-----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, PfoVUzUL6q0/elTLJZV+VZ24LwyX/qq9WgwmKakt9nFjnWBFbbHZbtopwFKJsAq+ GZHrQMwFb59NC+iJtf7T6A== 0000912057-02-020324.txt : 20020514 0000912057-02-020324.hdr.sgml : 20020514 ACCESSION NUMBER: 0000912057-02-020324 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAIRPOINT COMMUNICATIONS INC CENTRAL INDEX KEY: 0001062613 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 133725229 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-56365 FILM NUMBER: 02647770 BUSINESS ADDRESS: STREET 1: 521 EAST MOREHEAD ST STREET 2: STE 250 CITY: CHARLOTTE STATE: NC ZIP: 28202 BUSINESS PHONE: 7043448150 FORMER COMPANY: FORMER CONFORMED NAME: MJD COMMUNICATIONS INC DATE OF NAME CHANGE: 19980527 10-Q 1 a2079840z10-q.txt 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002. OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 333-56365 ------------------------ FAIRPOINT COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in Its Charter) DELAWARE 13-3725229 (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 521 EAST MOREHEAD STREET, SUITE 250 28202 CHARLOTTE, NORTH CAROLINA (Address of Principal Executive (Zip Code) Offices)
(704) 344-8150 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / As of May 10, 2002, the registrant had outstanding 45,850,002 shares of Class A common stock and 4,269,440 shares of Class C common stock. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FAIRPOINT COMMUNICATIONS, INC. QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2002 INDEX
PAGE -------- PART I. FINANCIAL INFORMATION Item 1. Financial Statements........................................ 3 Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001..................................... 3 Condensed Consolidated Statements of Operations for the three months ended March 31, 2002 and 2001................................... 4 Condensed Consolidated Statements of Comprehensive Income (Losses) for the three months ended March 31, 2002 and 2001...................................................... 5 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2002 and 2001................ 6 Notes to Condensed Consolidated Financial Statements........ 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 16 Item 3A. Quantitative and Qualitative Disclosures About Market Risk...................................................... 24 Signatures.................................................. 25 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders......... 26 Item 5. Other Information........................................... 26 Item 6. Exhibits and Reports on Form 8-K............................ 26
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, 2002 2001 ----------- ------------ (UNAUDITED) (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash...................................................... $ 6,297 3,063 Accounts receivable....................................... 30,443 30,949 Other..................................................... 5,329 7,098 Net assets of discontinued operations..................... 10,314 25,997 --------- -------- Total current assets........................................ 52,383 67,107 --------- -------- Property, plant, and equipment, net......................... 275,812 283,280 --------- -------- Other assets: Investments............................................... 48,260 48,941 Goodwill, net of accumulated amortization................. 454,306 454,306 Deferred charges and other assets......................... 20,371 21,381 --------- -------- Total other assets.......................................... 522,937 524,628 --------- -------- Total assets................................................ $ 851,132 875,015 ========= ======== LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable.......................................... $ 16,742 18,089 Current portion of long-term debt and other long-term liabilities............................................. 7,222 6,759 Demand notes payable...................................... 447 464 Accrued interest payable.................................. 22,784 10,882 Other accrued liabilities................................. 12,999 13,971 Net liabilities of discontinued operations................ 31,533 160,376 --------- -------- Total current liabilities................................... 91,727 210,541 --------- -------- Long-term liabilities: Long-term debt, net of current portion.................... 875,201 776,279 Net liabilities of discontinued operations................ 8,271 9,735 Deferred credits and other long-term liabilities.......... 21,316 23,817 --------- -------- Total long-term liabilities................................. 904,788 809,831 --------- -------- Minority interest........................................... 17 17 --------- -------- Common stock subject to put options......................... 3,136 4,136 --------- -------- Stockholders' deficit: Common stock.............................................. 499 499 Additional paid-in capital................................ 217,739 217,936 Accumulated other comprehensive loss...................... (6,577) (2,247) Accumulated deficit....................................... (360,197) (365,698) --------- -------- Total stockholders' deficit................................. (148,536) (149,510) --------- -------- Total liabilities and stockholders' equity.................. $ 851,132 875,015 ========= ========
3 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------- 2002 2001 -------- -------- (DOLLARS IN THOUSANDS) Revenues.................................................... $58,425 56,940 ------- ------- Operating expenses: Network operating costs................................... 17,023 15,583 Selling, general and administrative....................... 9,500 10,663 Depreciation and amortization............................. 11,784 13,839 Stock-based compensation.................................. (197) -- ------- ------- Total operating expenses.................................... 38,110 40,085 ------- ------- Income from operations...................................... 20,315 16,855 ------- ------- Other income (expense): Net gain on sale of investments........................... 355 -- Interest and dividend income.............................. 613 573 Interest expense.......................................... (17,536) (24,452) Other, net................................................ 1,965 925 ------- ------- Total other expense......................................... (14,603) (22,954) ------- ------- Earnings (loss) from continuing operations before income taxes..................................................... 5,712 (6,099) Income tax expense.......................................... (211) (319) Minority interest in income of subsidiaries................. -- (1) ------- ------- Earnings (loss) from continuing operations.................. 5,501 (6,419) ------- ------- Discontinued operations: Loss from discontinued competitive communications operations.............................................. -- (52,545) ------- ------- Loss from discontinued operations........................... -- (52,545) ------- ------- Net earnings (loss)......................................... $ 5,501 (58,964) ======= =======
4 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSSES) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------------------------- 2002 2001 ------------------- ------------------- (DOLLARS IN THOUSANDS) Net earnings (loss)....................................... $ 5,501 (58,964) Other comprehensive income (loss): Available-for-sale securities: Unrealized holding losses arising during period....... (4,387) (53) Less reclassification for gain included in net earnings............................................ (315) (4,702) (53) Cash flow hedges: Cumulative effect of a change in accounting principle........................................... $ -- (4,664) Reclassification adjustment........................... 372 372 380 (4,284) ------- ------- ------ ------- Other comprehensive loss.................................. (4,330) (4,337) ------- ------- Comprehensive income (loss)............................... $ 1,171 (63,301) ======= =======
5 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------- 2002 2001 -------- -------- (DOLLARS IN THOUSANDS) Cash flows from operating activities: Net earnings (loss)....................................... $ 5,501 (58,964) ------- ------- Adjustments to reconcile net earnings (loss) to net cash provided by operating activities of continuing operations: Loss from discontinued operations....................... -- 52,545 Amortization of debt issue costs........................ 730 1,388 Depreciation and amortization........................... 11,784 13,839 Other non cash items.................................... (4,463) 4,109 Changes in assets and liabilities arising from operations: Accounts receivable and other current assets.......... 1,745 340 Accounts payable and accrued expenses................. 9,631 2,091 ------- ------- Total adjustments................................... 19,427 74,312 ------- ------- Net cash provided by operating activities of continuing operations........................... 24,928 15,348 ------- ------- Cash flows from investing activities of continuing operations: Net capital additions..................................... (4,014) (7,697) Other, net................................................ 2,777 1,236 ------- ------- Net cash used in investing activities of continuing operations............................................ (1,237) (6,461) ------- ------- Cash flows from financing activities of continuing operations: Loan origination costs.................................... (42) (1,210) Proceeds from issuance of long-term debt.................. 11,630 94,525 Repayments of long-term debt.............................. (30,987) (38,360) Other, net................................................ (1,001) (980) ------- ------- Net cash provided by (used in) financing activities of continuing operations................................. (20,400) 53,975 ------- ------- Net cash contributed from continuing operations to discontinued operations............................... (57) (60,964) ------- ------- Net increase in cash.................................... 3,234 1,898 Cash, beginning of period................................... 3,063 4,131 ------- ------- Cash, end of period......................................... $ 6,297 6,029 ======= =======
6 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) ORGANIZATION AND BASIS OF FINANCIAL REPORTING In the opinion of our management, the accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of results of operations, financial position, and cash flows. The results of operations for the interim periods are not necessarily indicative of the results of operations which might be expected for the entire year. The condensed consolidated financial statements should be read in conjunction with the Company's 2001 Annual Report on Form 10-K. Certain amounts from 2001 have been reclassified to conform to the current period presentation. (2) DISCONTINUED OPERATIONS AND RESTRUCTURE CHARGES In November 2001, the Company announced its plan to discontinue the competitive communications business operations of its wholly-owned subsidiary, FairPoint Communications Solutions Corp. ("FairPoint Solutions"). Prior to the Company's decision to discontinue FairPoint Solutions' competitive communication business, FairPoint Solutions entered into an agreement on October 19, 2001, to sell certain assets of its competitive communications operations relating to its business and operations in the northwest United States to Advanced TelCom, Inc., a wholly-owned subsidiary of Advance TelCom Group, Inc ("ATG"). The sale of these assets was completed on December 10, 2001. The transition of customers to ATG was completed in April 2002. On November 7, 2001, FairPoint Solutions entered into an agreement with Choice One Communications Inc. ("Choice One") and certain affiliates of Choice One to sell certain assets of its competitive communications operations relating to its business and operations in the northeast United States. The sale of these assets was completed on December 19, 2001. Included in the terms of the Choice One sales agreement was an opportunity for FairPoint Solutions to earn additional restricted shares of Choice One common stock based on the number of access lines converted to the Choice One operating platform. FairPoint Solutions has been advised that it has earned an additional 1,000,000 restricted shares of Choice One common stock under these provisions, bringing the total shares received to 3,500,000. The 1,000,000 additional shares earned will be recognized as a gain within discontinued operations when received during the second quarter of 2002. The transition of customers to Choice One was completed in April 2002. In connection with the sale of assets to Choice One, on November 7, 2001, the Company announced the cessation of the competitive communications business of FairPoint Solutions and notified its remaining customers in the Southwest, Southeast and mid-Atlantic competitive markets to find alternative carriers. The transition of customers to alternative carriers was completed in April 2002. As a result of the adoption of the plan to discontinue the operations of the competitive communications operations, these operating results are presented as discontinued operations. The financial results of the competitive operations are presented in the condensed consolidated statements of operations as losses from discontinued competitive communications operations. On November 28, 2001, FairPoint Solutions completed an amendment to the FairPoint Solutions Credit Facility, pursuant to which FairPoint Solutions' lenders waived certain restrictions with respect to the sale by FairPoint Solutions of certain of its northwest assets to ATG. On December 19, 2001, FairPoint Solutions completed another amendment to this credit facility which provided for such lenders' consent to the sale of certain of FairPoint Solutions' northeast assets to Choice One and for 7 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (2) DISCONTINUED OPERATIONS AND RESTRUCTURE CHARGES (CONTINUED) the lenders' forbearance, until March 31, 2002, from exercising their remedies under the FairPoint Solutions Credit Facility for certain enumerated potential covenant breaches and potential events of default thereunder. On May 10, 2002, FairPoint Solutions entered into an Amended and Restated Credit Agreement with its lenders to restructure the obligations of FairPoint Solutions and its subsidiaries under the FairPoint Solutions Credit Facility. In connection with such restructuring, (i) FairPoint Solutions paid certain of its lenders $5.0 million to satisfy $7.0 million of the obligations under the FairPoint Solutions Credit Facility, (ii) the lenders converted approximately $93.9 million of the loans and obligations under the FairPoint Solutions Credit Facility into shares of the Company's Series A Preferred Stock having a liquidation preference equal to the amount of the loans and obligations under the FairPoint Solutions Credit Facility, and (iii) the remaining loans under the FairPoint Solutions Credit Facility and FairPoint Solutions' obligations under its swap arrangements were converted into $27.9 aggregate principal amount of new term loans. In the second quarter the Company will record a gain in discontinued operations of approximately $17.5 million for the extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the carrying value of $128.8 million of retired debt and related swap obligations and the sum of the aggregate value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's Series A Preferred Stock issued (approximately $78.4 million). The converted loans under the new FairPoint Solutions Amended and Restated Credit Agreement consist of two term loan facilities: (i) Tranche A Loans in the aggregate principal amount of approximately $8.7 million and (ii) Tranche B Loans in the aggregate principal amount of approximately $19.2 million, each of which matures in May, 2007. Interest on the new loans is payable monthly and accrues at a rate of 8% per annum; provided, however, that upon an event of default the interest rate shall increase to 10% per annum. Interest on the Tranche A Loans must be paid in cash and interest on Tranche B Loans may be paid, at the option of FairPoint Solutions, either in cash or in kind. The principal of the Tranche A Loans is due at maturity and the principal of the Tranche B Loans is payable as follows: (a) $2,062,000 is due on September 30, 2004; (b) $4,057,000 is due on September 30, 2005; (c) $5,372,000 is due on September 30, 2006; and (d) the remaining principal balance is due at maturity. The loans under the new FairPoint Solutions Amended and Restated Credit Agreement are guaranteed by certain of FairPoint Solutions' subsidiaries and are secured by substantially all of the assets of FairPoint Solutions and its subsidiaries. The Company has not guaranteed the debt owed to the lenders under the new FairPoint Solutions Amended and Restated Credit Agreement nor does the Company have any obligation to invest any additional funds in FairPoint Solutions. Further, our Credit Facility and the indentures governing our senior subordinated notes contain significant restrictions on the Company's ability to make investments in FairPoint Solutions. Under a tax sharing agreement, the Company is obligated to reimburse FairPoint Solutions for any tax benefits it receives from net operating losses generated by FairPoint Solutions. Voluntary prepayments of the new loans may be made at any time without premium or penalty. FairPoint Solutions is also required to make mandatory prepayments of principal from certain sources including the net proceeds from asset sales and from excess cash flow generated by the long distance business. 8 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (2) DISCONTINUED OPERATIONS AND RESTRUCTURE CHARGES (CONTINUED) Upon an event of default under the new FairPoint Solutions Amended and Restated Credit Agreement and the acceleration of the loans thereunder, at the option of the relevant lender, such loans may be converted into the Company's Series A Preferred Stock pursuant to the terms of the Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement dated as of May 10, 2002 (the "Preferred Stock Issuance Agreement") by and among the Company, the Administrative Agent and the lenders. The Series A Preferred Stock issued to the lenders in connection with the debt restructure, and any Series A Preferred Stock issuable pursuant to the Preferred Stock Issuance Agreement, is non-voting, except as required by applicable law, and is not convertible into common stock of the Company. The Series A Preferred Stock provides for the payment of dividends at a rate equal to 17.428% per annum. Dividends on the Series A Preferred Stock are payable, at the option of the Company, either in cash or in additional shares of Series A Preferred Stock. The Company has the option to redeem any outstanding Series A Preferred Stock at any time. The redemption price for such shares is payable in cash in an amount equal to $1,000 per share plus any accrued but unpaid dividends thereon (the "Preference Amount"). Under certain circumstances, the Company would be required to pay a premium of up to 6% of the Preference Amount in connection with the redemption of the Series A Preferred Stock. In addition, upon the occurrence of certain events, such as (i) a merger, consolidation, sale, transfer or disposition of at least 50% of the assets or business of the Company and its subsidiaries, (ii) a public offering of the Company's common stock which yields in the aggregate at least $175.0 million, or (iii) the first anniversary of the maturity of the Company's senior subordinated notes (which first anniversary will occur in May 2011), the Company would be required to redeem all outstanding shares of the Series A Preferred Stock at a price per share equal to the Preference Amount. Under the provisions of SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, the Company had previously reported two segments: traditional telephone operations and competitive communications operations. The traditional telephone operations provide local, long distance and other communications services to customers in rural communities in which competition is currently limited for local telecommunications services. The competitive communications operations provided local, long distance, and other communication services to customers in markets outside of the Company's traditional telephone markets. The Company's reportable segments were strategic business units that offered similar telecommunications related products and services in different markets. They were managed separately because each segment required different marketing and operational strategies related to the provision of local and long distance communications services. The Company utilized certain information for purposes of making decisions about allocating resources to a segment and assessing a segment's performance. This information included net earnings (loss) plus interest expense, income taxes, depreciation and amortization, and non-cash stock-based compensation charges (EBITDA) and capital expenditures. 9 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (2) DISCONTINUED OPERATIONS AND RESTRUCTURE CHARGES (CONTINUED) Selected information from discontinued operations for the three months ended March 31, 2001 follows:
THREE MONTHS ENDED MARCH 31, 2001 ---------------------- (DOLLARS IN THOUSANDS) Revenue..................................................... $ 18,898 ======== Operating loss.............................................. $(46,526) ======== Loss from discontinued operations........................... $(52,545) ======== EBITDA...................................................... $(44,515) ======== Capital expenditures........................................ $ 28,788 ========
A reconciliation of EBITDA to loss from discontinued operations follows:
THREE MONTHS ENDED MARCH 31, 2001 ---------------------- (DOLLARS IN THOUSANDS) EBITDA...................................................... $(44,515) Depreciation and amortization............................. (2,361) Interest expense.......................................... (6,410) Stock-based compensation.................................. 741 -------- Loss from discontinued operations........................... $(52,545) ========
Net assets and liabilities of discontinued operations as of March 31, 2002 and December 31, 2001 follow:
MARCH 31, DECEMBER 31, 2002 2001 ----------- ------------ (UNAUDITED) (DOLLARS IN THOUSANDS) Cash........................................................ $ -- 9,442 Accounts receivable......................................... 6,550 8,612 Prepaid and other........................................... 97 43 Investments available-for-sale.............................. 3,667 7,900 -------- -------- Net current assets of discontinued operations............. 10,314 25,997 -------- -------- Bank overdrafts............................................. (518) -- Accounts payable............................................ (5,887) (8,857) Accrued liabilities......................................... (13,436) (22,308) Accrued interest payable.................................... (982) (471) Restructuring accrual....................................... (3,354) (2,575) Accrued property taxes...................................... (356) (365) Current portion of long-term debt........................... (7,000) (125,800) -------- -------- Net current liabilities of discontinued operations........ (31,533) (160,376) -------- -------- Long-term liabilities of discontinued operations............ (8,271) (9,735) -------- -------- Net liabilities of discontinued operations................ $(29,490) (144,114) ======== ========
10 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (2) DISCONTINUED OPERATIONS AND RESTRUCTURE CHARGES (CONTINUED) As of March 31, 2002, approximately $118.8 million of debt has been reclassified to long-term debt to reflect the amount of debt that has been subsequently refinanced through the issuance of the Company's Series A Preferred Stock and the long-term debt that will be serviced through continuing operations. At December 31, 2001, FairPoint Solutions' outstanding debt ($125.8 million) and the fair value of its interest rate swaps ($3.2 million) was classified in net current liabilities of discontinued operations. On January 1, 2002, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS (SFAS No. 144). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Based on the provisions of SFAS No. 144, the assets and liabilities related to the discontinued competitive communications operations are presented separately in the asset and liability sections, respectively, on the accompanying March 31, 2002 consolidated balance sheet. The December 31, 2001 consolidated balance sheet has been reclassified for comparative purposes. There was no change to the measurement of the Company's provisions for discontinued operations as the Company initiated its plan of disposal prior to December 31, 2001. In December 2000, the Company initiated a realignment and restructuring of its competitive communications business, which resulted in the Company recording an initial charge of approximately $16.5 million. Of the initial restructuring charge, approximately $3.3 million related to employee termination benefits and other employee termination related costs. The Company terminated approximately 360 positions in December 2000. These reductions resulted from organizational changes within the operations and sales offices of FairPoint Solutions, including closing facilities in several states. The operation centers in Birmingham, Alabama and Dallas, Texas were closed and consolidated to FairPoint Solutions' central operating facility in Albany, New York. FairPoint Solutions also closed 15 of 41 district sales offices, including all those in the southeast and southwest regions of the United States. The restructuring charge included approximately $10.3 million in contractual obligations for equipment, occupancy, and other lease terminations and other facility exit costs incurred as a direct result of this plan. The restructuring charge also included approximately $2.9 million, net of salvage value, for the write down of property, plant, and equipment. These assets primarily included leasehold improvements, furniture, and office equipment. Estimated salvage values were based on estimates of proceeds upon sale of certain of the affected assets. There were also approximately $0.1 million of other incremental costs incurred as a direct result of the restructuring plan. In the first quarter of 2001, the Company completed its plans for the restructuring of operations at FairPoint Solutions, which resulted in recording a charge of approximately $33.6 million. Of the total first quarter 2001 restructuring charge, approximately $3.4 million related to employee termination benefits and other employee termination related costs. The Company terminated approximately 365 positions in January 2001. Certain positions were eliminated at the central operating facility in Albany, New York and at the corporate office in Charlotte, North Carolina. In addition, another 11 sales offices were closed and staff at the remaining sales offices was reduced. The restructure charge in the first quarter of 2001 included approximately $12.2 million in contractual obligations for equipment, occupancy, and other lease terminations and other facility exit costs incurred as a direct result of the plan. The restructuring charge also included approximately $17.9 million, net of salvage value, for the write down of property, plant, and equipment. There were 11 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (2) DISCONTINUED OPERATIONS AND RESTRUCTURE CHARGES (CONTINUED) also approximately $0.1 million of other incremental costs incurred as a direct result of the restructuring plan. At December 31, 2001, the remaining restructuring liabilities were limited to contractual obligations related to equipment and lease terminations. These liabilities were re-evaluated and the original obligation of approximately $22.5 million was increased by approximately $1.9 million. The original estimates associated with the other obligations were adjusted as reflected in the following table and the obligations were satisfied as of December 31, 2001. Selected information relating to the restructuring charge follows:
EQUIPMENT, WRITE DOWN EMPLOYEE OCCUPANCY, AND OF PROPERTY, TERMINATION OTHER LEASE PLANT, AND BENEFITS TERMINATIONS EQUIPMENT OTHER TOTAL ----------- -------------- ------------ -------- -------- (DOLLARS IN THOUSANDS) Restructure charge......................... $ 3,271 10,252 2,854 108 16,485 Write down of assets to net realizable value.................................... -- -- (2,854) -- (2,854) Cash payments.............................. (243) (45) -- -- (288) ------- ------- ------- ---- ------- Restructuring accrual as of December 31, 2000..................................... 3,028 10,207 -- 108 13,343 Restructure charge......................... 3,416 12,180 17,916 95 33,607 Write down of assets to net realizable value.................................... -- -- (16,696) -- (16,696) Adjustments from initial estimated charges.................................. (91) 1,916 (1,220) 59 664 Cash payments.............................. (6,353) (11,993) -- (262) (18,608) ------- ------- ------- ---- ------- Restructuring accrual as of December 31, 2001..................................... -- 12,310 -- -- 12,310 Cash payments.............................. -- (899) -- -- (899) ------- ------- ------- ---- ------- Restructuring accrual as of March 31, 2002..................................... $ -- 11,411 -- -- 11,411 ======= ======= ======= ==== =======
(3) INTEREST RATE SWAP AGREEMENTS The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company's outstanding or forecasted debt obligations. The Company uses variable and fixed-rate debt to finance its operations. The variable-rate debt obligations expose the Company to variability in interest payments due to changes in interest rates. Management believes it is prudent to limit the variability of a portion of its interest payments. To meet this objective, management enters into interest rate swap agreements to manage fluctuations in cash flows resulting from interest rate risk. As of March 31, 2002, the Company's continuing operations has seven interest rate swap agreements with a combined notional amount of $225.0 million with expiration dates ranging from May 2003 through May 2004. The change in the fair value of the interest rate swap agreements during the three months ended March 31, 2002 of approximately $2.2 million has been recorded in the statement of operations as a non-cash reduction to interest expense. For the comparable period ended March 31, 2001, the change in the fair value of the swap agreements of $4.8 million was recorded as a non-cash increase to interest expense. In addition, approximately $0.4 million in each period has been reclassified as interest expense 12 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (3) INTEREST RATE SWAP AGREEMENTS (CONTINUED) from the transition adjustment recorded in accumulated other comprehensive income during the three month periods ended March 31, 2002 and 2001. (4) ACQUISITIONS On September 4, 2001, the Company acquired 100% of the common stock of Marianna and Scenery Hill Telephone Company. On September 28, 2001, the Company acquired certain assets of Illinois Consolidated Telephone Company. The aggregate purchase price for these acquisitions was approximately $23.5 million. These telephone properties have historically realized stable operating results and positive cash flow margins. The acquisitions have been accounted for using the purchase method of accounting for business combinations and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values at the dates of acquisition, and the results of their operations have been included in the Company's consolidated financial statements from the date of acquisition. The excess of the purchase price and acquisition costs over the fair value of the net identifiable assets acquired was approximately $14.4 million and has been recognized as goodwill. The following unaudited pro forma information presents the combined results of operations of the Company as though the acquisitions occurred on January 1, 2001. These results include certain adjustments, including increased interest expense on debt related to the acquisitions, certain preacquisition transaction costs, and related income tax effects. The pro forma financial information does not necessarily reflect the results of operations as if the acquisitions had been in effect at the beginning of the period or which may be attained in the future.
PRO FORMA THREE MONTHS ENDED MARCH 31, 2001 ---------------------- (DOLLARS IN THOUSANDS) (UNAUDITED) Revenues.................................................... $ 58,178 Loss from continuing operations............................. (6,207) Net loss.................................................... (58,752)
(5) LONG-TERM DEBT On May 10, 2002, FairPoint Solutions entered into an Amended and Restated Credit Agreement with its lenders to restructure the obligations of FairPoint Solutions and its subsidiaries under the FairPoint Solutions Credit Facility. In connection with such restructuring, (i) FairPoint Solutions paid certain of its lenders $5.0 million to satisfy $7.0 million of the obligations under the FairPoint Solutions Credit Facility, (ii) the lenders converted approximately $93.9 million of the loans and obligations under the FairPoint Solutions Credit Facility into shares of the Company's Series A Preferred Stock having a liquidation preference equal to the amount of the loans and obligations under the FairPoint Solutions Credit Facility, and (iii) the remaining loans under the FairPoint Solutions Credit Facility and FairPoint Solutions' obligations under its swap arrangements were converted into $27.9 aggregate principal amount of new term loans. In the second quarter the Company will record a gain in discontinued operations of approximately $17.5 million for the extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the carrying value of $128.8 million of retired debt and related swap obligations and the sum of the aggregate value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's Series A Preferred Stock issued (approximately $78.4 million). 13 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (5) LONG-TERM DEBT (CONTINUED) The converted loans under the new FairPoint Solutions Amended and Restated Credit Agreement consist of two term loan facilities: (i) Tranche A Loans in the aggregate principal amount of approximately $8.7 million and (ii) Tranche B Loans in the aggregate principal amount of approximately $19.2 million, each of which matures in May, 2007. Interest on the new loans is payable monthly and accrues at a rate of 8% per annum; provided, however, that upon an event of default the interest rate shall increase to 10% per annum. Interest on the Tranche A Loans must be paid in cash and interest on Tranche B Loans may be paid, at the option of FairPoint Solutions, either in cash or in kind. The principal of the Tranche A Loans is due at maturity and the principal of the Tranche B Loans is payable as follows: (a) $2,062,000 is due on September 30, 2004; (b) $4,057,000 is due on September 30, 2005; (c) $5,372,000 is due on September 30, 2006; and (d) the remaining principal balance is due at maturity. The loans under the new FairPoint Solutions Amended and Restated Credit Agreement are guaranteed by certain of FairPoint Solutions' subsidiaries and are secured by substantially all of the assets of FairPoint Solutions and its subsidiaries. The Company has not guaranteed the debt owed to the lenders under the new FairPoint Solutions Amended and Restated Credit Agreement nor does the Company have any obligation to invest any additional funds in FairPoint Solutions. Further, our Credit Facility and the indentures governing our senior subordinated notes contain significant restrictions on the Company's ability to make investments in FairPoint Solutions. Under a tax sharing agreement, the Company is obligated to reimburse FairPoint Solutions for any tax benefits it receives from net operating losses generated by FairPoint Solutions. Voluntary prepayments of the new loans may be made at any time without premium or penalty. FairPoint Solutions is also required to make mandatory prepayments of principal from certain sources including the net proceeds from asset sales and from excess cash flow generated by the long distance business. Upon an event of default under the new FairPoint Solutions Amended and Restated Credit Agreement and the acceleration of the loans thereunder, at the option of the relevant lender, such loans may be converted into the Company's Series A Preferred Stock pursuant to the terms of the Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement dated as of May 10, 2002 (the "Preferred Stock Issuance Agreement") by and among the Company, the Administrative Agent and the lenders. The Series A Preferred Stock issued to the lenders in connection with the debt restructure, and any Series A Preferred Stock issuable pursuant to the Preferred Stock Issuance Agreement, is non-voting, except as required by applicable law, and is not convertible into common stock of the Company. The Series A Preferred Stock provides for the payment of dividends at a rate equal to 17.428% per annum. Dividends on the Series A Preferred Stock are payable, at the option of the Company, either in cash or in additional shares of Series A Preferred Stock. The Company has the option to redeem any outstanding Series A Preferred Stock at any time. The redemption price for such shares is payable in cash in an amount equal to $1,000 per share plus any accrued but unpaid dividends thereon (the "Preference Amount"). Under certain circumstances, the Company would be required to pay a premium of up to 6% of the Preference Amount in connection with the redemption of the Series A Preferred Stock. In addition, upon the occurrence of certain events, such as (i) a merger, consolidation, sale, transfer or disposition of at least 50% of the assets or business of the Company and its subsidiaries, (ii) a public offering of the Company's common stock which yields in the aggregate at least $175.0 million, or (iii) the first anniversary of the maturity of the Company's senior subordinated notes (which first anniversary will 14 FAIRPOINT COMMUNICATIONS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (5) LONG-TERM DEBT (CONTINUED) occur in May 2011), the Company would be required to redeem all outstanding shares of the Series A Preferred Stock at a price per share equal to the Preference Amount. (6) ISSUANCE OF STOCK OPTIONS In January 2002, the compensation committee of the Board of Directors of the Company approved the grant of options to purchase 250,000 shares of common stock of FairPoint. These options were granted under the MJD Communications, Inc. Stock Incentive Plan and are exercisable at an exercise price of $7.00 per share, which is the estimated fair market value of FairPoint's common stock. In March 2002, the compensation committee approved the grant of options to purchase 1,337,109 shares of common stock of FairPoint. These options were granted under the 2000 Employee Stock Option Plan ("The 2000 Option Plan") and are exercisable at an exercise price of $7.00 per share. The options have a term of ten years. During the quarter ended March 31, 2002, 4,604 options under the 2000 Option Plan were forfeited. (7) AMORTIZATION OF INTANGIBLE ASSETS The Company adopted SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS (SFAS No. 142), as of January 1, 2002. The Company ceased amortizing goodwill and equity method goodwill on January 1, 2002. The Company performed a transitional impairment test of goodwill. In performing that test, the Company first identified its reporting units and determined the carrying value of each reporting unit by assigning the assets and liabilities, including existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company determined that the carrying amount of a reporting unit did not exceed its estimated fair value and, therefore, the Company did not record an impairment loss. As of the date of adoption of SFAS No. 142, the Company had unamortized goodwill of approximately $454.3 million and equity method goodwill of approximately $10.3 million. Amortization expense related to goodwill and equity method goodwill was approximately $2.9 million and approximately $0.1 million, respectively, for the three months ended March 31, 2001. Following is the March 31, 2001 consolidated statement of operations, adjusted as if SFAS No. 142 had been effective as of January 1, 2001:
THREE MONTHS ENDED MARCH 31, ------------------------- 2002 2001 -------- -------- (DOLLARS IN THOUSANDS) Reported earning (loss) from continuing operations.......... 5,501 (6,419) Amortization of goodwill.................................... -- 3,047 ----- ------ Adjusted earnings (loss) from continuing operations......... 5,501 (3,372) ===== ======
As of the date of adoption, the Company had $1.8 million in covenants not to compete that are intangible assets subject to amortization under SFAS 142. The Company recorded amortization of $0.3 million for the three months ending March 31, 2002. The Company will continue to amortize the covenants over their remaining estimated useful lives and will record amortization of $0.7 million over the remainder of 2002, $0.7 million during 2003, and $0.1 million during 2004. 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of the consolidated results of operations and financial condition of FairPoint Communications, Inc. and its subsidiaries (collectively, the "Company" or "FairPoint"). The discussion should be read in conjunction with the Company's Consolidated Financial Statements for the year ended December 31, 2001 included in the Company's Annual Report on Form 10-K. Certain statements included in this document are forward-looking, such as statements relating to estimates of operating and capital expenditure requirements, future revenue and operating income, and cash flow and liquidity. Such forward-looking statements are based on the Company's current expectations and are subject to a number of risks and uncertainties that could cause actual results in the future to differ significantly from results expressed or implied in any forward-looking statements made by, or on behalf of, the Company. These risks and uncertainties include, but are not limited to, uncertainties relating to economic and business conditions, governmental and regulatory policies, and the competitive environment in which the Company operates. These and other risks are detailed below as well as in other documents filed by the Company with the Securities and Exchange Commission. OVERVIEW We are a provider of telecommunications services to customers in rural communities. We offer an array of services that include local voice, long distance, data and Internet. We were incorporated in February 1991 for the purpose of acquiring and operating rural telephone companies in rural markets. Since our inception, we have acquired 29 such companies, which are located in 18 states. All of our rural telephone company subsidiaries qualify as rural local exchange carriers or "RLECs" under the Telecommunications Act of 1996. RLECs are generally characterized by stable operating results, and strong cash flow margins and primarily operate in a favorable regulatory environment. In particular, pursuant to existing state and federal regulations, we are able to charge rates which enable us to recover our operating and capital costs, plus a reasonable (as determined by the relevant regulatory authority) rate of return on our invested capital. In addition, because RLECs primarily serve sparsely populated rural areas and small towns, competition from competitive local exchange carriers, or "CLECs", is typically limited due to the generally unfavorable economics of constructing and operating competitive systems in such areas. We believe these attractive characteristics of the RLEC market, combined with our ability to draw on our existing corporate resources, create the opportunity to maintain and improve our operating results and cash flows. In early 1998, we launched our CLEC enterprise through our wholly owned subsidiary, FairPoint Solutions, in an effort to extend our service offering to markets adjacent to our RLECs. In November 2001, we announced our plan to discontinue our CLEC operations. For additional information about the Company's decision to discontinue its CLEC operations, see the "Notes to the Condensed Consolidated Financial Statements". REVENUES We derive our revenues from: - Local calling services. We receive revenues from providing local exchange telephone services, including monthly recurring charges for basic service, usage charges for local calls and service charges for special calling features. - Network access charges. These revenues consist primarily of charges paid by long distance companies and other customers for access to our networks in connection with the origination and/or termination of long distance telephone calls both to and from our customers. Access charges to long distance carriers and other customers are based on access rates filed with the FCC for interstate services and state regulatory agencies for intrastate services. 16 - Long distance services. We receive revenues for long distance services to our retail and wholesale long distance customers. - Data and Internet services. We receive revenues from monthly recurring charges for services, including digital subscriber line, special access, private lines, Internet and other services. - Other services. We receive revenues from other services, including billing and collection, directory services and sale and maintenance of customer premise equipment. The following summarizes our percentage of revenues from continuing operations from these sources:
% OF REVENUE THREE MONTH PERIOD ENDED MARCH 31, ------------------------- REVENUE SOURCE 2002 2001 - -------------- -------- -------- Local calling services...................................... 30% 26% Network access charges...................................... 41% 49% Long distance services...................................... 10% 9% Data and Internet services.................................. 11% 7% Other services.............................................. 8% 9%
OPERATING EXPENSES Our operating expenses are categorized as network operating costs; selling, general and administrative expenses; depreciation and amortization; and stock-based compensation. - Network operating costs include costs incurred in connection with the operation of our central offices and outside plant facilities and related operations. In addition to the operational costs of owning and operating our own facilities, we also purchase long distance services from the RBOCs, large independent telephone companies and third party long distance providers. - Selling, general and administrative expenses consist of expenses relating to sales and marketing, customer service and administration and corporate and personnel administration. - Depreciation and amortization includes depreciation of our communications network and equipment and, prior to January 1, 2002, amortization of goodwill related to our acquisitions. - Stock-based compensation consists of non-cash compensation charges incurred in connection with the employee stock options of our executive officers, and shareholder appreciation rights agreements granted to two executive officers. ACQUISITIONS During 2001, we acquired one RLEC and certain assets of additional telephone exchanges for an aggregate purchase price of $24.2 million, which included $0.7 million of acquired debt. At the respective dates of acquisition, these businesses served an aggregate of approximately 5,600 access lines. STOCK-BASED COMPENSATION For the three months ended March 31, 2002, we recognized a non-cash compensation benefit of $0.2 million associated with the reduction in estimated fair market value of the Stockholder Appreciations Rights Agreements between certain members of our management and our principal stockholders. DISCONTINUED OPERATIONS In November 2001, we decided to discontinue the CLEC operations of FairPoint Solutions. This decision was a proactive response to the deterioration in the capital markets, the general slow-down of the economy and the slower-than-expected growth in FairPoint Solutions' CLEC operations. 17 Prior to our decision to discontinue FairPoint Solutions' CLEC operations, FairPoint Solutions entered into an agreement on October 19, 2001 to sell certain of its assets in the Northwest to ATG. On November 7, 2001, FairPoint Solutions entered into an agreement to sell certain of its assets in the Northeast to Choice One. Included in the terms of the Choice One sales agreement was an opportunity for FairPoint Solutions to earn additional restricted shares of Choice One common stock based on the number of access lines converted to the Choice One operating platform. FairPoint Solutions has been advised that it has earned 1,000,000 restricted shares of Choice One common stock under these provisions. These shares will be recognized as a gain within discontinued operations when received during the second quarter of 2002. In addition, FairPoint Solutions has notified its remaining customers in the Southwest, Southeast, and Mid-Atlantic competitive markets to find alternative carriers. The transition of customers to ATG, Choice One and alternative carriers was completed in April 2002. As a result of these transactions and the transition of all FairPoint Solutions customers to other service providers, FairPoint Solutions has completed the disposition of its CLEC operations. FairPoint Solutions will continue to provide wholesale long distance services and support to our RLEC subsidiaries and other independent local exchange companies. These services allow such companies to operate their own long distance communication services and sell such services to their respective customers. We believe that FairPoint Solutions' ability to provide ongoing support to independent local exchange companies will provide a source of increasing (although not material) revenue and greater (although not material) profitability. The Company's long distance business is included as part of continuing operations in the accompanying financial statements. RESULTS OF OPERATIONS THREE MONTH PERIOD ENDED MARCH 31, 2002 COMPARED WITH THREE MONTH PERIOD ENDED MARCH 31, 2001 REVENUES. Revenues from continuing operations increased $1.5 million to $58.4 million for the three months ended March 31, 2002 compared to $56.9 million for the three months ended March 31, 2001. Of this increase, $1.5 million was attributable to revenues from companies we acquired in 2001 and $1.5 million was attributable to revenues from our wholesale long distance company. Operating revenues of our earlier acquired RLEC telephone companies decreased $1.5 million. Local calling services accounted for $2.2 million of this increase, including an increase of $1.7 million primarily from an increase in the SLC (subscriber line charge) billed to local end users effective January 1, 2002, as well as an increase of $0.5 million from the companies we acquired in 2001. Network access charges decreased $4.0 million, net of an increase of $0.8 million from companies we acquired in 2001. Network access charges of our earlier acquired RLEC telephone companies decreased $4.8 million. Network access charge decreases are associated with rate cases and access adjustments in Maine, Kansas, Vermont and Illinois. Long distance services revenues increased $1.1 million as revenues from new long distance wholesale customers increased $1.5 million offset by a decrease of $0.4 million from our RLEC business due to lower long distance minutes of use. Data and Internet services revenues increased $2.4 million, including an increase of $0.2 million from 2001 acquisitions and an increase of $2.2 million as a result of increased service offerings to our customers of our earlier acquired RLEC businesses. Other revenues decreased by $0.2 million as a result of reductions in billing and collections revenues and non-regulated telephone services revenues. OPERATING EXPENSES OF CONTINUING OPERATIONS NETWORK OPERATING COSTS. Network operating costs from continuing operations increased $1.4 million to $17.0 million for the three months ended March 31, 2002 from $15.6 million for the three months ended March 31, 2001. Of this increase, $0.1 million was attributable to expenses of operation of our earlier acquired RLECs and $1.0 million was attributable to the cost of services re-sold in connection with the growth of our wholesale long distance company. The companies we acquired in 2001 accounted for $0.3 million of the increase. 18 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses from continuing operations decreased $1.2 million to $9.5 million for the three months ended March 31, 2002 compared to $10.7 million for the three months ended March 31, 2001. Expenses of our earlier acquired RLEC companies decreased $1.5 million due to expense reduction efforts throughout the company. The decrease in expenses was offset by an increase of $0.2 million attributable to the growth of our wholesale long distance company and $0.1 million from the companies we acquired in 2001. DEPRECIATION AND AMORTIZATION. Depreciation and amortization from continuing operations decreased $2.0 million to $11.8 million for the three months ended March 31, 2002 from $13.8 million for the three months ended March 31, 2001. The decrease of $3.0 million attributable to the discontinuance of amortizing goodwill upon the implementation of SFAS No. 142 was offset by increases in depreciation of property, plant, and equipment consisting of $0.7 million attributable to the increased investment in our communications network by our RLECs acquired prior to 2001 and $0.3 million related to the companies we acquired in 2001. STOCK-BASED COMPENSATION. For the three months ended March 31, 2002, stock-based compensation benefit of $0.2 million was related to the decrease in the estimated value of certain fully vested Stock Appreciation Right Agreements between certain members of our management and our principal stockholders. There were no non-cash compensation charges recognized for the three months ended March 31, 2001. INCOME FROM OPERATIONS. Income from continuing operations increased $3.5 million to $20.3 million for the three months ended March 31, 2002 from $16.8 million for the three months ended March 31, 2001. Of this increase, $2.3 million was attributable to our earlier acquired RLECS, $0.8 million was attributable to the companies we acquired in 2001 and $0.4 million was attributable to our wholesale long distance company. OTHER INCOME (EXPENSE). Total other expense from continuing operations decreased $8.4 million to $14.6 million for the three months ended March 31, 2002 from $23.0 million for the three months ended March 31, 2001. The expense consists primarily of interest expense on long-term debt. Interest expense decreased $7.0 million for the three months ended March 31, 2002, compared to the three months ended March 31, 2001 and is attributable to the non-cash interest expense associated with SFAS No. 133. For the three month period ended March 31, 2002, interest expense was reduced by $2.2 million compared to a non-cash increase of $4.8 million for the three months ended March 31, 2001. Undistributed earnings from equity investments increased $1.0 million and gain on sale of stock increased $0.4 million for the three months ended March 31, 2002, compared to the three months ended March 31, 2001. INCOME TAX EXPENSE. Income tax expense from continuing operations decreased $0.1 million to $0.2 million for the three months ended March 31, 2002 from $0.3 million for the three months ended March 31, 2001. The income tax expense relates primarily to income taxes owed in certain states. DISCONTINUED OPERATIONS. Losses from discontinued operations for the three months ended March 31, 2001 were $52.5 million. There were no losses from discontinued operations for the three months ended March 31, 2002. NET EARNINGS (LOSS). Our net earnings were $5.5 million for the three months ended March 31, 2002, compared to a loss of $59.0 million for the three months ended March 31, 2001, as a result of the factors discussed above and mainly associated with the loss from discontinued operations. LIQUIDITY AND CAPITAL RESOURCES Our cash flow requirements include general corporate expenditures, capital expenditures, debt service and acquisitions. We expect that our RLECs' cash flow from operations and our Credit Facility 19 will fund our capital expenditures, working capital and debt service requirements for the foreseeable future. Historically, we have used the proceeds from institutional and bank debt, private equity offerings, and available cash flow to fund our operations. We may secure additional funding through the sale of public or private debt and/or equity securities or enter into another bank credit facility to fund future acquisitions and operations. If our operating results are below expectations, there can be no assurance that we will be successful in raising sufficient additional capital on terms that we consider acceptable, or that our operations will produce positive cash flow in sufficient amounts to meet our liquidity requirements. The failure to raise and generate sufficient funds may require us to delay or abandon some of our planned acquisitions or expenditures, which could have a material adverse effect on our growth. In November 2001, FairPoint Solutions announced its decision to discontinue its CLEC operations and announced the proposed sale of certain of its competitive communications assets. In December 2001, FairPoint Solutions completed these asset sales. In April 2002 FairPoint Solutions completed the process of transitioning customers to ATG, Choice One or alternative carriers. As a result of these transactions, FairPoint Solutions will complete the cessation of its competitive communications business operations in the first six months of 2002. FairPoint Solutions' cash flow requirements include general corporate expenditures, expenses related to discontinued operations and expenses associated with the amendment and restatement of its credit facility. We expect FairPoint Solutions' cash flow requirements will be funded from available cash, the liquidation of its remaining assets, available cash flows from operations and from limited additional investments permitted under our Credit Facility and the indentures governing our senior subordinated notes. Our Credit Facility and the indentures governing our senior subordinated notes contain significant restrictions on the Company's ability to make investments in FairPoint Solutions. As of March 31, 2002, the Company could have invested up to $31.1 million in FairPoint Solutions in compliance with such agreements. We believe these sources will be adequate to fund the complete discontinuation of the competitive communications business. FairPoint Solutions will continue to provide wholesale long distance services and support to our RLEC subsidiaries and other independent local exchange companies, which allows these customers to operate their own long distance communications services. Historically, the wholesale long distance business enterprise has been profitable and self-funding. On May 10, 2002, FairPoint Solutions entered into an Amended and Restated Credit Agreement with its lenders to restructure the obligations of FairPoint Solutions and its subsidiaries under the FairPoint Solutions Credit Facility. In connection with such restructuring, (i) FairPoint Solutions paid certain of its lenders $5.0 million to satisfy $7.0 million of the obligations under the FairPoint Solutions Credit Facility, (ii) the lenders converted approximately $93.9 million of the loans and obligations under the FairPoint Solutions Credit Facility into shares of the Company's Series A Preferred Stock having a liquidation preference equal to the amount of the loans and obligations under the FairPoint Solutions Credit Facility, and (iii) the remaining loans under the FairPoint Solutions Credit Facility and FairPoint Solutions' obligations under its swap arrangements were converted into $27.9 aggregate principal amount of new term loans. In the second quarter the Company will record a gain in discontinued operations of approximately $17.5 million for the extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the carrying value of $128.8 million of retired debt and related swap obligations and the sum of the aggregate value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's Series A Preferred Stock issued (approximately $78.4 million). The converted loans under the new FairPoint Solutions Amended and Restated Credit Agreement consist of two term loan facilities: (i) Tranche A Loans in the aggregate principal amount of 20 approximately $8.7 million and (ii) Tranche B Loans in the aggregate principal amount of approximately $19.2 million, each of which matures in May, 2007. Interest on the new loans is payable monthly and accrues at a rate of 8% per annum; provided, however, that upon an event of default the interest rate shall increase to 10% per annum. Interest on the Tranche A Loans must be paid in cash and interest on Tranche B Loans may be paid, at the option of FairPoint Solutions, either in cash or in kind. The principal of the Tranche A Loans is due at maturity and the principal of the Tranche B Loans is payable as follows: (a) $2,062,000 is due on September 30, 2004; (b) $4,057,000 is due on September 30, 2005; (c) $5,372,000 is due on September 30, 2006; and (d) the remaining principal balance is due at maturity. The loans under the new FairPoint Solutions Amended and Restated Credit Agreement are guaranteed by certain of FairPoint Solutions' subsidiaries and are secured by substantially all of the assets of FairPoint Solutions and its subsidiaries. The Company has not guaranteed the debt owed to the lenders under the new FairPoint Solutions Amended and Restated Credit Agreement nor does the Company have any obligation to invest any additional funds in FairPoint Solutions. Further, our Credit Facility and the indentures governing our senior subordinated notes contain significant restrictions on the Company's ability to make investments in FairPoint Solutions. Under a tax sharing agreement, the Company is obligated to reimburse FairPoint Solutions for any tax benefits it receives from net operating losses generated by FairPoint Solutions. Voluntary prepayments of the new loans may be made at any time without premium or penalty. FairPoint Solutions is also required to make mandatory prepayments of principal from certain sources including the net proceeds from asset sales and from excess cash flow generated by the long distance business. Upon an event of default under the new FairPoint Solutions Amended and Restated Credit Agreement and the acceleration of the loans thereunder, at the option of the relevant lender, such loans may be converted into the Company's Series A Preferred Stock pursuant to the terms of the Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement dated as of May 10, 2002 (the "Preferred Stock Issuance Agreement") by and among the Company, the Administrative Agent and the lenders. The Series A Preferred Stock issued to the lenders in connection with the debt restructure, and any Series A Preferred Stock issuable pursuant to the Preferred Stock Issuance Agreement, is non-voting, except as required by applicable law, and is not convertible into common stock of the Company. The Series A Preferred Stock provides for the payment of dividends at a rate equal to 17.428% per annum. Dividends on the Series A Preferred Stock are payable, at the option of the Company, either in cash or in additional shares of Series A Preferred Stock. The Company has the option to redeem any outstanding Series A Preferred Stock at any time. The redemption price for such shares is payable in cash in an amount equal to $1,000 per share plus any accrued but unpaid dividends thereon (the "Preference Amount"). Under certain circumstances, the Company would be required to pay a premium of up to 6% of the Preference Amount in connection with the redemption of the Series A Preferred Stock. In addition, upon the occurrence of certain events, such as (i) a merger, consolidation, sale, transfer or disposition of at least 50% of the assets or business of the Company and its subsidiaries, (ii) a public offering of the Company's common stock which yields in the aggregate at least $175.0 million, or (iii) the first anniversary of the maturity of the Company's senior subordinated notes (which first anniversary will occur in May 2011), the Company would be required to redeem all outstanding shares of the Series A Preferred Stock at a price per share equal to the Preference Amount. 21 DEBT FINANCING We have utilized a variety of debt instruments to fund our business, including: OUR CREDIT FACILITY. Our Credit Facility provides for two term facilities, one with approximately $66.0 million principal amount outstanding as of March 31, 2002 that matures on June 30, 2006 and the other with the principal amount of approximately $131.4 million outstanding as of March 31, 2002 that matures on June 20, 2007. Our Credit Facility also provides for a revolving facility with a principal amount of $85.0 million that matures on September 30, 2004 and a revolving acquisition facility with a principal amount of $165.0 million that also matures on September 30, 2004. As of March 31, 2002, $60.0 million was outstanding on the revolving facility and $80.1 million was outstanding on the revolving acquisition facility. The Credit Facility requires that we comply with certain financial covenants. As of March 31, 2002, these financial covenants limited the commitment availability under the revolving and revolving acquisition facilities to $61.0 million. SENIOR SUBORDINATED NOTES AND FLOATING RATE NOTES ISSUED IN 1998. We have outstanding publicly held debt comprised of $125.0 million of aggregate principal amount of 9 1/2% senior subordinated notes and $75.0 million aggregate principal amount of floating rate notes. Interest on the senior subordinated notes and floating rate notes is payable semi-annually in cash on each May 1 and November 1. Both series of notes mature on May 1, 2008. These notes are general unsecured obligations, subordinated in right of payment to all existing and future senior debt and effectively subordinated to all existing and future debt and other liabilities of our subsidiaries. SENIOR SUBORDINATED NOTES ISSUED IN 2000. In May 2000, we issued $200.0 million of aggregate principal amount of 12 1/2% senior subordinated notes. Interest on these notes is payable semi-annually in cash on May 1 and November 1 of each year. These notes will mature on May 1, 2010. These notes are general unsecured obligations and rank equally with all of FairPoint's other unsecured senior subordinated indebtedness and are subordinated in right of payment to all of FairPoint's senior indebtedness, whether or not secured, and effectively subordinated to all existing and future debt and other liabilities of our subsidiaries. FAIRPOINT SOLUTIONS CREDIT FACILITY. On May 10, 2002, FairPoint Solutions entered into an Amended and Restated Credit Agreement with its lenders to restructure the obligations of FairPoint Solutions and its subsidiaries under the FairPoint Solutions Credit Facility. In connection with such restructuring, (i) FairPoint Solutions paid certain of its lenders $5.0 million to satisfy $7.0 million of the obligations under the FairPoint Solutions Credit Facility, (ii) the lenders converted approximately $93.9 million of the loans and obligations under the FairPoint Solutions Credit Facility into shares of the Company's Series A Preferred Stock having a liquidation preference equal to the amount of the loans and obligations under the FairPoint Solutions Credit Facility, and (iii) the remaining loans under the FairPoint Solutions Credit Facility and FairPoint Solutions' obligations under its swap arrangements were converted into $27.9 aggregate principal amount of new term loans. In the second quarter the Company will record a gain in discontinued operations of approximately $17.5 million for the extinguishment of debt and settlement of its interest rate swap agreements. The gain represents the difference between the carrying value of $128.8 million of retired debt and related swap obligations and the sum of the aggregate value of the cash paid ($5.0 million) plus principal amount of new term loans ($27.9 million) plus the estimated fair value of the Company's Series A Preferred Stock issued (approximately $78.4 million). The converted loans under the new FairPoint Solutions Amended and Restated Credit Agreement consist of two term loan facilities: (i) Tranche A Loans in the aggregate principal amount of approximately $8.7 million and (ii) Tranche B Loans in the aggregate principal amount of approximately $19.2 million, each of which matures in May, 2007. Interest on the new loans is payable monthly and accrues at a rate of 8% per annum; provided, however, that upon an event of default the 22 interest rate shall increase to 10% per annum. Interest on the Tranche A Loans must be paid in cash and interest on Tranche B Loans may be paid, at the option of FairPoint Solutions, either in cash or in kind. The principal of the Tranche A Loans is due at maturity and the principal of the Tranche B Loans is payable as follows: (a) $2,062,000 is due on September 30, 2004; (b) $4,057,000 is due on September 30, 2005; (c) $5,372,000 is due on September 30, 2006; and (d) the remaining principal balance is due at maturity. The loans under the new FairPoint Solutions Amended and Restated Credit Agreement are guaranteed by certain of FairPoint Solutions' subsidiaries and are secured by substantially all of the assets of FairPoint Solutions and its subsidiaries. The Company has not guaranteed the debt owed to the lenders under the new FairPoint Solutions Amended and Restated Credit Agreement nor does the Company have any obligation to invest any additional funds in FairPoint Solutions. Further, our Credit Facility and the indentures governing our senior subordinated notes contain significant restrictions on the Company's ability to make investments in FairPoint Solutions. Under a tax sharing agreement, the Company is obligated to reimburse FairPoint Solutions for any tax benefits it receives from net operating losses generated by FairPoint Solutions. Voluntary prepayments of the new loans may be made at any time without premium or penalty. FairPoint Solutions is also required to make mandatory prepayments of principal from certain sources including the net proceeds from asset sales and from excess cash flow generated by the long distance business. Upon an event of default under the new FairPoint Solutions Amended and Restated Credit Agreement and the acceleration of the loans thereunder, at the option of the relevant lender, such loans may be converted into the Company's Series A Preferred Stock pursuant to the terms of the Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement dated as of May 10, 2002 (the "Preferred Stock Issuance Agreement") by and among the Company, the Administrative Agent and the lenders. The Series A Preferred Stock issued to the lenders in connection with the debt restructure, and any Series A Preferred Stock issuable pursuant to the Preferred Stock Issuance Agreement, is non-voting, except as required by applicable law, and is not convertible into common stock of the Company. The Series A Preferred Stock provides for the payment of dividends at a rate equal to 17.428% per annum. Dividends on the Series A Preferred Stock are payable, at the option of the Company, either in cash or in additional shares of Series A Preferred Stock. The Company has the option to redeem any outstanding Series A Preferred Stock at any time. The redemption price for such shares is payable in cash in an amount equal to $1,000 per share plus any accrued but unpaid dividends thereon (the "Preference Amount"). Under certain circumstances, the Company would be required to pay a premium of up to 6% of the Preference Amount in connection with the redemption of the Series A Preferred Stock. In addition, upon the occurrence of certain events, such as (i) a merger, consolidation, sale, transfer or disposition of at least 50% of the assets or business of the Company and its subsidiaries, (ii) a public offering of the Company's common stock which yields in the aggregate at least $175.0 million, or (iii) the first anniversary of the maturity of the Company's senior subordinated notes (which first anniversary will occur in May 2011), the Company would be required to redeem all outstanding shares of the Series A Preferred Stock at a price per share equal to the Preference Amount. CASH FLOWS Net cash provided by operating activities of continuing operations was $24.9 million and $15.3 million for the three months ended March 31, 2002 and 2001, respectively. Net cash used in investing activities from continuing operations was $1.2 million and $6.5 million for the three months ended March 31, 2002 and 2001, respectively. These cash flows primarily reflect capital expenditures of $4.0 million and $7.7 million for the three months ended March 31, 2002 and 2001, respectively. Net 23 cash used by financing activities from continuing operations was $20.4 million for the three months ended March 31, 2002. These cash flows primarily represent net repayments of long term debt of $19.4 million. Net cash provided by financing activities from continuing operations was $54.0 million for the three months ended March 31, 2001. These cash flows primarily represent net borrowings of $56.2. A majority of the proceeds received from financing activities during the three months ended March 31, 2001 was used to provide cash used in the operation of the discontinued competitive communications business of $61.0 million. NEW ACCOUNTING STANDARDS The FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS, which is effective January 1, 2003. This statement requires, among other things, the accounting and reporting of legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal operation of a long-lived asset. The Company has not yet determined the impact of the adoption of this standard on its financial position, results of operations and cash flows. INFLATION We do not believe inflation has a significant effect on our operations. ITEM 3A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At March 31, 2002, we recorded our marketable available-for-sale equity securities at a fair value of $3.7 million. These securities have exposure to price risk. A hypothetical ten percent adverse change in quoted market prices would decrease the recorded value by approximately $0.4 million. We have limited our exposure to material future earnings or cash flow exposures from changes in interest rates on long-term debt, since approximately 80% of our debt bears interest at fixed rates or effectively at fixed rates through the use of interest rate swaps. However, our earnings are affected by changes in interest rates as our long-term debt under our credit facilities have variable interest based on either the prime rate or LIBOR. If interest rates on our variable debt averaged 10% more, our interest expense would have increased, and our loss from continuing operations before taxes would have increased by approximately $0.5 million for the three months ended March 31, 2002. We have entered into interest rate swaps to manage our exposure to fluctuations in interest rates on our variable rate debt. The fair value of these swaps was approximately $(10.8) million at March 31, 2002. The fair value indicates an estimated amount we would have to pay to cancel the contracts or transfer them to other parties. In connection with our Credit Facility, we used six interest rate swap agreements, with notional amounts of $25.0 million each, to effectively convert a portion of our variable interest rate exposure to fixed rates ranging from 8.07% to 10.34%. The swap agreements expire from November 2003 to May 2004. In connection with our floating rate notes, we used an interest rate swap agreement, with a notional amount of $75.0 million to effectively convert our variable interest rate exposure to a fixed rate of 10.78%. This swap agreement expires in May 2003. FairPoint Solutions used two interest rate swap agreements with notional amounts of $25.0 million and $50.0 million to effectively convert a portion of its variable interest rate exposure under the FairPoint Solutions Amended and Restated Credit Agreement to fixed rates ranging from 9.09% to 10.59%. FairPoint Solutions was in default under these interest rate swap agreements as of April, 2002 and as part of the debt restructure such swaps were terminated and FairPoint Solutions issued approximately $3.0 million of term loans under the new FairPoint Solutions Amended and Restated Credit Agreement in exchange therefore. 24 SIGNATURES Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FAIRPOINT COMMUNICATION, INC. By: /s/ WALTER E. LEACH, JR. ----------------------------------------- Name: Walter E. Leach, Jr. Title: Senior Vice President and Chief Financial Officer
25 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits
EXHIBIT NO. DESCRIPTION - ----------- ----------- 2.1 Stock Purchase Agreement dated as of January 4, 2000 by and among FairPoint, Thomas H. Lee Equity IV, L.P., Kelso Investment Associates V, L.P., Kelso Equity Partners V, L.P., Carousel Capital Partners, L.P. and certain other signatories thereto.(1) 2.2 Network Transition Agreement, dated November 7, 2001, by and among FairPoint Solutions, Choice One Communications Inc. and selected subsidiaries of Choice One Communications Inc.(9) 2.3 Asset Purchase Agreement, dated October 19, 2001, by and among FairPoint Solutions and Advanced TelCom, Inc.(10) 2.4 Asset Purchase Agreement dated June 14, 2001 between Illinois Consolidated Telephone Company and Odin Telephone Exchange, Inc.(8) 2.5 Stock Purchase Agreement dated as of May 7, 2001 by and among MJD Ventures, Inc., Scott William Horne, Susan Elaine Horne, Mona Jean Horne, Scott William Horne and Susan Elaine Horne being and as Trustees of Grantor Retained Annuity Trust created by Mona Jean Horne and Mona Jean Horne being and as Trustee of the Mona Jean Horne Revocable Trust and Marianna and Scenery Hill Telephone Company.(8) 3.1 Seventh Amended and Restated Certificate of Incorporation of the Company.* 3.2 By-Laws of the Company.(4) 3.3 Certificate of Designation of Series A Preferred Stock of the Company.* 4.1 Indenture, dated as of May 5, 1998, between FairPoint and United States Trust Company of New York, relating to FairPoint's $125,000,000 9 1/2% Senior Subordinated Notes due 2008 and $75,000,000 Floating Rate Callable Securities due 2008.(3) 4.2 Indenture, dated as of May 24, 2000, between FairPoint and United States Trust Company of New York, relating to FairPoint's $200,000,000 12 1/2% Senior Subordinated Notes due 2010.(4) 4.3 Form of Initial Fixed Rate Security.(3) 4.4 Form of Initial Floating Rate Security.(3) 4.5 Form of Exchange Fixed Rate Security.(3) 4.6 Form of Exchange Floating Rate Security.(3) 4.7 Form of 144A Senior Subordinated Note due 2010.(4) 4.8 Form of Regulation S Senior Subordinated Note due 2010.(4)
26
EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.9 Registration Rights Agreement dated as of May 19, 2000 between FairPoint and the Initial Purchasers named therein.(4) 4.10 Form of Series A Preferred Stock Certificate of the Company.* 10.1 Credit Agreement dated as of March 30, 1998 among FairPoint, various lending institutions, NationsBank of Texas, N.A. and Bankers Trust Company.(3) 10.2 First Amendment to Credit Agreement dated as of April 30, 1998 among FairPoint, NationsBank of Texas, N.A. and Bankers Trust Company.(3) 10.3 Second Amendment to Credit Agreement dated as of May 14, 1999 among FairPoint, NationsBank of Texas, N.A. and Bankers Trust Company.(4) 10.4 Amendment and Waiver dated as of January 12, 2000 among FairPoint, NationsBank of Texas, N.A. and Bankers Trust Company.(4) 10.5 Fourth Amendment and Consent dated as of March 14, 2000 among FairPoint, First Union National Bank, Bank of America, N.A. and Bankers Trust Company.(2) 10.6 Fifth Amendment and Consent dated as of October 6, 2000 among FairPoint, First Union, National Bank, Bank of America, N.A. and Bankers Trust Company.(5) 10.7 Sixth Amendment to Credit Agreement and First Amendment to Pledge Agreement dated as of March 30, 2001 among FairPoint, First Union, National Bank, Bank of America, N.A. and Bankers Trust Company.(7) 10.8 Amended and Restated Credit Agreement dated as of May 10, 2002 among FairPoint Solutions, various lending institutions, Bank of America, N.A., Deutsche Bank Trust Company America and Wachovia Bank, National Bank.* 10.9 Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement dated as of May 10, 2002 among FairPoint and Wachovia Bank, National Association, and various lending institutions.* 10.10 Amendment to Security Documents dated as of May 10, 2002 by and among FairPoint Solutions, each of the Assignors party to the Security Agreement, each of the Pledgors party to the Pledge Agreement and Wachovia Bank, National Association.* 10.11 Amended and Restated Subsidiary Guaranty dated as of November 9, 2000 made by FairPoint Communications Solutions Corp.--New York, FairPoint Communications Solutions Corp.--Virginia and FairPoint Solutions Capital, LLC.(5) 10.12 Amended and Restated Pledge Agreement dated as of November 9, 2000 by and among FairPoint Solutions, the Guarantors, the Pledgors and First Union National Bank.(5) 10.13 Amended and Restated Tax Sharing Agreement dated November 9, 2000 by and among FairPoint and its Subsidiaries.(5) 10.14 Amended and Restated Security Agreement dated as of November 9, 2000 by and among FairPoint Solutions and First Union National Bank.(5) 10.15 Form of FairPoint Communications Solutions Corp. Tranche A Term Note.* 10.16 Form of FairPoint Communications Solutions Corp. Tranche B Term Note.* 10.17 Form of B Term Note.(3) 10.18 Form of C Term Note Floating Rate.(3) 10.19 Form of C Term Note Fixed Rate.(3) 10.20 Form of RF Note.(3)
27
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.21 Form of AF Note.(3) 10.22 Subsidiary Guaranty dated as of March 30, 1998 by MJD Holdings Corp., MJD Ventures, Inc., MJD Services Corp., ST Enterprises, Ltd. for the benefit of Bankers Trust Company.(3) 10.23 Pledge Agreement dated as of March 30, 1998 among MJD Communications, Inc., ST Enterprises, Ltd., MJD Holdings Corp., MJD Services Corp., MJD Ventures, Inc., C-R Communications, Inc., as pledgors, and Bankers Trust Company, as collateral agent and pledgee.(3) 10.24 Stockholders' Agreement dated as of January 20, 2000 of FairPoint.(1) 10.25 Registration Rights Agreement dated as of January 20, 2000 of FairPoint.(1) 10.26 Management Services Agreement dated as of January 20, 2000 by and between FairPoint and THL Equity Advisors IV, LLC.(1) 10.27 Amended and Restated Financial Advisory Agreement dated as of January 20, 2000 by and between FairPoint and Kelso & Company, L.P.(1) 10.28 Non-Competition, Non-Solicitation and Non-Disclosure Agreement dated as of January 20, 2000 by and between FairPoint and JED Communications Associates, Inc.(1) 10.29 Non-Competition, Non-Solicitation and Non-Disclosure Agreement dated as of January 20, 2000 by and between FairPoint and Daniel G. Bergstein.(1) 10.30 Non-Competition, Non-Solicitation and Non-Disclosure Agreement dated as of January 20, 2000 by and between FairPoint and Meyer Haberman.(1) 10.31 Subscription Agreement dated as of January 31, 2000 by and between FairPoint and each of the Subscribers party thereto.(1) 10.32 Employment Agreement dated as of January 20, 2000 by and between FairPoint and John P. Duda.(1) 10.33 Employment Agreement dated as of January 20, 2000 by and between FairPoint and Walter E. Leach, Jr.(1) 10.34 Institutional Stock Purchase Agreement dated as of January 20, 2000 by and among FairPoint and the other parties thereto.(1) 10.35 Institutional Stockholders Agreement dated as of January 20, 2000 by and among FairPoint and the other parties thereto.(1) 10.36 FairPoint 1995 Stock Option Plan.(4) 10.37 FairPoint Amended and Restated 1998 Stock Incentive Plan.(4) 10.38 FairPoint 2000 Employee Stock Option Plan.(4) 10.39 Employment Agreement dated as of January 1, 2002 by and between FairPoint and Eugene B. Johnson.(10) 10.40 Succession Agreement dated as of December 31, 2001 by and between FairPoint and Jack H. Thomas.(10) 21 Subsidiaries of the Company.(10)
- ------------------------ * Filed herewith. (1) Incorporated by reference to the annual report of the Company for the year ended 1999, filed on Form 10-K. 28 (2) Incorporated by reference to the amended annual report of the Company for the year ended 1999, filed on Form 10-K/A. (3) Incorporated by reference to the registration statement on Form S-4 of the Company, declared effective as of October 1, 1998. (4) Incorporated by reference to the registration statement on Form S-4 of the Company, declared effective as of August 9, 2000. (5) Incorporated by reference to the quarterly report of the Company for the period ended September 30, 2000, filed on Form 10-Q. (6) Incorporated by referenced to the annual report of the Company for the year ended 2000, filed on Form 10-K. (7) Incorporated by reference to the quarterly report of the Company for the period ended March 31, 2001, filed on Form 10-Q. (8) Incorporated by reference to the quarterly report of the Company for the period ended June 30, 2001, filed on Form 10-Q. (9) Incorporated by reference to the current report on Form 8-K, filed on November 18, 2001. (10) Incorporated by reference to the annual report of the Company for the year ended 2001, filed on Form 10-K. (b) Reports on Form 8-K The Company did not file any current reports on Form 8-K during the quarter ended March 31, 2002 29 EX-3.1 3 a2079840zex-3_1.txt EX-3.1 Exhibit 3.1 SEVENTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF FAIRPOINT COMMUNICATIONS, INC. FairPoint Communications, Inc., a corporation organized and existing under the laws of the State of Delaware (the "CORPORATION"), hereby certifies as follows: 1. The name of the Corporation is FairPoint Communications, Inc. 2. The original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 30, 1993. 3. This Seventh Amended and Restated Certificate of Incorporation (the "AMENDED AND RESTATED CERTIFICATE") has been duly adopted by the Board of Directors and the stockholders of the Corporation in accordance with the provisions of Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware (the "DGCL"). The text of the Amended and Restated Certificate of Incorporation as amended and restated shall read in full as follows: "FIRST: The name of the Corporation is FairPoint Communications, Inc. SECOND: The address of its registered office in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware 19801. The name of the registered agent of the Corporation at such address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is Five Hundred Million (500,000,000) shares of which (i) One Hundred Million (100,000,000) shares shall be designated as Preferred Stock, par value $0.01 per share (the "PREFERRED STOCK"), and (ii) Four Hundred Million (400,000,000) shares shall be designated as Common Stock, par value $0.01 per share (the "COMMON STOCK"). The Common Stock shall consist of three series: (A) 236,200,000 shares of Class A Common Stock (the "CLASS A COMMON STOCK"), (B) 150,000,000 shares of Class B Common Stock (the "CLASS B COMMON STOCK") and (C) 13,800,000 shares of Class C Common Stock (the "CLASS C COMMON STOCK"). Of the Preferred Stock, One Million (1,000,000) shares shall be designated and known as Series A Preferred Stock (the "SERIES A PREFERRED STOCK"), which Series A Preferred Stock shall have the rights, preferences, privileges and restrictions set forth in the Certificate of Designation of Series A Preferred Stock of the Corporation dated as of May 10, 2002 (the "SERIES A CERTIFICATE OF DESIGNATION"). A. COMMON STOCK (1) RIGHTS GENERALLY. Except as provided herein, all shares of Class A Common Stock, Class B Common Stock and Class C Common Stock shall be identical and entitle the holders thereof to the same rights and privileges. (2) VOTING RIGHTS OF COMMON STOCK. The holders of Class A Common Stock shall be entitled to one vote per share on all matters with respect to which they have the right to vote. The holders of Class B Common Stock and Class C Common Stock shall not be entitled to any voting rights, except as required by the DGCL. (3) DIVIDEND RIGHTS OF COMMON STOCK AND STOCK SPLITS. Whenever dividends upon Preferred Stock at the time outstanding, to the extent of any preference to which such stock is entitled, shall have been paid in full, or declared and set apart for payment, for all current and, if such Preferred Stock shall have cumulative rights, all past dividend periods, and after the provisions for any sinking or purchase fund or funds for any series of Preferred Stock shall have been complied with, the Board of Directors may declare and pay dividends on the Common Stock, payable in cash or otherwise, and the holders of shares of Preferred Stock shall not be entitled to share therein, subject to the certificate of designation for any outstanding series of Preferred Stock, provided that, if dividends are declared on the Common Stock which are payable in shares of Common Stock, dividends shall be declared which are payable at the same rate on each class of Common Stock with dividends payable in shares of Class A Common Stock payable to holders of shares of Class A Common Stock, dividends payable in shares of Class B Common Stock shall be payable to holders of shares of Class B Common Stock and dividends payable in shares of Class C Common Stock shall be payable to holders of shares of Class C Common Stock; and provided further, that no dividends payable in shares of Class A Common Stock, Class B Common Stock or Class C Common Stock shall be declared unless an adequate number of authorized but unissued shares of Class A Common Stock, Class B Common Stock or Class C Common Stock, as applicable, is available as of the date of such declaration. No subdivision (by any stock split, stock dividend, recapitalization or otherwise) and no combination (by reverse stock split or otherwise) of the Class A Common Stock may occur unless the Class B Common Stock and Class C Common Stock are subdivided or combined in the same manner, no subdivision (by any stock split, stock dividend, recapitalization or otherwise) and no combination (by reverse stock split or otherwise) of the Class B Common Stock may occur unless the Class A Common Stock and the Class C Common Stock are subdivided or combined in the same manner and no -2- subdivision (by any stock split, stock dividend, recapitalization or otherwise) and no combination (by reverse stock split or otherwise) of the Class C Common Stock may occur unless the Class A Common Stock and the Class B Common Stock are subdivided or combined in the same manner. (4) LIQUIDATION. In the event of any liquidation, dissolution or winding up of the Corporation or upon the distribution of assets of the Corporation, all assets and funds of the Corporation remaining, after the payment to the holders of Preferred Stock of the full preferential amounts to which they shall be entitled pursuant to the certificate of designation for such series of Preferred Stock, shall be divided and distributed among the holders of the Common Stock ratably. (5) CONVERSION RIGHTS. (A) RIGHT TO CONVERT. The holders of Class B Common Stock and Class C Common Stock shall not have the right to convert their shares of Class B Common Stock or Class C Common Stock, as applicable, into shares of Class A Common Stock at their option. (B) AUTOMATIC CONVERSION. Each share of Class B Common Stock shall be converted into one share of Class A Common Stock, which share shall be duly authorized, validly issued, fully paid and non-assessable automatically upon receipt of all governmental approvals necessary to effectuate a change of control, as contemplated by that certain Stock Purchase Agreement, dated as of January 4, 2000, by and among the Corporation and certain other parties thereto, as such agreement may from time to time be amended in accordance with its terms (the "Stock Purchase Agreement"). Upon the occurrence of the consummation by the Corporation of an offering of its Class A Common Stock to the public pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), in which the Corporation raises at least $150 million in gross proceeds or any Conversion Event (as defined herein), each record holder of Class C Common Stock shall be entitled to convert into the same number of shares of Class A Common Stock any or all of the shares of such holder's Class C Common Stock; provided that if the Corporation has not received all governmental approvals necessary to effectuate a change of control, as contemplated by the Stock Purchase Agreement then such shares shall not convert until such time as the shares of Class B Common Stock are automatically converted into shares of Class A Common Stock. For purposes hereof, (i) a "Conversion Event" shall mean any transfer of shares of Class C Common Stock to any person or persons who are not affiliates of the transferor, including, without limitation, pursuant to any public offering or public sale of securities of the Corporation (including a public offering registered under the Securities Act, and a public sale pursuant to Rule 144 under the Securities Act or any similar rule then in force), (ii) a "person" shall mean any natural person or any corporation, partnership, joint venture, trust, unincorporated organization and any other entity -3- or organization and (iii) an "affiliate" with respect to any person, shall mean such person's spouse, parents, members of such person's family or such person's lineal descendants and any other person that directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, such person. In addition, all of the Class C Common Stock may be automatically and mandatorily converted into the same number of shares of Class A Common Stock without any action on the part of any holder upon notice to such effect by the Corporation to the record holders of Class C Common Stock. In addition, in the event the Corporation enters into any merger or consolidation transaction or sells or transfers all or substantially all of its assets or consummates any form of recapitalization or reorganization in which the stockholders of the Corporation immediately preceding such transaction own less than a majority of the capital stock of the surviving entity immediately following such transaction, each record holder of Class C Common Stock shall be entitled to convert into the same number of shares of Class A Common Stock any or all of the shares of such holder's Class C Common Stock. (C) MECHANICS OF CONVERSION. Each holder of Class B Common Stock or Class C Common Stock whose shares have automatically converted into shares of Class A Common Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation. Thereupon the Corporation shall promptly issue and deliver to such holder a certificate or certificates for the number of shares of Class A Common Stock to which such holder is entitled (equal to one (1) share of Class A Common Stock for each share of Class B Common Stock or Class C Common Stock being converted) and shall promptly pay in cash all declared and unpaid dividends, if any, on the shares of Class B Common Stock or Class C Common Stock, as applicable, being converted, to and including the time of conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate representing the shares of Class B Common Stock or Class C Common Stock to be converted, and the person entitled to receive the shares of Class A Common Stock issuable upon such conversion shall be treated for all purposes as the record holder of such shares of Class A Common Stock on such date. FIFTH: The Corporation is to have perpetual existence. SIXTH: The number of directors which shall constitute the whole Board of Directors shall be fixed by and in the manner provided in the Bylaws of the Corporation. SEVENTH: In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind the Bylaws of the Corporation. -4- EIGHTH: Election of directors at an annual or special meeting of the stockholders need not be by written ballot unless the Bylaws of the Corporation shall so provide. NINTH: No director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; PROVIDED, HOWEVER, that this paragraph shall not eliminate or limit the liability of a director (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) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the director derives an improper personal benefit. If the General Corporation Law of the State of Delaware is amended after the date of filing of this Amended and Restated Certificate to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the full extent permitted by the General Corporation Law of the State of Delaware as so amended. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing in respect of any act or omission occurring prior to the time of such repeal or modification. TENTH: The Corporation shall, to the full extent now or hereafter permitted by Section 145 of the General Corporation Law of the State of Delaware, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto. ELEVENTH: If at any time any right, preference or limitation of the Common Stock or the Preferred Stock set forth in this Amended and Restated Certificate is invalid, unlawful or incapable of being enforced by reason of any rule, law or public policy, all other rights, preferences and limitations set forth in this Amended and Restated Certificate (as so amended) which can be given effect without invalid, unlawful or unenforceable right, preference or limitation shall, nevertheless, remain in full force and effect, and no right, preference or limitation herein set forth shall be deemed dependent upon any other right, preference or limitation unless so expressed herein. TWELFTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation." -5- IN WITNESS WHEREOF, this Seventh Amended and Restated Certificate of Incorporation has been signed on this 10th day of May, 2002. FAIRPOINT COMMUNICATIONS, INC. By: /s/ Walter E. Leach, Jr. ------------------------------ Name: Walter E. Leach, Jr. Title: Senior Vice President & CFO Attest: By: /s/ Timothy W. Henry ------------------------ Name: Timothy W. Henry Title: Vice President-Finance, Treasurer & Assistant Secretary EX-3.3 4 a2079840zex-3_3.txt EX-3.3 Exhibit 3.3 ---------------------------------------- CERTIFICATE OF DESIGNATION OF FAIRPOINT COMMUNICATIONS, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware ------------------------------------------ SERIES A PREFERRED STOCK FAIRPOINT COMMUNICATIONS, INC., a Delaware corporation (the "Company"), hereby certifies that the following resolution has been duly adopted by the Board of Directors of the Company (the "Board"): RESOLVED, that pursuant to the authority expressly granted to and vested in the Board by the provisions of the certificate of incorporation of the Company (the "Certificate of Incorporation"), there hereby is created, out of the 100,000,000 shares of preferred stock, par value $.01 per share, of the Company authorized by Article IV.B.1 of the Certificate of Incorporation (the "Preferred Stock"), a series of the Preferred Stock consisting of 1,000,000 shares of Series A Preferred Stock (the "Series A Preferred Stock"), which series shall have the following powers, designations, preferences and relative, participating, optional and other special rights, and the following qualifications, limitations and restrictions: 1. DEFINITIONS. As used in this Certificate of Designation (this "Certificate"), and unless the context requires a different meaning, the following terms have the meanings indicated: "Affiliate" shall mean, with respect to any Person, any other Person directly or indirectly controlling (which may include, but is not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "Board" shall have the meaning set forth in the recitals of this Certificate. "Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York and Charlotte, North Carolina are authorized or obligated by law or executive order to close. Page 2 "Certificate" shall have the meaning set forth above. "Certificate of Incorporation" shall have the meaning set forth in the recitals of this Certificate. "Commission" shall mean, at any time, the Securities and Exchange Commission or any other federal agency then administering the Securities Act of 1933, as amended, and the other Federal securities laws. "Common Stock" shall mean the common stock of the Company. "Company" shall have the meaning set forth in the recitals of this Certificate. "Credit Agreement" shall mean the Amended and Restated Credit Agreement, dated as of October 20, 1999, as amended and restated as of March 27, 2000, and as further amended and restated as of November 9, 2000, among FairPoint Communications Solutions Corp., as Borrower, the lenders from time to time party thereto, First Union Securities, Inc. and Banc of America Securities LLC, as Co-Arrangers, and Co-Book Managers, Bank of America, N.A., as Syndication Agent, Bankers Trust Company, as Documentation Agent, and First Union National Bank, as Administrative Agent, as the same may be amended, restated, modified or supplemented from time to time. "Default Rate" shall have the meaning set forth in Section 10 of this Certificate. "Dividend Payment Date" shall mean each March 31, June 30, September 30 and December 31 of each year, commencing after (i) the Original Issue Date or (ii) the Subsequent Issue Date, as the case may be. "Dividend Period" shall mean each quarterly period beginning on January 1, April 1, July 1 and October 1 in each year and ending on and including the day immediately preceding the first day of the next quarterly period, except that the first Dividend Period shall commence on the Original Issue Date. "Dividend Rate" shall mean 17.428%. "Initial Holder" shall mean a Lender that converts all or a portion of such Lender's outstanding Loans (and accrued and unpaid interest and fees thereon) into Series A Preferred Stock. "Junior Stock" shall mean (i) each and every other class or series of capital stock of the Company authorized as of the Original Issue Date (excluding Pari Passu Stock but including the Common Stock), par value $.01 per share, of the Company and (ii) each other class or series of the capital stock of the Company (excluding Pari Passu Stock). "Lenders" shall mean the lending institutions that are party to the Credit Agreement from time to time. Page 3 "Liquidation" shall have the meaning set forth in Section 5(a) of this Certificate. "Liquidation Value" shall have the meaning set forth in Section 5(a) of this Certificate. "Liquidity Event" shall mean (i) any merger (other than a merger pursuant to which the Company effects an acquisition of another entity), consolidation, sale, lease, transfer or other disposition of at least 50% of the assets or businesses of the Company and its Subsidiaries taken as a whole in a single transaction or in a series of related transactions, (ii) the sale or transfer (however effected, including by way of merger or consolidation or issuance) in a single transaction or in a series of related transactions of capital stock of the Company, whereby as a result of such transfer, a Person or Persons not having the power to elect a majority of the Board prior to such transaction or transactions acquires the power to elect a majority of the Board, (iii) one or more public offerings of Common Stock which individually or in the aggregate constituted a Qualified Public Offering, and (iv) the occurrence of the first anniversary of the maturity of the Senior Subordinated Notes. "Loans" shall mean the loans made by the Lenders from time to time pursuant to the Credit Agreement. "Mandatory Redemption" shall have the meaning set forth in Section 7(b) of this Certificate. "90%-Owned Subsidiary" shall mean any Subsidiary to the extent at least 90% of the capital stock or other ownership interests in such Subsidiary is owned directly or indirectly by the Company. "Notice of Redemption" shall have the meaning set forth in Section 7(d) of this Certificate. "Original Issue Date" shall mean for the Series A Preferred Stock, the date on which the first share of Series A Preferred Stock was originally issued. "Parent Credit Agreement" shall mean the credit agreement among the Company, various lenders party thereto, Bank of America, N.A., as Syndication Agent, and Bankers Trust Company, as Administrative Agent, dated as of March 30, 1998 (as such agreement may be amended, supplemented or modified from time to time). "Pari Passu Stock" shall mean any Preferred Stock (other than Preferred Stock which is expressly designated by the Company as Junior Stock) issued subsequent to October 20, 1999. "Period Rate" shall have the meaning set forth in Section 4(a) of this Certificate. "Person" shall mean and include, natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, Page 4 trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments and agencies and political subdivisions thereof. "Preference Amount" shall have the meaning set forth in Section 5(a) of this Certificate. "Preferred Stock" shall have the meaning set forth in the recitals of this Certificate. "Qualified Public Offering" shall mean one or more sales of Common Stock in an underwritten public offering(s) pursuant to an effective registration statement(s) filed with the Commission pursuant to the Act which yields individually or in the aggregate at least $175,000,000 of net proceeds to the Company. "Redemption Date" shall have the meaning set forth in Section 7(d) of this Certificate. "Redemption Default" shall mean the failure to make a Mandatory Redemption in accordance with Section 7(b) of this Certificate on the date required to be made. "Redemption Price" shall have the meaning set forth in Section 7(c) of this Certificate. "Senior Subordinated Notes" shall mean (i) the Senior Subordinated Notes of the Company due 2008 and (ii) the Senior Subordinated Notes of the Company due 2010. "Senior Subordinated Notes Indentures" shall mean the indentures with respect to (i) the Senior Subordinated Notes dated as of May 5, 1998, between the Company and United States Trust Company of New York, as Trustee, and (ii) the Senior Subordinated Notes, dated as of May 24, 2000, between the Company and United States Trust Company of New York, as Trustee. "Series A Preferred Stock" shall have the meaning set forth in the recitals to this Certificate. "Subsequent Issue Date" shall mean, with respect to any shares of Series A Preferred Stock issued after the Original Issue Date, the date on which such shares of Series A Preferred Stock were originally issued. "Subsidiary" shall mean, with respect to any Person, any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock or other equity interests entitled (without regard to occurrence of any contingency) to vote in the election of directors or other managing authority thereof is at the time owned or controlled, directly or indirectly, by such Person or its Subsidiaries. "Subsequent Holder" shall mean any Person that holds any Series A Preferred Stock (other than an Initial Holder or an Affiliate of an Initial Holder). Page 5 "Surviving Company" shall have the meaning set forth in Section 8(b) of this Certificate. "Treasury Rate" shall mean the interest rate per annum on 10 year direct obligations issued by the federal government of the United States of America, as determined by the Administrative Agent as of the first day of each fiscal quarter. "Wholly Owned Subsidiary" shall mean, as to any Person, (i) a corporation one hundred percent of whose capital stock is at the time owned by such Person and/or one or more Wholly Owned Subsidiaries of such Person and (ii) any partnership, association, joint venture or other entity in which such person and/or one or more Wholly Owned Subsidiaries of such Person has a one hundred percent equity interest at such time. 2. DESIGNATION. This series of Preferred Stock shall be designated the "Series A Preferred Stock." 3. AUTHORIZATION. The Company shall have the authority to issue 1,000,000 shares of Series A Preferred Stock, par value $.01 per share, of the Company; PROVIDED that no shares of Series A Preferred Stock shall be issued after the Original Issue Date other than to the Initial Holders and/or in connection with the payment of dividends issued to holders of shares of Series A Preferred Stock pursuant to Section 4(b). 4. DIVIDENDS. (a) AMOUNT. The owners of shares of Series A Preferred Stock shall be entitled to cumulative dividends on each share of Series A Preferred Stock held by such holders, which dividends for each Dividend Period shall be equal to the prorated Dividend Rate per annum, unless at any time during such Dividend Period the Company was required to effect a Mandatory Redemption and failed to effect such Mandatory Redemption in accordance with the terms of this Certificate in which case such holders of Series A Preferred Stock shall be entitled to cumulative dividends at the Default Rate per annum for the portion of the Dividend Period during which such Mandatory Redemption should have been effected (the Dividend Rate or the Default Rate as the case may be, the "Period Rate"). The dividend that will be payable or that will accumulate in respect of each share of Series A Preferred Stock for each Dividend Period shall be equal to the product of (a) the Preference Amount for such share, multiplied by (b) the Period Rate for such period multiplied by (c) a fraction, the numerator of which is the number of days that such share was outstanding during such Dividend Period and the denominator of which is 365. (b) PAYMENT OF DIVIDENDS. Dividends on the Series A Preferred Stock shall be payable in kind in shares of Series A Preferred Stock valued at the Liquidation Value per share or in cash, at the option of the Company. Dividends on each share of Series A Preferred Stock shall accrue and be cumulative (whether or not declared by the Board) from the Original Issue Date or Subsequent Issue Date, as the case may be, and shall be payable in arrears, when and as declared by the Board out of funds legally available therefor and to the extent permitted under the Parent Credit Agreement and Senior Subordinated Notes Indentures on each Dividend Payment Date; Page 6 PROVIDED, that if no cash dividend is declared for a Dividend Payment Date, then the dividend payable in kind shall be deemed declared to the extent not prohibited by law. Notwithstanding the foregoing, if any Dividend Payment Date is not a Business Day, such dividend shall be paid on the next succeeding Business Day. Accumulated and unpaid dividends, whether or not declared, shall compound (I.E., the number of shares of Series A Preferred Stock held by any holder of Series A Preferred Stock entitled to any such unpaid dividend shall be deemed increased on the relevant Dividend Payment Date for all purposes without further action by (x) the amount of such dividend divided by (y) $1,000.00). The Company shall issue additional shares (including fractional shares) to any holder promptly after each Dividend Payment Date (and in any event upon request of such holder) to evidence such unpaid dividends paid in kind; PROVIDED, that, unless and until otherwise requested by any holder on reasonable notice, certificates for such dividended shares need not be delivered but the Company shall record the issuance thereof in the stock ledger and shall for all purposes treat such dividend as outstanding shares of Series A Preferred Stock. (c) DIVIDENDS PRIORITY. So long as any shares of Series A Preferred Stock are outstanding, neither the Company nor any of its Subsidiaries may, directly or indirectly (whether in cash, property or in obligations of the Company or any Subsidiary of the Company), declare or pay or set aside for payment any dividends or distributions in respect of, or make any other payment of any kind with respect to, or repurchase, redeem or otherwise acquire, any capital stock of the Company or any Subsidiary of the Company other than (i) with respect to the Series A Preferred Stock and Pari Passu Stock so long as all such actions in connection with the Series A Preferred Stock and Pari Passu Stock are done on a pro rata basis among all outstanding shares of Series A Preferred Stock and Pari Passu Stock or (ii) distributions or dividends to the Company or direct or indirect Wholly Owned Subsidiaries or 90%-Owned Subsidiaries of the Company or (iii) other dividends, distributions and/or payments permitted to be made pursuant to Sections 7.09(a)(ii), 7.09(a)(iii) and 7.09(a)(v) of the Parent Credit Agreement as in effect on the date of this resolution (provided, that in the event the debt under the Parent Credit Agreement shall be refinanced, the foregoing referenced Sections of the Parent Credit Agreement shall be deemed to refer to the relevant provisions of the refinancing agreement solely to the extent such provisions effectively permit substantially identical dividends, distributions and/or payments as such referenced Sections), except that Section 7.09(a)(v) may provide for an increase in the $1,000,000 calendar year limitation contained therein to up to $5,000,000 if the Parent Credit Agreement is amended after the date of this resolution to provide therefor. The Series A Preferred Stock will rank senior to all other capital stock of the Company (other than Pari Passu Stock) and pari passu with respect to Pari Passu Stock. So long as the Series A Preferred Stock is outstanding, no other class or series of capital stock may be issued which has a mandatory redemption date prior to October 31, 2009, or which provides for a sinking fund prior to such date or any other payment of any type before such date (other than the payment of in-kind dividends on shares of capital stock). No class of capital stock of the Company may have terms which are equivalent or more favorable than the terms of the Series A Preferred Stock, including without limitation, as to: (i) redemption or principal repayment, (ii) maturity, (iii) rights to receive dividends, (iv) rights upon liquidation, dissolution, or winding-up of the Company or any Subsidiary of the Company or distribution of the assets of the Company or any Subsidiary of the Company and (v) covenants. No class of capital stock of the Company may contain provisions, Page 7 including provisions which would require any action to be taken with respect to such capital stock of the Company upon or as a result of the redemption of the Series A Preferred Stock, which would prevent the redemption or sale of the Series A Preferred Stock or would prevent the payment of cash dividends to the holders of the Series A Preferred Stock (other than Pari Passu Stock so long as any payment of dividends, whether in cash or in kind, would be paid pro rata to the holders of all Pari Passu Stock requiring the same and the holders of the Series A Preferred Stock). 5. LIQUIDATION RIGHTS. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company (a "Liquidation"), the holders of Series A Preferred Stock shall be entitled to receive, out of the remaining assets of the Company available for distribution to its stockholders, with respect to each share of Series A Preferred Stock held by such holder, ONE THOUSAND DOLLARS ($1,000) (the "Liquidation Value") (or a proportionate amount with respect to any fractional shares) plus an amount equal to all accrued but unpaid dividends payable with respect to such share of Series A Preferred Stock (collectively, the "Preference Amount"), before any payment or distribution may be made to the holders of Junior Stock. If upon any Liquidation, the assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of Series A Preferred Stock the full Preference Amount to which each such holder shall be entitled, all of the assets of the Company available for distribution to its stockholders shall be distributed to the holders of the Series A Preferred Stock and holders of Pari Passu Stock PRO RATA in accordance with the aggregate liquidation preference of shares of Series A Preferred Stock and Pari Passu Stock held by each such holder. (b) For purposes of this Section 5, the merger or consolidation of the Company into or with another entity or the sale, lease, exchange or other conveyance or transfer of all or substantially all the assets of the Company shall not be deemed to be a Liquidation unless it results in a Liquidity Event. 6. NOTICES OF CORPORATE ACTION. In the event of: (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right; (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company, any consolidation or merger involving the Company and any other entity or any sale, lease, exchange or other conveyance or transfer of all or substantially all of the assets of the Company to any other person; (c) any voluntary or involuntary dissolution, liquidation or winding-up of the affairs of the Company; or Page 8 (d) any plan or proposal by the Company to register any capital stock of the Company with the Commission; the Company will deliver to each holder of Series A Preferred Stock a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of securities of the Company shall be entitled to exchange such securities for the new securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, transfer, dissolution, liquidation or winding-up, (iii) the date or expected date of the voluntary or involuntary dissolution, liquidation or winding-up of the affairs of the Company or (iv) the date or expected date of the filing of the initial registration statement with respect to the securities being registered. Such notice shall be furnished at least 20 days prior to the date therein specified. 7. REDEMPTION. (a) OPTIONAL REDEMPTION. The Company may at any time after the Original Issue Date, at its option, redeem any or all of the shares of the outstanding Series A Preferred Stock. (b) MANDATORY REDEMPTION. Upon the earliest Liquidity Event to occur, subject to the restrictions in the Parent Credit Agreement and Senior Subordinated Notes Indentures, the Company shall redeem all shares of the Series A Preferred Stock then outstanding (each a "Mandatory Redemption"). If the funds of the Company legally available for redemption of shares of Series A Preferred Stock on the Redemption Date are insufficient (or if the amounts permitted under the Parent Credit Agreement or Senior Subordinated Notes Indentures are insufficient) to redeem the total number of such shares to be redeemed on such date, then those funds which are legally available (or permitted under the Parent Credit Agreement or Senior Subordinated Notes Indentures) shall be used to redeem the maximum possible number of shares of Series A Preferred Stock ratably among the holders of Series A Preferred Stock, based on the aggregate number of shares of Series A Preferred Stock held by each such holder. At any time thereafter when additional funds of the Company are legally available (or no longer subject to the restrictions under the Parent Credit Agreement or Senior Subordinated Notes Indentures) for the redemption of shares of Series A Preferred Stock, such funds shall immediately be used to redeem shares of Series A Preferred Stock. (c) REDEMPTION PRICE. The redemption price per share of the Series A Preferred Stock (the "Redemption Price") shall be paid in immediately available cash in an amount equal to (A) in the case of any Initial Holder or an Affiliate thereof, 100% of the Preference Amount, and (B) in the case of any Subsequent Holder: Page 9 (i) 100% of the Preference Amount with respect to any redemption effected pursuant to Section 7(a) hereof after the Original Issue Date or the Subsequent Issue Date, as the case may be, but prior to the date which is 9 months thereafter, (ii) 106% of the Preference Amount with respect to any redemption effected pursuant to Section 7(a) hereof, on or after the date which is 9 months thereafter but prior to the date which is 21 months thereafter, (iii) 104% of the Preference Amount with respect to any redemption effected pursuant to Section 7(a) hereof, on or after the date which is 21 months thereafter but prior to the date which is 33 months thereafter, (iv) 103% of the Preference Amount with respect to any redemption effected pursuant to Section 7(a) hereof, on or after the date which is 33 months thereafter but prior to the date which is 45 months thereafter, (v) 102% of the Preference Amount with respect to any redemption effected pursuant to Section 7(a) hereof, on or after the date which is 45 months thereafter but prior to the date which is 57 months thereafter, (vi) 101% of the Preference Amount with respect to any redemption effected pursuant to Section 7(a) hereof, on or after the date which is 57 months thereafter but prior to the date which is 69 months thereafter, or (vii) 100% of the Preference Amount with respect to any Mandatory Redemption or any redemption effected pursuant to Section 7(a), on or after the date which is 69 months after the Original Issue Date or the Subsequent Issue Date, as the case may be. In each case, the Preference Amount used to determine the Redemption Price shall be the Preference Amount in effect immediately prior to the Redemption Date. (d) REDEMPTION DATE. Written notice of any redemption of shares of Series A Preferred Stock (a "Notice of Redemption"), specifying the time and place of redemption, shall be mailed by certified mail, return receipt requested, at least 15 and not more than 30 days prior to the date specified therein for redemption (the "Redemption Date"), to each registered holder of the shares of Series A Preferred Stock at each such holder's last address as it appears on the Company's books. On or after the Redemption Date, each holder of shares of Series A Preferred Stock called for redemption shall surrender his or her certificates for such shares to the Company at the place specified in the Notice of Redemption and the Company shall pay the holder (or shall cause such holder to be paid) the Redemption Price in cash. (e) PRO RATA REDEMPTION. Any redemption of shares of Series A Preferred Stock made pursuant to Section 7(a) or 7(b) shall be made among all holders of Series A Preferred Stock PRO RATA in accordance with the number of shares of Series A Preferred Stock held by each such holder as of the Redemption Date. Page 10 (f) REDEEMED PREFERRED STOCK. Unless the Company defaults in the payment in full of the Redemption Price, dividends on the shares of Series A Preferred Stock called for redemption shall cease to accumulate on the Redemption Date, and all rights of the holders of the shares of Series A Preferred Stock by reason of their ownership of the shares of Series A Preferred Stock shall cease on the Redemption Date, except the right to receive the Redemption Price on surrender to the Company of the certificates representing the redeemed shares of Series A Preferred Stock. After the Redemption Date and the payment in full of the Redemption Price, the redeemed shares of Series A Preferred Stock shall not be deemed to be outstanding and shall not be transferable on the books of the Company. (g) CANCELLATION OF PREFERRED STOCK. Any shares of Series A Preferred Stock redeemed or purchased by the Company shall be canceled and shall have the status of authorized and unissued shares of preferred stock, without designation as to series. 8. VOTING RIGHTS; MERGER, CONSOLIDATION OR AMENDMENT, ETC. (a) Except as required by applicable law or as otherwise specified in this Certificate, in which case each holder of outstanding shares of Series A Preferred Stock shall have that number of votes as is equal to the number of shares of Series A Preferred Stock held by such holder on the applicable record date for determining voting rights, the holders of the Series A Preferred Stock shall not have any voting rights. (b) Without the affirmative vote of the holders of a majority of the shares of the Series A Preferred Stock voting separately as a class and subject to the Company's obligations, if any, to effect a Mandatory Redemption in accordance with Section 7(b) hereof, the Company shall not, directly or indirectly, (x) consolidate with or merge with or into any other person or entity, or transfer (by lease, assignment, sale or otherwise) all or substantially all of the properties or assets of the Company, in a single transaction or through a series of related transactions, to another person or entity or group of affiliated persons or entities or permit any subsidiaries of the Company to enter into any such transaction or transactions if such transaction or transactions in the aggregate would result in a sale of all or substantially all of the properties and assets of the Company and its Subsidiaries on a consolidated basis or (y) adopt a plan of liquidation, unless, in either case: (i) (A) the Company shall be the continuing Person, or (B) the Person (if other than the Company) (or, in the case of a liquidation, the sole Person to which assets are transferred) formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company and any Subsidiaries of the Company are transferred or leased (the Company or such other person or entity being hereinafter referred to as the "Surviving Company") shall be organized and validly existing under the laws of the United States or any State thereof or the District of Columbia; and (ii) (A) in the case of a merger or consolidation in which the Company is not the Surviving Company, the Series A Preferred Stock shall be converted into a class of preferred stock of the Surviving Company with powers, preferences and special rights substantially equal or, except with respect to voting powers, superior, to the powers, preferences Page 11 and special rights of the Series A Preferred Stock or (B) in the case of a transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties or assets of the Company and its Subsidiaries, or of a plan of liquidation, the Surviving Company offers to issue to the holders of shares of the Series A Preferred Stock an equal number of shares of a class of preferred stock of the surviving Company with powers, preferences and special rights substantially equal or, except with respect to voting powers, superior, to the powers, preferences and special rights of the Series A Preferred Stock in exchange for such holders' shares of Series A Preferred Stock; and (c) Notwithstanding the foregoing, any Subsidiary of the Company may merge into the Company or any other Subsidiary of the Company at any time, PROVIDED such merger is not part of a plan or transaction otherwise prohibited by the terms of this Certificate. (d) For purposes of this Section 8, any transfer (by lease, assignment, sale or otherwise) of all or substantially all of the properties and assets of one or more Subsidiaries of the Company (other than a transfer to the Company or one or more Wholly Owned Subsidiaries of the Company) the capital stock of which constitutes all or substantially all of the properties and assets of the Company and its Subsidiaries, collectively, shall be deemed to be the transfer of all or substantially all of the assets of the properties and assets of the Company. 9. COVENANTS. For so long as any shares of Series A Preferred Stock are outstanding, the Company shall not: (i) alter or modify any of the terms, designations, powers, preferences, privileges or other rights of, or restrictions provided for the benefit of holders of Series A Preferred Stock; (ii) create, authorize, designate, issue or sell shares of any class or series of the capital stock of the Company or rights, options, warrants or other securities convertible into or exchangeable for any share of capital stock of the Company, the terms of which provide that shares of such class or series of capital stock of the Company rank senior to the Series A Preferred Stock with respect to distributions of assets, payments of dividends, distributions upon the Liquidation of the Company or which otherwise adversely affect the terms, designations, powers, preferences, privileges or other rights of, or restrictions provided for the benefit of the holders of shares of Series A Preferred Stock; (iii) amend or change any provision of the Certificate of Incorporation of the Company, bylaws of the Company or this Certificate if such action would adversely alter or change the preferences, rights, privileges or powers of, or the restrictions provided for the benefit of the Series A Preferred Stock; or (iv) amend any provision of this Section 9. 10. DEFAULT RATE. In the event a Redemption Default shall have occurred, each share of Series A Preferred Stock shall be entitled to the dividends set forth in Section 4(a) hereof at a rate of 2% in excess of the Dividend Rate then in effect (the "Default Rate"). Page 12 11. RESTRICTIVE LEGENDS. Each certificate representing shares of Series A Preferred Stock shall be stamped or otherwise imprinted with legends in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SUCH SHARES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. Page 13 IN WITNESS WHEREOF the foregoing Certificate of Designation has been duly authorized on behalf of the Company this 10th day of May, 2002. FAIRPOINT COMMUNICATIONS, INC. By: /s/ Timothy W. Henry ------------------------------------------- Name: Timothy W. Henry Title: Vice President of Finance, Treasurer and Assistant Secretary [Signature Page for Certificate of Designation] EX-4.10 5 a2079840zex-4_10.txt EX-4.10 Exhibit 4.10 THESE SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS DESCRIBED ON THE REVERSE HEREOF NUMBER _____ FAIRPOINT COMMUNICATIONS, INC. _________ Shares Series A a Delaware Corporation Preferred Stock Capital Stock 500,000,000 Shares Series A Preferred Stock: 1,000,000 Shares Authorized THIS CERTIFIES THAT: _______________ is the record holder of ___________________ _______________________ (___________) shares of Series A Preferred Stock of FAIRPOINT COMMUNICATIONS, INC., transferable only on the share register of said corporation, in person or by duly authorized attorney, upon surrender of this certificate properly endorsed or assigned. This certificate and the shares represented hereby are issued and shall be held subject to all the provisions of the Sixth Amended and Restated Certificate of Incorporation, the Certificate of Designation for the Series A Preferred Stock and any amendments thereto, to all of which the holder of this certificate, by acceptance hereof, assents. The corporation will furnish without charge to each stockholder who so requests a statement of all the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. WITNESS the Seal of the corporation and the signatures of its duly authorized officers this __th day of May, 2002. - ------------------------------------ --------------------------------------- Timothy W. Henry, Assistant Secretary Walter E. Leach, Jr., Senior Vice President The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivors hip and not as tenants in common UNIF GIFT MIN ACT - ............ Custodian ............ (Cust) (Minor) under Uniform Gifts to Minors Act .............. (State) ADDITIONAL ABBREVIATIONS MAY ALSO BE USED THOUGH NOT IN THE ABOVE LIST. FOR VALUE RECEIVED ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE. - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE.) - -------------------------------------------------------------------------------- Shares represented by the within Certificate, and do hereby irrevocably constitute and appoint - -------------------------------------------------------------------------------- as Attorney to transfer the said Shares on the books of the within named Corporation with full power of substitution in the premises. Dated ------------------ ---------------------------------------------------- IN PRESENCE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SUCH SHARES MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. EX-10.8 6 a2079840zex-10_8.txt EX-10.8 Exhibit 10.8 AMENDED AND RESTATED CREDIT AGREEMENT among FAIRPOINT COMMUNICATIONS SOLUTIONS CORP., as BORROWER, FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - NEW YORK, FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - VIRGINIA, and FAIRPOINT SOLUTIONS CAPITAL, LLC, as CREDIT SUPPORT PARTIES, VARIOUS LENDING INSTITUTIONS, BANK OF AMERICA, N.A., as SYNDICATION AGENT, DEUTSCHE BANK TRUST COMPANY AMERICAS, formerly known as Bankers Trust Company, as DOCUMENTATION AGENT, and WACHOVIA BANK, NATIONAL ASSOCIATION, formerly known as First Union National Bank, as ADMINISTRATIVE AGENT --------------------------------------------- FIRST UNION SECURITIES, INC. and BANC OF AMERICA SECURITIES LLC, as CO-ARRANGERS and CO-BOOK MANAGERS ------------------------------------ Dated as of October 20, 1999, as Amended and Restated as of March 27, 2000, as further Amended and Restated as of November 9, 2000, and as further Amended and Restated as of May 10, 2002 TABLE OF CONTENTS
PAGE ---- SECTION 1 Definitions....................................................................................2 SECTION 2 Amount and Terms of Loans.....................................................................17 2.01 Acknowledgement of Existing Obligations; Conversion of Existing Loans and Existing Swap Obligations..............................................................................17 2.02 Register; Notes...............................................................................19 2.03 Interest......................................................................................19 SECTION 3 Intentionally Omitted.........................................................................20 SECTION 4 Fees..........................................................................................20 SECTION 5 Payments......................................................................................20 5.01 Voluntary Prepayments.........................................................................20 5.02 Mandatory Repayments..........................................................................21 5.03 Method and Place of Payment...................................................................24 5.04 Net Payments..................................................................................24 SECTION 6 Conditions Precedent..........................................................................26 SECTION 7 Representations, Warranties and Agreements....................................................30 7.01 Company Status................................................................................30 7.02 Company Power and Authority...................................................................30 7.03 No Violation..................................................................................30 7.04 Litigation....................................................................................30 7.05 Margin Regulations............................................................................31 7.06 Governmental Approvals........................................................................31 7.07 Investment Company Act........................................................................31 7.08 Public Utility Holding Company Act............................................................31 7.09 True Disclosure...............................................................................31 7.10 Financial Statements..........................................................................31 7.11 The Security Documents........................................................................32 7.12 Tax Returns and Payments......................................................................33 7.13 Compliance with ERISA.........................................................................33 7.14 Subsidiaries..................................................................................34 7.15 Intellectual Property.........................................................................34 7.16 Environmental Matters.........................................................................34
i TABLE OF CONTENTS (CONTINUED)
PAGE ---- 7.17 Labor Relations...............................................................................34 7.18 Compliance with Statutes, etc.................................................................35 7.19 Indebtedness..................................................................................35 7.20 Insurance.....................................................................................35 SECTION 8 Affirmative Covenants.........................................................................35 8.01 Information Covenants.........................................................................35 8.02 Books, Records and Inspections................................................................39 8.03 Insurance.....................................................................................39 8.04 Payment of Taxes..............................................................................39 8.05 Corporate Franchises..........................................................................39 8.06 Compliance with Statutes, etc.................................................................40 8.07 ERISA.........................................................................................40 8.08 Good Repair...................................................................................41 8.09 End of Fiscal Years; Fiscal Quarters..........................................................41 8.10 Offers to Redeem Parent Preferred Stock.......................................................41 8.11 Sale of Choice One Stock......................................................................42 8.12 Further Assurances............................................................................42 8.13 Excluded Subsidiaries.........................................................................42 8.14 Management Services Agreement.................................................................42 SECTION 9 Negative Covenants............................................................................43 9.01 Business......................................................................................43 9.02 Consolidation, Merger, Sale or Purchase of Assets, etc........................................43 9.03 Liens.........................................................................................44 9.04 Indebtedness..................................................................................45 9.05 Advances, Investments and Loans...............................................................46 9.06 Limitation on Creation of Subsidiaries........................................................47 9.07 Modifications.................................................................................47 9.08 Dividends, etc................................................................................47 9.09 Transactions with Affiliates..................................................................48 9.10 Limitation On Issuance of Subsidiary Stock....................................................49 9.11 Capital Expenditures..........................................................................49 9.12 Parent Cash Contributions.....................................................................49
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PAGE ---- SECTION 10 Events of Default.............................................................................50 10.01 Payments......................................................................................50 10.02 Representations, etc..........................................................................50 10.03 Covenants.....................................................................................50 10.04 Default Under Other Agreements................................................................50 10.05 Bankruptcy, etc...............................................................................51 10.06 ERISA.........................................................................................51 10.07 Security Documents............................................................................52 10.08 Subsidiary Guaranty...........................................................................52 10.09 Preferred Stock Issuance and Capital Contribution Agreement...................................52 10.10 Judgments.....................................................................................52 10.11 Change of Control.............................................................................52 10.12 Amendment to the Parent Credit Agreement......................................................52 SECTION 11 The Administrative Agent......................................................................53 11.01 Appointment...................................................................................53 11.02 Nature of Duties..............................................................................54 11.03 Lack of Reliance on the Administrative Agent..................................................54 11.04 Certain Rights of the Administrative Agent....................................................54 11.05 Reliance......................................................................................54 11.06 Indemnification...............................................................................55 11.07 The Administrative Agent in its Individual Capacity...........................................55 11.08 Holders of Notes..............................................................................55 11.09 Resignation by the Administrative Agent.......................................................55 11.10 Bank of America, N.A..........................................................................56 SECTION 12 Miscellaneous.................................................................................56 12.01 Payment of Expenses, etc......................................................................56 12.02 Right of Setoff...............................................................................57 12.03 Notices.......................................................................................57 12.04 Benefit of Agreement; Assignments and Participants............................................58 12.05 No Waiver; Remedies Cumulative................................................................60 12.06 Payments Pro Rata.............................................................................60 12.07 Calculations; Computations....................................................................61
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PAGE ---- 12.08 Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury Trial........................61 12.09 Counterparts..................................................................................62 12.10 Effectiveness.................................................................................62 12.11 Headings Descriptive..........................................................................62 12.12 Amendment or Waiver...........................................................................62 12.13 Survival......................................................................................63 12.14 Domicile of Loans.............................................................................63 12.15 Confidentiality...............................................................................63 12.16 Lender Register...............................................................................63 12.17 Amendment and Restatement of Existing Credit Agreement........................................64 12.18 Acknowledgement and Consent; Release; Authorization...........................................64 12.19 Acknowledgement by Non-Continuing Lenders; Waiver by Existing Lenders.........................66
iv ANNEXES ANNEX I -- Conversion of Existing Loans and Existing Swap Obligations ANNEX II -- Effective Date Paydown Allocation ANNEX III.. -- Initial Parent Preferred Stock Conversion Allocation ANNEX IV -- Addresses ANNEX V -- ERISA ANNEX VI -- Subsidiaries ANNEX VII -- Existing Indebtedness ANNEX VIII -- Insurance ANNEX IX -- Existing Liens ANNEX X -- Existing Investments ANNEX XI -- Litigation ANNEX XII -- Excluded Parent Cash Contribution Obligations ANNEX XIII -- Existing Indebtedness Defaults ANNEX XIV -- Parent Lease Obligations v EXHIBITS EXHIBIT A -- Form of Tranche A Note EXHIBIT B -- Form of Tranche B Note EXHIBIT C -- Form of Section 5.04 Certificate EXHIBIT D -- Form of Opinion of Paul, Hastings, Janofsky & Walker LLP EXHIBIT E -- Form of Officer's Certificate EXHIBIT F -- Subsidiary Guaranty EXHIBIT G -- Pledge Agreement EXHIBIT H -- Security Agreement EXHIBIT I -- Tax Sharing Agreement EXHIBIT J -- Form of Assignment Agreement EXHIBIT K -- Form of Certificate of Designation EXHIBIT L -- Form of Preferred Stock Issuance and Capital Contribution Agreement EXHIBIT M -- Form of Compliance Certificate AMENDED AND RESTATED CREDIT AGREEMENT dated as of October 20, 1999, as amended and restated as of March 27, 2000, as further amended and restated as of November 9, 2000, and as further amended and restated as of May 10, 2002, by and among FAIRPOINT COMMUNICATIONS SOLUTIONS CORP., a Delaware corporation (the "BORROWER"); THE FINANCIAL INSTITUTIONS INDICATED AS LENDERS ON THE SIGNATURE PAGES HEREOF (each, a "LENDER" and, collectively, the "LENDERS"); BANC OF AMERICA SECURITIES LLC and FIRST UNION SECURITIES, INC., as Co-Arrangers and Co-Book Managers (each, a "CO-ARRANGER" and together, the "CO-ARRANGERS"); BANK OF AMERICA, N.A., as Syndication Agent (in such capacity, the "SYNDICATION AGENT"); DEUTSCHE BANK TRUST COMPANY AMERICAS, formerly known as Bankers Trust Company, as Documentation Agent (in such capacity, the "DOCUMENTATION AGENT"); WACHOVIA BANK, NATIONAL ASSOCIATION, formerly known as First Union National Bank, as Administrative Agent (in such capacity, the "ADMINISTRATIVE AGENT"); for purposes of Sections 2.01 and 12.19 only, CIT LENDING SERVICES CORPORATION, Citicorp USA, Inc., and COBANK, ACB, (each, a "NON-CONTINUING LENDER" and, collectively, the "NON-CONTINUING LENDERS"); and, for purposes of Section 12.18 only, FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - NEW YORK, a Delaware corporation, FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - VIRGINIA, a Virginia corporation, and FAIRPOINT SOLUTIONS CAPITAL, LLC, a North Carolina limited liability company. Unless otherwise defined herein, all capitalized terms used herein and defined in Section 1 are used herein as so defined. W I T N E S S E T H : WHEREAS, the Borrower, the Existing Lenders, the Syndication Agent, the Documentation Agent and the Administrative Agent are party to an Amended and Restated Credit Agreement dated as of October 20, 1999 (as amended as of January 11, 2000), as further amended and restated as of March 27, 2000, and as further amended and restated as of November 9, 2000 (as amended as of March 9, 2001, November 28, 2001 and December 19, 2001) (as in effect immediately prior to the Effective Date, the "EXISTING CREDIT AGREEMENT"); WHEREAS, the Borrower desires that the Lenders enter into this Agreement and the Preferred Stock Issuance and Capital Contribution Agreement to amend and restate such agreements to restructure the obligations of the Borrower and its Subsidiaries under the Existing Credit Agreement and the Existing Credit Documents; WHEREAS, the Borrower has agreed to cause its Subsidiaries, FairPoint Communications Solutions Corp. - New York, FairPoint Communications Solutions Corp. - Virginia, and FairPoint Solutions Capital, LLC, to continue to guaranty the Obligations hereunder and under the other Credit Documents and to continue to secure such guaranty with Liens on all of their property (including property to be acquired after the date hereof); and WHEREAS, the parties hereto intend that this Agreement not constitute a novation or satisfaction of the Borrower's obligations under the Existing Credit Agreement or be deemed to evidence or constitute a repayment (except to the extent expressly provided in Sections 2.01 and 6 hereof) of all or any portion of such obligations. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree that the Existing Credit Agreement shall be and is hereby amended and restated in its entirety as follows: NOW, THEREFORE, IT IS AGREED: SECTION 1. DEFINITIONS. As used herein, the following terms shall have the meanings herein specified unless the context otherwise requires. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular: "ADDITIONAL TRANCHE B PRINCIPAL" shall have the meaning provided in Section 2.03(d). "ADMINISTRATIVE AGENT" shall have the meaning provided in the first paragraph of this Agreement and shall include any successor to the Administrative Agent appointed pursuant to Section 11.09. "AFFILIATE" shall mean, with respect to any Person, any other Person directly or indirectly controlling (which may include, but is not limited to, all directors and officers of such Person), controlled by, or under direct or indirect common control with such Person. A Person shall be deemed to control a corporation if such Person possesses, directly or indirectly, the power (i) to vote 10% or more of the securities having ordinary voting power for the election of directors of such corporation or (ii) to direct or cause the direction of the management and policies of such corporation, whether through the ownership of voting securities, by contract or otherwise. "AGENTS" shall mean and include the Administrative Agent and the Syndication Agent. "AGREEMENT" shall mean this Amended and Restated Credit Agreement, as the same may be modified, amended, amended and restated and/or supplemented. "ASSET SALE" shall mean and include the sale, transfer or other disposition by the Borrower or any Subsidiary of the Borrower to any Person other than the Borrower or any Subsidiary Guarantor of (i) any Choice One Stock, (ii) any assets related to the Long Distance Business, or (iii) any other asset of the Borrower or such Subsidiary (other than sales, transfers or other dispositions in the ordinary course of business of inventory and/or obsolete or excess equipment to the extent that the Cash Proceeds from dispositions of such equipment do not exceed $500,000 in the aggregate). "ASSIGNMENT AGREEMENT" shall mean the Assignment Agreement in the form of EXHIBIT J (appropriately completed). "AUTHORIZED OFFICER" shall mean any senior officer of the Borrower designated as an authorized officer in writing to the Administrative Agent by the Borrower. 2 "AVAILABLE CASH FLOW" shall mean, for any Available Cash Payment Period, an amount equal to (i) Long Distance Business EBITDA for such period, PLUS (ii) cash proceeds received by the Borrower or any of its Subsidiaries during such period from sales or other dispositions of obsolete or excess equipment, to the extent such sales or dispositions are not Asset Sales, MINUS (iii) the sum of (x) the provision for taxes payable in cash based on income of the Borrower and its Subsidiaries for such period to the extent attributable to the Long Distance Business, and (y) interest expense with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and without duplication net costs and/or net benefits under Interest Rate Agreements, but excluding, however, amortization of deferred financing costs to the extent included in total interest expense) to the extent actually paid in cash during such period. "AVAILABLE CASH PAYMENT DATE" shall mean the date occurring 45 days after the last day of each fiscal quarter of the Borrower (beginning with its fiscal quarter ending on June 30, 2002). "AVAILABLE CASH PAYMENT PERIOD" shall mean, with respect to the mandatory repayment required on each Available Cash Payment Date pursuant to Section 5.02(h), the fiscal quarter of the Borrower most recently ended prior to such Available Cash Payment Date. "BANKRUPTCY CODE" shall have the meaning provided in Section 10.05. "BORROWER" shall have the meaning provided in the first paragraph of this Agreement. "BUSINESS DAY" shall mean any day excluding Saturday, Sunday and any day which shall be in the City of New York and Charlotte, North Carolina a legal holiday or a day on which banking institutions are authorized by law or other governmental actions to close. "CAPITAL LEASE" as applied to any Person shall mean any lease of any property (whether real, personal or mixed) by that Person as lessee which, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "CAPITALIZED LEASE OBLIGATIONS" shall mean all obligations under Capital Leases of the Borrower or any of its Subsidiaries in each case taken at the amount thereof accounted for as liabilities in accordance with GAAP. "CASH EQUIVALENTS" shall mean (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (PROVIDED that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than six months from the date of acquisition, (ii) Dollar denominated time deposits, certificates of deposit and bankers' acceptances of (x) any Lender that is a domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (y) any bank (or the parent company of such bank) whose short-term commercial paper rating from Standard & Poor's Rating Group, a division of The McGraw-Hill 3 Companies ("S&P") is at least A-1 or the equivalent thereof or from Moody's Investor Services, Inc. ("MOODY'S") is at least P-1 or the equivalent thereof (any such bank, an "APPROVED BANK"), in each case with maturities of not more than six months from the date of acquisition, (iii) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (ii) above, (iv) commercial paper issued by any Approved Bank or by the parent company of any Approved Bank and commercial paper issued by, or guaranteed by, any industrial or financial company with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by Moody's, or guaranteed by any industrial company with a long term unsecured debt rating of at least A or A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be, and in each case maturing within six months after the date of acquisition, (v) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within six months from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either S&P or Moody's, and (vi) investments in money market funds substantially all of whose assets are comprised of securities of the type described in clauses (i) through (v) above. "CASH PROCEEDS" shall mean, with respect to any Asset Sale, the aggregate cash payments (including any cash received by way of deferred payment pursuant to a note receivable issued in connection with such Asset Sale, other than the portion of such deferred payment constituting interest, but only as and when so received) received by the Borrower and/or any Subsidiary of the Borrower from such Asset Sale. "CERCLA" shall mean the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 ET SEQ. "CHANGE OF CONTROL" shall mean at any time and for any reason (a) prior to a Qualified IPO, the Permitted Holders cease to be the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) on a fully diluted basis in the aggregate of at least 50.1% of the total economic and voting interest in Parent's capital stock, (b) on and after a Qualified IPO, (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the "beneficial owner" (as defined in clause (a) above) on a fully diluted basis of more than 25% of the total voting interest in the capital stock of Parent or (ii) during any period of two consecutive years individuals who at the beginning of such period constituted the Board of Directors of Parent (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of Parent was approved by a vote of a majority of the directors of Parent then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors of Parent then in office, (c) a "change of control" or similar event shall occur as provided in any other agreement governing or evidencing material Indebtedness (i) of the Borrower or (ii) of Parent resulting in an event of default thereunder or entitling any holder thereof to require repayment prior to its stated maturity or (d) Parent, together with the managers, officers, directors and employees of the Borrower and Parent, shall cease to directly or indirectly own at least 75% of the capital stock of the Borrower (although for 4 purposes of this clause (d), the aggregate amount of capital stock of the Borrower permitted to be held by all such managers, officers, directors and employees may not exceed 15%). "CHOICE ONE" shall mean Choice One Communications Inc., a Delaware corporation. "CHOICE ONE STOCK" shall mean any capital stock or other equity interests of Choice One received or receivable from time to time by the Borrower in connection with the Northeast Asset Sale. "CLEC" shall mean one or more competitive local exchange carriers. "CO-ARRANGER" shall have the meaning provided in the first paragraph of this Agreement. "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to the Code are to the Code, as in effect at the date of this Agreement and any subsequent provisions of the Code, amendatory thereof, supplemental thereto or substituted therefor. "COLLATERAL" shall mean all property (whether real or personal) with respect to which any security interests have been granted (or purported to be granted) pursuant to any Security Document, including, without limitation, all Pledge Agreement Collateral and all Security Agreement Collateral. "COLLATERAL AGENT" shall mean the Administrative Agent acting as collateral agent for the Lenders. "COMPANY" shall mean any corporation, limited liability company, partnership or other business entity (or the adjectival form thereof, where appropriate). "COMPANY DOCUMENTS" shall mean, with respect to any Company, such Company's certificate of incorporation, certificate of formation, by-laws, limited liability company agreement, partnership agreement or equivalent organizational documents of such Company. "COMPLIANCE CERTIFICATE" shall mean a certificate duly executed in the form of EXHIBIT M. "CONSOLIDATED CAPITAL EXPENDITURES" shall mean, for any period, the aggregate of all cash expenditures (including all amounts expended under Capital Leases but excluding any amount representing capitalized interest) by the Borrower and its Subsidiaries during that period that, in conformity with GAAP, are or are required to be included in the property, plant or equipment reflected in the consolidated balance sheet of the Borrower and its Subsidiaries. "CONSOLIDATED CASH EQUITY" shall mean, with respect to each issuance or sale of any equity by the Borrower, the cash proceeds (net of underwriting discounts and commissions 5 and other costs associated therewith) received by the Borrower from the respective sale or issuance of its equity; PROVIDED, that, for the avoidance of doubt, such term shall not include the amount of any Parent Cash Contributions. "CONSOLIDATED REVENUE" shall mean, for any period, the aggregate stated amount of all revenue of the Borrower and its Subsidiaries for such period on a consolidated basis as determined in accordance with GAAP. "CONTINGENT OBLIGATIONS" shall mean as to any Person any obligation of such Person guaranteeing or intending to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent, (a) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (b) to advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (d) otherwise to assure or hold harmless the owner of such primary obligation against loss in respect thereof; PROVIDED, HOWEVER, that the term Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated maximum of the Contingent Obligation or, if none, the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if there is no stated or determinable amount of the primary obligation, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. "CONVERSION OPTION" shall have the meaning provided in Section 5.02(k). "CREDIT DOCUMENTS" shall mean this Agreement, each Note executed and delivered pursuant to the terms of this Agreement, the Preferred Stock Issuance and Capital Contribution Agreement, the Subsidiary Guaranty, and each Security Document. "CREDIT PARTY" shall mean Parent, the Borrower and each Subsidiary of the Borrower party to a Credit Document. "DEBT PROCEEDS" shall mean, with respect to any incurrence of Indebtedness for borrowed money, the cash proceeds (net of underwriting discounts and commissions and other reasonable costs associated therewith) received by the respective Person from the respective incurrence of such Indebtedness. "DEFAULT" shall mean any event, act or condition which with notice or lapse of time, or both, would constitute an Event of Default. "DIVIDENDS" shall have the meaning provided in Section 9.08. 6 "DOCUMENTATION AGENT" shall have the meaning provided in the first paragraph of this Agreement. "DOLLARS" and the sign "$" shall each mean freely transferable lawful money of the United States. "EFFECTIVE DATE" shall have the meaning provided in Section 12.10. "EFFECTIVE DATE AMENDMENT" shall mean that certain amendment to the Pledge Agreement and the Security Agreement in the form attached hereto as EXHIBIT N. "EFFECTIVE DATE PAYDOWN" shall have the meaning provided in clause (n) of Section 6. "ELIGIBLE TRANSFEREE" shall mean and include a commercial bank, financial institution or other institutional "accredited investor" as defined in SEC Regulation D; PROVIDED that neither the Borrower nor any Affiliate of the Borrower shall be an Eligible Transferee. "ENVIRONMENTAL CLAIMS" shall mean any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigations (other than internal reports prepared by the Borrower or any of its Subsidiaries solely in the ordinary course of such Person's business and not in response to any third party action or request of any kind) or proceedings relating to any Environmental Law or any permit issued, or any approval given, under any such Environmental Law (hereafter, "Claims"), including, without limitation, (a) any and all Claims by governmental or regulatory authorities for enforcement, cleanup, removal, response, remedial or other actions or damages pursuant to any applicable Environmental Law, and (b) any and all Claims by any third party seeking damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from Hazardous Materials arising from alleged injury or threat of injury to health, safety or the environment. "ENVIRONMENTAL LAW" shall mean any applicable federal, state, foreign or local statute, law, rule, regulation, ordinance, code and rule of common law now or hereafter in effect and in each case as amended, and any binding judicial or administrative interpretation thereof, including any binding judicial or administrative order, consent decree or judgment, relating to the environment or Hazardous Materials, including, without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, as amended, 33 U.S.C. Section 1251 ET SEQ.; the Toxic Substances Control Act, 15 U.S.C. Section 7401 ET SEQ.; the Clean Air Act, as amended, 42 U.S.C. Section 7601 ET SEQ.; the Safe Drinking Water Act, 42 U.S.C. Section 300F ET SEQ.; the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 ET SEQ.; and any applicable state and local or foreign counterparts or equivalents. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. Section references to ERISA are to ERISA, as in effect at the date of this Agreement and any 7 subsequent provisions of ERISA, amendatory thereof, supplemental thereto or substituted therefor. "ERISA AFFILIATE" shall mean each person (as defined in Section 3(9) of ERISA) which together with the Borrower or a Subsidiary would be deemed to be a "single employer" within the meaning of Section 414(b) or (c) of the Code and with respect to Sections 412 and 4971 of the Code and Section 302 of ERISA, Section 414(b), (c), (m) or (o) of the Code. "EVENT OF DEFAULT" shall have the meaning provided in Section 10. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. "EXCLUDED PRIOR-PERIOD REVENUE PAYMENTS" shall mean, with respect to any period, any cash payments received by the Borrower and its Subsidiaries during such period with respect to non-cash revenue items deducted from the calculation of Long Distance EBITDA in any prior period pursuant to clause (vi)(2) of the definition thereof. "EXCLUDED PARENT CASH CONTRIBUTION" shall mean any Parent Cash Contribution made for the purpose of (i) application to the payment of interest or principal due and owing with respect to the Loans, or (ii) application to (x) the payment of those obligations described on ANNEX XII attached hereto arising out of the discontinued operations of the Borrower and its Subsidiaries or (y) the repayment of intercompany Indebtedness that was incurred by the Borrower or any of its Subsidiaries pursuant to Section 9.04(f) more than twelve months prior to the date of such repayment, so long as (a) in each case the Parent shall make such Parent Cash Contribution no more than three Business Days prior to the application of such amounts to the foregoing purposes, (b) in each case the Borrower shall comply with any applicable reporting requirements of Section 8.01(i), (c) in each case such Parent Cash Contribution is actually applied to the purpose(s) specified in any relevant certificate delivered pursuant to Section 8.01(i), (d) in the case of a Parent Cash Contribution proposed to be applied to the purpose described in clause (ii) above, the aggregate amount so applied to any specific obligation shall not exceed (x) the amount with respect to such obligation specified on ANNEX XII or (y) the principal amount of the relevant intercompany Indebtedness being repaid plus accrued and unpaid interest, and (e) in the case of a Parent Cash Contribution proposed to be applied to the purpose described in clause (ii) above, no Default or Event of Default shall have occurred and be continuing at the time of such application or would result therefrom. "EXCLUDED SUBSIDIARY" shall mean (a) FairPoint Communications Investments, LLC, a Delaware limited liability company, and (b) FairPoint Solutions Operations Services, LLC, a North Carolina limited liability company. "EXISTING CREDIT AGREEMENT" shall have the meaning provided in the recitals to this Agreement. "EXISTING CREDIT DOCUMENTS" shall mean the Existing Credit Agreement, each promissory note executed and delivered pursuant to the Existing Credit Agreement, the Existing 8 Preferred Stock Issuance and Capital Contribution Agreement, the Subsidiary Guaranty and each Security Document. "EXISTING INDEBTEDNESS" shall have the meaning provided in Section 7.19. "EXISTING LENDER" shall mean each lender party to the Existing Credit Agreement on the Effective Date, immediately prior to giving effect to this Agreement. "EXISTING LOAN" shall mean one or more of the Existing Revolving Loans or Existing Term Loans or any combination thereof. "EXISTING PREFERRED STOCK ISSUANCE AND CAPITAL CONTRIBUTION AGREEMENT" shall mean the Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement executed and delivered pursuant to the Existing Credit Agreement, as in effect immediately prior to the Effective Date. "EXISTING REVOLVING LOAN" shall mean each "Revolving Loan" under, and as defined in, the Existing Credit Agreement outstanding on the Effective Date. "EXISTING SWAP AGREEMENT" shall mean that certain Master Agreement dated as of December 12, 2000 between Wachovia and the Borrower, which includes the Schedule dated as of the same date and any documents and other confirming evidence exchanged between Wachovia and the Borrower confirming one or more transactions that are governed by such Master Agreement, as the foregoing are in effect immediately prior to the Effective Date. "EXISTING SWAP OBLIGATIONS" shall mean all amounts owing to Wachovia pursuant to the terms of the Existing Swap Agreement. "EXISTING TERM LOAN" shall mean each "Term Loan" under, and as defined in, the Existing Credit Agreement outstanding on the Effective Date. "FCC" shall mean the Federal Communications Commission and any successor regulatory body. "FEES" shall mean all amounts payable pursuant to, or referred to in, Section 4. "GAAP" shall mean generally accepted accounting principles in the United States of America as in effect from time to time. "HAZARDOUS MATERIALS" shall mean (a) petroleum or petroleum products, radioactive materials, asbestos in any form that is friable, urea formaldehyde foam insulation, and radon gas; (b) any chemicals, materials or substance defined as or included in the definition of "hazardous substances," "hazardous waste", "hazardous materials," "extremely hazardous substances," "restricted hazardous waste," "toxic substances," "toxic pollutants," "contaminants," or "pollutants," or words of similar import, under any applicable Environmental Law; and (c) any other chemical, material or substance, the release of which is prohibited, limited or regulated by any governmental authority. 9 "INDEBTEDNESS" of any Person shall mean, without duplication, (i) all indebtedness of such Person for borrowed money, (ii) the deferred purchase price of assets or services which in accordance with GAAP would be shown on the liability side of the balance sheet of such Person, (iii) the face amount of all letters of credit issued for the account of such Person and, without duplication, all unreimbursed drafts drawn thereunder, (iv) all indebtedness of a second Person secured by any Lien on any property owned by such first Person, whether or not such indebtedness has been assumed (to the extent of the lesser of the fair market value of such property or the amount of such indebtedness), (v) all Capitalized Lease Obligations of such Person, (vi) all obligations of such Person to pay a specified purchase price for goods or services whether or not delivered or accepted, I.E., take-or-pay and similar obligations, (vii) all net obligations of such Person under Interest Rate Agreements, (viii) all accounts payable of the Borrower and its Subsidiaries not paid within 90 days of the date such amounts are due and payable and not contested by the Borrower or its Subsidiaries, and (ix) all Contingent Obligations of such Person (other than Contingent Obligations arising from the guaranty by such Person of the obligations of the Borrower and/or its Subsidiaries to the extent such guaranteed obligations do not constitute Indebtedness and are otherwise permitted hereunder); PROVIDED that Indebtedness shall not include trade payables, accrued expenses and receipt of progress and advance payments, in each case arising in the ordinary course of business. "INITIAL PARENT PREFERRED STOCK CONVERSION" shall have the meaning provided in clause (n) of Section 6. "INTERCOMPANY LEASE PAYABLE" shall mean any intercompany Indebtedness incurred pursuant to Section 9.04(f) owing by the Borrower to the Parent on account of payments made by the Parent after the Effective Date with respect to a Parent Lease Obligation. "INTEREST RATE AGREEMENT" shall mean any interest rate swap agreement, any interest rate cap agreement, any interest rate collar agreement or other similar agreement or arrangement designed to protect the Borrower or any Subsidiary of the Borrower against fluctuations in interest rates. "KELSO" shall mean, collectively, Kelso Investment Associates V, L.P., a Delaware limited partnership, and Kelso Equity Partners V, L.P., a Delaware limited partnership. "KELSO AFFILIATE" shall mean Kelso and each investment fund controlled by Kelso. "LENDER" and "LENDERS" shall mean the Persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to Section 12.04. "LENDER REGISTER" shall have the meaning provided in Section 12.16. "LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement or any lease in the nature thereof). 10 "LOAN" shall mean one or more of the Tranche A Loans or Tranche B Loans or any combination thereof. "LONG DISTANCE BUSINESS" shall mean the wholesale long distance carrier business of the Borrower and its Subsidiaries. "LONG DISTANCE BUSINESS EBITDA" shall mean, for any period, the sum of the amounts for such period of (i) the portion of the consolidated net income of the Borrower and its Subsidiaries for such period taken as a single accounting period to the extent attributable to the Long Distance Business for such period, (ii) to the extent deducted in determining the amounts described in clause (i) above, the provision for current taxes based on income of the Borrower and its Subsidiaries, (iii) to the extent deducted in determining the amounts described in clause (i) above, interest expense with respect to all outstanding Indebtedness of the Borrower and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and without duplication net costs and/or net benefits under Interest Rate Agreements, but excluding, however, amortization of deferred financing costs to the extent included in total interest expense), (iv) depreciation expense of the Borrower and its Subsidiaries for such period to the extent attributable to the Long Distance Business, (v) amortization expense of the Borrower and its Subsidiaries for such period to the extent attributable to the Long Distance Business, (vi) an amount, if positive, equal to (1) the amount of all other non-cash items to the extent deducted in determining the amounts described in clause (i) above LESS (2) the amount of all non-cash revenue items to the extent added in the calculation of the amounts described in clause (i) above, and (vii) the total amount of Excluded Prior-Period Revenue Payments received by the Borrower and its Subsidiaries during such period. "MANAGEMENT AFFILIATE" shall mean Messrs. Duda, Leach, Thomas, Johnson and Bergstein or (to the extent same are controlled by one or more of the foregoing Persons) JED Communications Associates, Inc. "MANAGEMENT SERVICES AGREEMENT" shall mean the Management Agreement dated as of October 20, 1999 between the Borrower and Parent, as it may be amended, supplemented or otherwise modified to the extent permitted under this Agreement. "MARGIN STOCK" shall have the meaning provided in Regulation U. "MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the business, property, assets, liabilities or condition (financial or otherwise) (i) of the Borrower and its Subsidiaries taken as a whole or (ii) of Parent on a stand-alone basis; PROVIDED that the term Material Adverse Effect as used in Sections 8 and 9 shall not include clause (ii) of this definition. "MATURITY DATE" shall mean May 10, 2007. "MULTIEMPLOYER PLAN" shall mean any multiemployer plan as defined in section 4001(a)(3) of ERISA which is contributed to by (or to which there is an obligation to contribute of) the Borrower or any of its Subsidiaries or an ERISA Affiliate and each such plan for the five 11 year period immediately following the latest date on which the Borrower, any such Subsidiary or ERISA Affiliate contributed to or had an obligation to contribute to such plan. "NET CASH PROCEEDS" shall mean, with respect to any Asset Sale, the Cash Proceeds resulting therefrom net (without duplication) of expenses of sale (including payment of principal, premium and interest of Indebtedness secured by the assets the subject of the Asset Sale and required to be, and which is, repaid under the terms thereof as a result of such Asset Sale), and incremental taxes paid or payable as a result thereof. "NET INSURANCE PROCEEDS" shall mean, with respect to any Recovery Event, the cash proceeds (net of reasonable costs and taxes incurred in connection with such Recovery Event) received by the respective Person in connection with the respective Recovery Event. "NON-CONTINUING LENDER" shall have the meaning provided in the first paragraph of this Agreement. No Non-Continuing Lender shall be a Lender hereunder unless it becomes a Lender after the Effective Date by assignment pursuant to Section 12.04. "NORTHEAST ASSET SALE" shall mean the sales of receivables, equipment and other assets consummated pursuant to the Northeast Asset Sale Agreement. "NORTHEAST ASSET SALE AGREEMENT" shall mean that certain Network Transition Agreement, dated as of November 7, 2001, by and among Choice One, Choice One Communications of New York, Inc., Choice One Communications of Pennsylvania, Inc., Choice One Communications of New Hampshire, Inc., Choice One Communications of Massachusetts, Inc., Choice One Communications of Maine, Inc. and the Borrower, as such agreement is in effect on the Effective Date and as it may be amended, supplemented or otherwise modified by the parties thereto pursuant to and in accordance with the terms thereof with the consent of the Required Lenders. "NORTHWEST ASSET SALE" shall mean the sale of assets consummated pursuant to the Northwest Asset Sale Agreement. "NORTHWEST ASSET SALE AGREEMENT" shall mean that certain Asset Purchase Agreement dated as of October 19, 2001, by and between the Borrower and Advanced TelCom, Inc., as in effect on the Effective Date. "NOTES" shall mean one or more of the Tranche A Notes or Tranche B Notes or any combination thereof. "NOTICE OFFICE" shall mean the office of the Administrative Agent located at 301 S. College Street, Charlotte, NC 28288-0537 or such other office as the Administrative Agent may designate to the other parties hereto in writing from time to time. "OBLIGATIONS" shall mean all amounts, direct or indirect, contingent or absolute, of every type or description, and at any time existing, owing to the Administrative Agent, the 12 Collateral Agent or any Lender pursuant to the terms of this Agreement or any other Credit Document, whether for principal, interest, Fees, expenses, indemnification or otherwise. "PARENT" shall mean FairPoint Communications, Inc. (formerly known as MJD Communications, Inc.), a Delaware corporation. "PARENT CASH CONTRIBUTION" shall mean any cash contribution made by Parent to the Borrower to the extent such contribution represents a contribution with respect to Parent's equity in the Borrower. "PARENT CREDIT AGREEMENT" shall mean the credit agreement among Parent, various lenders party thereto, Bank of America, N.A., as Syndication Agent, and Deutsche Bank Trust Company Americas, formerly known as Bankers Trust Company, as Administrative Agent, dated as of March 30, 1998 (as such agreement has been amended, restated, supplemented or otherwise modified prior to the date hereof and as it may hereafter be amended, restated, supplemented or otherwise modified from time to time). "PARENT LEASE OBLIGATIONS" shall mean the payment obligations existing on or after the Effective Date under the leases described on ANNEX XIV attached hereto; PROVIDED that the amount of such obligations with respect to any such lease that shall constitute Parent Lease Obligations shall not exceed the corresponding total amount of payments for such lease as set forth on ANNEX XIV. "PARENT PREFERRED STOCK" shall mean preferred stock of Parent issued pursuant to a certificate of designation in the form of EXHIBIT K attached hereto. "PAYMENT OFFICE" shall mean the office of the Administrative Agent located at 301 S. College Street, Charlotte, NC 28288-0537 or such other office as the Administrative Agent may designate to the Borrower and the Lenders in writing from time to time. "PBGC" shall mean the Pension Benefit Guaranty Corporation established pursuant to Section 4002 of ERISA, or any successor thereto. "PERMITTED HOLDERS" shall mean, each Kelso Affiliate, each THL Affiliate and each Management Affiliate. "PERMITTED LIENS" shall mean Liens described in clauses (a) through (l), inclusive, of Section 9.03. "PERMITTED PARENT CASH CONTRIBUTION AMOUNT" shall mean, for any four-fiscal quarter period of the Borrower, an amount equal to (i) $1,000,000 PLUS (ii) 10% of Consolidated Revenue for such four-fiscal quarter period (PROVIDED that for any four-fiscal quarter period ending on or prior to September 30, 2002, Consolidated Revenue for such period shall be deemed to equal Consolidated Revenue for those fiscal quarters of the Borrower ending after December 31, 2001 and on or prior to September 30, 2002, MULTIPLIED BY the appropriate factor necessary to annualize such amount). 13 "PERSON" shall mean any individual, partnership, joint venture, firm, corporation, limited liability company, association, trust or other enterprise or any government or political subdivision or any agency, department or instrumentality thereof. "PLAN" shall mean any pension plan as defined in Section 3(2) of ERISA (other than a multiemployer plan as defined in Section 3(37) of ERISA), which is maintained or contributed to by (or to which there is an obligation to contribute of) the Borrower or any of its Subsidiaries or an ERISA Affiliate and that is subject to Title IV of ERISA, and each such plan for the five year period immediately following the latest date on which the Borrower any such Subsidiary of the Borrower or an ERISA Affiliate maintained, contributed to or had an obligation to contribute to such plan. "PLEDGE AGREEMENT" shall mean that certain Amended and Restated Pledge Agreement attached hereto as EXHIBIT G, as the same is amended pursuant to the Effective Date Amendment and as it may hereafter be modified, amended, amended and restated and/or supplemented. "PLEDGE AGREEMENT COLLATERAL" shall mean "Collateral" as defined in the Pledge Agreement. "PLEDGED SECURITIES" shall mean all of the "Pledged Securities" as defined in the Pledge Agreement. "PREFERRED STOCK ISSUANCE AND CAPITAL CONTRIBUTION AGREEMENT" shall mean the Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement by and among Parent, Administrative Agent, each Lender (or, in the case of Deutsche Bank Trust Company Americas, an Affiliate thereof) and each Non-Continuing Lender in the form of EXHIBIT L hereto, as the same may be modified, amended, amended and restated and/or supplemented in accordance with the terms hereof and thereof. "PUC" shall mean a public utility commission, public service commission or any similar agency or commission. "QUALIFIED IPO" shall mean a registered initial public offering of the common stock of Parent generating proceeds of at least $75,000,000. "RCRA" shall mean the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section 6901 ET SEQ. "RECOVERY EVENT" shall mean the receipt by the Borrower or any of its Subsidiaries of any cash insurance proceeds or condemnation awards payable (i) by reason of theft, loss, physical destruction, damage, taking or any other similar event with respect to any property or assets of the Borrower or any of its Subsidiaries and (ii) under any policy of insurance required to be maintained under Section 8.03. 14 "REGULATION D" shall mean Regulation D of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing reserve requirements. "REGULATION T" shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "REGULATION U" shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "REGULATION X" shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof establishing margin requirements. "REGULATION Y" shall mean Regulation Y of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or portion thereof. "REPORTABLE EVENT" shall mean an event described in Section 4043(c) of ERISA with respect to a Plan that is subject to Title IV of ERISA other than those events as to which the 30-day notice period is waived under subsection ...22, .23, .25, .27 or .28 of PBGC Regulation Section 4043. "REQUIRED LENDERS" shall mean (i) with respect to any amendment, modification, termination or waiver of Section 5.02(k) or any other provision of the Credit Documents related to the Conversion Option, Lenders (other than Wachovia (or any assignee thereof) to the extent its Loans represent Existing Swap Obligations which were converted to Loans) having or holding more than 50% of the sum of (a) the aggregate outstanding principal amount of the Tranche A Loans of all Lenders (other than Tranche A Loans representing Existing Swap Obligations that were converted to Tranche A Loans) PLUS (b) the aggregate outstanding principal amount of the Tranche B Loans of all Lenders (other than Tranche B Loans representing Existing Swap Obligations that were converted to Tranche B Loans), and (ii) with respect to all other matters, Lenders having or holding more than 50% of the sum of (x) the aggregate outstanding principal amount of the Tranche A Loans of all Lenders PLUS (y) the aggregate outstanding principal amount of the Tranche B Loans of all Lenders. "SCHEDULED REPAYMENT" shall have the meaning provided in Section 5.02(a). "SEC" shall have the meaning provided in Section 8.01(k). "SEC REGULATION D" shall mean Regulation D as promulgated under the Securities Act of 1933, as amended, as the same may be in effect from time to time. "SECTION 5.04 CERTIFICATE" shall have the meaning provided in Section 5.04(b)(ii). 15 "SECURED CREDITOR" shall have the meaning assigned to such term in the respective Security Documents. "SECURITY AGREEMENT" shall mean that certain Amended and Restated Security Agreement attached hereto as EXHIBIT H, as the same is amended pursuant to the Effective Date Amendment and as it may hereafter be modified, amended, amended and restated and/or supplemented. "SECURITY AGREEMENT COLLATERAL" shall mean all "Collateral" as defined in the Security Agreement. "SECURITY DOCUMENT" shall mean and include each of the Security Agreement, the Pledge Agreement, the Effective Date Amendment and all other instruments or documents delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to the Administrative Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations. "SUBSIDIARY" of any Person shall mean and include (i) any corporation more than 50% of whose stock of any class or classes having by the terms thereof ordinary voting power to elect a majority of the directors of such corporation (irrespective of whether or not at the time stock of any class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time owned by such Person directly or indirectly through Subsidiaries and (ii) any partnership, association, joint venture or other entity in which such Person directly or indirectly through Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise expressly provided, all references herein to "Subsidiary" shall mean a Subsidiary of the Borrower. "SUBSIDIARY GUARANTORS" shall mean each Subsidiary party to the Subsidiary Guaranty. "SUBSIDIARY GUARANTY" shall mean that certain Amended and Restated Subsidiary Guaranty attached hereto as EXHIBIT F, as the same may be modified, amended, amended and restated and/or supplemented. "SYNDICATION AGENT" shall have the meaning provided in the first paragraph of this Agreement. "TAX SHARING AGREEMENT" shall mean that certain Amended and Restated Tax Sharing Agreement attached hereto as EXHIBIT I, as the same may be modified, amended, amended and restated and/or supplemented. "TAX SHARING PAYMENT" shall mean any amount paid to the Borrower on account of the Tax Sharing Agreement. "TAXES" shall have the meaning provided in Section 5.04(a). "THL" shall mean THL Equity Advisors IV, LLC. 16 "THL AFFILIATE" shall mean THL and each investment fund controlled by THL and certain parties that are related to THL that are invested in the Parent. "TRANCHE" shall mean either of the two separate Tranches of Loans hereunder, I.E., (i) Tranche A Loans and (ii) Tranche B Loans. "TRANCHE A LOAN" shall have the meaning provided in Section 2.01(a). "TRANCHE A NOTE" shall have the meaning provided in Section 2.02(a). "TRANCHE B LOAN" shall have the meaning provided in Section 2.01(b). "TRANCHE B NOTE" shall have the meaning provided in Section 2.02(a). "TRIGGER EVENT" shall have the meaning provided in Section 1.1 of the Preferred Stock Issuance and Capital Contribution Agreement. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in New York. "UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any, by which the actuarial present value of the accumulated plan benefits under the Plan as of the close of its most recent plan year, determined in accordance with actuarial assumptions at such time consistent with Statement of Financial Accounting Standards No. 87, exceeds the market value of the assets allocable thereto. "U.S." shall mean the United States of America. "WACHOVIA" shall mean Wachovia Bank, National Association, formerly known as First Union National Bank, in its individual capacity, and any successor corporation thereto by merger, consolidation or otherwise. "WHOLLY-OWNED SUBSIDIARY" of any Person shall mean any Subsidiary of such Person to the extent all of the capital stock or other ownership interests in such Subsidiary, other than directors' qualifying shares, is owned directly or indirectly by such Person. "WRITTEN" or "IN WRITING" shall mean any form of written communication or a communication by means of facsimile transmission. SECTION 2. AMOUNT AND TERMS OF LOANS. 2.01 ACKNOWLEDGEMENT OF EXISTING OBLIGATIONS; CONVERSION OF EXISTING LOANS AND EXISTING SWAP OBLIGATIONS. The Borrower hereby acknowledges that immediately prior to the Effective Date and prior to giving effect to the conversion of the Existing Loans and Existing Swap Obligations described in Sections 2.01(a) and 2.01(b) below, the Initial Parent Preferred Stock Conversion, the Effective Date Paydown or any of the other terms of this Agreement which become effective on the Effective Date, (i) the Borrower is liable to Agents and the 17 Lenders for (1) $125,800,000.00 in principal amount of Existing Loans, (2) $303,298.63 of accrued and unpaid interest on the Existing Loans, (3) $7,416.67 of accrued and unpaid fees, and (4) $216,814.37 of other accrued and unpaid legal fees and expenses, all of which amounts are due and payable on the Effective Date, (ii) the Borrower is liable to Wachovia for $3,003,000.00 of Existing Swap Obligations, and (iii) no Existing Lender has any commitment or obligation to advance any additional amount to the Borrower under the Existing Credit Agreement. Each of the Borrower and the Credit Parties (other than Parent) hereby (A) represents, warrants, agrees, covenants, acknowledges and reaffirms that all of the obligations described in the preceding sentence are absolute and unconditional and are the legal, valid and binding obligations of the Borrower and such Credit Parties and that it has no (and it permanently and irrevocably waives and releases Agents and Lenders from any, to the extent arising on or prior to the Effective Date) defense, set off, claim or counterclaim against any Agent or any Lender in regard to the obligations described in the preceding sentence, and (B) immediately prior to the Effective Date and prior to giving effect to the conversion of the Existing Loans and Existing Swap Obligations described in Sections 2.01(a) and 2.01(b) below and the Initial Parent Preferred Stock Conversion and the Effective Date Paydown, reaffirms its obligation to pay the obligations described in the preceding sentence in accordance with the terms and conditions of the Existing Credit Agreement, the Existing Credit Documents and the Existing Swap Agreement. Notwithstanding the foregoing, each Existing Lender hereby severally agrees that upon giving effect on the Effective Date to the Effective Date Paydown, the payment of accrued interest and fees provided for in clause (k) of Section 6 and the Initial Parent Preferred Stock Conversion, (x) those principal amounts of the Existing Revolving Loan and Existing Term Loan of each Lender (and the amount of the Existing Swap Obligations of Wachovia) set forth on ANNEX II hereto shall cease to be outstanding and shall be deemed satisfied in full, (y) those principal amounts of the Existing Revolving Loan and Existing Term Loan of each Lender and Non-Continuing Lender set forth on ANNEX III hereto shall be converted to Parent Preferred Stock, and such converted Existing Loans shall cease to be outstanding (it being understood that each Existing Lender hereby waives, solely for the benefit of each other Existing Lender, any claim or right to any portion of the Effective Date Paydown or the Initial Parent Preferred Stock Conversion allocated to any other Existing Lender on the Effective Date in accordance with the terms of this Agreement) and shall be deemed satisfied in full, and (z) subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of the Borrower herein set forth, those principal amounts of the Existing Loans and Existing Swap Obligations of each Lender set forth on ANNEX I hereto shall be converted to Tranche A Loans and Tranche B Loans as described in Sections 2.01(a) and 2.01(b). (a) TRANCHE A LOANS. Each Lender severally agrees to continue and convert that portion of its Existing Term Loan, Existing Revolving Loan and Existing Swap Obligation shown on ANNEX I as its "Tranche A Portion" of such Existing Loans and Existing Swap Obligations as and to a term loan hereunder (each a "TRANCHE A LOAN" and, collectively, the "TRANCHE A LOANS") on the Effective Date (and the Borrower hereby agrees to such continuation and conversion), so that on the Effective Date, after giving effect to such continuation and conversion of Existing Loans and Existing Swap Obligations for all Lenders, each Lender will hold a Tranche A Loan in the principal amount set forth opposite its name on ANNEX I hereto and the aggregate amount of the Tranche A Loans of all Lenders shall be 18 $8,740,000 as of the date hereof; PROVIDED that the Tranche A Loan of any Lender shall be adjusted to give effect to any assignmen ts of the Tranche A Loans after the Effective Date pursuant to Section 12.04. Amounts continued as and converted to Tranche A Loans under this Section 2.01(a) and subsequently repaid or prepaid may not be reborrowed. (b) TRANCHE B LOANS. Each Lender severally agrees to continue and convert that portion of its Existing Term Loan, Existing Revolving Loan and Existing Swap Obligation shown on ANNEX I as its "Tranche B Portion" of such Existing Loans and Existing Swap Obligations as and to a term loan hereunder (each a "TRANCHE B LOAN" and, collectively, the "TRANCHE B LOANS") on the Effective Date (and the Borrower hereby agrees to such continuation and conversion), so that on the Effective Date, after giving effect to such continuation and conversion of Existing Loans and Existing Swap Obligations for all Lenders, each Lender will hold a Tranche B Loan in the principal amount set forth opposite its name on ANNEX I hereto and the aggregate amount of the Tranche B Loans shall be $19,202,000 as of the date hereof; PROVIDED that the Tranche B Loan of any Lender shall be adjusted to give effect to any assignments of the Tranche B Loans after the Effective Date pursuant to Section 12.04. Amounts continued as and converted to Tranche B Loans under this Section 2.01(b) and subsequently repaid or prepaid may not be reborrowed. (c) NO COMMITMENT TO EXTEND FURTHER CREDIT. No Existing Lender or Lender shall have any obligation or commitment under this Agreement to advance any additional amount or extend additional credit to the Borrower or any of its Subsidiaries after the Effective Date. By executing this Agreement, each Non-Continuing Lender hereby agrees to the terms set forth in this Section 2.01 other than clauses (a) and (b) hereof. 2.02 REGISTER; NOTES. (a) The Borrower's obligation to pay the principal of, and interest on, the Loans made to it by each Lender shall be set forth in the Lender Register maintained by the Administrative Agent pursuant to Section 12.16, and shall be evidenced, (i) if Tranche A Loans, by a promissory note substantially in the form of EXHIBIT A with blanks appropriately completed in conformity herewith (each such note, a "TRANCHE A NOTE" and, collectively, the "TRANCHE A NOTES"), and (ii) if Tranche B Loans, by a promissory note substantially in the form of EXHIBIT B with blanks appropriately completed in conformity herewith (each such note, a "TRANCHE B NOTE" and, collectively, the "TRANCHE B NOTES"). (b) Each Lender will note on its internal records the amount of each Loan made by it and each payment in respect thereof and will, prior to any permitted transfer of any of its Notes permitted hereunder, endorse on the reverse side thereof the outstanding principal amount of Loans evidenced thereby. Failure to make any such notation shall not affect the Borrower's obligations in respect of such Loans. 2.03 INTEREST. (a) The outstanding principal amount of each Loan shall bear interest at a rate of 8.0% per annum from and including the Effective Date until the repayment thereof; PROVIDED that upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any Fees and other amounts then due and payable hereunder, shall thereafter bear interest (including post-petition interest in any 19 proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate of 10.0% per annum. (b) Interest in respect of each Tranche A Loan shall be payable on a current basis in cash (i) on the first Business Day of each calendar month, commencing on the first such day to occur after the Effective Date, (ii) at maturity (whether by acceleration or otherwise), and (iii) after such maturity, on demand. (c) Except as set forth in Section 2.03(d), interest in respect of each Tranche B Loan shall be payable on a current basis in cash (i) on the first Business Day of each calendar month, commencing on the first such day to occur after the Effective Date, (ii) upon any Scheduled Repayment (on the amount prepaid), (iii) at maturity (whether by acceleration or otherwise), and (iv) after such maturity, on demand. (d) With respect to interest on the Tranche B Loans payable pursuant to clauses (i) and (ii) of Section 2.03(c), the Borrower may, in lieu of paying such interest in cash, on the date payment of such interest would otherwise be due, increase the principal amount of the Tranche B Loans in an aggregate amount equal to the amount of such accrued and unpaid interest thereon (the amount of such increase being "ADDITIONAL TRANCHE B PRINCIPAL" with respect to the Tranche B Loans), and upon such increase in principal amount of the Tranche B Loans such accrued and unpaid interest shall cease to be due and payable at such time and such Additional Tranche B Principal shall instead be due and payable at maturity (whether by acceleration or otherwise) of the Tranche B Loans. (e) All computations of interest hereunder shall be made in accordance with Section 12.07(b). SECTION 3. INTENTIONALLY OMITTED. SECTION 4. FEES. The Borrower agrees to pay an annual administrative and collateral monitoring fee in the amount of $10,000 to the Administrative Agent, such fee to be earned and payable in advance on the Effective Date and on each anniversary of the Effective Date until all of the Obligations are paid in full. SECTION 5. PAYMENTS. 5.01 VOLUNTARY PREPAYMENTS. The Borrower shall have the right to prepay the Loans, without premium or penalty, in whole or in part at any time and from time to time on the following terms and conditions: (i) the Borrower shall give the Administrative Agent prior to 1:00 P.M. (New York time) at the Notice Office at least one Business Day's prior written notice (or telephonic notice promptly confirmed in writing) of its intent to prepay such Loans and the amount of such prepayment, which notice the Administrative Agent shall promptly transmit to each of the Lenders; (ii) each partial prepayment of Loans pursuant to this Section 5.01 shall be in an aggregate principal amount of at least $100,000. Each prepayment pursuant to this Section 5.01 shall be applied FIRST, to repay accrued and unpaid interest on the Tranche A Loans, SECOND, to repay the outstanding principal amount of the Tranche B Loans in inverse order of 20 maturity to the full extent thereof, and THIRD, to repay the outstanding principal amount of the Tranche A Loans to the full extent thereof, in each case pro rata to the Loans of each Lender in the Tranche of Loans being repaid. 5.02 MANDATORY REPAYMENTS. (a) In addition to any other mandatory repayments pursuant to this Section 5.02, on each date set forth below the Borrower shall be required to repay that principal amount of Tranche B Loans as is set forth below opposite such date (each such repayment, as the same may be reduced as provided in Sections 5.01 and 5.02, a "SCHEDULED REPAYMENT"), with any remaining amount of principal of the Tranche B Loans due on the Maturity Date:
Scheduled Repayment Date Amount ------------------------ ------ September 30, 2004 $2,062,000 September 30, 2005 $4,057,000 September 30, 2006 $5,372,000
(b) In addition to any other mandatory repayments pursuant to this Section 5.02, on each date on or after the Effective Date upon which the Borrower or any of its Subsidiaries receives any cash proceeds from any incurrence by the Borrower or any of its Subsidiaries of Indebtedness for borrowed money (other than Indebtedness for borrowed money permitted to be incurred pursuant to Section 9.04(b) through Section 9.04(g)), an amount equal to 100% of the Debt Proceeds of the respective incurrence of Indebtedness shall be applied on each such date as a mandatory repayment in accordance with the provisions of Section 5.02(i). (c) In addition to any other mandatory repayments pursuant to this Section 5.02, within two Business Days after each date on or after the Effective Date upon which the Borrower or any of its Subsidiaries receives any cash proceeds from any Asset Sale (including any sale by the Borrower or its Subsidiaries of capital stock of any of the Subsidiaries of the Borrower), an amount equal to 100% of the Net Cash Proceeds from such Asset Sale shall be applied on each such date as a mandatory repayment in accordance with the provisions of Section 5.02(i). (d) In addition to any other mandatory repayments pursuant to this Section 5.02, within 10 days following each date on or after the Effective Date upon which the Borrower or any of its Subsidiaries receives any cash proceeds from any Recovery Event, an amount equal to 100% of the Net Insurance Proceeds from such Recovery Event shall be applied on each such date as a mandatory repayment in accordance with the provisions of Section 5.02(i). (e) In addition to any other mandatory repayments pursuant to this Section 5.02, 100% of Consolidated Cash Equity received by the Borrower or any of its Subsidiaries on each date on or after the Effective Date shall be applied on each such date as a mandatory repayment in accordance with the provisions of Section 5.02(i). 21 (f) In addition to any other mandatory repayments pursuant to this Section 5.02, within one Business Day after each date on or after the Effective Date upon which the Borrower or any of its Subsidiaries receives any Tax Sharing Payment, 100% of the amount thereof shall be applied on each such date as a mandatory repayment in accordance with the provisions of Section 5.02(i); PROVIDED, HOWEVER, that the Borrower shall not be required to make any repayment pursuant to this Section 5.02(f) of (1) Tax Sharing Payments received by the Borrower on account of the receivable of the Borrower arising under the Tax Sharing Agreement and determined on or about the end of the second fiscal quarter of 2002 of the Borrower as being in the outstanding amount of approximately $7,600,000, so long as such Tax Sharing Payments were and are applied to pay the Effective Date Paydown and/or wind-down costs arising out of the Borrower's competitive local exchange carrier operations (including the obligations described on ANNEX XII attached hereto), and (2) Tax Sharing Payments received by the Borrower in any fiscal year (commencing with fiscal year 2004 and ending with fiscal year 2006) during the period from the date on which the entire amount of the Scheduled Repayment for such fiscal year has been repaid until the scheduled date for such Scheduled Repayment, so long as (x) such Tax Sharing Payments received during such period are applied promptly after receipt thereof to repay Intercompany Lease Payables outstanding as of the most recently ended fiscal year of the Borrower, (y) the aggregate amount of Intercompany Lease Payables paid with the proceeds of Tax Sharing Payments during any such fiscal year of the Borrower does not exceed $4,000,000, and the aggregate amount of Intercompany Lease Payables paid after the Effective Date with the proceeds of Tax Sharing Payments does not exceed, in any event, $9,500,000, and (z) no Default or Event of Default shall have occurred and be continuing at the time of receipt of such Tax Sharing Payments or would result from the application thereof as described in clause (x) above. (g) In addition to any other mandatory repayments pursuant to this Section 5.02, on the date of receipt of any Parent Cash Contribution by the Borrower (other than any Excluded Parent Cash Contribution), if the amount of such Parent Cash Contribution PLUS all other Parent Cash Contributions (other than Excluded Parent Cash Contributions) made during the most recently ended four-fiscal quarter period of the Borrower (to the extent not theretofore applied to repay Loans pursuant to this Section 5.02(g)) would exceed the Permitted Parent Cash Contribution Amount for such four-fiscal quarter period (or for the most recently ended four-fiscal quarter period for which the Borrower's financial statements are available), the Borrower shall apply the amount of such excess on such date as a mandatory repayment in accordance with the provisions of Section 5.02(i). In the event the Borrower subsequently determines that the Permitted Parent Cash Contribution Amount for the four-fiscal quarter period that ended most recently prior to the date of receipt of any Parent Cash Contribution (other than an Excluded Parent Cash Contribution) is less than the Permitted Parent Cash Contribution Amount for the four-fiscal quarter period for which financial statements of the Borrower were available on such date, the Borrower shall promptly make an additional repayment of such Parent Capital Contribution in the amount of such difference, which shall be applied in accordance with the provisions of Section 5.02(i). (h) In addition to any other mandatory repayments pursuant to this Section 5.02, on each Available Cash Payment Date, an amount equal to 50% of the Available 22 Cash Flow for the relevant Available Cash Payment Period shall be applied FIRST, to pay accrued and unpaid interest on the Tranche A Loans, SECOND, to repay the outstanding principal amount of the Tranche A Loans to the full extent thereof, and THIRD, to repay the outstanding principal amount of the Tranche B Loans in inverse order of maturity to the full extent thereof, in each case pro rata to the Loans of each Lender in the Tranche of Loans being repaid. (i) Each repayment of Loans required by paragraphs (b) through (g) of this Section 5.02 shall be applied FIRST, to pay accrued and unpaid interest on the Tranche A Loans, SECOND, to repay the outstanding principal of the Tranche B Loans in inverse order of maturity to the full extent thereof, and THIRD, to repay the outstanding principal amount of the Tranche A Loans to the full extent thereof, in each case pro rata to the Loans of each Lender in the Tranche of Loans being repaid. Notwithstanding anything to the contrary contained in this Agreement, all Tax Sharing Payments that are applied to the Tranche B Loans shall be applied in forward order of maturity unless at the time of such proposed application both (x) the date scheduled for the first Scheduled Repayment shall not have occurred or a Scheduled Repayment shall have been scheduled under Section 5.02(a) to occur within one year, and (y) the entire amount of such Scheduled Repayment shall have already been made. (j) Notwithstanding anything to the contrary contained in this Agreement or in any other Credit Document, except as provided in clause (k) below, all then outstanding Loans shall be indefeasibly repaid in full in cash on the earlier of (i) the Maturity Date, and (ii) the date on which a Change of Control occurs (unless the Required Lenders otherwise agree in writing). (k) Upon the occurrence of any Trigger Event with respect to a Loan of any Lender (other than Loans representing Existing Swap Obligations which were converted to Loans), such Lender shall have the option, at its sole discretion, in accordance with the Preferred Stock Issuance and Capital Contribution Agreement to convert (the "CONVERSION OPTION") all or a portion of such Loan (and accrued and unpaid interest thereon and any other due and unpaid Obligations) with respect to which a Trigger Event has occurred into Parent Preferred Stock having a liquidation preference determined pursuant to and in accordance with Section 2.1(b) of the Preferred Stock Issuance and Capital Contribution Agreement. Notwithstanding anything contained in this Agreement or in the other Credit Documents to the contrary, no Lender shall have a maximum number of times or minimum amount of such Loans or such other Obligations with respect to which such Lender's Conversion Option may be exercised, and each such Lender's right to exercise a Conversion Option with respect to any portion of such Lender's Loans shall not terminate until all Loans and other Obligations owed to such Lender under this Agreement are indefeasibly paid in full and/or converted to Parent Preferred Stock in accordance with the terms of the Preferred Stock Issuance and Capital Contribution Agreement. (l) Notwithstanding anything to the contrary in this Section 5.02, any Cash Proceeds of the Northwest Asset Sale received after the Effective Date shall be applied, at Borrower's election, either (i) to repay the Loans pursuant to Section 5.02(a) or (ii) to the payment of any remaining unpaid liabilities specified in ANNEX XII attached hereto as such liabilities become due, and shall not be required to be applied to repayment of the Loans pursuant to any other provision of this Section 5.02. 23 5.03 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically provided herein, all payments under this Agreement and/or under any Note shall be made to the Administrative Agent for the ratable account of the Lenders entitled thereto, not later than 1:00 P.M. (New York time) on the date when due and shall be made in immediately available funds and in Dollars at the Payment Office, it being understood that written notice by the Borrower to the Administrative Agent to make a payment from the funds in the Borrower's account at the Payment Office shall constitute the making of such payment to the extent of such funds held in such account. Any payments under this Agreement which are made later than 1:00 P.M. (New York time) on any day shall be deemed to have been made on the next succeeding Business Day. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Business Day, the due date thereof shall be extended to the next succeeding Business Day and, with respect to payments of principal, interest shall be payable during such extension at the applicable rate in effect immediately prior to such extension. 5.04 NET PAYMENTS. (a) All payments made by the Borrower hereunder and/or under any Note will be made without setoff, counterclaim or other defense. Except as provided in Section 5.04(b), all such payments will be made free and clear of, and without deduction or withholding for, any present or future taxes, levies, imposts, duties, fees, assessments or other charges of whatever nature now or hereafter imposed by any jurisdiction or by any political subdivision or taxing authority thereof or therein with respect to such payments (but excluding, except as provided in the second succeeding sentence, any tax imposed on or measured by the net income or net profits of a Lender pursuant to the laws of the jurisdiction in which it is organized or the jurisdiction in which the principal office or applicable lending office of such Lender is located or any subdivision thereof or therein) and all interest, penalties or similar liabilities with respect to such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges (all such non-excluded taxes, levies, imposts, duties, fees, assessments or other charges being referred to collectively as "TAXES"). If any Taxes are so levied or imposed, the Borrower agrees to pay the full amount of such Taxes, and such additional amounts as may be necessary so that every payment of all amounts due under this Agreement and/or under any Note, after withholding or deduction for or on account of any Taxes, will not be less than the amount provided for herein or therein. If any amounts are payable in respect of Taxes pursuant to the preceding sentence, the Borrower agrees to reimburse each Lender, upon the written request of such Lender, for taxes imposed on or measured by the net income or net profits of such Lender pursuant to the laws of the jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located or under the laws of any political subdivision or taxing authority of any such jurisdiction in which such Lender is organized or in which the principal office or applicable lending office of such Lender is located and for any withholding of taxes as such Lender shall determine are payable by, or withheld from, such Lender, in respect of such amounts so paid to or on behalf of such Lender pursuant to the preceding sentence and in respect of any amounts paid to or on behalf of such Lender pursuant to this sentence. The Borrower will furnish to the Administrative Agent within 45 days after the date the payment of any Taxes is due pursuant to applicable law certified copies of tax receipts evidencing such payment by the Borrower. The Borrower agrees to indemnify and hold harmless each Lender, and reimburse such Lender upon its written request, for the amount of any Taxes so levied or imposed and paid by such Lender. 24 (b) Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes agrees to deliver to the Borrower and the Administrative Agent on or prior to the Effective Date, or in the case of a Lender that is an assignee or transferee of an interest under this Agreement pursuant to Section 12.04 (unless the respective Lender was already a Lender hereunder immediately prior to such assignment or transfer), on the date of such assignment or transfer to such Lender, (i) two accurate and complete original signed copies of Internal Revenue Service Form W-8ECI or Form W-8BEN (with respect to a complete exemption under an income tax treaty) (or successor forms) certifying to such Lender's entitlement to a complete exemption from United States withholding tax with respect to payments to be made under this Agreement and under any Note, or (ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver either Internal Revenue Service Form W-8ECI or Form W-8BEN pursuant to clause (i) above, (x) a certificate substantially in the form of EXHIBIT C hereto (any such certificate, a "SECTION 5.04 CERTIFICATE") and (y) two accurate and complete original signed copies of Internal Revenue Service Form W-8BEN (or successor form) (with respect to the portfolio interest exemption) certifying to such Lender's entitlement as of such date to a complete exemption from United States withholding tax with respect to payments of interest to be made under this Agreement and under any Note. In addition, each Lender agrees that from time to time after the Effective Date, when a lapse of time or change in circumstances renders the previous certification obsolete or inaccurate in any material respect, it will deliver to the Borrower and the Administrative Agent two new accurate and complete original signed copies of Internal Revenue Service Form W-8ECI, or Form W-8BEN and a Section 5.04 Certificate, as the case may be, and such other forms as may be required in order to confirm or establish the entitlement of such Lender to a continued exemption from or reduction in United States withholding tax with respect to payments under this Agreement and any Note, or it shall immediately notify the Borrower and the Administrative Agent of its inability to deliver any such Form or Certificate, in which case such Lender shall not be required to deliver any such Form or Certificate pursuant to this Section 5.04(b). Notwithstanding anything to the contrary contained in Section 5.04(a), but subject to Section 12.04(b) and the immediately succeeding sentence, (x) the Borrower shall be entitled, to the extent it is required to do so by law, to deduct or withhold income or similar taxes imposed by the United States (or any political subdivision or taxing authority thereof or therein) from interest, Fees or other amounts payable by it hereunder for the account of any Lender which is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent that such Lender has not provided to the Borrower U.S. Internal Revenue Service Forms that establish a complete exemption from such deduction or withholding and (y) the Borrower shall not be obligated pursuant to Section 5.04(a) hereof to gross-up payments to be made by it to a Lender in respect of income or similar taxes imposed by the United States if (I) such Lender has not provided to the Borrower the Internal Revenue Service Forms required to be provided to the Borrower pursuant to this Section 5.04(b) or (II) in the case of a payment, other than interest, to a Lender described in clause (ii) above, to the extent that such Forms do not establish a complete exemption from withholding of such taxes. Notwithstanding anything to the contrary contained in the preceding sentence or elsewhere in this Section 5.04 and except as set forth in Section 12.04(b), the Borrower agrees to pay any additional amounts and to indemnify each Lender in the manner set forth in Section 5.04(a) (without regard to the identity of the jurisdiction requiring the deduction or 25 withholding)in respect of any Taxes deducted or withheld by it as described in the immediately preceding sentence as a result of any changes after the Effective Date in any applicable law, treaty, governmental rule, regulation, guideline or order, or in the interpretation thereof, relating to the deducting or withholding of such Taxes. (c) If the Borrower pays any additional amount under this Section 5.04 to a Lender and such Lender determines in its sole discretion that it has actually received or realized in connection therewith any refund or any reduction of, or credit against, its Tax liabilities in or with respect to the taxable year in which the additional amount is paid, such Lender shall pay to the Borrower an amount that the Lender shall, in its sole discretion, determine is equal to the net benefit, after tax, which was obtained by the Lender in such year as a consequence of such refund, reduction or credit. SECTION 6. CONDITIONS PRECEDENT. The occurrence of the Effective Date is subject to the satisfaction of each of the following conditions at such time: (a) EFFECTIVENESS OF THIS AGREEMENT. The parties to this Agreement shall have executed and delivered a counterpart of this Agreement as required by Section 12.10(i). (b) ISSUANCE OF NOTES; EFFECTIVENESS OF OTHER AGREEMENTS. On the Effective Date: (i) The Borrower shall have duly authorized, executed and delivered a Tranche A Note and a Tranche B Note to each Lender, which Notes shall evidence the Loans of such Lender and be satisfactory to such Lender; (ii) Each of the Subsidiary Guaranty, the Security Agreement, the Pledge Agreement, and the Tax Sharing Agreement shall be in full force and effect; (iii) Parent, the Administrative Agent, each Lender (or, in the case of Deutsche Bank Trust Company Americas, an Affiliate thereof), and each Non-Continuing Lender shall have duly authorized, executed and delivered the Preferred Stock Issuance and Capital Contribution Agreement and such agreement shall be in full force and effect; and (iv) The Borrower, each Subsidiary Guarantor and the Collateral Agent shall have executed and delivered the Effective Date Amendment and such amendment shall be in full force and effect. (c) OPINION OF COUNSEL. The Lenders shall have received one or more opinions, addressed to each of the Agents and each of the Lenders and dated the Effective Date, from Paul, Hastings, Janofsky & Walker LLP, special counsel to the Credit Parties, which opinions shall cover the matters contained in EXHIBIT D hereto and shall be in form and substance reasonably satisfactory to the Agents. 26 (d) CREDIT PARTY CERTIFICATES. The Agents shall have received a certificate, dated the Effective Date, signed by an Authorized Officer of each Credit Party in the form of EXHIBIT E hereto with appropriate insertions and deletions, together with (x) copies of the Company Documents of each Credit Party, (y) the resolutions of each Credit Party referred to in such certificate, and (z) a statement that all of the applicable conditions set forth in this Section 6 have been satisfied as of such date, with all of the foregoing to be reasonably satisfactory to the Agents. (e) CORPORATE AND LEGAL PROCEEDINGS. On the Effective Date, all corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Agreement and the other Credit Documents shall be reasonably satisfactory in form and substance to the Agents, and the Administrative Agent shall have received all information and copies of all certificates, documents and papers, including good standing certificates and any other records of corporate proceedings and governmental approvals, if any, which either of the Agents may have reasonably requested in connection therewith, such documents and papers, where appropriate, to be certified by proper corporate or governmental authorities. (f) PLANS; ETC. On or prior to the Effective Date, there shall have been made available to the Agents upon their request: (i) all Plans (and for each Plan that is required to file an annual report on Internal Revenue Service Form 5500-series, a copy of the most recent such report (including, to the extent required, the related financial and actuarial statements and other supporting statements, certifications, schedules and information), and for each Plan that is a "single-employer plan," as defined in Section 4001(a)(15) of ERISA, the most recently prepared actuarial valuation therefor) and any other "employee benefit plans," as defined in Section 3(3) of ERISA, and any other material agreements, plans or arrangements, with or for the benefit of current or former employees of the Borrower or any of its Subsidiaries or any ERISA Affiliate (PROVIDED that the foregoing shall apply in the case of any multiemployer plan, as defined in 4001(a)(3) of ERISA, only to the extent that any document described therein is in the possession of the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate or reasonably available thereto from the sponsor or trustee of any such plan); (ii) any collective bargaining agreements or any other similar agreement or arrangements covering the employment arrangements of the employees of the Borrower or any of its Subsidiaries; (iii) all agreements entered into by the Borrower or any of its Subsidiaries governing the terms and relative rights of its capital stock; (iv) any material agreement with respect to the management of the Borrower or any of its Subsidiaries; 27 (v) any material employment agreements entered into by the Borrower or any of its Subsidiaries; and (vi) any tax sharing, tax allocation and other similar agreements entered into by the Borrower and/or any of its Subsidiaries with any entity not a Credit Party; with all of the foregoing to be reasonably satisfactory to the Agents. (g) [Intentionally Omitted] (h) LITIGATION. There shall be no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened in writing against any Credit Party (a) with respect to (i) this Agreement or any other Credit Document or (ii) the Existing Credit Agreement or (b) which the Agents shall reasonably determine has had or is reasonably likely to have (i) a Material Adverse Effect or (ii) a material adverse effect on the rights or remedies of the Lenders or the Administrative Agent hereunder or under any other Credit Document or on the ability of the Credit Parties taken as a whole or Parent to perform their respective obligations under the Credit Documents. (i) APPROVALS. All necessary material governmental and third party approvals in connection with the Credit Documents (including, without limitation, all necessary material approvals required by the FCC and the applicable PUCs) required to be obtained by any Credit Party shall have been obtained and remain in effect. (j) INSURANCE. The Borrower shall have delivered to the Administrative Agent, on or before the Effective Date updated certificates of insurance complying with the requirements of Section 8.03 for the business and properties of the Borrower and its Subsidiaries, in form and substance reasonably satisfactory to the Agents and naming the Collateral Agent as an additional insured and as loss payee, and stating that such insurance shall not be cancelled without at least 30 days prior written notice by the insurer to the Collateral Agent (or such shorter period of time as a particular insurance company generally provides). (k) EXISTING OBLIGATIONS. On the Effective Date, the Borrower shall have paid all accrued interest and fees owing to the Agents and Existing Lenders under the Existing Credit Agreement (the aggregate amounts of which are set forth in Section 2.01), whether or not such amounts are due and payable as of the Effective Date. (l) FEES AND EXPENSES. On the Effective Date, the Borrower shall have paid to counsel to the Administrative Agent all unpaid fees and expenses described in the first paragraph of Section 2.01 (for which, in the case of legal fees and expenses, the Borrower shall have received in advance a written invoice in reasonable detail). (m) FINANCIAL INFORMATION. On or before the Effective Date, the Administrative Agent shall have received financial information and projections regarding the 28 Borrower and its Subsidiaries in form and substance satisfactory to the Administrative Agent, including but not limited to: (i) the audited consolidated (and consolidating with respect to the Parent and the Borrower) balance sheets of the Parent and its Subsidiaries as at the end of the fiscal year ended December 31, 2001 and the related consolidated (and consolidating with respect to the Parent and the Borrower) statements of operations and of cash flows for such fiscal year; and (ii) a report setting forth in reasonable detail (A) the unpaid intercompany obligations under the Tax Sharing Agreement calculated on or about September 30, 2001 with respect to periods ending December 31, 2000, and (B) all payments made with respect to the intercompany obligations shown as outstanding in such report, which report shall be in reasonable detail and certified as true, correct and complete in all material respects by the chief financial officer or vice president of finance of the Borrower. (n) EXISTING LOANS. On the Effective Date, (i) the Borrower shall have paid certain of the Existing Lenders $5,000,000 in cash, which payment shall be deemed to satisfy a total of $7,000,000 of outstanding principal of Existing Loans as set forth on ANNEX II hereto (such payment being the "EFFECTIVE DATE PAYDOWN"); (ii) the Administrative Agent shall have received satisfactory evidence of the filing of a certificate of designation of Parent with the Secretary of State of the State of Delaware, such certificate of designation to be in the form of EXHIBIT K annexed hereto; and (iii) the Existing Lenders shall have converted $93,861,000 of Existing Loans as set forth on ANNEX III hereto into shares of Parent Preferred Stock with a liquidation preference equal to the dollar amount of such Existing Lender's Existing Loans so converted, such conversion to be consummated pursuant to and in accordance with the Preferred Stock Issuance and Capital Contribution Agreement (such conversion being the "INITIAL PARENT PREFERRED STOCK CONVERSION"). (o) UCC FILING LOCATIONs. On or before the Effective Date, the Administrative Agent shall have received from the Borrower a list setting forth all of the jurisdictions in which any Person would have been required to file a UCC-1 financing statement in order to perfect a security interest in all of the assets owned by the Borrower and its Subsidiaries, to the extent that a security interest in any such assets could be perfected by filing a UCC-1 financing statement in the appropriate filing office. (p) COPIES OF AGREEMENTS. On the Effective Date, the Administrative Agent shall have received a fully executed copy of the Management Services Agreement, the Tax Sharing Agreement and the Parent Credit Agreement, each of which shall be certified as of the 29 Effective Date by the secretary or similar officer of the Borrower and/or the Parent as being in full force and effect without modification or amendment. SECTION 7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order to induce the Lenders to enter into this Agreement and to make the Loans, the Borrower makes the following representations and warranties to, and agreements with, the Lenders (with such representations, warranties and agreements with respect to Parent made by the Borrower to the best of its knowledge), all of which shall survive the execution and delivery of this Agreement and the making of the Loans: 7.01 COMPANY STATUS. Each of the Borrower and its Subsidiaries (i) is a duly organized and validly existing Company and is in good standing, in each case under the laws of the jurisdiction of its organization and has the Company power and authority to own its property and assets and to transact the business in which it is engaged and (ii) is duly qualified and is authorized to do business and, to the extent relevant, is in good standing in all jurisdictions where it is required to be so qualified and where the failure to be so qualified, authorized or in good standing would be reasonably likely to have a Material Adverse Effect. 7.02 COMPANY POWER AND AUTHORITY. Each Credit Party has the Company power and authority to execute, deliver and carry out the terms and provisions of the Credit Documents to which it is a party and has taken all necessary action to authorize the execution, delivery and performance of the Credit Documents to which it is a party. Each Credit Party has duly executed and delivered each Credit Document to which it is a party and each such Credit Document constitutes the legal, valid and binding obligation of such Person enforceable against such Person in accordance with its terms, except to the extent that the enforceability thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws relating to or affecting creditors' rights generally and general equitable principles (regardless of whether enforcement is sought in equity or at law). 7.03 NO VIOLATION. Neither the execution, delivery or performance by any Credit Party of the Credit Documents to which it is a party nor compliance with the terms and provisions thereof, (i) will contravene any applicable provision of any law, statute, rule, regulation, order, writ, injunction or decree of any court or governmental instrumentality known by it to be applicable to it, (ii) will conflict with or result in any breach of, any of the terms, covenants, conditions or provisions of, or constitute a default under, or (other than pursuant to the Security Documents) result in the creation or imposition of (or the obligation to create or impose) any Lien upon any of the property or assets of such Credit Party or any of its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust or other material agreement (including the Parent Credit Agreement) or instrument to which such Credit Party or any of its Subsidiaries is a party or by which it or any of its property or assets are bound or to which it may be subject or (iii) will violate any provision of the Company Documents of such Credit Party or any of its Subsidiaries. 7.04 LITIGATION. Except as set forth on ANNEX XI, there are no actions, suits or proceedings pending or, to the knowledge of the Borrower, threatened in writing against any Credit Party or any of its Subsidiaries (i) that have had, or that are reasonably likely to have, a 30 Material Adverse Effect or (ii) that have, or that are reasonably likely to have had, a material adverse effect on the rights or remedies of the Lenders or on the ability of the Credit Parties taken as a whole or Parent to perform their respective obligations under the Credit Documents. 7.05 MARGIN REGULATIONS. Neither the making of any Loan hereunder, nor the use of the proceeds thereof, will violate the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System and no part of the proceeds of any Loan will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock. 7.06 GOVERNMENTAL APPROVALS. Except for such consents, approvals and filings as have been obtained or made on or prior to the Effective Date and remain in full force and effect, no order, consent, approval, license, authorization, or validation of, or filing, recording or registration with, or exemption by, any foreign or domestic governmental or public body or authority (including, without limitation, the FCC and applicable PUCs), or any subdivision thereof, is required of any Credit Party to authorize or is required of any Credit Party in connection with (i) the execution, delivery and performance of any Credit Document or (ii) the legality, validity, binding effect on or enforceability against any Credit Party of any Credit Document. 7.07 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 7.08 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of a "holding company," or an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 7.09 TRUE DISCLOSURE. All factual information (taken as a whole) heretofore or contemporaneously furnished by or on behalf of the Borrower in writing to any Agent for purposes of or in connection with this Agreement, or any transaction contemplated herein is, and all other such factual information (taken as a whole) hereafter furnished by or on behalf of any Credit Party in writing to the Lenders hereunder will be, true and accurate in all material respects on the date as of which such information is dated or certified. The projections and pro forma financial information contained in such materials are based on good faith estimates and assumptions believed by the Borrower to be reasonable at the time made (it being recognized by the Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and that such assumptions and estimates may prove to be inaccurate). 7.10 FINANCIAL STATEMENTS. (a) The audited consolidated (and consolidating with respect to Parent and the Borrower) balance sheets of Parent and its Subsidiaries as at the end of the fiscal year ended December 31, 2001 and the related consolidated (and consolidating with respect to Parent and the Borrower) statements of operations and of cash flows for such fiscal year, copies of which have been furnished to the Administrative Agent prior to the 31 Effective Date, fairly present the consolidated financial condition of the Borrower and its Subsidiaries or the Parent and its Subsidiaries, as the case may be, as of the dates thereof and the results of their operations and cash flows for the period indicated. Nothing has occurred since December 31, 2001 that (i) has had or is reasonably likely to have a material adverse effect on the rights or remedies of the Lenders or the Administrative Agent hereunder or under any other Credit Document, or on the ability of the Credit Parties taken as a whole or Parent to perform their respective obligations under the Credit Documents, or (ii) has had or is reasonably likely to have a Material Adverse Effect (other than the discontinuation of the Borrower's CLEC operations). (b) Except as reflected in the financial statements described in Section 7.10(a) or in the footnotes thereto, there were as of the Effective Date no liabilities or obligations with respect to the Borrower or any of its Subsidiaries required in accordance with GAAP to be disclosed in such financial statements of a nature (whether absolute, accrued, contingent or otherwise and whether or not due) which, either individually or in the aggregate, is reasonably likely to be material to the Borrower and its Subsidiaries taken as a whole, except as incurred in the ordinary course of business consistent with past practices. 7.11 THE SECURITY DOCUMENTS. (a) The Collateral Agent, for the benefit of the Secured Creditors, has a legal, valid and enforceable security interest in all right, title and interest of the Credit Parties in the Security Agreement Collateral described therein to the extent that a security interest can be created therein under the UCC, and the Collateral Agent, for the benefit of the Secured Creditors, has a fully perfected first lien on, and security interest in, all right, title and interest of the Credit Parties in all of the Security Agreement Collateral (to the extent such security interest can be perfected by filing a UCC-1 financing statement or, to the extent required by the Security Agreement, by taking possession of the respective Security Agreement Collateral), subject to no other Liens other than Permitted Liens. In addition, the recordation of the Grant of Security Interest in U.S. Patents and Trademarks in the form attached to the Security Agreement in the United States Patent and Trademark Office, together with filings on Form UCC-1 made pursuant to the Security Agreement, will create, as may be perfected by such filing and recordation, a perfected security interest in the United States trademarks and patents covered by the Security Agreement and specifically identified in such Grant and the recordation of the Grant of Security Interest in U.S. Copyrights in the form attached to the Security Agreement with the United States Copyright Office, together with filings on Form UCC-1 made pursuant to the Security Agreement, will create, as may be perfected by such filing and recordation, a perfected security interest in the United States copyrights covered by the Security Agreement and specifically identified in such Grant. (b) The security interests created in favor of the Collateral Agent, as pledgee, for the benefit of the Secured Creditors, under the Pledge Agreement constitute perfected security interests in the Pledge Agreement Collateral, subject to no security interests of any other Person. Except to the extent made on or prior to the Effective Date, no filings or recordings are required to perfect (or maintain the perfection of) the security interests created in the Pledge Agreement Collateral. 32 7.12 TAX RETURNS AND PAYMENTS. Each of the Borrower and its Subsidiaries has filed all federal income tax returns and all other material tax returns, domestic and foreign, required to be filed by it and has paid all material taxes and assessments payable by it which have become due, except for those contested in good faith and adequately disclosed and fully provided for on the financial statements of the Borrower and its Subsidiaries if and to the extent required by GAAP. Each of the Borrower and its Subsidiaries has at all times paid, or has provided adequate reserves (in the good faith judgment of the management of the Borrower) for the payment of, all federal, state and foreign income taxes applicable for all prior fiscal years which are still open for audit and for the current fiscal year to date. There is no action, suit, proceeding, investigation, audit, or claim now pending or, to the knowledge of the Borrower, threatened in writing by any authority regarding any taxes owing by the Borrower or any of its Subsidiaries which is reasonably likely to have a Material Adverse Effect. 7.13 COMPLIANCE WITH ERISA. (i) ANNEX V sets forth, as of the Effective Date, each Plan and Multiemployer Plan; (ii) except as set forth on ANNEX V, each Plan (and each related trust, insurance contract or fund) is in substantial compliance with its terms and with all applicable laws, including without limitation ERISA and the Code; each Plan which is intended to be qualified under Section 401(a) of the Code has received a determination letter from the Internal Revenue Service to the effect that it meets the requirements of Section 401(a) of the Code; except as set forth on ANNEX V, no Reportable Event has occurred with respect to a Plan; to the knowledge of the Borrower, no Multiemployer Plan is insolvent or in reorganization; except as set forth on ANNEX V, no Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds $750,000; no Plan which is subject to Section 412 of the Code or Section 302 of ERISA has an accumulated funding deficiency, within the meaning of such sections of the Code or ERISA, or has applied for or received a waiver of an accumulated funding deficiency or an extension of any amortization period, within the meaning of Section 412 of the Code or Section 303 or 304 of ERISA; all contributions required to be made with respect to a Plan or a Multiemployer Plan have been timely made; neither the Borrower nor any Subsidiary of the Borrower nor any ERISA Affiliate has incurred any material liability (including any indirect, contingent or secondary liability) to or on account of a Plan or a Multiemployer Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or reasonably expects to incur any such liability under any of the foregoing sections with respect to any Plan or any Multiemployer Plan; no condition exists which presents a material risk to the Borrower or any Subsidiary or any ERISA Affiliate of incurring a material liability to or on account of a Plan or, to the knowledge of the Borrower, of any Multiemployer Plan pursuant to the foregoing provisions of ERISA and the Code; except as set forth on ANNEX V, no proceedings have been instituted to terminate or appoint a trustee to administer any Plan; except as would not result in any material liability, no action, suit, proceeding, hearing, audit or investigation with respect to the administration, operation or the investment of assets of any Plan (other than routine claims for benefits) is pending, or to the best knowledge of the Borrower expected or threatened; using actuarial assumptions and computation methods consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate liabilities of the Borrower and its Subsidiaries and its ERISA Affiliates to all Multiemployer Plans in the event of a complete withdrawal therefrom, as of the close of the most recent fiscal year of each such Plan 33 ended prior to the date of the Effective Date, would not exceed $15,000; except as would not result in a material liability, each group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) which covers or has covered employees or former employees of the Borrower, any Subsidiary or any ERISA Affiliate has at all times been operated in compliance with the provisions of Part 6 of subtitle B of Title I of ERISA and Section 4980B of the Code; no lien imposed under the Code or ERISA on the assets of the Borrower or any Subsidiary or any ERISA Affiliate exists or is reasonably likely to arise on account of any Plan; and except as set forth in ANNEX V, the Borrower and its Subsidiaries do not maintain or contribute to any employee welfare benefit plan (as defined in Section 3(1) of ERISA) which provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan the obligations with respect to which could reasonably be expected to have a material adverse effect on the ability of the Borrower to perform its obligations under this Agreement. 7.14 SUBSIDIARIES. On and as of the Effective Date, (a) the Borrower has no Subsidiaries other than those Subsidiaries listed on ANNEX VI, which ANNEX VI correctly sets forth, as of the Effective Date, the percentage ownership (direct and indirect) of the Borrower in each class of capital stock of each of its Subsidiaries and also identifies the direct owner thereof, and (b) each Subsidiary of the Borrower (other than the Excluded Subsidiaries) is a Subsidiary Guarantor. Each of the Excluded Subsidiaries is not and will not be actively engaged in any business and has less than $10,000 of assets and less than $10,000 of liabilities. 7.15 INTELLECTUAL PROPERTY. Each of the Borrower and its Subsidiaries owns or holds a valid transferable license to use all the patents, trademarks, service marks, trade names, technology, know-how, copyrights, licenses, franchises and formulas or rights with respect to the foregoing, that are used in the operation of the business of the Borrower or such Subsidiary as presently conducted and are material to such business where the failure to own or hold a valid license is reasonably likely to have a Material Adverse Effect. 7.16 ENVIRONMENTAL MATTERS. Each of the Borrower and its Subsidiaries is in material compliance with all applicable Environmental Laws governing its business for which failure to comply is reasonably likely to have a Material Adverse Effect, and neither the Borrower nor any of its Subsidiaries is liable for any material penalties, fines or forfeitures for failure to comply with any of the foregoing in the manner set forth above. All licenses, permits, registrations or approvals required for the business of the Borrower and each of its Subsidiaries under any Environmental Law have been secured and each of the Borrower and its Subsidiaries is in substantial compliance therewith, except such licenses, permits, registrations or approvals the failure to secure or to comply therewith is not reasonably likely to have a Material Adverse Effect. There are no Environmental Claims pending or, to the knowledge of the Borrower threatened in writing, against the Borrower or any of its Subsidiaries wherein any decision, ruling or finding would be reasonably likely to have a Material Adverse Effect. 7.17 LABOR RELATIONS. No Credit Party is engaged in any unfair labor practice that is reasonably likely to have a Material Adverse Effect. There is (i) no unfair labor practice complaint pending against any Credit Party or, to the Borrower's knowledge, threatened in writing against any of them, before the National Labor Relations Board, and no grievance or 34 arbitration proceeding arising out of or under any collective bargaining agreement is so pending against any Credit Party or, to the Borrower's knowledge, threatened in writing against any of them, (ii) no strike, labor dispute, slowdown or stoppage pending against any Credit Party or, to the Borrower's knowledge, threatened in writing against any Credit Party and (iii) no union representation question, to the Borrower's knowledge, existing with respect to the employees of any Credit Party and no union organizing activities, to the Borrower's knowledge, are taking place, except with respect to any matter specified in clause (i), (ii) or (iii) above, either individually or in the aggregate, such as is not reasonably likely to have a Material Adverse Effect. 7.18 COMPLIANCE WITH STATUTES, ETC. Each of the Borrower and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign, in respect of the conduct of its business and the ownership of its property, except such non-compliance as has not had, and is not reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. 7.19 INDEBTEDNESS. ANNEX VII sets forth a true and complete list of all Indebtedness (including Contingent Obligations) of the Borrower and its Subsidiaries as of the Effective Date and which is to remain outstanding after giving effect to the entering into of the Credit Documents (excluding the Loans), all such non-excluded Indebtedness is referred to as the "EXISTING INDEBTEDNESS"), in each case showing the aggregate principal amount thereof and the name of the respective borrower and any Credit Party or any of its Subsidiaries which directly or indirectly guarantees such debt. 7.20 Insurance. ANNEX VIII sets forth a true and complete listing of all insurance maintained by the Borrower and its Subsidiaries as of the Effective Date, and with the amounts insured (and any deductibles) set forth therein. SECTION 8. AFFIRMATIVE COVENANTS. The Borrower hereby covenants and agrees that until no Notes are outstanding and the Loans, together with interest, Fees and all other Obligations (other than any indemnities described in Section 12.13 which are not then owing) incurred hereunder, are paid in full: 8.01 INFORMATION COVENANTS. The Borrower will furnish to the Administrative Agent (which will promptly forward same to each Lender): (a) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the close of each fiscal year of the Borrower, (i) the consolidated (and consolidating with respect to the Parent and the Borrower) balance sheets of the Parent and its Subsidiaries as at the end of such fiscal year and the related consolidated (and consolidating with respect to the Parent and the Borrower) statements of operations and of cash flows for such fiscal year, and in each case setting forth comparative consolidated and consolidating figures for the preceding fiscal year, and (x) in the case of consolidated statements, examined by independent certified public accountants of recognized national standing whose opinion shall not be qualified as to the scope of audit and as to the status of the Parent as a going concern or (y) in the case of consolidating statements, certified by the chief financial officer or vice president of finance of Parent and the chief 35 financial officer or vice president of finance of the Borrower, together with a certificate of such accounting firm stating that in the course of its regular audit of the businesses of Parent, the Borrower and its Subsidiaries, which audit was conducted in accordance with generally accepted auditing standards, no Default or Event of Default which has occurred and is continuing has come to their attention or, if such a Default or Event of Default has come to their attention a statement as to the nature thereof, and (ii) a duly executed certificate of an Authorized Officer certifying the amount of Parent Lease Obligations as at the end of such fiscal year in respect of each of the leases described on ANNEX XIV. (b) QUARTERLY FINANCIAL STATEMENTS. Within 45 days after the close of each of the first three quarterly accounting periods in each fiscal year commencing with the quarterly period ending on March 31, 2002, the consolidated and consolidating balance sheets of the Borrower and its Subsidiaries as at the end of such quarterly period and the related consolidated and consolidating statements of operations and of cash flows for such quarterly period and for the elapsed portion of the fiscal year ended with the last day of such quarterly period, and in each case setting forth comparative consolidated and consolidating figures for the related periods in the prior fiscal year, all of which shall be in reasonable detail and certified by the chief financial officer or vice president of finance of the Borrower, subject to changes resulting from audit and normal year-end audit adjustments. (c) BUDGETS; ETC. Not more than 30 days after the commencement of each fiscal year of the Borrower, consolidated and consolidating budgets of the Borrower and its Subsidiaries in reasonable detail for each of the twelve months of such fiscal year as customarily prepared by management for its internal use setting forth, with appropriate discussion, the principal assumptions upon which such budgets are based. Together with each delivery of consolidated financial statements pursuant to Sections 8.01(a) and (b), a comparison of the current year-to-date consolidated financial results for the Borrower against the consolidated budget of the Borrower required to be submitted pursuant to this clause (c) shall be presented. (d) COMPLIANCE CERTIFICATES AND EXCLUDED PRIOR-PERIOD REVENUE PAYMENTS. At the time of the delivery of the financial statements provided for in Sections 8.01(a) and (b), (i) a Compliance Certificate of the chief financial officer, vice president of finance or other Authorized Officer of the Borrower stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such certificate, of any condition or event that constitutes a Default or an Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Borrower has taken, is taking and proposes to take with respect thereto, and (ii) a certificate of the chief financial officer, vice president of finance or other Authorized Officer of the Borrower certifying as to the nature and amount of each Excluded Prior-Period Revenue Payment received by the Borrower or any of its Subsidiaries during the accounting period covered by such financial statements. 36 (e) AVAILABLE CASH FLOW CERTIFICATES. On each Available Cash Payment Date, a certificate of the chief financial officer, vice president of finance or other Authorized Officer of the Borrower demonstrating in reasonable detail the calculation of the Available Cash Flow as of the end of the Available Cash Payment Period then ended. (f) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event within ten days after any officer of the Borrower obtains knowledge thereof, notice of (x) the occurrence of any event which constitutes a Default or an Event of Default, which notice shall specify the nature thereof, the period of existence thereof and what action the Borrower proposes to take with respect thereto and (y) the commencement of, or any significant adverse development in, any litigation or governmental proceeding pending against the Borrower or any of its Subsidiaries which has had or is reasonably likely to have a Material Adverse Effect or has had or is reasonably likely to have a material adverse effect on the ability of the Credit Parties to perform their obligations under the Credit Documents. (g) TAX SHARING AGREEMENT. Promptly, and in any event (i) within ten days after June 30 of each fiscal year of the Borrower, a report setting forth in reasonable detail the intercompany obligations (to the extent remaining unpaid as of the date of such report) under the Tax Sharing Agreement with respect to periods ending as of the end of the most recently ended fiscal year of the Borrower (each such report, including the one delivered pursuant to Section 6(m)(ii), being a "TAX OBLIGATIONS REPORT"), and (ii) within 45 days after the end of each fiscal quarter of the Borrower, commencing with the fiscal quarter ended March 31, 2002, a report setting forth in reasonable detail all payments made with respect to the intercompany obligations shown as outstanding in the most recent Tax Obligations Report, it being understood that each report furnished pursuant to this Section 8.01(g) shall be certified as true, correct and complete in all material respects by the chief financial officer or vice president of finance of the Borrower. (h) RECONCILIATION OF PARENT CASH CONTRIBUTIONS AND REPORT ON INTERCOMPANY INDEBTEDNESS. Promptly, and in any event no later than the tenth Business Day of each fiscal quarter of the Borrower, a duly executed certificate of an Authorized Officer certifying as to each of the following: (i) the aggregate amount of all Parent Cash Contributions made during the immediately preceding fiscal quarter; (ii) the amount of each Excluded Parent Cash Contribution made during the immediately preceding fiscal quarter, the date of such contribution and the purpose for (and the date on) which it was applied (including, in the case of an Excluded Parent Cash Contribution applied to the purpose described in clause (ii) of the definition thereof, the specific obligation or obligations that were paid); (iii) that the entire amount of each such Excluded Parent Cash Contribution was actually applied to the purpose(s) specified in such certificate; 37 (iv) the amount of intercompany Indebtedness incurred pursuant to Section 9.04(f) outstanding at any time during such fiscal quarter (including a description in reasonable detail of (1) the principal amount of such intercompany Indebtedness as of the last Business Day of such fiscal quarter, (2) the obligations for which such intercompany Indebtedness was incurred, and (3) the amount of such intercompany Indebtedness that was repaid during such fiscal quarter and the source of the proceeds for repayment); and (v) the amount of each of the obligations described on ANNEX XII attached hereto that was paid during such fiscal quarter, the source of the proceeds for each such payment, and the amount remaining with respect to each such obligation as of the last Business Day of such fiscal quarter (each such certificate to include a revised ANNEX XII which shall reflect all payments made with respect to such obligations since the Effective Date and shall state the amount remaining with respect to each such obligation as of the last Business Day of such fiscal quarter). (i) PARENT CASH CONTRIBUTIONS. Concurrently with the receipt of any Parent Cash Contributions that are (x) made on the same day in an aggregate amount equal to or greater than $100,000, or (y) to be applied to any purpose other than the purposes described in clause (ii) of the definition of Excluded Parent Cash Contribution, a duly executed certificate of an Authorized Officer certifying (i) the amount of such Parent Cash Contribution and the purpose(s) for which it is proposed to be applied (including, in the case of a Parent Cash Contribution to be applied to the purpose described in clause (ii) of the definition of Excluded Parent Cash Contribution, the specific obligation or obligations that are to be paid), and certifying that the entire amount of such Parent Cash Contribution will be so applied, (ii) that such proposed application is permitted under the terms of this Agreement and that no Default of Event of Default has occurred and is continuing or would be caused thereby, and (iii) in the case of any Parent Cash Contribution other than an Excluded Parent Cash Contribution, a calculation in reasonable detail of the Permitted Parent Cash Contribution Amount for the most recently ended four-fiscal quarter period of the Borrower and the amount of all other Parent Cash Contributions (other than Excluded Parent Cash Contributions) made during such four-fiscal quarter period and demonstrating the amounts, if any, required to be applied as a mandatory repayment pursuant to Section 5.02(g). (j) INTERCOMPANY LEASE PAYABLE PAYMENTS. Concurrently with the receipt of any Tax Sharing Payment that the Borrower proposes to apply to any purpose other than the repayment of Loans and accrued interest thereon, a duly executed certificate of an Authorized Officer certifying (i) the amount of such Tax Sharing Payment, (ii) the amounts of the Intercompany Lease Payable(s) or other obligation(s) to which such Tax Sharing Payment is proposed to be applied, and certifying that the entire amount of such Tax Sharing Payment will be so applied, and (iii) that such proposed application is permitted under the terms of this Agreement and that no Default or Event of Default has occurred and is continuing or would be caused thereby. (k) OTHER INFORMATION. Promptly upon transmission thereof, copies of any filings and registrations with, and reports to, the Securities and Exchange Commission or any 38 successor thereto (the "SEC") by the Borrower or any of its Subsidiaries, and with reasonable promptness, such other information or documents (financial or otherwise) as the Administrative Agent on its own behalf or on behalf of the Required Lenders may reasonably request from time to time. 8.02 BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will cause each of its Subsidiaries to, permit, upon reasonable notice to the chief financial officer, vice president of finance or any other Authorized Officer of the Borrower, officers and designated representatives of any Agent or the Required Lenders to visit and inspect any of the properties or assets of the Borrower and any of its Subsidiaries in their possession (including, at the request of any Agent and at the Borrower's expense, periodic field audits) and to examine the books of account of the Borrower and any of its Subsidiaries and discuss the affairs, finances and accounts of the Borrower and of any of its Subsidiaries with, and be advised as to the same by, its and their officers and independent accountants, all at such reasonable times and intervals during normal business hours and to such reasonable extent as either Agent or the Required Lenders may desire. 8.03 INSURANCE. The Borrower will, and will cause each of its Subsidiaries to, at all times maintain in full force and effect insurance with reputable and solvent insurers in such amounts, covering such risks and liabilities and with such deductibles or self-insured retentions as are in accordance with normal industry practice. The Borrower will, and will cause each of its Subsidiaries to, furnish to the Administrative Agent on the Effective Date and thereafter annually, upon request of either Agent, a summary of the insurance carried. 8.04 PAYMENT OF TAXES. The Borrower will pay and discharge, and will cause each of its Subsidiaries to pay and discharge, all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid, would become a Lien or charge upon any material properties of the Borrower or any of its Subsidiaries; PROVIDED that neither the Borrower nor any Subsidiary of the Borrower shall be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it has maintained adequate reserves (in the good faith judgment of the management of the Borrower) with respect thereto in accordance with GAAP. 8.05 CORPORATE FRANCHISES. (a) The Borrower will do, or cause to be done, all things reasonably necessary to preserve and keep in full force and effect its existence and to preserve its material rights and franchises. (b) The Borrower will do, and will cause each of its Subsidiaries to do, or cause to be done, all things reasonably necessary to preserve and keep in full force and effect such Subsidiaries' existence and to preserve such Subsidiaries' material rights and franchises, other than those the failure to preserve which could not reasonably be expected to have a Material Adverse Effect; PROVIDED that the Borrower may dissolve and liquidate the Subsidiary Guarantors in accordance with Section 9.02(a); and PROVIDED, FURTHER, that any transaction permitted by Section 9.02 will not constitute a breach of this Section 8.05. 39 8.06 COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will cause each of its Subsidiaries to, comply with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all governmental bodies, domestic or foreign (including all Environmental Laws), in respect of the conduct of its business and the ownership of its property other than those the non-compliance with which is not reasonably likely to have a Material Adverse Effect or have a material adverse effect on the ability of the Credit Parties to perform their obligations under the Credit Documents. 8.07 ERISA. As soon as possible and, in any event, within 10 days after the Borrower knows or has reason to know of the occurrence of any of the following, the Borrower will deliver to each of the Lenders a certificate of the chief financial officer or vice president of finance of the Borrower setting forth the full details as to such occurrence and the action, if any, that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate is required or proposes to take, together with any notices required or proposed to be given to or filed with or by the Borrower, any Subsidiary of the Borrower, any ERISA Affiliate, the PBGC, a Plan or Multiemployer Plan participant or the Plan administrator with respect thereto: that a Reportable Event has occurred (except to the extent that the Borrower has previously delivered to the Lender a certificate and notices (if any) concerning such event pursuant to the next clause hereof); that a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA is subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof), and an event described in subsection .62, .63, ...64, .65, .66, .67 or .68 of PBGC Regulation Section 4043 is reasonably expected to occur with respect to such Plan within the following 30 days; that an accumulated funding deficiency, within the meaning of Section 412 of the Code or Section 302 of ERISA, has been incurred or an application may reasonably be expected to be or has been made for a waiver or modification of the minimum funding standard (including any required installment payments) or an extension of any amortization period under Section 412 of the Code or Section 303 or 304 of ERISA with respect to a Plan; that any contribution required to be made with respect to a Plan or Multiemployer Plan has not been timely made; that a Plan or Multiemployer Plan has been or may reasonably be expected to be terminated, reorganized, partitioned or declared insolvent under Title IV of ERISA; that a Plan has an Unfunded Current Liability which, when added to the aggregate amount of Unfunded Current Liabilities with respect to all other Plans, exceeds the aggregate amount of such Unfunded Current Liabilities that existed on the Effective Date by $100,000; that proceedings may reasonably be expected to be or have been instituted to terminate or appoint a trustee to administer a Plan; that a proceeding has been instituted pursuant to Section 515 of ERISA to collect a delinquent contribution to a Multiemployer Plan; except as set forth on ANNEX V, that the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate will or may reasonably be expected to incur any material liability (including any indirect, contingent, or secondary liability) to or on account of the termination of or withdrawal from a Plan or Multiemployer Plan under Section 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section 401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of ERISA or with respect to a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code; or, except as set forth on ANNEX V, that the Borrower or any Subsidiary of the Borrower may incur any material liability pursuant to any employee welfare benefit plan (as defined in 40 Section 3(1) of ERISA) that provides benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or any Plan in addition to the liability that existed on the Effective Date pursuant to any such plan or plans. Upon request by any Lender, the Borrower will deliver to such Lender a complete copy of the annual report (on Internal Revenue Service Form 5500-series) of each Plan (including, to the extent required, the related financial and actuarial statements and opinions and other supporting statements, certifications, schedules and information) required to be filed with the Internal Revenue Service. In addition to any certificates or notices delivered to the Lenders pursuant to the first sentence hereof, copies of any records, documents or other information required to be furnished to the PBGC (other than any PBGC Form 1), and any material notices received by the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate with respect to any Plan or Multiemployer Plan shall be delivered to the Lender no later than 10 days after the date such records, documents and/or information has been furnished to the PBGC or such notice has been received by the Borrower, such Subsidiary or the ERISA Affiliate, as applicable. 8.08 GOOD REPAIR. The Borrower will, and will cause each of its Subsidiaries to, ensure that its material properties and equipment used or useful in its business are kept in good repair, working order and condition, normal wear and tear excepted, and that from time to time there are made in such properties and equipment all needful and proper repairs, renewals, replacements, extensions, additions, betterments and improvements thereto, to the extent and in the manner useful or customary for companies in similar businesses. 8.09 END OF FISCAL YEARS; FISCAL QUARTERS. The Borrower will, for financial reporting purposes, cause (i) each of its, and each of its Subsidiaries', fiscal years and fourth fiscal quarters to end on December 31 of each year and (ii) each of its, and each of its Subsidiaries', first three fiscal quarters to end on the last day of March, June and September of each year. 8.10 OFFERS TO REDEEM PARENT PREFERRED STOCK. (a) If at any time after the date hereof the Borrower obtains actual knowledge that Parent or any of its Affiliates proposes to retire, acquire, purchase or redeem all or any portion of the outstanding Parent Preferred Stock from each holder thereof pursuant to a tender or similar offer (whether through one offer or a series of related offers) to all holders of Parent Preferred Stock, the Borrower shall, no later than 25 Business Days prior to the earlier of (x) such tender or similar offer (or series of related offers), (y) the record date for holders of Parent Preferred Stock entitled to participate in such tender or similar offer (or series of related offers), and (z) the date of such retirement, acquisition, purchase or redemption, give written notice of Parent's or such Affiliates' intention to do so (and the terms of such proposed retirement, acquisition, purchase or redemption) to each Lender and the Administrative Agent so as to permit the Lenders to exercise their Conversion Options with respect to all or any portion of the outstanding Loans prior to the date of such retirement, acquisition, purchase or redemption. (b) If at any time after the date hereof the Borrower obtains actual knowledge of any written proposal by a Person other than Parent or any of its Affiliates to acquire, purchase or redeem all or any portion of the outstanding Parent Preferred Stock from each holder thereof 41 pursuant to a tender or similar offer (whether through one offer or a series of related offers) to all holders of Parent Preferred Stock, the Borrower shall give prompt written notice thereof (and such other information related thereto as Lenders may reasonably request) to each Lender so as to permit the Lenders to exercise their Conversion Options with respect to all or any portion of the outstanding Loans prior to the date of such proposed acquisition, purchase or redemption. 8.11 SALE OF CHOICE ONE STOCK. On or before December 31, 2004, the Borrower shall sell all of the Choice One Stock owned by it to one or more Persons in an amount that is at least equal to the fair market value thereof on the date of each such sale or on terms reasonably satisfactory to the Agents; PROVIDED, that no purchaser of such Choice One Stock shall be an Affiliate of the Borrower if at the time of such purchase the class of stock of Choice One that includes the Choice One Stock is no longer publicly traded. 8.12 FURTHER ASSURANCES. The Borrower hereby agrees that the Administrative Agent may take any actions that the Administrative Agent deems necessary or desirable to create or perfect a security interest in favor of the Collateral Agent, for the benefit of the Secured Creditors, with respect to any assets of the Borrower or its Subsidiaries. The Borrower hereby agrees that from time to time, at its own expense, it will, and will cause its Subsidiaries to, promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may request, in order to perfect and protect any security interest granted or purported to be granted by the Security Documents or to enable the Collateral Agent to exercise and enforce its rights and remedies thereunder with respect to any Collateral. Without limiting the foregoing, the Borrower will, as soon as practicable but in any event within 30 days after the Effective Date, deliver to the Administrative Agent (a) the results of a recent search, by a Person satisfactory to the Administrative Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Credit Party (other than the Parent), together with copies of all such filings disclosed by such search, and (b) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture filings disclosed in such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement). 8.13 EXCLUDED SUBSIDIARIES. The Borrower shall cause each Excluded Subsidiary to not actively engage in any business after the Effective Date. On or before January 1, 2003, the Borrower shall (a) dissolve each Excluded Subsidiary in accordance with such Excluded Subsidiary's Company Documents and applicable law, and (b) provide the Administrative Agent with satisfactory evidence of each such dissolution, including a copy of the official dissolution certificate with respect thereto and any other documents or certificates that the Administrative Agent may reasonably request. 8.14 MANAGEMENT SERVICES AGREEMENT. Within 30 days after the Effective Date, the Borrower shall (i) enter into a written amendment to the Management Services Agreement with Parent to restrict the payment of amounts thereunder on the terms set forth in Section 9.09, and such amendment shall be in full force and effect, and (ii) deliver a fully executed copy of such amendment to the Administrative Agent. 42 SECTION 9. NEGATIVE COVENANTS. The Borrower hereby covenants and agrees that until no Notes are outstanding and the Loans, together with interest, Fees and all other Obligations (other than any indemnities described in Section 12.13 which are not then owing) incurred hereunder, are paid in full: 9.01 BUSINESS. The Borrower will not permit at any time the business activities taken as a whole conducted by the Borrower and its Subsidiaries to be materially different from the business activities taken as a whole (including incidental activities) conducted by the Borrower and its Subsidiaries on the Effective Date. 9.02 CONSOLIDATION, MERGER, SALE OR PURCHASE OF ASSETS, ETC. The Borrower will not, and will not permit any of its Subsidiaries to, wind up, liquidate or dissolve its affairs, or enter into any transaction of merger or consolidation, or convey, sell, lease or otherwise dispose of all or any part of its property or assets (other than inventory or obsolete equipment or excess equipment no longer needed in the conduct of the business in the ordinary course of business) or purchase, lease or otherwise acquire all or any part of the property or assets of any Person (other than purchases or other acquisitions of inventory, leases, materials and equipment in the ordinary course of business) or agree to do any of the foregoing at any future time without a contingency relating to obtaining any required approval hereunder, except that the following shall be permitted: (a) (i) any Subsidiary of the Borrower, including any Subsidiary Guarantor, may be merged or consolidated with or into, or be dissolved and liquidated into, the Borrower or a Subsidiary Guarantor (so long as (x) in the case of a merger or consolidation, the Borrower or such Subsidiary Guarantor is the surviving corporation, and (y) in the case of a liquidation, (1) all of the assets of such Subsidiary are distributed to the Borrower or a Subsidiary Guarantor, (2) all of the assets of such Subsidiary are at all times subject to the Liens under the Security Documents, and (3) neither the Borrower nor any Subsidiary Guarantor assumes any material liabilities or obligations as a result of such liquidation), or all or any part of such Subsidiary's business, properties and assets may be conveyed, sold or transferred to the Borrower or any Subsidiary Guarantor, and (ii) any Subsidiary that is not a Subsidiary Guarantor may be merged or consolidated with or into, or convey, sell or transfer its assets to, another Subsidiary that is not a Subsidiary Guarantor; PROVIDED that if the stock of either such Person was pledged pursuant to the Pledge Agreement the stock of the surviving entity or the transferee entity, as the case may be, shall also be pledged pursuant to the Pledge Agreement; (b) Consolidated Capital Expenditures permitted pursuant to Section 9.11; (c) the investments, acquisitions and transfers or dispositions of properties permitted pursuant to Section 9.05; (d) each of the Borrower and any Subsidiary of the Borrower may lease (as lessee) real or personal property in the ordinary course of business (so long as such lease does not create a Capitalized Lease Obligation); 43 (e) licenses or sublicenses by the Borrower and its Subsidiaries of intellectual property in the ordinary course of business; PROVIDED that such licenses or sublicenses shall not interfere with the business of the Borrower or any Subsidiary of the Borrower; (f) leases and subleases permitted under Section 9.03(f); (g) the Borrower may sell Choice One Stock in accordance with Section 8.11; and (h) each of the Borrower and any Subsidiary of the Borrower may sell all or substantially all of the Long Distance Business with the prior written consent of Required Lenders. 9.03 LIENS. The Borrower will not, and will not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any property or assets of any kind (real or personal, tangible or intangible) of the Borrower or any such Subsidiary whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable or notes with recourse to the Borrower or any of its Subsidiaries) or assign any right to receive income, except: (a) Liens for taxes not yet delinquent or Liens for taxes being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Borrower) have been established; (b) Liens in respect of property or assets of the Borrower or any of its Subsidiaries imposed by law which were incurred in the ordinary course of business, such as carriers', warehousemen's and mechanics' Liens, statutory landlord's Liens, and other similar Liens arising in the ordinary course of business, and (x) which do not in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Borrower or any of its Subsidiaries or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such Lien; (c) Liens created by or pursuant to this Agreement or the other Credit Documents; (d) Liens arising from judgments, decrees or attachments and Liens securing appeal bonds arising from judgments, in each case in circumstances not constituting an Event of Default under Section 10.10; (e) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety bonds, bids, leases, government contracts, performance and return-of-money 44 bonds and other similar obligations incurred in the ordinary course of business (exclusive of obligations in respect of the payment for borrowed money); (f) leases or subleases granted to others not interfering in any material respect with the business of the Borrower or any of its Subsidiaries; (g) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (h) Liens arising from precautionary UCC financing statement filings regarding operating leases entered into by the Borrower or any of its Subsidiaries in the ordinary course of business and statutory and common law landlords' liens under leases to which the Borrower or any of its Subsidiaries is a party in the ordinary course of business; (i) purchase money Liens securing payables arising from the purchase by the Borrower or any Subsidiary Guarantor of any equipment or goods in the ordinary course of business; PROVIDED that such payables shall not constitute Indebtedness; (j) any interest or title of a lessor under any lease permitted by this Agreement; (k) Liens in existence on, and which are to continue in effect after, the Effective Date which are listed, and the property subject thereto described in, ANNEX IX, plus extensions and renewals of such Liens; PROVIDED that (x) the aggregate principal amount of the Indebtedness, if any, secured by such Liens does not increase (other than interest and fees to be financed in connection with such Indebtedness) from that amount outstanding at the time of any such extension or renewal and (y) any such extension or renewal does not encumber any additional assets or properties of the Borrower or any of its Subsidiaries; and (l) Liens consisting of purchase money security interests securing Indebtedness representing the purchase price (or financing of the purchase price within 90 days after the respective purchase) of assets acquired by the Borrower or any Subsidiary after the Effective Date; PROVIDED that the sum of (i) all Indebtedness secured by Liens permitted under this clause (l) PLUS (ii) all Capitalized Lease Obligations permitted under Section 9.04(d) shall not exceed $200,000 at any time outstanding. 9.04 INDEBTEDNESS. The Borrower will not, and will not permit any of its Subsidiaries to, contract, create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement and the other Credit Documents; (b) Indebtedness owing by (i) any Subsidiary Guarantor to another Subsidiary Guarantor or the Borrower, (ii) the Borrower to any Subsidiary Guarantor, and (iii) any 45 Subsidiary that is not a Subsidiary Guarantor to any other Subsidiary that is not a Subsidiary Guarantor; (c) Existing Indebtedness, without giving effect to any subsequent extension, renewal or refinancing thereof (including Indebtedness owing by the Borrower or any Subsidiary Guarantor to any Subsidiary that is not a Subsidiary Guarantor, so long as such Indebtedness is in existence on the Effective Date and is subordinated to the Obligations on a basis satisfactory to the Agents); (d) Capitalized Lease Obligations incurred after the Effective Date solely for the purpose of financing the acquisition of equipment after the Effective Date; PROVIDED that the sum of (i) all Capitalized Lease Obligations permitted under this Section 9.04(d) PLUS (ii) all Indebtedness permitted under Section 9.04(e) shall not exceed $200,000 at any time outstanding; (e) Indebtedness secured by purchase money security interests permitted under Section 9.03(l); (f) Indebtedness owing by the Borrower to Parent arising from the payment of obligations described on ANNEX XII by Parent after the Effective Date, so long as (i) such Indebtedness is unsecured, not guarantied by (or otherwise an obligation of) any of the Borrower's Subsidiaries, and subordinated to the payment in cash in full of the Obligations pursuant to a written subordination agreement or intercompany note on a basis satisfactory to the Agents, (ii) such Indebtedness does not mature or require any redemption or repayment of principal or cash interest prior to the date which is the one-year anniversary of the Maturity Date, (iii) such Indebtedness shall contain no representations or warranties or restrictive covenants, and shall contain no default or remedies provisions that are less favorable to the Borrower than those contained herein, and (iv) no interest shall be payable with respect to such Indebtedness (other than interest payable in kind (except at maturity) accruing at a rate reasonably acceptable to the Agents); and (g) Indebtedness of the Borrower or any of its Subsidiaries which may be deemed to exist in connection with agreements providing for indemnification, purchase price adjustments and similar obligations in connection with sales of assets permitted by this Agreement (so long as any such obligations are those of the Person making the respective acquisition or sale, and are not guaranteed by any other Person, other than the Borrower or any of its Subsidiaries). 9.05 ADVANCES, INVESTMENTS AND LOANS. The Borrower will not, and will not permit any of its Subsidiaries to, lend money or credit or make advances to any Person, or purchase or acquire any stock, obligations or securities of, or any other interest in, or make any capital contribution to any Person, except: (a) the Borrower or any Subsidiary of the Borrower may invest in cash and Cash Equivalents; 46 (b) the Borrower and any Subsidiary of the Borrower may acquire and hold receivables owing to them, if created or acquired in the ordinary course of business and payable or dischargeable in accordance with customary trade terms and/or reasonable extensions thereof; (c) the Borrower and each Subsidiary of the Borrower may acquire and own investments (including debt obligations) received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (d) advances, loans and investments in existence on the Effective Date and listed on ANNEX X, without giving effect to any additions thereto or replacements thereof, shall be permitted; and (e) the Borrower and each Subsidiary may make capital contributions to any of their Subsidiaries to the extent such Subsidiary is a Subsidiary Guarantor. 9.06 LIMITATION ON CREATION OF SUBSIDIARIES. The Borrower will not, and will not permit any of its Subsidiaries to, establish, create or acquire any direct Subsidiary. 9.07 MODIFICATIONS. The Borrower will not, and will not permit any of its Subsidiaries to: (a) make (or give any notice in respect thereof) any voluntary or optional payment, prepayment, redemption, acquisition for value of (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) or exchange of any Indebtedness (other than Indebtedness under this Agreement and the Credit Documents); (b) amend, modify or change in any manner, taken as a whole, adverse to the interests of the Lenders the Company Documents of any Credit Party, or enter into any new agreement in any manner materially adverse to the interests of the Lenders with respect to the capital stock of the Borrower; or (c) amend, modify or change in any manner materially adverse to the interests of the Lenders, the Tax Sharing Agreement or the Management Services Agreement. 9.08 DIVIDENDS, ETC. (a) The Borrower will not, and will not permit any of its Subsidiaries to, declare or pay any dividends (other than dividends payable solely in capital stock of such Person) or return any capital to, its stockholders, members and/or other owners or authorize or make any other distribution, payment or delivery of property or cash to its stockholders, members and/or other owners as such, or redeem, retire, purchase or otherwise acquire, directly or indirectly, for a consideration, any shares of any class of its capital stock or other ownership interests now or hereafter outstanding (or any warrants for or options or stock appreciation rights in respect of any of such shares), or set aside any funds for any of the foregoing purposes, or permit any of its Subsidiaries to purchase or otherwise acquire for consideration any shares of any class of the capital stock or other ownership interests of the 47 Borrower or any other Subsidiary of the Borrower, as the case may be, now or hereafter outstanding (or any options or warrants or stock appreciation rights issued by such Person with respect to its capital stock) (all of the foregoing "DIVIDENDS"), except that (i) the Borrower may pay Intercompany Lease Payables with the proceeds of Tax Sharing Payments, solely to the extent such Tax Sharing Payments are permitted to be so applied pursuant to the proviso to Section 5.02(f), (ii) notwithstanding anything in Section 9.04(f) to the contrary, the Borrower may repay intercompany Indebtedness incurred pursuant to Section 9.04(f) with the proceeds of Excluded Parent Cash Contributions, solely to the extent such Excluded Parent Cash Contributions are permitted to be so applied pursuant to the definition of the term "Excluded Parent Cash Contributions", and (iii) any Subsidiary of the Borrower may pay dividends or return capital or make distributions and other similar payments with regard to its capital stock or other membership interests to the Borrower or to a Subsidiary Guarantor. (b) The Borrower will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist any encumbrance or restriction which prohibits or otherwise restricts (A) the ability of any Subsidiary of the Borrower to (a) pay dividends or make other distributions or pay any Indebtedness owed to the Borrower or any Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any Subsidiary of the Borrower, (c) transfer any of its properties or assets to the Borrower or any Subsidiary of the Borrower or (B) the ability of any Subsidiary of the Borrower to create, incur, assume or suffer to exist any Lien upon its property or assets to secure the Obligations, other than prohibitions or restrictions existing under or by reason of: (i) this Agreement and the other Credit Documents; (ii) applicable law; (iii) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices; and (iv) any restriction or encumbrance with respect to a Subsidiary of the Borrower imposed pursuant to an agreement which has been entered into for the sale or disposition of all or substantially all of the capital stock or assets of such Subsidiary, so long as such sale or disposition is permitted under this Agreement; PROVIDED that such prohibitions or restrictions apply only to the assets subject to such Liens. (c) The Borrower will not, and will not permit any of its Subsidiaries to, make any payments or other distributions with respect to any Indebtedness or other obligations for which Parent is also an obligor, except that the Borrower and its Subsidiaries may make payments or other distributions with respect to such Indebtedness and such other obligations so long as such payments or other distributions are made solely using the proceeds of (i) Tax Sharing Payments that are applied pursuant to and in accordance with the proviso to Section 5.02(f), or (ii) an Excluded Parent Cash Contribution of the type described in clause (ii) of the definition thereof. 9.09 TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any transaction or series of transactions after the Effective Date whether or not in the ordinary course of business, with any Affiliate other than on terms and conditions substantially as favorable to the Borrower or such Subsidiary as would be obtainable by the Borrower or such Subsidiary at the time in a comparable arm's-length transaction with a Person other than an Affiliate; PROVIDED that the foregoing restrictions shall not apply to (i) transactions solely among Credit Parties and their Wholly-Owned Subsidiaries, (ii) employment arrangements entered into in the ordinary course of business with officers of the Borrower and its 48 Subsidiaries, (iii) reasonable and customary fees paid to members of the Board of Directors of the Borrower and of its Subsidiaries, (iv) regularly scheduled quarterly management fees and expenses paid to Parent or any of its Subsidiaries pursuant to the Management Services Agreement (PROVIDED that (1) no Default or Event of Default exists at the time of any such payment or would exist immediately thereafter, and (2) the aggregate amount of such management fees and expenses paid during any four-fiscal quarter period shall not exceed 0.5% of Consolidated Revenue for such period (it being understood that, for purposes of this Section 9.09, for the four-fiscal quarter period ending on or prior to September 30, 2002, Consolidated Revenue for such period shall be deemed to equal Consolidated Revenue for those fiscal quarters of the Borrower ending after December 31, 2001 and on or prior to September 30, 2002, MULTIPLIED BY the appropriate factor necessary to annualize such amount)), (v) the Tax Sharing Agreement, (vi) the Preferred Stock Issuance and Capital Contribution Agreement, and (vii) payment of customary and reasonable legal fees and expenses to Paul, Hastings, Janofsky & Walker LLP for services rendered to the Borrower and its Subsidiaries. 9.10 LIMITATION ON ISSUANCE OF SUBSIDIARY STOCK. The Borrower will not permit any of its Subsidiaries, directly or indirectly, to issue any shares of such Subsidiary's capital stock or other securities (or warrants, rights or options to acquire shares or other equity securities), except (i) for replacements of then outstanding shares of capital stock, (ii) for stock splits, stock dividends and similar issuances which do not decrease the percentage ownership of the Borrower and its Subsidiaries taken as a whole in any class of the capital stock of such Subsidiary, and (iii) to qualify directors to the extent required by applicable law. 9.11 CAPITAL EXPENDITURES. The Borrower will not, and will not permit any of its Subsidiaries to, make or incur any Consolidated Capital Expenditures; PROVIDED that the Borrower and its Subsidiaries may make up to $200,000 (as adjusted in accordance with this Section 9.11, the "MAXIMUM CAPITAL EXPENDITURES AMOUNT" for each fiscal year) of Consolidated Capital Expenditures during any fiscal year of the Borrower so long as all such Consolidated Capital Expenditures are made in the ordinary course of business and do not include any capital expenditures to acquire, by purchase or otherwise, (i) any capital stock or other ownership interest of any Person, or (ii) any division, line of business or business of any Person; and PROVIDED FURTHER, that the Maximum Consolidated Capital Expenditures Amount for any fiscal year shall be increased by an amount equal to the excess, if any (but in no event more than $100,000), of the Maximum Capital Expenditures Amount for the previous fiscal year (prior to adjustment in accordance with this proviso) over the actual amount of Consolidated Capital Expenditures for such previous fiscal year. 9.12 PARENT CASH CONTRIBUTIONS. The Borrower will not, and will not permit any of its Subsidiaries to, use any of the proceeds of any Parent Cash Contribution (other than the Excluded Parent Cash Contributions) for any purpose other than working capital and general corporate purposes in the ordinary course of business or the repayment of Obligations as required under Section 5.02. 49 SECTION 10. EVENTS OF DEFAULT. Upon the occurrence of any of the following specified events (each, an "EVENT OF DEFAULT"): 10.01 PAYMENTS. The Borrower shall (i) default in the payment when due of any principal of any of the Tranche A Loans, (ii) default in the payment when due of any principal of any of the Tranche B Loans, (iii) default, and such default shall continue for five or more Business Days, in the payment when due of any interest on any of the Tranche A Loans, (iv) default, and such default shall continue for five or more Business Days, in the payment when due of any interest on any of the Tranche B Loans, or (v) default, and such default shall continue for five or more Business Days, in the payment when due of any Fees or any other amounts owing hereunder or under any other Credit Document; or 10.02 REPRESENTATIONS, ETC. Any representation, warranty or statement made or deemed made by any Credit Party herein or in any other Credit Document or in any statement or certificate delivered or required to be delivered pursuant hereto or thereto shall prove to be untrue in any material respect on the date as of which made or deemed made; or 10.03 COVENANTS. Any Credit Party shall (a) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.10(b), Section 8.11 or Section 9, (b) default in the due performance or observance by it of any term, covenant or agreement contained in Section 8.05(a) or Section 8.10(a) and such default shall continue unremedied for a period of at least 5 days, or (c) default in the due performance or observance by it of any term, covenant or agreement (other than those referred to in Section 10.01, Section 10.02, Section 10.09 or clause (a) or (b) of this Section 10.03) contained in this Agreement and such default shall continue unremedied for a period of at least 30 days; or 10.04 DEFAULT UNDER OTHER AGREEMENTS. (a) The Borrower or any of its Subsidiaries shall (i) default in any payment with respect to any Indebtedness (other than the Obligations) beyond the period of grace, if any, applicable thereto, or (ii) default in the observance or performance of any agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, any such Indebtedness to become due prior to its stated maturity; or (b) any such Indebtedness of the Borrower or any of its Subsidiaries shall be declared to be due and payable (or shall be required to be prepaid as a result of a default thereunder or of an event of the type that constitutes an Event of Default) prior to the stated maturity thereof; PROVIDED that clauses (a) and (b) above shall not apply to the existing defaults of the Borrower and its Subsidiaries listed on ANNEX XIII hereto that occurred prior to the Effective Date and are continuing as of the Effective Date with respect to the items of Indebtedness described on ANNEX XIII; and PROVIDED, FURTHER, that it shall not constitute an Event of Default pursuant to this Section 10.04 unless the aggregate principal amount of all Indebtedness (other than the Obligations) referred to in clauses (a) and (b) above exceeds $1,000,000 (not including amounts of Indebtedness listed on ANNEX XIII as being in default as of the Effective Date) in the aggregate at any one time, or (c) Parent shall (i) default in any payment of interest or principal beyond the period of grace, if any, applicable thereto under the Parent 50 Credit Agreement or (ii) the Indebtedness of Parent under the Parent Credit Agreement shall be declared to be due and payable (or shall be required to be prepaid as a result of a default thereunder or of an event of the type that constitutes an Event of Default) prior to the stated maturity thereof. 10.05 BANKRUPTCY, ETC. The Borrower or any of its Subsidiaries shall commence a voluntary case concerning itself under Title 11 of the United States Code entitled "Bankruptcy," as now or hereafter in effect, or any successor thereto (the "BANKRUPTCY CODE"); or an involuntary case is commenced against the Borrower or any of its Subsidiaries and the petition is not controverted within 20 days, or is not dismissed within 60 days, after commencement of the case; or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Borrower or any of its Subsidiaries; or the Borrower or any of its Subsidiaries commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Borrower or any of its Subsidiaries; or there is commenced against the Borrower or any of its Subsidiaries any such proceeding which remains undismissed for a period of 60 days; or the Borrower or any of its Subsidiaries is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Borrower or any of its Subsidiaries suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 60 days; or the Borrower or any of its Subsidiaries makes a general assignment for the benefit of creditors; or any corporate action is taken by the Borrower or any of its Subsidiaries for the purpose of effecting any of the foregoing; or 10.06 ERISA. (a) Any Plan or Multiemployer Plan shall fail to satisfy the minimum funding standard required for any plan year or part thereof under Section 412 of the Code or Section 302 of ERISA or a waiver of such standard or extension of any amortization period is sought or granted under Section 412 of the Code or Section 303 or 304 of ERISA, a Reportable Event shall have occurred, a contributing sponsor (as defined in Section 4001(a)(13) of ERISA) of a Plan subject to Title IV of ERISA shall be subject to the advance reporting requirement of PBGC Regulation Section 4043.61 (without regard to subparagraph (b)(1) thereof) and an event described in subsection .62, .63, .64, .65, .66, ...67 or .68 of PBGC Regulation Section 4043 shall be reasonably expected to occur with respect to such Plan within the following 30 days, any Plan which is subject to Title IV of ERISA shall have had or is likely to have a trustee appointed to administer such Plan, any Plan or Multiemployer Plan which is subject to Title IV of ERISA is, shall have been or is likely to be terminated or to be the subject of termination proceedings under ERISA, any Plan shall have an Unfunded Current Liability, a contribution required to be made with respect to a Plan, Multiemployer Plan has not been timely made, the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate has incurred or is likely to incur any liability to or on account of a Plan or Multiemployer Plan under Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971 or 4975 of the Code or on account of a group health plan (as defined in Section 607(1) of ERISA or Section 4980B(g)(2) of the Code) under Section 4980B of the Code, or the Borrower or any Subsidiary of the Borrower has incurred or is likely to incur liabilities pursuant 51 to one or more employee welfare benefit plans (as defined in Section 3(1) of ERISA) that provide benefits to retired employees or other former employees (other than as required by Section 601 of ERISA) or Plans; (b) there shall result from any such event or events the imposition of a lien, the granting of a security interest, or a liability or a material risk of incurring a liability; and (c) such lien, security interest or liability, individually and/or in the aggregate, in the opinion of the Required Lenders, has had, or is reasonably likely to have, a Material Adverse Effect; or 10.07 SECURITY DOCUMENTS. (a) Except in each case to the extent resulting from the negligent or willful failure of the Collateral Agent to continue to hold Pledged Securities under the Pledge Agreement, any of the Security Documents shall cease to be, in any material respect, in full force and effect, or shall cease, in any material respect, to give the Collateral Agent the Liens, rights, powers and privileges purported to be created thereby in favor of the Collateral Agent, or (b) any Credit Party shall default in the due performance or observance of any material term, covenant or agreement on its part to be performed or observed pursuant to any of the Security Documents and such default shall continue for 30 or more days after written notice to the respective Credit Party by the Administrative Agent; or 10.08 SUBSIDIARY GUARANTY. Any Subsidiary Guaranty or any material provision thereof shall cease to be in full force and effect, or any Subsidiary Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor shall deny or disaffirm such Subsidiary Guarantor's obligations under any Subsidiary Guaranty; or 10.09 PREFERRED STOCK ISSUANCE AND CAPITAL CONTRIBUTION AGREEMENT. The Preferred Stock Issuance and Capital Contribution Agreement or any material provision thereof shall cease to be in full force and effect or Parent shall deny or disaffirm its obligations thereunder or default in the performance of its agreements and conditions thereunder; or 10.10 JUDGMENTS. One or more judgments or decrees shall be entered against the Borrower or any of its Subsidiaries involving a liability (to the extent not paid or covered by insurance) in excess of $3,000,000 in the aggregate at any time outstanding for all such judgments and decrees for the Borrower and its Subsidiaries and all such judgments and decrees in excess of such amount shall not have been vacated, discharged or stayed or bonded pending appeal within 60 days from the entry thereof; or 10.11 CHANGE OF CONTROL. A Change of Control shall occur; or 10.12 AMENDMENT TO THE PARENT CREDIT AGREEMENT. The Parent Credit Agreement shall be amended or modified in any manner which imposes additional restrictions or conditions on the ability of Parent to make cash contributions to the Borrower in addition to those that exist as of the Effective Date; then, and in any such event, and at any time thereafter, if any Event of Default shall then be continuing, the Administrative Agent shall, upon the written request of the Required Lenders, by written notice to the Borrower, take any or all of the following actions, without prejudice to the rights of the Administrative Agent or any Lender to enforce its claims against any Subsidiary 52 Guarantor or the Borrower, except as otherwise specifically provided for in this Agreement (PROVIDED that, if an Event of Default specified in Section 10.05 shall occur with respect to the Borrower, the result which would occur upon the giving of written notice by the Administrative Agent as specified in clause (a) below shall occur automatically without the giving of any such notice): (a) (i) with respect to any Event of Default under clause (i) or clause (iii) of Section 10.01, declare the principal of and any accrued interest in respect of all of the Tranche A Loans and all Fees and other obligations owing hereunder (other than principal of and any accrued interest in respect of all Tranche B Loans) to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; (ii) with respect to any Event of Default under clause (ii) or clause (iv) of Section 10.01, declare the principal of and any accrued interest in respect of all of the Tranche B Loans and all Fees and other obligations owing hereunder (other than principal of and any accrued interest in respect of all Tranche A Loans) to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; or (iii) with respect to any Event of Default, other than Events of Default under clauses (i) through (iv) of Section 10.01, declare the principal of and any accrued interest in respect of all Loans and all Fees and other obligations owing hereunder to be, whereupon the same shall become, forthwith due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and (b) enforce, as Collateral Agent (or direct the Collateral Agent to enforce), any and all of the Liens and security interests created pursuant to the Credit Documents (including with respect to any cash collateral held pursuant to this Agreement). SECTION 11. THE ADMINISTRATIVE AGENT. 11.01 APPOINTMENT. The Lenders hereby designate Wachovia as Administrative Agent (for purposes of this Section 11, the term "Administrative Agent" shall include Wachovia in its capacity as Collateral Agent pursuant to the Security Documents and as representative on behalf of the Lenders) to act as specified herein and in the other Credit Documents. Each Lender hereby irrevocably authorizes, and each holder of any Loan shall be deemed irrevocably to authorize, the Administrative Agent to take such action on its behalf under the provisions of this Agreement, the other Credit Documents and any other instruments and agreements referred to herein or therein and to exercise such powers and to perform such duties hereunder and thereunder as are specifically delegated to or required of the Administrative Agent by the terms hereof and thereof and such other powers as are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder by or through its respective officers, directors, agents, employees or affiliates. 53 11.02 NATURE OF DUTIES. The Administrative Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement and in the other Credit Documents. Neither the Administrative Agent nor or any of its respective officers, directors, agents, employees or affiliates shall be liable for any action taken or omitted by them hereunder or under any other Credit Document or in connection herewith or therewith, unless caused by their gross negligence or willful misconduct. The duties of the Administrative Agent shall be mechanical and administrative in nature; the Administrative Agent shall not have by reason of this Agreement or any other Credit Document a fiduciary relationship in respect of any Lender or the holder of any Loan; and nothing in this Agreement or any other Credit Document, expressed or implied, is intended to or shall be so construed as to impose upon the Administrative Agent any obligations in respect of this Agreement or any other Credit Document except as expressly set forth herein or therein. 11.03 LACK OF RELIANCE ON THE ADMINISTRATIVE AGENT. Independently and without reliance upon the Administrative Agent, each Lender and the holder of each Loan, to the extent it deems appropriate, has made and shall continue to make (i) its own independent investigation of the financial condition and affairs of the Borrower and its Subsidiaries in connection with the making and the continuance of the Loans and the taking or not taking of any action in connection herewith and (ii) its own appraisal of the creditworthiness of the Borrower and its Subsidiaries and, except as expressly provided in this Agreement and the Administrative Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Lender or the holder of any Loan with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter. The Administrative Agent shall not be responsible to any Lender or the holder of any Loan for any recitals, statements, information, representations or warranties herein or in any document, certificate or other writing delivered in connection herewith or for the execution, effectiveness, genuineness, validity, enforceability, perfection, collectibility, priority or sufficiency of this Agreement or any other Credit Document or the financial condition of the Borrower and its Subsidiaries or be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Credit Document, or the financial condition of the Borrower and its Subsidiaries or the existence or possible existence of any Default or Event of Default. 11.04 CERTAIN RIGHTS OF THE ADMINISTRATIVE AGENT. If the Administrative Agent shall request instructions from the Required Lenders with respect to any act or action (including failure to act) in connection with this Agreement or any other Credit Document, the Administrative Agent shall be entitled to refrain from such act or taking such action unless and until the Administrative Agent shall have received instructions from the Required Lenders; and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, neither any Lender nor the holder of any Loan shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder or under any other Credit Document in accordance with the instructions of the Required Lenders. 11.05 RELIANCE. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, statement, certificate, 54 facsimile or electronic mail message, order or other document or telephone message signed, sent or made by any Person that the Administrative Agent believed to be the proper Person, and, with respect to all legal matters pertaining to this Agreement and any other Credit Document and its duties hereunder and thereunder, upon advice of counsel selected by the Administrative Agent (which may include counsel to the Borrower). 11.06 INDEMNIFICATION. To the extent the Administrative Agent is not reimbursed and indemnified by the Borrower, each Lender will reimburse and indemnify the Administrative Agent, in proportion to their respective Loans, for and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, judgments, costs, expenses or disbursements of whatsoever kind or nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its respective duties hereunder or under any other Credit Document, in any way relating to or arising out of this Agreement or any other Credit Document; PROVIDED that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent. 11.07 THE ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its obligation to make Loans under this Agreement, the Administrative Agent shall have the rights and powers specified herein for a "Lender" and may exercise the same rights and powers as though it were not performing the duties specified herein; and the term "Lenders," "Required Lenders," "holders of Loans" or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The Administrative Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with any Credit Party or any Affiliate of any Credit Party as if it were not performing the duties specified herein, and may accept fees and other consideration from the Borrower, or any other Credit Party for services in connection with this Agreement and otherwise without having to account for the same to the Lenders. 11.08 HOLDERS OF NOTES. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes hereof unless and until a written notice of the assignment, transfer or endorsement thereof, as the case may be, shall have been filed with the Administrative Agent. Any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee, assignee or indorsee, as the case may be, of such Note or of any Note or Notes issued in exchange therefor. 11.09 RESIGNATION BY THE ADMINISTRATIVE AGENT. (a) The Administrative Agent may resign from the performance of all its functions and duties hereunder and/or under the other Credit Documents at any time by giving 15 Business Days' prior written notice to the Borrower and the Lenders. Such resignation shall take effect upon the appointment of a successor Administrative Agent pursuant to clauses (b) and (c) below or as otherwise provided below. 55 (b) Upon any such notice of resignation, the Required Lenders shall appoint a successor Administrative Agent hereunder or thereunder who shall be a commercial bank or trust company acceptable to the Borrower (such consent not to be unreasonably withheld). (c) If a successor Administrative Agent shall not have been so appointed within such 15 Business Day period, the Administrative Agent, with the consent of the Borrower (such consent not to be unreasonably withheld), shall then appoint a successor Administrative Agent who shall serve as Administrative Agent hereunder or thereunder until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. (d) If no successor Administrative Agent has been appointed pursuant to clause (b) or (c) above by the 30th Business Day after the date such notice of resignation was given by the Administrative Agent, the Administrative Agent's resignation shall become effective and the Required Lenders shall thereafter perform all the duties of the Administrative Agent hereunder and/or under any other Credit Document until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above. 11.10 BANK OF AMERICA, N.A.. The provisions of Section 11 of the Credit Agreement, dated as of October 20, 1999, as amended as of January 11, 2000, as further amended and restated as of March 27, 2000, and as further amended, modified or supplemented prior to the Restatement Effective Date (as defined in the Existing Credit Agreement) shall inure to the benefit of Bank of America, N.A. in its capacity as administrative agent under such Credit Agreement with respect to any actions taken or omitted to be taken by it while it was acting as administrative agent under such Credit Agreement. In addition, Bank of America, N.A., in its capacity as Syndication Agent under this Agreement, shall have all the benefits and immunities provided to the Administrative Agent in this Section 11 with respect to any acts taken or omissions suffered by the Syndication Agent which are permitted to be taken by it, or omitted to be taken by it, as provided for in this Agreement, in each case as fully as if the term "Administrative Agent" included the Syndication Agent with respect to such acts or omissions. SECTION 12. MISCELLANEOUS. 12.01 PAYMENT OF EXPENSES, ETC. The Borrower agrees to: (i) whether or not the transactions herein contemplated are consummated, pay all reasonable out-of-pocket costs and expenses of each Agent in connection with the negotiation, preparation, execution and delivery of the Credit Documents and the documents and instruments referred to therein and the administration hereof and thereof, and any amendment, waiver or consent relating thereto (including, without limitation, the reasonable fees and disbursements of O'Melveny & Myers LLP) and of each Agent and each of the Lenders in connection with the enforcement following an Event of Default of the Credit Documents and the documents and instruments referred to therein (including, without limitation, the reasonable fees and disbursements of counsel for each of the Agents and each of the Lenders); (ii) pay and hold each of the Lenders harmless from and against any and all present and future stamp and other similar taxes with respect to the foregoing matters and save each of the Lenders harmless from and against any and all liabilities with respect to or resulting from any delay or omission (other than to the extent attributable to such Lender) to pay such taxes; and (iii) indemnify each Lender (including in its capacity as an 56 Agent), its officers, directors, employees, representatives and agents from and hold each of them harmless against any and all losses, liabilities, claims, damages or expenses incurred by any of them as a result of, or arising out of, or in any way related to, or by reason of, (a) any investigation, litigation or other proceeding (whether or not any Agent or any Lender is a party thereto and whether or not any such investigation, litigation or other proceeding is between or among any Agent, any Lender, any Credit Party or any third Person or otherwise (except to the extent between or among any Lenders in their capacity as such)) related to the entering into and/or performance of any Credit Document or the use of the proceeds of any Loans hereunder or the consummation of any transactions contemplated in any Credit Document, or (b) the actual or alleged presence of Hazardous Materials in the air, surface water or ground water or on the surface or subsurface of any property owned or operated at any time by Borrower or any of its Subsidiaries or the generation, storage, transportation, handling or disposal of Hazardous Materials by the Borrower or any of its Subsidiaries at any location, or the noncompliance by the Borrower or any of its Subsidiaries with any Environmental Law or any Environmental Claim in connection with the Borrower or any of its Subsidiaries or business or operations or any property owned or operated at any time by the Borrower or any of its Subsidiaries, including, in each case, without limitation, the reasonable fees and disbursements of counsel incurred in connection with any such investigation, litigation or other proceeding (but excluding any such losses, liabilities, claims, damages or expenses to the extent incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified or of any other indemnitee who is such Person or an affiliate of such Person). Notwithstanding the foregoing, in no event shall the Borrower be obligated under this Section 12.01 to indemnify any Lender (i) for a loss in value of Parent Preferred Stock taken by such Lender pursuant to the Conversion Option and (ii) for such Lender's failure to comply with Regulation Y. 12.02 RIGHT OF SETOFF. In addition to any rights now or hereafter granted under applicable law or otherwise, and not by way of limitation of any such rights, if an Event of Default then exists, each Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to any Credit Party or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special but not trust accounts) and any other Indebtedness at any time held or owing by such Lender (including, without limitation, by branches and agencies of such Lender wherever located) to or for the credit or the account of any Credit Party against and on account of the Obligations and liabilities of such Credit Party to such Lender under this Agreement or under any of the other Credit Documents, including, without limitation, all interests in Obligations of such Credit Party purchased by such Lender pursuant to Section 12.06(b), and all other claims of any nature or description arising out of or connected with this Agreement or any other Credit Document, irrespective of whether or not such Lender shall have made any demand hereunder and although said Obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 12.03 NOTICES. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including facsimile communication) and mailed, faxed or delivered, if to the Borrower or any other Credit Support Party, at the address specified opposite its signature below, if to the Parent, at the address 57 specified in the Preferred Stock Issuance and Capital Contribution Agreement, if to any Lender or Existing Lender, at its address specified for such Lender or such Existing Lender on ANNEX IV hereto, and, if to the Administrative Agent, at the Notice Office; or, at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be effective when received. Electronic mail and Internet and intranet websites may be used to distribute routine communications, such as financial statements and other information, and to distribute agreements and other documents to be signed by the Administrative Agent, Lenders, Non-Continuing Lenders and the Credit Parties; PROVIDED, HOWEVER, that no signature with respect to any notice, request, agreement, waiver, amendment or other document or any notice or request that is intended to have binding effect may be sent by electronic mail. 12.04 BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPANTS. (a) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto, PROVIDED that the Borrower may not assign or transfer any of its rights or obligations hereunder without the prior written consent of the Lenders. Each Lender may at any time grant participations in any of its rights hereunder or under any of the Loans to another financial institution; PROVIDED that in the case of any such participation, the participant shall not have any rights under this Agreement or any of the other Credit Documents (the participant's rights against such Lender in respect of such participation to be those set forth in the agreement executed by such Lender in favor of the participant relating thereto) and all amounts payable by the Borrower hereunder shall be determined as if such Lender had not sold such participation, except that the participant shall be entitled to the benefits of Section 5.04 to the extent that such Lender would be entitled to such benefits if the participation had not been entered into or sold; and, PROVIDED, FURTHER, that no Lender shall transfer, grant or assign any participation under which the participant shall have rights to approve any amendment to or waiver of this Agreement or any other Credit Document except to the extent such amendment or waiver would (i) extend the final scheduled maturity of any Loan in which such participant is participating (it being understood that any waiver of any prepayment of, or the method of any application of any prepayment to, the Loans shall not constitute an extension of the final maturity date), or reduce the rate or extend the time of payment of interest or Fees (except in connection with a waiver of the applicability of any post-default increase in interest rates), or reduce the principal amount thereof, or increase such participant's participating interest in any Loans over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory repayment shall not constitute a change in the terms of any Lender's Loans), (ii) release all or substantially all of the Collateral or Subsidiary Guarantors or (iii) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement. (b) Notwithstanding the foregoing, with the consent of the Administrative Agent and, if no Default under Section 10.01, 10.05, 10.03(b) or 10.03(c) or Event of Default exists, the Borrower (each of which consents shall not be unreasonably withheld or delayed, PROVIDED that no such consent shall be required in connection with an assignment pursuant to clause (x) below), (x) any Lender may assign all or a portion of its Loans (and related obligations) and related rights and Obligations hereunder to (i) one or more Lenders and/or 58 Affiliates of such Lender which are Eligible Transferees or (ii) in the case of any Lender that is a fund that invests in loans, any other fund that invests in loans and is managed and/or advised by the same investment advisor of such Lender or by an Affiliate of such investment advisor, and (y) any Lender may assign all or a portion of its Loans (and related obligations) and related rights and Obligations hereunder to one or more Eligible Transferees (treating any fund that invests in loans and any other fund that invests in loans and is managed and/or advised by the same investment advisor of such fund or by an Affiliate of such investment advisor of such fund or by an Affiliate of such investment advisor as a single Eligible Transferee); PROVIDED that, in the case of any assignment made pursuant to clause (x) or (y) above, such assignment shall represent the assignment by the assigning Lender of a ratable portion of the aggregate outstanding principal amount of the Tranche A Loan of such Lender and the aggregate outstanding principal amount of the Tranche B Loan of such Lender. No assignment pursuant to the immediately preceding sentence shall, to the extent such assignment represents an assignment to an institution other than one or more Lenders hereunder or an Affiliate thereof, be in an aggregate amount less than $1,000,000 unless all of the Loans of the assigning Lender are so assigned. If any Lender so sells or assigns all or a part of its rights hereunder or under the Notes, any reference in this Agreement or the Notes to such assigning Lender shall thereafter refer to such Lender and to the respective assignee to the extent of their respective interests and the respective assignee shall have, to the extent of such assignment (unless otherwise provided therein), the same rights and benefits as it would if it were such assigning Lender. Each assignment pursuant to this Section 12.04(b) shall be effected by the assigning Lender and the assignee Lender executing an Assignment Agreement and giving the Administrative Agent written notice thereof. At the time of any such assignment, (i) either the assigning or the assignee Lender shall pay to the Administrative Agent a nonrefundable assignment fee of $3,500, and (ii) upon surrender of any related old Notes the Borrower will, at its own expense, issue new Notes to the respective assignee and to the assigning Lender in conformity with the requirements of Section 2.02, PROVIDED that such transfer or assignment will not become effective until recorded by the Administrative Agent on the Lender Register pursuant to Section 12.16. To the extent of any assignment pursuant to this Section 12.04(b) to a Person which is not already a Lender hereunder and which is not a United States Person (as such term is defined in Section 7701(a)(30) of the Code) for Federal income tax purposes, the respective assignee Lender shall provide to the Borrower and the Administrative Agent the appropriate Internal Revenue Service Forms (and, if applicable, a Section 5.04 Certificate) described in Section 5.04(b). To the extent that an assignment pursuant to this Section 12.04(b) would, at the time of such assignment, result in increased costs under Section 5.04 from those being charged by the respective assigning Lender prior to such assignment, then the Borrower shall not be obligated to pay such increased costs (although the Borrower shall be obligated to pay any other increased costs of the type described above resulting from changes after the date of the respective assignment). Nothing in this clause (b) shall prevent or prohibit any Lender from pledging or assigning a security interest in all or any portion of its Notes or Loans, and the other Obligations owed to such Lender, to a Federal Reserve Bank in support of borrowings made by such Lender from such Federal Reserve Bank and, with the consent of the Administrative Agent and the Borrower (each of which consents shall not be unreasonably withheld), any Lender which is a fund may pledge all or any portion of its Loans and Notes to its trustee in support of its obligations to its trustee. 59 (c) Notwithstanding any other provisions of this Section 12.04, no transfer or assignment of the interests or obligations of any Lender hereunder or any grant of participation therein shall be permitted if such transfer, assignment or grant would require the Borrower or any of its Subsidiaries to (i) file a registration statement with the SEC, (ii) qualify the Loans under the "Blue Sky" laws of any State or (iii) integrate such transfer or assignment with a separate securities offering of securities of the Borrower or any of its Subsidiaries. (d) Each Lender initially party to this Agreement hereby represents, and each Person that became a Lender pursuant to an assignment permitted by this Section 12 will, upon its becoming party to this Agreement, represent that it is an Eligible Transferee which makes or invests in loans in the ordinary course of its business and that it will make or acquire Loans for its own account in the ordinary course of such business, PROVIDED that subject to the preceding clauses (a) and (b), the disposition of any promissory notes or other evidences of or interests in Indebtedness held by such Lender shall at all times be within its exclusive control. 12.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Administrative Agent or any Lender in exercising any right, power or privilege hereunder or under any other Credit Document and no course of dealing between any Credit Party and the Administrative Agent or any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or under any other Credit Document preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder or thereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Administrative Agent or any Lender would otherwise have. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Administrative Agent or the Lenders to any other or further action in any circumstances without notice or demand. 12.06 PAYMENTS PRO RATA. (a) The Administrative Agent agrees that promptly after its receipt of each payment from or on behalf of any Credit Party in respect of any Obligations of such Credit Party hereunder, it shall distribute such payment to Lenders (other than any Lender that has expressly waived its right to receive its pro rata share thereof) based upon their respective ratable shares, if any, of the Obligations with respect to which such payment was received. (b) Each of the Lenders agrees that, if it should receive any amount hereunder (whether by voluntary payment, by realization upon security, by the exercise of the right of setoff or banker's lien, by counterclaim or cross action, by the enforcement of any right under the Credit Documents, or otherwise) which is applicable to the payment of the principal of, or interest on, the Loans, or Fees, of a sum which with respect to the related sum or sums received by other Lenders is in a greater proportion than the total of such Obligation then owed and due to such Lender bears to the total of such Obligation then owed and due to all of the Lenders immediately prior to such receipt, then such Lender receiving such excess payment shall purchase for cash without recourse or warranty from the other Lenders an interest in the Obligations of the respective Credit Party to such Lenders in such amount as shall result in a proportional participation by all of the Lenders in such amount; PROVIDED that if all or any portion 60 of such excess amount is thereafter recovered from such Lender, such purchase shall be rescinded and the purchase price restored to the extent of such recovery, but without interest; PROVIDED, FURTHER, that no receipt by an Existing Lender of Parent Preferred Stock or amounts under the Effective Date Paydown shall be subject to the provisions of this Section 12.06(b). 12.07 CALCULATIONS; COMPUTATIONS. (a) The financial statements to be furnished to the Lenders pursuant hereto shall be made and prepared in accordance with GAAP consistently applied throughout the periods involved (except as set forth in the notes thereto or as otherwise disclosed in writing by the Borrower to the Lenders), PROVIDED that (x) except as otherwise specifically provided herein, all computations of Available Cash Flow shall utilize accounting principles and policies in conformity with those used to prepare the historical financial statements of the Borrower referred to in Section 7.10, and (y) if at any time such computations utilize accounting principles different from those utilized in the financial statements furnished to the Lenders, such financial statements shall be accompanied by reconciliation work-sheets. (b) All computations of interest hereunder shall be made on the actual number of days elapsed over a year of 360 days. 12.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL. (a) This Agreement and the other Credit Documents and the rights and obligations of the parties hereunder and thereunder shall be construed in accordance with and be governed by the law of the State of New York. Any legal action or proceeding with respect to this Agreement or any other Credit Document may be brought in the courts of the State of New York sitting in the Borough of Manhattan or of the United States for the Southern District of New York, and, by execution and delivery of this Agreement, each Credit Party which is party to this Agreement hereby irrevocably accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. Each Credit Party which is party to this Agreement further irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to such Credit Party located outside New York City and by hand delivery to each Credit Party located within New York City, at its address for notices pursuant to Section 12.03, such service to become effective 30 days after such mailing. Nothing herein shall affect the right of the Administrative Agent or any Lender to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against any Credit Party which is party to this Agreement in any other jurisdiction. (b) Each Credit Party which is party to this Agreement hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Credit Document brought in the courts referred to in clause (a) above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. 61 (c) Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the other Credit Documents or the transactions contemplated hereby or thereby. 12.09 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A set of counterparts executed by all the parties hereto shall be lodged with the Borrower and the Administrative Agent. 12.10 EFFECTIVENESS. This Agreement shall become effective on May 10, 2002 (the "EFFECTIVE DATE"), so long as (i) the Borrower, each of the other Credit Parties party hereto, each of the Lenders, and each of the Non-Continuing Lenders shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to the Administrative Agent at the Notice Office of the Administrative Agent or, in the case of the Lenders and Non-Continuing Lenders, shall have given to the Administrative Agent telephonic (confirmed in writing) or facsimile transmission notice (actually received) at such office that the same has been signed and mailed to it, and (ii) the conditions set forth in Section 6 shall have been satisfied in accordance with the terms thereof. The Administrative Agent will give the Borrower, each Lender and each Non-Continuing Lender prompt written notice of the occurrence of the Effective Date. 12.11 HEADINGS DESCRIPTIVE. The headings of the several sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 12.12 AMENDMENT OR WAIVER. Neither this Agreement nor any other Credit Document nor any terms hereof or thereof may be changed, waived, discharged or terminated unless such change, waiver, discharge or termination is in writing signed by the Borrower and the Required Lenders; PROVIDED that no such change, waiver, discharge or termination shall, without the consent of each Lender directly affected thereby, (i) extend the final scheduled maturity date of any Loan or Note beyond the Maturity Date, or reduce the rate or extend the time of payment of interest (other than as a result of waiving the applicability of any post-default increase in interest rates) or Fees, or reduce the principal amount thereof, or increase the Loans of such Lender over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory repayment shall not constitute a change in the terms of any Lender's Loans), (ii) amend, modify or waive any provision of this Section 12.12 (except to give effect to additional facilities hereunder), (iii) reduce the percentage specified in, or (except to give effect to any additional facilities hereunder) otherwise modify, the definition of Required Lenders, (iv) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (v) release all or substantially all of the Collateral (except as set forth in the Credit Documents) or (vi) release all or substantially all of the Subsidiary Guarantors; PROVIDED, FURTHER, that no such change, waiver, discharge or termination shall, (x) without the consent of each Agent affected thereby, amend, modify or waive any provision of Section 11 or any other provision as same relates to the rights or obligations of such Agent, or (y) without the consent of the Collateral Agent, amend, modify or waive any provision 62 relating to the rights or obligations of the Collateral Agent; and PROVIDED, FURTHER, that no such change, waiver, discharge or termination that otherwise becomes effective against other parties hereto in accordance with the terms of this Agreement shall be effective in altering the rights or obligations of any of the Non-Continuing Lenders adversely to such Non-Continuing Lender without the consent of such Non-Continuing Lender. 12.13 SURVIVAL. All indemnities set forth in the Existing Credit Agreement or herein (including, without limitation, the indemnities set forth in Section 5.04, 11.06 or 12.01 hereof or thereof) shall survive the execution and delivery of this Agreement and the making and repayment of the Loans. 12.14 DOMICILE OF LOANS. Each Lender may transfer and carry its Loans at, to or for the account of any branch office, subsidiary or affiliate of such Lender, PROVIDED that the Borrower shall not be responsible for costs arising resulting from any such transfer to the extent not otherwise applicable to such Lender prior to such transfer. 12.15 CONFIDENTIALITY. Each of the Lenders and the Existing Lenders agrees that it will use its best efforts not to disclose without the prior consent of the Borrower (other than to its employees, auditors, counsel or other professional advisors, to affiliates or to another Lender if the Lender or such Lender's holding or parent company in its sole discretion determines that any such party should have access to such information) any information with respect to the Borrower or any of its Subsidiaries which is furnished pursuant to any Credit Document and which is designated by the Borrower or the Borrower to the Lenders and Existing Lenders in writing as confidential; PROVIDED that any Lender or Existing Lender may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to, or as may be requested by, any municipal, state or Federal regulatory body or representative thereof having or claiming to have jurisdiction over such Lender or to the Federal Reserve Board or the Federal Deposit Insurance Corporation or similar organizations (whether in the United States or elsewhere) or their successors or to the National Association of Securities Dealers or the National Association of Insurance Commissioners, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation (notice of which will be promptly sent to the Borrower to the extent permitted by law), (d) in order to comply with any law, order, regulation or ruling applicable to such Lender or Existing Lender, and (e) to any prospective transferee that is an Eligible Transferee that is acceptable to the Borrower in connection with any contemplated transfer of any of the Notes or any interest therein by such Lender to the extent that such prospective transferee is notified of the confidentiality requirements relating thereto. No Lender shall be obligated or required to return any materials furnished by the Borrower or any Subsidiary of the Borrower. The Borrower hereby agrees that the failure of a Lender or Existing Lender to comply with the provisions of this Section 12.15 shall not relieve the Credit Parties of any of their obligations to such Lender or Existing Lender under this Agreement and the other Credit Documents. 12.16 LENDER REGISTER. The Borrower hereby designates the Administrative Agent to serve as the Borrower's agent, solely for purposes of this Section 12.16, to maintain a register (the "LENDER REGISTER") on which it will record the Loans made by each of the Lenders 63 and each repayment in respect of the principal amount of the Loans of each of the Lenders. Failure to make any such recordation, or any error in such recordation shall not affect the Borrower's obligations in respect of such Loans. With respect to any Lender, the transfer of Loans and the rights to the principal of, and interest on, such Loans shall not be effective until such transfer is recorded on the Lender Register maintained by the Administrative Agent with respect to ownership of such Loans and prior to such recordation all amounts owing to the transferor with respect to such Loans shall remain owing to the transferor. The registration of assignment or transfer of all or part of any Loans shall be recorded by the Administrative Agent on the Lender Register only upon the acceptance by the Administrative Agent of a properly executed and delivered Assignment Agreement pursuant to Section 12.04(b). The Borrower agrees to indemnify the Administrative Agent from and against any and all losses, claims, damages and liabilities of whatsoever nature which may be imposed on, asserted against or incurred by the Administrative Agent in performing its duties under this Section 12.16 (but excluding such losses, claims, liabilities or liabilities incurred by reason of the Administrative Agent's gross negligence or willful misconduct). 12.17 AMENDMENT AND RESTATEMENT OF EXISTING CREDIT AGREEMENT. On and as of the occurrence of the Effective Date in accordance with Section 12.10, the Existing Credit Agreement shall be deemed to be amended and restated in its entirety, and superseded by this Agreement. 12.18 ACKNOWLEDGEMENT AND CONSENT; RELEASE; AUTHORIZATION. (a) The Security Documents and the other Credit Documents to which the Borrower and the other Credit Parties are party are herein referred to collectively as the "CREDIT SUPPORT DOCUMENTS". Each Credit Party which is party to this Agreement (each a "CREDIT SUPPORT PARTY", and collectively, "CREDIT SUPPORT PARTIES") hereby acknowledges that it has reviewed the terms and provisions of this Agreement. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby (after giving effect to the transactions contemplated hereby) will continue to guaranty or secure, as the case may be, to the fullest extent set forth therein the payment and performance of all "Guaranteed Obligations" and "Obligations" as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including without limitation the payment and performance of all such "Guaranteed Obligations" or "Obligations", as the case may be, in respect of the Obligations of the Borrower now or hereafter existing under or in respect of the Existing Credit Agreement as amended by this Agreement and the other Credit Documents. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Agreement. Each Credit Support Party (other than the Borrower) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Agreement, such Credit Support Party is not required by the terms of the Existing Credit Agreement, this Agreement or any other Credit Document to consent to this Agreement, and (ii) nothing in the Existing Credit Agreement, this Agreement or any other Credit Document shall be deemed to require the consent of such Credit Support Party to any future consents or waivers to this Agreement. 64 (b) No Agent nor any Lender has or shall have, by reason of the Existing Credit Agreement, this Agreement or any other Credit Document, a fiduciary relationship in respect of the Borrower, any other Credit Party or Credit Parties. (c) Each Credit Support Party hereby confirms, reaffirms and acknowledges (i) that the Collateral Agent (for the benefit of the Secured Creditors (as defined in each of the Credit Support Documents)) has a fully perfected first Lien on, and security interest in, all right, title and interest of such Credit Support Party in the Collateral, subject to no other Liens (other than Permitted Liens), before and after the Effective Date, and (ii) the continuing validity and effectiveness of the Collateral Agent's and Secured Creditors' rights under the Credit Documents and applicable law, before and after the Effective Date. (d) Except as expressly set forth in this Agreement, each of the undersigned Credit Parties hereby acknowledges and agrees that the execution and delivery by any Agent and the Lenders of this Agreement shall not be deemed (i) to create a course of dealing or otherwise obligate any Agent or the Lenders to forbear or execute similar agreements under the same or similar circumstances in the future, (ii) to modify, relinquish or impair any right of any Agent or the Lenders to receive any indemnity or similar payment from, or exercise any rights granted by, any Person or entity as a result of any matter arising from or relating to this Agreement, (iii) to waive any right of the Lenders to receive interest at an increased rate as a result of any Events of Default that may occur under this Agreement, (iv) to obligate any Agent or the Lenders in any way to forbear from individually or collectively enforcing remedies under this Agreement in any manner or (v) a commitment from or of any Agent or the Lenders to forbear or "stand still". Except as expressly set forth in this Agreement, no past or future forbearance on the part of any Agent or the Lenders should be viewed as a limitation upon or waiver of the absolute right and privilege of any Agent or the Lenders in exercising rights and remedies that currently exist or may exist after the Effective Date. (e) RELEASE. Each of the Borrower and each other Credit Party which is party to this Agreement and each of their Subsidiaries (collectively, the "RELEASORS") hereby releases, remises, acquits and forever discharges each Agent, each Lender, each Existing Lender, and each of their respective employees, agents representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, related corporate divisions, participants and assigns (all of the foregoing hereinafter called the "RELEASED PARTIES"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, setoffs, recoupments, counterclaims, defenses, damages and expenses of any and every character, known or unknown, suspected or unsuspected, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to the Existing Credit Agreement, the Existing Credit Documents, this Agreement, any of the other Credit Documents or the Existing Swap Agreement (all of the foregoing hereinafter called the "RELEASED MATTERS"). Each Releasor acknowledges that the agreements in this Section 12.18 are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters and constitute a complete waiver of any right of 65 setoff or recoupment, counterclaim or defense of any nature whatsoever which arose prior to the Effective Date to payment or performance of the Existing Loans, the "Obligations" as defined in the Existing Credit Agreement and the Existing Swap Obligations. Each Releasor represents and warrants that it has no knowledge of any claim by it against the Released Parties or of any facts, or acts or omissions of the Released Parties which on the date hereof would be the basis of a claim by the Releasors against the Released Parties which is not released hereby. Each Releasor represents and warrants that it has not purported to transfer, assign, pledge or otherwise convey any of its right, title or interest in any Released Matter to any other person or entity and that the foregoing constitutes a full and complete release of all Released Matters. Releasors have granted this release freely, and voluntarily and without duress. 12.19 ACKNOWLEDGEMENT BY NON-CONTINUING LENDERS; WAIVER BY EXISTING LENDERS. (a) Each Non-Continuing Lender hereby acknowledges that it has reviewed the terms and provisions of this Agreement. Each Non-Continuing Lender hereby acknowledges and agrees that, from and after the Effective Date, such Non-Continuing Lender shall not be a Lender under this Agreement (unless such Non-Continuing Lender subsequently becomes a Lender by assignment pursuant to Section 12.04) and, other than as set forth in Section 12.13 of the Existing Credit Agreement, the rights and obligations of such Non-Continuing Lender under the Existing Credit Agreement shall be terminated on and as of the Effective Date. (b) Each Existing Lender hereby waives (i) each of the "Defaults" and "Events of Default" that occurred under (and as defined in) the Existing Credit Agreement and the Existing Credit Documents, and each of the "Events of Default" (if any) that occurred under (and as defined in) the Existing Swap Agreement, in each case prior to the Effective Date (it being understood by each of the parties hereto that (x) such waiver is expressly limited to defaults under the Existing Credit Agreement, the Existing Credit Documents and the Existing Swap Agreement, and (y) such waiver shall not constitute a waiver of any Default or Event of Default arising from any condition or event that would, under any express provision of this Agreement or any other Credit Document that is effective after the Effective Date, constitute a Default or Event of Default), and (ii) the right to have interest in respect of any overdue amounts payable under the Existing Credit Agreement as a result of the occurrence of such defaults accrue at the increased default rate or be payable on demand as set forth in Section 2.08(c) of the Existing Credit Agreement. [Remainder of page intentionally left blank.] 66 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. BORROWER: FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. By: /s/ Walter E. Leach, Jr. ----------------------------------------- Name: Walter E. Leach, Jr. Title: Senior Vice President Notice Address: FairPoint Communications Solutions Corp. 521 E. Morehead Street, Suite 250 Charlotte, NC 28202 Attention: Vice President of Finance/Treasurer S-1 For purposes of Section 12.18 only: FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - NEW YORK, as a Credit Support Party By: /s/ Walter E. Leach, Jr. ---------------------------------------------- Name Walter E. Leach, Jr. Title: Senior Vice President FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - VIRGINIA, as a Credit Support Party By: /s/ Walter E. Leach, Jr. --------------------------------------------- Name Walter E. Leach, Jr. Title: Senior Vice President FAIRPOINT SOLUTIONS CAPITAL, LLC, as a Credit Support Party By: /s/ Walter E. Leach, Jr. --------------------------------------------- Name Walter E. Leach, Jr. Title: Senior vice President Notice Address for each such Credit Support Party: c/o FairPoint Communications Solutions Corp. 521 E. Morehead Street, Suite 250 Charlotte, NC 28202 Attention: Vice President of Finance/Treasurer S-2 WACHOVIA BANK, NATIONAL ASSOCIATION, formerly known as First Union National Bank, as Administrative Agent and as a Lender By: /s/ Katherine A. Harkness --------------------------------------------- Name: Katherine A. Harkness Title: Director S-3 BANK OF AMERICA, N.A., as Syndication Agent and as a Lender By: /s/ Wayne R. Porritt ---------------------------------------- Name: Wayne R. Porritt Title: Managing Director S-4 DEUTSCHE BANK TRUST COMPANY AMERICAS, formerly known as Bankers Trust Company, as Documentation Agent and as a Lender By: /s/ Anca Trifan --------------------------------------------- Name: Anca Trifan Title: Director S-5 CIT LENDING SERVICES CORPORATION (for purposes of Sections 2.01 and 12.19 only), as a Non- Continuing Lender By: /s/ Michael V. Monahan --------------------------------------------- Name: Michael V. Monahan Title: Vice President S-6 CITICORP USA, INC. (for purposes of Sections 2.01 and 12.19 only), as a Non-Continuing Lender By: /s/ Michael C. Becker --------------------------------------------- Name: Michael C. Becker Title: Director S-7 COBANK, ACB (for purposes of Sections 2.01 and 12.19 only), as a Non-Continuing Lender By: /s/ Rick Freeman -------------------------------------------- Name: Rick Freeman Title: Vice President S-8 CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH (as successor to DLJ Capital Funding, Inc.), as a Lender By: /s/ David L. Sawyer ---------------------------------------------- Name: David L. Sawyer Title: Director S-9 ANNEX I CONVERSION OF EXISTING LOANS AND EXISTING SWAP OBLIGATIONS
Existing Existing Existing Swap Tranche A Tranche B Lender Term Loan Revolving Loan Obligation Portion Portion ------ --------- -------------- ---------- ------- ------- Wachovia Bank, $ 0.00 $ 0.00 $ 2,109,827.76 $ 659,934.67 $ 1,449,893.09 National Association Bank of America, N.A. $ 7,080,823.67 $ 933,279.95 $ 0.00 $ 2,506,737.73 $ 5,507,365.89 Deutsche Bank Trust $10,078,412.02 $ 1,328,373.69 $ 0.00 $ 3,567,937.41 $ 7,838,848.30 Company Americas Credit Suisse First $ 5,664,658.94 $ 746,623.96 $ 0.00 $ 2,005,390.18 $ 4,405,892.71 Boston, Cayman Islands Branch -------------- --------------- -------------- ---------------- --------------- TOTAL $22,823,894.63 $ 3,008,277.61 $ 2,109,827.76 $ 8,740,000.00 $ 19,202,000.00
I-1 ANNEX II EFFECTIVE DATE PAYDOWN ALLOCATION
Existing Existing Existing Lender Term Loan Revolving Loan Swap Obligation Cash Payment ------ --------- -------------- --------------- ------------ Wachovia Bank, $ 0.00 $ 0.00 $ 893,172.24 $ 637,980.17 National Association Bank of America, $ 2,997,588.35 $ 395,093.74 $ 0.00 $ 2,423,344.35 N.A. Credit Suisse First $ 2,398,070.68 $ 316,074.99 $ 0.00 $ 1,938,675.48 Boston, Cayman Islands Branch -------------- --------------- -------------- -------------- TOTAL $ 5,395,659.03 $ 711,168.73 $ 893,172.24 $ 5,000,000.00
II-1 ANNEX III INITIAL PARENT PREFERRED STOCK CONVERSION ALLOCATION
Converted Existing Converted Existing Liquidation Preference of Lender Term Loan Revolving Loan Parent Preferred Stock ------ --------- -------------- ---------------------- Wachovia Bank, National $22,230,000.00 $ 2,930,000.00 $25,160,000.00 Association Bank of America, N.A. $12,151,587.98 $ 1,601,626.31 $13,753,214.29 Deutsche Bank Trust Company $12,151,587.98 $ 1,601,626.31 $13,753,214.29 Americas* Citicorp USA, Inc. $17,784,000.00 $ 2,344,000.00 $20,128,000.00 Credit Suisse First Boston, $ 9,721,270.38 $ 1,281,301.04 $11,002,571.43 Cayman Islands Branch CoBank, ACB $ 4,446,000.00 $ 586,000.00 $ 5,032,000.00 CIT Lending Services Corporation $ 4,446,000.00 $ 586,000.00 $ 5,032,000.00 -------------- -------------- -------------- TOTAL $82,930,446.34 $10,930,553.66 $93,861,000.00
* Deutsche Bank Trust Corporation, which is an Affiliate of Deutsche Bank Trust Company Americas, will be the Purchaser with respect to the Parent Preferred Stock. III-1 ANNEX IV Addresses --------- Lender Address - ------ ------- Wachovia Bank, National Association 301 South College Street Charlotte, NC 28288-0537 ATTN: Kathy Harkness Tel. No.: (704) 383-0707 Fax No.: (704) 383-6249 Bank of America, N.A. SAG-East NC1-002-31-31 31st Floor Bank of America Plaza 101 South Tryon Street Charlotte, NC 28255 ATTN: Wayne Porritt Tel. No.: (704) 386-9998 Fax No.: (704) 386-1759 Deutsche Bank Trust Company Americas 31 W. 52nd Street, 25th Floor New York, NY 10019 ATTN: Anca Trifan Tel No.: (646) 324-2184 Fax No.: (646) 324-7455 Citicorp USA, Inc. 390 Greenwich Street, First Floor New York, NY 10013 ATTN: James P. Garvin Tel No.:(212) 723-6662 Fax No.:(212) 723-8547 Credit Suisse First Boston, Cayman Islands Branch Eleven Madison Avenue New York, NY 10010-3629 ATTN: David L. Sawyer Tel No.: (212) 325-3641 Fax No.: (212) 743-2569 CoBank, ACB 900 Circle 75 Parkway Suite 1400 Atlanta, GA 30339 ATTN: Rick Freeman Tel No.(770) 618-3221 Fax No.(770) 618-3260 CIT Lending Services Corporation 1 CIT Drive Livingston, NJ 07039 ATTN: Bill Evenson Tel No.:(973) 422-3282 Fax No.:(973) 535-1816 IV-1 EX-10.9 7 a2079840zex-10_9.txt EX-10.9 Exhibit 10.9 AMENDED AND RESTATED PREFERRED STOCK ISSUANCE AND CAPITAL CONTRIBUTION AGREEMENT AMENDED AND RESTATED PREFERRED STOCK ISSUANCE AND CAPITAL CONTRIBUTION AGREEMENT (this "Agreement"), dated as of October 20, 1999, as amended and restated as of March 27, 2000, as further amended and restated as of November 9, 2000, and as further amended and restated as of May 10, 2002, among FairPoint Communications, Inc. (formerly known as MJD Communications, Inc.), a Delaware corporation ("Parent"), Wachovia Bank, National Association (formerly known as First Union National Bank), as Administrative Agent, and the financial institutions listed on the signature pages of this Agreement. W I T N E S S E T H: WHEREAS, the Existing Lenders (this and other capitalized terms used in these Recitals are used as defined in Section 1 of this Agreement) presently have the right under this Agreement (as in effect prior to this Amendment and Restatement) to convert their "Loans," as defined in the existing Amended and Restated Credit Agreement dated as of October 20, 1999, as amended and restated as of March 27, 2000, as further amended and restated as of November 9, 2000 and as further amended prior to May 10, 2002 (as so amended and amended and restated, the "Existing Credit Agreement"), among FairPoint Communications Solutions Corp. (the "Borrower") and the Existing Lenders, into shares of preferred stock of Parent; WHEREAS, the Borrower desires that the Lenders, the Existing Lenders and the Administrative Agent enter into, as of May 10, 2002, the Amended and Restated Credit Agreement to amend and restate the Existing Credit Agreement (as so amended and restated and as it may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof, the "Credit Agreement") to restructure the obligations of the Borrower and its Subsidiaries under the Existing Credit Agreement and the related documents, and such restructuring is of substantial and material benefit to the Parent; and WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement that the parties hereto shall have modified the arrangements under which the Parent is obligated to issue shares of its preferred stock to the Existing Lenders and the Lenders on the terms set forth in this Agreement; NOW, THEREFORE, IT IS AGREED: SECTION 1. DEFINED TERMS 1.1 DEFINED TERMS. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Credit Agreement. For purposes of this Agreement, the following terms shall have the meanings 1 herein specified unless the context requires otherwise. Defined terms in this Agreement shall include in the singular number the plural and in the plural the singular. "Act" shall mean the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Agreement" shall mean this Amended and Restated Preferred Stock Issuance and Capital Contribution Agreement, as the same may be modified, amended, amended and restated and/or supplemented. "Borrower" shall have the meaning provided in the first paragraph of this Agreement. "Clawback Amount" means, with respect to any Lender's Loans being converted to Parent Preferred Stock as a result of a Trigger Event described in clause (i) of the definition of Trigger Event, as of the date of the relevant Subsequent Parent Preferred Stock Conversion, (i) the aggregate amount of dividends that would have accrued (including any dividends that would have accrued with respect to accrued dividends) on an amount of Parent Preferred Stock with a liquidation preference equal to the amount of converted Loans during the period from May 10, 2002 through the date of such Subsequent Parent Preferred Stock Conversion, MINUS (ii) the sum of (a) any interest on such converted Loans that accrued during such period and is paid in cash on or prior to the date of such Subsequent Parent Preferred Stock Conversion and (b) any accrued and unpaid interest on such converted Loans that is also being converted to Parent Preferred Stock on such date. "Closing Date" shall have the meaning provided in Section 2.2 hereof. "Commission" shall mean, at any time, the Securities and Exchange Commission or any other federal agency then administering the Act and other Federal securities laws. "Conversion Option" shall have the meaning provided in Section 2.1(b) hereof. "Credit Agreement" shall have the meaning provided in the recitals to this Agreement. "Damages" shall have the meaning provided in Section 2.7 hereof. "Designated Affiliate" shall mean (i) for Deutsche Bank Trust Company Americas with respect to the Initial Parent Preferred Stock Conversion, Deutsche Bank Trust Corporation, and (ii) for any Lender with respect to any Subsequent Parent Preferred Stock Conversion, an Affiliate of such Lender designated by such Lender (in a written notice to the Borrower) as the Person entitled to receive such Lender's Parent Preferred Stock upon the Closing Date of such Subsequent Parent Preferred Stock Conversion; PROVIDED, HOWEVER, that under no circumstances will such Person be deemed to be a Subsequent Holder (as defined in the Parent Certificate of Designation). 2 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Existing Lenders" shall mean Wachovia Bank, National Association, Bank of America, N.A., Deutsche Bank Trust Company Americas, Credit Suisse First Boston, Cayman Islands Branch, CIT Lending Services Corporation, Citicorp USA, Inc. and CoBank, ACB. "Existing Loans" shall mean the "Loans" as defined in the Existing Credit Agreement. "Initial Parent Preferred Stock Conversion" shall have the meaning provided in Section 2.1(a) hereof. "Lenders" shall mean Bank of America, N.A., Deutsche Bank Trust Company Americas, Credit Suisse First Boston, Cayman Islands Branch and their successors and assigns, in each case in their respective capacities as "Lenders" under the Credit Agreement. "Loans" shall have the meaning provided in the Credit Agreement, except that for purposes of Section 2.1(b) hereof, the Loans shall not include (a) any amounts representing Existing Swap Obligations which were converted to Loans or (b) interest accrued thereon. "Obligations" shall have the meaning provided in the Credit Agreement, except that for purposes of Section 2.1(b) hereof, the Obligations shall not include (a) any amounts representing Existing Swap Obligations which were converted to Loans or (b) interest accrued thereon. "Parent" shall have the meaning provided in the first paragraph of this Agreement. "Parent Certificate of Designation" shall mean that certain certificate of designation relating to the Parent Preferred Stock filed with the Delaware Secretary of State on May 10, 2002. "Parent Preferred Stock" shall mean series A preferred stock, par value $0.01 per share, of Parent issued pursuant to the Parent Certificate of Designation. "Parent Preferred Stock Conversion" shall have the meaning provided in Section 2.1(b) hereof. "Purchasers" shall have the meaning provided in Section 2.1(c) hereof. "Subsequent Parent Preferred Stock Conversion" shall have the meaning provided in Section 2.1(b) hereof "Trigger Event" shall mean, with respect to any Loan of a Lender, any of the following: (i) the failure of the Borrower to pay any amount due with respect to such Loan 3 (including principal, interest, Fees and other amounts) in full in cash to such Lender (or to Administrative Agent on its behalf) on the date such amount is due (whether such amount is due by scheduled payment, at final maturity, by acceleration or otherwise), giving effect to any applicable grace periods, (ii) the delivery of any notice by Parent or Borrower to the Lenders of any tender or similar offer (whether through one offer or a series of related offers) to all holders of Parent Preferred Stock to retire, acquire, purchase or redeem all or any portion of the outstanding Parent Preferred Stock from each holder thereof, (iii) the making of any tender or similar offer (whether through one offer or a series of related offers) to all holders of Parent Preferred Stock by any Person (including, without limitation, Parent or any of its Affiliates) to retire, acquire, purchase or redeem all or any portion of the outstanding Parent Preferred Stock from each holder thereof, and (iv) the delivery of any notice by Parent or Borrower to the Lenders of any written proposal by a Person other than Parent or any of its Affiliates to acquire, purchase or redeem all or any portion of the outstanding Parent Preferred Stock from each holder thereof pursuant to a tender or similar offer (whether through one offer or a series of related offers) to all holders of Parent Preferred Stock. SECTION 2. PURCHASE OF PREFERRED STOCK 2.1 ISSUANCE OF PREFERRED STOCK. (a) INITIAL ISSUANCE. Subject to the terms and conditions hereinafter set forth, on the initial Closing Date each of the Existing Lenders and the Parent hereby agree that the portion of such Existing Lender's Existing Loans set forth next to the name of such Existing Lender on SCHEDULE 2.1(a) annexed hereto shall be converted (without need for delivery of any notice to Parent by any Existing Lender) into Parent Preferred Stock (such conversion being the "Initial Parent Preferred Stock Conversion") with a liquidation preference equal to the dollar amount of such Existing Lender's Existing Loans so converted and in the number of shares for such Existing Lender (or its Designated Affiliate) set forth next to the name of such Existing Lender on such Schedule. The Parent and the Existing Lenders hereby acknowledge and agree that, effective immediately following the Initial Parent Preferred Stock Conversion, each Existing Lender listed on SCHEDULE 2.1(a) annexed hereto that is not a Lender under the Credit Agreement shall have (i) no further rights under this Agreement other than pursuant to the provisions of Sections 2.7, 2.8, 2.9, 3.4 and 3.7 through 3.12, and (ii) no further obligations under this Agreement except with respect to its representations and warranties provided in Section 2.4. (b) SUBSEQUENT ISSUANCE. Subject to the terms and conditions hereinafter set forth, each Lender shall have the option (the "Conversion Option") from time to time on or after the occurrence of a Trigger Event with respect to any Loan of such Lender to convert all or any portion of such outstanding Loan, together with accrued and unpaid interest thereon and any other due and unpaid Obligations under the Credit Agreement, into Parent Preferred Stock (each such conversion being a "Subsequent Parent Preferred Stock Conversion"; the Initial Parent Preferred Stock Conversion and each Subsequent Parent Preferred Stock Conversion being sometimes referred to hereinafter as a "Parent Preferred Stock Conversion") with a liquidation preference equal to the sum of (i) the dollar amount of such Loan so converted, (ii) the dollar amount of such unpaid interest and other Obligations so converted and (iii) solely in the case of Loans converted on the basis of a Trigger Event 4 described in clause (i) of the definition of Trigger Event, the Clawback Amount calculated on the date of such conversion with respect to such converted Loan. Notwithstanding anything contained in this Agreement or in the Credit Agreement or the related documents to the contrary, (x) no Lender shall have a maximum number of times or minimum amount of Loans or other Obligations with respect to which such Lender's Conversion Option may be exercised, (y) each Lender's right to exercise a Conversion Option with respect to any portion of the applicable Lender's Loans shall not terminate (and once a Trigger Event has occurred such Trigger Event may serve as the basis for each Lender's exercise of its Conversion Option multiple times) until all Loans and other Obligations owed to the applicable Lender under the Credit Agreement are indefeasibly paid in full and/or converted to Parent Preferred Stock in accordance with the terms of this Agreement, and (z) on and after the occurrence of more than one Trigger Event, each Lender may elect, in its sole discretion, which Trigger Event that has occurred shall be the basis for exercising its Conversion Option in any particular instance. (c) PURCHASERS. Each Existing Lender converting Existing Loans to Parent Preferred Stock pursuant to Section 2.1(a), each Lender exercising the option to convert outstanding Loans to Parent Preferred Stock pursuant to Section 2.1(b) and each Designated Affiliate of a Lender or Existing Lender acquiring Parent Preferred Stock pursuant to a Parent Preferred Stock Conversion is referred to hereinafter individually as a "Purchaser," and collectively, as the "Purchasers". (d) WACHOVIA. Notwithstanding any provision herein or any other document to the contrary, neither Wachovia nor any of its assignees under the Credit Agreement shall be entitled to exercise any Conversion Option with respect to any Loans representing Existing Swap Obligations which were converted to Loans. 2.2 TIME AND PLACE OF CONVERSIONS. The Initial Parent Preferred Stock Conversion shall take place no later than 3:00 p.m. (New York City time) at the offices of O'Melveny & Myers LLP, 153 East 53rd Street, New York, New York on May 10, 2002, and each Subsequent Parent Preferred Stock Conversion shall take place on a closing date (May 10, 2002 and the closing date of such Subsequent Parent Preferred Stock Conversion each being a "Closing Date") at such place and time that the prospective Purchaser and Parent shall mutually agree upon, which, in any event, shall be no later than the date which is ten Business Days after the respective Purchaser has given Parent notice of its exercise of the relevant Conversion Option (and such notice shall specify the Trigger Event on the basis of which such notice is being delivered). 2.3 REPRESENTATIONS AND WARRANTIES OF PARENT. In order to induce the Purchasers to purchase the Parent Preferred Stock, Parent represents and warrants to each Purchaser on each relevant Closing Date that: (a) AUTHORITY, BINDING EFFECT. Parent has the full power and authority to enter into each Parent Preferred Stock Conversion and to incur and perform the obligations in connection therewith, all of which have been duly authorized by all necessary corporate action. Each Parent Preferred Stock Conversion will not violate any provision of any applicable law known to be applicable to it or the Articles of Incorporation or the By-Laws of 5 Parent or any material agreement or instrument by which it is bound, and will not result in the creation of any material encumbrance or charge upon any of its assets. Each Parent Preferred Stock Conversion will constitute a valid and legally binding obligation of Parent, enforceable against Parent in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and similar laws and judicial decisions of general applicability relating to or affecting creditors rights and to general principles of equity. (b) GOOD STANDING. Parent is a corporation duly organized, validly existing and in good standing under the laws of Delaware. (c) SHARES FULLY PAID, NON-ASSESSABLE. The Parent Preferred Stock, when issued and delivered, will be validly issued, fully paid and non-assessable. (d) NO PROCEEDINGS. There is no action, proceeding or investigation pending or, to the knowledge of Parent, threatened in writing, nor is there any basis, to its knowledge, for any action, proceeding or investigation, against it or any of its properties or assets which could reasonably be expected to have a material adverse effect on the business operations, financial condition or results of operations of Parent as a whole, or the ability of Parent to perform its obligations in connection with the Parent Preferred Stock Conversion. (e) BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on behalf of Parent is, or will be, entitled to any commission or broker's or finder's fees from Parent, or from any person controlling, controlled by or under common control with Parent, in connection with the Parent Preferred Stock Conversion. 2.4 REPRESENTATIONS AND WARRANTIES OF PURCHASER. In order to induce Parent to issue the Parent Preferred Stock, each Purchaser (as to itself only) represents and warrants to Parent that: (a) PURCHASE FOR INVESTMENT. Each Purchaser will acquire Parent Preferred Stock for its own account for investment and not with a view toward any distribution thereof. (b) SECURITIES LAWS. Each Purchaser understands that Parent Preferred Stock has not been registered under the Act or under any state securities laws and may not be sold or transferred unless it is subsequently registered under the Act and any applicable state or other securities laws, or unless exemptions from registration under such laws are available. (c) KNOWLEDGE. Each Purchaser represents that it is experienced in investment matters, fully understands the transactions contemplated by a Parent Preferred Stock Conversion, has the knowledge and experience in financial matters as to be capable of evaluating the merits and risks of its investment and has the financial ability and resources to bear the economic risks of its investment. (d) ACCREDITED INVESTOR. Each Purchaser is an "accredited investor" as defined in Rule 501(a) under the Act. 6 (e) BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting on behalf of any Purchaser is, or will be, entitled to any commission or broker's or finder's fees from such Purchaser, or from anyone controlling, controlled by or under common control with such Purchaser, in connection with a Parent Preferred Stock Conversion. 2.5 CONDITIONS TO THE OBLIGATIONS OF EACH PURCHASER. The obligation of each Purchaser to purchase Parent Preferred Stock pursuant to a Parent Preferred Stock Conversion is subject to the satisfaction of, or the waiver by each Purchaser of, the following conditions at or prior to the respective Closing Date for such Parent Preferred Stock Conversion. (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of Parent contained in Section 2.3 hereof shall be true and correct in all material respects on and as of the respective Closing Date for such Parent Preferred Stock Conversion. (b) AGREEMENTS, CONDITIONS AND COVENANTS. Parent shall have performed or complied in all material respects with all agreements, conditions and covenants required in connection with the respective Parent Preferred Stock Conversion to be performed or complied with by it on or before the respective Closing Date for such Parent Preferred Stock Conversion. (c) SHARE CERTIFICATE. Such Purchaser (or the Purchaser which is its Designated Affiliate, in the case of a Purchaser which has designated such Designated Affiliate with respect to the relevant Parent Preferred Stock Conversion) shall have received on the respective Closing Date certificates evidencing the Parent Preferred Stock, duly completed and executed by Parent in the name of such Purchaser (or the Purchaser which is its Designated Affiliate, as the case may be) and, if required, with the requisite share transfer tax stamps duly affixed. (d) ARTICLES AND BYLAWS OF PARENT. Such Purchaser shall have received copies of the Articles of Incorporation and Bylaws of Parent as they exist on the respective Closing Date. (e) OPINIONS OF COUNSEL. Parent shall have furnished the Purchaser on the relevant Closing Date an opinion of counsel, dated the Closing Date for such Parent Preferred Stock Conversion, in form and substance reasonably satisfactory to such Purchaser. (f) NO LITIGATION THREATENED. No action or proceedings shall have been instituted or, threatened before a court or other government body or by any public authority to restrain or prohibit the Parent Preferred Stock Conversion to occur on such Closing Date. (g) CERTIFICATE OF DESIGNATION. Parent shall deliver to such Purchaser evidence that the Parent Certificate of Designation shall have been duly filed with the Secretary of State of Delaware and shall be in full force and effect. 2.6 CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligation of Parent to issue and sell the Parent Preferred Stock on any Closing Date is subject to the satisfaction of, or the waiver by Parent of, the following conditions at or prior to such Closing Date: 7 (a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the respective Purchaser contained in Section 2.4 hereof shall be true and correct in all material respects on and as of the respective Closing Date for such Parent Preferred Stock Conversion. (b) AGREEMENTS, CONDITIONS AND COVENANTS. Such Purchaser shall have performed or complied in all material respects with all agreements, conditions and covenants in connection with the Parent Preferred Stock Conversion to occur on such Closing Date to be performed or complied with by it on or before such Closing Date. (c) NO LITIGATION THREATENED. No action or proceedings shall have been instituted or, threatened before a court or other government body or by any public authority to restrain or prohibit the Parent Preferred Stock Conversion to occur on such Closing Date. (d) TRIGGER EVENTS. In the case of any Subsequent Parent Preferred Stock Conversion, a Trigger Event with respect to the relevant Loans shall have occurred and any Lender exercising its Conversion Option shall have provided Parent with notice requesting such Subsequent Parent Preferred Stock Conversion. 2.7 INDEMNIFICATION. Parent agrees to indemnify and hold each Purchaser and its officers, directors, employees, affiliates and agents, and any successors thereto (and any officers, directors, employees, affiliates and agents of such successors) harmless from any liability, damage, deficiency, demand, claim, suit, action, or cause of action, fine, penalty, loss, cost, expense, including without limitation, reasonable attorney fees (collectively, "Damages") incurred or suffered as a result of or in connection with the enforcement of Parent's obligations with respect to any of the terms, conditions or agreements to be performed (or required to be performed) by it pursuant to the terms of this Agreement, including without limitation, any Damages incurred or suffered as a result of, or in connection with, or arising out of, the failure of any representation or warranty made by Parent in connection with an Parent Preferred Stock Conversion or as otherwise provided herein. The foregoing shall be in addition to, and in no way limit or impair the rights of any Lender or Existing Lender (or Designated Affiliate, in lieu of such Lender or Existing Lender) to enforce Parent's obligations hereunder or seek damages or equitable relief in connection with any failure or assessed failure of Parent to perform its obligations hereunder. Notwithstanding anything in this Agreement, in no event shall Parent be obligated under this Agreement to indemnify any Lender or Existing Lender for such Lender's or Existing Lender's failure to comply with Regulation Y. 2.8 RULE 144A. Except at such times that Parent is a reporting company under Section 13 or 15(d) of the Exchange Act, Parent shall, upon the written request of any holder of Parent Preferred Stock, provide, subject to customary confidentiality arrangements, to any such holder and to any prospective institutional transferee of Parent Preferred Stock designated by such holder, such financial and other information as is available to Parent or can be obtained by Parent and as such holder may reasonably determine is required to permit a transfer of such Parent Preferred Stock to comply with the requirements of Rule 144A promulgated under the Act. 8 2.9 COMMON STOCK. Parent has not issued and will not issue to the holders of common stock of Parent on or after the original date of this Agreement (i) any class of common stock or any debt securities which (in either case) are convertible into any class of preferred stock of Parent at any time and (ii) any class of preferred stock other than preferred stock for fair market value. 2.10 OFFERS TO REDEEM PREFERRED STOCK; OTHER PURCHASE OFFERS. (a) REDEMPTION. If at any time after the date hereof Parent or any of its Affiliates proposes to retire, acquire, purchase or redeem all or any portion of the outstanding Parent Preferred Stock from each holder thereof pursuant to a tender or similar offer (whether through one offer or a series of related offers) to all holders of Parent Preferred Stock, Parent shall, no later than 25 Business Days prior to the earlier of (x) such tender or similar offer (or series of related offers), (y) the record date for holders of Parent Preferred Stock entitled to participate in such tender or similar offer (or series of related offers) and (z) the date of such retirement, acquisition, purchase or redemption, give written notice of its intention to do so (and the terms of such proposed retirement, acquisition, purchase or redemption) to each Lender and the Administrative Agent so as to permit such Lenders to exercise their Conversion Options with respect to all or any portion of the outstanding Loans prior to the date of such retirement, acquisition, purchase or redemption. (b) OTHER PURCHASE OFFERS. If at any time after the date hereof Parent obtains knowledge of any written proposal by a Person other than Parent or any of its Affiliates to acquire, purchase or redeem all or any portion of the outstanding Parent Preferred Stock from each holder thereof pursuant to a tender or similar offer (whether through one offer or a series of related offers) to all holders of Parent Preferred Stock, Parent shall give prompt written notice thereof (and such other information related thereto as Lenders may reasonably request) to each Lender so as to permit such Lenders to exercise their Conversion Options with respect to all or any portion of the outstanding Loans prior to the date of such proposed acquisition, purchase or redemption. SECTION 3. MISCELLANEOUS 3.1 REPRESENTATIONS AND WARRANTIES. In order to induce the Administrative Agent, the Existing Lenders and the Lenders to enter into the Credit Agreement, Parent represents and warrants to the Administrative Agent, the Existing Lenders and the Lenders as follows: (a) it is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full power, authority and legal right to own its property and assets, and to transact the business in which it is engaged; and (b) it has the full corporate power, authority and legal right to execute, deliver and perform each of its obligations under this Agreement and has taken all necessary corporate actions to authorize the execution, delivery and performance of each of its obligations under this Agreement and this Agreement constitutes the legal, valid and binding obligation of Parent, enforceable against Parent in accordance with its terms, subject to 9 applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws relating to or effecting creditors' rights generally or by equitable principles relating to enforceability. 3.2 NO GUARANTEE OF INDEBTEDNESS. Neither this Agreement, nor anything herein contained, nor any obligation performed or to be performed pursuant hereto by Parent shall be construed or deemed to constitute, a direct or indirect guarantee by Parent to any person or entity of the payment of the interest, principal or premium of any indebtedness, liability or obligation whatsoever of the Borrower or any Subsidiary of the Borrower, including, without limitation, the Loans. 3.3 NOTICES. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing and mailed, faxed, sent by a nationally recognized express courier or delivered by hand, if to Parent, at 521 East Morehead Place, Suite 250, Charlotte, NC 28202, Attention: Walter E. Leach, Jr. (with a copy to Paul, Hastings, Janofsky & Walker LLP, 75 East 55th Street, New York, New York 10022, Attention: Neil A. Torpey, Esq.); if to any Lender or the Administrative Agent, in the manner specified in the Credit Agreement; if to any Existing Lender (other than a Lender), in the manner specified in the Existing Credit Agreement; if to Deutsche Bank Trust Corporation, at 31 W. 52nd Street, 25th Floor, New York, NY 10019, Attention: Anca Trifan; or, at such other address as shall be designated by any party in a written notice to the other parties hereto as provided in this Section 3.3. All such notices and communications shall be effective at the earliest to occur of receipt, three business days after deposit in the United States mail, one Business Day after delivery to a nationally recognized express courier, and telephone confirmation of receipt of fax communication; PROVIDED, HOWEVER, that notices and communications to the Administrative Agent shall not be effective until received by the Administrative Agent. 3.4 NO WAIVER, REMEDIES CUMULATIVE. No failure or delay on the part of any of the Purchasers or the Administrative Agent in exercising any right, power or privilege hereunder and no course of dealing between Parent or the Borrower, on the one hand, and any of the Lenders, the Existing Lenders, any Designated Affiliates or the Administrative Agent, on the other, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which any of the Lenders, the Existing Lenders, any Designated Affiliates or the Administrative Agent would otherwise have. No notice to or demand on Parent in any case shall entitle Parent to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of any of the Lenders, any of the Existing Lenders, any Designated Affiliate or the Administrative Agent to any other or further action in any circumstances without notice or demand. 3.5 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be deemed an original, but all of which shall together constitute one and the same instrument. 10 3.6 HEADINGS DESCRIPTIVE. The headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. 3.7 AMENDMENT OR WAIVER. Neither this Agreement nor any of the terms hereof may be amended, modified, supplemented, waived, discharged or terminated unless such amendment, modification, supplement, waiver, discharge or termination is in writing signed by Parent, the Administrative Agent (with the consent of the Required Lenders) and, to the extent that such amendment, modification, supplement, waiver, discharge or termination would adversely affect the rights under this Agreement of any Existing Lender or Designated Affiliate, such Existing Lender or Designated Affiliate, as the case may be. Any waiver or consent shall be effective only in the specific instance or for the specific purpose for which it was given. 3.8 GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL. This Agreement, and the rights and obligations of the parties hereunder, shall be construed in accordance with and governed by the law of the State of New York. Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of New York or of the United States for the Southern District of New York and, by execution and delivery of this Agreement, irrevocably accepts for itself and in respect of its property, unconditionally, the jurisdiction of the aforesaid courts with respect to any such action or proceeding. Each of the parties to this Agreement hereby irrevocably waives all right to a trial by jury in any action, proceeding or counterclaim arising out of or relating to this Agreement, the Credit Agreement, the Existing Credit Agreement or the transactions contemplated hereby or thereby. 3.9 SUCCESSORS AND ASSIGNS. This Agreement shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon each of Parent and the successors and assigns thereof, and shall inure to the benefit of the Administrative Agent, the Lenders, the Existing Lenders, any Designated Affiliates and their respective successors and assigns. Parent acknowledges and agrees that this Agreement is made for the benefit of the Administrative Agent, the Lenders, the Existing Lenders and any Designated Affiliates, and that the Administrative Agent and/or the Lenders and/or the Existing Lenders and/or any Designated Affiliates may enforce all of the obligations of Parent hereunder directly against Parent. Parent may not assign any of its rights or obligations hereunder without the consent of the Required Lenders and, prior to the Initial Parent Preferred Stock Conversion, each Existing Lender. Prior to any Parent Preferred Stock Conversion by a Lender, this Agreement and the rights of the applicable Lender hereunder shall only be assignable by such Lender, to a permitted assignee of such Lender under the Credit Agreement (except that any Lender may designate a Designated Affiliate to receive any Parent Preferred Stock required to be issued to such Lender). 3.10 SURVIVAL. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the conversion and continuation of the Loans. 11 3.11 ENTIRE AGREEMENT. This Agreement, the Credit Documents and the Parent Certificate of Designation, including the schedules hereto and thereto and the documents referred to herein and therein, embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and thereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties hereto, written or oral, which may have related to the subject matter hereof or thereof in any way, including, but not limited to, the Existing Preferred Stock Issuance and Capital Contribution Agreement. 3.12 ACKNOWLEDGEMENTS. Parent hereby acknowledges and agrees that the execution, delivery and effectiveness of the Credit Agreement and the other Credit Documents do not impair, limit or otherwise affect Parent's obligations under this Agreement in a manner adverse to the Lenders, the Existing Lenders or any Designated Affiliates. Parent hereby releases, remises, acquits and forever discharges each of the Released Parties on the same terms as the Releasors as set forth in Section 12.18(e) of the Credit Agreement, the provisions of which Section are herein incorporated by reference. Each Existing Lender and each Lender hereby waives each of the defaults, if any, that occurred under the Existing Preferred Stock Issuance and Capital Contribution Agreement prior to the Effective Date (it being understood by each of the parties hereto that such waiver (i) is expressly limited to defaults under the Existing Preferred Stock Issuance and Capital Contribution Agreement, and (ii) shall not constitute a waiver of any default under this Agreement arising from any condition or event that would, under any express provision of this Agreement or any other Credit Document that is effective after the Effective Date, constitute a default under this Agreement). 3.13 EFFECTIVENESS. This Agreement shall become effective on the date on which (i) the Parent, the Administrative Agent and each of the Existing Lenders (or any Designated Affiliate thereof with respect to the Initial Preferred Stock Conversion) shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered the same to the Administrative Agent at the Notice Office of the Administrative Agent or, in the case of the Existing Lenders, shall have given to the Administrative Agent telephonic (confirmed in writing) or facsimile transmission notice (actually received) at such office that the same has been signed and mailed to it and (ii) the conditions set forth in Section 6 of the Credit Agreement (other than Section 6(n)(iii)) shall have been satisfied in accordance with the terms thereof. The Administrative Agent will give the Parent and each Existing Lender prompt written notice of the occurrence of such effectiveness. [Remainder of page intentionally left blank.] 12 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written. FAIRPOINT COMMUNICATIONS, INC. By: /s/ Walter E. Leach, Jr. --------------------------- Name: Walter E. Leach, Jr. Title: Senior Vice President WACHOVIA BANK, NATIONAL ASSOCIATION, formerly known as First Union National Bank, Individually and as Administrative Agent By: /s/ Katherine A. Harkness ------------------------------------- Name: Katherine A. Harkness Title: Director BANK OF AMERICA, N.A., By: /s/ Wayne R. Porritt ------------------------------------- Name: Wayne R. Porritt Title: Managing Director DEUTSCHE BANK TRUST CORPORATION By: /s/ William Archer --------------------------------- Name: William Archer Title: Managing Director S-1 CIT LENDING SERVICES CORPORATION By: /s/ Michael V. Monahan ----------------------------- Name: Michael V. Monahan Title: Vice President CITICORP USA, INC. By: /s/ Michael C. Becker ------------------------------ Name: Michael C. Becker Title: Director COBANK, ACB By: /s/ Rick Freeman ------------------------------ Name: Rich Freeman Title: Vice President CREDIT SUISSE FIRST BOSTON, CAYMAN ISLANDS BRANCH (as successor to DLJ Capital Funding, Inc.) By: /s/ David L. Sawyer ------------------------------ Name: David L. Sawyer Title: Director DEUTSCHE BANK TRUST COMPANY AMERICAS (formerly known as Bankers Trust Company), for purposes of Section 3.12 only By: /s/ Anca Trifan ------------------------------ Name: Anca Trifan Title: Director S-2 SCHEDULE 2.1(a)
Shares of Initial Parent Existing Lender Existing Loans Preferred Stock --------------- -------------- --------------- Wachovia Bank, National Association $25,160,000.00 25,160.00000 Bank of America, N.A. $13,753,214.29 13,753.21429 Deutsche Bank Trust Company Americas* $13,753,214.29 13,753.21429 Citicorp USA, Inc. $20,128,000.00 20,128.00000 Credit Suisse First Boston, Cayman Islands Branch Branch $11,002,571.43 11,002.57143 Co Bank, ACB $ 5,032,000.00 5,032.00000 CIT Lending Services Corporation $ 5,032,000.00 5,032.00000
* Deutsche Bank Trust Corporation, which is an Affiliate of Deutsche Bank Trust Company Americas, will be the Purchaser of the Parent Preferred Stock. EX-10.10 8 a2079840zex-10_10.txt EX-10.10 EXECUTION Exhibit 10.10 AMENDMENT TO SECURITY DOCUMENTS This AMENDMENT TO SECURITY DOCUMENTS (this "AMENDMENT") is dated as of May 10, 2002 and entered into by and among FairPoint Communications Solutions Corp. ("COMPANY"), each of the other Assignors party to the Security Agreement referred to below, each of the other pledgors ("PLEDGORS") party to the Pledge Agreement referred to below, and Wachovia Bank, National Association, formerly known as First Union National Bank, as Collateral Agent under each of the Security Documents (as defined below) and as Pledgee under such Pledge Agreement (in such capacities, "COLLATERAL AGENT") for the benefit of the Secured Creditors (as defined in each of the Security Documents), and is made with reference to that certain (i) Amended and Restated Security Agreement dated as of October 20, 1999, as amended and restated as of March 27, 2000, and as further amended and restated as of November 9, 2000 (as so amended and restated and as otherwise amended, restated, supplemented or modified from time to time to the date hereof, the "SECURITY AGREEMENT"), by and among Company, such Assignors and Collateral Agent and (ii) Amended and Restated Pledge Agreement dated as of October 20, 1999, as amended and restated as of March 27, 2000, and as further amended and restated as of November 9, 2000 (as so amended and restated and as otherwise amended, restated, supplemented or modified from time to time after the date hereof, the "PLEDGE AGREEMENT"), by and among Company, such Pledgors and Collateral Agent. The Security Agreement and the Pledge Agreement are sometimes referred to herein collectively as the "SECURITY DOCUMENTS." Unless otherwise indicated, capitalized terms used herein without definition shall have the same meanings herein as set forth in the Security Agreement. RECITALS WHEREAS, the parties to each of the Security Agreement and the Pledge Agreement desire to amend the Security Agreement and the Pledge Agreement, respectively, to conform certain provisions contained in the Security Agreement and the Pledge Agreement to Revised Article 9 of the Uniform Commercial Code as in effect in the State of New York as of the date hereof; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO SECURITY AGREEMENT 1.1 AMENDMENT TO SECTION 1.1: GRANT OF SECURITY INTEREST Section 1.1(a) of the Security Agreement is hereby amended by deleting in its entirety the language immediately preceding the semi-colon contained therein and substituting the following therefor: "As security for the prompt and complete payment and performance when due of all of its Obligations, each Assignor does hereby assign and transfer unto the Collateral Agent, and does hereby pledge and grant to the Collateral Agent for the benefit of the Secured Creditors, a continuing security interest of first priority in and to all of the right, title and interest of such Assignor in and to all of the personal property and assets of such Assignor, whether now existing or hereafter from time to time acquired, including without limitation, the following" 1.2 AMENDMENT TO ARTICLE IX: DEFINITION A. Article IX of the Security Agreement is hereby amended by deleting each reference to "Uniform Commercial Code as in effect on the date hereof in the State of New York" contained therein and substituting therefor "NY UCC". B. Article IX of the Security Agreement is hereby further amended by adding to such Article the following definition in proper alphabetical order: "NY UCC" shall mean the Uniform Commercial Code, as in effect on the date hereof or as it may hereafter be amended, in the State of New York. 1.3 AMENDMENT TO SECTION 10.1: NOTICES Section 10.1(b) of the Security Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: "(b) if to the Collateral Agent, at: Wachovia Bank, National Association 301 South College Street Charlotte, NC 28288-0537 Attention: Kathy Harkness Telephone No.: (704)374-6355 Facsimile No.: (704) 383-6249". SECTION 2. AMENDMENTS TO PLEDGE AGREEMENT 2.1 AMENDMENT TO SECTION 1: DEFINITIONS; ANNEXES Section 1 of the Pledge Agreement is hereby amended by deleting the references to "Section 9-105(1)(i)", "Section 9-115(f)" and "Section 9-306(1)" contained in the definitions of "Instrument", "Investment Property" and "Proceeds", respectively, and substituting therefor "9-102(47)", "Section 9-102(49)" and "Section 9-102(64)", respectively. 2.2 AMENDMENT TO SECTION 3.2: PROCEDURES 2 A. Section 3.2(a)(iii) of the Pledge Agreement is hereby amended by deleting the references to "Sections 9-115(4)(a) and (b), 9-115(1)(e)" contained therein and substituting therefor "Sections 9-314 and 9-312, 9-106", respectively. B. Section 3.2(b)(2) of the Pledge Agreement is hereby amended by deleting the reference to "Section 9-155(4)(b)" contained therein and substituting therefore "Section 9- 312". 2.3 AMENDMENT TO SECTION 20: NOTICES, ETC. Section 20(ii) of the Pledge Agreement is hereby amended by deleting it in its entirety and substituting the following therefor: "(ii) if to the Pledgee, at: Wachovia Bank, National Association 301 South College Street Charlotte, NC 28288-0537 Attention: Kathy Harkness Telephone No.: (704)383-0707 Facsimile No.: (704) 383-6249". SECTION 3. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE SECURITY DOCUMENTS AND THE OTHER CREDIT DOCUMENTS. (i) On and after the effective date of this Amendment, each reference in the Security Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Security Agreement and each reference in the other Credit Documents to the "Security Agreement", "thereunder", "thereof" or words of like import referring to the Security Agreement shall mean and be a reference to the Security Agreement as amended hereby. (ii) On and after the effective date of this Amendment, each reference in the Pledge Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Pledge Agreement and each reference in the other Credit Documents to the "Pledge Agreement", "thereunder", thereof" or words of like import referring the Pledge Agreement shall mean and be a reference to the Pledge Agreement as amended hereby. (iii) Except as specifically amended by this Amendment, each of the Security Agreement, the Pledge Agreement and the other Credit Documents shall remain in full force and effect and are hereby ratified and confirmed. (iv) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Collateral Agent or any Secured 3 Creditor under any of the Security Agreement, the Pledge Agreement or any of the other Credit Documents. B. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. C. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. D. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective upon the execution of a counterpart hereof by Company, each Assignor and Pledgor and Collateral Agent and receipt by Company and Collateral Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. WACHOVIA BANK, NATIONAL ASSOCIATION, not in its capacity but solely as Collateral Agent and Pledgee By: /s/ Katherine A. Harkness ------------------------------------------- Name: Katherine A. Harkness Title: Director FAIRPOINT COMMUNICATIONS SOLUTIONS CORP., as Assignor and Pledgor By: /s/ Walter E. Leach, Jr. ---------------------------------------- Name: Walter E. Leach, Jr. Title: Senior Vice President Notice Address: FairPoint Communications Solutions Corp. 521 E. Morehead Street, Suite 250 Charlotte, NC 28202 Attention: Vice President of Finance/ Treasurer FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - NEW YORK, as Assignor and Pledgor By: /s/ Walter E. Leach, Jr. ------------------------------------------- Name Walter E. Leach, jR. Title: Senior Vice President 2 FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. - VIRGINIA, , as Assignor and Pledgor By: /s/ Walter E. Leach, Jr. ------------------------------------------- Name Walter E. Leach, Jr. Title: Senior Vice President FAIRPOINT SOLUTIONS CAPITAL, LLC, as Assignor and Pledgor By: /s/ Walter E. Leach, Jr. ------------------------------------------- Name Walter E. Leach, Jr. Title: Senior Vice President 3 EX-10.15 9 a2079840zex-10_15.txt EX-10.15 Exhibit 10.15 FORM OF TRANCHE A NOTE $______________ New York, New York ________________, _____ FOR VALUE RECEIVED, FAIRPOINT COMMUNICATIONS SOLUTIONS CORP., a Delaware corporation (the "BORROWER"), hereby promises to pay to the order of _________________ (the "LENDER"), in lawful money of the United States of America in immediately available funds, at the Payment Office (as defined in the Credit Agreement referred to below) initially located at 301 S. College Street, Charlotte, North Carolina 28288-0537, on the Maturity Date (as defined in the Credit Agreement) the principal sum of ________________ DOLLARS ($__________) or, if less, the then unpaid principal amount of all Tranche A Loans (as defined in the Credit Agreement) made by the Lender pursuant to the Credit Agreement. This Note represents the continuation and conversion of a portion of the Lender's Existing Loans and Existing Swap Obligation, if any, to a Tranche A Loan in accordance with Section 2.01(a) of the Credit Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in Section 2.03 of the Credit Agreement. This Note is one of the "TRANCHE A NOTES" referred to in that certain Amended and Restated Credit Agreement dated as of October 20, 1999, as amended and restated as of March 27, 2000, as further amended and restated as of November 9, 2000, and as further amended and restated as of May 10, 2002 (said Amended and Restated Credit Agreement, as so amended and restated and as hereafter amended, restated, modified or supplemented, being the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among the Borrower; certain other Credit Parties, the financial institutions listed therein as Lenders and Non-Continuing Lenders, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Administrative Agent. This Tranche A Note is secured pursuant to the Security Documents and the Subsidiary Guaranty. As provided in the Credit Agreement, this Tranche A Note is subject to voluntary prepayment and mandatory repayment prior to the Maturity Date, in whole or in part. In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Tranche A Note may be declared to be due and payable in the manner and with the effect provided in the Credit Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Tranche A Note. A-1 THIS TRANCHE A NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. By: --------------------------------- Title A-2 EX-10.16 10 a2079840zex-10_16.txt EX-10.16 Exhibit 10.16 FORM OF TRANCHE B NOTE $______________ New York, New York FOR VALUE RECEIVED, FAIRPOINT COMMUNICATIONS SOLUTIONS CORP., a Delaware corporation (the "BORROWER"), hereby promises to pay to the order of _________________ (the "LENDER"), in lawful money of the United States of America in immediately available funds, at the Payment Office (as defined in the Credit Agreement referred to below) initially located at 301 S. College Street, Charlotte, North Carolina 28288-0537, on the Maturity Date (as defined in the Credit Agreement) the principal sum of ________________ DOLLARS ($__________) or, if less, the then unpaid principal amount of all Tranche B Loans (as defined in the Credit Agreement) made by the Lender pursuant to the Credit Agreement. This Note represents the continuation and conversion of a portion of the Lender's Existing Loans and Existing Swap Obligation, if any, to a Tranche B Loan in accordance with Section 2.01(b) of the Credit Agreement. The Borrower promises also to pay interest on the unpaid principal amount hereof in like money, or in kind, at said office from the date hereof until paid at the rates, at the times, and as otherwise provided in Section 2.03 of the Credit Agreement. This Note is one of the "TRANCHE B NOTES" referred to in that certain Amended and Restated Credit Agreement dated as of October 20, 1999, as amended and restated as of March 27, 2000, as further amended and restated as of November 9, 2000, and as further amended and restated as of May 10, 2002 (said Amended and Restated Credit Agreement, as so amended and restated and as hereafter amended, restated, modified or supplemented, being the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among the Borrower; certain other Credit Parties, the financial institutions listed therein as Lenders and Non-Continuing Lenders, and Wachovia Bank, National Association (formerly known as First Union National Bank), as Administrative Agent. This Tranche B Note is secured pursuant to the Security Documents and the Subsidiary Guaranty. As provided in the Credit Agreement, this Tranche B Note is subject to voluntary prepayment and mandatory repayment prior to the Maturity Date, in whole or in part. In case an Event of Default shall occur and be continuing, the principal of and accrued interest on this Tranche B Note may be declared to be due and payable in the manner and with the effect provided in the Credit Agreement. The Borrower hereby waives presentment, demand, protest or notice of any kind in connection with this Tranche B Note. B-1 THIS TRANCHE B NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. FAIRPOINT COMMUNICATIONS SOLUTIONS CORP. By: ------------------------------------- Title B-2 -----END PRIVACY-ENHANCED MESSAGE-----