-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OyJJUOzjc15MxjsVdMXl1s3j9L9AJiNYx+b3mr6JHa8kHm3Wf9aCcUjqzsJujKKb Bw2IHuXkGcBBSJhcZTm3LQ== 0000919574-07-003354.txt : 20070705 0000919574-07-003354.hdr.sgml : 20070704 20070705130937 ACCESSION NUMBER: 0000919574-07-003354 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 20070705 DATE AS OF CHANGE: 20070705 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ITC DELTACOM INC CENTRAL INDEX KEY: 0001041954 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 582301135 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-51889 FILM NUMBER: 07963965 BUSINESS ADDRESS: STREET 1: 7037 OLD MADISON PIKE CITY: HUNTSVILLE STATE: AL ZIP: 35806 BUSINESS PHONE: 256-382-5900 MAIL ADDRESS: STREET 1: 7037 OLD MADISON PIKE CITY: HUNTSVILLE STATE: AL ZIP: 35806 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: H PARTNERS CAPITAL, LLC CENTRAL INDEX KEY: 0001364413 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 152 WEST 57TH STREET STREET 2: 52ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 212-974-7171 MAIL ADDRESS: STREET 1: 152 WEST 57TH STREET STREET 2: 52ND FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 SC 13D/A 1 d789162_13d-a.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------------- SCHEDULE 13D/A (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) (Amendment No. 2) ITC^Deltacom, Inc. - -------------------------------------------------------------------------------- (Name of Issuer) Common Stock, $.01 par value - -------------------------------------------------------------------------------- (Title of Class of Securities) 45031T872 - -------------------------------------------------------------------------------- (CUSIP Number) Rehan Jaffer H Partners Capital, LLC 152 West 57th Street, 52nd Floor New York, New York 10019 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) June 29, 2007 - -------------------------------------------------------------------------------- (Date of Event which Requires Filing of This Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. - ---------- The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP No. 45031T872 --------------------- 1. NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) H Partners Capital, LLC 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON 7. SOLE VOTING POWER 0 8. SHARED VOTING POWER 2,949,373 9. SOLE DISPOSITIVE POWER 0 10. SHARED DISPOSITIVE POWER 2,949,373 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,949,373 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 15.7% 14. TYPE OF REPORTING PERSON OO CUSIP No. 45031T872 --------------------- 1. NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) H Partners Management, LLC 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS AF 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON 7. SOLE VOTING POWER 0 8. SHARED VOTING POWER 2,949,373 9. SOLE DISPOSITIVE POWER 0 10. SHARED DISPOSITIVE POWER 2,949,373 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,949,373 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 15.7% 14. TYPE OF REPORTING PERSON OO --------------------- CUSIP No. 45031T872 --------------------- 1. NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) H Partners, LP 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS WC 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] 6. CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON 7. SOLE VOTING POWER 0 8. SHARED VOTING POWER 2,949,373 9. SOLE DISPOSITIVE POWER 0 10. SHARED DISPOSITIVE POWER 2,949,373 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,949,373 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 15.7% 14. TYPE OF REPORTING PERSON PN --------------------- CUSIP No. 45031T872 --------------------- 1. NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Rehan Jaffer 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [x] (b) [ ] 3. SEC USE ONLY 4. SOURCE OF FUNDS WC 5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] 6. CITIZENSHIP OR PLACE OF ORGANIZATION United States of America NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON 7. SOLE VOTING POWER 0 8. SHARED VOTING POWER 2,949,373 9. SOLE DISPOSITIVE POWER 0 10. SHARED DISPOSITIVE POWER 2,949,373 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 2,949,373 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 15.7% 14. TYPE OF REPORTING PERSON IN --------------------- CUSIP No. 45031T872 --------------------- - -------------------------------------------------------------------------------- Item 1. Security and Issuer. The name of the issuer is ITC^DeltaCom, Inc. (the "Issuer"). The address of the Issuer's offices is 7037 Old Madison Pike, Huntsville, Alabama 35806. This Schedule 13D relates to the Issuer's Common Stock, $.01 par value (the "Shares"). - -------------------------------------------------------------------------------- Item 2. Identity and Background. (a-c, f) This Schedule 13D is being filed jointly by H Partners Capital, LLC, a Delaware limited liability company ("H Partners Capital"), H Partners Management, LLC, a Delaware limited liability company ("H Partners Management") H Partners, LP (the "Partnership"), a Delaware limited partnership, and Rehan Jaffer, a United States citizen (collectively with H Partners Capital, H Partners Management and the Partnership, the "Reporting Persons") to disclose a proposal sent to the Issuer, as further described in Item 4. The principal business address of the Reporting Persons is 152 West 57th Street, 52nd Floor, New York, New York 10019. Rehan Jaffer is the managing member of H Partners Capital, an investment management firm that serves as the general partner to several investment funds, both public and private, including the Partnership. The Reporting Persons, together with Mark Eberle, Scott Neiboer, Curtiswood Capital, LLC, Trace Partners, LP, Trace Management LLC, Vikas Tandon, Joshua Tree Capital Partners, LP, Joshua Tree Capital Management, LP and Joshua Tree Capital Management, LLC have formed a group for Section 13D purposes (the "Group"). (d) Rehan Jaffer has not, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) None of the Reporting Persons has, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, Federal or state securities laws or finding any violation with respect to such laws. - -------------------------------------------------------------------------------- Item 3. Source and Amount of Funds or Other Consideration. The funds for the purchase of the Shares came from the working capital of the Partnership over which Rehan Jaffer, through his role at H Partners Capital and H Partners Management, exercises investment discretion. No borrowed funds were used to purchase the Shares, other than any borrowed funds used for working capital purposes (including certain leverage arrangements) in the Partnership's ordinary course of business. - -------------------------------------------------------------------------------- Item 4. Purpose of Transaction. The Reporting Persons acquired the Shares for investment purposes. The Reporting Persons intend to evaluate the business prospects of the Issuer, as well as its present and future intentions. In connection with such evaluation, the Reporting Persons may from time to time consult with management and other shareholders of the Issuer. In particular, as described below, the Reporting Persons intend to act together with other shareholders to oppose the "Recapitalization" (defined below). As discussed in the Group's previous Schedule 13D filings, the Issuer proposed a recapitalization (the "Recapitalization"). The Group does not believe that such Recapitalization is in the best interests of the Issuer's shareholders. The Group intends to act in concert in relation to their opposition to the Recapitalization and it has notified the Issuer of its opposition to the Recapitalization. On June 29, 2007, the Group sent a letter to the Issuer, in which it proposed an alternative rights offering for the Issuer to implement in place of the Recapitalization. This letter is attached as Exhibit B. As part of the letter, the Group sent a term sheet for its proposed rights offering to the Issuer, which is attached as Exhibit C. Except as set forth above, the Reporting Persons have no present plans or intentions that would result in or relate to any of the transactions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D. - -------------------------------------------------------------------------------- Item 5. Interest in Securities of the Issuer. (a-e) As of the date hereof, the Reporting Persons may each be deemed to be the beneficial owners of 2,949,373 Shares (15.7)% of the Issuer, based upon the 18,766,942 Shares outstanding as of March 31, 2007, according to the Issuer's most recent 10Q filed with the Securities and Exchange Commission. The Reporting Persons have the sole power to vote or direct the vote of 0 Shares to which this filing relates. The Reporting Persons have the shared power to vote or direct the vote of 2,949,373 Shares to which this filing relates. The Reporting Persons have the sole power to dispose or direct the disposition of 0 Shares to which this filing relates. The Reporting Persons have the shared power to dispose or direct the disposition of 2,949,373 Shares to which this filing relates. The Reporting Persons have not engaged in any transactions in the Shares since their last Schedule 13D filing. Each of the Reporting Persons specifically disclaims beneficial ownership in the Shares reported herein except to the extent of their pecuniary interest therein. - -------------------------------------------------------------------------------- Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer. The Reporting Persons have formed a Group and the members of the Group also have entered into a confidentiality and standstill agreement with the Issuer, pursuant to which the members of the Group have agreed to be subject to restrictions on their trading in the Issuer's securities for a specified period of time. The Reporting Persons do not have any other contract, arrangement, understanding or relationship with any other person with respect to the Shares. - -------------------------------------------------------------------------------- Item 7. Material to be Filed as Exhibits. Exhibit A Joint Filing Agreement Exhibit B A copy of the letter sent to the Issuer on June 29, 2007 Exhibit C A copy of the term sheet for the Group's proposed rights offering sent to the Issuer on June 29, 2007 - -------------------------------------------------------------------------------- SIGNATURE After reasonable inquiry and to the best of such Reporting Person's knowledge and belief, each of the undersigned certifies that the information set forth in this statement is true, complete and correct. July 5, 2007 - ----------------------- (Date) H Partners Capital, LLC By: /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer Title: Managing Member of its Adviser H Partners Management, LLC By: /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer Title: Managing Member H Partners, LP By: /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer Title: Managing Member of its General Partner /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer Exhibit A AGREEMENT The undersigned agree that this Amendment No. 2 to Schedule 13D dated July 5, 2007 relating to the Common Stock, par value $.01 of ITC^DeltaCom, Inc. shall be filed on behalf of the undersigned. H Partners Capital, LLC By: /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer Title: Managing Member of its Adviser H Partners Management, LLC By: /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer Title: Managing Member H Partners, LP By: /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer Title: Managing Member of its General Partner /s/ Rehan Jaffer - ------------------------------------- Name: Rehan Jaffer July 5, 2007 Exhibit B June 29, 2007 VIA FACSIMILE & FEDERAL EXPRESS - ------------------------------- Board of Directors of ITC^Deltacom c/o Skadden, Arps, Slate, Meagher & Flom LLP J. Gregory Milmoe, Esq. Anthony W. Clark, Esq. Four Times Square New York, New York 10036 Special Committee of the Board of Directors of ITC^Deltacom c/o Richards, Layton & Finger Mark J. Gentile, Esq. One Rodney Square 920 North King Street Wilmington, Delaware 19801 Re: Proposal of Shareholder Rights Offering --------------------------------------- Dear Members of the Board and its Special Committee: We represent H Partners Capital, LLC ("HPC"), Curtiswood Capital LLC, Joshua Tree Capital Management, LLC and their respective affiliates (collectively, the "Shareholder Group"), which collectively own 15.7% of the common stock issued by ITC^Deltacom, Inc. ("ITC" or the "Company"). This is 32% of ITC's outside shares. On June 15, 2007, HPC wrote to the Board objecting to the Company's proposed recapitalization (the "Company Proposal") and demanding that it cease further action to accomplish it. HPC advised that the Company Proposal harmed the Company and its minority shareholders in particular because it undervalued the equity to be sold or converted, it severely diluted minority shareholders, and it transferred value to the controlling shareholder and others through "repricing" of preferred stock with no corresponding benefit to the Company. The Company wrote back that the proposed transaction was "enormously beneficial" "especially" for public (i.e. minority) shareholders. We continue to disagree. Though the Shareholder Group has informed the Company that, if necessary, it will commence litigation to enjoin the Company Proposal, it has with the consent of the Company, refrained from doing so at the Company's suggestion to facilitate due diligence and a consensual resolution of the matter. We met with representatives of the Company this week to assist it in meeting its obligations to minority shareholders and to promote a better transaction. As expected, we succeeded in that process (in a matter of days) and hereby provide the Board and the committee appointed by the Board to consider the appropriate recapitalization (the "Special Committee") with a proposal (the "Shareholder Proposal") that is far superior to the Company Proposal. The Shareholder Proposal, set forth on the attached term sheet, provides, among other things, that: o Existing common shareholders will have the right to purchase 20,000,000 shares of common stock in the Company at a price of $5.00 per share (the "Rights Offering"). o The Rights Offering will be fully committed through a 100% backstop by six financial institutions (the "Backstop Parties"), including two members of the Shareholder Group. The Company will guarantee that the Backstop Parties shall have the option to purchase at least 5 million shares, on a pro rata basis, at the Subscription Price. o The Backstop Parties will not charge any fees. o There shall be no repriced conversion of any of the Company's preferred stock. Proceeds from the Rights Offering, together with proceeds from the contemplated senior debt financing transactions (the "Senior Debt Financing") and cash on the Company's balance sheet, will be used to refinance the Company's outstanding debt obligations and for general working capital purposes. o The Shareholder Proposal is subject to (i) confirmatory due diligence to be completed by July 6, 2007 (assuming full cooperation by the Company), (ii) definitive documentation and (iii) the closing of the Senior Debt Financing contemplated in the Company Proposal on terms similar or better than as proposed. The Company, its Board, and, in particular, its Special Committee undoubtedly should adopt the Shareholder Proposal. As more fully described below, the Shareholder Proposal offers all of the benefits of the Company Proposal and will avoid the obvious and unnecessary harm to minority shareholders and potential liability to the Board, the Special Committee and other parties. 1. The Shareholder Proposal Provides The Company With More Value. We have calculated that most of the shares to be distributed pursuant to the Company Proposal have a nominal price of approximately $3 per share (and less in some cases). The Shareholder Proposal would sell fewer shares at $5 per share and raise just as much money. The Shareholder Proposal provides more value to the Company for the benefit of common shareholders. 2. The Shareholder Proposal Maintains The Economic Benefits of the Preferred Stock and Eliminates the Gift of Common Stock to Preferred Shareholders. The Shareholder Proposal does not convert any preferred stock into common stock. The Series A, Series B and Series C Preferred Stock have conversion prices of $17.15, $9.00, and $2.25 respectively. The Company Proposal would gift 7.6 million shares through the repriced conversion of this stock. As summarized on the attached exhibit prepared by the Shareholder Group's financial advisor, Imperial Capital, this discount alone represents approximately $38 million of value that under the Company Proposal would be gifted to the preferred shareholders. The Company has no legitimate business need to convert these shares; it is simply a transfer to the controlling Welsh Carson and other preferred shareholders at the expense of minority shareholders. 3. The Shareholder Proposal Avoids a Common Stock Gift Exceeding $100 Million. As demonstrated in the attached exhibit prepared by Imperial Capital, the Company Proposal issues approximately 20 million additional shares as compared to the Shareholder Proposal. Based on the $5 share price in the Shareholder Proposal, these incremental shares amount to a $100 million gift to the parties that will receive stock in the Company Proposal. The value of this gift could be substantially higher if, as the Shareholder Group expects, the Company's common stock increases in value in a strategic transaction or continued improvement in financial performance. 4. The Shareholder Proposal Avoids Unnecessary Dilution to Minority Shareholders. If consummated, the Company Proposal would dilute minority shareholders to approximately 11.3% on a fully diluted basis from their present 21% ownership: a 46.1% dilution. The Shareholder Proposal would provide minority shareholders with approximately 29% of the shares (assuming full participation) and would guarantee a minimum of 14.4% of the common stock on a fully diluted basis. 5. The Shareholder Proposal Preserves the Company's Optionality. By leaving the PIK preferred in place, the Company has the right, but not the obligation, to pay the dividends in cash if cash flows dictates. 6. The Shareholder Proposal Is Fair and Equitable. There is no mechanism in the Company Proposal to allow minority shareholders fair and equitable participation. The Shareholder Proposal allows all shareholders to participate ratably without the payment of any fees to the parties backstopping the deal. * * * * * The Board and the Special Committee have an absolute fiduciary duty to protect the interests of the Company's shareholders, particularly those not in control. The Special Committee may not merely take as given a transaction that disfavors and harms the minority in favor of the majority. To date, the Company never sought the approval or input from minority shareholders prior to proposing the Company Proposal and has not reasonably considered a rights offering to ensure that the Company Proposal would be fair to all shareholders. The Board and the Special Committee now have the ability to mitigate or eliminate the harm that the Company Proposal will visit on minority shareholders. The Shareholder Proposal removes any conceivable doubt that the Company Proposal is not the highest and best alternative available and conclusively proves that the Company is gifting over $100 million value to interested parties by repricing of the preferred stock and by underpricing the sale of its equity. If the Company continues to improve its financial performance consistent with its latest 10-Q filing, the value of the gift could be tens or hundreds of millions of dollars higher. Accordingly, we request that the Special Committee immediately convene to consider the Shareholder Proposal and take all steps necessary to accept and to consummate it. We are prepared to meet with the Special Committee, the Company, its advisors, any other stakeholders, without delay, to address the Shareholder Proposal and how best it can be consummated. We ask for your reply no later than noon on July 2, 2007. Nothing in this correspondence derives from any "Evaluation Materials" (as such term is defined in the confidentiality agreements executed with the Company). Nothing in this letter is a waiver of any right, claim, or remedy of any of the Shareholder Group, each of which specifically is reserved. Sincerely, David S. Rosner cc: Mr. Mark Eberle Mr. Mark Hootnick Mr. Rehan Jaffer Mr. Scott Nieboer Mr. Vikas Tandon Michael Bonkowski, Esq. Exhibit C Term Sheet for Common Stock Rights Offering ITC^DeltaCom, Inc. This term sheet describes certain of the principal terms and conditions of a proposed recapitalization for ITC^Deltacom, Inc. This Term Sheet is not an offer with respect to any securities and is not binding and shall not give rise to any binding obligations and no such obligations shall arise unless and until definitive documentation has been executed and the other terms and conditions specified herein have been satisfied or waived. Issuer: ITC^DeltaCom, Inc. (the "Company") Rights Offering: Holders of the Company's common stock and other parties eligible to participate pursuant to agreements binding on the Company ("Equityholders") as of the record date shall be offered the right (the "Right") to purchase 20,000,000 shares of common stock in the Company at a price of $5.00 per share (the "Subscription Price"). Gross proceeds from the Rights Offering will total at least $100.0 million, subject to the Minimum Guarantee. Rights shall not be transferable after the record date. There will be no over-subscription rights provided to Equityholders in connection with the Rights Offering. Fractional shares shall not be issued and no compensation shall be paid in cash in respect of fractional shares. Unexercised Rights will expire without compensation on the Expiration Date. Expiration Date: The Rights Offering will expire 30 calendar days from the record date. Subscriptions not received by the Expiration Date will be null and void. Backstop Parties: H Partners Capital, LLC; Joshua Tree Capital Management, LLC; JMB Capital Partners, LP; Corriente Partners, LP; Scoggin Capital Management, LP; and UBS Pactual Capital Partners Multi Strategy Fund SPC, Lyrical Opportunity Partners II, LP (collectively, the "Backstop Parties"). Backstop Commitment: The Backstop Parties have agreed to purchase, at the Subscription Price, all of the common stock not purchased by other Equityholders in the Rights Offering. Minimum Guarantee: The Company will guarantee that under any circumstances, the Backstop Parties shall have the option to purchase at least 5 million shares, on a pro rata basis, at the Subscription Price. Use of Proceeds: Proceeds from the Rights Offering, together with proceeds from the contemplated senior debt financing transactions (the "Senior Debt Financing") and cash on the Company's balance sheet, will be used to refinance the Company's outstanding debt obligations and for general working capital purposes. Expenses: The Company shall reimburse the Backstop Parties' actual out-of-pocket expenses incurred in connection with the Rights Offering including, without limitation, the reasonable fees and expenses of counsel and of Imperial Capital, LLC. SEC Registration: The Company shall file a registration statement with the SEC under the Securities Act of 1933, as amended, registering the offering of the Rights and the common stock underlying the Rights. Representations The Definitive Documents shall and Warranties: contain representations and warranties customarily found in related agreements for similar investments or financings. Conditions Precedent: The obligations of the Backstop Parties under the Backstop Commitment shall be subject to the following conditions precedent: o Preparation and execution of Definitive Documentation, reasonably satisfactory to the Backstop Parties and the Company; o Consummation of the Senior Debt Financing on similar or better terms; and o Completion of confirmatory due diligence no later than July 6, 2007 assuming full cooperation from the Company. SK 02642 0001 789162 -----END PRIVACY-ENHANCED MESSAGE-----