the payment and performance of all of the Obligations,
Borrower has: (i) entered into the Mortgage pledging and granting to the Lender
a prior and continuing security interest in the Collateral that may be secured
by the Mortgage that shall continually exist until all Obligations have been
paid in full, (ii) obtained executed pledge and security agreements from its
affiliated entities, Gallatin River Holdings, LLC and Madison River Telephone
Company LLC, pursuant to which certain equity interests are pledged to Lender as
are further described therein, and (iii) obtained an executed secured guaranty
from Gallatin River Holdings, LLC. If reasonably required by the Lender at any
time, Borrower shall make notations, satisfactory to the Lender, on its books
and records disclosing the existence of the Lenders security interest in the
Collateral. Borrower agrees that, with respect to the Collateral, which is
subject to Article 9 of the Uniform Commercial Code, the Lender shall have, but
not be limited to, all the rights and remedies of a secured party under the
Uniform Commercial Code. The Lender shall have no liability or duty, either
before or after the occurrence of an Event of Default hereunder, on account of
loss of or damage to, or to collect or enforce any of its rights against, the
Collateral, or to preserve any rights against account debtors or other parties
with prior interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents and
warrants to the Lender as of the date of this Agreement that:
4.01 Good Standing. Borrower is a limited liability company duly organized,
validly existing and in good standing under the laws of the state of its
organization, has the power to own its property and to carry on its business, is
duly qualified to do business, and is in good standing in each jurisdiction in
which the transaction of its business makes such qualification necessary, except
to the extent such lack of qualification would not have a Material Adverse
Effect.
4.02 Authority. Borrower has the necessary power and authority to enter
into this Agreement and the Mortgage, to make the borrowing hereunder, to
execute and deliver all
7
<PAGE>
documents and instruments required hereunder and to incur and perform the
obligations provided for herein, in the Mortgage, and in the Note, all of which
have been duly authorized by all necessary and proper action, and no consent or
approval of any person, including, without limitation, members of Borrower and
any public authority or regulatory body, which has not been obtained is required
as a condition to the validity or enforceability hereof or thereof.
4.03 Binding Agreement. This Agreement has been duly and properly executed
by Borrower, constitutes the valid and legally binding obligation of Borrower
and is fully enforceable against Borrower in accordance with its terms, subject
only to laws affecting the rights of creditors generally, the exercise of
judicial discretion in accordance with general principles of equity or because
waivers of statutory or common law rights or remedies may be limited.
4.04 No Conflicting Agreements. The execution, delivery of and performance
by Borrower of this Agreement, the Mortgage and the Note, and the transactions
contemplated hereby or thereby, will not: (a) violate any material provision of
law, any order, rule or regulation of any court or other agency of government,
any material award of any arbitrator, the charter or by-laws of Borrower, or any
indenture, contract, agreement, mortgage, deed of trust or other instrument to
which Borrower is a party or by which it or any of its property is bound; or (b)
be in conflict with, result in a breach of or constitute (with due notice and/or
lapse of time) a default under, any such material award, indenture, contract,
agreement, mortgage, deed of trust or other instrument, or result in the
creation or imposition of any Lien (other than contemplated hereby) upon any of
the property or assets of Borrower, except to the extent any such conflict
referred to in (a) or (b) above would not have a Material Adverse Effect.
4.05 Litigation. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, which may result in a Material Adverse
Effect, and Borrower is not, to its knowledge, in default with respect to any
judgment, order, writ, injunction, decree, rule or regulation of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which could reasonably
be expected to have a Material Adverse Effect.
4.06 Financial Condition. The financial statements of Borrower as at the
date set forth in Schedule I hereto, heretofore delivered to the Lender, are
complete and correct in all material respects, fairly present the financial
condition of Borrower and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. There are no
material liabilities of Borrower, direct or indirect, fixed or contingent, as of
the date of such statements which are not reflected therein. There has been no
material adverse change in the financial condition or operations of the Borrower
from that set forth in said financial statements except changes previously
disclosed in writing to the Lender prior to the date hereof.
4.07 Taxes. Borrower has paid or caused to be paid all federal, state and
local taxes to the extent that such taxes have become due, unless the Borrower
is contesting in good faith any such
8
<PAGE>
tax. Borrower has filed or caused to be filed all federal, state and local tax
returns which are required to be filed by Borrower.
4.08 Title to Properties. Borrower has good and marketable title to all of
its real properties and owns all of its other properties and assets free and
clear of any liens, except (i) the lien of the Mortgage and taxes or assessments
not yet due; (ii) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
(iii) deposits or pledges to secure performance of bids, tenders, contracts
(other than contracts for the payment of borrowed money), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business, and (iv)
easements, rights of way, zoning and similar restrictions and encumbrances not
interfering with the ordinary conduct of the business of Borrower and which do
not detract materially from the value of such property or asset to which they
attach or impair materially Borrower's use thereof or materially adversely
affect Lender's lien thereon.
4.09 Licenses and Permits. Borrower has duly obtained and now holds all
licenses, permits, certifications, approvals and the like necessary to own and
operate its property and business that are required by federal, state and local
laws of the jurisdictions in which Borrower conducts its business and each
remains valid and in full force and effect except to the extent the failure to
hold such licenses, permits, certifications or approvals or the lack of validity
of the foregoing could not, in each case, be reasonably expected to have a
Material Adverse Effect.
4.10 Subsidiaries. Borrower has no Subsidiaries other than Subsidiaries
heretofore disclosed to the Lender, or hereafter formed or acquired with the
prior written consent of the Lender.
4.11 Certain Indebtedness. There is no material indebtedness of Borrower
owing to any employee, officer, member, or director of the board of Borrower
other than accrued salaries, commissions and the like and any indebtedness
subordinated to the Obligations pursuant hereto.
4.12 Location of Office. The chief place of business of the Borrower and
the office where its records concerning accounts and contract rights are kept is
identified in Schedule 1 hereto.
4.13 Required Approvals. No license, consent, permit or approval of any
governmental agency or authority is required to enable the Borrower to enter
into this Agreement or to perform any of its obligations provided for herein
except as disclosed on Schedule 1 hereto and except with respect to regulatory
approvals which may be required in connection with the Lenders enforcement of
certain remedies hereunder.
4.14 ERISA. Each pension plan of Borrower and its Subsidiaries providing
benefits for employees of Borrower or such Subsidiary covered by Title IV of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereto ("ERISA"), is in compliance with ERISA in all material respects, and no
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or to a
multiemployer plan has been, or is expected by Borrower or its Subsidiaries to
be, incurred by Borrower or such Subsidiary.
9
<PAGE>
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance to Borrower
hereunder unless, as of the date of Closing, each of the following conditions
precedent shall be satisfied as provided below or otherwise waived by the
Lender:
5.01 Legal Matters. All legal matters incident to the consummation of the
transactions hereby contemplated shall be satisfactory to counsel for the Lender
and to such local counsel as counsel for the Lender may retain.
5.02 Documents. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory to
the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all such
documents and proceedings of the Borrower authorizing the
transactions herein contemplated.
(c) A written opinion from Borrowers counsel addressing such legal
matters as the Lender or its counsel shall reasonably require.
(d) The Borrower shall have (i) executed the Mortgage(s); (ii) if any
real property is owned by Borrower, recorded a valid and binding
Mortgage granting Lender a first lien in all real property owned
by Borrower; (iii) filed financing statements in all
jurisdictions necessary to provide Lender a first priority,
perfected security interest in all Collateral which may be
perfected by the filing of financing statements; and (iv)
delivered such other documents as are necessary to create or
continue a perfected security interest in favor of the Lender in
the Collateral.
(e) Pledge and security agreements dated as of even date herewith,
and related membership interest powers, from Borrowers affiliated
entities, Gallatin River Holdings, LLC and Madison River
Telephone Company, LLC.
(f) An executed secured guaranty and guarantors mortgage and security
agreement from Gallatin River Holdings, LLC.
5.03 Government Approvals. The Borrower shall have furnished to the Lender
true and correct copies of all certificates, authorizations and consents,
including without limitation the consents referred to in Section 4.13 hereof,
necessary for the execution, delivery or performance by the Borrower of this
Agreement, the Note and the Mortgage.
5.04 Representations, Warranties and Material Change. At Closing and at the
date of every subsequent Advance hereunder, all covenants, representations and
warranties set forth in
10
<PAGE>
this Agreement shall be true and correct on and as of such time with the same
effect as though such covenants, representations and warranties had been made on
and as of such date; no Event of Default specified in Section 8 and no event
which, with the lapse of time or the notice and lapse of time specified in
Section 8 would become such an Event of Default, shall have occurred and be
continuing or will have occurred after giving effect to the Advance on the books
of the Borrower, there shall have occurred no material adverse changes in the
business or condition, financial or otherwise, of the Borrower, and nothing
shall have occurred which in the opinion of the Lender materially and adversely
affects the Borrowers ability to meet its obligations hereunder.
5.05 Special Conditions. At Closing and at the time of every subsequent
Advance hereunder, the Lender and its counsel shall be fully satisfied that the
Borrower has complied and will continue to comply with any special conditions
identified in Schedule I hereto.
5.06 Requisitions. The Borrower will request Advances in form and substance
satisfactory to the Lender. Pursuant to the terms and conditions hereof, the
Lender w1ill wire the proceeds of the requested Advance to an account as
directed by the Borrower.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of the
Obligations have been paid in full, Borrower will:
6.01 Membership. Remain or an affiliate thereof will remain, a member in
good standing of the Lender.
6.02 Financial Statements and Other Information. Furnish to the Lender (a)
financial statements as required by the Mortgage; (b) such other information,
reports or statements concerning the operations, business affairs and/or
financial condition of Borrower as the Lender may reasonably request from time
to time; and (c) promptly upon their becoming available information, in form and
substance satisfactory to Lender, of any and all material changes or
modification of licenses, permits, certifications, approvals and the like
necessary for Borrower to own or operate its business or a substantial part of
its business.
6.03 Financial Ratios. Subject to applicable laws and rules and orders of
regulatory bodies, and to events which in the reasonable judgment of the Lender
are beyond the control of the Borrower, so operate and manage its business as to
achieve minimum annual DSC and TIER Ratios, and a maximum annual Leverage Ratio,
in the following amounts, in each case as of the last calendar day of any fiscal
year:
11
<PAGE>
<TABLE>
<CAPTION>
Period Minimum Minimum DSC Maximum
TIER Ratio Leverage Ratio
Requirement Requirement
- ----------------------------------------------------------------
<S> <C> <C> <C>
1999/Year 1 1.00 1.25 7.25
- ----------------------------------------------------------------
2000/Year 2 1.25 1.25 6.50
- ----------------------------------------------------------------
2001/Year 3 1.25 1.35 6.00
- ----------------------------------------------------------------
2002/Year 4 1.50 1.35 5.50
- ----------------------------------------------------------------
2003/Year 5 1.50 1.35 5.00
- ----------------------------------------------------------------
2004 - Maturity 1.50 1.35 4.50
- ----------------------------------------------------------------
</TABLE>
6.04 Annual Certificate. Within one hundred twenty (120) days after the
close of each calendar year, commencing with the year in which the initial
Advance hereunder shall have been made, deliver to the Lender a written
statement signed by the general manager or such other similar presiding officer
stating that to the best of said person's knowledge, the Borrower has fulfilled
all of its Obligations under this Agreement, the Note, and the Mortgage
throughout such year or, if there has been a default in the fulfillment of any
such Obligations, specifying each such default known to said person and the
nature and status thereof.
6.05 Use of Proceeds. Use Advances made hereunder and under the Note only
for the purpose identified in Schedule I hereto and for the payment of the
costs, expenses and fees incident to this Agreement and for no other purpose
whatsoever without the prior written consent of the Lender.
6.06 Special Affirmative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special affirmative covenants identified in Schedule
1 hereto.
6.07 Mortgage Filing. Within thirty (30) days of acquiring any real
property, the Borrower shall cause a mortgage and security agreement,
substantially in the form of the Mortgage, to be duly recorded as a first
mortgage on all such real property and such mortgage and security agreement or
other appropriate documentation shall have been duly filed, recorded or indexed
as a security interest in personal property wherever the Lender shall have
reasonably requested, all in accordance with applicable law, and the Borrower
shall have caused satisfactory evidence thereof to be furnished to the Lender.
7. NEGATIVE COVENANTS.
7.01 Notice. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without giving written notice to the Lender
thirty (30) days prior to the effective date of any change:
(a) Change Location of Chief Place of Business. Change location of
------------------------------------------
the Borrower's chief place of business.
(b) Change of Name. Change the name of Borrower.
--------------
12
<PAGE>
7.02 Consent. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without the prior written consent of the
Lender (such consent not to be unreasonably withheld):
(a) Control. Alter or permit alteration of control of the Borrower.
-------
Control shall be as defined by regulations for telephone
companies issued by the Federal Communications Commission
("FCC").
(b) Subsidiaries. Form or acquire any Subsidiaries.
------------
(c) Additional Indebtedness. Borrow money on a secured or unsecured
-----------------------
basis from any other lender or incur any additional secured or
unsecured indebtedness (other than indebtedness incurred under
and pursuant to the Secured Revolving Line of Credit Agreement
dated as of the date hereof, between Borrower and Lender, as the
same may be amended, restated, supplemented or otherwise modified
from time to time); or enter into or allow any of its
Subsidiaries to enter into any Leases, unless at that time
Borrower meets the Minimum Net Worth Test; provided, however,
-------- -------
Borrower and its Subsidiaries, may grant purchase money secured
indebtedness or incur unsecured trade debt or pay other current
operating liabilities that arise in the ordinary course of
business so long as the aggregate total of such debt does not
exceed five percent (5%) of Borrower's consolidated total assets.
If Borrower meets the Minimum Net Worth Test, then Borrower and
its Subsidiaries may incur additional unsecured indebtedness or
enter into Leases without prior written approval of Lender as
provided in the foregoing sentence, provided the Borrower meets
--------
the Minimum Net Worth Test after incurring such additional
unsecured indebtedness or entering into such Leases; provided,
--------
further, however, Borrower must give at least thirty (30) days
------- -------
written notice to Lender prior to incurring any additional
unsecured indebtedness or entering into any such Leases which
exceed five percent (5%) of Borrowers consolidated total assets.
7.03 Dividends and Other Cash Distributions. The Borrower will not, in any
one calendar year, without the prior approval in writing of the Lender (i)
declare or pay any dividends or make any other distribution to its members with
respect to its membership interests; (ii) purchase or redeem or retire any of
its membership interests; or (iii) increase the management fee factor above the
management fee factor contained in the Gallatin River Communications, LLC and
Madison River Communications, Inc. Financial Model dated March 15, 1998, unless
with respect to any of the foregoing (after giving effect to such transaction)
Borrower: (a) maintains a Current Ratio of not less than 1.25, (b) meets the
Minimum Net Worth Test, and (c) the payment of such dividend, the making of such
distribution, or the purchase, redemption or retirement of such membership
interests, individually or in the aggregate, does not exceed fifty percent (50%)
of the prior fiscal year-end Cash Margins in any one calendar year.
13
<PAGE>
Notwithstanding anything to the contrary in the first paragraph of this
Section, Borrower will be permitted to make dividend payments to its member-
owner ("Member") without prior written approval for the purpose of funding the
Member's income tax liability on its earnings ("Tax Dividends") provided that
(i) the Tax Dividends and all other dividends and distributions made pursuant to
this Section, in the aggregate, do not exceed 50% of the Borrower's prevailing
fiscal year-to-date consolidated net income, and (ii) the Borrower maintains a
Current Ratio of 1.25 after giving effect to all such payments.
Notwithstanding anything to the contrary herein, Borrower may make
distributions or payments to an affiliated entity ("Affiliate") provided that:
(i) Lender shall have a priority first lien on all of the Affiliate's assets and
revenues and/or a pledge of all of the Affiliates outstanding equity interests,
and (ii) the Affiliate shall be subject to covenants with Lender which are
substantially similar to those included in Sections 6 and 7 herein.
In no event may the Borrower make any distributions or payments pursuant to
this Section when there is unpaid any due installment of principal and/or
interest on the Note or if the Borrower is otherwise in material default of any
provision of this Agreement or would be in material default hereunder as a
result of such distribution or payment.
7.04 Special Negative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special negative covenants identified in Schedule 1
hereto.
7.05 Limitations on Loans, Investments and Other Obligations:
(a) The Borrower shall not, without first obtaining the written approval
of Lender, (i) purchase or make any commitment to purchase any stock,
bonds, notes, debentures or other securities or obligations of or
beneficial interest in, (ii) make any other investment in, (iii) make
any loan to, or (iv) guarantee, assume, or otherwise become liable for
any obligation of, any corporation, association, partnership, joint
venture, trust, government or any agency or department thereof, or any
other entity of any kind if the aggregate amount of all such
purchases, investments, loans and guarantees exceeds in any twelve
(12) month period the greater of ten percent (10%) of Total Plant or
thirty percent (30%) of Net Worth.
(b) The following shall not be included in the limitation on purchases
investments, loans and guarantees in (a) above: (i) bonds, notes,
debentures, stock, or other securities or obligations issued by or
guaranteed by the United States government or any agency or
instrumentality thereof; (ii) bonds, notes, debentures, stock,
commercial paper, subordinated capital certificates, or other security
or obligation of institutions whose senior unsecured debt obligations
are rated by at least two nationally recognized rating organizations
in either or its two highest categories; (iii) investments incidental
to loans made by RTFC; (iv) bonds, notes, debentures, commercial paper
or any other security of the National Rural Utilities Cooperative
Finance Corporation; and (v) any deposit that is fully insured by the
Federal Government.
14
<PAGE>
7.06 Limitations on Contracts; Deposits of Funds: The Borrower will not,
without the approval in writing of the Lender: (a) enter into any contract or
contracts (i) for management of its business or any part thereof (except in
connection with any management contract for which the fees are permitted by
Section 7.03 above); (ii) for the operation or maintenance of all or any
substantial part of its property, (iii) for the use by others of any of the
Collateral in excess of $100,000; or (iv) with other companies; provided,
--------
however, that such approval shall not be required for any contract which in form
- -------
and substance substantially conforms with contracts in general use in the
Borrower's industry by companies of size and character similar to Borrower or
which substantially conform to contracts which are currently in existence that
Borrower is a party to; or (b) except as permitted by Section 7.05 above,
deposit any of its funds, regardless of the source thereof, in any bank which is
not insured by the Federal Deposit Insurance Corporation or the successor
thereof.
7.07 Preservation of Existence and Franchises; Compliance with Laws;
Limitations on Mergers, Transfers and Purchases: The Borrower will at all times,
so long as any of the Notes shall be outstanding, take or cause to be taken all
such action as from time to time may be necessary to preserve its existence and
to preserve and renew all franchises, rights of way, easements, permits and
licenses necessary to the conduct of its business, and will materially comply
with all valid laws, ordinances, regulations and requirements applicable to it
or its property.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
(a) Representation and Warranties. Any representation or warranty made
herein, in any of the Other Agreements or in any statement, report,
certificate, opinion, financial statement or other document furnished
or to be furnished in connection with this Agreement or the Other
Agreements shall be false or misleading in any material respect.
(b) Payment. Failure of Borrower to make any of the payment Obligations,
including, without limitation, any sum due the Lender under this
Agreement or any of the Other Agreements, when and as the same shall
become due, whether at the due date thereof, by demand, by
acceleration or otherwise.
(c) Other Covenants. Failure of Borrower to observe or perform any
warranty, covenant or condition to be observed or performed by
Borrower under this Agreement or any of the Other Agreements.
(d) Existence. The Borrower shall forfeit or otherwise be deprived of its
charter, franchises, permits, easements, consents or licenses required
to carry on any material portion of its business.
15
<PAGE>
(e) Other Obligations. Default, after giving effect to any applicable
grace period, by the Borrower in the payment when due of any money
owed by the Borrower, whether principal, interest, premium or
otherwise, under any other agreement for borrowing money in an amount
in excess of five percent (5%) of total assets, whether or not such
borrowing is secured.
(f) Bankruptcy. A court shall enter a decree or order for relief with
respect to the Borrower or any Subsidiary or guarantor (if any) in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official, or ordering the winding up or liquidation of its affairs,
and such decree or order shall remain unstayed and in effect for a
period of sixty (60) consecutive days or the Borrower or any
Subsidiary or guarantor (if any) shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or under any such law, or consent to the
appointment or taking of possession by a receiver, liquidator,
assignee, custodian or trustee, of a substantial part of its property,
or make any general assignment for the benefit of creditors.
(g) Dissolution or Liquidation. Other than as provided in subsection (0
above, the dissolution or liquidation of the Borrower or any
Subsidiary or guarantor (if any), or failure by the Borrower or any
Subsidiary or guarantor promptly to forestall or remove any execution,
garnishment or attachment of such consequence as will impair its
ability to continue its business or fulfill its obligations and such
execution, garnishment or attachment shall not be vacated within sixty
(60) days.
(h) Final Judgment. A final non-appealable judgment in excess of $100,000
shall be entered against the Borrower and shall remain unsatisfied or
without a stay for a period of sixty (60) days.
9. RIGHTS AND REMEDIES
9.01 Rights and Remedies of the Lender. Upon the occurrence of an Event of
Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time Borrower shall
have the opportunity to cure said Event of Default except with respect
to Obligations pursuant to 8(b), 8(f) and 8(g) above which shall
require no notice or demand and shall have no period to cure; and
(ii) compliance, if required, with the rules and regulations of the FCC and
any state public service or utilities commission having jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies available
to the Lender under applicable law, all
16
<PAGE>
such rights and remedies being cumulative and enforceable alternatively,
successively or concurrently:
(a) Declare all unpaid principal outstanding on the Note, all accrued and
unpaid interest thereon, and all other Obligations to be immediately
due and payable and the same shall thereupon become immediately due
and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the Obligations
owed to, or any Liens in favor of the Lender.
(c) Pursue all rights and remedies available to the Lender that are
contemplated by the Mortgage in the manner, upon the conditions, and
with the effect provided in the Mortgage, including but not limited to
a suit for specific performance, injunctive relief or damages.
(d) Pursue any other rights and remedies available to the Lender at law or
in equity.
9.02 Cumulative Nature of Remedies. Nothing herein shall limit the right of
the Lender, subject to notice and right to cure provisions contained herein, to
pursue all rights and remedies available to a creditor following the occurrence
of an Event of Default subject to compliance, if required, with the rules and
regulations of the FCC and any state public service or utilities commission
having jurisdiction. Each right, power and remedy of the Lender in this
Agreement and/or the Other Agreements shall be cumulative and concurrent, and
recourse to one or more rights or remedies shall not constitute a waiver of any
other right, power or remedy.
9.03 Costs and Expenses. Borrower agrees to pay and to be liable for any
and all reasonable expenses, including attorneys' fees and court costs, incurred
by the Lender in exercising or enforcing any of its rights hereunder or under
the Other Agreements, together with interest thereon at the rate and determined
in the manner provided in the Mortgage. Subject to the Mortgage and applicable
law, the Lender may apply all Collateral and proceeds of all Collateral to the
Obligations in any manner which the Lender, in its sole discretion, deems
appropriate, and Borrower will continue to be liable for any deficiency.
9.04 Late Payment Charges. If payment of any principal and/or interest due
under the terms of the Note is not received at the office of the Lender in
Herndon, Virginia, or as the Lender may otherwise designate to the Borrower,
within such time period as the Lender may prescribe from time to time in its
policies in connection with any late payment charges (such unpaid amount of
principal and/or interest being herein called the "delinquent amount" and the
period beginning after such due date until payment of the delinquent amount
being herein called the "late-payment period"), the Borrower will pay to the
Lender, in addition to all other amounts due under the terms of the Note, the
Mortgage, and this Agreement, any late-payment charge as may be fixed by the
Lender from time to time, on the delinquent amount for the late-payment period.
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9.05 Lender's Setoff. The Lender shall have the right, in addition to all
other rights and remedies available to it, to setoff and to recover against any
or all of the Obligations due to Lender, any monies now and hereafter owing to
Borrower by the Lender. Borrower waives all rights of setoff, deduction,
recoupment and counterclaim.
10. MISCELLANEOUS
10.01 Performance for Borrower. Borrower agrees and hereby authorizes that
the Lender may, in its sole discretion, but the Lender shall not be obligated
to, advance funds on behalf of Borrower without prior notice to Borrower, in
order to insure Borrower's compliance with any material covenant, warranty,
representation or agreement of Borrower made in or pursuant to this Agreement or
any of the Other Agreements, to preserve or protect any right or interest of the
Lender in the Collateral or under or pursuant to this Agreement or any of the
Other Agreements, including without limitation, the payment of any insurance
premiums or taxes and the satisfaction or discharge of any judgment or any Lien
upon the Collateral or other property or assets of Borrower; provided, however
(i) prior to making any such advance, the Lender shall give the Borrower prior
written notice of its intent to make such advances and, unless there is some
imminent danger of the occurrence of a Material Adverse Effect, the Borrower
shall have fifteen (15) Business Days to rectify the issue set forth in such
notice, and (ii) that the making of any such advance by the Lender shall not
constitute a waiver by the Lender of any Event of Default with respect to which
such advance is made nor relieve Borrower of any such Event or Default. Borrower
shall pay to the Lender upon demand all such advances made by the Lender with
interest thereon at the rate and determined in the manner provided in the Note.
All such advances shall be deemed to be included in the Obligations and secured
by the security interest granted the Lender hereunder to the extent permitted by
law.
10.02 Expenses and Filing Fees. Whether or not any of the transactions
contemplated hereby shall be consummated, Borrower agrees to pay to the Lender
at Closing or thirty (30) days after the execution and delivery hereof,
whichever is earlier, all expenses of the Lender in connection with the filing
or recordation of all financing statements and instruments as may be required by
the Lender at the time of, or subsequent to, the execution of this Agreement
including, without limitation, all documentary stamps, recordation and transfer
taxes and other costs and taxes incident to recordation of any document or
instrument in connection herewith. Borrower agrees to save harmless and
indemnify the Lender from and against any liability resulting from the failure
to pay any required documentary stamps, recordation and transfer taxes,
recording costs, or any other expenses incurred by the Lender in connection with
this Agreement. The provisions of this Subsection 10.02 shall survive the
execution and delivery of this Agreement and the payment of all other
Obligations.
10.03 Waivers by Borrower. Borrower hereby waives, to the extent the same
may be waived under applicable law: (a) in the event the Lender seeks to
repossess any or all of the Collateral by judicial proceedings, any bond(s) or
demand(s) for possession which otherwise may be necessary or required; (b)
presentment, demand for payment, protest and notice of non-payment and all
exemptions; and (c) substitution, impairment, exchange or release of any
collateral security for any of the Obligations. Borrower agrees that the Lender
may exercise any
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or all of its rights and/or remedies hereunder and under the Other Agreements
without resorting to and without regard to security or sources of liability with
respect to any of the Obligations.
10.04 Waivers by the Lender. Neither any failure nor any delay on the part
of the Lender in exercising any right, power or remedy hereunder or under any of
the Other Agreements shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
10.05 Lender's Records. Every statement of account or reconciliation
rendered by the Lender to Borrower with respect to any of the Obligations shall
be presumed conclusively to be correct and shall (absent manifest error)
constitute an account stated between the Lender and Borrower unless, within ten
(10) Business Days after such statement or reconciliation shall have been
mailed, postage prepaid, to Borrower, the Lender shall receive written notice of
specific objection thereto.
10.06 Modifications. No modification or waiver of any provision of this
Agreement, the Note or any of the Other Agreements, and no consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand upon Borrower in any case shall entitle Borrower to any other or further
notice or demand in the same, similar or other circumstances.
10.07 Notices. All notices, requests and other communications provided for
herein including, without limitation, any modifications of, or waivers, requests
or consents under, this Agreement shall be given or made in writing (including,
without limitation, by telecopy) and delivered to the intended recipient at the
"Address for Notices" specified below; or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when personally delivered or, in the case of a
mailed or telecopied notice, upon receipt, in each case given or addressed as
provided for herein. The Address for Notices of the respective parties are as
follows:
The Lender:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 20171-3025
Attention: Loan Officer
Fax: 703-709-6776
The Borrower:
Gallatin River Communications, LLC
6330 Quadrangle Drive - Suite 325
Chapel Hill, North Carolina 27514
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Attn: Managing Director, Finance and General Counsel
Fax: 919-402-0151
With a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Attn: Gary P. Cullen, Esq.
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF VIRGINIA.
(b) BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE ESTABLISHING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
10.09 Holiday Payments. If any payment to be made by the Borrower hereunder
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall be
included in computing any interest in respect of such payment.
10.10 Consent to Patronage Capital Distributions. The Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in Section
1388 of the Internal Revenue Code of 1986, as amended ("Code") including any
other comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
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10.11 Right to Inspect. The Borrower shall permit representatives of the
Lender at any time during normal business hours to inspect and make abstracts
from the books and records pertaining to the Collateral, and permit
representatives of the Lender to be present at Borrower's place of business to
receive copies of all communications and remittances relating to the Collateral,
all in such manner as the Lender may reasonably require, provided, that prior to
--------
the occurrence and continuance of an Event of Default the Lender shall not
exercise its rights pursuant to this Section 10.11 more than one time per
calendar quarter.
10.12 Survival; Successors and Assigns. All covenants, agreements,
representations and warranties made herein and in the Other Agreements shall
survive Closing and the execution and delivery to the Lender of the Note, and
shall continue in full force and effect until all of the Obligations have been
paid in full. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on behalf
of Borrower which are contained in this Agreement and the Other Agreements shall
inure to the benefit of the successors and assigns of the Lender.
10.13 Assignment. The Lender may assign its rights and obligations under
this Agreement and the Other Agreements without the consent of the Borrower;
provided, however, that no such assignment shall effect any of the material
terms of this agreement (other than the name of the Lender and the address for
notices and payments) or otherwise result in terms or conditions less favorable
to Borrower. The Borrower may not assign any of its rights of obligations under
this Agreement or the Other Agreements without the prior written consent of the
Lender.
10.14 Severability. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any reason
be found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term, provision or
condition, and this Agreement, the Note, and the Other Agreements shall survive
and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
10.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.16 Headings/Use of Terms. The headings and sub-headings contained in
this Agreement are intended to be used for convenience only and do not
constitute part of this Agreement. The use of any gender or the neuter herein
shall also refer to the other gender or the neuter and the use of the plural
shall also refer to the singular, and vice versa.
10.17 Further Assurances. The Borrower will, upon demand of the Lender,
make, execute, acknowledge and deliver all such further and supplemental
indentures of mortgage, deeds of trust, mortgages, financing statements,
continuation statements, security agreements
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and/or any other instruments and conveyances as may be reasonably requested by
the Lender to effectuate the intention of this Agreement and to provide for the
securing and payment of the principal of and interest on the Note according to
the terms thereof.
10.18 Lender's Approval. Wherever prior written approval of Lender is
required under the terms and conditions of this Agreement, Lender hereby agrees
to not unreasonably withhold said approval.
10.19 Merger and Integration. This Agreement and the attached exhibits and
matters incorporated by reference contain the entire agreement of the parties
hereto with respect to the matters covered and the transactions contemplated
hereby, and no other agreement, statement or promise made by any party hereto,
or by any employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid or binding.
10.20 Schedule 1. Schedule 1 attached hereto is an integral part of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
GALLATIN RIVER COMMUNICATIONS, LLC
By: J. STEPHEN VANDERWOUDE
------------------------------
Title: CHIEF EXECUTIVE OFFICER
---------------------------
(SEAL)
Attest: PAUL H. SUNU
-------------
Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: ROBIN C. REED
-----------------------------
Title: Assistant Secretary-Treasurer
(SEAL)
Attest: BLUEPENDER SELIGAD
-----------------------------
Assistant Secretary-Treasurer
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<PAGE>
SCHEDULE 1
1. The "Commitment" shall mean $123,192,631.
2. The Mortgage is the Mortgage and Security Agreement by and between Borrower
and Lender dated as of even date herewith.
3. The months relating to the Payment Date are February, May, August and
November.
4. The method of amortization referred to in Section 2.03 shall be based upon
the schedule attached as Exhibit A attached hereto.
5. The amount referred to in Section 2.05 is $6,159,631.
6. The date of Borrower's financial statement referred to in Section 4.06 is
not applicable.
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is 6330 Quadrangle Drive, Suite 325,
Chapel Hill, NC 27514.
8. The government authorities referred to in Section 4.13 are the Illinois
Commerce Commission ("ICC") and the Federal Communications Commission
("FCC").
9. The special conditions referred to in Section 5.05 are as follows:
1. Prior to the initial Advance of funds from this Loan, Lender shall
receive, in form and content satisfactory to Lender, the following:
a) Borrower's most recent executed Articles of Organization and
Operating Agreement which must authorize the pledge of 100% of
the voting and economic membership interests in Borrower to
Lender;
b) A copy of the executed definitive purchase agreement between the
Borrower and Centel Corporation ("Centel") and/or an assignment
of such rights to Borrower;
c) Copies of all proposed management and services agreements for
Borrower and/or its Subsidiaries;
d) Evidence of a common equity capital contribution equal to the
greater of $116,718,000 or 50.6% of the total transaction costs,
including the purchase price and transaction expenses (not to
exceed $750,000) and excluding the working capital portion of the
capital requirements; and
2. Borrower and its Subsidiaries shall establish and maintain a December
31 fiscal year-end.
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<PAGE>
3. Lender shall not be obligated to advance any funds hereunder until
Borrower's affiliated entity, Madison River Communications, Inc., has
satisfied all conditions precedent to its loan with Lender designated NC 81
O-A-0 1 and is in a position to close on its purchase of local loop assets
in Illinois from Centel.
10. The purpose referred to in Section 6.05 is to (i) fund a portion of the
total costs to acquire local loop assets from Centel, and (ii) to purchase
SCCs.
11. The special affirmative covenants referred to in Section 6.06 are not
applicable.
12. The special negative covenants referred to in Section 7.04 are not
applicable.
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<PAGE>
SECURED PROMISSORY NOTE
$123,192,631 October 30, 1998
GALLATIN RIVER COMMUNICATIONS, LLC, a Delaware limited liability company (herein
called the "Borrower"), for value received hereby promises to pay, without
setoff, deduction, recoupment or counterclaim, to the order of RURAL TELEPHONE
FINANCE COOPERATIVE (herein called the "Payee") at the Payee's office in
Herndon, Virginia, or such other location as the Payee may designate, in lawful
money of the United States, the sum of the aggregate unpaid principal amount of
all Advances made by the Payee pursuant to that certain Loan Agreement dated as
of even date herewith, between the Borrower and the Payee as it may be amended
from time to time (herein called the "Loan Agreement"), on the dates provided
for in the Loan Agreement (except that if not sooner paid, any balance shall be
due and payable on a date fifteen (15) years after the date hereof, such date
being the "Maturity Date"), with interest thereon in like money from the
respective dates of each Advance (as defined in the Loan Agreement) hereunder,
at the rate or rates and payable at the times provided in said Loan Agreement
together with any other amount payable under the Loan Agreement.
This Note is secured under a Mortgage and Security Agreement dated as of even
date herewith by and between the Borrower and the Payee, as it may have been or
shall be supplemented, amended, restated or consolidated from time to time
(herein called the "Mortgage"). This Note is the Note referred to in, and has
been executed and delivered pursuant to, the Loan Agreement.
The principal hereof and interest accrued thereon and any other amount due under
the Loan Agreement may be declared to be forthwith due and payable in the
manner, upon the conditions, and with the effect provided in the Mortgage or
Loan Agreement.
The Borrower waives demand, presentment for payment, notice of dishonor,
protest, notice of protest, and notice of non-payment of this Note.
IN WITNESS WHEREOF the Borrower has caused this Note to be signed in its
corporate name and its corporate seal to be hereunto affixed and to be attested
by its authorized officers, all as of the day and year first above written.
GALLATIN RIVER COMMUNICATIONS, LLC
By: J. STEPHEN VANDERWOUDE
------------------------------
Title: CHIEF EXECUTIVE OFFICER
---------------------------
(SEAL)
Attest: PAUL H. SUNU
--------------
(Secretary)
Loan No.: NC 601-A-01
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<PAGE>
EXHIBIT 10.16
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of October 30th, 1998, by and
between MADISON RIVER COMMUNICATIONS, INC., a Delaware corporation ("Borrower"),
and RURAL TELEPHONE FINANCE COOPERATIVE, a South Dakota cooperative association
("Lender").
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan to Borrower
described in Schedule 1 hereto; and
WHEREAS, Lender is willing to make the Loan upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, Borrower and Lender do hereby agree as follows:
1. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement, unless
the context otherwise requires, when used herein, the following terms shall have
the following meanings:
"Adjustment Date" shall mean the last date of the term (or rate period) of
the applicable Fixed Rate, after the date of the initial Advance to the Maturity
Date.
"Advance" shall mean an advance as defined in Section 2.02.
"Business Day" shall mean any day that Lender is open for business.
"Cash Margins" for any year shall mean net income plus depreciation,
amortization and any other non-cash charges, less any non-cash credits and
principal on long-term debt payable in such year, as calculated on a
consolidated basis for Borrower and all its Subsidiaries.
"Certified" shall mean that the information, statement, schedule, report or
other document required to be "Certified" shall contain a representation of a
duly authorized officer of Borrower that such information, statement, schedule,
report or other document is true and correct and complete.
"Closing" shall mean the first date on which funds are advanced to Borrower
hereunder.
"Collateral" shall mean the Mortgaged Property, as such term is defined in
the Mortgage, and all proceeds, cash and non-cash, including insurance proceeds,
of the foregoing, whether in the possession of Borrower or any other person.
<PAGE>
"Commitment" shall have the meaning set forth in Schedule 1 hereto.
"Current Ratio" for any year shall mean the ratio of total current assets
to total current liabilities, as calculated by dividing total current assets by
total current liabilities, on a consolidated basis for Borrower and all its
Subsidiaries.
"Debt Service Coverage Ratio" or "DSC" for any year shall mean (a) total
net income or margins plus depreciation and amortization expense and interest on
long-term debt for such year, divided by (b) principal and interest on long-term
debt payable in such year, as calculated on a consolidated basis for the
Borrower and all its Subsidiaries.
"Event of Default" shall mean any of the events described in Section 8
hereof.
"Fixed Rate" shall mean the interest rate per annum provided for in Section
2.03 of this Agreement, plus 75 basis points.
"Leases" shall mean any lease of property by which Borrower shall be
obligated for rental or other payments which in the aggregate for any fiscal
year are in excess of $100,000 other than such equipment leases which are in
form and substance substantially in conformity with lease agreements in general
use in Borrower's industry by companies of size and character similar to
Borrower.
"Lien" shall mean any statutory or common law consensual or non-consensual
mortgage, pledge, security interest, encumbrance, lien, right of set-off, claim
or charge of any kind, including, without limitation, any conditional sale or
other title retention transaction, any lease transaction in the nature thereof
and any secured transaction under the Uniform Commercial Code of any
jurisdiction.
"Loan" shall mean the loan by the Lender to Borrower, pursuant to this
Agreement and the Note, in an aggregate principal amount not to exceed the
Commitment.
"Make-Whole Premium" shall mean the excess, if any, of (i) the present
value of the amount of interest that would have accrued during the applicable
Fixed Rate period on that portion of the Loan to be prepaid or converted over
(ii) the present value of the amount of interest Lender would earn if that
portion of the Loan to be prepaid or converted was reinvested for the remainder
of the applicable Fixed Rate period in U.S. Treasury obligations with a maturity
comparable to the remaining term of the applicable Fixed Rate period. For
purposes of calculating the present value in (i) and (ii) above, the discount
rate will be the rate of interest accruing on the U.S. Treasury obligations in
(ii) above.
"Material Adverse Effect" shall mean any event or circumstance which, in
Lender's reasonable discretion, has a material and adverse effect upon the
business, operations, assets or properties or financial condition of the
Borrower and its Subsidiaries, taken as a whole.
"Maturity Date" shall mean the maturity date defined in the Note.
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<PAGE>
"Minimum Net Worth Test" shall be calculated on a consolidated basis for
the Borrower and all its Subsidiaries, and shall mean an equity to total asset
ratio of at least forty percent (40%). Equity shall be determined by subtracting
total liabilities from total assets.
"Mortgage" shall mean the mortgage and security agreement described in
Schedule 1.
"Net Worth" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries taken as a whole and arrived at by subtracting total
liabilities from total assets.
"Note" shall mean the Note executed and delivered by Borrower at or prior
to Closing pursuant to Subsection 5.02(a) hereof, and all renewals, replacements
and extensions thereof.
"Obligations" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender by
Borrower under this Agreement, the Note, the Other Agreements, all present and
future obligations of Borrower to the Lender for the payment of money under this
Agreement, the Note, the Other Agreements, extending to all principal amounts,
interest, late charges and all other charges and sums, as well as all costs and
expenses payable by Borrower under this Agreement, the Note, the Other
Agreements, and any and all other present and future monetary liabilities of
Borrower to the Lender, whether direct or indirect, contingent or noncontingent,
matured or unmatured, accrued or not accrued, related or unrelated to this
Agreement, whether or not of the same character or class as Borrower's
obligations under this Agreement and the Note, whether or not secured under any
other document, instrument or statutory or common law provision, as well as all
renewals, refinancings, consolidations, recastings and extensions of any of the
foregoing.
"Other Agreements" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower and executed and/or delivered pursuant to this Agreement or
guaranteeing, securing or in any other manner relating to any of the
Obligations, including, the instruments and documents referred to in Subsection
5.02 hereof.
"Payment Date" shall mean the last day of each of the months referred to in
Schedule 1 hereto.
"Payment Notice" shall mean the notice furnished to the Borrower at least
quarterly indicating the precise amount of principal and/or interest due on the
next ensuing Payment Date, such notice to be sent to the Borrower at least ten
(10) days before such Payment Date.
"Person" shall include natural persons, corporations, associations,
partnerships, limited liability companies, joint ventures, trusts, governments
and agencies and departments thereof, and every other entity of every kind.
"Subordinated Capital Certificate" or "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the Borrower
in connection with the Loan.
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<PAGE>
"Subsidiary" at any time means any entity which is at the time beneficially
owned or controlled directly or indirectly by the Borrower, by one or more such
entities or by the Borrower and one or more such entities.
"Termination Date" shall mean that date which is two (2) years from the
date hereof.
"Times Interest Earned Ratio" or "TIER" for any year shall mean (a) total
net income or margins plus income taxes plus interest payable on long-term debt
for such year, divided by (b) interest on long-term debt payable in such year,
as measured on a consolidated basis for the Borrower and all its Subsidiaries.
"Total Plant" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries and shall mean the total of all assets included in
property, plant and equipment pursuant to generally accepted accounting
principles and shall exclude any goodwill or plant acquisition adjustments.
"Variable Rate" shall mean the variable rate established by the Lender from
time to time for loans similarly classified pursuant to Lenders policies and
procedures then in effect, plus 75 basis points.
2. LOAN
2.01 Loan. The Lender agrees to make the Loan to Borrower subject to all of
the terms and conditions of this Agreement and the Other Agreements.
2.02 Advances. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time to
time at the office of the Lender in Herndon, Virginia, or at such other place as
the Lender may designate, not to exceed the Commitment. The Borrower shall give
the Lender at least one Business Day prior written notice of the date on which
each Advance is to be made. On the Termination Date the Lender may stop
advancing funds and reduce the Commitment to the aggregate amount theretofore
advanced. The obligation of the Borrower to repay the Advances shall be
evidenced by the Note.
2.03 Payment, Amortization and Interest Rate.
(a) Payment. The Borrower shall pay on each Payment Date quarterly
-------
installments, in an amount as determined by the Lender, of principal and/or
interest as shown in the Payment Notice, except that, if not sooner paid, any
balance of the principal amount and interest accrued thereon and all other
amounts due hereunder shall be due and payable on the Maturity Date. Payment of
principal hereunder shall commence on the date which is one-year after the first
full quarter following the initial Advance of funds as set forth in Schedule 1
and on each subsequent Payment Date until the Maturity Date or such earlier date
as all amounts due hereunder and on account of the Note shall have been paid in
full. Payment of interest hereunder is due on each Payment Date in which a
principal balance is outstanding. Principal will be amortized in accordance with
the method stated in Schedule 1 hereto.
4
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The Lender will use, for purposes of calculating the amortization of principal,
one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect
on the Adjustment Date; or
(ii) If the Borrower elects the Variable Rate, the Variable Rate in
effect when amortization begins; or
(iii) If the Borrower elects to convert from one interest rate program
to another pursuant to the provisions hereunder, the interest
rate then in effect for the elected program.
At the Lender's option, all payments shall be applied first to late payment
charges due, as hereinafter provided, then to interest accrued to the date of
such payment, and then to the reduction of principal balance outstanding.
No provision of this Agreement or the Note shall require the payment, or permit
the collection, of interest in excess of the highest rate permitted by
applicable law.
(b) Interest Rate. Each Advance shall be initially made at the Variable
-------------
Rate. Interest shall be computed from the actual number of days elapsed on the
basis of a year of 365 days until the first Payment Date following the initial
Advance. Thereafter, interest shall continue to be computed for the actual
number of days elapsed on the basis of a year of 365 days unless a Fixed Rate is
applicable to the Loan, in which case interest shall be computed on the basis of
a 30-day month and 360-day year.
(i) Variable Rate. If Advances are made at the Variable Rate, it
-------------
shall apply until the Maturity Date, except as provided herein
below.
(ii) Fixed Rate. If the Borrower elects a Fixed Rate, such Fixed Rate
----------
as is available and in effect for loans similarly classified
pursuant to Lender's policies and procedures there in effect at
the time of the election shall apply to such Advance until the
Adjustment Date. Upon notice given by the Borrower five (5)
Business Days prior to such Adjustment Date, Borrower may elect
to reset the interest rate to such Fixed Rate as is available and
in effect at the time of such Adjustment Date. Such reset Fixed
Rate shall apply to that portion of the outstanding principal
balance of the Loan elected to have a Fixed Rate from the
Adjustment Date until a new Adjustment Date or the Maturity Date.
If Borrower does not elect to reset the Fixed Rate, the Variable
Rate shall apply to the outstanding principal balance of the Loan
that had been bearing interest at the Fixed Rate prior to such
Adjustment Date, from such Adjustment Date to the Maturity Date.
(iii) Conversion to Different Interest Program.
-----------------------------------------
5
<PAGE>
(A) Variable Rate to Fixed Rate. Subject to the conditions set forth
---------------------------
herein, the Borrower may convert from the Variable Rate to the
Fixed Rate for any portion or all of the principal amount of the
Commitment then outstanding at any time provided the Lender
offers a Fixed Rate at such time for similarly classified loans.
(B) Fixed Rate to Variable Rate. The Borrower may convert from a
---------------------------
Fixed Rate to the Variable Rate: (1) on an Adjustment Date or (2)
at any other time, provided that the Borrower shall pay Lender
any applicable Make-Whole Premium.
2.04 Prepayment. In the event the Borrower prepays all or part of the
Loan, the Borrower shall pay any prepayment fee required pursuant to the terms
of this Section 2.04. All prepayments shall be accompanied by payment of accrued
and unpaid interest on the amount of and to the date of the prepayment. All
prepayments shall be applied first to fees, second to the payment of accrued and
unpaid interest, and then to the unpaid balance of the principal amount of the
Loan; provided, however, Borrower may at its option allocate principal
-------- -------
prepayment between amounts outstanding on Variable Rate Loans and Fixed Rate
Loans. If the Loan bears interest at the Variable Rate the Borrower may prepay
the Loan or any portion thereof, as the case may be, at any time subject to the
terms hereof and said prepayment fee shall be in an amount equal to fifty (50)
basis points times the amount being prepaid. If the Loan bears interest at the
Fixed Rate, the Borrower may prepay the Loan only on an Adjustment Date or any
such other date provided that the Borrower shall pay a prepayment fee in an
amount equal to fifty (50) basis points times the amount being prepaid plus any
applicable Make-Whole Premium (which Make-Whole Premium shall only be paid to
the extent any Fixed Rate Loan is prepaid on any date other than an Adjustment
Date). Notwithstanding anything to the contrary herein, if Borrower shall make a
permitted prepayment pursuant to the terms hereto, then, upon Borrower's
request, Lender shall reamortize the Loan pursuant to the method of amortization
designated in Section 2.03 (a).
2.05 5% Subordinated Capital Certificate. The Borrower shall purchase SCCs
which in the aggregate shall not exceed the amount specified in Schedule 1
hereto. Unless otherwise requested in writing by the Borrower prior to the
initial Advance and approved by the Lender, the Borrower agrees to purchase SCCs
either: (1) with each Advance in the amount of five percent (5%) of each such
Advance, and each such SCC shall be paid for with proceeds of such Advance, or
(2) by making payments with Borrower's own funds in twenty (20) equal quarterly
installments, commencing on the first Payment Date following the initial
Advance. If the Borrower elects to pay for SCCs other than from Loan funds, the
amount of the Commitment will be correspondingly reduced by said amount when the
SCCs are fully paid. If the Borrower obtains Advances hereunder other than for
the purpose of purchasing SCCs and fails to pay for the SCCs, then the Lender
may make Advances for the account of the Borrower to purchase the SCCs. The
Lender agrees to deliver the SCCs on or about the date on which the SCCs have
been paid for in full. The SCCs shall bear no interest and shall mature in
accordance with the terms thereof.
6
<PAGE>
3. SECURITY
As security for the payment and performance of all of the Obligations,
Borrower has entered into the Mortgage pledging and granting to the Lender a
prior and continuing security interest in the Collateral that may be secured by
the Mortgage that shall continually exist until all Obligations have been paid
in full. If reasonably required by the Lender at any time, Borrower shall make
notations, satisfactory to the Lender, on its books and records disclosing the
existence of the Lender's security interest in the Collateral. Borrower agrees
that, with respect to the Collateral, which is subject to Article 9 of the
Uniform Commercial Code, the Lender shall have, but not be limited to, all the
rights and remedies of a secured party under the Uniform Commercial Code. The
Lender shall have no liability or duty, either before or after the occurrence of
an Event of Default hereunder, on account of loss of or damage to, or to collect
or enforce any of its rights against, the Collateral, or to preserve any rights
against account debtors or other parties with prior interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement, Borrower represents
and warrants to the Lender as of the date of this Agreement that:
4.01 Good Standing. Borrower is a corporation duly organized validly
existing and in good standing under the laws of the state of its incorporation,
has the power to own its property and to carry on its business, is duly
qualified to do business, and is in good standing in each jurisdiction in which
the transaction of its business makes such qualification necessary, except to
the extent such lack of qualification would not have a Material Adverse Effect.
4.02 Authority. Borrower has corporate power and authority to enter into
this Agreement and the Mortgage, to make the borrowing hereunder, to execute and
deliver all documents and instruments required hereunder and to incur and
perform the obligations provided for herein, in the Mortgage, and in the Note,
all of which have been duly authorized by all necessary and proper corporate and
other action, and no consent or approval of any person, including, without
limitation, stockholders and members of Borrower and any public authority or
regulatory body, which has not been obtained is required as a condition to the
validity or enforceability hereof or thereof.
4.03 Binding Agreement. This Agreement has been duly and properly executed
by Borrower, constitutes the valid and legally binding obligation of Borrower
and is fully enforceable against Borrower in accordance with its terms, subject
only to laws affecting the rights of creditors generally, the exercise of
judicial discretion in accordance with general principles of equity or because
waivers of statutory or common law rights or remedies may be limited.
4.04 No Conflicting Agreements. The execution, delivery of and performance
by Borrower of this Agreement, the Mortgage and the Note, and the transactions
contemplated hereby or thereby, will not: (a) violate any material provision of
law, any order, rule or regulation of any court or other agency of government,
any material award of any arbitrator, the
7
<PAGE>
charter or by-laws of Borrower, or any indenture, contract, agreement, mortgage,
deed of trust or other instrument to which Borrower is a party or by which it or
any of its property is bound; or (b) be in conflict with, result in a breach of
or constitute (with due notice and/or lapse of time) a default under, any such
material award, indenture, contract, agreement, mortgage, deed of trust or other
instrument, or result in the creation or imposition of any Lien (other than
contemplated hereby) upon any of the property or assets of Borrower.
4.05 Litigation. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, which may result in a Material Adverse
Effect, and Borrower is not, to its knowledge, in default with respect to any
judgment, order, writ, injunction, decree, rule or regulation of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which could reasonably
be expected to have a Material Adverse Effect.
4.06 Financial Condition. The financial statements of Borrower as at the
date set forth in Schedule 1 hereto, heretofore delivered to the Lender, are
complete and correct in all material respects, fairly present the financial
condition of Borrower and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. There are no
material liabilities of Borrower, direct or indirect, fixed or contingent, as of
the date of such statements which are not reflected therein. There has been no
material adverse change in the financial condition or operations of the Borrower
from that set forth in said financial statements except changes previously
disclosed in writing to the Lender prior to the date hereof.
4.07 Taxes. Borrower has paid or caused to be paid all federal, state and
local taxes to the extent that such taxes have become due, unless the Borrower
is contesting in good faith any such tax. Borrower has filed or caused to be
filed all federal, state and local tax returns which are required to be filed by
Borrower.
4.08 Title to Properties. Borrower has good and marketable title to all of
its real properties and owns all of its other properties and assets free and
clear of any liens, except (i) the lien of the Mortgages and taxes or
assessments not yet due; (ii) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
(iii) deposits or pledges to secure performance of bids, tenders, contracts
(other than contracts for the payment of borrowed money), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business, and (iv)
easements, rights of way, zoning and similar restrictions and encumbrances not
interfering with the ordinary conduct of the business of Borrower and which do
not detract materially from the value of such property or asset to which they
attach or impair materially Borrower's use thereof or materially adversely
affect Lender's lien thereon.
4.09 Licenses and Permits. Borrower has duly obtained and now holds all
licenses, permits, certifications, approvals and the like necessary to own and
operate its property and business that are required by federal, state and local
laws of the jurisdictions in which Borrower conducts its business and each
remains valid and in full force and effect except to the extent the
8
<PAGE>
failure to hold such licenses, permits, certifications or approvals or the lack
of validity of the foregoing could not, in each case, be reasonably expected to
have a Material Adverse Effect.
4.10 Subsidiaries. Borrower has no Subsidiaries other than Subsidiaries
heretofore disclosed to the Lender, or hereafter formed or acquired with the
prior written consent of the Lender.
4.11 Certain Indebtedness. There is no material indebtedness of Borrower
owing to any employee, officer, stockholder or director of the board of Borrower
other than accrued salaries, commissions and the like and any indebtedness
subordinated to the Obligations pursuant hereto.
4.12 Location of Office. The chief place of business of the Borrower and
the office where its records concerning accounts and contract rights are kept is
identified in Schedule 1 hereto.
4.13 Required Approvals. No license, consent, permit or approval of any
governmental agency or authority is required to enable the Borrower to enter
into this Agreement or to perform any of its obligations provided for herein
except as disclosed on Schedule 1 hereto and except with respect to regulatory
approvals which may be required in connection with the Lender's enforcement of
certain remedies hereunder.
4.14 ERISA. Each pension plan of Borrower and its Subsidiaries providing
benefits for employees of Borrower or such Subsidiary covered by Title IV of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereto ("ERISA"), is in compliance with ERISA in all material respects, and no
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or to a
multiemployer plan has been, or is expected by Borrower or its Subsidiaries to
be, incurred by Borrower or such Subsidiary.
5. CONDITIONS OF LENDING
The Lender shall have no obligation to make the initial Advance to
Borrower hereunder unless, as of the date of Closing, each of the following
conditions precedent shall be satisfied as provided below or otherwise waived by
the Lender:
5.01 Legal Matters. All legal matters incident to the consummation of the
transactions hereby contemplated shall be satisfactory to counsel for the Lender
and to such local counsel as counsel for the Lender may retain.
5.02 Documents. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory to
the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all such
corporate documents and proceedings of the Borrower authorizing
the transactions herein contemplated.
9
<PAGE>
(c) A written opinion from Borrower's counsel addressing such legal
matters as the Lender or its counsel shall reasonably require.
(d) The Borrower shall have (i) executed the Mortgage(s); (ii) if any
real property is owned by Borrower, recorded a valid and binding
Mortgage granting Lender a first lien in all real property owned
by Borrower; (iii) filed financing statements in all
jurisdictions necessary to provide Lender a first priority,
perfected security interest in all Collateral which may be
perfected by the filing of financing statements; and (iv)
delivered such other documents as are necessary to create or
continue a perfected security interest in favor of the Lender in
the Collateral.
(e) Pledge and security agreements dated as of even date herewith,
and related membership interest powers, from Borrower's
affiliated entities, Gallatin River Holdings, LLC and Madison
River Telephone Company, LLC.
(f) An executed secured guaranty and guarantor's mortgage and
security agreement from Gallatin River Holdings, LLC.
5.03 Government Approvals. The Borrower shall have furnished to the Lender
true and correct copies of all certificates, authorizations and consents,
including without limitation the consents referred to in Section 4.13 hereof,
necessary for the execution, delivery or performance by the Borrower of this
Agreement, the Note and the Mortgage.
5.04 Representations, Warranties and Material Change. At Closing and at
the date of every subsequent Advance hereunder, all covenants, representations
and warranties set forth in this Agreement shall be true and correct on and as
of such time with the same effect as though such covenants, representations and
warranties had been made on and as of such date; no Event of Default specified
in Section 8 and no event which, with the lapse of time or the notice and lapse
of time specified in Section 8 would become such an Event of Default, shall have
occurred and be continuing or will have occurred after giving effect to the
Advance on the books of the Borrower; there shall have occurred no material
adverse changes in the business or condition, financial or otherwise, of the
Borrower; and nothing shall have occurred which in the opinion of the Lender
materially and adversely affects the Borrower's ability to meet its obligations
hereunder.
5.05 Special Conditions. At Closing and at the time of every subsequent
Advance hereunder, the Lender and its counsel shall be fully satisfied that the
Borrower has complied and will continue to comply with any special conditions
identified in Schedule 1 hereto.
5.06 Requisitions. The Borrower will request Advances in form and
substance satisfactory to the Lender. Pursuant to the terms and conditions
hereof, the Lender will wire the proceeds of the requested Advance to an account
as directed by the Borrower.
6. AFFIRMATIVE COVENANTS
10
<PAGE>
Borrower covenants and agrees with the Lender that, until all of the
Obligations have been paid in full, Borrower will:
6.01 Membership. Remain or an affiliate thereof will remain, a member in
good standing of the Lender.
6.02 Financial Statements and Other Information. Furnish to the Lender: (a)
financial statements as required by the Mortgage; (b) such other information,
reports or statements concerning the operations, business affairs and/or
financial condition of Borrower as the Lender may reasonably request from time
to time; and (c) promptly upon their becoming available information, in form and
substance satisfactory to Lender, of any and all material changes or
modification of licenses, permits, certifications, approvals and the like
necessary for Borrower to own or operate its business or a substantial part of
its business.
6.03 Financial Ratios. Subject to applicable laws and rules and orders of
regulatory bodies, and to events which in the reasonable judgment of the Lender
are beyond the control of the Borrower, so operate and manage its business as to
achieve minimum annual DSC and TIER Ratios, and a maximum annual Leverage Ratio,
in the following amount in each case as of the last calendar day of any fiscal
year:
<TABLE>
<CAPTION>
Period Minimum Minimum DSC Ratio
TIER Requirement
Requirement
-----------------------------------------------------------
<S> <C> <C>
1999 / Year 1 1.00 1.00
2000-Maturity Date 1.50 1.00
-----------------------------------------------------------
</TABLE>
6.04 Annual Certificate. Within one hundred twenty (120) days after
the close of each calendar year, commencing with the year in which the initial
Advance hereunder shall have been made, deliver to the Lender a written
statement signed by the general manager stating that to the best of said
person's knowledge, the Borrower has fulfilled all of its Obligations under this
Agreement, the Note, and the Mortgage throughout such year or, if there has been
a default in the fulfillment of any such Obligations, specifying each such
default known to said person and the nature and status thereof.
6.05 Use of Proceeds. Use Advances made hereunder and under the Note only
for the purpose identified in Schedule 1 hereto and for the payment of the
costs, expenses and fees incident to this Agreement and for no other purpose
whatsoever without the prior written consent of the Lender.
6.06 Special Affirmative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special affirmative covenants identified in Schedule
1 hereto.
11
<PAGE>
6.07 Mortgage Filing. Within thirty (30) days of acquiring any real
property, the Borrower shall cause a mortgage and security agreement,
substantially in the form of the Mortgage to be duly recorded as a first
mortgage on all such real property and such mortgage and security agreement or
other appropriate documentation shall have been duly filed, recorded or indexed
as a security interest in personal property wherever the Lender shall have
reasonably requested, all in accordance with applicable law, and the Borrower
shall have caused satisfactory evidence thereof to be furnished to the Lender.
7. NEGATIVE COVENANTS.
7.01 Notice. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without giving written notice to the Lender
thirty (30) days prior to the effective date of any change:
(a) Change Location of Chief Place of Business. Change location of
----------------------------------
the Borrower's chief place of business.
(b) Change of Name. Change the name of Borrower.
--------------
7.02 Consent. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without the prior written consent of the
Lender (such consent not to be unreasonably withheld):
(a) Control. Alter or permit alteration of control of the Borrower.
-------
Control shall be as defined by regulations for telephone
companies issued by the Federal Communications Commission
("FCC").
(b) Subsidiaries. Form or acquire any Subsidiaries.
------------
(c) Additional Indebtedness. Borrow money on a secured or unsecured
-----------------------
basis from any other lender or incur any additional secured or
unsecured indebtedness (other than indebtedness incurred under
and pursuant to the Secured Revolving Line of Credit Agreement,
dated as of the date hereof, between Borrower and Lender, as the
same may be amended, restated, supplemented or otherwise modified
from time to time); or enter into or allow any of its
Subsidiaries to enter into any Leases, unless at that time
Borrower meets the Minimum Net Worth Test; provided, however,
-------- -------
Borrower and its Subsidiaries, may grant purchase money secured
indebtedness or incur unsecured trade debt or pay other current
operating liabilities that arise in the ordinary course of
business so long as the aggregate total of such debt does not
exceed five percent (5%) of Borrower's consolidated total assets.
If Borrower meets the Minimum Net Worth Test, then Borrower and
its Subsidiaries may incur additional indebtedness or enter into
Leases without prior written approval of Lender as provided in
the foregoing sentence, provided the Borrower meets the Minimum
--------
Net Worth Test after incurring such additional indebtedness or
12
<PAGE>
entering into such Leases; provided, further, however, Borrower
-------- ------- -------
must give at least thirty (30) days written notice to Lender
prior to incurring any additional indebtedness or entering into
any such Leases which exceed five percent (5%) of Borrower's
consolidated total assets.
7.03 Dividends and Other Cash Distributions. The Borrower will not, in any
one calendar year, without the prior approval in writing of the Lender (i)
declare or pay any dividends or make any other distribution to its stockholders
with respect to its capital stock; (ii) purchase or redeem or retire any of its
capital stock; or (iii) increase the management fee factor above the management
fee factor contained in the Gallatin River Communications, LLC and Madison River
Communications, Inc. Financial Model dated March 15, 1998, unless with respect
to any of the foregoing (after giving effect to such transaction) Borrower: (a)
maintains a Current Ratio of not less than 1.25, (b) meets the Minimum Net Worth
Test, and (c) the payment of such dividend, the making of such distribution, or
the purchase, redemption or retirement of such stock, individually or in the
aggregate, does not exceed fifty percent (50%) of the prior fiscal year-end Cash
Margins in any one calendar year.
Notwithstanding anything to the contrary herein, Borrower may make
distributions or payments to an affiliated entity ("Affiliate") provided that:
(i) Lender shall have a priority first lien on all of the Affiliate's assets and
revenues and/or a pledge of all of the Affiliates outstanding equity interests,
and (ii) the Affiliate shall be subject to covenants with Lender which are
substantially similar to those included in Sections 6 and 7 herein.
In no event may the Borrower make any such distributions or payments
pursuant to this Section when there is unpaid any due installment of principal
and/or interest on the Note or if the Borrower is otherwise in material default
of any provision of this Agreement or would be in material default hereunder as
a result of such distribution or payment.
7.04 Special Negative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special negative covenants identified in Schedule 1
hereto.
7.05 Limitations on Loans, Investments and Other Obligations:
(a) The Borrower shall not, without first obtaining the written approval
of Lender, (i) purchase or make any commitment to purchase any stock,
bonds, notes, debentures or other securities or obligations of or
beneficial interest in, (ii) make any other investment in, (iii) make
any loan to, or (iv) guarantee, assume, or otherwise become liable for
any obligation of, any corporation, association, partnership, joint
venture, trust, government or any agency or department thereof, or any
other entity of any kind if the aggregate amount of all such
purchases, investments, loans and guarantees exceeds in any twelve
(12) month period the greater of ten percent (10%) of Total Plant or
thirty percent (30%) of Net Worth.
(b) The following shall not be included in the limitation on purchases
investments, loans and guarantees in (a) above: (i) bonds, notes,
debentures, stock, or other
13
<PAGE>
securities or obligations issued by or guaranteed by the United States
government or any agency or instrumentality thereof; (ii) bonds,
notes, debentures, stock, commercial
paper, subordinated capital certificates, or other security or
obligation of institutions whose senior unsecured debt obligations are
rated by at least two nationally recognized rating organizations in
either or its two highest categories; (iii) investments incidental to
loans made by RTFC; (iv) bonds, notes, debentures,
commercial paper or any other security of the National Rural Utilities
Cooperative Finance Corporation; and (v) any deposit that is fully
insured by the Federal Government.
7.06 Limitations on Contracts; Deposits of Funds: The Borrower will not,
without the approval in writing of the Lender: (a) enter into any contract or
contracts (i) for management of its business or any part thereof (except in
connection with any management contract for which the fees are permitted by
Section 7.03 above); (ii) for the operation or maintenance of all or any
substantial part of its property, (iii) for the use by others of any of the
Mortgaged Property in excess of $100,000; or (iv) with other companies;
provided, however, that such approval shall not be required for any contract
- -------- -------
which in form and substance substantially conforms with contracts in general use
in the Mortgagors industry by companies of size and character similar to
Mortgagor or which substantially conform to contracts which are currently in
existence that Mortgagor is a party to; or (b) except as permitted by Section
7.05 above, deposit any of its funds, regardless of the source thereof, in any
bank which is not insured by the Federal Deposit Insurance Corporation or the
successor thereof.
7.07 Preservation of Corporate Existence and Franchises; Compliance with
Laws; Limitations on Mergers, Transfers and Purchases: The Mortgagor will at all
times, so long as any of the Notes shall be outstanding, take or cause to be
taken all such action as from time to time may be necessary to preserve its
corporate existence and to preserve and renew all franchises, rights of way,
easements, permits and licenses necessary to the conduct of its business, and
will materially comply with all valid laws, ordinances, regulations and
requirements applicable to it or its property.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
(a) Representation and Warranties. Any representation or warranty made
herein, in any of the Other Agreements or in any statement, report,
certificate, opinion, financial statement or other document furnished
or to be furnished in connection with this Agreement or the Other
Agreements shall be false or misleading in any material respect.
(b) Payment. Failure of Borrower to make any of the payment Obligations,
including, without limitation, any sum due the Lender under this
Agreement or
14
<PAGE>
any of the Other Agreements, when and as the same shall become due,
whether at the due date thereof, by demand, by acceleration or
otherwise.
(c) Other Covenants. Failure of Borrower to observe or perform any
warranty, covenant or condition to be observed or performed by
Borrower under this Agreement or any of the Other Agreements.
(d) Corporate Existence. The Borrower shall forfeit or otherwise be
deprived of its corporate charter, franchises, permits, easements,
consents or licenses required to carry on any material portion of its
business.
(e) Other Obligations. Default, after giving effect to any applicable
grace period, by the Borrower in the payment when due of any money
owed by the Borrower, whether principal, interest, premium or
otherwise, under any other agreement for borrowing money in an amount
in excess of five percent (5%) of total assets, whether or not such
borrowing is secured.
(f) Bankruptcy. A court shall enter a decree or order for relief with
respect to the Borrower or any Subsidiary or guarantor (if any) in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official, or ordering the winding up or liquidation of its affairs,
and such decree or order shall remain unstayed and in effect for a
period of sixty (60) consecutive days or the Borrower or any
Subsidiary or guarantor (if any) shall commence a voluntary case under
any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or under any such law, or consent to the
appointment or taking of possession by a receiver, liquidator,
assignee, custodian or trustee, of a substantial part of its property,
or make any general assignment for the benefit of creditors.
(g) Dissolution or Liquidation. Other than as provided in subsection (f)
above, the dissolution or liquidation of the Borrower or any
Subsidiary or guarantor (if any), or failure by the Borrower or any
Subsidiary or guarantor promptly to forestall or remove any execution,
garnishment or attachment of such consequence as will impair its
ability to continue its business or fulfill its obligations and such
execution, garnishment or attachment shall not be vacated within sixty
(60) days.
(h) Final Judgment. A final non-appealable judgment In excess of $100,000
shall be entered against the Borrower and shall remain unsatisfied or
without a stay for a period of sixty (60) days.
9. RIGHTS AND REMEDIES
15
<PAGE>
9.01 Rights and Remedies of the Lender. Upon the occurrence of an Event of
Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time Borrower shall
have the opportunity to cure said Event of Default except with respect
to Obligations pursuant to 8(b), 8(f) and 8(g) above which shall
require no notice or demand and shall have no period to cure; and
(ii) compliance, if required, with the rules and regulations of the FCC and
any state public service or utilities commission having jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies available
to the Lender under applicable law, all such rights and remedies being
cumulative and enforceable alternatively, successively or concurrently:
(a) Declare all unpaid principal outstanding on the Note, all accrued and
unpaid interest thereon, and all other Obligations to be immediately
due and payable and the same is shall thereupon become immediately due
and payable without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the Obligations
owed to, or any Liens in favor of the Lender.
(c) Pursue all rights and remedies available to the Lender that are
contemplated by the Mortgage in the manner, upon the conditions, and
with the effect provided in the Mortgage, including but not limited to
a suit for specific performance, injunctive relief or damages.
(d) Pursue any other rights and remedies available to the Lender at law or
in equity.
9.02 Cumulative Nature of Remedies. Nothing herein shall limit the right of
the Lender, subject to notice and right to cure provisions contained herein, to
pursue all rights and remedies available to a creditor following the occurrence
of an Event of Default subject to compliance, if required, with the rules and
regulations of the FCC and any state public service or utilities commission
having jurisdiction. Each right, power and remedy of the Lender in this
Agreement and/or the Other Agreements shall be cumulative and concurrent, and
recourse to one or more rights or remedies shall not constitute a waiver of any
other right, power or remedy.
9.03 Costs and Expenses. Borrower agrees to pay and to be liable for any
and all reasonable expenses, including attorneys' fees and court costs, incurred
by the Lender in exercising or enforcing any of its rights hereunder or under
the Other Agreements, together with interest thereon at the rate and determined
in the manner provided in the Mortgage. Subject to the Mortgage and applicable
law, the Lender may apply all Collateral and proceeds of all
16
<PAGE>
Collateral to the Obligations in any manner which the Lender, in its sole
discretion, deems appropriate, and Borrower will continue to be liable for any
deficiency.
9.04 Late Payment Charges. If payment of any principal and/or interest due
under the terms of the Note is not received at the office of the Lender in
Herridon, Virginia, or as the Lender may otherwise designate to the Borrower,
within such time period as the Lender may prescribe from time to time in its
policies in connection with any late payment charges (such unpaid amount of
principal and/or interest being herein called the "delinquent amount" and the
period beginning after such due date until payment of the delinquent amount
being herein called the "late-payment period"), the Borrower will pay to the
Lender, in addition to all other amounts due under the terms of the Note, the
Mortgage, and this Agreement, any late-payment charge as may be fixed by the
Lender from time to time, on the delinquent amount for the late-payment period.
9.05 Lenders, Setoff. The Lender shall have the right, in addition to all
other rights and remedies available to it, to setoff and to recover against any
or all of the Obligations due to Lender, any monies now and hereafter owing to
Borrower by the Lender. Borrower waives all rights of setoff, deduction,
recoupment and counterclaim.
10. MISCELLANEOUS
10.01 Performance for Borrower. Borrower agrees and hereby authorizes that
the Lender may, in its sole discretion, but the Lender shall not be obligated
to, advance funds on behalf of Borrower without prior notice to Borrower, in
order to insure Borrower's compliance with any material covenant, warranty,
representation or agreement of Borrower made in or pursuant to this Agreement or
any of the Other Agreements, to preserve or protect any right or interest of the
Lender in the Collateral or under or pursuant to this Agreement or any of the
Other Agreements, including without limitation, the payment of any insurance
premiums or taxes and the satisfaction or discharge of any judgment or any Lien
upon the Collateral or other property or assets of Borrower; provided, however
(1) prior to making any such advance, the Lender shall give the Borrower prior
written notice of its intent to make such advances and, unless there is some
imminent danger of the occurrence of a Material Adverse Effect, the Borrower
shall have fifteen (15) Business Days to rectify the issue set forth In such
notice, and (ii) that the making of any such advance by the Lender shall not
constitute a waiver by the Lender of any Event of Default with respect to which
such advance is made nor relieve Borrower of any such Event or Default, Borrower
shall pay to the Lender upon demand all such advances made by the Lender with
interest thereon at the rate and determined in the manner provided in the Note.
All such advances shall be deemed to be included in the Obligations and secured
by the security interest granted the Lender hereunder to the extent permitted by
law.
10.02 Expenses and Filing Fees. Whether or not any of the transactions
contemplated hereby shall be consummated, Borrower agrees to pay to the Lender
at Closing or thirty (30) days after the execution and delivery hereof,
whichever is earlier, all expenses of the Lender in connection with the filing
or recordation of all financing statements and instruments as may be required by
the Lender at the time of, or subsequent to, the execution of this Agreement,
including, without limitation, all documentary stamps, recordation and transfer
taxes and other
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<PAGE>
costs and taxes incident to recordation of any document or instrument in
connection herewith. Borrower agrees to save harmless and indemnify the Lender
from and against any liability resulting from the failure to pay any required
documentary stamps, recordation and transfer taxes, recording costs, or any
other expenses incurred by the Lender in connection with this Agreement. The
provisions of this Subsection 10.02 shall survive the execution and delivery of
this Agreement and the payment of all other Obligations.
10.03 Waivers by Borrower. Borrower hereby waives, to the extent the same
may be waived under applicable law: (a) in the event the Lender seeks to
repossess any or all of the Collateral by judicial proceedings, any bond(s) or
demand(s) for possession which otherwise may be necessary or required; (b)
presentment, demand for payment, protest and notice of non-payment and all
exemptions; and (c) substitution, impairment, exchange or release of any
collateral security for any of the Obligations, Borrower agrees that the Lender
may exercise any or all of its rights and/or remedies hereunder and under the
Other Agreements without resorting to and without regard to security or sources
of liability with respect to any of the Obligations.
10.04 Waivers by the Lender. Neither any failure nor any delay on the part
of the Lender in exercising any right, power or remedy hereunder or under any of
the Other Agreements shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy, been mailed, postage prepaid, to
Borrower, the Lender shall receive written notice of specific objection thereto.
10.06 Modifications. No modification or waiver of any provision of this
Agreement, the Note or any of the Other Agreements, and no consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand upon Borrower in any case shall entitle Borrower to any other or further
notice or demand in the same, similar or other circumstances.
10.07 Notices. All notices, requests and other communications provided for
herein including, without limitation, any modifications of, or waivers, requests
or consents under, this Agreement shall be given or made in writing (including,
without limitation, by telecopy) and delivered to the intended recipient at the
"Address for Notices" specified below; or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when personally delivered or, in the case of a
mailed or telecopied notice, upon receipt, in each case given or addressed as
provided for herein. The Address for Notices of the respective parties are as
follows:
The Lender:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 20171-3025
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Attention: Loan Officer
Fax: 703-709-6776
The Borrower:
Madison River Communications, Inc.
6330 Quadrangle Drive - Suite 325
Chapel Hill, North Carolina 27514
Attn: Managing Director, Finance and General Counsel
Fax: 919-402-0151
With a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606
Attn: Gary P. Cullen, Esq.
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF VIRGINIA.
(b) BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE ESTABLISHING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT
FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
10.09 Holiday Payments. If any payment to be made by the Borrower hereunder
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall be
included in computing any interest in respect of such payment.
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<PAGE>
10.10 Consent to Patronage Capital Distributions. The Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in Section
1388 of the Internal Revenue Code of 1986, as amended ("Code") including any
other comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
10.11 Right to Inspect. The Borrower shall permit representatives of the
Lender at any time during normal business hours to inspect and make abstracts
from the books and records pertaining to the Collateral, and permit
representatives of the Lender to be present at Borrower's place of business to
receive copies of all communications and remittances relating to the Collateral,
all in such manner as the Lender may reasonably require, provided, that prior to
--------
the occurrence and continuance of an Event of Default the Lender shall not
exercise its rights pursuant to this Section 10.11 more than one time per
calendar quarter.
10.12 Survival; Successors and Assigns. All covenants, agreements,
representations and warranties made herein and in the Other Agreements shall
survive Closing and the execution and delivery to the Lender of the Note, and
shall continue in full force and effect until all of the Obligations have been
paid in full. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on behalf
of Borrower which are contained in this Agreement and the Other Agreements shall
inure to the benefit of the successors and assigns of the Lender.
10.13 Assignment. The Lender may assign its rights and obligations under
this Agreement and the Other Agreements without the consent of the Borrower;
provided, however, that no such assignment shall effect any of the material
terms of this agreement (other than the name of the Lender and the address for
notices and payments) or otherwise result in terms or conditions less favorable
to Borrower. The Borrower may not assign any of its rights of obligations under
this Agreement or the Other Agreements without the prior written consent of the
Lender.
10.14 Severability. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any reason
be found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term, provision or
condition, and this Agreement, the Note, and the Other Agreements shall survive
and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
10.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counter-parts shall together constitute one and the same instrument.
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<PAGE>
10.16 Headings/Use of Terms. The headings and sub-headings contained in
this Agreement are intended to be used for convenience only and do not
constitute part of this Agreement. The use of any gender or the neuter herein
shall also refer to the other gender or the neuter and the use of the plural
shall also refer to the singular, and vice versa.
10.17 Further Assurances. The Borrower will, upon demand of the Lender,
make, execute, acknowledge and deliver all such further and supplemental
indentures of mortgage, deeds of trust, mortgages, financing statements,
continuation statements, security agreements and/or any other instruments and
conveyances as may be reasonably requested by the Lender to effectuate the
intention of this Agreement and to provide for the securing and payment of the
principal of and interest on the Note according to the terms thereof.
10.18 Lender's Approval. Wherever prior written approval of Lender is
required under the terms and conditions of this Agreement, Lender hereby agrees
to not unreasonably withhold said approval.
10.19 Merger and Integration. This Agreement and the attached exhibits and
matters incorporated by reference contain the entire agreement of the parties
hereto with respect to the matters covered and the transactions contemplated
hereby, and no other agreement, statement or promise made by any party hereto,
or by any employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid or binding.
10.20 Schedule 1. Schedule 1 attached hereto is an integral part of this
Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
MADISON RIVER COMMUNICATIONS, INC.
By: J. STEPHEN VANDERWOUDE
------------------------------------------
Title: PRESIDENT AND CHIEF EXECUTIVE OFFICER
---------------------------------------
(SEAL)
Attest: PAUL H. SUNU
--------------
Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: ROBIN C. REED
------------------------------------------
Assistant Secretary-Treasurer
(SEAL)
Attest: BLUEPENDER SELIGAL
-----------------------------
Assistant Secretary-Treasurer
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<PAGE>
SCHEDULE 1
1. The "Commitment" shall mean $73,684,211.
2. The Mortgage is the Mortgage and Security Agreement by and between Borrower
and Lender dated as of even date herewith.
3. The months relating to the Payment Date are February, May, August and
November.
4. The method of amortization referred to in Section 2.03 shall be based upon
the schedule attached as Exhibit A hereto.
5. The amount referred to in Section 2.05 is $3,684,211.
6. The date of Borrower's financial statement referred to in Section 4.06 is
not applicable.
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is 6330 Quadrangle Drive, Suite 325,
Chapel Hill, NC 27514.
8. The government authorities referred to in Section 4.13 are the Illinois
Commerce Commission ("ICC") and the Federal Communications Commission.
9. The special conditions referred to in Section 5.05 are as follows:
1. Prior to the initial Advance of funds from this Loan, Lender shall
receive, in form and content satisfactory to Lender, the following:
a) Borrower's Certificate of Incorporation and Bylaws, including any
and all revisions thereto;
b) A copy of the executed definitive purchase agreement between the
Borrower and Centel Corporation ("Centel") and/or an assignment
of such rights to Borrower;
c) Copies of all proposed management and services agreements for
Borrower and/or its Subsidiaries;
d) Evidence of a common equity capital contribution equal to or
greater than $3,000,000; and
2. Borrower and its Subsidiaries shall establish and maintain a December
31 fiscal year-end.
3. Lender shall not be obligated to advance any funds hereunder until
Borrower's affiliated entity, Gallatin River Communications, LLC, has
satisfied all conditions
<PAGE>
precedent to its loan with Lender designated NC-601-A-01 and is in a
position to close on its purchase of local loop assets in Illinois
from Centel.
10. The purpose referred to in Section 6.05 is to (i) fund a portion of the
total costs to acquire local loop assets in Illinois from Centel, and (ii)
to purchase SCCs.
11. The special affirmative covenants referred to in Section 6.06 are: within
five (5) days of execution of any management and/or services agreements,
Borrower shall provide Lender with an assignment of such agreements, in
form and content satisfactory to Lender.
12. The special negative covenants referred to in Section 7.04 are not
applicable.
<PAGE>
SECURED PROMISSORY NOTE
$73,684,211 October 30, 1998
MADISON RIVER COMMUNICATIONS, INC., a Delaware corporation (herein called the
"Borrower"), for value received hereby promises to pay, without setoff,
deduction, recoupment or counterclaim, to the order of RURAL TELEPHONE FINANCE
COOPERATIVE (herein called the "Payee") at the Payee's office in Hemdon,
Virginia, or such other location as the Payee may designate, in lawful money of
the United States, the sum of the aggregate unpaid principal amount of all
Advances made by the Payee pursuant to that certain Loan Agreement dated as of
even date herewith, between the Borrower and the Payee as it may be amended from
time to time (herein called the "Loan Agreement"), on the dates provided for in
the Loan Agreement (except that if not sooner paid, any balance shall be due and
payable an a date fifteen (15) years after the date hereof, such date being the
"Maturity Date"), with interest thereon in like money from the respective dates
of each Advance (as defined in the Loan Agreement) hereunder, at the rate or
rates and payable at the times provided in said Loan Agreement together with any
other amount payable under the Loan Agreement.
This Note is secured under a Mortgage and Security Agreement dated as of even
date herewith by and between the Borrower and the Payee, as It may have been or
shall be supplemented, amended, restated or consolidated from time to time
(herein called the "Mortgage"). This Note is the Note referred to in, and has
been executed and delivered pursuant to, the Loan Agreement.
The principal hereof and interest accrued thereon and any other amount due under
the Loan Agreement may be declared to be forthwith due and payable in the
manner, upon the conditions, and with the effect provided in the Mortgage or
Loan Agreement.
The Borrower waives demand, presentment for payment, notice of dishonor,
protest, notice of protest, and notice of non-payment of this Note.
IN WITNESS WHEREOF the Borrower has caused this Note to be signed in its
corporate name and its corporate seal to be hereunto affixed and to be attested
by its authorized officers, all as of the day and year first above written.
MADISON RIVER COMMUNICATIONS INC.
By: J. STEPHEN VANDERWOUDE
------------------------------------
Title CHIEF EXECUTIVE OFFICER
----------------------------------
(SEAL)
Attest: PAUL H. SUNU
------------------
Secretary
Loan No.: NC 810-A-01
<PAGE>
EXHIBIT 10.17
RURAL TELEPHONE FINANCE COOPERATIVE
SECURED REVOLVING LINE OF CREDIT AGREEMENT
("Agreement")
GALLATIN RIVER COMMUNICATIONS, LLC, a Delaware limited liability company
("Borrower") located at 6330 Quadrangle Drive, Suite 325, Chapel Hill, North
Carolina, 27514, hereby agrees to borrow from Rural Telephone Finance
Cooperative ("RTFC" or "Lender"), a South Dakota cooperative association,
pursuant to the terms of this Agreement, dated as of October 30, 1998, for a
revolving line of credit loan in an amount not to exceed ten million dollars
($10,000,000). In consideration of their mutual premises hereunder and other
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Lender and Borrower agree to the following terms and conditions:
1. Revolving Credit and Term. Lender agrees to make advances to the Borrower
pursuant to the terms of this Agreement ("Advances"). The maximum principal
amount outstanding at any point in time shall not exceed $10,000,000.
Within such limits, the Borrower may borrow, repay and reborrow at any time
or from time to time for a period up to five (5) years from the date hereof
(the "Maturity Date").
2. Requisitions. The Borrower shall give Lender such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. Interest Rate and Payment. The Borrower unconditionally promises and agrees
to pay, as and when due, interest on all amounts advanced hereunder from
the date of each Advance and to repay all amounts advanced hereunder with
interest on the Maturity Date. Interest shall be due and payable quarterly
on the first day of each January, April, July, and October, commencing on
the first such date after such initial Advance; except that if Lender gives
notice thereof to the Borrower before the first day of any month, interest
shall thereafter be due and payable on the 15th day of such month and each
month thereafter. Lender shall invoice the Borrower at least five days
prior to the due date of any such interest payment. All amounts shall be
payable at RTFC's main office at Woodland Park, 2201 Cooperative Way,
Hemdon, Virginia 20171-3025 or at such other location as designated by
Lender from time to time.
The interest rate on all Advances will be equal to the Prevailing Bank
Prime Rate (as defined herein), plus one and one-half percent per annum or
such lesser total rate per annum as may be fixed by Lender from time to
time. Interest will be computed on the basis of a year of 365 days. The
interest rate will be adjusted as determined from time to time by Lender,
provided that no such adjustment may be effective on a date other than the
first or sixteenth day of any month, and will remain in effect until a
subsequent change in rate occurs.
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which Lender
determines in its discretion to be the representative bank prime rate on
the day preceding the day on which an adjustment in the interest rate
hereof shall become effective. If such preceding day is
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<PAGE>
not a publication day for The Wall Street Journal then the Prevailing Bank
Prime Rate shall be established by reference to such "Money Rates" column
as of the last publication day next preceding the day on which such
adjustment shall become effective; provided if The Wall Street Journal
shall cease to be published, then the Prevailing Bank Prime Rate shall be
determined by RTFC by reference to another publication reporting bank prime
rates in a similar manner.
4. RTFC Accounts. Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower
resulting from each Advance made from time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In any
legal action or proceeding in respect of this Agreement, the entries made
in such account or accounts (whether stored on computer memory, microfilm,
invoices or otherwise) shall be presumptive evidence (absent manifest
error) of the existence and amounts of the Borrowers transactions therein
recorded.
5. Corporate and Regulatory Approvals. Borrower represents that it has
obtained any and all necessary corporate and regulatory approvals for
Borrower to execute and perform pursuant to this Agreement.
6. Reports. Borrower agrees to deliver to Lender, promptly upon their becoming
available, a copy of (i) any annual audit report prepared subsequent to the
submission of this Agreement; (ii) its monthly operating report within
thirty (30) days for any month in which there are advances outstanding
pursuant to this Agreement; and (iii) any other reports which Lender
reasonably requests during the term of this Agreement.
7. Covenants/Financial Ratios. Until the Maturity Date, Borrower agrees to
honor and be bound by the affirmative and negative covenants, and financial
ratios, (collectively, the "Covenants") contained in Sections 6 and 7 of
the Loan Agreement by and between Borrower and Lender dated as of even date
herewith, as it may be amended from time to-time (the "Loan Agreement"),
and such covenants shall be incorporated by reference as if fully stated
herein.
8. Fees. If any amount outstanding and due hereunder shall not be paid when
due, Borrower agrees to pay on demand Lender's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at Lender's
office in Herndon, Virginia, or such other location designated by Lender
within five (5) business days after the due date thereof (such unpaid
amount of principal and/or interest being herein called the "delinquent
amount," and the period beginning after such due date being herein called
the "late-payment period"), Borrower will pay to Lender, on demand, in
addition to all other amounts due under the terms of this Agreement, any
late-payment charge as may then be in effect pursuant to Lender's policy on
the delinquent amount for the late payment period.
9. Credit Support. This Agreement may not be used as credit support for any
other
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<PAGE>
financings without Lender's prior written approval.
10. Notices, Acceleration of Debt and Waivers. While any amount hereunder is
outstanding, Borrower agrees to notify Lender of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition, and if any representation or warranty made
in this Agreement has become untrue in any respect having a material
adverse effect on the financial condition or business of the Borrower.
Lender may declare at any time all outstanding amounts hereunder
immediately due and payable in full with accrued interest, without
presentment or demand, and may withhold advances of funds upon the
occurrence of any of the following: (i) any delinquency or default in
payment of any sum due the Lender under the Agreement; (ii) a court shall
enter a decree or order for relief with respect to Borrower or any
subsidiary or guarantor in an insolvency or bankruptcy or appoint a
receiver, liquidator, trustee or similar official and such order remains in
effect for a period of ninety (90) days; (iii) Borrower or any subsidiary
shall commence a voluntary case under bankruptcy, insolvency or similar law
or consent to the appointment of a receiver, liquidator, or trustee; (iv)
the dissolution or liquidation of Borrower or subsidiary or guarantor or
failure to forestall or remove any execution, garnishment or attachment of
such consequence as to impair its ability to continue business and such
execution, garnishment or attachment shall not be vacated within thirty
(30) days; or (v) any other event as a result of which any holder of
indebtedness in excess of five percent (5%) of Borrower's total assets may
declare the same due and payable shall occur and continue for more than any
applicable grace period.
If any representation or warranty herein shall become untrue, or Borrower
shall fail to comply with any term of this Agreement or if the financial
condition of Borrower shall have changed to the extent that such change in
the reasonable judgment of RTFC, materially increases RTFC's risk
hereunder, then RTFC at its discretion may withhold advances of funds
and/or declare all outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand.
The Borrower waives the defense of usury and all rights to set off,
counterclaim, deduction or recoupment.
11. Purpose, Repayments and Deposit. Borrower agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Borrower
relating to its operations. Borrower agrees that this loan shall be
repayable out of Borrower's general funds and that loan proceeds will not
be deposited in any other account dedicated for secured financing advances.
12. Additional Indebtedness. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to Lender or permitted pursuant to
the Loan Agreement, Borrower agrees that it will not, without the prior
written consent of Lender, (i) make
3
<PAGE>
distributions of cash to its members, if applicable, or (ii) create, incur,
assume, guarantee or otherwise become obligated for any additional
indebtedness, other than to Lender except that the Borrower may borrow
against another loan previously approved by Lender.
13. Survival of Representations, Warranties and Payment Obligations. Borrower
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
14. Representations and Warranties. Except as set forth in writing and attached
hereto, Borrower represents and warrants as of the date of its application
and on the date of each and every Advance hereunder that:
(a) The Borrower has and will meet all obligations and be in compliance
with all instruments under which it is bound and that all information
submitted in support of its application is true, complete and correct
except where the failure to so comply or the inaccuracy of any such
information could not, in either case, be reasonably be expected to
have a Material Adverse Effect (as defined in the Loan Agreement);
(b) There has been no material adverse change in the Borrowers business or
financial condition from that set forth in its most recent audited
financial statements provided to Lender;
(c) The Borrower has no outstanding loans from sources other than Lender;
(d) The Borrower is not in default in any material respect of any of its
obligations and no litigation is threatened or pending which would
have a material adverse impact on the Borrowers ability to perform
under this Agreement; and
(e) The Borrower has no lines of credit with any other lenders.
15. Consent to Patronage Capital Distributions. Borrower hereby consents that
the amount of any distributions with respect to Borrower's patronage which
are made in written notices of allocation (as defined in Section 1388 of
the Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
16. Severability. If any term, provision or condition, or any part thereof, of
this Agreement shall for any reason be found or held invalid or
unenforceable by any court or governmental agency of competent
jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term,
4
<PAGE>
provision or condition, and this Agreement shall survive and be construed
as if such invalid or unenforceable term, provision or condition had not
been -contained therein.
17. Setoff. Lender is hereby authorized at any time and from time to time
without prior notice to the Borrower to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by Lender
or owed to the Borrower or for the credit or account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing hereunder. Lender agrees to notify the Borrower promptly after any
such setoff or recoupment and the application thereof, provided that the
failure to give such notice shall not affect the validity of such setoff,
recoupment or application. The rights of Lender under this section are in
addition to any other rights and remedies (including other rights of setoff
or recoupment) which Lender may have.
18. Additional Terms and Conditions. Additional terms and conditions set forth
herein or attached hereto as Exhibit A are an integral part of this
Agreement.
19. Integration. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and signed
by both parties.
20. Headings. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
21. Security. All Advances hereunder shall be secured by a security interest in
certain of Borrower's properties pursuant to a Mortgage and Security
Agreement by and between Borrower and RTFC entered into as of even date
herewith, which has been filed along with UCC-1 financing statements in all
such locations necessary to provide RTFC with a first priority, perfected
lien (except as permitted by the Mortgage) on all of Borrowers Mortgaged
Property (as defined in the Mortgage). Such Mortgage and Security Agreement
and UCC-1 financing statements shall continually exist until the later of
(i) all Advances and fees hereunder having been repaid or (ii) the Maturity
Date. Borrower agrees that, with respect to the Collateral which is subject
to Article 9 of the Uniform Commercial Code, the Lender shall have, but not
be limited to, all the rights and remedies of a secured party under the
Uniform Commercial Code.
22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
23. Special Conditions. Advances under this Agreement shall not occur unless
and until (i) closing on the acquisition of the intended local loop assets
in Illinois from Sprint Corporation has occurred, and (ii) the Loan
Agreement has been funded and all prerequisites to advance thereunder have
been satisfied.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
GALLATIN RIVER COMMUNICATIONS, INC.
By: J. STEPHEN VANDERWOUDE
--------------------------------------
Title: CHIEF EXECUTIVE OFFICER
-----------------------------------
(SEAL)
Attest: PAUL H. SUNU
-----------------------------
Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: ROBIN C. REED
--------------------------------------
Title: Assistant Secretary-Treasurer
(SEAL)
Attest: BLUEPENDER SELIGAL
-----------------------------
Assistant Secretary-Treasurer
7
<PAGE>
EXHIBIT 10.18
LOAN AGREEMENT
LOAN AGREEMENT ("Agreement") made as of March 29, 2000, by and between
COASTAL UTILITIES, INC., a Georgia corporation ("Borrower"), and RURAL TELEPHONE
FINANCE COOPERATIVE, a South Dakota cooperative association ("Lender' or
"RTFC").
RECITALS
WHEREAS, Borrower has requested Lender to make the Loan to Borrower
described in Schedule 1 hereto; and
WHEREAS, Lender is willing to make the Loan upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants contained
herein, Borrower and Lender do hereby agree as follows:
I. CONSTRUCTION AND DEFINITION OF TERMS
All accounting terms not specifically defined herein shall have the
meanings assigned to them as determined by generally accepted accounting
principles. In addition to the terms defined elsewhere in this Agreement, unless
the context otherwise requires, when used herein, the following terms shall have
the following meanings:
"Adjustment Date" shall mean the last date of the term (or rate period) of
the applicable Fixed Rate, after the date of the initial Advance to the Maturity
Date.
"Advance" shall mean an advance as defined in Section 2.02.
"Business Day" shall mean any day that Lender is open for business.
"Cash Margins" for any year shall mean net income (including guaranty
payments to Borrower from any of its affiliates) plus depreciation, amortization
and any other non-cash charges, less any non-cash credits and principal on long-
term debt payable in such year, as calculated on a consolidated basis for
Borrower and all its Subsidiaries.
"Certified" shall mean that the information, statement, schedule, report or
other document required to be "Certified" shall contain a representation of a
duly authorized officer of Borrower that such information, statement, schedule,
report or other document is true and correct and complete.
"Closing" shall mean the first date on which funds are advanced to Borrower
hereunder.
"Collateral" shall mean the Mortgaged Property, as such term is defined in
the Mortgage, and all proceeds, cash and non-cash, including insurance proceeds,
of the foregoing, whether in the
<PAGE>
possession of Borrower or any other person, and certain stock and related
proceeds and dividends described in, and pledged to Lender pursuant to the
Pledge Agreement.
"Commitment" shall have the meaning set forth in Schedule 1 hereto.
"Current Ratio" for any year shall mean the ratio of total current assets
to total current liabilities, as calculated by dividing total current assets by
total current liabilities, on a consolidated basis for Borrower and all its
Subsidiaries.
"Debt Service Coverage Ratio" or "DSC" for any year shall mean (a) total
net income (including guaranty payments to Borrower from any of its affiliates)
or margins plus depreciation and amortization and deferred compensation expense
and interest on long-term debt for such year, divided by (b) principal and
interest on long-term debt payable in such year, as calculated on a consolidated
basis for the Borrower and all its Subsidiaries.
"Event of Default" shall mean any of the events described in Section 8
hereof.
"Fixed Rate" shall mean the interest rate per annum provided for in Section
2.03(b) of this Agreement, plus 50 basis points.
"Leases" shall mean any lease of property by which Borrower shall be
obligated for rental or other payments which in the aggregate for any fiscal
year are in excess of $100,000 other than such equipment leases which are in
form and substance substantially in conformity with lease agreements in general
use in Borrower's industry by companies of size and character similar to
Borrower.
"Leverage Ratio" for any year shall mean (a) total debt excluding SCCs
divided by (b) the sum of: (i) total net income (including guaranty payments to
Borrower from any of its affiliates) or margins, (ii) income taxes, (iii)
interest expense payable on long-term debt for such year, (iv) depreciation and
amortization expense where pre-tax income or loss excludes any extraordinary
gains, (v) the write-up of any asset, and (vi) any investment income or losses
(including all Lender patronage capital allocations), as measured on a
consolidated basis for Borrower and all its Subsidiaries.
"Lien" shall mean any statutory or common law consensual or non-consensual
mortgage, pledge, security interest, encumbrance, lien, right of set-off, claim
or charge of any kind, including, without limitation, any conditional sale or
other title retention transaction, any lease transaction in the nature thereof
and any secured transaction under the Uniform Commercial Code of any
jurisdiction.
"Loan" shall mean the loan by the Lender to Borrower, pursuant to this
Agreement and the Note, in an aggregate principal amount not to exceed the
Commitment.
"Make-Whole Premium" shall mean the excess, if any, of (i) the present
value of the amount of interest that would have accrued during the applicable
Fixed Rate period on that portion of the Loan to be prepaid or converted over
(ii) the present value of the amount of interest Lender
<PAGE>
would earn if that portion of the Loan to be prepaid or converted was reinvested
for the remainder of the applicable Fixed Rate period in U.S. Treasury
obligations with a maturity comparable to the remaining term of the applicable
Fixed Rate period. For purposes of calculating the present value in (i) and (ii)
above, the discount rate will be the rate of interest accruing on the U.S.
Treasury obligations in (ii) above.
"Material Adverse Effect" shall mean any event or circumstance which, in
Lender's reasonable discretion, has a material and adverse effect upon the
business, operations, assets or properties or financial condition of the
Borrower and its Subsidiaries, taken as a whole.
"Maturity Date" shall mean the maturity date defined in the Note.
"Minimum Net Worth Test" shall be calculated on a consolidated basis for
the Borrower and all its Subsidiaries, and shall mean an equity to total asset
ratio of at least forty percent (40%). Equity shall be determined by subtracting
total liabilities from total assets.
"Mortgage" shall mean the deed to secure debt and security agreement
described in Schedule 1.
"Net Worth" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries taken as a whole and arrived at by subtracting total
liabilities from total assets.
"Note" shall mean the note or notes executed and delivered by Borrower at
or prior to Closing pursuant to Subsection 5.02(a) hereof, and all renewals,
replacements and extensions thereof.
"Obligations" shall include the full and punctual performance of all
present and future duties, covenants and responsibilities due to the Lender by
Borrower under this Agreement, the Note, the Other Agreements, all present and
future obligations of Borrower to the Lender for the payment of money under this
Agreement, the Note, the Other Agreements, extending to all principal amounts,
interest, late charges and all other charges and sums, as well as all costs and
expenses payable by Borrower under this Agreement, the Note, the Other
Agreements, and any and all other present and future monetary liabilities of
Borrower to the Lender, whether direct or indirect, contingent or noncontingent,
matured or unmatured, accrued or not accrued, related or unrelated to this
Agreement, whether or not of the same character or class as Borrower's
obligations under this Agreement and the Note, whether or not secured under any
other document, instrument or statutory or common law provision, as well as all
renewals, refinancings, consolidations, recastings and extensions of any of the
foregoing.
"Other Agreements" shall mean any and all promissory notes, security
agreements, assignments, subordination agreements, pledge or hypothecation
agreements, mortgages, deeds of trust, leases, contracts, guaranties,
instruments and documents now and hereafter existing between the Lender and
Borrower and executed and/or delivered pursuant to this Agreement or
guaranteeing, securing or in any other manner relating to any of the
Obligations, including, the instruments and documents referred to in Subsection
5.02 hereof.
<PAGE>
"Payment Date" shall mean the last day of each of the months referred to in
Schedule 1 hereto.
"Payment Notice" shall mean the notice furnished to the Borrower at least
quarterly indicating the precise amount of principal and/or interest due on the
next ensuing Payment Date, such notice to be sent to the Borrower at least ten
(10) days before such Payment Date.
"Person" shall include natural persons, corporations, associations,
partnerships, limited liability companies, joint ventures, trusts, governments
and agencies and departments thereof, and every other entity of companies, every
kind.
"Pledge Agreement" or "Pledge" shall mean the Pledge and Security Agreement
executed by and between Borrower and Lender as of even date herewith.
"Reset Date" shall have the meaning set forth in the definition of "Fixed
Rate" above.
"Subordinated Capital Certificate" or "SCC" shall mean a subordinated
certificate representing an investment in the Lender purchased by the Borrower
in connection with the Loan.
"Subsidiary" at any time means any entity which is at the time beneficially
owned or controlled directly or indirectly by the Borrower, by one or more such
entities or by the Borrower and one or more such entities.
"Termination Date" shall mean that date which is two (2) years from the
date hereof.
"Times Interest Earned Ratio" or "TIER" for any year shall mean (a) total
net income (including guaranty payments to Borrower from any of its affiliates)
or margins plus income taxes plus interest payable on long-term debt for such
year, divided by (b) interest on long-term debt payable in such year, as
measured on a consolidated basis for the Borrower and all its Subsidiaries.
"Total Plant" shall be calculated on a consolidated basis for the Borrower
and all its Subsidiaries and shall mean the total of all assets included in
property, plant and equipment pursuant to generally accepted accounting
principles and shall exclude any goodwill or plant acquisition adjustments.
"Variable Rate" shall mean the variable rate established by the Lender from
time to time for loans similarly classified pursuant to Lender's policies and
procedures then in effect, plus 50 basis points.
2. LOAN
2.01 Loan. The Lender agrees to make the Loan to Borrower subject to all of
the terms and conditions of this Agreement and the Other Agreements.
2.02 Advances. The Lender agrees to make, and the Borrower agrees to
request, on the terms and conditions of this Agreement, Advances from time to
time at the office of the Lender in
<PAGE>
Herndon, Virginia, or at such other place as the Lender may designate, not to
exceed the Commitment. The Borrower shall give the Lender at least one Business
Day prior written notice of the date on which each Advance is to be made. On the
Termination Date, the Lender may stop advancing funds and reduce the Commitment
to the aggregate amount theretofore advanced. The obligation of the Borrower to
repay the Advances shall be evidenced by the Note.
2.03 Payment, Amortization and Interest Rate.
(a) Payment. The Borrower shall pay on each Payment Date quarterly
installments, in an amount as determined by the Lender, of principal and/or
interest as shown in the Payment Notice, except that, if not sooner paid, any
balance of the principal amount and interest accrued thereon and all other
amounts due hereunder shall be due and payable on the Maturity Date. Payment of
principal hereunder shall commence on the date which is one-year after the first
full quarter following the initial Advance of funds as set forth in Schedule 1
and on each subsequent Payment Date until the Maturity Date or such earlier date
as all amounts due hereunder and on account of the Note shall have been paid in
full. Payment of interest hereunder is due on each Payment Date in which a
principal balance is outstanding. Principal will be amortized in accordance with
the method stated in Schedule 1 hereto.
The Lender will use, for purposes of calculating the amortization of principal,
one of the following interest rates, as applicable:
(i) If the Borrower elects the Fixed Rate, the Fixed Rate in effect on
the Adjustment Date; or
(ii) If the Borrower elects the Variable Rate, the Variable Rate in
effect when amortization begins; or
(iii) If the Borrower elects to convert from one interest rate program to
another pursuant to the provisions hereunder, the interest rate then
in effect for the elected program.
At the Lender's option, all payments shall be applied first to late payment
charges due, as hereinafter provided, then to interest accrued to the date of
such payment, and then to the reduction of principal balance outstanding.
No provision of this Agreement or the Note shall require the payment, or permit
the collection, of interest in excess of the highest rate permitted by
applicable law.
(b) Interest Rate. Each Advance shall be initially made at the Variable
Rate. Interest shall be computed from the actual number of days elapsed on the
basis of a year of 365 days until the first Payment Date following the initial
Advance. Thereafter, interest shall continue to be computed for the actual
number of days elapsed on the basis of a year of 365 days unless a Fixed Rate is
applicable to the Loan, in which case interest shall be computed on the basis of
a 30-day month and 360-day year.
<PAGE>
(i) Variable Rate. If Advances are made at the Variable Rate, it shall
apply until the Maturity Date, except as provided herein below.
(ii) Fixed Rate. If the Borrower elects a Fixed Rate, such Fixed Rate as
is available and in effect for loans similarly classified pursuant to
Lender's policies and procedures then in effect at the time of the
election shall apply to such Advance until the Adjustment Date. Upon
notice given by the Borrower five (5) Business Days prior to such
Adjustment Date, Borrower may elect to reset the interest rate to
such Fixed Rate as is available and in effect at the time of such
Adjustment Date. Such reset Fixed Rate shall apply to that portion of
the outstanding principal balance of the Loan elected to have a Fixed
Rate from the Adjustment Date until a new Adjustment Date or the
Maturity Date. If Borrower does not elect to reset the Fixed Rate,
the Variable Rate shall apply to the outstanding principal balance of
the Loan that had been bearing interest at the Fixed Rate prior to
such Adjustment Date, from such Adjustment Date to the Maturity Date.
(iii) Conversion to Different Interest Program.
(A) Variable Rate to Fixed Rate. Subject to the conditions set forth
herein, the Borrower may convert from the Variable Rate to the Fixed
Rate for any portion or all of the principal amount of the Commitment
then outstanding at any time provided the Lender offers a Fixed Rate
at such time for similarly classified loans.
(B) Fixed Rate to Variable Rate. The Borrower may convert from a Fixed
Rate to the Variable Rate: (1) on an Adjustment Date or (2) at any
other time, provided that the Borrower shall pay Lender any
applicable Make-Whole Premium.
2.04 Prepayment. In the event the Borrower prepays all or part of the Loan,
the Borrower shall pay any prepayment fee required pursuant to the terms of this
Section 2.04. All prepayments shall be accompanied by payment of accrued and
unpaid interest on the amount of and to the date of the prepayment. All
prepayments shall be applied first to fees, second to the payment of accrued and
unpaid interest, and then to the unpaid balance of the principal amount of the
Loan; provided, however, Borrower may at its option allocate principal
prepayment between amounts outstanding on Variable Rate Loans and Fixed Rate
Loans. If the Loan bears interest at the Variable Rate the Borrower may prepay
the Loan or any portion thereof, as the case may be, at any time subject to the
terms hereof and said prepayment fee shall be in an amount equal to fifty (50)
basis points times the amount being prepaid. If the Loan bears interest at the
Fixed Rate, the Borrower may prepay the Loan only on an Adjustment Date or any
such other date provided that the Borrower shall pay a prepayment fee in an
amount equal to fifty (50) basis points times the amount being prepaid plus any
applicable Make-Whole Premium (which Make-Whole Premium shall only be paid to
the extent any Fixed Rate Loan is prepaid on any date other than an Adjustment
Date). Notwithstanding anything to the contrary herein, if Borrower shall make a
permitted prepayment pursuant to the terms hereto, then, upon Borrower's
request, Lender shall re-amortize the Loan pursuant to the method of
amortization designated in Section 2.03 (a).
<PAGE>
2.05 10% Subordinated Capital Certificate. The Borrower shall purchase SCCs
which in the aggregate shall not exceed the amount specified in Schedule 1
hereto. Unless otherwise requested in writing by the Borrower prior to the
initial Advance and approved by the Lender, the Borrower agrees to purchase SCCs
either: (1) with each Advance in the amount of ten percent (10%) of each such
Advance, and each such SCC shall be paid for with proceeds of such Advance, or
(2) by making payments with Borrower's own funds in twenty (20) equal quarterly
installments, commencing on the first Payment Date following the initial
Advance. If the Borrower elects to pay for SCCs other than from Loan funds, the
amount of the Commitment will be correspondingly reduced by said amount when the
SCCs are fully paid. If the Borrower obtains Advances hereunder other than for
the purpose of purchasing SCCs and fails to pay for the SCCs, then the Lender
may make Advances for the account of the Borrower to purchase the SCCs. The
Lender agrees to deliver the SCCs on or about the date on which the SCCs have
been paid for in full. The SCCs shall bear no interest and shall mature in
accordance with the terms thereof.
3. SECURITY
As security for the payment and performance of all of the Obligations, Borrower
has: (i) entered into the Mortgage pledging and granting to the Lender a prior
and continuing security interest in the Collateral that may be secured by the
Mortgage that shall continually exist until all Obligations have been paid in
full, and (ii) executed the Pledge and obtained an executed pledge and security
agreement from its parent corporation, Coastal Communications, Inc., pursuant to
which certain equity interests are pledged to Lender as are further described
therein. If reasonably required by the Lender at any time, Borrower shall make
notations, satisfactory to the Lender, on its books and records disclosing the
existence of the Lender's security interest in the Collateral. Borrower agrees
that, with respect to the Collateral, which is subject to Article 9 of the
Uniform Commercial Code, the Lender shall have, but not be limited to, all the
rights and remedies of a secured party under the Uniform Commercial Code. The
Lender shall have no liability or duty, either before or after the occurrence of
an Event of Default hereunder, on account of loss of or damage to, or to collect
or enforce any of its rights against, the Collateral, or to preserve any rights
against account debtors or other parties with prior interests in the Collateral.
4. REPRESENTATIONS AND WARRANTIES
To induce the, Lender to enter into this Agreement, Borrower represents and
warrants to the Lender as of the date of this Agreement that:
4.01 Good Standing. Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of the state of its incorporation,
has the power to own its property and to carry on its business, is duly
qualified to do business, and is in good standing in each jurisdiction in which
the transaction of its business makes such qualification necessary, except to
the extent such lack of qualification would not have a Material Adverse Effect.
4.02 Authority. Borrower has the necessary power and authority to enter
into this Agreement and the Mortgage, to make the borrowing hereunder, to
execute and deliver all documents and instruments required hereunder and to
incur and perform the obligations provided
<PAGE>
for herein, in the Mortgage, and in the Note, all of which have been duly
authorized by all necessary and proper action, and no consent or approval of any
person, including, without limitation, shareholders of Borrower and any public
authority or regulatory body, which has not been obtained is required as a
condition to the validity or enforceability hereof or thereof.
4.03 Binding Agreement. This Agreement has been duly and properly executed
by Borrower, constitutes the valid and legally binding obligation of Borrower
and is fully enforceable against Borrower in accordance with its terms, subject
only to laws affecting the rights of creditors generally, the exercise of
judicial discretion in accordance with general principles of equity or because
waivers of statutory or common law rights or remedies may be limited.
4.04 No Conflicting Agreements. The execution, delivery of and performance
by Borrower of this Agreement, the Mortgage and the Note, and the transactions
contemplated hereby or thereby, will not: (a) violate any material provision of
law, any order, rule or regulation of any court or other agency of government,
any material award of any arbitrator, the charter or by-laws of Borrower, or any
indenture, contract, agreement, mortgage, deed of trust or other instrument to
which Borrower is a party or by which it or any of its property is bound; or (b)
be in conflict with, result in a breach of or constitute (with due notice and/or
lapse of time) a default under, any such material award, indenture, contract,
agreement, mortgage, deed of trust or other instrument, or result in the
creation or imposition of any Lien (other than contemplated hereby) upon any of
the property or assets of Borrower, except to the extent any such conflict
referred to in (a) or (b) above would not have a Material Adverse Effect.
4.05 Litigation. There are no judgments, claims, actions, suits or
proceedings pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or its properties, at law or in equity or before or by any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, which may result in a Material Adverse
Effect, and Borrower is not, to its knowledge, in default with respect to any
judgment, order, writ, injunction, decree, rule or regulation of any court or
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which could reasonably
be expected to have a Material Adverse Effect.
4.06 Financial Condition. The financial statements of Borrower as at the
date set forth in Schedule 1 hereto, heretofore delivered to the Lender, are
complete and correct in all material respects, fairly present the financial
condition of Borrower and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. There are no
material liabilities of Borrower, direct or indirect, fixed or contingent, as of
the date of such statements which are not reflected therein. There has been no
material adverse change in the financial condition or operations of the Borrower
from that set forth in said financial statements except changes previously
disclosed in writing to the Lender prior to the date hereof.
4.07 Taxes. Borrower has paid or caused to be paid all federal, state and
local taxes to the extent that such taxes have become due, unless the Borrower
is contesting in good faith any such tax. Borrower has filed or caused to be
filed all federal, state and local tax returns which are required to be filed by
Borrower.
<PAGE>
4.08 Title to Properties. Borrower has good and marketable title to all of
its real properties and owns all of its other properties and assets free and
clear of any liens, except (i) the lien of the Mortgage and taxes or assessments
not yet due; (ii) deposits or pledges to secure payment of workmen's
compensation, unemployment insurance, old age pensions or other social security;
(iii) deposits or pledges to secure performance of bids, tenders, contracts
(other than contracts for the payment of borrowed money), leases, public or
statutory obligations, surety or appeal bonds, or other deposits or pledges for
purposes of like general nature in the ordinary course of business, and (iv)
easements, rights of way, zoning and similar restrictions and encumbrances not
interfering with the ordinary conduct of the business of Borrower and which do
not detract materially from the value of such property or asset to which they
attach or impair materially Borrower's use thereof or materially adversely
affect Lender's lien thereon.
4.09 Licenses and Permits. Borrower has duly obtained and now holds all
licenses, permits, certifications, approvals and the like necessary to own and
operate its property and business that are required by federal, state and local
laws of the jurisdictions in which Borrower conducts its business and each
remains valid and in full force and effect except to the extent the failure to
hold such licenses, permits, certifications or approvals or the lack of validity
of the foregoing could not, in each case, be reasonably expected to have a
Material Adverse Effect.
4.10 Subsidiaries. Borrower has no Subsidiaries other than Subsidiaries
heretofore disclosed to the Lender, or hereafter formed or acquired with the
prior written consent of the Lender.
4.11 Certain Indebtedness. There is no material indebtedness of Borrower
owing to any employee, officer, member, or director of the board of Borrower
other than accrued salaries, commissions and the like and any indebtedness
subordinated to the Obligations pursuant hereto.
4.12 Location of Office. The chief place of business of the Borrower and
the office where its records concerning accounts and contract rights are kept is
identified in Schedule 1 hereto.
4.13 Required Approvals. No license, consent, permit or approval of any
governmental agency or authority is required to enable the Borrower to enter
into this Agreement or to perform any of its obligations provided for herein
except as disclosed on Schedule 1 hereto and except with respect to regulatory
approvals which may be required in connection with the Lender's enforcement of
certain remedies hereunder.
4.14 ERISA. Each pension plan of Borrower and its Subsidiaries providing
benefits for employees of Borrower or such Subsidiary covered by Title IV of the
Employee Retirement Income Security Act of 1974, as amended, and the regulations
thereto ("ERISA"), is in compliance with ERISA in all material respects, and no
material liability to the Pension Benefit Guaranty Corporation ("PBGC") or to a
multiemployer plan has been, or is expected by Borrower or its Subsidiaries to
be, incurred by Borrower or such Subsidiary.
5. CONDITIONS OF LENDING
<PAGE>
The Lender shall have no obligation to make the initial Advance to
Borrower hereunder unless, as of the date of Closing, each of the following
conditions precedent shall be satisfied as provided below or otherwise waived by
the Lender:
5.01 Legal Matters. All legal matters incident to the consummation of the
transactions hereby contemplated shall be satisfactory to counsel for the Lender
and to such local counsel as counsel for the Lender may retain.
5.02 Documents. There shall have been delivered to the Lender, fully
completed and duly executed (when applicable), the following, satisfactory to
the Lender and its counsel:
(a) This Agreement and the Note.
(b) Certified copies, satisfactory to the Lender, of all such
documents and proceedings of the Borrower authorizing the
transactions herein contemplated.
(c) A written opinion from Borrower's counsel addressing such legal
matters as the Lender or its counsel shall reasonably require.
(d) The Borrower shall have (I) executed the Mortgage(s); (ii) if any
real property is owned by Borrower, recorded a valid and binding
Mortgage granting Lender a first lien in all real property owned
by Borrower; (iii) filed financing statements in all
jurisdictions necessary to provide Lender a first priority,
perfected security interest in all Collateral which may be
perfected by the filing of financing statements; and (iv)
delivered such other documents as are necessary to create or
continue a perfected security interest in favor of the Lender in
the Collateral.
(e) The Pledge and a pledge and security agreement dated as of even
date herewith, and related stock powers, from Borrower and
Borrower's parent corporation, Coastal Communications, Inc.
5.03 Government Approvals. The Borrower shall have furnished to the Lender
true and correct copies of all certificates, authorizations and consents,
including without limitation the consents referred to in Section 4.13 hereof,
necessary for the execution, delivery or performance by the Borrower of this
Agreement, the Note and the Mortgage.
5.04 Representations, Warranties and Material Change. At Closing and at the
date of every subsequent Advance hereunder, all covenants, representations and
warranties set forth in this Agreement shall be true and correct on and as of
such time with the same effect as though such covenants, representations and
warranties had been made on and as of such date; no Event of Default specified
in Section 8 and no event which, with the lapse of time or the notice and lapse
of time specified in Section 8 would become such an Event of Default, shall have
occurred and be continuing or will have occurred after giving effect to the
Advance on the books of the Borrower; there shall have occurred no material
adverse changes in the business or condition, financial or
<PAGE>
otherwise, of the Borrower; and nothing shall have occurred which in the opinion
of the Lender materially and adversely affects the Borrower's ability to meet
its obligations hereunder.
5.05 Special Conditions. At Closing and at the time of every subsequent
Advance hereunder, the Lender and its counsel shall be fully satisfied that the
Borrower has complied and will continue to comply with any special conditions
identified in Schedule 1 hereto.
5.06 Requisitions. The Borrower will request Advances in form and substance
satisfactory to the Lender. Pursuant to the terms and conditions hereof, the
Lender will wire the proceeds of the requested Advance to an account or accounts
as directed by the Borrower.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees with the Lender that, until all of the
Obligations have been paid in full, Borrower will:
6.01 Membership. Remain or an affiliate thereof will remain, a member in
good standing of the Lender.
6.02 Financial Statements and Other Information. Furnish to the Lender: (a)
financial statements as required by the Mortgage; (b) such other information,
reports or statements concerning the operations, business affairs and/or
financial condition of Borrower as the Lender may reasonably request from time
to time; and (c) promptly upon their becoming available information, in form and
substance satisfactory to Lender, of any and all material changes or
modification of licenses, permits, certifications, approvals and the like
necessary for Borrower to own or operate its business or a substantial part of
its business.
6.03 Financial Ratios. Subject to applicable laws and rules and orders of
regulatory bodies, and to events which in the reasonable judgment of the Lender
are beyond the control of the Borrower, so operate and manage its business as to
achieve minimum annual DSC and TIER Ratios, and a maximum annual Leverage Ratio,
in the following amounts, in each case as of the last calendar day of any fiscal
year:
<TABLE>
<CAPTION>
Period Minimum Minimum DSC Maximum
TIER Ratio Leverage Ratio
Requirement Requirement
<S> <C> <C> <C>
2000 / Year 1 1.00 1.25 6.00
2001 / Year 2 1.00 1.25 5.50
2002 / Year 3 1.10 1.25 5.00
2003 / Year 4 1.25 1.35 4.50
2004 and thereafter 1.50 1.50 4.00
</TABLE>
<PAGE>
For purposes of 2000fYear 1 only, the Leverage Ratio shall be based on nine
months annualized "EBITDA" for the period April 1 - December 31, 2000. "EBITDA"
shall be calculated in accordance with item (b) of the definition for Leverage
Ratio in Section 1, above.
6.04 Annual Certificate. Within one hundred twenty (120) days after the
close of each calendar year, commencing with the year in which the initial
Advance hereunder shall have been made, deliver to the Lender a written
statement signed by the general manager or such other similar presiding officer
stating that to the best of said person's knowledge, the Borrower has fulfilled
all of its Obligations under this Agreement, the Note, and the Mortgage
throughout such year or, if there has been a default in the fulfillment of any
such Obligations, specifying each such default known to said person and the
nature and status thereof.
6.05 Use of Proceeds. Use Advances made hereunder and under the Note only
for the purpose identified in Schedule 1 hereto and for the payment of the
costs, expenses and fees incident to this Agreement and for no other purpose
whatsoever without the prior written consent of the Lender.
6.06 Special Affirmative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special affirmative covenants identified in Schedule
1 hereto.
6.07 Mortgage Filing. Within thirty (30) days of acquiring any real
property, the Borrower shall cause a deed to secure debt and security agreement,
substantially in the form of the Mortgage, to be duly recorded as a first lien
on all such real property and such deed to secure debt and security agreement or
other appropriate documentation shall have been duly filed, recorded or indexed
as a security interest in personal property wherever the Lender shall have
reasonably requested, all in accordance with applicable law, and the Borrower
shall have caused satisfactory evidence thereof to be furnished to the Lender.
7. NEGATIVE COVENANTS.
7.01 Notice. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without giving written notice to the Lender
thirty (30) days prior to the effective date of any change:
(a) Change Location of Chief Place of Business. Change location of the
Borrower's chief place of business
(b) Change of Name. Change the name of Borrower.
7.02 Consent. Borrower covenants and agrees with the Lender that Borrower
will not, directly or indirectly, without the prior written consent of the
Lender (such consent not to be unreasonably withheld):
<PAGE>
(a) Control. Alter or permit alteration of control of the Borrower.
Control shall be as defined by regulations for telephone companies
issued by the Federal Communications Commission ("FCC").
(b) Subsidiaries. Form or acquire any Subsidiaries.
(c) Additional Indebtedness. Borrow money, or allow any Subsidiary to
borrow money, on a secured or unsecured basis from any other lender or
incur any additional secured or unsecured indebtedness (other than
indebtedness incurred under and pursuant to the two secured revolving
line of credit agreements, each dated as of the date hereof, between
Borrower and Lender, as the same may be amended, restated,
supplemented or otherwise modified from time to time); or enter into
or allow any of its Subsidiaries to enter into any Leases, unless at
that time Borrower meets the Minimum Net Worth Test; provided,
however, Borrower and its Subsidiaries, may grant purchase money
secured indebtedness or incur unsecured trade debt or pay other
current operating liabilities that arise in the ordinary course of
business so long as the aggregate total of such debt does not exceed
five percent (5%) of Borrower's consolidated total assets. If Borrower
meets the Minimum Net Worth Test, then Borrower and its Subsidiaries
may incur additional unsecured indebtedness or enter into Leases
without prior written approval of Lender as provided in the foregoing
sentence, provided the Borrower meets the Minimum Net Worth Test after
incurring such additional unsecured indebtedness or entering into such
Leases; provided, further, however, Borrower must give at least thirty
(30) days written notice to Lender prior to incurring any additional
unsecured indebtedness or entering into any such Leases which exceed
five percent (5%) of Borrower's consolidated total assets.
7.03 Dividends and Other Cash Distributions. The Borrower will not, in any
one calendar year, without the prior approval in writing of the Lender (i)
declare or pay any dividends or make any other distribution to its stockholders
with respect to its capital stock; (ii) purchase or redeem or retire any of its
capital stock; or (iii) increase the management fee factor above the management
fee factor contained in the Madison River Telephone Company Financial Model
(submitted on behalf of Borrower) dated February 25, 2000, unless with respect
to any of the foregoing (after giving effect to such transaction) Borrower:
(1)(a) maintains a Current Ratio of not less than 1.25 and (b) meets the Minimum
Net Worth Test, -or- (2)(a) maintains a Current Ratio of not less than 1.25, (b)
maintains a minimum Net Worth to total assets of not less than twenty-five
percent (25%) and (c) the payment of such dividend, the making of such
distribution, or the purchase, redemption or retirement of such capital stock
individually or in the aggregate, does not exceed fifty percent (50%) of the
prior fiscal year-end Cash Margins in any one calendar year. Notwithstanding
anything to the contrary herein, Borrower may make cash dividends in an amount
not to exceed fifty (50%) of the net proceeds of any sale of its holdings in
Illuminet, Inc.
In no event may the Borrower make any distributions or payments pursuant to this
Section when there is unpaid any due installment of principal and/or interest on
the Note or if the Borrower is otherwise in material default of any provision of
this Agreement or would be in material default hereunder as a result of such
distribution or payment.
<PAGE>
7.04 Special Negative Covenants. During the term hereof, Lender and its
counsel shall be fully satisfied that the Borrower has complied and will
continue to comply with any special negative covenants identified in Schedule 1
hereto.
7.05 Limitations on Loans, Investments and Other Obligations:
(a) The Borrower shall not, without first obtaining the written approval
of Lender, (i) purchase or make any commitment to purchase any stock,
bonds, notes, debentures or other securities or obligations of or
beneficial interest in, (ii) make any other investment in, (iii) make
any loan to, or (iv) guarantee, assume, or otherwise become liable for
any obligation of, any corporation, association, partnership, joint
venture, trust, government or any agency or department thereof, or any
other entity of any kind if the aggregate amount of all such
purchases, investments, loans and guarantees exceeds in any twelve
(12) month period the greater of ten percent (10%)of Total Plant or
thirty percent (30%) of Net Worth.
(b) The following shall not be included in the limitation on purchases
investments, loans and guarantees in (a) above: (i) bonds, notes,
debentures, stock, or other securities or obligations issued by or
guaranteed by the United States government or any agency or
instrumentality thereof; (ii) bonds, notes, debentures, stock,
commercial paper, subordinated capital certificates, or other security
or obligation of institutions whose senior unsecured debt obligations
are rated by at least two nationally recognized rating organizations
in either of its two highest categories; (iii)investments incidental
to loans made by RTFC; (iv) bonds, notes, debentures, commercial paper
or any other security of the National Rural Utilities Cooperative
Finance Corporation; and (v) any deposit that is fully insured by the
Federal Government.
7.06 Limitations on Contracts; Deposits of Funds: The Borrower will not,
without the approval in writing of the Lender: (a) enter into any contract or
contracts (i) for management of its business or any part thereof (except in
connection with any management contract for which the fees are permitted by
Section 7.03 above); (ii) for the operation or maintenance of all or any
substantial part of its property, (iii) for the use by others of any of the
Collateral in excess of $100,000; or (iv) with other companies; provided,
however, that such approval shall not be required for any contract which in form
and substance substantially conforms with contracts in general use in the
Borrower's industry by companies of size and character similar to Borrower or
which substantially conform to contracts which are currently in existence that
Borrower is a party to; or (b) except as permitted by Section 7.05 above,
deposit any of its funds, regardless of the source thereof, in any bank which is
not insured by the Federal Deposit Insurance Corporation or the successor
thereof.
7.07 Preservation of Existence and Franchises; Compliance with Laws;
Limitations on Mergers, Transfers and Purchases: The Borrower will at all times,
so long as any of the Notes shall be outstanding, take or cause to be taken all
such action as from time to time may be necessary to preserve its existence and
to preserve and renew all franchises, rights of way, easements, permits and
licenses necessary to the conduct of its business, and will materially comply
with all valid laws, ordinances, regulations and requirements applicable to it
or its property.
<PAGE>
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
(a) Representation and Warranties. Any representation or warranty made
herein, in any of the Other Agreements or in any statement, report,
certificate, opinion, financial statement or other document
furnished or to be furnished in connection with this Agreement or
the Other Agreements shall be false or misleading in any material
respect.
(b) Payment. Failure of Borrower to make any of the payment Obligations,
including, without limitation, any sum due the Lender under this
Agreement or any of the Other Agreements, when and as the same shall
become due, whether at the due date thereof, by demand, by
acceleration or otherwise.
(c) Other Covenants. Failure of Borrower to observe or perform any
warranty, covenant or condition to be observed or performed by
Borrower under this Agreement or any of the Other Agreements.
(d) Existence. The Borrower shall forfeit or otherwise be deprived of
its charter, franchises, permits, easements, consents or licenses
required to carry on any material portion of its business.
(e) Other Obligations. Default, after giving effect to any applicable
grace period, by the Borrower in the payment when due of any money
owed by the Borrower, whether principal, interest, premium or
otherwise, under any other agreement for borrowing money in an
amount in excess of five percent (5%) of total assets, whether or
not such borrowing is secured.
(f) Bankruptcy. A court shall enter a decree or order for relief with
respect to the Borrower or any Subsidiary or guarantor (if any) in
an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official, or ordering the winding up or liquidation of its
affairs, and such decree or order shall remain unstayed and in
effect for a period of sixty (60) consecutive days or the Borrower
or any Subsidiary or guarantor (if any) shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or under any such law, or consent to
the appointment or taking of possession by a receiver, liquidator,
assignee, custodian or trustee, of a substantial part of its
property, or make any general assignment for the benefit of
creditors.
(g) Dissolution or Liquidation. Other than as provided in subsection (f)
above, the dissolution or liquidation of the Borrower or any
Subsidiary or guarantor (if any), or failure by the Borrower or any
Subsidiary or guarantor promptly to forestall or
<PAGE>
remove any execution, garnishment or attachment of such consequence
as will impair its ability to continue its business or fulfill its
obligations and such execution, garnishment or attachment shall not
be vacated within sixty (60) days.
(h) Final Judgment. A final non-appealable judgment in excess of
$250,000 shall be entered against the Borrower and shall remain
unsatisfied or without a stay for a period of sixty (60) days.
9. RIGHTS AND REMEDIES
9.01 Rights and Remedies of the Lender. Upon the occurrence of an Event of
Default, the Lender may, subject to:
(i) thirty (30) days prior written notice during which time Borrower
shall have the opportunity to cure said Event of Default except with
respect to Obligations pursuant to 8(b), 8(f) and 8(g) above which
shall require no notice or demand and shall have no period to cure;
and
(ii) compliance, if required, with the rules and regulations of the FCC
and any state public service or utilities commission having
jurisdiction;
exercise in any jurisdiction in which enforcement hereof is sought, the
following rights and remedies, in addition to all rights and remedies available
to the Lender under applicable law, all such rights and remedies being
cumulative and enforceable alternatively, successively or concurrently:
(a) Declare all unpaid principal outstanding on the Note, all accrued
and unpaid interest thereon, and all other Obligations to be
immediately due and payable and the same shall thereupon become
immediately due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived.
(b) Institute any proceeding or proceedings to enforce the Obligations
owed to, or any Liens in favor of the Lender.
(c) Pursue all rights and remedies available to the Lender that are
contemplated by the Mortgage in the manner, upon the conditions, and
with the effect provided in the Mortgage, including but not limited
to a suit for specific performance, injunctive relief or damages.
(d) Pursue any other rights and remedies available to the Lender at law
or in equity.
9.02 Cumulative Nature of Remedies. Nothing herein shall limit the right of
the Lender, subject to notice and right to cure provisions contained herein, to
pursue all rights and remedies available to a creditor following the occurrence
of an Event of Default subject to compliance, if
<PAGE>
required, with the rules and regulations of the FCC and any state public service
or utilities commission having jurisdiction. Each right, power and remedy of the
Lender in this Agreement and/or the Other Agreements shall be cumulative and
concurrent, and recourse to one or more rights or remedies shall not constitute
a waiver of any other right, power or remedy.
9.03 Costs and Expenses. Borrower agrees to pay and to be liable for any
and all reasonable expenses, including attorneys' fees and court costs, incurred
by the Lender in exercising or enforcing any of its rights hereunder or under
the Other Agreements, together with interest thereon at the rate and determined
in the manner provided in the Mortgage. Subject to the Mortgage and applicable
law, the Lender may apply all Collateral and proceeds of all Collateral to the
Obligations in any manner which the Lender, in its sole discretion, deems
appropriate, and Borrower will continue to be liable for any deficiency.
9.04 Late Payment Charges. If payment of any principal and/or interest due
under the terms of the Note is not received at the office of the Lender in
Herndon, Virginia, or as the Lender may otherwise designate to the Borrower,
within such time period as the Lender may prescribe from time to time in its
policies in connection with any late payment charges (such unpaid amount of
principal and/or interest being herein called the "delinquent amount" and the
period beginning after such due date until payment of the delinquent amount
being herein called the "late-payment period"), the Borrower will pay to the
Lender, in addition to all other amounts due under the terms of the Note, the
Mortgage, and this Agreement, any late-payment charge as may be fixed by the
Lender from time to time, on the delinquent amount for the late-payment period.
9.05 Lender's Setoff. The Lender shall have the right, in addition to all
other rights and remedies available to it, to setoff and to recover against any
or all of the Obligations due to Lender, any monies now and hereafter owing to
Borrower by the Lender. Borrower waives all rights of setoff, deduction,
recoupment and counterclaim.
10. MISCELLANEOUS
10.01 Performance for Borrower. Borrower agrees and hereby authorizes that
the Lender may, in its sole discretion, but the Lender shall not be obligated
to, advance funds on behalf of Borrower without prior notice to Borrower, in
order to insure Borrower's compliance with any material covenant, warranty,
representation or agreement of Borrower made in or pursuant to this Agreement or
any of the Other Agreements, to preserve or protect any right or interest of the
Lender in the Collateral or under or pursuant to this Agreement or any of the
Other Agreements, including without limitation, the payment of any insurance
premiums or taxes and the satisfaction or discharge of any judgment or any Lien
upon the Collateral or other property or assets of Borrower; provided, however
(i) prior to making any such advance, the Lender shall give the Borrower prior
written notice of its intent to make such advances and, unless there is some
imminent danger of the occurrence of a Material Adverse Effect, the Borrower
shall have fifteen (15) Business Days to rectify the issue set forth in such
notice, and (ii) that the making of any such advance by the Lender shall not
constitute a waiver by the Lender of any Event of Default with respect to which
such advance is made nor relieve Borrower of any such Event or Default. Borrower
shall pay to the Lender upon demand all such advances made by the Lender with
interest thereon at the rate and determined in the manner provided in the Note.
All such advances shall be
<PAGE>
deemed to be included in the Obligations and secured by the security interest
granted the Lender hereunder to the extent permitted by law.
10.02 Expenses and Filing Fees. Whether or not any of the transactions
contemplated hereby shall be consummated, Borrower agrees to pay to the Lender
at Closing or thirty (30) days after the execution and delivery hereof,
whichever is earlier, all expenses of the Lender in connection with the filing
or recordation of all financing statements and instruments as may be required by
the Lender at the time of, or subsequent to, the execution of this Agreement,
including, without limitation, all documentary stamps, recordation and transfer
taxes and other costs and taxes incident to recordation of any document or
instrument in connection herewith. Borrower agrees to save harmless and
indemnify the Lender from and against any liability resulting from the failure
to pay any required documentary stamps, recordation and transfer taxes,
recording costs, or any other expenses incurred by the Lender in connection with
this Agreement. The provisions of this Subsection 10.02 shall survive the
execution and delivery of this Agreement and the payment of all other
Obligations.
10.03 Waivers by Borrower. Borrower hereby waives, to the extent the same
may be waived under applicable law: (a) in the event the Lender seeks to
repossess any or all of the Collateral by judicial proceedings, any bond(s) or
demand(s) for possession which otherwise may be necessary or required; (b)
presentment, demand for payment, protest and notice of non-payment and all
exemptions; and (c) substitution, impairment, exchange or release of any
collateral security for any of the Obligations. Borrower agrees that the Lender
may exercise any or all of its rights and/or remedies hereunder and under the
Other Agreements without resorting to and without regard to security or sources
of liability with respect to any of the Obligations.
10.04 Waivers by the Lender. Neither any failure nor any delay on the part
of the Lender in exercising any right, power or remedy hereunder or under any of
the Other Agreements shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
10.05 Lender's Records. Every statement of account or reconciliation
rendered by the Lender to Borrower with respect to any of the Obligations shall
be presumed conclusively to be correct and shall (absent manifest error)
constitute an account stated between the Lender and Borrower unless, within ten
(10) Business Days after such statement or reconciliation shall have been
mailed, postage prepaid, to Borrower, the Lender shall receive written notice of
specific objection thereto.
10.06 Modifications. No modification or waiver of any provision of this
Agreement, the Note or any of the Other Agreements, and no consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in
the specific instance and for the purpose for which given. No notice to or
demand upon Borrower in any case shall entitle Borrower to any other or further
notice or demand in the same, similar or other circumstances.
10.07 Notices. All notices, requests and other communications provided for
herein including, without limitation, any modifications of, or waivers, requests
or consents under, this
<PAGE>
Agreement shall be given or made in writing (including, without limitation, by
telecopy) and delivered to the intended recipient at the "Address for Notices"
specified below; or, as to any party, at such other address as shall be
designated by such party in a notice to each other party. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when personally delivered or, in the case of a mailed or telecopied
notice, upon receipt, in each case given or addressed as provided for herein.
The Address for Notices of the respective parties are as follows:
The Lender:
Rural Telephone Finance Cooperative
Woodland Park
2201 Cooperative Way
Herndon, Virginia 20171-3025
Attention: Loan Officer
Fax: 703-709-6780
The Borrower:
Coastal Utilities, Inc.
100 Ryan Avenue
P.O. Box 585
Hinesville, GA 31310-0585
With a copy to:
Madison River Telephone
Company, LLC
PO Box 1167
103 South Fifth Street
Mebane, NC 27302
Attn: Vice President and General Counsel
Fax: 919-563-4993
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THE PERFORMANCE AND CONSTRUCTION OF THIS AGREEMENT AND THE NOTE SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF VIRGINIA.
(b) BORROWER HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES COURTS LOCATED IN VIRGINIA AND OF ANY STATE COURT SO LOCATED FOR PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. BORROWER IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY
<PAGE>
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE
ESTABLISHING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY
CLAIM THAT ANY SUCH PROCEEDING HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
10.09 Holiday Payments. If any payment to be made by the Borrower hereunder
shall become due on a day which is not a Business Day, such payment shall be
made on the next succeeding Business Day and such extension of time shall be
included in computing any interest in respect of such payment.
10.10 Consent to Patronage Capital Distributions. The Borrower hereby
consents that the amount of any distributions with respect to Borrower's
patronage which are made in written notices of allocation (as defined in Section
1388 of the Internal Revenue Code of 1986, as amended ("Code") including any
other comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
10.11 Right to Inspect. The Borrower shall permit representatives of the
Lender at any time during normal business hours to inspect and make abstracts
from the books and records pertaining to the Collateral, and permit
representatives of the Lender to be present at Borrower's place of business to
receive copies of all communications and remittances relating to the Collateral,
all in such manner as the Lender may reasonably require, provided, that prior to
the occurrence and continuance of an Event of Default the Lender shall not
exercise its rights pursuant to this Section 10.11 more than one time per
calendar quarter.
10.12 Survival; Successors and Assigns. All covenants, agreements,
representations and warranties made herein and in the Other Agreements shall
survive Closing and the execution and delivery to the Lender of the Note, and
shall continue in full force and effect until all of the Obligations have been
paid in full. Whenever in this Agreement any of the parties hereto is referred
to, such reference shall be deemed to include the successors and assigns of such
party. All covenants, agreements, representations and warranties by or on behalf
of Borrower which are contained in this Agreement and the Other Agreements shall
inure to the benefit of the successors and assigns of the Lender.
10.13 Assignment. The Lender may assign its rights and obligations under
this Agreement and the Other Agreements without the consent of the Borrower;
provided, however, that no such assignment shall effect any of the material
terms of this agreement (other than the name of the Lender and the address for
notices and payments) or otherwise result in terms or conditions less favorable
to Borrower. The Borrower may not assign any of its rights of obligations under
this Agreement or the Other Agreements without the prior written consent of the
Lender.
<PAGE>
10.14 Severability. If any term, provision or condition, or any part
thereof, of this Agreement or any of the Other Agreements shall for any reason
be found or held invalid or unenforceable by any court or governmental agency of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term, provision or condition nor any other term, provision or
condition, and this Agreement, the Note, and the Other Agreements shall survive
and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
10.15 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all such
counterparts shall together constitute one and the same instrument.
10.16 Headings/Use of Terms. The headings and sub-headings contained in
this Agreement are intended to be used for convenience only and do not
constitute part of this Agreement. The use of any gender or the neuter herein
shall also refer to the other gender or the neuter and the use of the plural
shall also refer to the singular, and vice versa.
10.17 Further Assurances. The Borrower will, upon demand of the Lender,
make, execute, acknowledge and deliver all such further and supplemental
indentures of mortgage, deeds of trust, mortgages, financing statements,
continuation statements, security agreements and/or any other instruments and
conveyances as may be reasonably requested by the Lender to effectuate the
intention of this Agreement and to provide for the securing and payment of the
principal of and interest on the Note according to the terms thereof.
10.18 Lender's Approval. Wherever prior written approval of Lender is
required under the terms and conditions of this Agreement, Lender hereby agrees
to not unreasonably withhold said approval.
10.19 Merger and Integration. This Agreement and the attached exhibits and
matters incorporated by reference contain the entire agreement of the parties
hereto with respect to the matters covered and the transactions contemplated
hereby, and no other agreement, statement or promise made by any party hereto,
or by any employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid or binding.
10.20 Schedule 1. Schedule 1 attached hereto is an integral part of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed
this Agreement under seal as of the date first above written.
COASTAL UTILITIES, INC.
<PAGE>
By: PAUL H. SUNU
-------------------------------
Title: Executive Vice President
-----------------------------
(SEAL)
Attest: MATT SPRINGER
----------------------------
Asst. Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: WILLIAM KNECHT, III
-------------------------------
Assistant Secretary-Treasurer
(SEAL)
Attest: BLUEPENDER SELIGAL
----------------------------
Secretary-Treasurer"
<PAGE>
SCHEDULE 1
1. The "Commitment" shall mean $108,688,889.
2. The Mortgage is the Modification to Deed to Secure Debt and Security
Agreements by and between Borrower and Lender dated as of even date
herewith.
3. The months relating to the Payment Date are January, April, July and
October.
4. The method of amortization referred to in Section 2.03 shall be based upon
level debt service (with one year principal deferral).
5. The amount referred to in Section 2.05 is $10,868,889.
6. The date of Borrower's financial statement referred to in Section 4.06 is
December 31, 1998.
7. The chief place of business referred to in Section 4.12 and address of
Borrower referred to in Section 10.07 is P.O. Box 585, 100 Ryan Avenue,
Hinesville, Georgia 31310-0585.
8. The government authorities referred to in Section 4.13 are the Georgia
Public Service Commission and the Federal Communications Commission.
9. The special conditions referred to in Section 5.05 are as follows:
1. Prior to the initial Advance of funds from this Loan, Lender shall
receive, in form and content satisfactory to Lender, the following:
a) Evidence of a common equity capital contributions of no less than
$51,000,000 into the Borrower.
b) Evidence of the Georgia Public Service Commission's approval of
the acquisition transaction and Borrowers incurrence of the
secured term loan and line of credit totaling $118,688,889; and
c) Evidence of the conveyance of the business office and
headquarters building located in Hinesville to Borrower or an
affiliate thereof. Any and all lease agreements relating to these
buildings to be entered into by Borrower shall be subject to
Lenders prior review and approval.
2. Borrower hereby agrees that a portion of the GA 543-9004 loan shall be
used to fully refinance all outstanding loan funds on the existing
RTFC loans to Borrower designated GA 543-A-01, GA 543-A-02, and GA
543-A-03 (the "Prior Notes"). At the time of such refinancing, all
unadvanced loan funds under the Prior Notes shall
<PAGE>
be rescinded. Any commitment fees being held by RTFC at the time of
the refinancing and, if applicable, recission, will be refunded in
accordance with RTFC's policy for those commitment fees. Borrower will
not pay a prepayment fee in conjunction with the refinancing of the
existing RTFC loans.
3. Borrower acknowledges and agrees to the cancellation of RTFC line of
credit # GA 5433-06 effective with the initial Advance of RTFC Loan #
GA 543-9004 for the purpose of completing the acquisition of Coastal
Utilities, Inc. Any funds outstanding under said line of credit at the
time of the cancellation will be transferred to Borrower's new secured
line of credit designated GA 543-5107.
4. Borrower acknowledges, accepts and agrees to the cancellation of its
Class A voting membership in RTFC and the refund of its $1,000
membership fee in the form of a check within 60 days of the initial
Advance of RTFC Loan # GA 543-9004 for the purpose of completing the
acquisition of Coastal Utilities, Inc.
10. The purpose referred to in Section 6.05 for the A-01 Loan is to: (a)
refinance its existing indebtedness outstanding to RTFC; (b) fund the
acquisition costs associated with acquiring Coastal Utilities, Inc. and its
subsidiaries, (c) finance certain transaction related expenses (not to exceed
$3,820,000); and (d) to purchase 10% SCCs.
11. The special affirmative covenants referred to in Section 6.06 are not
applicable.
12. The special negative covenants referred to in Section 7.04 are not
applicable.
<PAGE>
SECURED PROMISSORY NOTE
$108,688,889 March 29, 2000
COASTAL UTILITIES, INC., a Georgia corporation (herein called the "Borrower'),
for value received hereby promises to pay, without setoff, deduction, recoupment
or counterclaim, to the order of RURAL TELEPHONE FINANCE COOPERATIVE (herein
called the "Payee") at the Payee's office in Herndon, Virginia, or such other
location as the Payee may designate, in lawful money of the United States, the
sum of the aggregate unpaid principal amount of all Advances made by the Payee
pursuant to that certain Loan Agreement dated as of even date herewith, between
the Borrower and the Payee as it may be amended from time to time (herein called
the "Loan Agreement"), on the dates provided for in the Loan Agreement (except
that if not sooner paid, any balance shall be due and payable on a date fifteen
(15) years after the date hereof, such date being the "Maturity Date"), with
interest thereon in like money from the respective dates of each Advance (as
defined in the Loan Agreement) hereunder, at the rate or rates and payable at
the times provided in said Loan Agreement together with any other amount payable
under the Loan Agreement.
This Note is secured under a certain Modification to Deed to Secure Debt and
Security Agreement and Pledge and Security Agreement dated as of even date
herewith by and between the Borrower and the Payee, as it may have been or shall
be supplemented, amended, restated or consolidated from time to time (herein
called the "Security Documents"). This Note is the Note referred to in, and has
been executed and delivered pursuant to, the Loan Agreement.
The principal hereof and interest accrued thereon and any other amount due under
the Loan Agreement may be declared to be forthwith due and payable in the
manner, upon the conditions, and with the effect provided in the Security
Documents or Loan Agreement.
The Borrower waives demand, presentment for payment, notice of dishonor,
protest, notice of protest, and notice of non-payment of this Note.
IN WITNESS WHEREOF the Borrower has caused this Note to be signed in its
corporate name and its corporate seal to be hereunto affixed and to be attested
by its authorized officers, all as of the day and year first above written.
COASTAL UTILITIES, INC.
By: PAUL H. SUNU
-------------------------------
Title: Executive Vice President
------------------------------
(SEAL)
<PAGE>
Attest: MATT SPRINGER
-------------------------------
Assistant Secretary
<PAGE>
EXHIBIT 10.19
RURAL TELEPHONE FINANCE COOPERATIVE
SECURED REVOLVING LINE OF CREDIT AGREEMENT
("Agreement")
COASTAL UTILITIES, INC. a Georgia corporation ("Borrower") located at P.O. Box
585, 100 Ryan Avenue, Hinesville, GA 31310-0585, hereby agrees to borrow from
RURAL TELEPHONE FINANCE COOPERATIVE ("RTFC" or "Lender"), a South Dakota
cooperative association, pursuant to the terms of this Agreement, dated as of
March 29, 2000, for a revolving line of credit loan in an amount not to exceed
ten million dollars ($10,000,000). In consideration of their mutual premises
hereunder and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Lender and Borrower agree to the following terms and
conditions:
1. Revolving Credit and Term. Lender agrees to make advances to the Borrower
pursuant to the terms of this Agreement ("Advances"). The maximum principal
amount outstanding at any point in time shall not exceed $10,000,000.
Within such limits, the Borrower may borrow, repay and reborrow at any time
or from time to time for a period up to five (5) years from the date hereof
( the "Maturity Date").
2. Requisitions. The Borrower shall give Lender such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. Interest Rate and Payment. The Borrower unconditionally promises and agrees
to pay, as and when due, interest on all amounts advanced hereunder from
the date of each Advance and to repay all amounts advanced hereunder with
interest on the Maturity Date. Interest shall be due and payable quarterly
on the first day of each January, April, July, and October, commencing on
the first such date after such initial Advance; except that if Lender gives
notice thereof to the Borrower before the first day of any month, interest
shall thereafter be due and payable on the 15th day of such month and each
month thereafter. Lender shall invoice the Borrower at least five (5)days
prior to the due date of any such interest payment. All amounts shall be
payable at RTFC's main office at Woodland Park, 2201 Cooperative Way,
Herndon, Virginia 201713025 or at such other location as designated by
Lender from time to time.
The interest rate on all Advances will be equal to RTFC's standard line of
credit as established from time to time by Lender pursuant to its policies
and procedures plus fifty (50) basis points. However, in no event shall the
interest rate exceed the Prevailing Bank Prime Rate (as defined herein),
plus one and one-half percent per annum. Interest will be computed on the
basis of a year of 365 days. The interest rate will be adjusted as
determined from time to time by Lender, provided that no such adjustment
may be effective on a date other than the first or sixteenth day of any
month, and will remain in effect until a subsequent change in rate occurs.
<PAGE>
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which Lender
determines in its discretion to be the representative bank prime rate on
the day preceding the day on which an adjustment in the interest rate
hereof shall become effective. If such preceding day is not a publication
day for The Wall Street Journal then the Prevailing Bank Prime Rate shall
be established by reference to such "Money Rates" column as of the last
publication day next preceding the day on which such adjustment shall
become effective; provided if The Wall Street Journal shall cease to be
published, then the Prevailing Bank Prime Rate shall be determined by RTFC
by reference to another publication reporting bank prime rates in a similar
manner.
4. RTFC Accounts. Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower
resulting from each Advance made from time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In any
legal action or proceeding in respect of this Agreement, the entries made
in such account or accounts (whether stored on computer memory, microfilm,
invoices or otherwise) shall be presumptive evidence (absent manifest
error) of the existence and amounts of the Borrower's transactions therein
recorded.
5. Corporate and Regulatory Approvals. Borrower represents that it has
obtained any and all necessary corporate and regulatory approvals for
Borrower to execute and perform pursuant to this Agreement.
6. Reports. Borrower agrees to deliver to Lender, promptly upon their becoming
available, a copy of (i) any annual audit report prepared subsequent to the
submission of this Agreement; (ii) its monthly operating report within
thirty (30) days for any month in which there are advances outstanding
pursuant to this Agreement; and (iii) any other reports which Lender
reasonably requests during the term of this Agreement.
7. Covenants/Financial Ratios. Until the later of (i) all Advances and fees
hereunder having been repaid or (ii) the Maturity Date, Borrower agrees to
honor and be bound by the affirmative and negative covenants, and financial
ratios, (collectively, the "Covenants") contained in Sections 6 and 7 of
the Loan Agreement by and between Borrower and Lender dated as of even date
herewith, as it may be amended from time to-time (the "Loan Agreement"),
and such Covenants shall be incorporated by reference as if fully stated
herein.
8. Fees. If any amount outstanding and due hereunder shall not be paid when
due, Borrower agrees to pay on demand Lender's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at Lender's
office in Herndon, Virginia, or such other location designated by Lender
within five (5) business days after the due date thereof (such unpaid
amount of principal. and/or interest being herein called the "delinquent
amount, "and the period beginning after such due date
<PAGE>
being herein called the "late-payment period"), Borrower will pay to
Lender, on demand, in addition to all other amounts due under the terms of
this Agreement, any late-payment charge as may then be in effect pursuant
to Lender's policy on the delinquent amount for the late payment period.
9. Credit Support. This Agreement may not be used as credit support for any
other financings without Lender's prior written approval.
10. Notices, Acceleration of Debt and Waivers. While any amount hereunder is
outstanding, Borrower agrees to notify Lender of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition, and if any representation or warranty made
in this Agreement has become untrue in any respect having a material
adverse effect on the financial condition or business of the Borrower.
Lender may declare at any time all outstanding amounts hereunder
immediately due and payable in full with accrued interest, without
presentment or demand, and may withhold advances of funds upon the
occurrence of any of the following: (i) any delinquency or default in
payment of any sum due the Lender under the Agreement; (ii) a court shall
enter a decree or order for relief with respect to Borrower or any
subsidiary or guarantor in an insolvency or bankruptcy or appoint a
receiver, liquidator, trustee or similar official and such order remains in
effect for a period of ninety (90) days; (iii) Borrower or any subsidiary
shall commence a voluntary case under bankruptcy, insolvency or similar law
or consent to the appointment of a receiver, liquidator, or trustee; (iv)
the dissolution or liquidation of Borrower or subsidiary or guarantor or
failure to forestall or remove any execution, garnishment or attachment of
such consequence as to impair its ability to continue business and such
execution, garnishment or attachment shall not be vacated within thirty
(30) days; or (v) any other event as a result of which any holder of
indebtedness in excess of five percent (5%) of Borrower's total assets may
declare the same due and payable shall occur and continue for more than any
applicable grace period.
If any representation or warranty herein shall become untrue, or Borrower
shall fail to comply with any term of this Agreement or if the financial
condition of Borrower shall have changed to the extent that such change in
the reasonable judgment of RTFC, materially increases RTFC's risk
hereunder, then RTFC at its discretion may withhold advances of funds
and/or declare ail outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand.
The Borrower waives the defense of usury and all rights to set off,
counterclaim, deduction or recoupment.
11. Purpose, Repayments and Deposit. Borrower agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Borrower
relating to its operations. Borrower agrees that this loan shall be
repayable out of Borrower's general funds and that loan proceeds will not
be deposited in any other account dedicated for secured financing advances.
<PAGE>
12. Additional Indebtedness. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to Lender or permitted pursuant to
the Loan Agreement, Borrower agrees that it will not, without the prior
written consent of Lender, (i) make distributions of cash to its
shareholders, if applicable, or (ii) create, incur, assume, guarantee or
otherwise become obligated for any additional indebtedness, other than as
provided for in the Loan Agreement except that the Borrower may borrow
against another loan previously approved by Lender.
13. Survival of Representations, Warranties and Payment Obligations. Borrower
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
14. Representations and Warranties. Except as set forth in writing and attached
hereto, Borrower represents and warrants as of the date of its application
and on the date of each and every Advance hereunder that:
(a) The Borrower has and will meet all obligations and be in compliance
with all instruments under which it is bound and that all
information submitted in support of its application is true,
complete and correct except where the failure to so comply or the
inaccuracy of any such information could not, in either case, be
reasonably be expected to have a Material Adverse Effect (as
defined in the Loan Agreement);
(b) There has been no material adverse change in the Borrower's
business or financial condition from that set forth in its most
recent audited financial statements provided to Lender;
(c) The Borrower has no outstanding loans from sources other than
Lender;
(d) The Borrower is not in default in any material respect of any of
its obligations and no litigation is threatened or pending which
would have a material adverse impact on the Borrower's ability to
perform under this Agreement; and
(e) The Borrower has no lines of credit with any other lenders.
15. Consent to Patronage Capital Distributions. Borrower hereby consents that
the amount of any distributions with respect to Borrower's patronage which
are made in written notices of allocation (as defined in Section 1388 of
the Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
16. Severability. If any term, provision or condition, or any part thereof, of
this Agreement
<PAGE>
shall for any reason be found or held invalid or unenforceable by any court
or governmental agency of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term, provision or
condition nor any other term, provision or condition, and this Agreement
shall survive and be construed as if such invalid or unenforceable term,
provision or condition had not been contained therein.
17. Setoff. Lender is hereby authorized at any time and from time to time
without prior notice to the Borrower to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by Lender
or owed to the Borrower or for the credit or account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing hereunder. Lender agrees to notify the Borrower promptly after any
such setoff or recoupment and the application thereof, provided that the
failure to give such notice shall not affect the validity of such setoff,
recoupment or application. The rights of Lender under this section are in
addition to any other rights and remedies (including other rights of setoff
or recoupment) which Lender may have.
18. Additional Terms and Conditions. Additional terms and conditions set forth
herein or attached hereto as Exhibit A are an integral part of this
Agreement.
19. Integration. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and signed
by both parties.
20. Headings. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
21. Security. All Advances hereunder shall be secured by a security interest in
certain of Borrower's properties pursuant to a Modification to Deed to
Secure Debt and Security Agreements ("Security Deed") and Pledge and
Security Agreement by and between Borrower and RTFC entered into as of even
date herewith, which has been filed along with UCC-1 financing statements
in all such locations necessary to provide RTFC with a first priority,
perfected lien (except as permitted by the Mortgage) on all of Borrower's
Secured Property (as defined in the Security Deed). Such Security Deed,
Pledge and Security Agreement and UCC-1 financing statements shall
continually exist until the later of (i) all Advances and fees hereunder
having been repaid or (ii) the Maturity Date. Borrower agrees that, with
respect to the Collateral which is subject to Article 9 of the Uniform
Commercial Code, the Lender shall have, but not be limited to, all the
rights and remedies of a secured party under the Uniform Commercial Code.
22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed this Agreement under seal as of the date first above written.
COASTAL UTILITIES, INC.
By: PAUL H. SUNU
-----------------------------
Title: Executive Vice President
---------------------------
(SEAL )
Attest: MATT SPRINGER
---------------------
Assistant Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By /s/ WILLIAM KNECHT, III
-------------------------
Assistant Secretary-Treasurer
(SEAL)
Attest: BLUEPENDER SELIGAL
-----------------------------
Assistant Secretary-Treasurer
<PAGE>
Exhibit 10.20
RURAL TELEPHONE FINANCE COOPERATIVE
UNSECURED REVOLVING LINE OF CREDIT AGREEMENT
("Agreement")
COASTAL UTILITIES, INC. a Georgia corporation ("Borrower") located at P.O. Box
585, 100Ryan Avenue, Hinesville, GA 31310-0585, hereby agrees to borrow from
RURAL TELEPHONEFINANCE COOPERATIVE ("RTFC" or "Lender"), a South Dakota
cooperative association,pursuant to the terms of this Agreement, dated as of
March 29, 2000, for a revolvingline of credit loan in an amount not to exceed
ten million dollars ($10,000,000). In consideration of their mutual premises
hereunder and other valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Lender and Borrower agree to the following terms and
conditions:
1. Revolving Credit and Term. Lender agrees to make advances to the Borrower
pursuant to the terms of this Agreement ("Advances"). The maximum principal
amount outstanding at any point in time shall not exceed $10,000,000.
Within such limits, the Borrower may borrow, repay and reborrow at any time
or from time to time for a period up to five (5) years from the date hereof
(the "Maturity Date").
2. Requisitions. The Borrower shall give Lender such prior notice of requests
for Advances as RTFC may reasonably require from time to time.
3. Interest Rate and Payment. The Borrower unconditionally promises and agrees
to pay, as and when due, interest on all amounts advanced hereunder from
the date of each Advance and to repay all amounts advanced hereunder with
interest on the Maturity Date. Interest shall be due and payable quarterly
on the first day of each January, April, July, and October, commencing on
the first such date after such initial Advance; except that if Lender gives
notice thereof to the Borrower before the first day of any month, interest
shall thereafter be due and payable on the 15th day of such month and each
month thereafter. Lender shall invoice the Borrower at least five (5)days
prior to the due date of any such interest payment. All amounts shall be
payable at RTFC's main office at Woodland Park, 2201 Cooperative Way,
Herndon, Virginia 201713025 or at such other location as designated by
Lender from time to time.
The interest rate on all Advances will be equal to RTFC's standard line of
credit as established from time to time by Lender pursuant to its policies
and procedures plus one hundred (100) basis points. However, in no event
shall the interest rate exceed the Prevailing Bank Prime Rate (as defined
herein), plus one and one-half percent per annum. Interest will be computed
on the basis of a year of 365 days. The interest rate will be adjusted as
determined from time to time by Lender, provided that no such adjustment
may be effective on a date other than the first or sixteenth day of any
month, and will remain in effect until a subsequent change in rate occurs.
<PAGE>
The "Prevailing Bank Prime Rate" is that bank prime rate published in the
"Money Rates" column of any edition of The Wall Street Journal which Lender
determines in its discretion to be the representative bank prime rate on
the day preceding the day on which an adjustment in the interest rate
hereof shall become effective. If such preceding day is not a publication
day for The Wall Street Journal then the Prevailing Bank Prime Rate shall
be established by reference to such "Money Rates" column as of the last
publication day next preceding the day on which such adjustment shall
become effective; provided if The Wall Street Journal shall cease to be
published, then the Prevailing Bank Prime Rate shall be determined by RTFC
by reference to another publication reporting bank prime rates in a similar
manner.
4. RTFC Accounts. Lender shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Borrower
resulting from each Advance made from time to time and the amounts of
principal and interest payable and paid from time to time hereunder. In any
legal action or proceeding in respect of this Agreement, the entries made
in such account or accounts (whether stored on computer memory, microfilm,
invoices or otherwise) shall be presumptive evidence (absent manifest
error) of the existence and amounts of the Borrower's transactions therein
recorded.
5. Corporate and Regulatory Approvals. Borrower represents that it has
obtained any and all necessary corporate and regulatory approvals for
Borrower to execute and perform pursuant to this Agreement.
6. Reports. Borrower agrees to deliver to Lender, promptly upon their becoming
available, a copy of (i) any annual audit report prepared subsequent to the
submission of this Agreement; (ii) its monthly operating report within
thirty (30) days for any month in which there are advances outstanding
pursuant to this Agreement; and (iii) any other reports which Lender
reasonably requests during the term of this Agreement.
7. Covenants/Financial Ratios. Until the later of (i) all Advances and fees
hereunder having been repaid or (ii) the Maturity Date, Borrower agrees to
honor and be bound by the affirmative and negative covenants, and financial
ratios (collectively, the "Covenants"), contained in Sections 6 and 7 of
the Loan Agreement by and between Borrower and Lender dated as of even date
herewith, as it may be amended from time to time (the "Loan Agreement"),
and such Covenants shall be incorporated by reference as if fully stated
herein.
8. Fees. If any amount outstanding and due hereunder shall not be paid when
due, Borrower agrees to pay on demand Lender's reasonable costs of
collection or enforcement of this Agreement, or preparation therefor,
including reasonable fees of counsel. If payment of any principal and/or
interest due under the terms of this Agreement is not received at Lender's
office in Herndon, Virginia, or such other location designated by Lender
within five (5) business days after the due date thereof (such unpaid
amount of principal and/or interest being herein called the "delinquent
amount," and the period beginning after such due date being herein called
the "late-payment period"), Borrower will pay to Lender, on demand, in
<PAGE>
addition to all other amounts due under the terms of this Agreement, any
late-payment charge as may then be in effect pursuant to Lender's policy on
the delinquent amount for the late payment period.
9. Credit Support. This Agreement may not be used as credit support for any
other financings without Lender's prior written approval.
10. Notices,. Acceleration of Debt and Waivers. While any amount hereunder is
outstanding, Borrower agrees to notify Lender of any delinquency or default
on any of its financial obligations, any material adverse change in its
financial or business condition, and if any representation or warranty made
in this Agreement has become untrue in any respect having a material
adverse effect on the financial condition or business of the Borrower.
Lender may declare at any time all outstanding amounts hereunder
immediately due and payable in full with accrued interest, without
presentment or demand, and may withhold advances of funds upon the
occurrence of any of the following: (i) any delinquency or default in
payment of any sum due the Lender under the Agreement; (ii) a court shall
enter a decree or order for relief with respect to Borrower or any
subsidiary or guarantor in an insolvency or bankruptcy or appoint a
receiver, liquidator, trustee or similar official and such order remains in
effect for a period of ninety (90) days; (iii) Borrower or any subsidiary
shall commence a voluntary case under bankruptcy, insolvency or similar law
or consent to the appointment of a receiver, liquidator, or trustee; (iv)
the dissolution or liquidation of Borrower or subsidiary or guarantor or
failure to forestall or remove any execution, garnishment or attachment of
such consequence as to impair its ability to continue business and such
execution, garnishment or attachment shall not be vacated within thirty
(30) days; or (v) any other event as a result of which any holder of
indebtedness in excess of five percent (5%) of Borrower's total assets may
declare the same due and payable shall occur and continue for more than any
applicable grace period.
If any representation or warranty herein shall become untrue, or Borrower
shall fail to comply with any term of this Agreement or if the financial
condition of Borrower shall have changed to the extent that such change in
the reasonable judgment of RTFC, materially increases RTFC's risk
hereunder, then RTFC at its discretion may withhold advances of funds
and/or declare all outstanding amounts hereunder immediately due and
payable in full with accrued interest, without presentment or demand.
The Borrower waives the defense of usury and all rights to set off,
counterclaim, deduction or recoupment.
11. Purpose, Repayments and Deposit. Borrower agrees that any and all Advances
hereunder will be used only for proper corporate purposes and consistently
with the requirements of outstanding security documents of Borrower
relating to its operations. Borrower agrees that this loan shall be
repayable out of Borrower's general funds and that loan proceeds will not
be deposited in any other account dedicated for secured financing advances.
<PAGE>
12. Additional Indebtedness. While any amount hereunder is outstanding and
unless otherwise disclosed in writing to Lender or permitted pursuant to
the Loan Agreement, Borrower agrees that it will not, without the prior
written consent of Lender, (i) make distributions of cash to its
shareholders, if applicable, or (ii) create, incur, assume, guarantee or
otherwise become obligated for any additional indebtedness, other than as
provided for in the Loan Agreement except that the Borrower may borrow
against another loan previously approved by Lender.
13. Survival of Representations, Warranties and Payment Obligations. Borrower
agrees that the representations and warranties made in this Agreement shall
survive the making of Advances hereunder. Any unsatisfied payment
obligation hereunder shall survive the maturity and cancellation of this
Agreement.
14. Representations and Warranties. Except as set forth in writing and attached
hereto, Borrower represents and warrants as of the date of its application
and on the date of each and every Advance hereunder that:
(a) The Borrower has and will meet all obligations and be in
compliance with all instruments under which it is bound and that all
information submitted in support of its application is true, complete
and correct except where the failure to so comply or the inaccuracy of
any such information could not, in either case, be reasonably be
expected to have a Material Adverse Effect (as defined in the Loan
Agreement);
(b) There has been no material adverse change in the Borrower's
business or financial condition from that set forth in its most recent
audited financial statements provided to Lender;
(c) The Borrower has no outstanding loans from sources other than
Lender;
(d) The Borrower is not in default in any material respect of any
of its obligations and no litigation is threatened or pending which
would have a material adverse impact on the Borrower's ability to
perform under this Agreement; and
(e) The Borrower has no lines of credit with any other lenders.
15. Consent to Patronage Capital Distributions. Borrower hereby consents that
the amount of any distributions with respect to Borrower's patronage which
are made in written notices of allocation (as defined in Section 1388 of
the Internal Revenue Code of 1986, as amended ("Code") including any other
comparable successor provision) and which are received from Lender will be
taken into account by Borrower at their stated dollar amounts in the manner
provided in Section 1385(a) of the Code in the taxable year in which such
written notices of allocation are received.
16. Severability. If any term, provision or condition, or any part thereof, of
this Agreement shall for any reason be found or held invalid or
unenforceable by any court or
<PAGE>
governmental agency of competent jurisdiction, such invalidity or
unenforceability shall not affect the remainder of such term, provision or
condition nor any other term, provision or condition, and this Agreement
shall survive and be construed as if such invalid or unenforceable term,
provision or condition had not been contained therein.
17. Setoff. Lender is hereby authorized at any time and from time to time
without prior notice to the Borrower to exercise rights of setoff or
recoupment and apply any and all amounts held, or hereafter held, by Lender
or owed to the Borrower or for the credit or account of the Borrower
against any and all of the obligations of the Borrower now or hereafter
existing hereunder. Lender agrees to notify the Borrower promptly after any
such setoff or recoupment and the application thereof, provided that the
failure to give such notice shall not affect the validity of such setoff,
recoupment or application. The rights of Lender under this section are in
addition to any other rights and remedies (including other rights of setoff
or recoupment) which Lender may have.
18. Additional Terms and Conditions. Additional terms and conditions set forth
herein or attached hereto as Exhibit A are an integral part of this
Agreement.
19. Integration. This Agreement and the matters incorporated by reference
contain the entire agreement of the parties hereto with respect to the
matters covered and the transactions contemplated hereby, and no other
agreement, statement or promise made by any party hereto, or by any
employee, officer, agent or attorney of any party hereto, which is not
contained herein, shall be valid and binding. No amendment or waiver to
this Agreement shall be valid and binding except if in writing and signed
by both parties.
20. Headings. The headings and sub-headings contained in this Agreement are
intended to be used for convenience only and do not constitute part of this
Agreement.
21. RESERVED.
22. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be executed
this Agreement under seal as of the date first above written.
COASTAL UTILITIES, INC.
By: PAUL H. SUNU
-----------------------------
Title: Executive Vice President
--------------------------
<PAGE>
(SEAL)
Attest: MATT SPRINGER
-------------------
Assistant Secretary
RURAL TELEPHONE FINANCE COOPERATIVE
By: /s/ WILLIAM KNECHT, III
----------------------------------
Assistant Secretary-Treasurer
(SEAL)
Attest: BLUEPENDER SELIGAL
-----------------------------
Assistant Secretary-Treasurer
<PAGE>
EXHIBIT A
Reduce Balance to Zero. Within 360 days of the first Advance, Borrower will
reduce to zero for a period of at least five consecutive business days, (the
last day of such five day period being herein called the "Zero Balance Date")
amounts outstanding hereunder, and will reduce to zero for a period of at least
five consecutive business days (the last day of such five business day period
being called the "Subsequent Zero Balance Date") amounts outstanding hereunder
within 360 days from the Zero Balance Date or Subsequent Zero Balance Date, as
appropriate.
<PAGE>
Exhibit 12.1
Exhibit 12.1 Madison River Capital, LLC Computation of Ratio of Earnings to
Fixed Charges
<TABLE>
<CAPTION>
(Dollars in thousands)
1995 1996 1997 1998 1999
------------------- -------------------
Madison Madison Madison Madison
Mebcom Mebcom River Mebcom River River River
--------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes 846 874 (436) 1,282 (973) (2,882) (13,565)
Fixed charges:
Interest expense 442 428 16 409 31 3,893 22,443
Amortization of debt expense - - - - - - -
Rental expense - - - - - - -
Total fixed charges (denominator) 442 428 16 409 31 3,893 22,443
Earnings (numerator) 1,288 1,302 (420) 1,691 (942) 1,011 8,878
Ratio of earnings to fixed charges 2.9 3.0 - 4.1 - - -
Insufficiency of earnings to cover
fixed charges - - 436 - 973 2,882 13,565
</TABLE>
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANTS
Madison River Management Company (Delaware)
Gallatin River Holdings, LLC (Delaware)
Gallatin River Communications, LLC (Delaware)
Mebtel, Inc. (North Carolina)
Madison River Communications, LLC (Delaware)
Gulf Communications, LLC (Delaware)
Gulf Coast Services, Inc. (Alabama)
Gulf Telephone Company (Alabama)
Gulf Long Distance, Inc. (Alabama)
Madison River Long Distance Solutions, Inc. (Delaware)
Coastal Communications, Inc. (Delaware)
Coastal Utilities, Inc. (Georgia)
Coastal Long Distance Services, Inc. (Georgia)
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No. 333-_____) and related Prospectus of
Madison River Capital, LLC, and Madison River Finance Corp. for the offer to
exchange its 13 1/4% Senior Notes due 2010 and to the inclusion herein of (i)
our report dated February 11, 2000 with respect to the consolidated financial
statements and schedule of Madison River Capital, LLC, for the years ended
December 31, 1997, 1998 and 1999, (ii) our report dated January 23, 1998 with
respect to the consolidated financial statements of the Company's predecessor,
MEBCOM Communications, Inc., for the year ended December 31, 1997 and (iii) our
report dated January 7, 2000 with respect to the consolidated statements of
operations and cash flows of Gulf Coast Services, Inc. for the years ended
December 31, 1997 and 1998 and the period from January 1, 1999 to September 29,
1999.
/s/ Ernst & Young LLP
Raleigh, North Carolina
May 8, 2000
<PAGE>
EXHIBIT 23.2
Independent Auditor's Consent
We consent to the use in this Registration Statement of Madison River
Capital, LLC and Madison River Finance Corp. on Form S-4 of our report for
Coastal Utilities, Inc., dated March 23, 2000, appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
GOLDEN ASSOCIATES
Certified Public Accountants
May 10, 2000
Hinesville, Georgia
<PAGE>
EXHIBIT 25.1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____________________________
___CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b) (2)
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
A U.S. National Banking Association 41-1592157
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national Identification No.)
bank)
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(Address of principal executive offices) (Zip code)
Stanley S. Stroup, General Counsel
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
(612) 667-1234
(Agent for Service)
_____________________________
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
(Exact name of obligor as specified in its charter)
Delaware 56-2156823
Delaware 56-2183107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
103 South Fifth Street
Mebane, North Carolina 27302
(Address of principal executive offices) (Zip code)
_____________________________
13.25% Senior Notes
(Title of the indenture securities)
================================================================================
<PAGE>
Item 1. General Information. Furnish the following information as to the
--------------------
trustee:
(a) Name and address of each examining or supervising authority to
which it is subject.
Comptroller of the
Currency
Treasury Department
Washington, D.C.
Federal Deposit Insurance Corporation
Washington, D.C.
The Board of Governors of the Federal Reserve System
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor. If the obligor is an affiliate of the
--------------------------
trustee, describe each such affiliation.
None with respect to the trustee.
No responses are included for Items 3-14 of this Form T-1 because the obligor is
not in default as provided under Item 13.
Item 15. Foreign Trustee. Not applicable.
----------------
Item 16. List of Exhibits. List below all exhibits filed as a part of this
-----------------
Statement of Eligibility. Norwest Bank incorporates
by reference into this Form T-1 the exhibits
attached hereto.
Exhibit 1. a. A copy of the Articles of Association of the
trustee now in effect.*
Exhibit 2. a. A copy of the certificate of authority of the
trustee to commence business issued June 28, 1872,
by the Comptroller of the Currency to The
Northwestern National Bank of Minneapolis.*
b. A copy of the certificate of the Comptroller of the
Currency dated January 2, 1934, approving the
consolidation of The Northwestern National Bank of
Minneapolis and The Minnesota Loan and Trust
Company of Minneapolis, with the surviving entity
being titled Northwestern National Bank and Trust
Company of Minneapolis.*
c. A copy of the certificate of the Acting Comptroller
of the Currency dated January 12, 1943, as to
change of corporate title of Northwestern National
Bank and Trust Company of Minneapolis to
Northwestern National Bank of Minneapolis.*
<PAGE>
d. A copy of the letter dated May 12, 1983 from the Regional
Counsel, Comptroller of the Currency, acknowledging
receipt of notice of name change effective May 1, 1983
from Northwestern National Bank of Minneapolis to Norwest
Bank Minneapolis, National Association.*
e. A copy of the letter dated January 4, 1988 from the
Administrator of National Banks for the Comptroller of the
Currency certifying approval of consolidation and merger
effective January 1, 1988 of Norwest Bank Minneapolis,
National Association with various other banks under the
title of "Norwest Bank Minnesota, National Association."*
Exhibit 3. A copy of the authorization of the trustee to exercise
corporate trust powers issued January 2, 1934, by the Federal
Reserve Board.*
Exhibit 4. Copy of By-laws of the trustee as now in effect.*
Exhibit 5. Not applicable.
Exhibit 6. The consent of the trustee required by Section 321(b) of the
Act.
Exhibit 7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.**
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
* Incorporated by reference to exhibit number 25 filed with registration
statement number 33-66026.
** Incorporated by reference to exhibit number 25 filed with registration
statement number 333-32992.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the
trustee, Norwest Bank Minnesota, National Association, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Minneapolis and State of Minnesota on the 21st day of April 2000.
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
------------------------
Jane Y. Schweiger
Corporate Trust Officer
<PAGE>
EXHIBIT 6
April 21, 2000
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
In accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, the undersigned hereby consents that reports of examination of the
undersigned made by Federal, State, Territorial, or District authorities
authorized to make such examination may be furnished by such authorities to the
Securities and Exchange Commission upon its request therefor.
Very truly yours,
NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
/s/ Jane Y. Schweiger
------------------------
Jane Y. Schweiger
Corporate Trust Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 83,729
<SECURITIES> 0
<RECEIVABLES> 19,352
<ALLOWANCES> 1,087
<INVENTORY> 1,343
<CURRENT-ASSETS> 104,875
<PP&E> 306,884
<DEPRECIATION> 13,561
<TOTAL-ASSETS> 785,290
<CURRENT-LIABILITIES> 41,703
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 165,994
<TOTAL-LIABILITY-AND-EQUITY> 785,291
<SALES> 83,101
<TOTAL-REVENUES> 81,517
<CGS> 24,909
<TOTAL-COSTS> 76,025
<OTHER-EXPENSES> (3,386)
<LOSS-PROVISION> 1,584
<INTEREST-EXPENSE> 8,878
<INCOME-PRETAX> (13,565)
<INCOME-TAX> 1,625
<INCOME-CONTINUING> (15,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,190)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
Offer to Exchange its
Series B 13 1/4% Senior Notes due 2010
for any and all of its outstanding
Series A 13 1/4% Senior Notes due 2010
Pursuant to the Prospectus dated , 2000.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
2000, UNLESS EXTENDED. TENDERED OUTSTANDING NOTES MAY BE WITHDRAWN AT ANY TIME
ON OR PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
Norwest Bank Minnesota, National Association
By Registered or Certified
Mail:
By Courier or Regular Mail:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Corporate Trust Operations Corporate Trust Operations
MAC N9303-121 MAC N9303-121
P.O. Box 1517 Sixth & Marquette Avenue
Minneapolis, MN 55480 Minneapolis, MN 55479-0113
By Hand Delivery Only:
Norwest Bank Minnesota, N.A.
Northstar East Building
608 2nd Avenue South
12th Floor, Corporate Trust Services
Minneapolis, MN
Facsimile Transmissions:
(Eligible Guarantor Institutions Only)
(612) 667-4927
Attn: Corporate Trust Services
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A NUMBER
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meaning
given them in the Prospectus (as defined below).
<PAGE>
The undersigned acknowledges receipt of the Prospectus, dated , 2000
(the "Prospectus"), of Madison River Capital, LLC, a Delaware limited liability
company, and Madison River Finance Corp., a Delaware corporation (collectively,
the "Issuers"), and this Letter of Transmittal, which together constitute the
offer (the "Exchange Offer") to exchange its Series B 13 1/4% Senior Notes due
2010 (the "Exchange Notes"), which have been registered under the Securities
Act of 1933, as amended (the "Securities Act"), upon the terms and subject to
the conditions set forth the Prospectus, for all of its outstanding 13 1/4%
Senior Notes due 2010 (the "Outstanding Notes").
This Letter of Transmittal is to be completed either if (a) certificates are
to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth in "The Exchange Offer--
Procedures for Tendering Outstanding Notes" in the Prospectus and an Agent's
Message (as defined below) is not delivered. Certificates, or book-entry
confirmation of a book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at The Depository Trust Company ("DTC"), as well as
this Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date. Tenders by
book-entry transfer may also be made by delivering an Agent's Message in lieu
of this Letter of Transmittal. The term "book-entry confirmation" means a
confirmation of a book-entry transfer of Outstanding Notes into the Exchange
Agent's account at DTC. The term "Agent's Message" means a message, transmitted
by DTC to and received by the Exchange Agent and forming a part of a book-entry
confirmation, which states that DTC has received an express acknowledgment from
the tendering participant, which acknowledgment states that such participant
has received and agrees to be bound by, and makes the representations and
warranties contained in, this Letter of Transmittal and that the Issuers may
enforce this Letter of Transmittal against such participant.
Holders of Outstanding Notes whose certificates for such Outstanding Notes
are not immediately available, or who are unable to deliver their certificates
and all other documents required by this Letter of Transmittal to the Exchange
Agent or confirmation of the book-entry tender of their Outstanding Notes into
the Exchange Agent's account at DTC on or prior to the Expiration Date, must
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Procedures for Tendering Outstanding Notes"
in the Prospectus.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
2
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- --------------------------------------------------------------------------------
If blank,
please
print name
and
address
of
registered Outstanding Notes
holder(s) (Attach additional list if necessary)
- ------------------------------------------------------------
Principal Amount
Aggregate of Outstanding
Certificate or Principal Amount Notes Tendered
Registration of Outstanding (if less than
Number(s)* Notes all)**
------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
Total
- --------------------------------------------------------------------------------
* Need not be completed by book-entry holders. Such holders should check
the appropriate box below and provide the required information.
** Outstanding Notes may be tendered in whole or in part in multiples of
$1,000. All Outstanding Notes held shall be deemed tendered unless a
lesser number is specified in this column. See Instruction 4.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Outstanding Notes must
complete this Letter of Transmittal in its entirety.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
-------------------------------------------------------
DTC Account Number
---------------------- Transaction Code Number
------------------
[_]CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (SEE INSTRUCTION 1):
Name(s) of Registered Holder(s)
-----------------------------------------------------
Window Ticket Number (if any)
------------------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
----------------------------------------
Name of Eligible Institution which Guaranteed Delivery
-------------------------------------
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution
-------------------------------------------------------
DTC Account Number
---------------------- Transaction Code Number
------------------
3
<PAGE>
[_]CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OUTSTANDING
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
[_]CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OUTSTANDING NOTES FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
-----------------------------------------------------------------------
Address:
----------------------------------------------------------------------
4
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuers the above described principal amount
of Outstanding Notes in exchange for an equivalent principal amount of Exchange
Notes. Subject to, and effective upon, the acceptance for exchange of all or
any portion of the Outstanding Notes tendered herewith, the undersigned hereby
exchanges, assigns and transfers to or upon the order of the Issuers all right,
title and interest in and to such Outstanding Notes as are being tendered
herewith, including all rights to accrued and unpaid interest thereon as of the
Expiration Date. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Issuers in connection with
the Exchange Offer) to cause the Outstanding Notes to be assigned, transferred
and exchanged.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, ASSIGN AND TRANSFER THE OUTSTANDING
NOTES TENDERED HEREBY AND TO ACQUIRE EXCHANGE NOTES ISSUABLE UPON THE EXCHANGE
OF SUCH TENDERED OUTSTANDING NOTES, AND THAT, WHEN THE OUTSTANDING NOTES ARE
ACCEPTED FOR EXCHANGE, THE ISSUERS WILL ACQUIRE GOOD, MARKETABLE AND
UNENCUMBERED TITLE THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES
AND ENCUMBRANCES, AND THAT THE OUTSTANDING NOTES TENDERED HEREBY ARE NOT
SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE UNDERSIGNED HEREBY FURTHER
REPRESENTS THAT ANY EXCHANGE NOTES ACQUIRED IN EXCHANGE FOR OUTSTANDING NOTES
TENDERED HEREBY WILL HAVE BEEN ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF
THE PERSON RECEIVING SUCH CERTIFICATES, WHETHER OR NOT SUCH PERSON IS THE
UNDERSIGNED, THAT NEITHER THE HOLDER OF SUCH OUTSTANDING NOTES NOR ANY SUCH
OTHER PERSON IS ENGAGED IN, OR HAS AN ARRANGEMENT OR UNDERSTANDING WITH ANY
PERSON TO PARTICIPATE IN THE DISTRIBUTION OF SUCH EXCHANGE NOTES, AND THAT
NEITHER THE HOLDER OF SUCH OUTSTANDING NOTES NOR ANY SUCH OTHER PERSON IS AN
"AFFILIATE," AS DEFINED IN RULE 405 UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OF THE ISSUERS. THE UNDERSIGNED WILL, UPON
REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE ISSUERS OR
THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE,
ASSIGNMENT AND TRANSFER OF THE OUTSTANDING NOTES TENDERED HEREBY. THE
UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE EXCHANGE OFFER.
The undersigned understands that tenders of Outstanding Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus and in the instructions herein
will, upon the Issuers' acceptance for exchange of such tendered Outstanding
Notes, constitute a binding agreement between the undersigned and the Issuers
upon the terms and subject to the conditions of the Exchange Offer.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Issuers to
be necessary or desirable to complete the exchange, assignment and transfer of
tendered Outstanding Notes or transfer ownership of such Outstanding Notes on
the account books maintained by a book-entry transfer facility. The undersigned
further agrees that acceptance of any tendered Outstanding Notes by the Issuers
and the issuance of Exchange Notes in exchange therefor shall constitute
performance in full by the Issuers of its obligations under the Registration
Rights Agreement and that the Issuers shall have no further obligations or
liabilities thereunder for the registration of the Outstanding Notes or the
Exchange Notes.
5
<PAGE>
The Exchange Offer is not conditioned upon any principal amount of
Outstanding Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions set forth in the Prospectus under the caption
"The Exchange Offer--Conditions to the Exchange Offer." The undersigned
recognizes that as a result of these conditions (which may be waived, in whole
or in part, by the Issuers), as more particularly set forth in the Prospectus,
the Issuers may not be required to exchange any of the Outstanding Notes
tendered hereby and, in such event, the Outstanding Notes not exchanged will be
returned to the undersigned at the address shown below the signature of the
undersigned.
The name(s) and addressee(s) of the registered holder(s) of the Outstanding
Notes tendered hereby should be printed above, if they are not already set
forth above, as they appear on the certificates representing such Outstanding
Notes. The certificate number(s) and the Outstanding Notes that the undersigned
wishes to tender should be indicated in the appropriate boxes above.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on the position of the Staff of the Division of Corporation Finance of
the Securities and Exchange Commission (the "Staff") as set forth in certain
interpretive letters addressed to third parties in other transactions
substantially similar to the Exchange Offer, which lead the Issuers to believe
that Exchange Notes issued pursuant to the Exchange Offer to a holder in
exchange for Outstanding Notes may be offered for resale, resold and otherwise
transferred by a holder (other than (i) a broker-dealer who purchased
Outstanding Notes directly from the Issuers for resale pursuant to Rule 144A or
any other available exemption under the Securities Act, (ii) an "affiliate" of
the Issuers within the meaning of Rule 405 under the Securities Act, or (iii) a
broker-dealer who acquired the Outstanding Notes as a result of market-making
or other trading activities) without further compliance with the registration
and prospectus delivery provisions of the Securities Act, provided, that such
holder is acquiring the Exchange Notes in the ordinary course of business and
is not participating, and has no arrangement or understanding with any person
to participate, in the distribution of the Exchange Notes. Accordingly, the
undersigned represents that (i) it is not an "affiliate" of the Issuers as
defined in Rule 405 of the Securities Act, (ii) it is not a broker-dealer that
acquired Outstanding Notes directly from the Issuers in order to resell them
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act, (iii) it will acquire the Exchange Notes in the
ordinary course of business and (iv) it is not participating, and does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the Exchange Notes. The undersigned
acknowledges that if it is unable to make these representations to the Issuers,
it will not be able to rely on the interpretations of the Staff described above
and therefore will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale or
other transfer of such Outstanding Notes unless such sale is made pursuant to
an exemption from such requirements. If the undersigned is not a broker-dealer,
the undersigned represents that it is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes. If the undersigned is a broker-
dealer that will receive Exchange Notes for its own account in exchange for
Outstanding Notes, it represents that it acquired the Outstanding Notes for its
own account as a result of market-making activities or other trading activities
and acknowledges that it will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such Exchange Notes;
however, by so acknowledging and by delivering a prospectus, the undersigned
will not be deemed to admit that it is an "underwriter" within the meaning of
Section 2(11) of the Securities Act. Failure to comply with any of the above-
mentioned requirements could result in the undersigned or any such other person
incurring liability under the Securities Act for which such persons are not
indemnified by the Issuers.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" or the box entitled "Special Delivery Instructions" in this
Letter of Transmittal, all Exchange Notes delivered in exchange for tendered
Outstanding Notes, and any Outstanding Notes delivered herewith but not
exchanged, will be registered in the name of the undersigned and shall be
delivered to the undersigned at the
6
<PAGE>
address shown below the signature of the undersigned. If an Exchange Note is to
be issued to a person other than the person(s) signing this Letter of
Transmittal, or if the Exchange Note is to be mailed to someone other than the
person(s) signing this Letter of Transmittal or to the person(s) signing this
Letter of Transmittal at an address different than the address shown on this
Letter of Transmittal, the appropriate boxes of this Letter of Transmittal
should be completed. If Outstanding Notes are surrendered by holder(s) that
have completed either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" in this Letter of Transmittal,
signature(s) on this Letter of Transmittal must be guaranteed by an Eligible
Institution (as defined in Instruction 3).
All authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned, and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Tendered
Outstanding Notes may be withdrawn in accordance with Instruction 2 hereto at
any time prior to the Expiration Date.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING
NOTES TENDERED" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO
HAVE TENDERED THE OUTSTANDING NOTES AS SET FORTH IN SUCH BOX.
7
<PAGE>
REGISTERED HOLDERS OF OUTSTANDING NOTES SIGN HERE
(Please Complete Substitute Form W-9 herein or,
in the case of certain foreign persons, substitute Form W-8 herein)
______________________________________________________________________________
______________________________________________________________________________
Signature(s) of Holder(s)
Date: _________________________
(Must be signed by the registered holder(s) exactly as name(s) appear(s)
on Outstanding Note(s) hereby tendered or on a security position listing or
by person(s) authorized to become the registered holder(s) by certificates
and documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, please provide the
following information and see Instruction 3 below.)
Name(s): _____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please Print)
Capacity (full title): _______________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Address: _____________________________________________________________________
______________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.: _________________________________________________
Taxpayer Identification or Social Security No.: ______________________________
(See substitute Form W-9 herein)
GUARANTEE OF SIGNATURE(S)
(See Instruction 3 below)
Authorized Signature: ________________________________________________________
Name: ________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Please Type or Print)
Title: _______________________________________________________________________
Name of Firm: ________________________________________________________________
Address: _____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No.: _________________________________________________
Date: _________________________
8
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(Signature Guarantee Required-- (Signature Guarantee Required--
See Instructions 3 and 4) See Instructions 3 and 4)
TO BE COMPLETED ONLY if TO BE COMPLETED ONLY if
Exchange Notes or Outstanding Exchange Notes or Outstanding
Notes not tendered or not Notes not tendered or not
accepted are to be issued in the accepted are to be sent to
name of someone other than the someone other than the
undersigned. undersigned, or to the
undersigned at an address other
Issue:[_] Exchange Notes: than that shown above under
[_] Outstanding Notes: "Description of Outstanding Notes
Tendered."
Name _____________________________
(Please Print) Mail:[_] Exchange Notes:
[_] Outstanding Notes:
Address __________________________
Name______________________________
__________________________________ (Please Print)
__________________________________ Address __________________________
(Include Zip Code)
__________________________________
Telephone Number: ________________
__________________________________
Book Entry Transfer Facility Ac- (Include Zip Code)
count: __________________________
Telephone Number: ________________
__________________________________
Employer Identification or Social __________________________________
Security Number Employer Identification or Social
Security Number
9
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer.
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OUTSTANDING NOTES; GUARANTEED
DELIVERY PROCEDURES.
This Letter of Transmittal is to be completed by holders of Outstanding
Notes if certificates are to be forwarded herewith or if tenders are to be made
pursuant to the procedures for delivery by book-entry transfer set forth in
"The Exchange Offer--Procedures for Tendering Outstanding Notes" section of the
Prospectus and an Agent's Message is not delivered. Tenders by book-entry
transfer may also be made by delivering an Agent's Message in lieu of this
Letter of Transmittal. The term "Agent's Message" means a message, transmitted
by the Book-Entry Transfer Facility to and received by the Exchange Agent and
forming a part of a Book-Entry Confirmation, which states that the Book-Entry
Transfer Facility has received an express acknowledgment from the tendering
participant, which acknowledgment states that such participant has received and
agrees to be bound by, and makes the representations and warranties contained
in, the Letter of Transmittal and that the Issuers may enforce the Letter of
Transmittal against such participant. Certificates for all physically tendered
Outstanding Notes, or Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof or an Agent's Message in lieu thereof) and any other documents required
by this Letter of Transmittal, must be received by the Exchange Agent at the
address set forth herein on or prior to the Expiration Date, or the tendering
holder must comply with the guaranteed delivery procedures set forth below.
Outstanding Notes tendered hereby must be in multiples of $1,000.
Holders of Outstanding Notes whose certificates for Outstanding Notes are
not immediately available or who cannot deliver their certificates and all
other required documents to the Exchange Agent on or prior to the Expiration
Date, or who cannot complete the procedure for book-entry transfer on a timely
basis, may tender their Outstanding Notes pursuant to the guaranteed delivery
procedures set forth in "The Exchange Offer--Procedures for Tendering
Outstanding Notes" section of the Prospectus. Pursuant to such procedures, (i)
such tender must be made through an Eligible Institution (as defined below),
(ii) prior to the Expiration Date, the Exchange Agent must receive from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery, substantially in the form provided by the Issuers (by
facsimile transmission, mail or hand delivery), setting forth the name and
address of the holder of Outstanding Notes and the amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Outstanding Notes, or a Book-Entry Confirmation, as the
case may be, together with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof or an Agent's Message in lieu thereof),
with any required signature guarantees and any other documents required by this
Letter of Transmittal will be deposited by the Eligible Institution with the
Exchange Agent, and (iii) the certificates for all physically tendered
Outstanding Notes, in proper form for transfer, or Book-Entry Confirmation, as
the case may be, together with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof or an Agent's Message in lieu thereof),
with any required signature guarantees and all other documents required by this
Letter of Transmittal, are received by the Exchange Agent within three NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
The method of delivery of this Letter of Transmittal, the Outstanding Notes
and all other required documents is at the election and risk of the tendering
holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If Outstanding Notes are sent by mail, it is
suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent prior to 5:00 p.m., New York City
time, on the Expiration Date.
10
<PAGE>
The Issuers will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
See "The Exchange Offer" section of the Prospectus.
2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER); WITHDRAWAL OF TENDER.
If less than all of the Outstanding Notes evidenced by a submitted
certificate are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Outstanding Notes to be tendered in the box above
entitled "Description of Outstanding Notes--Principal Amount of Outstanding
Notes Tendered." A reissued certificate representing the balance of nontendered
Outstanding Notes will be sent to such tendering holder, unless otherwise
provided in the appropriate box on this Letter of Transmittal, promptly after
the Expiration Date. All of the Outstanding Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
Tenders of Outstanding Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date. For a withdrawal to be
effective, a written notice of withdrawal must be received by the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. Any such
notice of withdrawal must specify the name of the person having tendered the
Outstanding Notes to be withdrawn, identify the Outstanding Notes to be
withdrawn (including the principal amount of such Outstanding Notes) and (where
certificates for Outstanding Notes have been transmitted) specify the name in
which such Outstanding Notes are registered, if different from that of the
withdrawing holder. If certificates for Outstanding Notes have been delivered
or otherwise identified to the Exchange Agent, then, prior to the release of
such certificates, the withdrawing holder must also submit the serial numbers
of the particular certificates to be withdrawn and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution unless such
holder is an Eligible Institution. If Outstanding Notes have been tendered
pursuant to the procedure for book-entry transfer described above, any notice
of withdrawal must specify the name and number of the account at the Book-Entry
Transfer Facility to be credited with the withdrawn Outstanding Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Issuers, in their sole discretion, whose determination
will be final and binding on all parties. The Issuers, any affiliates or
assigns of the Issuers, the Exchange Agent or any other person shall not be
under any duty to give any notification of any irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
Any Outstanding Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer and will be returned
to the holder thereof without cost to such holder promptly after withdrawal.
3. SIGNATURES OF THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the registered holder of the
Outstanding Notes tendered hereby, the signature must correspond exactly with
the name as written on the face of the certificates without any change
whatsoever.
If any tendered Outstanding Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Outstanding Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
11
<PAGE>
When this Letter of Transmittal is signed by the registered holder of the
Outstanding Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Outstanding Notes are to be reissued,
to a person other than the registered holder, then endorsements of any
certificates transmitted hereby or separate bond powers are required.
Signatures on such certificates must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder of any certificates specified herein, such certificates must
be endorsed or accompanied by appropriate bond powers, in either case signed
exactly as the name of the registered holder appears on the certificates and
the signatures on such certificates must be guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and, unless waived by the
Issuers, proper evidence satisfactory to the Issuers of their authority to so
act must be submitted.
Endorsements on certificates for Outstanding Notes or signatures on bond
powers required by this Instruction 3 must be guaranteed by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., by a commercial bank or trust company
having an office or correspondent in the United States or by an "eligible
guarantor" institution within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Outstanding Notes are tendered: (i) by a
registered holder of Outstanding Notes (which term, for purposes of the
Exchange Offer, includes any participant in the Book-Entry Transfer Facility
system whose name appears on a security position listing as the holder of such
Outstanding Notes) tendered who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on this Letter of
Transmittal, or (ii) for the account of an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS.
Tendering holders of Outstanding Notes should indicate in the applicable box
the name and address to which Exchange Notes issued pursuant to the Exchange
Offer and/or substitute certificates evidencing Outstanding Notes not exchanged
are to be issued or sent, if different from the name or address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the employer identification or social security number of the person named
must also be indicated. A holder of Outstanding Notes tendering Outstanding
Notes by book-entry transfer may request that Outstanding Notes not exchanged
be credited to such account maintained at the Book-Entry Transfer Facility as
such holder of Outstanding Notes may designate hereon. If no such instructions
are given, such Outstanding Notes not exchanged will be returned to the name or
address of the person signing this Letter of Transmittal.
5. TAXPAYER IDENTIFICATION NUMBER.
Federal income tax law generally requires that a tendering holder whose
Outstanding Notes are accepted for exchange must provide the Exchange Agent
with (i) such holder's correct Taxpayer Identification Number ("TIN") on
Substitute Form W-9 below or (ii) in the case of certain exempt foreign
persons, the Substitute Form W-8 below. If such tendering holder is an
individual, the TIN is his or her social security number. If a tendering holder
does not provide the Exchange Agent with its current TIN or an adequate basis
for an exemption, such tendering holder may be subject to a $50 penalty imposed
by the Internal Revenue Service (the "IRS") in addition to backup withholding
in an
12
<PAGE>
amount equal to 31% of all reportable payments made after the exchange. If
withholding results in an overpayment of taxes, a refund may be obtained.
Exempt holders of Outstanding Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. Certain foreign persons can qualify for
this exemption by submitting a Form W-8 or Substitute Form W-8 below, signed
under penalties of perjury and attesting to such person's foreign status.
To prevent backup withholding, each tendering holder of Outstanding Notes
must provide its correct TIN by completing the Substitute Form W-9 set forth
below, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN) and that (i) the holder is exempt from backup withholding, (ii)
the holder has not been notified by the IRS that such holder is subject to a
backup withholding as a result of a failure to report all interest or dividends
or (iii) the IRS has notified the holder that such holder is no longer subject
to backup withholding. If the Outstanding Notes are in more than one name or
are not in the name of the actual owner, such holder should consult the W-9
Guidelines for information on which TIN to report. If such holder does not have
a TIN, such holder should consult the W-9 Guidelines for instructions on
applying for a TIN, check the box in Part 2 of the Substitute Form W-9 and
write "applied for" in lieu of its TIN. Note: Checking this box and writing
"applied for" on the form means that such holder has already applied for a TIN
or that such holder intends to apply for one in the near future. If such holder
does not provide its TIN to the Exchange Agent within 60 days, backup
withholding will begin and continue until such holder furnishes its TIN to the
Exchange Agent.
6. TRANSFER TAXES.
The Issuers will pay all transfer taxes, if any, applicable to the transfer
of Outstanding Notes to it or its order pursuant to the Exchange Offer. If,
however, Exchange Notes and/or substitute Outstanding Notes not exchanged are
to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the Outstanding Notes tendered
hereby, or if tendered Outstanding Notes are registered in the name of any
person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the transfer of Outstanding
Notes to the Issuers or its order pursuant to the Exchange Offer, the amount of
any such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted herewith, the
amount of such transfer taxes will be billed directly to such tendering holder.
Except as provided in this Instruction 6, it is not necessary for transfer
tax stamps to be affixed to the Outstanding Notes specified in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
The Issuers reserve the absolute right to waive satisfaction of any or all
conditions enumerated in the Prospectus.
8. NO CONDITIONAL TENDERS.
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders of Outstanding Notes, by execution of this
Letter of Transmittal, shall waive any right to receive notice of the
acceptance of their Outstanding Notes for exchange.
Neither the Issuers, the Exchange Agent nor any other person is obligated to
give notice of any defect or irregularity with respect to any tender of
Outstanding Notes nor shall any of them incur any liability for failure to give
any such notice.
13
<PAGE>
9. MUTILATED, LOST, STOLEN OR DESTROYED OUTSTANDING NOTES.
Any holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
10. IRREGULARITIES.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Outstanding Notes will be determined by
the Issuers, in their sole discretion, which determination will be final and
binding on all parties. The Issuers reserve the absolute right to reject any
and all Outstanding Notes not properly tendered or any Outstanding Notes the
acceptance of which would, in the opinion of counsel for the Issuers, be
unlawful. The Issuers also reserve the absolute right to waive any
irregularities or conditions of tender as to particular Outstanding Notes. The
Issuers' interpretation of the terms and conditions of the Exchange Offer will
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes must be cured
within such time as the Issuers shall determine. Neither the Issuers, the
Exchange Agent nor any other person will be under any duty to give notification
of defects or irregularities with respect to tenders of Outstanding Notes, nor
will any of them incur any liability for failure to give such notification.
Tenders of Outstanding Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Outstanding Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent to the tendering holders of Outstanding Notes
as soon as practicable following the Expiration Date.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering, as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent, at the address and telephone number indicated
above.
14
<PAGE>
TO BE COMPLETED BY ALL TENDERING SECURITY HOLDERS:
PAYER'S NAME: NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
Part I--Taxpayer
Identification Number--For ----------------------
SUBSTITUTE all accounts, enter Social security number
Taxpayer Identification
Number in the box at right.
(For most individuals, this
is your social security
number. For sole
proprietors or resident
aliens, see the W-9
Guidelines. For other
entities, it is your
Employer Identification
Number. If you do not have
a number, see Obtaining a
Number in the enclosed W-9
Guidelines.) Certify by
signing and dating below.
Form W-9
OR
Department of the ----------------------
Treasury Employer identification
Internal Revenue number
Service
(If awaiting TIN, write
"Applied For")
Payer's Request for
Taxpayer
Identification
Number (TIN)
--------------------------------------------------------
Part II--For payees exempt from backup withholding,
see the enclosed W-9 Guidelines and complete as
instructed therein.
- --------------------------------------------------------------------------------
Note: If the account is in
more than one name, see
chart in the enclosed W-9
Guidelines to determine
which number to give the
payer.
Certification--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me);
(2) I am not subject to backup withholding either because (a) I am exempt
from backup withholding, (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as
a result of a failure to report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject to backup withholding;
and
(3) Any other information provided on this form is true and correct.
Certification Instructions--You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return.
However, if, after being notified by the IRS that you were subject to
backup withholding, you received another notification from the IRS that you
were no longer subject to backup withholding, do not cross out item (2).
(Also see instructions in the enclosed W-9 Guidelines.)
- --------------------------------------------------------------------------------
Signature: _____________________________ Date: ______________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU PURSUANT TO THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING (OR WILL
SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER.
15
<PAGE>
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(2) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number by the
time of the exchange, 31% of all reportable payments made to me on account of
the Exchange Notes shall be retained until I provide a taxpayer
identification number to the Exchange Agent and that, if I do not provide my
taxpayer identification number within 60 days, such retained amounts shall be
remitted to the Internal Revenue Service as backup withholding and 31% of all
reportable payments made to me thereafter will be withheld and remitted to
the Internal Revenue Service until I provide a taxpayer identification
number.
SIGNATURE: ______________________ DATE: _______________________
16
<PAGE>
CERTIFICATE OF FOREIGN STATUS
Substitute Certification:
Form W-8 Under penalties of perjury, I certify that I
am an exempt foreign person because:
Department of the Treasury
Internal Revenue Service 1) I am a nonresident alien individual or a
foreign corporation, partnership, estate,
or trust;
- -------------------------------
2) I am an individual who has not been, and
plans not to be, present in the United
States for a total of 183 days or more
during the calendar year; and
3) I am neither engaged, nor plan to be en-
gaged during the year, in a United States
trade or business that has effectively
connected gains from transactions with a
broker or a barter exchange.
Signature ____________________ Date ________________________
Print Name ____________________
17
<PAGE>
Exhibit 99.2
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
Instruction to Registered Holder and/or Depository
Trust Company Participant from Beneficial Owner
for Offer to Exchange its Series B 13 1/4% Senior Notes due 2010
for any and all of its outstanding
Series A 13 1/4% Senior Notes due 2010
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON , 2000, UNLESS THE OFFER IS EXTENDED. TENDERS MAY
BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To Registered Holder and/or Depository Trust Company Participant:
The undersigned hereby acknowledges receipt of the Prospectus dated , 2000
(the "Prospectus") of Madison River Capital, LLC, a Delaware limited liability
company, and Madison River Finance Corp., a Delaware corporation (collectively,
the "Issuers"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Issuers' offer (the "Exchange
Offer") to exchange its Series B 13 1/4% Senior Notes due 2010 (the "Exchange
Notes") for all of its outstanding Series A 13 1/4% Senior Notes due 2010 (the
"Outstanding Notes"). Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or Depository Trust
Company Participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Outstanding Notes held by you for the
account of the undersigned.
The aggregate face amount of the Outstanding Notes held by you for the
account of the undersigned is (FILL IN AMOUNT):
$ of the Outstanding Notes.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[_]To TENDER the following Outstanding Notes held by you for the amount of
the undersigned (INSERT PRINCIPAL AMOUNT OF ORIGINAL NOTES TO BE
TENDERED (IF LESS THAN ALL)): $
[_]NOT to TENDER any Outstanding Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Outstanding Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including, but not limited to, the representations, that (i)
the undersigned is not an "affiliate" of the Issuers, (ii) any Exchange Notes
to be received by the undersigned are being acquired in the ordinary course of
its business, (iii) the undersigned has no arrangement or understanding with
any person to participate in a distribution (within the meaning of the
Securities Act) of Exchange Notes to be received in the Exchange Offer and (iv)
if the undersigned is not a broker-dealer, the undersigned is not engaged in,
and does not intend to engage in, a distribution (within the meaning of the
Securities Act) of such Exchange Notes. The Issuers may require the
<PAGE>
undersigned, as a condition to the undersigned's eligibility to participate in
the Exchange Offer, to furnish to the Issuers (or an agent thereof) in writing
information as to the number of "beneficial owners" within the meaning of Rule
13d-3 under the Exchange Act on behalf of whom the undersigned holds the
Outstanding Notes to be exchanged in the Exchange Offer. By tendering
Outstanding Notes pursuant to the Exchange Offer, a holder of Outstanding Notes
which is a broker-dealer represents and agrees, consistent with certain
interpretive letters issued by the staff of the Division of Corporation Finance
of the Securities and Exchange Commission to third parties, that such
Outstanding Notes were acquired by such broker-dealer for its own account as a
result of market-making activities or other trading activities, and it will
deliver a Prospectus (as amended or supplemented from time to time) meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes (provided that, by so acknowledging and by delivering a
Prospectus, such broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act).
SIGN HERE
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Name of Beneficial Owner(s)
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Signature
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Name(s) (please print)
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(Address)
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(Telephone Number)
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(Taxpayer Identification or Social Security Number)
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Date
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<PAGE>
Exhibit 99.3
NOTICE OF GUARANTEED DELIVERY
MADISON RIVER CAPITAL, LLC
MADISON RIVER FINANCE CORP.
Offer to Exchange
Series B 13 1/4% Senior Notes due 2010
for any and all outstanding
Series B 13 1/4% Senior Notes due 2010
Pursuant to the Prospectus dated , 2000.
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) of Madison
River Capital, LLC, a Delaware limited liability company, and Madison River
Finance Corp., a Delaware corporation (collectively, the "Issuers"), made
pursuant to the Prospectus, dated , 2000 (the "Prospectus"), if
certificates for the outstanding Outstanding Notes are not immediately
available, or time will not permit all required documents to reach Norwest Bank
Minnesota, National Association (the "Exchange Agent") on or prior to 5:00
p.m., New York City time, on the Expiration Date (as defined below), or if
holders cannot complete the procedure for book-entry transfer on a timely
basis. Such form may be delivered or transmitted by facsimile transmission,
mail or hand delivery to the Exchange Agent as set forth below. In addition in
order to utilize the guaranteed delivery procedure to tender the Outstanding
Notes pursuant to the Exchange Offer, a completed, signed and dated Letter of
Transmittal (or facsimile thereof) must also be received by the Exchange Agent
prior to 5:00 p.m., New York City time, at least within three New York Stock
Exchange trading days after the Expiration Date. Capitalized terms used but not
defined herein have the meanings ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
2000, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERED OUTSTANDING NOTES MAY
BE WITHDRAWN AT ANY TIME ON OR PRIOR TO THE EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
Norwest Bank Minnesota, National Association
By Registered or Certified Mail: By Courier or Regular Mail:
Norwest Bank Minnesota, N.A. Norwest Bank Minnesota, N.A.
Corporate Trust Operations Corporate Trust Operations
MAC N9303-121 MAC N9303-121
P.O. Box 1517 Sixth & Marquette Avenue
Minneapolis, MN 55480 Minneapolis, MN 55479-0113
By Hand Delivery Only:
Norwest Bank Minnesota, N.A.
Northstar East Building
608 2nd Avenue South
12th Floor, Corporate Trust Services
Minneapolis, MN
Facsimile Transmissions:
(Eligible Guarantor Institutions Only)
(612) 667-4927
Attn: Corporate Trust Services
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION" UNDER THE INSTRUCTIONS
THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED
IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Issuers, upon the terms and subject to
the conditions set forth in the Prospectus and the Letter of Transmittal (which
together constitute the "Exchange Offer"), receipt of which are hereby
acknowledged, the aggregate principal amount of Outstanding Notes set forth
below pursuant to the guaranteed delivery procedure described in "The Exchange
Offer--Procedures for Tendering Outstanding Notes" in the Prospectus.
Name(s) of Registered Holder(s): ________________________________
(Please Print or Type)
Principal Amount Tendered:* Certificate No(s). (If available)
$ ___________________ ____________________
$ ___________________ ____________________
$ ___________________ ____________________
* Must be in integral multiples of $1,000.
If Outstanding Notes will be delivered by book-entity transfer to The
Depository Trust Company ("DTC"), provide the DTC account number.
DTC Account Number: ________________________________
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and every obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, legal representatives, successors and
assigns of the undersigned.
PLEASE SIGN HERE
Must be signed by the holder(s) of Outstanding Notes as their name(s)
appear(s) on certificates for Outstanding Notes or on a security position
listing, or by person(s) authorized to become registered holder(s) by
endorsement and documents transmitted with this Notice of Guaranteed Delivery.
Signature(s) of Holder(s) or _________________ Date _________________
Authorized Signatory
Area Code and Telephone Number:: _________________________
If signature is by a trustee, executor, administrator, guardian, attorney-
in-fact, officer or other person acting in a fiduciary or representative
capacity, such person must set forth his or her full title below and, unless
waived by the Issuers, provide proper evidence satisfactory to the Issuers of
such person's authority to so act.
Please print name(s) and address(es)
Name(s) of Holder(s)___________________________________________
Title/Capacity: _______________________________________________
Address(es): __________________________________________________
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<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc., a commercial bank
or trust company having an office or a correspondent in the United States or an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Securities Exchange Act of 1934, as amended, hereby guarantees that the
undersigned will deliver to the Exchange Agent the certificates representing
the Outstanding Notes being tendered hereby in proper form for transfer (or a
confirmation of book-entry transfer of such Outstanding Notes into the Exchange
Agent's account at the book-entry transfer facility of DTC) with delivery of a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message (as
defined in "The Exchange Offer--Procedures for Tendering Outstanding Notes" in
the Prospectus), and any other required documents, all within three New York
Stock Exchange trading days after the Expiration Date.
Name of Firm _________________________ ______________________________________
(Authorized Signature)
Address ______________________________
Name _________________________________
Zip Code _____________________________ Please Print or Type
Dated ________________________________ Title ________________________________
The institution that completes this form must communicate the guarantee to
the Exchange Agent and must deliver the certificates representing any
Outstanding Notes (or a confirmation of book-entry transfer of such Outstanding
Notes into the Exchange Agent's account at DTC) and the Letter of Transmittal
(or an Agent's Message in lieu thereof) to the Exchange Agent within the time
period set forth above. Failure to do so could result in a financial loss to
such institution.
Telephone Number _____________________
NOTE: DO NOT SEND CERTIFICATES REPRESENTING OUTSTANDING NOTES WITH THIS
FORM. CERTIFICATES REPRESENTING OUTSTANDING NOTES SHOULD ONLY BE SENT WITH YOUR
LETTER OF TRANSMITTAL.
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