EXHIBIT 2.1
IN THE UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF VIRGINIA
Richmond Division
)
In re: )
)
NTELOS Inc. f/k/a ) Case No. 03-32094 (DOT)
CFW Communications Company, et al./1/ ) Chapter 11
) (Jointly Administered)
Debtors. )
)
DEBTORS' DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE
May 30, 2003
THIS PROPOSED DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT
FOR USE IN THE SOLICITATION OF ACCEPTANCES OF THE PLAN DISCLOSED PURSUANT TO
SECTION 1125(b) OF THE BANKRUPTCY CODE. ACCORDINGLY, THE FILING AND
DISSEMINATION OF THIS PROPOSED DISCLOSURE STATEMENT IS NOT INTENDED, NOR SHOULD
IT BE CONSTRUED, AS SUCH A SOLICITATION, NOR SHOULD THE INFORMATION CONTAINED
HEREIN BE RELIED UPON FOR ANY PURPOSE PRIOR TO A DETERMINATION BY THE BANKRUPTCY
COURT THAT THE PROPOSED DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION.
DISSEMINATION OF THIS PROPOSED DISCLOSURE STATEMENT IS CONTROLLED BY BANKRUPTCY
RULE 3017.
HUNTON & WILLIAMS LLP MARCUS, SANTORO & KOZAK, P.C.
Benjamin C. Ackerly Frank J. Santoro
Michael C. Shepherd Karen M. Crowley
Riverfront Plaza, East Tower 355 Crawford Parkway, Suite 700
951 West Byrd Street Portsmouth, Virginia 23704
Richmond, Virginia 23219-4074 (757) 393-2555
(804) 788-8200
Counsel to the Debtors and Co-Counsel to the Debtors and
Debtors in Possession Debtors in Possession
The deadline by which each holder of an impaired Claim or Equity Interest
must cast a properly completed and delivered Ballot for its vote to
accept or reject the Plan to be counted is _________, 2003, at __:00
p.m. (Eastern time), unless extended.
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/1/ The Debtors are the following entities: NTELOS Inc. f/k/a CFW
Communications Company, NTELOS Wireless Inc. f/k/a CFW Wireless Inc. f/k/a CFW
Cellular Inc., NTELOS of Maryland Inc., NTELOS of Kentucky Inc., NTELOS PCS
North Inc. f/k/a NTELOS of Pennsylvania Inc., NTELOS Cable of Virginia Inc.
f/k/a CFW Cable of Virginia Inc., NTELOS Communications Services Inc. f/k/a CFW
Communications Services Inc., NTELOS NetAccess Inc. f/k/a NetAccess, Inc.,
NTELOS Telephone Inc. f/k/a CFW Telephone Inc. f/k/a Clifton Forge-Waynesboro
Telephone Company, NTELOS Network Inc. f/k/a CFW Network, Inc., NTELOS Licenses
Inc. f/k/a CFW Licenses Inc., NTELOS Cable Inc. f/k/a CFW Cable Inc., R&B
Communications, Inc., NTELOS Cornerstone Inc. f/k/a CFW Cornerstone, Inc.,
NTELOS PCS Inc. f/k/a CFW PCS Inc., Virginia RSA 6 Cellular Limited Partnership,
Richmond 20MHz, LLC, NA Communications, Inc., Roanoke & Botetourt Telephone
Company a/k/a Roanoke and Botetourt Telephone Company, R&B Network, Inc.,
Botetourt Leasing, Inc., R&B Cable, Inc., The Beeper Company, Virginia PCS
Alliance, L.C., West Virginia PCS Alliance, L.C. and Virginia Telecommunications
Partnership.
IMPORTANT NOTICE
This Disclosure Statement and its related documents are the only documents
authorized by the Bankruptcy Court to be used in connection with the
solicitation of votes to accept the Plan. No representations have been
authorized by the Bankruptcy Court concerning the Debtors, their business
operations or the value of their assets, except as explicitly set forth in this
Disclosure Statement.
Please refer to the Glossary and the Plan (or, where indicated, certain
motions filed with the Bankruptcy Court) for definitions of the capitalized
terms used in this Disclosure Statement.
The Debtors reserve the right to file an amended Plan and Disclosure
Statement from time to time. The Debtors urge you to read this Disclosure
Statement carefully for a discussion of voting instructions, recovery
information, classification of claims, the history of the Debtors and the
Chapter 11 Cases, the Debtors' businesses, properties and results of operations,
historical and projected financial results and a summary and analysis of the
Plan. The Plan and this Disclosure Statement have not been required to be
prepared in accordance with federal or state securities laws or other applicable
nonbankruptcy law. None of the Securities and Exchange Commission, any state
securities commission or similar public, governmental or regulatory authority
has approved this Disclosure Statement, the Plan or the securities offered under
the Plan, or has passed on the accuracy or adequacy of the statements in this
Disclosure Statement. Any representation to the contrary is a criminal offense.
Persons trading in or otherwise purchasing, selling or transferring securities
of NTELOS should evaluate the Plan in light of the purposes for which it was
prepared.
This Disclosure Statement contains only a summary of the Plan. This
Disclosure Statement is not intended to replace the careful and detailed review
and analysis of the Plan, it is intended only to aid and supplement such review.
This Disclosure Statement is qualified in its entirety by reference to the Plan
and the exhibits attached thereto and the agreements and documents described
therein. If there is a conflict between the Plan and this Disclosure Statement,
the provisions of the Plan will govern. You are encouraged to review the full
text of the Plan and to read carefully the entire Disclosure Statement,
including all exhibits, before deciding how to vote with respect to the Plan.
Further, summaries of certain provisions of agreements referred to in this
Disclosure Statement do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the full text of the applicable
agreement, including the definitions of terms contained in such agreement.
Except as otherwise indicated, the statements in this Disclosure Statement
are made as of the date hereof, and the delivery of this Disclosure Statement
will not, under any circumstances, imply that the information contained in this
Disclosure Statement is correct at any time after such date. Any estimates of
claims or interests in this Disclosure Statement may vary from the final amounts
of claims or interests allowed by the Bankruptcy Court. You should not construe
this Disclosure Statement as providing any legal, business, financial or tax
advice. You should, therefore, consult with your own legal, business, financial
and tax advisors as to any such matters in connection with the Plan, the
solicitation of votes to accept or reject the Plan and the transactions
contemplated by the Plan.
As to contested matters, adversary proceedings and other actions or
threatened actions, this Disclosure Statement is not, and is in no event to be
construed as, an admission or stipulation. Instead, this Disclosure Statement
is, and is for all purposes to be construed as, solely and exclusively a
statement made in settlement negotiations. The settlements and compromises
described in the Plan and this Disclosure Statement remain subject to ongoing
negotiations with the respective parties.
TABLE OF CONTENTS
Page
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I. INTRODUCTION................................................................................................. 1
A. Holders of Claims and Equity Interests Entitled to Vote.......................................... 2
B. Voting Procedures................................................................................ 3
C. Confirmation Hearing............................................................................. 4
II. OVERVIEW OF THE PLAN........................................................................................ 5
III. OVERVIEW OF CHAPTER 11..................................................................................... 9
IV. GENERAL INFORMATION......................................................................................... 9
A. Description and History of Business.............................................................. 9
B. Events Leading to the Commencement of the Chapter 11 Case........................................ 19
V. EVENTS DURING THE CHAPTER 11 CASE............................................................................ 22
A. Post-Petition Agreements......................................................................... 22
B. Continuation of Business; Stay of Litigation..................................................... 22
C. DIP Credit Agreement............................................................................. 23
D. First Day and Various Other Motions.............................................................. 25
E. Bar Date Motion.................................................................................. 27
F. Statutory Committee.............................................................................. 27
G. Preferences and Fraudulent Conveyances........................................................... 27
H. Litigation....................................................................................... 28
I. Affiliated Claims and Transactions............................................................... 29
VI. THE JOINT PLAN OF REORGANIZATION............................................................................ 30
A. Classification and Treatment of Claims and Equity Interests...................................... 30
B. Securities to be Issued Under the Plan........................................................... 34
C. New Investment................................................................................... 35
D. Means of Implementation of the Plan.............................................................. 38
E. Provisions Governing Distributions............................................................... 46
F. Procedures for Treating Disputed, Contingent and Unliquidated Claims and
Disputed Equity Interests under the Plan......................................................... 50
G. Executory Contracts and Unexpired Leases......................................................... 51
H. Conditions Precedent to the Confirmation Date and the Effective Date............................. 53
I. Effect of Confirmation........................................................................... 55
J. Retention of Jurisdiction........................................................................ 60
K. Summary of Other Provisions of the Plan.......................................................... 61
VII. CONFIRMATION AND CONSUMMATION PROCEDURE.................................................................... 63
A. Solicitation of Votes............................................................................ 63
B. The Confirmation Hearing......................................................................... 63
C. Confirmation..................................................................................... 65
D. Consummation..................................................................................... 70
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VIII. MANAGEMENT OF REORGANIZED NTELOS.......................................................................... 71
A. Board of Directors and Management................................................................ 71
B. Compensation of Directors and Officers........................................................... 72
C. Management Contracts............................................................................. 74
D. Stock Option Incentive Plan...................................................................... 76
E. Post-Effective Date Security Ownership of Certain Owners......................................... 77
IX. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS TO THE SECURITIES TO BE DISTRIBUTED UNDER THE PLAN....... 77
A. Section 1145 of the Bankruptcy Code.............................................................. 77
B. Section 4(2) of the Securities Act............................................................... 77
C. Registration Rights.............................................................................. 78
D. Subsequent Transfers Under State Law............................................................. 78
E. Certain Transactions by Stockbrokers............................................................. 78
X. VALUATION OF REORGANIZED NTELOS.............................................................................. 78
A. Introduction..................................................................................... 78
B. Methodology...................................................................................... 80
C. Estimated Going Concern Enterprise Value of the Reorganized Debtors.............................. 82
XI. CERTAIN RISK FACTORS TO BE CONSIDERED....................................................................... 85
A. General Bankruptcy Risk Factors.................................................................. 85
B. Overall Risk to Recovery by Holders of Claims and Equity Interests............................... 86
C. Risks Related to the Business of the Company..................................................... 90
D. Risks Relating to the Communications Industry.................................................... 94
XII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 96
A. Introduction..................................................................................... 96
B. Federal Income Tax Consequences to the Debtors................................................... 96
C. Federal Income Tax Consequences to Holders of Old Bank Debt...................................... 100
D. Federal Income Tax Consequences to Holders of Senior Notes or Subordinated Notes................. 100
E. Federal Income Tax Consequences to Holders of Old Preferred Stock................................ 102
F. Federal Income Tax Consequences to Holders of General Unsecured Claims........................... 102
G. Backup Withholding and Information Reporting..................................................... 103
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN................................................. 104
A. Liquidation Under Chapter 7...................................................................... 104
B. Alternative Plan of Reorganization............................................................... 104
XIV. ADDITIONAL INFORMATION..................................................................................... 105
XV. CONCLUSION AND RECOMMENDATION............................................................................... 105
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INDEX OF EXHIBITS
Exhibit A - The Plan
Exhibit to Plan
Exhibit 1 Contract Rejection Schedule
Exhibit B - Order of the Bankruptcy Court dated ______ __, 2003,
among other things, approving this Disclosure Statement
and establishing certain procedures with respect to the
solicitation and tabulation of votes to accept or reject
the Plan
Exhibit C - Projected Financial Information
Exhibit D - Liquidation Analysis
Exhibit E - Historical Financial Statements
Exhibit F - Subscription Agreement
Exhibit G - Plan Support Agreement
Exhibit H - Exit Financing Term Sheet
Exhibit I - Shareholders' Agreement
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GLOSSARY
Administrative Expense Claim means any right to payment constituting
a cost or expense of administration of
the Chapter 11 Case allowed under
Sections 503(b) and 507(a)(1) of the
Bankruptcy Code, including, without
limitation, (a) any actual and necessary
costs and expenses of preserving the
Debtors' estates, (b) any actual and
necessary costs and expenses of
operating the Debtors' businesses in the
ordinary course of business, (c) any
indebtedness or obligations incurred or
assumed by the Debtors in Possession
during the Chapter 11 Case in the
ordinary course of business, (d) any
allowances of compensation and
reimbursement of expenses to the extent
allowed by Final Order under Section
328, 330 or 503 of the Bankruptcy Code,
(e) any amounts due and payable to the
DIP Lenders or the Pre-Petition Secured
Lenders under the DIP Credit Agreement
or the Final DIP Order, (f) any fees or
charges assessed against the Debtors'
estates under Section 1930, title 28,
United States Code, (g) any monetary
amounts by which each executory contract
and unexpired lease to be assumed
pursuant to the Plan is in default, and
(h) any valid reclamation claims under
Section 546 of the Bankruptcy Code.
Agent means Morgan Stanley & Co. Incorporated
from July 26, 2000 though January 14,
2003 and Wachovia Bank, National
Association from and after January 14,
2003 in their respective capacities as
agent for the Pre-Petition Secured
Lenders under the Pre-Petition Credit
Agreement.
AICPA means American Institute of Certified
Public Accountants.
Allowed means, with respect to Claims or Equity
Interests, (a) any Claim against or
Equity Interest in the Debtors, proof of
which is timely filed, or by order of
the Bankruptcy Court is not or will not
be required to be filed, (b) any Claim
or Equity Interest that has been or is
hereafter listed in the Schedules as
neither Disputed, contingent or
unliquidated, and for which no timely
filed proof of claim or interest has
been filed, or (c) any Claim or Equity
Interest allowed pursuant to the Plan;
provided, however, that with respect to
any Claim or Equity Interest described
in clauses (a) or (b) above, such Claim
or Equity Interest shall be allowed only
if (i) no objection
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to allowance thereof has been interposed
within the applicable period of time
fixed by the Plan, the Bankruptcy Code,
the Bankruptcy Rules or the Bankruptcy
Court or (ii) such an objection is so
interposed and the Claim or Equity
Interest shall have been allowed by a
Final Order (but only if such allowance
was not solely for the purpose of voting
to accept or reject the Plan). Unless
otherwise specified in the Plan or in a
Final Order of the Bankruptcy Court
allowing such claim, "Allowed" in
reference to a Claim shall not include
(a) interest on the amount of such Claim
accruing from and after the Petition
Date, (b) punitive or exemplary damages
or (c) any fine, penalty or forfeiture.
AMT means alternative minimum tax.
AMT NOLs has the meaning set forth in Section
XII.B.1.
AMTI means alternative minimum taxable
income.
Ballot means the enclosed ballot to be used by
holders of Claims or Equity Interests
for the purpose of voting to accept or
reject the Plan.
Bankruptcy Code means Title 11, United States Code, as
amended from time to time, as applicable
to the Chapter 11 Case.
Bankruptcy Court means the United States Bankruptcy Court
for the Eastern District of Virginia,
Richmond Division having jurisdiction
over the Chapter 11 Case and, to the
extent of any reference made under
Section 157, title 28, United States
Code, the unit of such District Court
having jurisdiction over the Chapter 11
Case under Section 151, title 28, United
States Code.
Bankruptcy Exception has the meaning set forth in Section
XII.B.1.
Bankruptcy Rules means the Federal Rules of Bankruptcy
Procedure as promulgated by the United
States Supreme Court under Section 2075,
title 28, United States Code, as amended
from time to time, applicable to the
Chapter 11 Case, and any Local Rules of
the Bankruptcy Court.
Bar Date means June 10, 2003, the last date on
which creditors, other than governmental
units as defined in Section 101 of the
Bankruptcy Code, may file proofs of
claim against the Debtors.
v
Business Day means any day other than a Saturday, a
Sunday or any legal holiday as set forth
in Bankruptcy Rule 9006(a).
Cash means legal tender of the United States
of America and equivalents thereof.
Chapter 11 Case means the Debtors' voluntary cases,
numbers 03-32093 through 03-32109,
03-32111, 03-32112, 03-32114, 03-32115,
03-32119, 03-32121, 03-32123, 03-32127
and 03-32131, which are being jointly
administered, for procedural purposes
only, as case number 03-32094, filed
with the Bankruptcy Court under Chapter
11 of the Bankruptcy Code.
Claim has the meaning set forth in Section 101
of the Bankruptcy Code.
Class means any group of substantially similar
Claims or Equity Interests classified in
Section 4 of the Plan and pursuant to
Section 1129(a)(1) of the Bankruptcy
Code.
CLEC means competitive local exchange
carrier.
Collateral means any property or interest in
property of the Debtors' estates subject
to a Lien to secure the payment or
performance of a Claim, which Lien is
not subject to avoidance or otherwise
invalid under the Bankruptcy Code or
applicable state law.
Company means, prior to the Effective Date, the
Debtors, and after the Effective Date,
the Reorganized Debtors.
Confirmation Date means the date on which the Bankruptcy
Court enters the Confirmation Order on
its docket with respect to the Chapter
11 Case.
Confirmation Hearing means the hearing held by the Bankruptcy
Court pursuant to Section 1128 of the
Bankruptcy Code regarding confirmation
of the Plan pursuant to Section 1129 of
the Bankruptcy Code, as such hearing may
be adjourned or continued from time to
time.
Confirmation Order means the order of the Bankruptcy Court
confirming the Plan pursuant to Section
1129 of the Bankruptcy Code.
Contract Rejection Schedule means the schedule of executory contracts
and unexpired leases to be rejected by
the Debtors pursuant to Sections 365(a)
and 1123 of the Bankruptcy Code annexed
to the
vi
Plan as Exhibit 1, or any amendments
thereto filed prior to the Effective Date
as permitted by Section 9.1 of the Plan.
Convenience Claim means an Allowed General Unsecured Claim
of $10,000 or less.
Creditors' Committee means the official statutory committee of
unsecured creditors appointed in the
Chapter 11 Case by the United States
Trustee on March 13, 2003, consisting of
Morgan Stanley & Co. Incorporated; WCAS;
Capital Research and Management Company;
The Bank of New York; INVESCO Funds
Group; Motorola, Inc. and CellStar, Ltd.
or their replacements, if any.
Debtors means NTELOS and the NTELOS Subsidiaries,
jointly or severally, as of the Petition
Date.
Debtors in Possession means the Debtors in their capacities as
debtors in possession in the Chapter 11
Case under Sections 1101, 1107(a) and
1108 of the Bankruptcy Code.
DIP Agent means Wachovia Bank, National Association
in its capacity as agent for the DIP
Lenders under the DIP Credit Agreement.
DIP Credit Agreement means the $35,000,000
debtor-in-possession credit agreement
dated as of March 6, 2003 among NTELOS,
the NTELOS Subsidiaries named therein as
guarantors, the DIP Agent and the DIP
Lenders.
DIP Lenders means Wachovia Bank, National
Association, General Electric Capital
Corporation, H/Z Acquisition Partners
LLC, Morgan Stanley Senior Funding, Inc.,
Branch Banking and Trust Company, Rural
Telephone Finance Cooperative, SunAmerica
Senior Floating Rate Fund Inc. and
Deutsche Bank Trust Company Americas.
DIP Lender Claim means a Claim of the DIP Lenders arising
under or as a result of the DIP Credit
Agreement or the Final DIP Order.
Disbursing Agent means any entity in its capacity as a
disbursing agent under Sections 7.2 and
7.11 of the Plan.
Disclosure Statement means the disclosure document relating to
the Plan, including, without limitation,
all exhibits and schedules
vii
thereto as approved by the Bankruptcy
Court pursuant to Section 1125 of the
Bankruptcy Code.
Disclosure Statement Order means the order of the Bankruptcy Court,
dated ______ __, 2003, which, among other
things, approves the Disclosure Statement
and establishes certain procedures with
respect to the solicitation and
tabulation of votes to accept or reject
the Plan.
Disputed means, with respect to a Claim or Equity
Interest, any such Claim or Equity
Interest that is not Allowed.
Distribution Record Date means the date provided in the
Confirmation Order as the record date for
distributions under the Plan.
DTC means the Depository Trust Company.
EBITDA means earnings before interest, taxes,
depreciation, amortization and other
items, adjusted as specified.
Effective Date means the date that is eleven (11) days
after the Confirmation Date, or if such
date is not a Business Day, the next
succeeding Business Day, or such date
after the Confirmation Date as determined
by the Debtors with the prior written
consent of the Agent and the Creditors'
Committee so long as no stay of the
Confirmation Order is in effect on such
date; provided, however, that if, on or
prior to such date, all conditions to the
Effective Date set forth in Section 10 of
the Plan have not been satisfied or
waived, then the Effective Date shall be
the first Business Day following the day
on which all such conditions to the
Effective Date have been satisfied or
waived or such date as the Debtors may
determine with the prior written consent
of the Creditors' Committee and/or the
Agent in accordance with Section 10.3 of
the Plan.
Eligible Institution means a member firm of a registered
national securities exchange in the
United States, a member of the National
Association of Securities Dealers, Inc.,
or a commercial bank or trust company
having an office or correspondent in the
United States.
Equity Interest means the interest of any holder of
equity securities of NTELOS represented
by any issued and outstanding shares of
common or preferred stock or other
instrument evidencing a present ownership
interest in NTELOS, whether or not
transferable, or any option, warrant or
viii
right, contractual or otherwise, to
acquire, in connection with or related
to, any such interest, including, without
limitation, any rights with respect to
NTELOS under any registration rights
agreement or shareholders agreement to
which NTELOS is a party.
Exchange Act means the Securities Exchange Act of
1934, as amended.
Exit Financing Term Sheet means the term sheet which sets forth the
terms of the New Credit Agreement to be
entered into on the Effective Date and
which is annexed hereto as Exhibit H.
FASB means the Financial Accounting Standards
Board.
FCC Secured Claim means all Secured Claims of the FCC
against the Debtors arising under or in
connection with conditional licenses,
denominated as PBB479C, PBB075C, and
CWB179F, to use broadband personal
communications spectrum.
Final DIP Order means the Final Order entered on March
24, 2003 (i) authorizing Debtors (a) to
obtain post-petition financing pursuant
to 11 U.S.C. Sections 105, 361, 362,
364(c)(1), 364(c)(2), 364(c)(3) and
364(d)(1) and (b) to utilize cash
collateral pursuant to 11 U.S.C. Section
363 and (ii) granting adequate protection
to pre-petition secured parties pursuant
to 11 U.S.C. Sections 361, 362, 363 and
364.
Final Order means an order or judgment of the
Bankruptcy Court entered by the Clerk of
the Bankruptcy Court on the docket in the
Chapter 11 Case, which has not been
reversed, vacated or stayed and as to
which (a) the time to appeal, petition
for certiorari or move for a new trial,
reargument or rehearing has expired and
as to which no appeal, petition for
certiorari or other proceedings for a new
trial, reargument or rehearing shall then
be pending or (b) if an appeal, writ of
certiorari, new trial, reargument or
rehearing thereof has been sought, such
order or judgment of the Bankruptcy Court
shall have been affirmed by the highest
court to which such order was appealed,
or certiorari shall have been denied or a
new trial, reargument or rehearing shall
have been denied or resulted in no
modification of such order, and the time
to take any further appeal, petition for
certiorari or move for a new trial,
reargument or rehearing shall have
expired; provided, however, that the
possibility that a motion under Rule 60
of the Federal Rules of Civil Procedure,
or any analogous rule under the
Bankruptcy
ix
Rules, may be filed relating to such
order, shall not cause such order not to
be a Final Order.
Financial Projections has the meaning set forth in Section X.A.
General Unsecured Claim means any Claim against the Debtors other
than a DIP Lender Claim, an
Administrative Expense Claim, a
Professional Compensation and
Reimbursement Claim, a Priority Tax
Claim, a Secured Claim, a Senior Debt
Claim, a Convenience Claim, an
Intercompany Claim or a Subordinated
Claim. General Unsecured Claims include,
but are not limited to any Rejection
Claim.
ILEC means incumbent local exchange carrier.
Intercompany Claim means any Claim held by any of the
non-Debtor direct or indirect
subsidiaries of NTELOS against the
Debtors or by any Debtor against any
other Debtor.
Letter of Transmittal means the letter of transmittal to be
disbursed to holders of Voting Securities
by the Disbursing Agent promptly after
the Confirmation Date and containing such
representations and warranties as are
described in the Disclosure Statement.
Lien has the meaning set forth in Section 101
of the Bankruptcy Code.
Liquidation Analysis means the analysis undertaken by NTELOS
to determine the value of property that
would be received by each holder of a
Claim or Equity Interest if the Debtors
were liquidated in a proceeding under
Chapter 7 of the Bankruptcy Code.
Loss Corporation means a corporation or a consolidated
group with NOLs.
Market Discount Bond means a debt obligation purchased at a
market discount subject to a statutorily
defined de minimis exception.
Modified Hedge Agreements means the Pre-Petition Hedge Agreements,
as modified such that, among other
things, references in the Pre-Petition
Hedge Agreements to the "Financial
Agreement" or the "Loan Agreement" shall
be deemed to refer to the New Credit
Agreement and as assumed by the Debtors
under the Plan.
New Articles of Incorporation means the amended and restated Articles
of Incorporation of Reorganized NTELOS,
which will be
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filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the
Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 1.
New By-Laws means the amended and restated By-Laws of
Reorganized NTELOS, which will be filed
with the Bankruptcy Court at least
fourteen (14) Business Days prior to the
Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 1.
New Bank Debt means the indebtedness outstanding under
the New Credit Agreement on the Effective
Date.
New Common Stock means the shares of common stock of
Reorganized NTELOS (no par value) to be
issued and outstanding as of the
Effective Date pursuant to the Plan.
New Common Stock Price means $19.77 per share, based on the
approximate equity value implied by the
New Notes and the total number of shares
to be issued.
New Common Stock Registration means the registration rights agreement
Rights Agreement by and among certain holders of New
Common Stock and Reorganized NTELOS,
which will be filed with the Bankruptcy
Court at least fourteen (14) Business
Days prior to the Confirmation Hearing
and be annexed to the Plan Supplement as
Exhibit 5.
New Credit Agreement means the credit agreement containing the
terms set forth in the Exit Financing
Term Sheet, between the Agent, the
Pre-Petition Secured Lenders and NTELOS
to become effective on the Effective Date
if certain conditions are satisfied.
New Indenture means that certain indenture with respect
to the New Notes to be dated as of the
Effective Date, which will be filed with
the Bankruptcy Court at least fourteen
(14) Business Days prior to the
Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 3.
New Investment means the purchase by the Participating
Noteholders of the New Notes and the New
Common Stock in accordance with the
Subscription Agreement.
New Notes means the 9.0% Senior Convertible Notes
due 2013, issued by Reorganized NTELOS
having an aggregate principal amount of
$75.0 million.
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New Notes Registration Rights means the registration rights agreement
Agreement by and between the Participating
Noteholders and Reorganized NTELOS, which
will be filed with the Bankruptcy Court
at least fourteen (14) Business Days
prior to the Confirmation Hearing and be
annexed to the Plan Supplement as Exhibit
6.
New Warrant Agreement means the agreement between NTELOS and
the holders of the New Warrants in
connection with the issuance of the New
Warrants, which will be filed with the
Bankruptcy Court at least fourteen (14)
Business Days prior to the Confirmation
Hearing and be annexed to the Plan
Supplement as Exhibit 4.
New Warrants means the warrants to purchase up to 3.0%
of the fully-diluted New Common Stock at
an initial exercise price equal to 120%
of the New Common Stock Price, to be
issued pursuant to the New Warrant
Agreement by Reorganized NTELOS to
holders of Old Preferred Stock Interests
in accordance with the terms set forth in
the New Warrant Agreement.
NOLs means net operating losses and loss
carryforwards.
NTELOS means NTELOS Inc., a Virginia
corporation.
NTELOS Non-filing Subsidiaries means Virginia Independent Telephone
Alliance, L.C., NTELOS Net LLC, NTELOS
Telephone LLC, R&B Telephone LLC and
Roanoke & Botetourt Network LLC.
NTELOS Subsidiaries means each entity in which NTELOS owns,
directly or indirectly, 50.0% or more of
the issued and outstanding capital stock,
partnership interests or membership
interests, as the case may be, except the
NTELOS Non-filing Subsidiaries.
Old Bank Debt means the indebtedness outstanding under
the Pre-Petition Credit Agreement on the
Effective Date.
Old Common Stock means the issued and outstanding common
stock of NTELOS (no par value) as of the
Petition Date.
Old Common Stock Interest means an Equity Interest represented by
shares of Old Common Stock.
Old Preferred Stock means the issued and outstanding Series B
and Series C Preferred Stock of NTELOS as
of the Petition Date.
xii
Old Preferred Stock Distribution means the New Warrants and those shares
Amount of New Common Stock issuable upon
exercise of the New Warrants.
Old Preferred Stock Interest means an Equity Interest represented by
(a) shares of Old Preferred Stock and (b)
any warrant or right, contractual or
otherwise, to acquire, in connection with
or related to, any such interest
(including, without limitation, any
rights with respect to NTELOS under any
registration rights agreement or
shareholders agreement to which NTELOS is
a party).
Old Securities means the Old Bank Debt, the Senior
Notes, the Subordinated Notes, the Old
Preferred Stock and the Old Common Stock.
Other Equity Interests and means (a) an Equity Interest in NTELOS
Securities Claims (including, without limitation, any
option, warrant or right, contractual or
otherwise, to acquire the Old Common
Stock and any rights with respect to
NTELOS under any registration rights
agreement or shareholders agreement to
which NTELOS is a party) other than the
Old Common Stock Interests and the Old
Preferred Stock Interests, and (b) any
Claims, obligations, rights, suits,
damages, causes of action, remedies, and
liabilities whatsoever, whether known or
unknown, foreseen or unforeseen,
currently existing or hereafter arising,
in law, equity or otherwise arising from
rescission of a purchase or sale of a
security of NTELOS or the purchase or
sale of a security of an NTELOS
Subsidiary, for damages arising from the
purchase, sale or holding of such
securities or the exercise of an option,
warrant, conversion privilege or
contractual right to such purchase or
sale, or for reimbursement,
indemnification or contribution allowed
under Section 502 of the Bankruptcy Code
on account of such a Claim.
Participating Noteholders has the meaning set forth in Section I.B.
Petition Date means March 4, 2003, the date on which
the Debtors commenced the Chapter 11
Case.
Plan means the Joint Plan of Reorganization
Under Chapter 11 of the Bankruptcy Code,
dated as of May 30, 2003, including,
without limitation, the exhibits and
schedules thereto, as the same may be
amended or modified from time to time in
accordance with the provisions of the
xiii
Bankruptcy Code and the terms thereof.
Plan Supplement means the supplemental appendix to the
Plan that will contain the New Articles
of Incorporation and New By-Laws of
Reorganized NTELOS Inc. (Exhibit 1
thereto), the Purchase Agreement (Exhibit
2 thereto), the New Indenture (Exhibit 3
thereto), the New Warrant Agreement
(Exhibit 4 thereto), the New Common Stock
Registration Rights Agreement (Exhibit 5
thereto), and the New Notes Registration
Rights Agreement (Exhibit 6 thereto) to
be filed with the Bankruptcy Court no
later than fourteen (14) Business Days
prior to the Confirmation Hearing.
Plan Support Agreement means the Plan Support Agreement, dated
as of April 10, 2003, by and between
NTELOS and certain Pre-Petition Secured
Lenders, annexed hereto as Exhibit G.
Pre-Petition Credit Agreement means the $325,000,000 credit agreement
dated July 26, 2000, as amended by
Amendment No. 1 thereto dated as of July
23, 2001, Amendment No. 2 thereto dated
as of November 14, 2001, Amendment No. 3
thereto dated as of March 6, 2002, by the
Letter Amendment thereto dated as of
April 11, 2002, Amendment No. 4 and
Waiver No. 1 thereto dated as of November
29, 2002, Amendment No. 5 thereto dated
as of January 14, 2003, Amendment No. 6
thereto dated as of February 28, 2003 and
as heretofore so amended, supplemented by
certain guaranty supplements thereto and
otherwise modified in accordance with its
terms, among NTELOS (formerly known as
CFW Communications Company), the
subsidiary guarantors party thereto, the
Pre-Petition Secured Lenders and the
Agent.
Pre-Petition Hedge Agreements means the interest rate swap, cap or
collar agreements, interest rate future
or option contracts, currency swap
agreements, currency future or option
contracts and other hedging agreements
among NTELOS (formerly known as CFW
Communications Company) and the Secured
Hedge Parties in connection with the
Pre-Petition Credit Agreement.
Pre-Petition Secured Lenders means those financial institutions that
are from time to time parties to the
Pre-Petition Credit Agreement.
Priority Non-Tax Claim means Claims which are entitled to
priority in accordance with Section
507(a) of the Bankruptcy Code
xiv
(other than Administrative Expense Claims
and Priority Tax Claims).
Priority Tax Claim means any Claim of a governmental unit of
the kind entitled to priority in payment
as specified in Sections 502(i) and
507(a)(8) of the Bankruptcy Code.
Professional Compensation and means a Claim for compensation,
Reimbursement Claim indemnification or reimbursement of
expenses pursuant to Sections 327, 328,
330, 331 or 503(b) of the Bankruptcy Code
in connection with the Chapter 11 Case.
Projected Financial Information means the projections of the Reorganized
Debtors' financial performance for the
Projection Period prepared by NTELOS.
Projection Period means each of the five (5) fiscal years,
ending December 31, following the year of
confirmation of the Plan.
Purchase Agreement means the purchase agreement among NTELOS
and the Participating Noteholders, which
governs the purchase of the New Notes and
the New Common Stock by the Participating
Noteholders and will be filed with the
Bankruptcy Court at least fourteen (14)
Business Days prior to the Confirmation
Hearing and be annexed to the Plan
Supplement as Exhibit 2.
Ratable Proportion means, with reference to any distribution
on account of any Claim or Equity
Interest in any Class, as the case may
be, a distribution equal in amount to the
ratio (expressed as a percentage) that
the amount of such Claim or number of
shares evidencing such Equity Interests,
as applicable, bears to the aggregate
amount of Claims or aggregate number of
outstanding shares of Equity Interests in
the same Class, as applicable.
Rejection Claim means any Claim against the Debtors
arising from the rejection of any
executory contract or unexpired lease,
including any Claim of (a) a lessor for
damages resulting from the rejection of a
lease of real property as such claim
shall be calculated in accordance with
Section 502(b)(6) of the Bankruptcy Code
and (b) an employee for damages resulting
from the rejection of an employment
agreement as such Claim shall be
calculated in accordance with Section
502(b)(7) of the Bankruptcy Code.
Reorganized Debtors means the Debtors as they will be
reorganized as of the
xv
Effective Date in accordance with the
Plan.
Reorganized NTELOS means NTELOS as it will be reorganized as
of the Effective Date in accordance with
the Plan.
Reorganized NTELOS Subsidiaries means each entity in which NTELOS owns,
directly or indirectly, 50.0% or more of
the issued and outstanding capital stock,
partnership interests or membership
interests, as the case may be, except the
NTELOS Non-filing Subsidiaries, as it
will be reorganized as of the Effective
Date in accordance with the Plan.
RTB means the Rural Telephone Bank.
RUS means the Rural Utilities Service.
RUS/RTB Secured Claims means the Secured Claims of the RUS and
RTB arising from loans received from the
United States (acting through the
Administrator of the Rural
Electrification Administration, a
predecessor in interest of the RUS) and
RTB pursuant to the Rural Electrification
Act of 1936, as amended, 7 U.S.C. Section
901 et seq.
Schedules means the schedules of assets and
liabilities and the statement of
financial affairs filed by the Debtors in
accordance with Section 521 of the
Bankruptcy Code, Bankruptcy Rule 1007 and
the Official Bankruptcy Forms of the
Bankruptcy Rules as such schedules and
statements have been or may be
supplemented or amended through the
Confirmation Date.
Section 108(b)(5) Election has the meaning set forth in Section
XII.B.1.
Section 382 Limitation has the meaning set forth in Section
XII.B.2.
Secured Bank Claims means all Secured Claims of the
Pre-Petition Secured Lenders against
NTELOS or the Debtors arising under or in
connection with the Pre-Petition Credit
Agreement and all Secured Claims of the
Secured Hedge Parties against NTELOS or
the Debtors arising under or in
connection with the Pre-Petition Hedge
Agreements.
Secured Claim means a Claim secured by a Lien on
Collateral to the extent of the value of
such Collateral (a) as set forth in the
Plan, (b) as agreed to by the holder of
such Claim and the Debtors or (c) as
determined by a Final Order in accordance
with Section 506(a) of the Bankruptcy
Code or, in the event that such Claim is
subject to setoff under
xvi
Section 553 of the Bankruptcy Code, to
the extent of such setoff.
Secured Hedge Parties means those financial institutions that
are parties to the Pre-Petition Hedge
Agreements.
Securities Act means the Securities Act of 1933, as
amended.
Senior Debt Claim means any unsecured Claim for principal
and interest through the Petition Date
under the Senior Notes.
Senior Debt New Common Stock means 9,433,509 shares of the issued and
Distribution Amount outstanding New Common Stock,
representing 68.4% of the New Common
Stock as of the Effective Date, giving
effect to the conversion of the New Notes
into New Common Stock (or 94.3% of the
New Common Stock as of the Effective
Date, without giving effect to the
conversion of the New Notes into New
Common Stock) but subject to further
dilution for shares of New Common Stock
issuable under the Stock Option Incentive
Plan and those shares of New Common Stock
issuable upon exercise of the New
Warrants.
Senior Indenture means that certain indenture with respect
to the Senior Notes dated as of July 26,
2000 between NTELOS and The Bank of New
York, as trustee.
Senior Indenture Trustee means The Bank of New York, the trustee
pursuant to the Senior Indenture.
Senior Notes means the 13.0% senior notes due 2010,
issued by NTELOS pursuant to the Senior
Indenture having an aggregate principal
amount of $280.0 million.
Series B Preferred Stock means the 8.5% Series B Redeemable,
Convertible Preferred Stock of NTELOS.
Series C Preferred Stock means the 5.5% Series C Redeemable,
Convertible Preferred Stock of NTELOS.
Service means the Internal Revenue Service.
Shareholders' Agreement means the shareholders' agreement to be
entered into on the Effective Date, to be
annexed hereto as Exhibit I.
Stock Option Incentive Plan means the incentive option plan of
Reorganized NTELOS which will authorize
the grant of options to purchase up to an
aggregate of 10% of the fully-diluted
xvii
New Common Stock as set forth herein.
Subordinated Claim means a Claim for principal and interest
through the Petition Date under the
Subordinated Notes.
Subordinated Indenture means that certain indenture with respect
to the Subordinated Notes dated as of
July 26, 2000 between NTELOS and The Bank
of New York, as trustee.
Subordinated Indenture Trustee means The Bank of New York, the trustee
pursuant to the Subordinated Indenture.
Subordinated Note New Common Stock means 500,000 shares of the issued and
Distribution Amount outstanding New Common Stock,
representing 3.6% of the New Common Stock
as of the Effective Date, giving effect
to the conversion of the New Notes into
New Common Stock (or 5.0% of the New
Common Stock as of the Effective Date,
without giving effect to the conversion
of the New Notes into New Common Stock)
but subject to further dilution for
shares of New Common Stock issuable under
the Stock Option Incentive Plan and those
shares of New Common Stock issuable upon
exercise of the New Warrants.
Subordinated Notes means the 13.5% subordinated notes due
2011, issued by NTELOS pursuant to the
Subordinated Indenture having an
aggregate principal amount of $95.0
million.
Subscription Agreement means the subscription agreement among
NTELOS and the Participating Noteholders,
dated as of April 10, 2003, which
provides for a commitment to purchase New
Notes the terms of which will be
incorporated into the Purchase Agreement.
Subsidiary Interests means any and all interests of the
Debtors owned by the Debtors and all
membership interests owned by the
non-Debtor members of Virginia PCS
Alliance, L.C. and West Virginia PCS
Alliance, L.C.
Substantive Consolidation Order means the Order of the Bankruptcy Court
substantively consolidating the Debtors
solely for purposes of actions associated
with confirmation and consummation of the
Plan, including but not limited to
voting, confirmation and distribution.
Tax Code means the Internal Revenue Code of 1986,
as amended.
xviii
Tendered Certificates has the meaning set forth in Section
7.3(ii) of the Plan.
TIN means taxpayer identification number.
UBS Warburg means UBS Warburg LLC.
Virginia Code means the Code of Virginia.
Voting Securities means the Senior Notes, the Subordinated
Notes and the Old Preferred Stock.
WCAS means WCAS Capital Partners III, L.P.,
Welsh, Carson, Anderson & Stowe VIII,
L.P., Welsh, Carson, Anderson & Stowe IX,
L.P., LTSE Holdings Corporation and their
respective affiliates.
xix
I.
INTRODUCTION
On March 4, 2003, the Debtors commenced cases under Chapter 11 of the
Bankruptcy Code and hereby submit this Disclosure Statement, dated May 30, 2003,
pursuant to Section 1125 the Bankruptcy Code to holders of Claims and Equity
Interests in the Debtors in connection with (i) the solicitation of acceptances
or rejections of the Debtors' Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated May 30, 2003 filed by the Debtors with the United
States Bankruptcy Court for the Eastern District of Virginia, Richmond Division
and (ii) the hearing to consider confirmation of the Plan scheduled for August
__, 2003 at _:__ [p.m.], Eastern Time. Unless otherwise defined herein, all
capitalized terms contained herein have the meanings ascribed to them in the
Plan.
Attached as Exhibits to this Disclosure Statement are copies of the
following:
. The Plan (Exhibit A)
Exhibit 1 Contract Rejection Schedule;
. The Disclosure Statement Order (Exhibit B);
. Projected Financial Information (Exhibit C);
. Liquidation Analysis (Exhibit D);
. Historical Financial Statements (Exhibit E);
. Subscription Agreement (Exhibit F);
. Plan Support Agreement (Exhibit G);
. Exit Financing Term Sheet (Exhibit H); and
. Shareholders' Agreement (Exhibit I).
In addition, a Ballot for the acceptance or rejection of the Plan is enclosed
with this Disclosure Statement to enable each holder of a Claim or Equity
Interest entitled to do so to vote to accept or reject the Plan.
On July __, 2003, after notice and a hearing, the Bankruptcy Court approved
this Disclosure Statement as containing adequate information of a kind and in
sufficient detail to enable hypothetical reasonable investors typical of the
Debtors' creditors and equity interest holders to make an informed judgment
whether to accept or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES
NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE
FAIRNESS OR MERITS OF THE PLAN.
The Disclosure Statement Order, a copy of which is annexed hereto as
Exhibit B, sets forth in detail the deadlines, procedures and instructions for
voting to accept or reject the Plan and for filing objections to confirmation of
the Plan, the record date for voting purposes, and the applicable standards for
tabulating Ballots. In addition, detailed voting instructions accompany each
Ballot. Each holder of a Claim or an Equity Interest entitled to vote on the
Plan should read
the Disclosure Statement, the Plan, the Disclosure Statement Order and the
instructions accompanying the Ballots in their entirety before voting on the
Plan. These documents contain, among other things, important information
concerning the classification of Claims and Equity Interests for voting purposes
and the tabulation of votes. No solicitation of votes to accept the Plan may be
made except pursuant to Section 1125 of the Bankruptcy Code.
Additional financial and other information about the Debtors can be found
in NTELOS' Form 10-K for the fiscal year ended December 31, 2002, its Form 10-Q
for the quarter ended March 31, 2003 and its other filings from time to time
with the Securities and Exchange Commission ("SEC"), each of which is
incorporated in this Disclosure Statement by reference. Copies of NTELOS' SEC
filings may be obtained over the Internet at www.sec.gov.
A. Holders of Claims and Equity Interests Entitled to Vote.
Pursuant to the provisions of the Bankruptcy Code, only holders of allowed
claims or equity interests in classes of claims or equity interests that are
impaired under the terms and provisions of a Chapter 11 plan and that will
receive distributions under the Chapter 11 plan are entitled to vote to accept
or reject the plan. Classes of claims or equity interests in which the holders
of claims or interests will not receive or retain any property under a Chapter
11 plan are deemed to have rejected the plan and are not entitled to vote to
accept or reject the plan. Classes of claims or equity interests in which the
holders of claims or interests are unimpaired under a Chapter 11 plan are deemed
to have accepted the plan and are not entitled to vote to accept or reject the
plan.
Class 2 (Secured Bank Claims), Class 5 (Senior Debt Claims), Class 7
(General Unsecured Claims), Class 9 (Subordinated Claims) and Class 10 (Old
Preferred Stock Interests) are impaired by the Plan and the holders of Allowed
Claims and Allowed Equity Interests in those Classes will receive distributions
under the Plan. Holders of Claims and Equity Interests in those Classes are
entitled to vote to accept or reject the Plan. Class 1 (Priority Non-Tax
Claims), Class 3 (FCC Secured Claims), Class 4 (RUS/RTB Secured Claims), Class 6
(Convenience Claims), Class 8 (Intercompany Claims) and Class 11 (Subsidiary
Interests) are unimpaired by the Plan and the holders of Allowed Claims in those
Classes are conclusively presumed to have accepted the Plan. Class 12 (Old
Common Stock Interests) and Class 13 (Other Equity Interests and Securities
Claims) are impaired under the Plan and holders of Equity Interests in Class 12
and Class 13 will receive no distribution in respect thereof. Class 12 and Class
13 are conclusively presumed to have rejected the Plan. Accordingly, holders of
Equity Interests in each of Class 12 and Class 13 are not entitled to vote to
accept or reject the Plan and the votes of such holders will not be solicited.
Therefore, the Debtors are soliciting votes on the Plan only from holders of
Allowed Claims and Equity Interests in Class 2, Class 5, Class 7, Class 9 and
Class 10.
The Bankruptcy Code defines "acceptance" of a plan by a class of claims as
acceptance by creditors in that class that hold at least two-thirds in dollar
amount and more than one-half in number of the allowed claims that cast ballots
for acceptance or rejection of the plan. For a complete description of the
requirements for confirmation of the Plan, see Section VII., "Confirmation and
Consummation Procedure."
If a Class of Claims or Equity Interests rejects the Plan or is deemed to
reject the Plan, the Debtors have the right to request confirmation of the Plan
pursuant to Section 1129(b) of the
2
Bankruptcy Code. Section 1129(b) permits the confirmation of a plan
notwithstanding the nonacceptance of such plan by one or more impaired classes
of claims or equity interests. Under that section, a plan may be confirmed by a
bankruptcy court if it does not "discriminate unfairly" and is "fair and
equitable" with respect to each nonaccepting class. For a more detailed
description of the requirements for confirmation of a nonconsensual plan, see
Section VII.C.2., "Confirmation and Consummation Procedure - Confirmation -
Unfair Discrimination and Fair and Equitable Tests."
If one or more of the Classes entitled to vote on the Plan votes to reject
the Plan, the Debtors may request confirmation of the Plan over the rejection of
the Plan by such Class or Classes. The determination as to whether the Debtors
will seek confirmation of the Plan under such circumstances will be announced
before or at the Confirmation Hearing.
B. Voting Procedures.
If you are entitled to vote to accept or reject the Plan, a Ballot is
enclosed. If you hold Claims and/or Equity Interests in more than one Class and
you are entitled to vote such Claims and/or Equity Interests in more than one
Class, you will receive separate Ballots which must be used for each separate
Class of Claims and Equity Interests. If you hold your Claim or Equity Interest
in your own name, return your Ballot(s) to:
Administar Services Group, Inc.
8475 Western Way, Suite 150
Jacksonville, Florida 32256
Telephone: (904) 363-2004
Telecopier: (904) 519-9092
If you are the beneficial holder but not a record holder of your Claim or
Equity Interest, please either mail your Ballot to your bank, broker or their
agent in the return envelope provided.
DO NOT RETURN YOUR NOTES OR SECURITIES WITH YOUR BALLOT.
TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE PLAN
MUST BE RECEIVED NO LATER THAN _:00 P.M., EASTERN TIME, ON ______ __, 2003. ANY
EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR
REJECTION OF THE PLAN SHALL NOT BE COUNTED.
Any Claim or Equity Interest in an impaired Class as to which an objection
or request for estimation is pending or which is scheduled by the Debtors as
unliquidated, disputed or contingent is not entitled to vote unless the holder
of such Claim or Equity Interest has obtained an order of the Bankruptcy Court
temporarily allowing such Claim or Equity Interest for the purpose of voting on
the Plan.
Pursuant to the Disclosure Statement Order, the Bankruptcy Court set July
__, 2003 as the record date for voting on the Plan. Accordingly, only holders of
record as of ______ __, 2003 that are otherwise entitled to vote under the Plan
will receive a Ballot and may vote on the Plan.
If you are a holder of a Claim or Equity Interest entitled to vote on the
Plan and did not receive a Ballot, received a damaged Ballot or lost your
Ballot, or if you have any questions
3
concerning the Disclosure Statement, the Plan or the procedures for voting on
the Plan, please call Administar Services Group, Inc. at (904) 363-2004 (NTELOS'
Claims and Noticing Agent).
Holders of a Secured Bank Claim (Class 2), Senior Debt Claim (Class 5),
General Unsecured Claim (Class 7), Subordinated Claim (Class 9) or Old Preferred
Stock Interest (Class 10) shall make an election on their Ballot to either agree
or not agree to release any claims or causes of action that such holders may
have against the Debtors, Reorganized Debtors, past and present directors and
officers of NTELOS, current management of the Debtors, Debtors' affiliates, DIP
Lenders, Pre-Petition Secured Lenders, DIP Agent, Agent, Secured Hedge Parties,
the holders of Senior Notes who have agreed to purchase the New Notes pursuant
to the Subscription Agreement (the "Participating Noteholders"), the Creditors'
Committee and the members thereof, and each of the holders of Senior Debt
Claims, Subordinated Claims and Old Preferred Stock Interests (and all
subsidiaries and affiliates and officers, directors, partners, members,
attorneys, financial advisors, investment bankers and other professionals, and
agents of each of the foregoing). The specific terms of the release are set
forth in Section VI.I.9, "Joint Plan of Reorganization - Effect of Confirmation
- - Limited Releases by Holders of Claims and Equity Interests." If holders of
such Claims and Equity Interests wish to grant such release, such holders must
specifically decline to grant it by so indicating in the space provided on the
Ballot.
C. Confirmation Hearing.
Pursuant to Section 1128 of the Bankruptcy Code, the Confirmation Hearing
will be held on [August 11, 2003 at 2:00 p.m.] Eastern Time, before the
Honorable Douglas O. Tice, Jr., United States Bankruptcy Judge, at the United
States Bankruptcy Court, 1100 East Main Street, Room 301, Richmond, Virginia
23219. The Bankruptcy Court has directed that objections, if any, to
confirmation of the Plan be served and filed so that they are received on or
before ______ __, 2003 at _:__ [p.m.] Eastern Time, in the manner described
below in Section VII.B., "Confirmation and Consummation Procedure - The
Confirmation Hearing." The Confirmation Hearing may be adjourned from time to
time by the Bankruptcy Court without further notice except for the announcement
of the adjournment date made at the Confirmation Hearing or at any subsequent
adjourned Confirmation Hearing.
THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE IT TO REORGANIZE SUCCESSFULLY
AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE OF THE PLAN IS
IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS AND EQUITY INTEREST
HOLDERS. THE DEBTORS URGE THAT CREDITORS AND EQUITY INTEREST HOLDERS VOTE TO
ACCEPT THE PLAN.
After carefully reviewing this Disclosure Statement, including the
Exhibits, each holder of an Allowed Claim or Equity Interest in Class 2 (Secured
Bank Claims), Class 5 (Senior Debt Claims), Class 7 (General Unsecured Claims),
Class 9 (Subordinated Claims) and Class 10 (Old Preferred Stock Interests)
should vote to accept or reject the Plan.
PRIOR TO THE PETITION DATE, THE DEBTORS COMMENCED NEGOTIATIONS WITH THE
BANKS, CERTAIN HOLDERS OF SENIOR NOTES, THE HOLDER OF THE SUBORDINATED NOTES AND
HOLDERS OF OLD PREFERRED STOCK. THE PLAN REFLECTS THE TERMS OF A TERM SHEET
NEGOTIATED AND SUPPORTED BY MANY OF THESE PARTIES. ON MARCH 13, 2003, THE UNITED
STATES TRUSTEE FORMED AN OFFICIAL COMMITTEE OF UNSECURED CREDITORS CONSISTING OF
MORGAN STANLEY & CO. INCORPORATED, WCAS, CAPITAL
4
RESEARCH AND MANAGEMENT COMPANY, THE BANK OF NEW YORK, INVESCO FUNDS GROUP,
MOTOROLA, INC. AND CELLSTAR, LTD. THE PLAN HAS THE SUPPORT OF [THE CREDITORS'
COMMITTEE AND] CERTAIN [OTHER] HOLDERS OF THE SENIOR NOTES, THE HOLDER OF THE
SUBORDINATED NOTES, HOLDERS OF THE OLD PREFERRED STOCK AND THE PRE-PETITION
SECURED LENDERS WHO SIGNED THE PLAN SUPPORT AGREEMENT.
II.
OVERVIEW OF THE PLAN
The following table briefly summarizes the classification and treatment of
Claims and Equity Interests under the Plan. The recoveries set forth below are
merely estimated recoveries based upon various assumptions. The estimated
recoveries assume that the New Common Stock issued as of the Effective Date will
have an approximate value of $197.7 million, based on the implied equity value
associated with the New Notes. For a discussion of the range of enterprise
valuations of the Reorganized Debtors, see Section X., "Valuation of Reorganized
NTELOS." There is no assurance that the New Common Stock issued under the Plan
will actually trade at the projected reorganization value or that any trading
market in the New Common Stock will develop or be sustained. For a description
of certain risks associated with the recoveries provided under the Plan, see
Section XI., "Certain Risk Factors To Be Considered."
THE PLAN SEEKS LIMITED SUBSTANTIVE CONSOLIDATION OF THE ESTATES OF THE
DEBTORS SOLELY FOR THE LIMITED PURPOSE ENUMERATED IN THE PLAN, AS FURTHER
DESCRIBED IN SECTION 6.15 THEREIN. IF SUCH LIMITED SUBSTANTIVE CONSOLIDATION IS
AUTHORIZED AND ORDERED BY THE COURT, ALL ALLOWED CLAIMS AGAINST THE DEBTORS OR
THEIR ESTATES SHALL BE SATISFIED FROM THE COMBINED CASH AND OTHER ASSETS OF ALL
OF THE DEBTORS. SUCH TREATMENT WILL GREATLY EASE THE ADMINISTRATION OF THE
ESTATES, WILL STREAMLINE THE SOLICITATION AND CONFIRMATION PROCESS, WILL
MINIMIZE EXPENSE, AND WILL NOT PREJUDICE THE CREDITORS OF ANY OF THE DEBTORS'
ESTATES.
5
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN/2/
Estimated
Type of Claim or Allowable Estimated
Class Equity Interest Treatment Amount Recovery
- ----------- --------------------------- ------------------------------------------ -------------- ---------
1 Priority Non-Tax Claims (to Unimpaired; each Allowed Priority $ 560,944 100%
be paid in the ordinary Non-Tax Claim will be unimpaired in
course of business) accordance with Section 1124 of the
Bankruptcy Code. All Allowed Priority
Non-Tax Claims which are not due and
payable on or before the Effective Date
will be paid in the ordinary course of
business in accordance with the terms
thereof.
2 Secured Bank Claims Impaired; on the Effective Date, $ [274,513,009] 100%
Reorganized NTELOS and the Reorganized
NTELOS Subsidiaries shall enter into (i)
the New Credit Agreement on
substantially the terms set forth in the
Exit Financing Term Sheet and (ii) the
Modified Hedge Agreements. Accordingly,
from and after the Effective Date, (i)
the Pre-Petition Secured Lenders' Claims
against the Debtors in respect of the
Pre-Petition Credit Agreement and the
rights and obligations of the
Reorganized Debtors and the Pre-Petition
Secured Lenders shall be governed by the
terms of the New Credit Agreement, and
(ii) the Secured Hedge Parties' Claims
against the Debtors in respect of the
Pre-Petition Hedge Agreements and the
rights and obligations of the
Reorganized Debtors and the Secured
Hedge Parties shall be governed by the
terms of the Modified Hedge Agreements.
3 FCC Secured Claims Unimpaired; each FCC Secured Claim will $ 7,738,829 100%
be treated as follows: (i) the Plan will
leave unaltered the legal, equitable and
contractual rights to which such Claim
entitles the holder or (ii)
notwithstanding any contractual
provision or applicable law that
entitles the holder of an Allowed Claim
in Class 3 to demand or receive payment
of such Claim prior to the stated
maturity of such Claims from and after
the occurrence of a default, such
Allowed Claim in Class 3 will be
reinstated and rendered unimpaired in
accordance with Section 1124(2) of the
- ----------
/2/ This table is only a summary of the classification and treatment of
Claims and Equity Interests under the Plan. Reference should be made to the
entire Disclosure Statement and to the Plan for a complete description of the
classification and treatment of Claims and Equity Interests.
6
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN/2/
Estimated
Type of Claim or Allowable Estimated
Class Equity Interest Treatment Amount Recovery
- ----------- --------------------------- ------------------------------------------ -------------- ---------
Bankruptcy Code.
4 RUS/RTB Secured Claims Unimpaired; each RUS/RTB Secured Claim $ 6,628,605 100%
will be treated as follows: (i) the Plan
will leave unaltered the legal,
equitable and contractual rights to
which such Claim entitles the holder or
(ii) notwithstanding any contractual
provision or applicable law that
entitles the holder of an Allowed Claim
in Class 4 to demand or receive payment
of such Claim prior to the stated
maturity of such Claims from and after
the occurrence of a default, such
Allowed Claim in Class 4 will be
reinstated and rendered unimpaired in
accordance with Section 1124(2) of the
Bankruptcy Code.
5 Senior Debt Claims Impaired; each holder of an Allowed $ 296,694,261 63%
Senior Debt Claim will receive its
Ratable Proportion of the Senior Debt
New Common Stock Distribution Amount.
Any securities, notes, instruments or
documents evidencing the Senior Debt
Claims will be cancelled on the
Effective Date.
6 Convenience Claims Unimpaired; each Convenience Claim will $ 1,200,000 100%
be rendered unimpaired in accordance
with Section 1124 of the Bankruptcy
Code. All Convenience Claims that have
become due and payable on or before the
Effective Date (unless previously paid)
will be paid in full, in Cash on, or as
soon as practicable after the Effective
Date, or at such other time as is
mutually agreed upon by the Debtors or
the Reorganized Debtors, as the case may
be, and the holder of such Claim. All
Convenience Claims which are not due and
payable on or before the Effective Date
will be paid in the ordinary course of
business in accordance with the terms
thereof.
7 General Unsecured Claims Impaired; each Allowed General Unsecured $ 9,000,000 68%
Claim will receive on account of and in
full and complete settlement, release
and discharge of such General Unsecured
Claim: (i) Cash on the Effective Date
equal to 30.6% of such holder's Allowed
General Unsecured Claim; (ii) Cash on
the first anniversary of the Effective
Date equal to 20.4% of such holder's
Allowed General Unsecured Claim;
7
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN/2/
Estimated
Type of Claim or Allowable Estimated
Class Equity Interest Treatment Amount Recovery
- ----------- --------------------------- ------------------------------------------ -------------- ---------
and (iii) Cash on the second anniversary
of the Effective Date equal to 17.0% of
such holder's Allowed General Unsecured
Claim.
8 Intercompany Claims Unimpaired; the legal, equitable and $ 0/3/ 100%
contractual rights of the holders of
Intercompany Claims are unaltered.
9 Subordinated Claims Impaired; each holder of an Allowed $ 102,053,750 10%
Subordinated Claim will receive its
Ratable Proportion of the Subordinated
Note New Common Stock Distribution
Amount. Any securities, notes,
instruments or documents evidencing the
Subordinated Claims will be cancelled on
the Effective Date.
10 Old Preferred Stock Impaired; each holder of an Allowed Old 250,000 shares 1%/4/
Interests Preferred Stock Interest will receive
its Ratable Proportion of the New
Warrants to purchase up to 3.0% of the
fully-diluted New Common Stock at an
initial exercise price equal to 120% of
the New Common Stock Price. The Old
Preferred Stock Interests will be
cancelled on the Effective Date.
11 Subsidiary Interests Unimpaired; the legal, equitable and $ (543,184,085)/5/ 100%
contractual rights of the holders of
Subsidiary Interests are unaltered.
12 Old Common Stock Interests Impaired; no holder of an Old Common 17,780,248 0%
Stock Interest will receive a shares
distribution on account of such
interests. The Old Common Stock will be
cancelled on the Effective Date.
13 Other Equity Interests and Impaired; holders of Other Equity $ 0 0%
Securities Claims Interests and Securities Claims will
receive no distribution on account of
such interests.
- ----------
/3/ Intercompany Claims, which total $1,108,767,021 on the Debtors'
Schedules, ultimately have a net value of zero because they are internally
offsetting.
/4/ As set forth in the footnotes to the Projected Financial Information,
the Company used the Black-Scholes option pricing model to determine the value
assigned to the New Warrants as of the Effective Date.
/5/ Amount represents the shareholders' deficit, members' deficit,
partners' deficit, or negative book value of the NTELOS Subsidiaries as of March
3, 2003.
8
DIP Lender Claims, Administrative Expense Claims, Professional Compensation and
Reimbursement Claims, and Priority Tax Claims have not been classified (as set
forth in Section 2 of the Plan) and are excluded from the foregoing classes in
accordance with Section 1123(a)(1) of the Bankruptcy Code.
III.
OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself, its creditors and equity interest holders.
In addition to permitting rehabilitation of a debtor, another goal of Chapter 11
is to promote equality of treatment for similarly situated creditors and equity
interest holders with respect to the distribution of a debtor's assets.
The commencement of a Chapter 11 case creates an estate that is comprised
of all of the legal and equitable interests of the debtor as of the filing date.
The Bankruptcy Code provides that the debtor may continue to operate its
business and remain in possession of its property as a "debtor in possession."
The consummation of a plan of reorganization is the principal objective of
a Chapter 11 reorganization case. A plan of reorganization sets forth the means
for satisfying claims against and equity interests in the debtor. Confirmation
of a plan of reorganization by the bankruptcy court makes the plan binding upon
a debtor, any issuer of securities under the plan, any person acquiring property
under the plan and any creditor or equity interest holder of a debtor. Subject
to certain limited exceptions, the confirmation order discharges a debtor from
any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan.
After a plan of reorganization has been filed, the holders of claims
against or equity interests in a debtor are permitted to vote to accept or
reject the plan. Before soliciting acceptances of the proposed plan, however,
Section 1125 of the Bankruptcy Code requires a debtor to prepare a disclosure
statement containing adequate information of a kind, and in sufficient detail,
to enable a hypothetical reasonable investor to make an informed judgment about
the plan. The Debtors are submitting this Disclosure Statement to holders of
Claims against and Equity Interests in the Debtors to satisfy the requirements
of Section 1125 of the Bankruptcy Code.
IV.
GENERAL INFORMATION
A. Description and History of Business.
1. Business.
a. General.
The Company is a regional integrated communications provider
offering a broad range of wireless and wireline products and services to
business and residential customers in Virginia, West Virginia, Kentucky,
Tennessee and North Carolina. The Company is a digital PCS licensee, and owns a
fiber optic network, switches and routers, which enable the Company to offer its
customers end-to-end connectivity in many of the regions it serves.
9
The Company's wireless business consists primarily of digital PCS
services, which the Company offers in Virginia, West Virginia, North Carolina
and Kentucky. The Company began offering digital PCS services in late 1997 and
offered analog cellular services until July 2000. The Company's PCS network
utilizes digital CDMA technology. As of March 31, 2003, the Company owned
licenses covering approximately 10.2 million pops and provided PCS services to
approximately 279,700 subscribers.
The Company provides ILEC and CLEC services in Virginia and CLEC
services in West Virginia. As an ILEC, the Company owns and operates two local
telephone companies. As of March 31, 2003, the Company's ILECs had approximately
52,000 residential and business access lines installed. As a CLEC, the Company
serves 16 markets in three states. Since commencing CLEC operations in mid-1998,
the Company has grown its number of installed business access lines to
approximately 44,000 as of March 31, 2003. The Company also provides dial-up
Internet access through a local presence in Virginia, West Virginia and
Tennessee. The Company offers high-speed data services, such as dedicated
service and DSL within these three states. As of March 31, 2003, the Company's
Internet customer base totaled approximately 60,000 dial-up subscribers and
6,000 DSL subscribers.
The Company's wireless and wireline businesses are supported by
its fiber optic network, which currently includes 1,800 route-miles. This
network gives the Company the ability to originate, transport and terminate much
of its customers' communications traffic in many of its service markets. The
Company also uses its network to back-haul communications traffic for its retail
services and to serve as a carrier's carrier, providing transport services to
third parties for long distance, Internet and private network services. The
Company's fiber optic network is connected to and marketed with adjacent fiber
optic networks in the mid-Atlantic region.
NTELOS (formerly CFW Communications Company) was incorporated in
Virginia on January 22, 1988, and its principal offices are located in
Waynesboro, Virginia. The Company employed 1,310 regular full-time and part-time
persons as of March 31, 2003.
b. Products and Services.
The Company segregates its services into three primary
categories: wireless communications, wireline communications and other
communications services.
(i) Wireless.
(1) Digital PCS.
The Company's wireless business provides digital PCS services and
other packages with the following affordable and reliable services:
. Digital Features. The features of the Company's basic PCS service
include voice mail with notification, caller ID, call waiting, three-way
calling, call forwarding, voice activated dialing and 2 way mobile
messaging. For an additional fee, the Company also provides wireless
Internet access.
. Nationwide Service. The Company's nationwide roaming agreements and
dual-mode handsets allow its customers to roam on wireless networks of
other wireless providers.
10
The Company has nationwide roaming agreements with Sprint, Verizon and
ALLTEL that allows its PCS customers to make and receive calls.
. Advanced Handsets. The Company offers tri-mode handsets employing 1XRTT
data capable CDMA technology, which allow customers to make and receive
calls on both CDMA PCS and analog frequency bands. These handsets allow
roaming on digital or analog networks where the Company's digital PCS
service is not available. These handsets are equipped with preprogrammed
features such as speed dial and last number redial.
. Extended Battery Life. The CDMA handsets that the Company offers provide
extended battery life. These handsets generally offer four days of
standby and two and one-half hours of talk time battery life. Handsets
operating on a digital system are capable of saving battery life while
turned on but not in use, improving efficiency and extending the
handset's use.
. Enhanced Voice Quality. The Company's CDMA technology offers enhanced
voice quality and clarity, powerful error correction, less
susceptibility to call fading and enhanced interference rejection, as
compared to analog cellular systems, all of which result in fewer
dropped calls.
. Privacy and Security. The Company's PCS services provide secure voice
transmissions encoded into a digital format, designed to prevent
eavesdropping and unauthorized cloning of subscriber identification
numbers.
. Customer Care. The Company offers customer care 24 hours-a-day, 365
days-a-year. Customers can call the Company's toll-free customer care
number from anywhere. The Company's PCS handsets can be preprogrammed
with a speed dial feature that allows customers to easily reach customer
care at any time. The Company's local retail stores also serve as
customer contact centers, where customers can receive personalized
customer service.
. Simple Rate Plans. Customers can select from rate plans that include
expanded local, state or regional one-rate calling areas.
(2) Wholesale Wireless Services.
The Company provides digital PCS services on a wholesale basis to
Horizon Personal Communications, Inc., a Sprint affiliate, and to various other
PCS service providers under roaming agreements. The Company currently is party
to a ten-year agreement with Horizon to provide wholesale PCS services through a
contiguous thirteen (13) BTA footprint. Horizon uses the Company's network to
provide retail service to its customers in these BTAs. The agreement with
Horizon was amended in 2001 to provide pricing changes, including minimum
monthly revenue commitments from July 2001 through December 2003, and additional
revenue for minutes of use that exceed predetermined thresholds.
(ii) Wireline.
The Company's wireline communications services include ILEC and
CLEC services, Internet access, including high-speed DSL and dial-up, and data
transmission services. The Company also owns and operates a fiber optic cable
network, switches and routers
11
through which it delivers many of its services.
The Company currently provides ILEC and CLEC services in Virginia
and CLEC services in West Virginia. As an ILEC, the Company owns and operates a
106-year-old telephone company in western Virginia that serves business and
residential customers. In February 2001, through NTELOS' merger with R&B
Communications, Inc., NTELOS acquired the R&B Communications, Inc. ILEC, a
102-year-old telephone company in southwestern Virginia that serves business and
residential customers. As a CLEC, the Company serves business customers in
sixteen (16) markets.
The Company's ILEC and CLEC services provide customers with a
broad range of services and custom calling features. Calling features provided
by the Company include call waiting, continuous redialing, caller ID and voice
mail. The Company offers to its business customers Centrex services, which
replace a customer's private branch exchange, or PBX, system. In lieu of a PBX
system, the Company's Centrex services provide the switching function, along
with multiple access lines. Additionally, the Company offers domestic and
international long distance services to its ILEC and CLEC customers using its
network facilities or through resale arrangements with interexchange carriers
such as MCI WorldCom.
The Company provides Internet access services in Virginia, West
Virginia, Tennessee and North Carolina and Web hosting services on both LINUX
and Windows 2000 servers. This service provides to the Company's customers
dial-up Internet access through 59 local Internet points of presence and
multiple e-mail accounts, free software and personal disk space. Customers also
may connect to the Internet through the Company's DSL and high speed Internet
services.
The Company owns and operates a fiber optic cable network which
provides a backbone for the delivery of its ILEC, CLEC, Internet access and
digital PCS services to business and residential customers. The Company's
network enables it to originate, transport and terminate communications traffic
within its service territory, facilitating its ability to control quality and
contain network operating costs. The Company also uses its network to serve as a
carrier's carrier, leasing capacity on the network to other communications
carriers for the provision of long distance services, private network facilities
and Internet access.
(iii) Other.
The Company owns and operates wireless cable systems in the
Charlottesville, Roanoke Valley, Shenandoah Valley and Richmond, Virginia
markets. As of March 31, 2003, these systems provided wireless cable service to
approximately 5,400 customers. The Company offers its subscribers up to 25 basic
cable channels, including ESPN, CNN, TBS and the Disney Channel, and one to
three premium channels, including HBO, Cinemax and Showtime. The Company also
operates a 750 MHz wireline cable system in Alleghany County, Virginia with a
similar product offering. As of March 31, 2003, there were approximately 6,600
wireline cable subscribers. In February 2003, the Company entered into an
agreement for the sale of the assets of this wireline cable system for $8.7
million (subject to certain downward adjustments), conditioned on franchise
authority approval. The Bankruptcy Court approved this sale on April 17, 2003.
The Company also provides its customers with paging services that cover most of
Virginia. As of March 31, 2003, the Company had approximately 10,000 paging
customers, and offered numeric, alphanumeric, tone-only and tone and voice
paging services, as well as wide-area paging.
12
2. Capital Structure.
The Company's business has required substantial amounts of capital and
liquidity to fund its operations and the significant capital expenditures
necessary to expand the Company's network, operations and services according to
its business plan.
As of December 31, 2002, the Company's financial records reflected
assets with a book value totaling approximately $729.5 million and liabilities
and preferred stock obligations totaling approximately $1,072.2 million.
a. Equity Securities.
NTELOS has established two classes of equity securities, which
consist of common stock and preferred stock in multiple series. As of December
31, 2002, there were outstanding 17,780,248 shares of NTELOS' common stock,
112,500 shares of Series B Preferred Stock and 137,500 shares of Series C
Preferred Stock.
On July 11, 2000, NTELOS issued pursuant to a stock purchase
agreement, 112,500 shares of its Series B Preferred Stock to WCAS (100,000
shares) and Morgan Stanley Dean Witter Equity Funding, Inc. (12,500 shares) in
exchange for an aggregate of $112.5 million. The Series B Preferred Stock is
entitled to receive dividends at an annual rate of 8.5% of the stated value and
is convertible into shares of NTELOS common stock at any time at the option of
the holders at a conversion rate equal to the stated value divided by $41.00. In
connection with the issuance of the Series B Preferred Stock, NTELOS issued to
WCAS and Morgan Stanley Dean Witter Equity Funding, Inc. warrants to purchase an
aggregate of 500,000 shares of NTELOS common stock at an exercise price of
$50.00 per share.
Pursuant to stock purchase agreements dated as of July 26, 2000
and August 14, 2000, respectively, WCAS also purchased 55,022 shares of Series C
Preferred Stock for $55.0 million and 69,978 shares of Series D Preferred Stock
for $70.0 million. Pursuant to the same respective purchase agreements, Morgan
Stanley Dean Witter Equity Funding, Inc. purchased 5,278 shares of Series C
Preferred Stock for $5.3 million and 7,222 shares of Series D Preferred Stock
for $7.2 million. The Series C Preferred Stock is entitled to receive dividends
at an annual rate of 5.5% of the stated value and is convertible into shares of
NTELOS common stock at any time at the option of the holders at a conversion
rate equal to the stated value divided by $45.00. The Series D Preferred Stock
automatically converted into shares of Series C Preferred Stock on December 4,
2000, following approval by NTELOS' shareholders of such conversion. No shares
of Series D Preferred Stock have been outstanding since NTELOS' shareholders
approved its conversion.
b. Debt Securities.
(i) Senior Notes.
NTELOS issued, pursuant to an indenture dated as of July 26,
2000, between NTELOS, as issuer, and The Bank of New York, as Trustee, $280.0
million aggregate principal amount of 13.0% senior notes due 2010.
The Senior Notes are unsecured unsubordinated obligations of
NTELOS, and will mature on August 15, 2010. Interest accrued on the Senior Notes
is payable semiannually (to holders of record at the close of business on the
February 1 or August 1
13
immediately preceding the interest payment date) on February 15 and August 15 of
each year, commencing February 15, 2001.
The Senior Notes are issued only in fully registered form,
without coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof.
The Senior Notes are redeemable, at NTELOS' option, in whole or
in part, at any time or from time to time, on or after August 15, 2005 and prior
to maturity, upon not less than thirty (30) nor more than sixty (60) days' prior
notice mailed by first class mail to each holder's last address as it appears in
the security register, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of holders of record on the relevant
regular record date that is on or prior to the redemption date to receive
interest due on an interest payment date), if redeemed during the 12-month
period commencing August 15, of the years set forth below:
REDEMPTION
YEAR PRICE
---- ----------
2005.................. 106.500%
2006.................. 104.333%
2007.................. 102.167%
2008 and thereafter... 100.000%
In addition, at any time prior to August 15, 2003, NTELOS may
redeem up to 35.0% of the principal amount of the Senior Notes with the net cash
proceeds of one or more sales of capital stock of NTELOS (other than certain
disqualified stock), at any time or from time to time in part, at a redemption
price (expressed as a percentage of principal amount) of 113.0%, plus accrued
and unpaid interest to the redemption date (subject to the rights of holders of
record on the relevant regular record date that is prior to the redemption date
to receive interest due on an interest payment date); provided that at least
65.0% of the aggregate principal amount of notes originally issued remains
outstanding after each such redemption and that notice of any such redemption is
mailed within sixty (60) days after each such sale of capital stock.
In the case of any partial redemption, selection of the Senior
Notes for redemption will be made by the Senior Indenture Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Senior Notes are listed or, if the Senior Notes are not listed on a
national securities exchange, by lot or by such other method as the Senior
Indenture Trustee in its sole discretion shall deem to be fair and appropriate;
provided that no note of $1,000 in principal amount or less shall be redeemed in
part. If any Senior Note is to be redeemed in part only, the notice of
redemption relating to such Senior Note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
(ii) Subordinated Notes.
NTELOS issued, pursuant to an indenture dated as of July 26,
2000, between NTELOS, as issuer, and The Bank of New York, as trustee, $95.0
million aggregate principal amount of 13.5% subordinated notes due 2011.
14
The terms of the Subordinated Indenture, under which the
Subordinated Notes were issued, are substantially similar to the terms of the
Senior Indenture, with the exception that the rights and Claims of holders of
the Subordinated Notes are subordinated to those of the holders of the senior
indebtedness of NTELOS and to those of the Pre-Petition Secured Lenders pursuant
to the Pre-Petition Credit Agreement.
The Subordinated Notes are redeemable, at NTELOS' option, in
whole or in part, at any time or from time to time, on or after August 15, 2005
and prior to maturity, upon not less than thirty (30) nor more than sixty (60)
days' prior notice mailed by first class mail to each holder's last address as
it appears in the security register, at the following redemption prices
(expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant regular record date that is on or prior to the redemption
date to receive interest due on an interest payment date), if redeemed during
the 12-month period commencing August 15, of the years set forth below:
REDEMPTION
YEAR PRICE
---- ----------
2005.................. 106.750%
2006.................. 104.500%
2007.................. 102.250%
2008 and thereafter... 100.000%
In addition, at any time prior to August 15, 2003, NTELOS may
redeem up to 35.0% of the principal amount of the Subordinated Notes with the
net cash proceeds of one or more sales of capital stock of NTELOS (other than
certain disqualified stock), at any time or from time to time in part, at a
redemption price (expressed as a percentage of principal amount) of 113.5%, plus
accrued and unpaid interest to the redemption date (subject to the rights of
holders of record on the relevant regular record date that is prior to the
redemption date to receive interest due on an interest payment date); provided
that at least 65.0% of the aggregate principal amount of notes originally issued
remains outstanding after each such redemption and that notice of any such
redemption is mailed within sixty (60) days after each such sale of capital
stock.
In the case of any partial redemption, selection of the
Subordinated Notes for redemption will be made by the Subordinated Indenture
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Subordinated Notes are listed or, if the
Subordinated Notes are not listed on a national securities exchange, by lot or
by such other method as the Subordinated Indenture Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no note of
$1,000 in principal amount or less shall be redeemed in part. If any
Subordinated Note is to be redeemed in part only, the notice of redemption
relating to such Subordinated Note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
c. Pre-Petition Credit Agreement.
On July 26, 2000, NTELOS entered into the Pre-Petition Credit
Agreement, which originally consisted of a $100.0 million revolving credit
facility and $225.0 million in term loans and term loan commitments, divided
into a $50 million Term Loan A, a $100.0 million Term Loan B and a $75.0 million
Term Loan C.
15
The term loans were used to finance certain acquisitions made by
NTELOS, to refinance NTELOS' senior debt and certain debt of the NTELOS
Subsidiaries and for working capital and general corporate purposes.
By the original terms of the Pre-Petition Credit Agreement, the
revolving credit facility was repayable in a single payment on July 25, 2007.
Amounts outstanding under Term Loan A on July 26, 2001 were repayable beginning
September 30, 2003 in increasing quarterly installments, with a final maturity
on July 25, 2007. Amounts outstanding under Term Loan B were repayable beginning
on September 30, 2002 in quarterly installments equal to approximately 1.0% per
year of principal during each year through July 25, 2008, with the entire
balance of Term Loan B repayable on July 25, 2008. Amounts outstanding under
Term Loan C were repayable in a single payment on July 25, 2008.
NTELOS may choose to have interest accrue on loans outstanding
under the Pre-Petition Credit Agreement at rates based on the adjusted prime
rate or the fully reserve adjusted London interbank offered rate, or LIBOR, plus
an applicable margin. The applicable margin on the Petition Date was:
. in respect of the revolving credit facility and the Term Loan A,
3.25% per annum over LIBOR and 2.25% per annum over adjusted prime,
provided that the applicable percentage per annum may vary
depending on NTELOS' leverage ratio;
. in respect of the Term Loan B, 4.00% per annum over LIBOR and 3.00%
per annum over adjusted prime; and
. in respect of the Term Loan C, 2.75% per annum over LIBOR and 1.75%
per annum over adjusted prime.
A commitment fee is payable periodically on the unused portion of
the revolving credit commitment at a rate equal to between 0.50% and 0.75% per
annum depending on the amounts drawn under the revolving credit facility. Letter
of credit fees are payable on the face amount of letters of credit NTELOS asks
be issued for its account, at a rate equal to the margin over LIBOR that is
applicable at the time to revolving credit loans that bear interest based on
LIBOR paid proportionately to all of the Pre-Petition Secured Lenders, plus an
additional 0.25% for the account of the issuing bank.
NTELOS' obligations under the Pre-Petition Credit Agreement are
secured by substantially all of its assets, including real property. NTELOS
pledged to the collateral agent for the Pre-Petition Secured Lenders' benefit,
its equity interests in certain of its subsidiaries. Certain of NTELOS'
subsidiaries have guaranteed NTELOS' obligations under the Pre-Petition Credit
Agreement and have also pledged their assets to secure their guarantees.
NTELOS is bound by certain financial covenants under the
Pre-Petition Credit Agreement, including a maximum total debt to EBITDA, a
maximum senior secured debt to EBITDA, a minimum interest coverage ratio and a
minimum debt service coverage ratio.
In addition, NTELOS is required to make financial statements and
other reports available to the Pre-Petition Secured Lenders on a regular basis
and there are limits on NTELOS' ability to incur additional debt, to grant Liens
on its property, to declare dividends or
16
make other distributions to its shareholders, or to repurchase its own stock or
prepay other debt, to make capital expenditures or loans to or investments in
others, to merge, consolidate, sell and buy assets or acquire other businesses,
to engage in transactions with its affiliates (other than subsidiary guarantors)
or to amend its Articles of Incorporation.
The Pre-Petition Credit Agreement provides for customary events
of default, including non-payment, breaches of covenants, making misleading or
inaccurate representations and warranties, cross-default to certain other debt,
certain events of bankruptcy and insolvency, ERISA violations and change in
control.
3. Selected Historical Financial Data.
The selected historical operating data set forth below for the years
ended December 31, 2002, December 31, 2001 and December 31, 2000 and the
three-month periods ended March 31, 2003 and 2002, have been derived from the
audited consolidated financial statements of the Debtors. The data should be
read in conjunction with the historical consolidated financial statements of the
Debtors, and the related notes thereto, set forth in Exhibit E annexed hereto.
17
NTELOS INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- ----------------------------
2002 2001 2000 2003 2002
----------------------------------------------------------------------------
SELECTED OPERATING DATA:
OPERATING REVENUES:
Wireless PCS $ 156,860 $ 118,832 $ 39,096 $ 46,782 $ 35,771
Wireline communications 96,916 86,485 58,280 25,130 22,318
Other communications services 8,951 9,746 16,143 1,539 1,932
----------------------------------------------------------------------------
262,727 215,063 113,519 73,451 60,021
----------------------------------------------------------------------------
OPERATING EXPENSES:
Cost of wireless sales (exclusive of items shown
separately below) 48,868 47,808 18,657 10,780 12,223
Operating expenses (exclusive of items shown
separately below) 148,329 146,751 74,610 39,419 38,516
Depreciation and amortization 82,924 82,281 37,678 17,911 23,095
Accretion of asset retirement obligations - - - 152 -
Asset impairment charge 402,880 - - - -
Operational and capital restructuring charges 4,285 - - 2,427 1,267
----------------------------------------------------------------------------
687,286 276,840 130,945 70,689 75,101
----------------------------------------------------------------------------
OPERATING (LOSS) INCOME (424,559) (61,777) (17,426) 2,762 (15,080)
OTHER INCOME (EXPENSES)
Interest expense (78,351) (76,251) (31,407) (15,285) (19,004)
Other gains (losses), financing costs, equity
investment losses and investment income, net 7,018 36,238 50,791 (37,769) 1,822
----------------------------------------------------------------------------
(Loss) income before taxes and minority interests in
losses (earnings) of subsidiaries (495,892) (101,790) 1,958 (50,292) (32,262)
----------------------------------------------------------------------------
Net (loss) income before preferred stock dividend and
cumulative effect of an accounting change (488,947) (63,713) 18,639 (50,597) (30,664)
Cumulative effect of an accounting change - - - (2,754) -
(Loss) income applicable to common shares (509,364) (82,556) 10,471 (57,108) (35,683)
Cash flow and other financial data:
Net cash provided by (used in) operating activities 22,015 (11,501) 9,878 24,417 5,939
Net cash used in investing activities (42,403) (29,796) (621,502) (11,042) (18,514)
Net cash provided by (used in) financing activities 25,311 46,953 613,063 (752) 7,196
Capital expenditures (1) 73,164 102,872 65,590 11,377 29,120
Reconciliation of Operating Income (Loss) to EBITDA (a
non-GAAP measure) (2)
Operating Income (Loss) (424,559) (61,777) (17,426) 2,762 (15,080)
Reconciling items to arrive at EBITDA:
Depreciation and Amortization 82,924 82,281 37,678 17,911 23,095
Asset impairment charges 402,880 - - - -
Accretion of asset retirement obligations - - - 152 -
----------------------------------------------------------------------------
EBITDA (2) 61,245 20,504 20,252 20,825 8,015
============================================================================
DECEMBER 31, MARCH 31,
2002 2003
-------------------------
BALANCE SHEET DATA:
Cash and cash equivalents 12,216 24,839
Property, plant and equipment, net 434,455 430,156
Radio spectrum licenses 116,961 116,782
Total assets 729,521 724,856
Total current and long-term debt 642,722 642,568
Redeemable, convertible preferred stock 286,164 298,246
Shareholders' deficit (342,677) (399,333)
OPERATING STATISTICS:
Total PCS licensed POP's 10,271,000 10,271,000
PCS subscribers 266,467 279,681
DSL subscribers 5,534 5,972
Internet subscribers 61,486 60,327
ILEC access lines installed 52,014 51,817
CLEC access lines installed 43,815 45,986
18
(1) Capital expenditures represent additions to: land and buildings; network
plant and equipment; furniture, fixtures and other equipment; and radio spectrum
licenses.
(2) Represents operating income (loss) before depreciation and amortization,
accretion of asset retirement obligations and asset impairment charges. The
Company references non-GAAP measures, such as EBITDA, to measure operating
performance. Management believes EBITDA to be a meaningful indicator of the
Company's performance that provides useful information to investors regarding
the Company's financial condition and results of its operations. Presentation of
EBITDA is consistent with the Company's past practice and EBITDA is a non-GAAP
measure commonly used in the communications industry and by financial analysts
and others who follow the industry to measure operating performance. EBITDA
should not be construed as an alternative to operating income or cash flows from
operating activities (both of which are determined in accordance with generally
accepted accounting principles) or as a measure of liquidity.
B. Events Leading to the Commencement of the Chapter 11 Case.
NTELOS believes that its financial difficulties, and the events leading up
to the Chapter 11 Case, are attributable to a number of factors. The dramatic
downturn in the economy generally in the latter half of 2001 and in 2002, and
the telecommunications sector in particular, adversely impacted NTELOS' ability
to build its revenue base and generate funds adequate to meet its debt servicing
requirements at the holding company level. Further, NTELOS and the NTELOS
Subsidiaries have grown dramatically since NTELOS' founding, through
acquisitions and capital expenditures. Such transactions have left the companies
highly leveraged and thus vulnerable to general adverse economic and industry
conditions.
1. Debt Structure.
The principal contributing factor for the Debtors filing petitions for
relief under Chapter 11 of the Bankruptcy Code is the Debtors' debt structure.
The Debtors' prepetition debt consists of: approximately $261.0 million of
outstanding secured indebtedness under the Pre-Petition Credit Agreement; an
aggregate face amount of $280.0 million (carrying amount of approximately $271.0
million) of Senior Notes; an aggregate face amount of $95.0 million (carrying
amount of approximately $86.0 million) of Subordinated Notes; approximately
$15.0 million of secured claims held by the Federal Communications Commission,
Rural Utilities Service and the Rural Telephone Bank; and approximately $27.0
million of unsecured claims.
The Debtors' consolidated balance sheet further reflects: accrued
interest and other expenses of $43.0 million, obligations to benefit and pension
plans of $26.0 million and long-term liabilities of $56.0 million. The Debtors'
total current and long-term liabilities as of December 31, 2002 were
approximately $785.0 million.
This significant amount of indebtedness results in an annual interest
expense of approximately $78.2 million. The Debtors have experienced significant
increases in cash flow in each year since putting in place their existing
capital structure (as discussed below); however, the Debtors continue to require
access to capital to support its operations.
2. Evaluation of Debt Restructuring Alternatives
In light of the significant level of indebtedness discussed above, the
Board of Directors of NTELOS formed a Special Committee on June 10, 2002 in
order to evaluate the strategic business alternatives available to NTELOS and to
recommend a course of action with respect to a financial restructuring of the
Debtors. In September 2002, NTELOS retained UBS Warburg as its financial advisor
to assist it in exploring a variety of restructuring alternatives in order to
address its capital structure. Thereafter, continued competition in the wireless
telecommunications sector resulted in a reduction of NTELOS' long-term outlook
on its wireless operations, including a decrease in the projected wireless
subscriber growth, wholesale revenue growth, and average revenue per wireless
subscriber. In addition, capital and lending prospects for telecommunication
companies continued to deteriorate. As a result of these conditions, on
19
November 29, 2002, NTELOS entered into an amendment and waiver with the
Pre-Petition Secured Lenders which restricted the amounts that NTELOS could
borrow under the Pre-Petition Credit Agreement and waived NTELOS' obligation to
make certain representations in order to submit a borrowing request, including a
representation that the present fair salable value of the Debtors' assets is not
less than the amount that would be required to pay the Debtors' debts as they
become absolute and matured. Upon expiration of the waiver, NTELOS did not have
access to the Pre-Petition Credit Agreement following January 31, 2003. For
these reasons, NTELOS announced it would not make the semi-annual interest
payments of $18.2 and $6.4 million on its Senior Notes and Subordinated Notes,
respectively, which were due February 18, 2003.
Under the terms of its engagement letter with UBS Warburg dated
September 13, 2002, as amended March 3, 2003, NTELOS agreed to pay UBS Warburg
monthly advisory fees in the amount of $200,000, provided that 100.0% of such
monthly advisory fees would be credited against any restructuring transaction
fee payable to UBS Warburg. The engagement letter provides that if NTELOS
restructures, directly or indirectly, the Pre-Petition Credit Agreement, Senior
Notes, Subordinated Notes, Series B and/or Series C Preferred Stock, it will pay
to UBS Warburg a restructuring transaction fee equal to the greater of (i) $2.0
million, subject to certain minimum conditions, and (ii) the sum of (a) 1.0% of
the principal amount of the Senior Notes and 0.5% of the principal amount or
liquidation preference of the Subordinated Notes, Series B and Series C
Preferred Stock directly affected by the transaction, plus (b) $250,000 if
NTELOS requests UBS Warburg's assistance in obtaining Pre-Petition Credit
Agreement covenant modifications and such efforts are successful, plus 0.5% of
the principal amount of the Pre-Petition Credit Agreement if NTELOS requests UBS
Warburg's assistance in seeking other modifications and such efforts are
successful, subject to certain limitations. For a discussion of the Bankruptcy
Court modification to the engagement letter, see Section V.D, "Events During the
Chapter 11 Case - First Day and Various Other Motions."
3. Factors Impacting Decision to File the Chapter 11 Case
This section describes the following events NTELOS believes impacted
its decision to commence a Chapter 11 Case: (i) market conditions generally,
(ii) the amendment of the Pre-Petition Credit Agreement, (iii) unsuccessful
refinancing efforts and (iv) negotiations with certain holders of the Senior
Notes and the holder of the Subordinated Notes.
a. Market Conditions.
The general slowdown of the entire telecommunications industry
and increased competition experienced in the wireless PCS industry has resulted
in a decrease of several industry analysts' projections, including subscriber
growth, average revenue per unit ("ARPU"), subscriber churn improvement and
reductions in average costs per subscriber. This decrease in industry-wide
projections, combined with an economic environment not conducive to strategic
transactions, such as mergers and acquisitions, has resulted in dramatic
decreases in the value of wireless PCS assets.
In response, NTELOS performed a comprehensive evaluation of the
Debtors' long-term business plan and made several modifications including a
reduction in subscriber growth, a decrease in ARPU, a slower improvement in
subscriber churn and lower wholesale revenues. Based on this assessment, NTELOS
recognized an asset impairment charge
20
to the value of the Debtors' wireless PCS radio spectrum licenses, goodwill and
other intangible assets, property, plant and equipment of $404.0 million.
b. Amendment to the Pre-Petition Credit Agreement.
On November 29, 2002, NTELOS entered into Amendment No. 4 and
Waiver No. 1 to the Pre-Petition Credit Agreement. In connection with the
Amendment and Waiver, the Pre-Petition Secured Lenders agreed to provide NTELOS
with borrowing capacity under its revolving credit facility up to an amount
sufficient to fund NTELOS' business plan during the period in which NTELOS
addressed its capital structure.
The Amendment and Waiver provided a waiver through January 31,
2003 of NTELOS' obligation to make certain representations and warranties. The
Amendment and Waiver also provided for a cap on the amounts that could be
borrowed through January 31, 2003 under the revolving credit facility portion of
the Pre-Petition Credit Agreement of $36.0 million, or $15.0 million of
borrowings in excess of amounts outstanding as of the date immediately prior to
the Amendment and Waiver. This borrowing cap was removed after January 31, 2003.
Additionally, after December 1, 2002, NTELOS was limited to borrowing no more
than $2.5 million per week.
The waiver expired on February 1, 2003. NTELOS actively attempted
to develop a plan with respect to its future capital structure during December
2002 and January 2003 (as discussed below). Upon expiration of the waiver,
NTELOS was required, in connection with any borrowing request, to make all of
the representations and warranties contained in the Pre-Petition Credit
Agreement. The representations under the Pre-Petition Credit Agreement include a
representation that the present fair salable value of the Debtors' assets is not
less than the amount that would be required to pay the Debtors' debts as they
become absolute and matured. Due to market conditions, NTELOS was uncertain
whether it could make this representation.
c. Refinancing Efforts.
NTELOS, with the assistance of UBS Warburg, has explored various
strategic alternatives by which to recapitalize NTELOS. None of the strategic
alternatives explored, however, presented a viable out-of-court approach to
undertaking a comprehensive restructuring of NTELOS' capital structure. NTELOS,
with the assistance of UBS Warburg, determined that a reorganization under
Chapter 11 of the Bankruptcy Code was the most viable means to restructure
NTELOS' capital structure.
d. Negotiations with Certain Holders of the Senior Notes and the
Holder of the Subordinated Notes.
In September 2002, NTELOS retained UBS Warburg as its financial
advisor to assist in exploring a variety of restructuring alternatives in order
to address NTELOS' capital structure. As a result of these efforts, and after
the amendment to the Pre-Petition Credit Agreement and NTELOS' unsuccessful
refinancing efforts, NTELOS' management concluded that the best available
alternative for recapitalizing NTELOS and maximizing the recovery for creditors
and equity interest holders was through a plan of reorganization that would
restructure NTELOS' balance sheet through a cancellation of NTELOS' public debt
and equity securities and the issuance of new convertible debt securities and
common stock of Reorganized NTELOS. Therefore, NTELOS, with the assistance of
UBS Warburg, began negotiations with certain
21
holders of the Senior Notes and the holder of the Subordinated Notes in an
attempt to reach an agreement on the terms of a plan to restructure NTELOS'
securities.
Throughout December 2002, and up to the Petition Date, NTELOS
engaged in discussions and negotiations with certain holders of the Senior
Notes, the holder of the Subordinated Notes and its advisor on the terms of a
proposed restructuring of NTELOS.
V.
EVENTS DURING THE CHAPTER 11 CASE
On March 4, 2003, the Debtors commenced the Chapter 11 Case in the
Bankruptcy Court. The Debtors continue to operate their businesses and manage
their properties as Debtors in Possession pursuant to Sections 1107 and 1108 of
the Bankruptcy Code.
A. Post-Petition Agreements.
As a result of its negotiations with certain holders of the Senior Notes,
NTELOS and the Participating Noteholders have entered into the Subscription
Agreement, under which the Participating Noteholders have agreed to purchase
$75.0 million principal aggregate amount of New Notes to be issued by
Reorganized NTELOS, subject to the terms and conditions set forth therein. The
Subscription Agreement is subject to a number of termination events, relating
primarily to the progress of the Chapter 11 Case proceeding according to a
specified timetable. For a discussion of the investment by the Participating
Noteholders in the New Notes, see Section VI.C, "The Joint Plan of
Reorganization - New Investment."
Further, NTELOS and certain Pre-Petition Secured Lenders have structured
the terms of a proposed plan of reorganization for which such Pre-Petition
Secured Lenders have expressed their support. In connection with these
restructuring efforts, such Pre-Petition Secured Lenders entered into a Plan
Support Agreement with NTELOS. The Debtors believe that the Plan discussed
herein reflects the terms of the Plan Support Agreement. A copy of the Plan
Support Agreement is annexed hereto as Exhibit G. The Plan Support Agreement is
subject to a number of termination events, relating primarily to the progress of
the Chapter 11 Case proceeding according to a specified timetable.
B. Continuation of Business; Stay of Litigation.
Following the commencement of the Chapter 11 Case, the Debtors have
continued to operate as Debtors in Possession with the protection of the
Bankruptcy Court. The Bankruptcy Court has certain supervisory powers over the
operations of the Debtors during the pendency of the bankruptcy case. The
Debtors have been operating in the ordinary course of business and will seek
approval for any transactions that are outside the ordinary course of business.
An immediate effect of the filing of the Chapter 11 Case was the imposition
of the automatic stay under the Bankruptcy Code which, with limited exceptions,
enjoins the commencement or continuation of all litigation against the Debtors.
The automatic stay will remain in effect until the Effective Date unless
modified or vacated by the order of the Bankruptcy Court.
22
C. DIP Credit Agreement.
As discussed below, the Bankruptcy Court approved NTELOS' entrance into the
DIP Credit Agreement. The DIP Credit Agreement consists of a revolving credit
facility in an aggregate principal amount of up to $35.0 million (with a $5.0
million sublimit for letters of credit).
On March 4, 2003, the Bankruptcy Court granted access to up to $10.0
million under DIP Credit Agreement, with access to the full $35.0 million
subject to final Bankruptcy Court approval, certain state regulatory approvals
and the Pre-Petition Secured Lenders' receiving satisfactory assurances
regarding the Participating Noteholders' proposed $75.0 million investment in
NTELOS upon emergence from the Chapter 11 Case. On March 24, 2003, the
Bankruptcy Court entered a final order authorizing NTELOS to access up to $35.0
million under the DIP Credit Agreement and, as of April 11, 2003, NTELOS
satisfied all other conditions to full access to the DIP Credit Agreement.
Proceeds from advances under the DIP Credit Agreement are to be used solely
for working capital, capital expenditures and other general corporate purposes
of the Debtors including, to the extent permitted under the DIP Credit
Agreement, the NTELOS Non-filing Subsidiaries. Postpetition advances will bear
interest at a rate equal to 4.0% over the Eurodollar Rate (as defined in the DIP
Credit Agreement), with respect to Eurodollar advances, and 3.0% over the Base
Rate (as defined in the DIP Credit Agreement), with respect to base rate
advances.
The facility provided under the DIP Credit Agreement matures 180 days after
the Petition Date, provided that it may be extended to 270 days after the
Petition Date under certain circumstances. NTELOS secured its obligations under
the DIP Credit Agreement by granting the DIP Lenders a superpriority
Administrative Expense Claim against the Debtors' estates. Subject to carve-outs
for professional fees and disbursements in an aggregate amount not to exceed
$1.75 million, plus fees payable to the United States Trustee pursuant to 28
U.S.C. Section 1930(a), as collateral for the provision of debtor in possession
financing, the DIP Lenders received:
. a perfected first priority priming Lien on all assets of the
Debtors that secure NTELOS' obligations under the Pre-Petition
Credit Agreement pursuant to Section 364(d)(1) of the Bankruptcy
Code,
. a superpriority administrative expense claim with priority over any
and all other Administrative Expense Claims pursuant to Section
364(c)(1) of the Bankruptcy Code,
. a perfected first priority Lien on all unencumbered assets of the
Debtors, if any, pursuant to Section 364(c)(2) of the Bankruptcy
Code, and
. a perfected junior Lien on all encumbered assets of the Debtors
other than those referred to in the first clause of this sentence,
pursuant to Section 364(c)(3) of the Bankruptcy Code.
As adequate protection of their interest in Collateral described in the
Pre-Petition Credit Agreement, that Security Agreement, dated as of July 26,
2000, the mortgages and all documentation executed in connection with therewith,
including certain Hedge Agreements (collectively, the "Existing Agreements"),
the Pre-Petition Secured Lenders:
23
. were granted certain Adequate Protection Liens (as defined in the
Final DIP Order),
. were granted a superpriority claim as provided for in Section
507(b) of the Bankruptcy Code, immediately junior to the Claims
under Section 364(c)(1) of the Bankruptcy Code held by the Agent
and the DIP Lenders to the extent of diminution,
. shall receive or received from the Debtors (i) scheduled principal
amortization payments as set forth in Section 2.04 of the
Pre-Petition Credit Agreement, (ii) immediate cash payment of all
accrued and unpaid interest on the Pre-Petition Debt (as defined in
the Final DIP Order) and letter of credit fees at the rates
provided for in the Existing Agreements, and all other accrued and
unpaid fees and disbursements (including, but not limited to, fees
owed to the Agent) owing to the Agent under the Existing Agreements
and incurred prior to the Petition Date, (iii) current cash
payments of all fees and expenses payable to the Agent under the
Existing Agreements, including, but not limited to, the reasonable
fees and disbursements of counsel, financial and other consultants
for the Agent and (iv) on the first business day of each month, all
accrued but unpaid interest on the Pre-Petition Debt (as defined in
the Final DIP Order), and letter of credit and other fees at the
non-default contract rate applicable on the Petition Date
(including LIBOR pricing options) under the Existing Agreements,
provided that, without prejudice to the rights of any other party
to contest such assertion, the Pre-Petition Secured Lenders reserve
their rights to assert claims for the payment of additional
interest calculated at any other applicable rate of interest
(including, without limitation, default rates), or on any other
basis, provided for in the Existing Agreements,
. shall be permitted to retain expert consultants and financial
advisors at the reasonable expense of the Debtors, which
consultants and advisors shall be given reasonable access for
purposes of monitoring the business of the Debtors and the value of
the Collateral described in the Existing Agreements, and
. shall receive 100% of the Net Cash Proceeds (as defined in the DIP
Credit Agreement) resulting from any sale, lease, transfer, license
or other disposition of property outside the ordinary course of
business or of any surplus property, all as permitted by the DIP
Credit Agreement, that are not required to be paid in respect of
the DIP Obligations (as defined in the Final DIP Order).
Further, except to the extent of the Carve Out (as defined in the Final DIP
Order) and the amounts of any compensation or reimbursement of expenses
incurred, awarded or paid prior to the occurrence of an Event of Default (as
defined in the DIP Order) in respect of which the Carve Out is invoked, no
expenses of administration of the Cases or any future bankruptcy proceeding that
may result therefrom, including liquidation in bankruptcy or other proceedings
under the Bankruptcy Code, shall be charged against or recovered from the
Collateral described in the Existing Agreements pursuant to section 506(c) of
the Bankruptcy Code or any similar principle of law, without the prior written
consent of the DIP Agent and/or the Agent, as the case may be, and no such
consent shall be implied from any other action, inaction, or acquiescence by the
DIP Agent, the DIP Lenders, the Agent or the Pre-Petition Secured Lenders.
24
As adequate protection for the interests of counterparties to the Hedge
Agreements, such counterparties were to receive from the Debtors all regularly
scheduled interest payments under the Hedge Agreements.
D. First Day and Various Other Motions.
Together with their petitions for relief, the Debtors filed a number of
"first day" motions on the Petition Date. In addition to these motions seeking
affirmative relief (some of which are discussed below), several sought
administrative relief necessary to permit the Debtors to operate in the Chapter
11 Case. Capitalized terms used in this section and not defined in this
Disclosure Statement have the meanings ascribed to them in the applicable
motion. The Debtors' first day motions included motions for orders:
. authorizing the joint administration of the Chapter 11 Case;
. establishing administrative procedures to aid the expeditious
prosecution of the Chapter 11 Case;
. establishing procedures for interim compensation and reimbursement
of expenses of professionals;
. authorizing the Debtors to mail initial notices, to file a list of
creditors in lieu of a creditor matrix and to file a consolidated
Bankruptcy Rule 1007(d) list of the Debtors' 30 largest unsecured
creditors;
. extending the time for the Debtors to file the Schedules;
. authorizing the retention of the Debtors' professionals, including
Hunton & Williams LLP and Marcus, Santoro & Kozak, P.C. as
co-counsel to the Debtors, and retention of Navigant Consulting
Inc. as Debtors' bankruptcy accountant and bankruptcy service
advisor;
. authorizing the engagement of Administar Services Group, Inc. as
official claims and noticing agent of the Clerk of the Bankruptcy
Court;
. authorizing the continued use of the Debtors' centralized cash
management system, existing bank accounts and business forms;
. authorizing the Debtors to (i) pay prepetition wages, salaries and
other employee compensation and make all related and other
withholdings; (ii) continue employee plans, programs and policies
and pay employee and certain retiree benefits; and (iii) reimburse
employee business expenses;
. authorizing the Debtors to (i) continue promotional programs; (ii)
honor or pay all pre- and postpetition obligations arising from
promotional programs in the ordinary course; and (iii) honor or pay
pre- and postpetition obligations to customers arising from
deposits and refunds in the ordinary course;
. establishing procedures for utility companies to request adequate
assurance of payment;
25
. authorizing (i) payment of prepetition sales and use taxes,
telecommunication taxes, income taxes, property taxes, license and
franchise taxes and regulatory fees; and (ii) the bank to honor and
process checks related to such taxes and regulatory fees;
. authorizing the Debtors to remit certain insurance premiums; and
. authorizing NTELOS to enter into the DIP Credit Agreement.
Each of these motions was granted by the Bankruptcy Court. Nothing in the
Plan will preclude the Reorganized Debtors from paying Claims that the Debtors
were authorized to pay under any Final Order entered by the Bankruptcy Court
before the Confirmation Date.
In addition to the "first day" motions, the Debtors have filed, or expect
to file, various other motions, including:
. a motion for authority to retain and employ UBS Warburg as
financial advisor to the Debtors
. a motion to sell the Debtors' Portsmouth, Virginia call center
facility and certain personal property related thereto, to assume
and assign certain unexpired leases on nonresidential real property
related thereto, to set a deadline for filing cure claims with
respect to executory contracts and unexpired leases to be assumed
and assigned in relation to the sale, for authorization to enter
into a leaseback of real property, for approval of payment of the
related real estate commission, and for authorization to escrow
such commission pending approval of the Debtors' employment of the
Debtors' broker;
. a motion to approve a stipulation entered into between the Debtor,
the DIP Lender and Horizon Personal Communications, Inc. relating
to the provision of adequate protection;
. a motion to sell certain real and personal property related to the
Debtors' wireline cable television business, to assume and assign
certain unexpired leases of nonresidential real property and
executory contracts related thereto, for authorization to enter
into related agreements, and for authorization to pay related fees;
. a motion for authorization to pay the attorney's fees of the
Participating Noteholders as they relate to the New Investment;
. motions for authorization to retain brokers relating to the sales
of the Debtors' Portsmouth, Virginia call center and wireline cable
television business;
. a motion to extend the deadline for the Debtors' to assume or
reject unexpired leases of nonresidential real property;
. a motion for authority to continue the Debtors' prepetition
management incentive plans and, thereby, establish a retention plan
for certain eligible employees of the Debtors;
26
. a motion for authority to reject certain employment and related
agreements and to settle claims arising therefrom; and
. a motion to approve a stipulation entered into between the Debtor,
the FCC and the RUS and RTB relating to the provision as adequate
protection.
By order dated April 16, 2003, the Bankruptcy Court authorized the
retention of UBS Warburg under its existing engagement letter, and the Court
approved the modification of NTELOS' engagement letter with UBS Warburg, which
now provides that if the Debtors confirmed a plan of reorganization which (i)
provides for an infusion of at least $50.0 million in new money junior to the
indebtedness of the secured lender and (ii) provides for the conversion of all
or substantially all of the Debtors' existing bond indebtedness to equity of the
Reorganized Debtors, UBS Warburg will be entitled to the $160,000 monthly
advisory fees contemplated by the engagement letter from its inception through
March 1, 2003, the $200,000 monthly advisory fees contemplated by the
modification of the engagement letter from March 1, 2003, and a $3.5 million
restructuring transaction fee, provided that 100.0% of the monthly advisory fees
earned through August 31, 2003 and paid or expected to be paid will be credited
against the restructuring transaction fee. The restructuring transaction fee, as
adjusted, will be earned and payable to UBS Warburg upon consummation of the
Plan.
By order dated May 30, 2003, the Bankruptcy Court approved NTELOS entering
into a Separation Agreement with J. Allen Layman, the President and a Chairman
of NTELOS, and a Separation and Consulting Agreement with Warren C. Catlett, the
Senior Vice President--Corporate Development of NTELOS, each effective as of
June 1, 2003. Pursuant to the terms of the Layman Separation Agreement, as
negotiated consideration in exchange for Mr. Layman's continued agreement to
honor the non-competition provisions of Mr. Layman's pre-petition employment
agreements, Mr. Layman will receive, subject to confirmation of the Plan,
$564,712.00 of New Common Stock (based on the implied equity value associated
with the New Notes), such shares to be distributed in accordance with the terms
of the Plan. The balance of the financial terms and conditions of the departure
of Messrs. Layman and Catlett are set forth in the Separation Agreement and the
Separation and Consulting Agreement, respectively.
E. Bar Date Motion.
On March 11, 2003, the Debtors filed a motion seeking entry of an order
setting the Bar Date. The Debtors sought to have the Bar Date set for June 10,
2003. On March 26, 2003 the Bankruptcy Court issued an Order establishing a Bar
Date of June 10, 2003.
F. Statutory Committee.
On March 13, 2003, the United States Trustee appointed a statutory
committee of unsecured creditors pursuant to Section 1102 of the Bankruptcy Code
consisting of Morgan Stanley & Co. Incorporated, WCAS, Capital Research and
Management Company, The Bank of New York, INVESCO Funds Group, Motorola, Inc.
and CellStar, Ltd. On March 13, 2003, the Creditors' Committee selected
Wachtell, Lipton, Rosen & Katz as its legal counsel and McGuire Woods LLP as
co-counsel.
G. Preferences and Fraudulent Conveyances.
Under the Bankruptcy Code, a debtor may seek to recover, through adversary
proceedings in the bankruptcy court, certain transfers of the debtor's property,
including
27
payments of cash, made while the debtor was insolvent during the 90 days
immediately prior to the commencement of the bankruptcy case (or, in the case of
a transfer to or on behalf of an "insider," one year prior to the commencement
of the bankruptcy case) in respect of antecedent debts to the extent the
transferee received more than it would have received on account of such
preexisting debt had the debtor been liquidated under Chapter 7 of the
Bankruptcy Code. Such transfers include cash payments, pledges of security
interests or other transfers of an interest in property. In order to be
preferential, such payments must have been made while the debtor was insolvent;
debtors are rebuttably presumed to have been insolvent during the 90-day
preference period. The Bankruptcy Code's preference statute can be very broad in
its application because it allows the debtor to recover payments regardless of
whether there was any impropriety in such payments.
However, there are certain defenses to such claims. For example, transfers
made in the ordinary course of the debtor's and the transferee's business
according to ordinary business terms are not recoverable. Furthermore, if the
transferee extended credit contemporaneously with or subsequent to the transfer,
and prior to the commencement of the bankruptcy case, for which the transferee
was not repaid, such extension constitutes an offset against an otherwise
recoverable transfer of property. If a transfer is recovered by a debtor, the
transferee has a general unsecured claim against the debtor to the extent of the
recovery.
Under the Bankruptcy Code and under various state laws, a debtor may also
recover or set aside certain transfers of property (fraudulent transfers),
including the grant of a security interest in property, made while the debtor
was insolvent or which rendered the debtor insolvent or undercapitalized to the
extent that the debtor received less than reasonably equivalent value for such
transfer.
H. Litigation.
Dispute with Horizon. In late 2002, Horizon Personal Communications, Inc.
disputed certain categories of charges under the Network Services Agreement with
West Virginia PCS Alliance, L.C. and Virginia PCS Alliance, L.C. (collectively,
the "Alliances"), alleging that the Alliances overcharged Horizon $4.8 million
during the period commencing October 1999 and ending September 2002 and $1.2
million for the period commencing October 2002 and ending December 2002. Horizon
withheld these categories of charges from payments made from and after December
2002 and failed to timely pay their January 2003 invoice due following the
Petition Date. On March 11, 2003, Horizon filed a motion with the Bankruptcy
Court which effected an administrative freeze as to the amounts payable on the
January invoice. On March 12, 2003, the Alliances notified Horizon of the
failure to make payment on the January invoice, reserving the right to terminate
the agreement in accordance with the terms thereof. On March 24, 2003, the
parties entered a stipulation approved by the Bankruptcy Court pursuant to which
Horizon paid the January invoice and agreed to pay all future invoices and the
Alliances agreed not to exercise their termination right, assuming all future
payments are made in accordance with the agreement. The stipulation further
provides that Horizon is permitted to withhold amounts under monthly invoices in
excess of $3.0 million if it determines in good faith that such amounts in
excess of $3.0 million represent an overcharge by the Alliances, pending
resolution of the dispute. In addition, the parties agreed to continue to
discuss and negotiate, in good faith, their dispute regarding Horizon's claim.
Following a 30 day-period, either party had the right to submit the dispute to
arbitration in accordance with the agreement. Neither party has filed for
arbitration. The parties are continuing to discuss the dispute.
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Tax Related Litigation. In connection with a review of NTELOS' federal tax
returns for the years ended December 31, 1998 and 1999, the Service Examination
Agent formally proposed various adjustments that would, if sustained, result in
increasing the taxable income of NTELOS and the NTELOS Subsidiaries (including
R&B Communications, Inc., which was not an NTELOS Subsidiary during the years in
issue) by aggregate amounts of approximately $5.1 million and approximately $9.2
million, respectively. The principal issues with respect to the proposed
adjustments involve (i) the deductibility of costs of cellular telephones sold
to customers incident to entering into contracts to provide cellular telephone
service and (ii) the depreciation period of certain cellular telephone system
equipment. NTELOS disagrees with and intends to contest substantially all of the
proposed adjustments. On February 27, 2003 and March 21, 2003, NTELOS and the
affected NTELOS Subsidiaries filed protests to appeal the unagreed, proposed
adjustments to the Service Appeals Office.
The outcome of these proceedings cannot be predicted. However, to the
extent the proposed adjustments are sustained, the likely federal income tax
result would be to use available net operating losses to offset increases in
taxable income, thereby reducing NOLs. In that event, NTELOS and the NTELOS
Subsidiaries likely would owe interest on temporary tax deficiencies for 1996
and 1997.
The Debtors are party to certain other ongoing litigation, none of which
the Debtors anticipate having a material effect on their operations or the
Chapter 11 Case.
I. Affiliated Claims and Transactions.
In May 2000, R&B Communications, Inc. entered into a lease agreement with
Layman Family, LLC. Under the terms of the agreement, R&B Communications, Inc.
leases a 34,000 square foot building from Layman Family, LLC for a term of 20
years at a rental rate of $15.00 per square foot. In February 2001, NTELOS
engaged in a merger whereby R&B Communications, Inc. became a wholly-owned
subsidiary. Mr. Layman became the President and a director of NTELOS following
the merger and he is the manager of Layman Family, LLC. Effective June 1, 2003,
Mr. Layman ceased to be the President and a director of NTELOS.
Non-employee directors of the Company were not paid for their attendance at
meetings of the Board of Directors and committees thereunder during the period
commencing February 1, 2003 and ending March 3, 2003.
On February 12, 2003, the Company notified the shareholders' representative
under the merger agreement with R&B Communications, Inc. ("R&B") of a threatened
tax claim that could result in escrow losses. At the closing of the merger, 10%
of the shares of the Company's common stock issued to R&B shareholders were
placed in escrow to satisfy the Company's claims for indemnification. In
accordance with the escrow agreement, the Company instructed the escrow agent to
continue to hold any remaining shares in escrow pending resolution of the tax
claim.
On May 29, 2003, R&B Communications, Inc. and Layman Family, LLC entered
into an amendment to the lease agreement, among other things, to reduce the term
of the lease and the rent payable thereunder and to reallocate certain repair
responsibilities to Layman Family, LLC, as landlord and the Debtors intend to
assume the lease, as amended, pursuant to the Plan.
By order dated May 30, 2003, the Bankruptcy Court approved NTELOS entering
into a Separation Agreement with J. Allen Layman, the President and a Chairman
of NTELOS, and a
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Separation and Consulting Agreement with Warren C. Catlett, the Senior Vice
President--Corporate Development of NTELOS, each effective as of June 1, 2003.
Pursuant to the terms of the Layman Separation Agreement, as negotiated
consideration in exchange for Mr. Layman's continued agreement to honor the
non-competition provisions of Mr. Layman's pre-petition employment agreements,
Mr. Layman will receive, subject to confirmation of the Plan, $564,712.00 of New
Common Stock (based on the implied equity value associated with the New Notes),
such shares to be distributed in accordance with the terms of the Plan. The
balance of the financial terms and conditions of the departure of Messrs. Layman
and Catlett are set forth in the Separation Agreement and the Separation and
Consulting Agreement, respectively.
VI.
THE JOINT PLAN OF REORGANIZATION
NTELOS believes that (i) through the Plan, creditors will obtain a
substantially greater recovery from the estates of the Debtors than the recovery
which would be available if the assets of the Debtors were liquidated under
Chapter 7 of the Bankruptcy Code and (ii) the Plan will afford the Debtors the
opportunity and ability to continue in business as a viable going concern.
The Plan is annexed hereto as Exhibit A and forms a part of this Disclosure
Statement. The summary of the Plan set forth below is qualified in its entirety
by reference to the more detailed provisions set forth in the Plan.
A. Classification and Treatment of Claims and Equity Interests.
1. DIP Lender Claims.
Pursuant to the terms of the DIP Credit Agreement, Reorganized NTELOS
will pay to the DIP Lenders, on account of any DIP Lender Claims, Cash equal to
the amount of DIP Lender Claims, unless the DIP Lenders and NTELOS or
Reorganized NTELOS, as the case may be, agree or will have agreed to other
treatment of such Claims.
2. Administrative Expense Claims.
Subject to certain additional requirements for professionals and
certain other entities set forth in this section, the Reorganized Debtors will
pay to each holder of an Allowed Administrative Expense Claim (other than the
DIP Lender Claims which shall be treated as set forth in Section 2.1 of the
Plan), on account of its Administrative Expense Claim and in full satisfaction
thereof, Cash equal to the amount of such Allowed Administrative Expense Claim
on, or as soon as practicable after, the later of the Effective Date and the day
on which such Claim becomes an Allowed Claim, unless the holder and the Debtors
or Reorganized Debtors, as the case may be, agree or will have agreed to other
treatment of such Claim, or an order of the Bankruptcy Court provides for other
terms; provided, that if incurred in the ordinary course of business or
otherwise assumed by the Debtors pursuant to the Plan (including Administrative
Expense Claims of governmental units for taxes), an Allowed Administrative
Expense Claim will be assumed on the Effective Date and paid, performed or
settled by the Reorganized Debtors when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation in the
absence of the Chapter 11 Case.
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3. Professional Compensation and Reimbursement Claims.
All persons seeking an award by the Bankruptcy Court of a Professional
Compensation and Reimbursement Claim incurred through and including the
Effective Date are required (unless otherwise ordered by the Bankruptcy Court)
to file final applications for the allowance of compensation for services
rendered and reimbursement of expenses incurred within 30 days after the
Effective Date. Holders of Professional Compensation and Reimbursement Claims
that file final applications in accordance with the Plan will be paid in full in
Cash in the amounts approved by the Bankruptcy Court: (a) on or as soon as
reasonably practicable following the later to occur of (i) the Effective Date
and (ii) the date on which the order relating to any such Professional
Compensation and Reimbursement Claim becomes a Final Order; or (b) on other
terms mutually agreed on between the Professional Compensation and Reimbursement
Claim holder and the Debtors or, as applicable, the Reorganized Debtors.
4. Priority Tax Claims.
Priority Tax Claims are those Claims for taxes entitled to priority in
payment under Section 507(a)(8) of the Bankruptcy Code. Except to the extent
that a holder of an Allowed Priority Tax Claim agrees to a different treatment
of such Allowed Priority Tax Claim, the Reorganized Debtors will, at their sole
option, pay to each holder of an Allowed Priority Tax Claim (i) Cash in an
amount equal to such Allowed Priority Tax Claim on the later of the Effective
Date and the date on which such Claim becomes an Allowed Priority Tax Claim, or
as soon thereafter as is practicable, (ii) deferred Cash payments made on the
last Business Day of every three-month period following the Effective Date, over
a period not exceeding six (6) years after the date of assessment of the tax on
which such Claim is based, totaling the principal amount of such Allowed Claim,
plus simple interest on any outstanding balance from the Effective Date
calculated at the interest rate available on ninety (90) day United States
Treasuries on the Effective Date or (iii) such other treatment agreed to by the
Allowed Priority Tax Claim holder and the Debtors. All Allowed Priority Tax
Claims which are not due and payable on or before the Effective Date will be
paid in the ordinary course of business in accordance with the terms thereof or
accorded such other treatment as may be permitted under Section 1129(a)(9) of
the Bankruptcy Code.
5. Full Settlement.
The distributions provided for in Section 2.2 of the Plan are in full
settlement, release and discharge of all Administrative Expense Claims. The
distributions provided for in Section 2.3 of the Plan are in full settlement,
release and discharge of all Professional Compensation and Reimbursement Claims.
The distributions provided for in Section 2.4 of the Plan are in full
settlement, release and discharge of all Priority Tax Claims.
6. Class 1 - Priority Non-Tax Claims.
Class 1 consists of all Allowed Priority Non-Tax Claims. Class 1 is
unimpaired. On the Effective Date, except to the extent that the Debtors and a
holder of an Allowed Priority Non-Tax Claim agree to a different treatment of
such Allowed Priority Non-Tax Claim, each holder of an Allowed Priority Non-Tax
Claim will, at the Reorganized Debtors' election, receive (i) Cash in the amount
of such Allowed Priority Non-Tax Claim in accordance with Section 1129(a)(9) of
the Bankruptcy Code and/or (ii) such other treatment required to render such
Claim unimpaired pursuant to Section 1124 of the Bankruptcy Code. All Allowed
Priority Non-Tax Claims which are not due and payable on or before the Effective
Date will be paid in the
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ordinary course of business in accordance with the terms thereof. Any default
with respect to any Class 1 Claim that existed immediately prior to the Petition
Date will be deemed cured upon the Effective Date.
7. Class 2 - Secured Bank Claims.
Class 2 consists of all Allowed Secured Bank Claims. The Secured Bank
Claims are deemed Allowed pursuant to the Plan. Class 2 is impaired. The Allowed
Claims in Class 2 will be treated as follows: on the Effective Date, Reorganized
NTELOS and the Reorganized NTELOS Subsidiaries shall enter into (i) the New
Credit Agreement on substantially the terms set forth in the Exit Financing Term
Sheet and (ii) the Modified Hedge Agreements. Accordingly, from and after the
Effective Date, (i) the Pre-Petition Secured Lenders' Claims against the Debtors
in respect of the Pre-Petition Credit Agreement and the rights and obligations
of the Reorganized Debtors and the Pre-Petition Secured Lenders shall be
governed by the terms of the New Credit Agreement, and (ii) the Secured Hedge
Parties' Claims against the Debtors in respect of the Pre-Petition Hedge
Agreements and the rights and obligations of the Reorganized Debtors and the
Secured Hedge Parties shall be governed by the terms of the Modified Hedge
Agreements.
8. Class 3 - FCC Secured Claims.
Class 3 consists of all Allowed FCC Secured Claims. Class 3 is
unimpaired. Each Allowed Claim in Class 3 will be treated as follows: (i) the
Plan will leave unaltered the legal, equitable and contractual rights to which
such Claim entitles the holder or (ii) notwithstanding any contractual provision
or applicable law that entitles the holder of an Allowed Claim in Class 3 to
demand or receive payment of such Claim prior to the stated maturity of such
Claims from and after the occurrence of a default, such Allowed Claim in Class 3
will be reinstated and rendered unimpaired in accordance with Section 1124(2) of
the Bankruptcy Code.
9. Class 4 - RUS/RTB Secured Claims.
Class 4 consists of all Allowed RUS/RTB Secured Claims. Class 4 is
unimpaired. Each Allowed Claim in Class 4 will be treated as follows: (i) the
Plan will leave unaltered the legal, equitable and contractual rights to which
such Claim entitles the holder or (ii) notwithstanding any contractual provision
or applicable law that entitles the holder of an Allowed Claim in Class 4 to
demand or receive payment of such Claim prior to the stated maturity of such
Claims from and after the occurrence of a default, such Allowed Claim in Class 4
will be reinstated and rendered unimpaired in accordance with Section 1124(2) of
the Bankruptcy Code.
10. Class 5 - Senior Debt Claims
Class 5 consists of all Senior Debt Claims which will be Allowed in
the amount of [$296,694,261]. Class 5 is impaired. On the Effective Date or as
soon as practicable thereafter, each holder of an Allowed Senior Debt Claim as
of the Distribution Record Date will receive its Ratable Proportion of the
Senior Debt New Common Stock Distribution Amount. Any securities, notes,
instruments or documents evidencing the Senior Debt Claims will be cancelled on
the Effective Date.
To the extent, if any, that the classification and manner of
satisfying Claims under the Plan does not take into consideration all
contractual, legal and equitable subordination rights
32
that holders of Allowed Senior Debt Claims may have against holders of Claims or
Equity Interests with respect to distributions made pursuant to the Plan, each
holder of an Allowed Senior Debt Claim will be deemed, upon the Effective Date,
to have waived all contractual, legal or equitable subordination rights that
such holder might have, including, without limitation, any such rights arising
out of the Senior Notes, the Subordinated Notes, the Senior Indenture, the
Subordinated Indenture or otherwise.
The payments and distributions to be made under the Plan to holders of
Senior Notes shall be made to the Senior Indenture Trustee or a Disbursing Agent
selected by NTELOS and the Creditors' Committee, which shall transmit such
payments and distributions to holders of such Allowed Senior Debt Claims. In
addition, on the Effective Date, the Debtors will pay to the Senior Indenture
Trustee an amount equal to the reasonable fees and expenses incurred by the
Senior Indenture Trustee on behalf of the holders of the Senior Notes during the
period up to and including the Effective Date (such amount not to exceed
$[75,000]). In exchange, the Senior Indenture Trustee will be deemed to have
waived any entitlement to any Lien, claim or interest granted under the Senior
Indenture (including those described in the preceding paragraph of this section)
with respect to any distributions made to holders of Senior Debt Claims under
the Plan.
11. Class 6 - Convenience Claims.
Class 6 consists of Convenience Claims. Class 6 is unimpaired. Each
holder of a Convenience Claim will be rendered unimpaired in accordance with
Section 1124 of the Bankruptcy Code. All Convenience Claims which are not due
and payable on or before the Effective Date will be paid in the ordinary course
of business in accordance with the terms thereof.
In any event, all Convenience Claims in Class 6 that have become due
and payable on or before the Effective Date (unless previously paid) will
receive on account of and in full and complete settlement, release and discharge
of such Convenience Class Claim, Cash on, or as soon as practicable after the
Effective Date, or at such other time as is mutually agreed upon by the Debtors
or the Reorganized Debtors, as the case may be, and the holder of such Claim, or
if not due and payable on the Effective Date, such Claim will be reinstated and
paid in full in accordance with its terms or otherwise rendered unimpaired.
12. Class 7 - General Unsecured Claims.
Class 7 consists of all Allowed General Unsecured Claims. Each holder
of an Allowed General Unsecured Claim will receive on account of and in full and
complete settlement, release and discharge of such General Unsecured Claim, Cash
equal to 68% of such holder's Allowed General Unsecured Claim to be distributed
as follows:
(i) on the Effective Date, Cash equal to 30.6% of such holder's
Allowed General Unsecured Claim;
(ii) on the first anniversary of the Effective Date, Cash equal
to 20.4% of such holder's Allowed General Unsecured Claim; and
(iii) on the second anniversary of the Effective Date, Cash equal
to 17.0% of such holder's Allowed General Unsecured Claim.
33
13. Class 8 - Intercompany Claims.
Class 8 consists of Intercompany Claims. Class 8 is unimpaired. The
legal equitable and contractual rights of the holders of Class 8 Claims are
unaltered by the Plan.
14. Class 9 - Subordinated Claims.
Class 9 consists of all Subordinated Claims which shall be Allowed in
the amount of [$102,053,750]. Class 9 is impaired. On the Effective Date or as
soon as practicable thereafter, each holder of an Allowed Subordinated Claim as
of the Distribution Record Date will receive its Ratable Proportion of the
Subordinated Note New Common Stock Distribution Amount. Any securities, notes,
instruments or documents evidencing the Subordinated Claims will be cancelled on
the Effective Date.
The payments and distributions to be made under the Plan to holders of
Subordinated Notes will be made to the Subordinated Indenture Trustee, which
will transmit such payments and distributions to holders of such Allowed
Subordinated Claims.
15. Class 10 - Old Preferred Stock Interests.
Class 10 consists of all Allowed Old Preferred Stock Interests. Class
10 is impaired. On the Effective Date or as soon as practicable thereafter, each
holder of an Allowed Old Preferred Stock Interest as of the Distribution Record
Date will receive its Ratable Proportion of New Warrants. The Old Preferred
Stock Interests will be cancelled on the Effective Date.
16. Class 11 - Subsidiary Interests.
Class 11 consists of Subsidiary Interests. Class 11 is unimpaired. The
legal, equitable and contractual rights of the holders of Subsidiary Interests
are unaltered by the Plan.
17. Class 12 - Old Common Stock Interests.
Class 12 consists of all Old Common Stock Interests. Class 12 is
impaired. The Old Common Stock will be cancelled on the Effective Date and no
distribution will be made in respect thereof.
18. Class 13 - Other Equity Interests and Securities Claims.
Class 13 consists of all Other Equity Interests and Securities Claims.
Class 13 is impaired. The Other Equity Interests and Securities Claims will be
cancelled on the Effective Date and of no further force and effect and no
distribution will be made in respect thereof.
B. Securities to be Issued Under the Plan.
1. New Common Stock.
On the Effective Date, the Senior Notes, the Subordinated Notes, any
documents and instruments which evidence the Senior Debt Claims and the
Subordinated Claims, the Old Preferred Stock Interests, Old Common Stock
Interests and the Other Equity Interests and Securities Claims will (a) be
cancelled and (b) have no effect other than the right to participate in the
distributions, if any, provided under the Plan in respect of such Claims and
Equity Interests.
34
Commencing on the Effective Date, Reorganized NTELOS will distribute New Common
Stock to holders of Allowed Senior Debt Claims and Allowed Subordinated Claims
and in accordance with Section 6.7 of the Plan. Pursuant to the New Articles of
Incorporation, Reorganized NTELOS is authorized to issue no less than 16,000,000
shares of New Common Stock.
Holders of the New Common Stock will be entitled:
. to one vote per share on all matters submitted to a vote of the
shareholders;
. to receive, on a pro rata basis, dividends and distributions, if
any, as the Board of Directors may declare out of legally
available funds; and
. upon a liquidation, dissolution or winding-up of Reorganized
NTELOS, to share equally and ratably in any assets remaining
after the payment of all debt and other liabilities, subject to
any prior rights of holders of the New Notes.
Holders of New Common Stock will not have any preemptive, cumulative
voting, subscription, conversion, redemption or sinking fund rights. The New
Common Stock will not be subject to future calls or assessments by Reorganized
NTELOS.
Subject to the rights of the holders of the New Notes described below,
holders of a plurality of the shares of New Common Stock voting for the election
of directors will be able to elect all of the directors, since the holders of
the New Common Stock will not have cumulative voting rights. For a more detailed
description of the process by which the initial Board of Directors of
Reorganized NTELOS will be selected, see Section VIII.A, "Management of
Reorganized NTELOS - Board of Directors and Management."
2. New Warrants.
On the Effective Date, Reorganized NTELOS will issue New Warrants. The
New Warrants collectively will represent 3.0% of the fully-diluted New Common
Stock (475,624 shares). Each New Warrant initially will be exercisable for one
(1) share of the New Common Stock at any time for a period of five (5) years
from the Effective Date at an initial exercise price equal to 120% of the New
Common Stock Price. The New Warrants may be exercised at any time during their
five-year term by the surrender of the specified exercise documents and the
payment of the exercise price in Cash.
C. New Investment.
1. Subscription Agreement.
The Participating Noteholders have committed pursuant to the terms of
the Subscription Agreement to provide an aggregate of $75.0 million in Cash to
Reorganized NTELOS for the purchase of New Notes issuable under the Subscription
Agreement. A copy of the Subscription Agreement is attached hereto as Exhibit F.
As described below, the Purchase Agreement, upon execution by NTELOS and the
Participating Noteholders, will incorporate and supersede the terms of the
Subscription Agreement.
35
The Subscription Agreement contains a number of conditions to the
obligations of the Participating Noteholders to provide the funds described
above. These conditions include the following:
(i) NTELOS shall not have failed to perform any of its
obligations under the Subscription Agreement or breached any
agreements set forth therein;
(ii) a Plan conforming to the terms described in the Subscription
Agreement (a "Conforming Plan") (and accompanying disclosure
statement), providing for a New Credit Agreement conforming in all
material respects with the Exit Financing Term Sheet, and in all other
respects reasonably satisfactory to the Participating Noteholders,
shall have been filed with the Bankruptcy Court on or before May 31,
2003, and the disclosure statement in respect of such final Conforming
Plan reasonably acceptable to the Participating Noteholders shall have
been approved by the Bankruptcy Court on or before August 15, 2003;
(iii) a Conforming Plan shall have been confirmed by a final order
of the Bankruptcy Court (which final order shall be reasonably
acceptable to the Participating Noteholders) on or before September
30, 2003, with the Effective Date occurring on or before October 15,
2003;
(iv) a Conforming Plan shall provide for the cancellation of all
Senior Notes, Subordinated Notes, indentures, debt for borrowed money
and Equity Interests (provided that they may be entitled to receive
equity securities of the Reorganized Debtors), subject to certain
exceptions, including the New Credit Agreement and New Notes, and
certain other limited indebtedness following the Effective Date.
(v) the Bankruptcy Court shall not have denied at any time
confirmation of a Conforming Plan, subject to certain exceptions;
(vi) there shall not have been a material modification of a
Conforming Plan not acceptable to the Participating Noteholders in
their sole discretion, subject to certain exceptions;
(vii) the Debtors, committee approved by the Bankruptcy Court or
United States Trustee shall not have filed (i) a plan of
reorganization or plan of liquidation that is not a Conforming Plan,
(ii) any motion or pleading materially inconsistent with confirmation
or consummation of a Conforming Plan, subject to certain exceptions,
or (iii) a motion seeking (and the Bankruptcy Court shall not have
entered) an order appointing a trustee, officer or examiner with power
beyond the duty to investigate and report, as set forth in subclauses
(3) and (4) and clause (a) of section 1106 of the Bankruptcy Code, in
the Chapter 11 Case;
(viii) no event of default shall have occurred under the DIP Credit
Agreement that was not waived by the DIP Lenders;
(ix) the Plan Support Agreement shall not have been amended,
modified or supplemented in manner adverse to NTELOS or the
Participating Noteholders, without the prior written consent of the
Participating Noteholders;
36
(x) the New Credit Agreement, conforming in all material
respects with the Exit Financing Term Sheet, shall have become
effective on the Effective Date;
(xi) the New Notes to be purchased and sold on the Effective Date
shall conform in all material respects with the terms in the
Subscription Agreement;
(xii) NTELOS and the Participating Noteholders shall have executed
and delivered such other documents as are customary for such
transactions, including, without limitation, the Purchase Agreement
containing customary representations, warranties, covenants
(including, without limitation, covenants of NTELOS providing for
securities registration rights with respect to the New Notes and the
New Common Stock) and closing conditions (with customary exceptions
relating to the filing and continuation of the Chapter 11 Case), which
documents shall be satisfactory to the Participating Noteholders and
NTELOS;
(xiii) no preliminary or permanent injunction or other order by any
governmental entity which prevents the sale and issuance of the New
Notes shall have been issued and remain in effect;
(xiv) no statute, rule, regulation or other law shall have been
enacted by any governmental entity which would prevent or make illegal
the sale and issuance of the New Notes;
(xv) all necessary or required consents, orders, approvals or
authorizations of, notifications or submissions to, filings with,
licenses or permits from, or exemptions or waivers by, any
governmental entity, stock exchange or other person shall have been
made or obtained, except where the failure by a party to make or
obtain any of the foregoing would not have a material adverse effect
on (i) the properties, assets, operations, business, prospects,
results of operations or financial condition of the Debtors, taken as
a whole, or (ii) such party's ability to perform its obligations under
the Subscription Agreement;
(xvi) the Participating Noteholders shall have purchased,
severally and not jointly, at least $65.0 million aggregate principal
amount of the New Notes on the terms set forth in the Subscription
Agreement; and
(xvii) since December 31, 2002, no event, damage to or destruction
or loss of any property or asset of the Debtors and no condition or
set of circumstances shall exist that, individually or in the
aggregate, could have or has had a material adverse effect on the
properties, assets, operations, business, prospects, results of
operations or financial condition of the Debtors, taken as a whole, or
on the ability of NTELOS to perform its obligations under the
Subscription Agreement, subject to certain exceptions.
2. New Notes.
Pursuant to the terms of the Subscription Agreement, $75.0 million
aggregate principal amount of New Notes (75,000 New Notes each with a principal
amount of $1,000.00) will be issued and sold on the Effective Date to the
Participating Noteholders. As of the Effective Date, the outstanding New Notes
will represent, on an as converted basis, 27.5% of the issued and outstanding
New Common Stock. The terms of the New Notes to be issued to the
37
Participating Noteholders are set forth in the New Indenture, the form of which
will be filed with the Bankruptcy Court at least fourteen (14) Business Days
prior to the Confirmation Hearing and be annexed to the Plan Supplement as
Exhibit 3.
The New Notes will be unsecured and otherwise rank pari passu with all
other senior debt of Reorganized NTELOS. The New Notes will accrue interest at
the rate of 9.0%, payable semi-annually. Interest will accrue and be cumulative
from the date of issuance of the New Notes and will be payable in Cash. The New
Notes will mature 10 years from the date of issuance.
The New Notes will be redeemable by Reorganized NTELOS (i) at any time
upon sixty (60) days notice of such redemption during (a) the two-year period
following the Effective Date at a redemption price equal to an amount that is
109.0% of the face value of the New Notes; (b) the third year following the
Effective Date at a redemption price equal to an amount that is 104.5% of the
face value of the New Notes and (ii) at any time during the period thereafter
with sixty (60) days notice at a redemption price equal to an amount that is
100.0% of the face value of the New Notes. Any redemption of the New Notes shall
permit the holders of New Notes to exercise their conversion rights within a
notice period of not less than sixty (60) days.
As of the Effective Date, an aggregate principal amount of New Notes
of $75.0 million, on an as converted basis, will represent 27.5% of the New
Common Stock (3,793,103 shares) prior to dilution for shares of New Common Stock
issuable under the Stock Option Incentive Plan and those shares of New Common
Stock issuable upon exercise of the New Warrants. Each New Note will be
convertible, in whole or in part, at any time after it is issued, at the option
of the holder, into 50.5747 shares of New Common Stock. Each New Note will have
an initial conversion price per share set at the New Common Stock Price.
In consideration for purchasing the New Notes, the Participating
Noteholders will receive shares of New Common Stock issuable under the
Subscription Agreement.
D. Means of Implementation of the Plan.
1. Continued Existence.
The Debtors will continue to exist after the Effective Date as
separate corporate entities, limited liability companies, limited liability
partnerships and partnerships, in accordance with the applicable law in the
respective jurisdictions in which they are incorporated or organized and
pursuant to their respective certificates, articles of incorporation, operating
agreements, partnership agreements, and by-laws in effect prior to the Effective
Date, except to the extent such certificates, articles of incorporation,
operating agreements, partnership agreements and by-laws are amended by the
Plan.
2. Amended and Restated Articles of Incorporation.
On the Effective Date, or as soon thereafter as is practicable,
Reorganized NTELOS will file with the Clerk of the Virginia State Corporation
Commission in accordance with Section 13.1-604.1 of the Virginia Code, the New
Articles of Incorporation which will, among other things, authorize no less than
16,000,000 shares of New Common Stock, all shares of such New Common Stock
having equal rights with respect to voting and distributions. On the Effective
Date, the New Articles of Incorporation will become effective subject to the
requirements of Section 13.1-605 of the Virginia Code, and all other matters
provided under the
38
Plan involving the corporate structure of Reorganized NTELOS, or corporate
action by it, will be deemed to have occurred and will be in effect from and
after the Effective Date pursuant to Section 13.1-605 of the Virginia Code.
3. Corporate Action.
a. Board of Directors of Reorganized NTELOS.
On the Effective Date, the operation of Reorganized NTELOS will
become the general responsibility of its Board of Directors, subject to, and in
accordance with, the New Articles of Incorporation and the New By-Laws. The
initial Board of Directors of Reorganized NTELOS will consist of seven (7)
members to be selected as follows: (i) the majority holders of the Senior Notes
will select four (4) members, two (2) of whom will be persons independent of the
Participating Noteholders and NTELOS, and (ii) the majority holders of the
Senior Notes and NTELOS will select jointly two (2) members, which members may
be members of the Board of Directors of NTELOS. The seventh member of the
initial Board of Directors of Reorganized NTELOS will be the chief executive
officer of Reorganized NTELOS. The members of the initial Board of Directors of
Reorganized NTELOS will be approved by the Board of Directors of NTELOS. The
initial members of the Board of Directors of Reorganized NTELOS will be
disclosed in a filing to be made with the Bankruptcy Court fourteen (14)
Business Days prior to the Confirmation Hearing. The directors of NTELOS
immediately prior to the Effective Date will be deemed to have resigned as of
the Effective Date and will be replaced by the Board of Directors of Reorganized
NTELOS.
b. Executive Officers of Reorganized NTELOS.
The initial executive officers of Reorganized NTELOS are
disclosed in this Disclosure Statement. The selection of officers of Reorganized
NTELOS after the Effective Date will be as provided in the New Articles of
Incorporation and New By-Laws. See Section VIII.A.2. "Management of Reorganized
NTELOS - Board of Directors and Management - Identity of Executive Officers"
4. New Credit Agreement.
The entry of Reorganized NTELOS into the New Credit Agreement with the
Pre-Petition Secured Lenders on the terms set forth in the Exit Financing Term
Sheet is authorized without further act or action under applicable law,
regulation, order or rule. Reorganized NTELOS is authorized to enter into such
agreements and documents and issue such instruments as may be necessary to
effectuate the entry of Reorganized NTELOS and the Reorganized Debtors into such
New Credit Agreement, in form and substance reasonably acceptable to the
Pre-Petition Secured Lenders.
On April 11, 2003, as the means to consummate NTELOS' comprehensive
financial restructuring, NTELOS and certain Pre-Petition Secured Lenders agreed
on certain terms of the New Credit Agreement. The terms of the proposed
amendment and restatement are set forth in the Exit Financing Term Sheet, which
is annexed hereto as Exhibit H. The terms set forth in the Exit Financing Term
Sheet do not constitute a commitment by the Pre-Petition Secured Lenders to
amend the Pre-Petition Credit Agreement. Those terms are subject to the
negotiation, execution and delivery of a New Credit Agreement and other
definitive credit documents by the Pre-Petition Secured Lenders and NTELOS. The
New Credit Agreement shall be reasonably acceptable to the Creditors' Committee.
Certain of the actual conditions,
39
covenants and other terms of the New Credit Agreement may differ from, or be in
addition to, those set forth in the Exit Financing Term Sheet. The following
summary of the material provisions of the Exit Financing Term Sheet does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Exit Financing Term Sheet.
The Exit Financing Term Sheet contemplates that the Pre-Petition
Secured Lenders would agree to covenants under the Pre-Petition Credit Agreement
as reflected therein. The revolver commitment would be $36.0 million, with a
$5.0 million letter of credit sublimit. The Pre-Petition Secured Lenders would
receive a reinstatement commitment fee at twenty five (25) basis points on the
$36.0 million Revolver, Tranche A loan and Tranche B loan.
The interest rates applicable to the Revolver and Tranche A loan,
Tranche B loan and Tranche C loan shall be as follows:
Tranche A & Revolver: Base Rate plus 2.25%
LIBOR plus 3.25%
Tranche B: Base Rate plus 3.00%
LIBOR plus 4.00%
Tranche C : Base Rate plus 1.75%
LIBOR plus 2.75%
On and after the day that is three (3) months after closing of the New
Credit Agreement, the interest rate margins will be reduced 25 bps for each of
the Revolver, Tranche A and Tranche B loans when NTELOS' total leverage ratio is
less than 3.0:1.0, following certification by the chief financial officer.
The obligation of the Pre-Petition Secured Lenders to enter into the
New Credit Agreement will be subject to the conditions, among others, that the
Plan will have been consummated and that the Participating Noteholders fulfill
their obligations under the Purchase Agreement.
5. Modified Hedge Agreements.
The entry of Reorganized NTELOS into the Modified Hedge Agreements
with the Secured Hedge Parties to continue existing hedge arrangements is
authorized without further act or action under applicable law, regulation, order
or rule. Reorganized NTELOS is hereby authorized to enter into such agreements
and documents and issue such instruments as may be necessary to effectuate its
entry into such Modified Hedge Agreements, in form and substance acceptable to
the Secured Hedge Parties.
6. Cancellation of Existing Securities and Agreements.
On the Effective Date, the Senior Notes, the Subordinated Notes, any
documents and instruments which evidence the Senior Debt Claims and the
Subordinated Claims, the Old Preferred Stock Interests, the Old Common Stock
Interests and the Other Equity Interests and Securities Claims will (a) be
cancelled and (b) have no effect other than the right to participate in the
distributions, if any, provided under the Plan in respect of such Claims and
Equity Interests. Except for purposes of effectuating the distributions under
the Plan on the Effective Date and to
40
allow the Senior Indenture Trustee and the Subordinated Indenture Trustee to
retain all Liens pursuant to the terms of the Senior Indenture and the
Subordinated Indenture with respect to distributions under the Plan, the Senior
Indenture and the Subordinated Indenture will be cancelled and discharged
pursuant to Section 1141 of the Bankruptcy Code. Except as otherwise provided in
the Plan, NTELOS, on the one hand, and the Senior Indenture Trustee or
Subordinated Indenture Trustee, on the other hand, will be released from any and
all obligations under the Senior Indenture or Subordinated Indenture except with
respect to the distributions required to be made to the Senior Indenture Trustee
or Subordinated Indenture Trustee as provided in the Plan or with respect to
such other rights of the Senior Indenture Trustee or Subordinated Indenture
Trustee that, pursuant to the terms of the Senior Indenture or Subordinated
Indenture, survive the termination of the Senior Indenture or Subordinated
Indenture.
7. Issuance of New Securities.
The issuance of New Common Stock, New Notes and New Warrants is hereby
authorized without further act or action under applicable law, regulation, order
or rule. Subject to the terms of the Purchase Agreement, Reorganized NTELOS is
hereby authorized to enter into such agreements and documents and issue such
instruments as may be necessary to effectuate the issuance of New Common Stock,
New Notes and New Warrants, in each case reasonably acceptable to the
Pre-Petition Secured Lenders, including the New Indenture and the New Warrant
Agreement. To the maximum extent provided by Section 1145 of the Bankruptcy Code
and applicable nonbankruptcy laws, the shares of New Common Stock and New
Warrants issued pursuant to the Plan are exempt from registration under the
Securities Act and any state or local law requiring registration for offer or
sale of a security.
8. Shareholders' Agreement.
Pursuant to the terms of the Plan, as of the Effective Date,
Reorganized NTELOS and the holders of the New Common Stock likely will be bound
by a Shareholders' Agreement that will limit, restrict or prohibit the ability
of holders of New Common Stock to sell or otherwise transfer such securities for
a specified or indefinite period of time. It is anticipated that the
Shareholders' Agreement will contain such provisions (but may contain different
or additional provisions), including transfer restrictions with respect to the
New Common Stock, as set forth on Exhibit I hereto.
9. Registration Rights Agreements.
a. New Common Stock Registration Rights Agreement.
As of the Effective Date, Reorganized NTELOS and certain holders
of New Common Stock will enter into the New Common Stock Registration Rights
Agreement, the form of which will be filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 5. The New Common Stock Registration Rights
Agreement will provide that such holders of New Common Stock will be entitled to
certain demand registrations and piggyback rights for the resale of their shares
of New Common Stock (subject to customary limitations).
41
b. New Notes Registration Rights Agreement.
As of the Effective Date, Reorganized NTELOS and the
Participating Noteholders will enter into the New Notes Registration Rights
Agreement, the form of which will be filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 6, providing for specified registration rights
with respect to the New Notes issued on the Effective Date and the New Common
Stock issuable upon conversion of such securities held by such holders. The New
Notes Registration Rights Agreement will provide that the holders of those
securities will be entitled to certain demand registrations and to certain
piggyback rights for the resale of their securities (subject to customary
limitations).
10. New Investment.
Pursuant to the terms of the Subscription Agreement, the Participating
Noteholders have agreed to purchase $75.0 million aggregate principal amount of
the New Notes and 37,931 shares of New Common Stock (based on the New Common
Stock Price) issuable under the Subscription Agreement, thereby providing
Reorganized NTELOS with $75.0 million of funding through the New Investment. The
proceeds of the New Investment will be used (i) to pay in full all DIP Lender
Claims on the Effective Date, unless the DIP Lenders and NTELOS or Reorganized
NTELOS, as the case may be, agree or will have agreed to other treatment of such
Claim, (ii) to pay in full the revolving loans then outstanding under the
Pre-Petition Credit Agreement upon the Effective Date in accordance with the
Exit Financing Term Sheet, and (iii) to fund the operations of the Reorganized
Debtors on a going forward basis including obligations under the Plan. For a
more detailed discussion of the New Notes, see Section VI.C.2, "The Joint Plan
of Reorganization - New Investment - New Notes."
11. Termination of Subordination.
The classification and manner of satisfying all Claims and Equity
Interests under the Plan and the distributions under the Plan take into
consideration all contractual, legal and equitable subordination rights, whether
arising under any agreement, general principles of equitable subordination,
Section 510 of the Bankruptcy Code or otherwise, that a holder of a Claim or
Equity Interest may have against another holder of a Claim or Equity Interest
with respect to any distribution made pursuant to the Plan. The Plan
incorporates a proposed compromise and settlement relating to the operation of
the subordination provisions contained in the Subordinated Indenture. The
provisions of the Plan relating to the distribution of New Common Stock to
holders of Senior Debt Claims (Class 5) and Subordinated Claims (Class 9)
reflect this compromise and settlement which, upon the Effective Date, will be
binding upon the Debtors, all creditors and all persons and governmental units
receiving any payments or other distributions under the Plan. On the Effective
Date, all contractual, legal or equitable subordination rights that such holder
may have with respect to any distribution to be made pursuant to the Plan will
be deemed to be waived, discharged and terminated, and all actions related to
the enforcement of such subordination rights will be permanently enjoined.
Accordingly, distributions pursuant to the Plan to holders of Allowed Claims and
Allowed Equity Interests will not be subject to payment to a beneficiary of such
terminated subordination rights, or to levy, garnishment, attachment or other
legal process by any beneficiary of such terminated subordination rights.
42
12. Cash Payments by the Debtors.
Unless otherwise provided in the Plan, on the Effective Date, the
Reorganized Debtors shall pay holders of Allowed Claims such Cash as is
necessary to make the Cash distributions and any other Cash payments required
thereunder. All Cash necessary for the Reorganized Debtors to make payments
pursuant to the Plan shall be obtained from existing Cash balances, proceeds
from the sale of the New Notes, the operations of the Debtors or Reorganized
Debtors or post-Confirmation borrowing under the available facility of the
Debtors or Reorganized Debtors, including under the New Credit Agreement, to the
extent permitted thereunder. Reorganized NTELOS may also make such payments
using Cash received from the NTELOS Subsidiaries in the ordinary course of
business.
13. Bar Date for Administrative Expense Claims.
a. Pre-Effective Date Claims and Expenses.
No proof of Administrative Expense Claim or application for
payment of an Administrative Expense Claim need be filed for the allowance of
any of the following types of Claims (a) expenses of liabilities incurred in the
ordinary course of the Reorganized Debtors' businesses on or after the Effective
Date, (b) Administrative Expense Claims held by trade vendors where such
administrative liability was incurred in the ordinary course of the Debtors' and
such creditors' businesses after the Petition Date, (c) Professional
Compensation and Reimbursement Claims, (d) DIP Lender Claims, (e) claims of the
Pre-Petition Secured Lenders arising from the DIP Credit Agreement or Final DIP
Order, or (f) fees of the United States Trustee arising under 28 U.S.C. Section
1930.
TO BE ELIGIBLE FOR PAYMENT UNDER THE PLAN, ALL PERSONS AND GOVERNMENTAL UNITS
ASSERTING ADMINISTRATIVE EXPENSE CLAIMS OF ANY KIND NOT DESCRIBED ABOVE ARISING
ON OR AFTER THE PETITION DATE MUST BE FILED AND SERVE PROOFS OF SUCH CLAIMS
PURSUANT TO THE PROCEDURES IN THE CONFIRMATION ORDER OR NOTICE OF ENTRY OF
CONFIRMATION ORDER, NO LATER THAN 60 DAYS AFTER THE EFFECTIVE DATE.
Expenses and liabilities incurred on or after the Effective Date
are not subject to the Plan or the treatment of Claims described therein. All of
the Administrative Expense Claims described above other than Professional
Compensation and Reimbursement Claims will be paid by the Reorganized Debtors in
the ordinary course of business.
b. Effect of Failure to File Timely Claim or Requests for Payment.
Any request for payment of an Administrative Expense Claim that
is not exempt from the Bar Date and that is not filed by the applicable deadline
set forth above will be barred. Any persons or governmental units that fail to
file a proof of Administrative Expense Claim or request for payment thereof on
or before the applicable deadline set forth above as required under the Plan
will be forever barred from asserting such Claim against the Debtors or the
Reorganized Debtors or their property and the holder thereof will be enjoined
from commencing or continuing any action, employment of process or act to
collect, offset or recover such Administrative Expense Claim.
43
14. Allocation of Plan Distributions Between Principal and Interest.
To the extent that any Allowed Claim entitled to a distribution under
the Plan is composed of indebtedness and accrued but unpaid interest thereon,
such distribution will, to the extent permitted by applicable law, be allocated
for federal income tax purposes to the principal amount of the Claim first and
then, to the extent the consideration exceeds the principal amount of the Claim,
to the portion of such Claim representing accrued but unpaid interest.
15. Limited Substantive Consolidation.
The Plan is premised upon the limited substantive consolidation of the
Debtors solely for purposes of actions associated with confirmation and
consummation of the Plan, including but not limited to voting, confirmation and
distribution. The Plan does not contemplate the merger or dissolution of any of
the Debtors or the transfer or commingling of any assets of the Debtors, except
to accomplish the distributions under the Plan, other than distributions on
account of Intercompany Claims, which will be made in the ordinary course of
business following the Effective Date. Such limited substantive consolidation
will not affect (other than for Plan voting, treatment, and/or distribution
purposes) (i) the legal and corporate structures of the Reorganized Debtors,
(ii) Subsidiary Interests, or (iii) pre- and post-Petition Date guarantees that
are required to be maintained (x) in connection with the executory contracts
assumed herein, (y) in connection with the terms of the New Credit Agreement,
and (z) pursuant to the terms and conditions contained herein.
The Plan will serve as a motion seeking entry of an order
substantively consolidating the Chapter 11 cases of the Debtors, as described
herein. In determining whether substantive consolidation is appropriate, courts
have not employed a "bright-line" test but rather have identified and developed
various factors to be considered. The principal factors relied upon in finding
grounds sufficient to warrant substantive consolidation include, but are not
limited to:
. Common ownership or control of the debtor and the entities sought to
be consolidated;
. Identical or overlapping officers or directors among the debtor and
the entities sought to be consolidated;
. Filing of tax returns and financial reporting on a consolidated basis;
. Presence of numerous inter-affiliate debts or guarantees among the
affiliates sought to be consolidated if such debts would be difficult
or costly to untangle;
. Undercapitalization of affiliates in relation to their business
undertakings;
. Commingling of assets or business functions among the debtor and the
entities sought to be consolidated;
. Economic benefits or potential profitability of consolidating the
debtor and its affiliates;
. Degree of difficulty in segregating the debtor's assets from those of
its affiliates;
44
. Absence of reliance by creditors on the credit of the separate
entities to be consolidated;
. Absence of inequitable prejudice to creditors resulting from
consolidation; and
. Whether the entities to be consolidated are debtors.
No single factor is determinative, nor is it necessary that all factors exist to
warrant substantive consolidation.
The Debtors submit that limited substantive consolidation of the
Debtors solely for purposes of actions associated with confirmation and
consummation of the Plan, including but not limited to voting, confirmation and
distribution, is warranted. Unless an objection to substantive consolidation is
made in writing by any creditor affected by the Plan as herein provided on or
before five (5) days prior to the date that is fixed by the Bankruptcy Court,
the Substantive Consolidation Order (which may be the Confirmation Order) may be
entered by the Bankruptcy Court. In the event that any such objections are
timely filed, a hearing with respect thereto will be scheduled before the Court,
which hearing may, but need not, coincide with the Confirmation Hearing. The
Debtors reserve the right to present evidence or other information sufficient to
meet the applicable standards for substantive consolidation at the time of such
hearing.
16. Employee Compensation and Benefit Plans.
Except and to the extent previously assumed or rejected by Final Order
on or before the Confirmation Date, all employment and severance agreements and
policies, and all employee compensation and benefit plans, policies, and
programs of the Debtors applicable generally to their employees, as in effect on
the Effective Date, including, without limitation, all savings plans, retirement
plans, health care plans, disability plans, severance benefit plans, incentive
plans, life, accidental death, and dismemberment insurance plans, and programs
subject to Sections 1114 and 1129(a)(13) of the Bankruptcy Code, entered into
before and after the Petition Date and not since terminated, will be deemed to
be, and will be treated as though they are, executory contracts that are assumed
under the Plan, and the Debtors' obligations under such agreements and programs
will survive the Effective Date of the Plan, without prejudice to the
Reorganized Debtors' rights under applicable non-bankruptcy law to modify,
amend, or terminate the foregoing arrangements, except for (i) such executory
contracts or plans specifically rejected pursuant to the Plan, and (ii) such
executory contracts or plans as have previously been terminated, or rejected,
pursuant to a Final Order, or specifically waived by the beneficiaries of such
plans, contracts, or programs. Likewise, except and to the extent previously
assumed or rejected by Final Order on or before the Confirmation Date, certain
salary continuation agreements, supplemental retirement agreements, supplemental
retirement plans and employment agreements of retirees entered into before the
Petition Date and not since terminated, shall be deemed to be, and shall be
treated as though they are, executory contracts that are assumed under the Plan,
and the Debtors' obligations under such agreements and plans shall survive the
Effective Date of the Plan.
17. Stock Option Incentive Plan.
On the Effective Date or as soon thereafter as is practicable, the
Board of Directors of Reorganized NTELOS will implement the Stock Option
Incentive Plan. Under the Stock Option Incentive Plan, incentive options will be
granted as set forth below.
45
In light of the Chapter 11 Case, the Board of Directors of NTELOS
determined not to approve bonuses to officers of NTELOS under the 2002
Management Incentive Plan, despite the board's determination that the
performance objectives contemplated by the plan were sufficiently achieved to
authorize payment of such bonuses to all other employees. As an officer
retention measure, taking into consideration the board's decision not to approve
2002 bonuses for officers and recognizing the substantial efforts that will be
required of the officers following emergence from bankruptcy, options to
purchase the number of shares equal to 7.5% (with a portion of this 7.5% being
awarded to other key employees) of the fully-diluted New Common Stock will be
awarded by the Board of Directors of Reorganized NTELOS to officers on the
Effective Date or as soon thereafter as is practicable with an exercise price
equal to the conversion price for the New Notes. The options under the Stock
Option Incentive Plan to be awarded on the Effective Date or as soon thereafter
as practicable will be vested as to one-third (1/3) of the options subject to
the award on the grant date and as to an additional one-third (1/3) of the
options subject to the award on each of the first and second anniversaries of
the grant date. The vesting of such options will be accelerated upon a change of
control of Reorganized NTELOS.
The plan also contemplates that options to purchase shares equal to up
to 2.5% of the fully-diluted New Common Stock will be awarded thereafter at the
discretion of the Board of Directors of Reorganized NTELOS to management and
employees and, subject to compliance with applicable securities laws, other
employees of Reorganized NTELOS.
18. Distribution on Account of Executive Separation.
By order dated ______, __ 2003, the Bankruptcy Court approved NTELOS
entering into a separation agreement with J. Allen Layman, the President and
Chairman of NTELOS, effective as of June 1, 2003. On the Effective Date of the
Plan and in order to effectuate the terms of the separation agreement, as
negotiated consideration in exchange for Mr. Layman's continued agreement to
honor the non-competition provisions of Mr. Layman's pre-petition employment
agreements, Mr. Layman will receive $564,712.00 worth of New Common Stock (or
..3% of the New Common Stock as of the Effective Date without giving effect to
the conversion of the New Notes into New Common Stock), such shares to be valued
and distributed in accordance with the terms hereof. The balance of the
financial terms and conditions of the departure of Mr. Layman are set forth in
the separation agreement.
E. Provisions Governing Distributions.
1. Date of Distributions.
Unless otherwise provided in the Plan, any distributions and
deliveries to be made under the Plan will be made on the Effective Date or as
soon as practicable thereafter and deemed made on the Effective Date. In the
event that any payment or act under the Plan is required to be made or performed
on a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
and if so completed will be deemed to have been completed as of the required
date.
2. Disbursing Agents.
Distributions to holders of Senior Notes will be made by the Senior
Indenture Trustee as Disbursing Agent for such holders. Distributions to holders
of Subordinated Notes will be made by the Subordinated Indenture Trustee as
Disbursing Agent for such holders. All
46
other distributions under the Plan will be made by Reorganized NTELOS as
Disbursing Agent or such other entity designated by Reorganized NTELOS as a
Disbursing Agent. A Disbursing Agent will not be required to give any bond or
surety or other security for the performance of its duties unless otherwise
ordered by the Bankruptcy Court, and, in the event that a Disbursing Agent is so
otherwise ordered, all costs and expenses of procuring any such bond or surety
will be borne by Reorganized NTELOS.
3. Surrender of Instruments.
As a condition to receiving any distribution under the Plan, each
holder of Senior Notes, Subordinated Notes or Old Preferred Stock must surrender
such Senior Notes, Subordinated Notes or Old Preferred Stock to the appropriate
Disbursing Agent. Any holder of Senior Notes, Subordinated Notes or Old
Preferred Stock that fails to (a) surrender such instrument or (b) execute and
deliver an affidavit of loss and/or indemnity reasonably satisfactory to
Reorganized NTELOS and, if requested by Reorganized NTELOS, furnish a bond in
form, substance, and amount reasonably satisfactory to Reorganized NTELOS before
the first anniversary of the Effective Date will be deemed to have forfeited all
rights and Claims and may not participate in any distribution under the Plan.
The procedures by which holders of Allowed Claims and Allowed Equity
Interests in Class 5, Class 9 or Class 10 surrender their Voting Securities and
exchange such Voting Securities for New Common Stock or New Warrants, as
applicable, will be determined based upon the manner in which the Voting
Securities were issued and the manner in which they are held, as set forth
below.
a. Voting Securities Held in Book-Entry Form.
Voting Securities held in book-entry form through bank and broker
nominee accounts will be mandatorily exchanged for New Common Stock or New
Warrants, as applicable, through the facilities of such nominees and the systems
of the applicable securities depository or DTC.
b. Voting Securities in Physical, Registered, Certificated Form.
Each holder of Voting Securities in physical, registered,
certificated form will be required, promptly after the Confirmation Date, to
deliver its physical certificates (the "Tendered Certificates") to the
Disbursing Agent, accompanied by a properly executed Letter of Transmittal.
Any New Common Stock or New Warrants to be distributed pursuant
to the Plan on account of any Allowed Claim or Allowed Equity Interest in Class
5, Class 9 or Class 10 represented by a Voting Security held in physical,
registered, certificated form will, pending such surrender, be treated as an
undeliverable distribution pursuant to Section 7.4 of the Plan.
Signatures on a Letter of Transmittal must be guaranteed by an
Eligible Institution, unless the Voting Securities tendered pursuant thereto are
tendered for the account of an Eligible Institution. If Voting Securities are
registered in the name of a person other than the person signing the Letter of
Transmittal, the Voting Securities, in order to be tendered validly, must be
endorsed or accompanied by a properly completed power of authority, with
signature guaranteed by an Eligible Institution.
47
All questions as to the validity, form, eligibility (including
time of receipt), and acceptance of Letters of Transmittal and Tendered
Certificates will be resolved by the applicable Disbursing Agent, whose
determination will be final and binding, subject only to review by the
Bankruptcy Court upon application with due notice to any affected parties in
interest. NTELOS reserves the right, on behalf of itself and the Disbursing
Agent, to reject any and all Letters of Transmittal and Tendered Certificates
not in proper form, or Letters of Transmittal and Tendered Certificates, the
Disbursing Agent's acceptance of which would, in the opinion of the Disbursing
Agent or its counsel, be unlawful.
c. Voting Securities in Bearer Form Held Through a Broker or Bank
Participant in DTC.
Voting Securities held in bearer form through a broker or bank
participant in DTC will be mandatorily exchanged for New Common Stock or New
Warrants, as applicable, through the facilities of such nominees and the
securities depository holding such Voting Securities on behalf of the broker or
bank.
d. Delivery of New Common Stock and New Warrants in Exchange for
Voting Securities.
On the Effective Date, Reorganized NTELOS or the Disbursing Agent
will issue and authenticate the New Common Stock and the New Warrants, and will
apply to DTC to make the New Common Stock and the New Warrants eligible for
deposit at DTC. With respect to holders of Voting Securities who hold such
Voting Securities through nominee accounts at bank and broker participants in
DTC, the Disbursing Agent will deliver the New Common Stock or New Warrants, as
applicable, to DTC or to the registered address specified by DTC. DTC (or its
depositary) will return the applicable Voting Securities to the Disbursing Agent
for cancellation.
The Disbursing Agent will request that DTC effect a mandatory
exchange of the applicable Voting Securities for New Common Stock or New
Warrants, as applicable, by crediting the accounts of its participants with New
Common Stock or New Warrants, as applicable, in exchange for the Voting
Securities. On the effective date of such exchange, each DTC participant will
effect a similar exchange for accounts of the beneficial owners holding Voting
Securities through such firms. None of the Reorganized Debtors, nor the
Disbursing Agent will have any responsibility or liability in connection with
DTC's or such participants' effecting, or failing to effect, such exchanges.
Holders of Voting Securities holding such Voting Securities
outside DTC will be required to surrender their Voting Securities by delivering
them to the Disbursing Agent, along with properly executed Letters of
Transmittal (as described in Section 7.3(ii) of the Plan). The Disbursing Agent
will forward New Common Stock or New Warrants, as applicable, on account of such
Voting Securities to such holders.
4. Delivery of Distributions.
Subject to Bankruptcy Rule 9010, all distributions to any holder of an
Allowed Claim or an Allowed Equity Interest will be made at the address of such
holder as set forth on the books and records of NTELOS or its agents, unless
NTELOS has been notified in writing of a change of address. In the event that
any distribution to any holder is returned as undeliverable, the appropriate
Disbursing Agent will use reasonable efforts to determine the current address of
48
such holder, but no distribution to such holder will be made unless and until
the appropriate Disbursing Agent has determined the then current address of such
holder, at which time such distribution will be made to such holder without
interest; provided that such distributions will be deemed unclaimed property
under Section 347(b) of the Bankruptcy Code at the expiration of one (1) year
from the Effective Date. After such date, all unclaimed property or interest in
property will revert to Reorganized NTELOS, and the claim of any other holder to
such property or interest in property will be discharged and forever barred.
5. Manner of Payment Under the Plan.
At the option of the appropriate Disbursing Agent, any Cash payment to
be made thereunder may be made by a check or wire transfer or as otherwise
required or provided in applicable agreements.
6. Time Bar to Cash Payments.
Checks issued by Reorganized NTELOS on account of Allowed Claims will
be null and void if not negotiated within ninety (90) days from and after the
date of issuance thereof. Requests for reissuance of any check will be made
directly to Reorganized NTELOS by the holder of the Allowed Claim with respect
to which the check was originally issued. Any Claim in respect of a voided check
will be made on or before the first anniversary of the date of issuance. After
such date, all Claims and respective voided checks will be discharged and
forever barred and Reorganized NTELOS will retain all moneys related thereto.
7. Fractional Shares.
No fractional shares of the New Common Stock will be distributed. When
any distribution pursuant to the Plan on account of an Allowed Claim or an
Allowed Equity Interest would otherwise result in the issuance of New Common
Stock that is not a whole number of shares, the actual distribution of New
Common Stock will be rounded as follows: (i) fractions of one-half (1/2) or
greater will be rounded to the next higher whole number of shares; and (ii)
fractions of less than one-half (1/2) will be rounded to the next lower whole
number of shares. The total number of shares of New Common Stock to be
distributed to a Class of Claims or Equity Interests will be adjusted as
necessary to account for the rounding provided for in this section. No
consideration will be provided in lieu of fractional shares that are rounded
down.
8. De Minimis or Fractional Distributions.
No Cash payment of less than ten dollars ($10.00) will be made by
Reorganized NTELOS on account of any Allowed Claim, unless a specific request
therefore is made in writing by that Claim's holder, unless required by
applicable non-bankruptcy law. In the event a holder of an Allowed Claim is
entitled to distribution that is not a whole dollar number, the actual payment
or issuance made may reflect a rounding of such fractional portion of such
distribution down or up to the nearest whole dollar, but in any case will not
result in a distribution that exceeds the total distribution authorized by the
Plan for such holder.
9. Setoffs and Recoupment.
Pursuant to Sections 502(d) and 553 of the Bankruptcy Code or
applicable non-bankruptcy law, the Debtors may, but shall not be required to,
set off against, or recoup from, any Claim other than Secured Bank Claims and
DIP Lender Claims and the payments to be made
49
pursuant to the Plan in respect of such Claim (before any distribution is made
on account of such Claim), any claims, rights and causes of action of any nature
that the Debtors or Reorganized Debtors may have against the holder of such
Claim; provided, however, that neither the failure to effect a set off or
recoupment nor the allowance of any Claim thereunder will constitute a waiver or
release by the Debtor or Reorganized Debtor of any such claim, right or cause of
action that the Debtors or Reorganized Debtors may have against such holder of a
Claim.
10. Distributions After the Effective Date.
Distributions made after the Effective Date to holders of Disputed
Claims or Disputed Equity Interests that are not Allowed Claims or Allowed
Equity Interests as of the Effective Date but which later become Allowed Claims
or Allowed Equity Interests will be deemed to have been made on the Effective
Date.
11. Rights and Powers of Disbursing Agents.
a. Powers of the Disbursing Agents.
Each Disbursing Agent will be empowered to (i) effect all actions
and execute all agreements, instruments and other documents necessary to perform
its duties under the Plan, (ii) make all distributions contemplated hereby,
(iii) employ professionals to represent it with respect to its responsibilities
and (iv) exercise such other powers as may be vested in the Disbursing Agents by
order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the
Disbursing Agents to be necessary and proper to implement the provisions of the
Plan.
b. Expenses Incurred On or After the Effective Date.
Except as otherwise ordered by the Bankruptcy Court, the amount
of any reasonable fees and expenses incurred by a Disbursing Agent on or after
the Effective Date (including, without limitation, taxes) and any reasonable
compensation and expense reimbursement claims (including, without limitation,
reasonable attorney fees and expenses) made by the Disbursing Agents will be
paid in Cash by Reorganized NTELOS.
12. Retention of Ballots.
Each custodian bank, agent, broker, or other nominee for voting on
behalf of beneficial owners of Voting Securities or registered holders who are
beneficial owners of Voting Securities will retain all Ballots for possible
inspection for a period of at least two (2) years following the Effective Date.
F. Procedures for Treating Disputed, Contingent and Unliquidated Claims and
Disputed Equity Interests under the Plan
1. Disputed Claims Process.
Except as to applications for allowances of compensation and
reimbursement of expenses under Sections 328, 330 and 503 of the Bankruptcy
Code, the Debtors or Reorganized Debtors will have the exclusive right to make
and file objections to Administrative Expense Claims, Claims or Equity Interests
subsequent to the Confirmation Date. After the Confirmation Date, the
Reorganized Debtors will have the authority to compromise, settle, otherwise
resolve or withdraw any objections, without approval of the Bankruptcy Court.
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2. Estimation of Claims.
The Debtors or Reorganized Debtors may, at any time, request that the
Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to
Section 502(c) of the Bankruptcy Code regardless of whether the Debtors or
Reorganized Debtors previously have objected to such Claim or whether the
Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will
retain jurisdiction to estimate any Claim at any time during the litigation
concerning any objection to any Claims, including without limitation, during the
pendency of any appeal relating to any such objection. Subject to the provisions
of Section 502(j) of the Bankruptcy Code, in the event that the Bankruptcy Court
estimated any contingent or unliquidated Claim, the amount so estimated will
constitute the Allowed amount of such Claim. If the estimated amount constitutes
a maximum limitation on the amount of such Claim, the Debtor may pursue
supplementary proceedings to object to the allowance of such Claim. All of the
aforementioned objection, estimation and resolution procedures are intended to
be cumulative and not necessarily exclusive of one another. Claims may be
estimated and subsequently compromised, settled, withdrawn or resolved by any
mechanism approved by the Bankruptcy Court.
3. No Distributions Pending Allowance.
Notwithstanding any other provision of the Plan, except as otherwise
agreed by the Debtors or the Reorganized Debtors in their sole discretion, no
partial payments and no partial distributions will be made with respect to a
disputed Claim until the resolution of such dispute by settlement or Final
Order.
4. Distributions After Allowance.
To the extent that a Disputed Claim or Disputed Equity Interest
ultimately becomes an Allowed Claim or Allowed Equity Interest, a distribution
will be made to the holder of such Allowed Claim or Allowed Equity Interest in
accordance with the provisions of the Plan. As soon as practicable after the
date that the order or judgment of the Bankruptcy Court allowing any Disputed
Claim or Disputed Equity Interest becomes a Final Order, the applicable
Disbursing Agent will provide to the holder of such Claim or Equity Interest the
distribution to which such holder is entitled under the Plan as if the Disputed
Claim or Disputed Equity Interest had been an Allowed Claim or Allowed Equity
Interest on or prior to the Effective Date, without any post-Effective Date
interest thereon.
G. Executory Contracts and Unexpired Leases.
1. Assumption and Rejection of Executory Contracts and Unexpired Leases.
The Plan constitutes a motion by the Debtors to assume, as of the
Effective Date, all executory contracts and unexpired leases to which the
Debtors are a party, except for an executory contract or unexpired lease that,
prior to the Effective Date, (a) has been assumed or rejected pursuant to Final
Order of the Bankruptcy Court, (b) is included on the Contract Rejection
Schedule or (c) is the subject of a separate then pending motion filed under
Section 365 of the Bankruptcy Code by the Debtors. For purposes of the Plan,
each executory contract and unexpired lease listed on the Contract Rejection
Schedule that relates to the use or occupancy of real property will include (i)
modifications, amendments, supplements, restatements, or other agreements made
directly or indirectly by any agreement, instrument, or other document that in
any manner affects such executory contract or unexpired lease, without
51
regard to whether such agreement, instrument or other document is listed on the
Contract Rejection Schedule and (ii) executory contracts or unexpired leases
appurtenant to the premises listed on the Contract Rejection Schedule including
all easements, licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, usufructs, reciprocal easement
agreements, vault, tunnel or bridge agreements or franchises, and any other
interests in real estate or rights in rem relating to such premises to the
extent any of the foregoing are executory contracts or unexpired leases, unless
any of the foregoing agreements is assumed. The Confirmation Order will
constitute approval of such rejections pursuant to Sections 365(a) and 1123 of
the Bankruptcy Code. The Debtors may, in the future, identify additional
executory contracts and unexpired leases that they may wish to reject and
reserve the right to seek such rejection prior to the Effective Date.
Any executory contracts or unexpired leases which (i) have not expired
by their own terms on or prior to the Effective Date, (ii) have not been
assumed, assumed and assigned or rejected prior to the Effective Date, (iii)
have not been rejected pursuant to the terms of the Plan, or (iv) are not the
subject of a motion to reject pending as of the Effective Date, will be deemed
assumed by the Debtors on the Effective Date, and the entry of the Confirmation
Order will constitute approval of such assumptions pursuant to Sections 365(a)
and 1123 of the Bankruptcy Code.
2. Cure of Defaults in Connection with Assumption.
Any monetary amounts by which each executory contract and unexpired
lease to be assumed pursuant to the Plan is in default will be satisfied,
pursuant to Section 365(b)(1) of the Bankruptcy Code, at the option of Debtors
or Reorganized Debtors, as the case may be: (a) by payment of the cure amount in
Cash on the Effective Date or as soon as practicable thereafter; or (b) on such
other terms as are agreed to by the parties to such executory contract or
unexpired lease.
IF A COUNTERPARTY TO ANY EXECUTORY CONTRACT OR UNEXPIRED LEASE BELIEVES THAT
CURE PAYMENTS ARE DUE PURSUANT TO SECTION 365(b)(1) OF THE BANKRUPTCY CODE, OR
THAT THERE IS A DISPUTE REGARDING THE ABILITY OF THE REORGANIZED DEBTORS OR
REORGANIZED NTELOS, AS THE CASE MAY BE, TO PROVIDE "ADEQUATE ASSURANCE OF FUTURE
PERFORMANCE" WITHIN THE MEANING OF SECTION 365 OF THE BANKRUPTCY CODE UNDER THE
CONTRACT OR LEASE TO BE ASSUMED, OR ANY OTHER MATTER PERTAINING TO ASSUMPTION,
SUCH COUNTERPARTY MUST FILE AN OBJECTION TO THE ASSUMPTION OF ITS EXECUTORY
CONTRACT OR UNEXPIRED LEASE BY THE DEBTORS NOT LATER THAN TEN (10) DAYS PRIOR TO
THE CONFIRMATION DATE.
Such objection shall be subject to the jurisdiction of the Bankruptcy
Court and shall be resolved by a Final Order. The effective date of the
assumption of an executory contract or unexpired lease subject to such an
objection shall be determined by a Final Order, and the cure payments required
by Section 365(b)(1) of the Bankruptcy Code will be made following the entry of
a Final Order resolving the dispute and approving the assumption.
3. Amendments to Schedule; Effect of Amendments.
Pursuant to the Plan, the Debtors will assume each of the executory
contracts and unexpired leases except as provided for in Section 9.1 of the
Plan; provided, that the Debtors
52
may at any time on or before the first Business Day before the date of the
commencement of the Confirmation Hearing amend the Contract Rejection Schedule
to delete or add any executory contract or unexpired lease thereto, in which
event such executory contract or unexpired lease will be deemed to be,
respectively, assumed and, if applicable, assigned as provided therein, or
rejected. The Debtors will provide notice of any amendments to the Contract
Rejection Schedule to the parties to the executory contracts or unexpired leases
affected thereby and to the Creditors' Committee. The fact that any contract or
lease is scheduled on the Contract Rejection Schedule will not constitute or be
construed to constitute an admission by the Debtors that the Debtors have any
liability thereunder.
4. Rejection Damage Claims and Bar.
IN THE EVENT THAT THE REJECTION OF AN EXECUTORY CONTRACT OR UNEXPIRED LEASE BY
THE DEBTORS RESULTS IN DAMAGES TO THE OTHER PARTY OR PARTIES TO SUCH CONTRACT OR
LEASE, A CLAIM FOR SUCH DAMAGES, IF NOT HERETOFORE EVIDENCED BY A FILED PROOF OF
CLAIM, SHALL BE FOREVER BARRED AND SHALL NOT BE ENFORCEABLE AGAINST THE DEBTORS
OR THEIR PROPERTIES OR INTERESTS IN PROPERTY AS AGENTS, SUCCESSORS, OR ASSIGNS,
UNLESS A PROOF OF CLAIM IS FILED WITH THE BANKRUPTCY COURT AND SERVED UPON
COUNSEL FOR THE DEBTORS ON OR BEFORE THIRTY (30) DAYS AFTER THE ENTRY OF AN
ORDER BY THE BANKRUPTCY COURT, WHICH MAY BE THE CONFIRMATION ORDER, AUTHORIZING
REJECTION OF A PARTICULAR EXECUTORY CONTRACT OR LEASE.
5. Indemnification Obligations.
The obligations of the Debtors pursuant to, or under, their respective
governing documents, contracts, Virginia or Delaware state law or otherwise to
indemnify their directors and officers or members or partners who were or are
directors, officers, members or partners, respectively, shall be deemed to be,
and shall be treated as though they are, executory contracts that are assumed
under the Plan.
H. Conditions Precedent to the Confirmation Date and the Effective Date.
1. Conditions Precedent to the Confirmation Date of the Plan.
The occurrence of the Confirmation Date of the Plan is subject to the
satisfaction of the following conditions precedent:
a. The Clerk of the Bankruptcy Court will have entered an order
granting approval of the Disclosure Statement and finding that it
contains adequate information pursuant to Section 1125 of the
Bankruptcy Code and that order will have become a Final Order;
and
b. The Confirmation Order and Substantive Consolidation Order, in
form and substance satisfactory to the Debtors, will have been
entered by the Clerk of the Bankruptcy Court.
2. Conditions Precedent to the Effective Date of the Plan.
53
The occurrence of the Effective Date of the Plan is subject to
satisfaction of the following conditions precedent:
a. The Confirmation Order and Substantive Consolidation Order shall
be Final Order(s);
b. All other actions and all agreements, instruments or other
documents (in form and substance reasonably satisfactory to the
Creditors' Committee and the Pre-Petition Secured Lenders except
as set forth below) necessary to implement the terms and
provisions hereof shall have been effected;
c. The commitments under the DIP Credit Agreement shall have
terminated, all amounts owing under or in respect of the DIP
Credit Agreement shall have been paid in full in Cash and any
outstanding letters of credit issued under or in connection with
the DIP Credit Agreement shall have been terminated or satisfied;
d. The New Credit Agreement shall have become effective according to
its terms;
e. The Purchase Agreement shall be in full force and effect and all
conditions therein to the obligation of the Participating
Noteholders to purchase New Notes shall have been satisfied or
waived, including the execution and delivery of such agreements,
documents and instruments contemplated therein;
f. The statutory fees owing to the United States Trustee shall have
been paid in full;
g. Any alteration or interpretation of any term or provision of the
Plan by the Bankruptcy Court pursuant to Section 13.2 of the Plan
shall be reasonably acceptable to the Debtors, the Agent and the
Creditors' Committee;
h. The Debtors shall have received all authorizations, consents,
regulatory approvals that are determined to be necessary to
implement the Plan; and
i. The aggregate amount of Allowed General Unsecured Claims in Class
7 shall not exceed, as of the close of business on the Business
Day immediately preceding the Effective Date, $13,500,000.
3. Waiver of Conditions Precedent.
Each of the conditions precedent to the Effective Date of the Plan set
forth above other than those set forth in Sections VI.H.2.d, e, f, and i. may be
waived, in whole or in part, by the Debtors, with the prior written consent of
the Agent and the Creditors' Committee. The condition precedent set forth in
Section VI.H.2.i may be waived by the Debtors, with the prior written consent of
a majority in number of the members of the Creditors' Committee. Any such
waivers of a condition precedent in Section VI.H.2 may be effected at any time,
without notice, without leave or order of the Bankruptcy Court and without any
formal action (other than by NTELOS, the Agent and the Creditors' Committee).
54
4. Effect of Failure of Conditions.
Unless the Bankruptcy Court orders otherwise for cause, in the event
that one or more of the conditions specified in Section 10.2 of the Plan, other
than the condition specified in Section 10.2(ix), have not occurred on or before
ninety (90) days after the Confirmation Date or have not been waived pursuant to
Section 10.3 thereof, (a) the Confirmation Order will be vacated, (b) no
distributions under the Plan will be made, (c) the Debtors and all holders of
Claims and Equity Interests will be restored to the status quo ante as of the
day immediately preceding the Confirmation Date as though the Confirmation Date
never occurred and (d) the Debtors' obligations with respect to Claims and
Equity Interests will remain unchanged and nothing contained herein will
constitute or be deemed a waiver or release of any Claims or Equity Interests by
or against the Debtors or any other person or to prejudice in any manner the
rights of the Debtors or any person in any further proceeding involving the
Debtors.
I. Effect of Confirmation.
1. Vesting of Assets and Releases of Liens.
On the Effective Date and upon consummation of the Plan, the property
of the Debtors' estates, together with any property of the Debtors that is not
property of their estates and that is not specifically disposed of upon
consummation of the Plan, will revest in the Debtors or Reorganized Debtors.
Thereafter, the Reorganized Debtors may operate their businesses and may use,
acquire, and dispose of property free of any restrictions of the Bankruptcy
Code, the Bankruptcy Rules, and the Bankruptcy Court. As of the Effective Date,
all property of the Reorganized Debtors will be free and clear of all Claims and
Equity Interests, except as specifically provided in the Plan or the
Confirmation Order. Without limiting the generality of the foregoing, the
Reorganized Debtors may, without application to or approval by the Bankruptcy
Court, pay fees that the Debtors incur after the Effective Date for reasonable
professional fees and expenses.
2. Binding Effect.
Except as otherwise provided in Section 1141(d)(3) of the Bankruptcy
Code and subject to the occurrence of the Effective Date, on and after the
Confirmation Date, the provisions of the Plan will bind any holder of a Claim
against, or Equity Interest in, the Debtors and such holder's respective
successors and assigns, whether or not the Claim or Equity Interest of such
holder is impaired under the Plan and whether or not such holder has accepted
the Plan. The Plan shall be binding upon and inure to the benefit of the
Debtors, the holders of Claims and Equity Interests and their respective
successors and assigns, including without limitation, the Reorganized Debtors.
3. Discharge of Debtors.
Except to the extent otherwise provided in the Plan, the treatment of
all Claims against or Equity Interests in the Debtors hereunder will be in
exchange for and in complete satisfaction, discharge and release of all (a)
Claims against or Equity Interests in the Debtors of any nature whatsoever,
known or unknown, including, without limitation, any interest accrued or
expenses incurred thereon from and after the Petition Date, and (b) all Claims
against and interests in the Debtors' estates or properties or interests in
property. Except as otherwise provided in the Plan, upon the Effective Date, all
Claims against and Equity Interests in the Debtors will be satisfied, discharged
and released in full exchange for the consideration provided
55
hereunder. Except as otherwise provided in the Plan, all entities will be
precluded from asserting against the Debtors or the Reorganized Debtors or their
respective properties or interests in property any other Claims based upon any
act or omission, transaction or other activity of any kind or nature that
occurred prior to the Effective Date.
4. Term of Injunctions or Stays.
Unless otherwise provided, all injunctions or stays arising under or
entered during the Chapter 11 Case under Section 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, will remain in
full force and effect until the Effective Date.
5. Preservation of Insurance.
The Debtors' discharge and release from all Claims as provided in the
Plan, except as necessary to be consistent with the Plan, shall not diminish or
impair the enforceability of any insurance policy that may cover Claims against
the Debtors, the Reorganized Debtors (including, without limitation, such
entities officers and directors) or any other person or entity.
6. Indemnification Obligations.
Subject to the occurrence of the Effective Date, the obligations of
the Debtors, only to the extent permitted under the laws of the Commonwealth of
Virginia or the State of Delaware, as applicable, to indemnify, defend or
reimburse directors or officers or members or partners who were or are
directors, officers, members or partners of the Debtors, respectively, against
any claims or causes of action as provided in the Debtors' respective governing
documents, Virginia or Delaware state law or contract shall survive confirmation
of the Plan, remain unaffected thereby and not be discharged.
7. Exculpation.
The Debtors, the DIP Lenders, the Pre-Petition Secured Lenders, the
DIP Agent, the Agent, the Secured Hedge Parties, the Participating Noteholders,
the Creditors' Committee and the members thereof, holders of Old Preferred
Stock, the Disbursing Agents, the holders of Subordinated Claims and each of
their respective members, partners, officers, directors, employees and
representatives (including any attorneys, financial advisors, investment bankers
and other professionals retained by such persons) shall have no liability to any
person for any act or omission in connection with, or arising out of, the
Disclosure Statement, the Plan, the solicitation of votes for and the pursuit of
confirmation of the Plan, the formulation, preparation, implementation or
consummation of the Plan or the transactions contemplated thereby, including the
prepetition and postpetition negotiations with respect thereto, the
administration of the Plan or the property to be distributed under the Plan or
the Chapter 11 Case or any contract, instrument, release or other agreement or
document created or entered into in connection with the Plan, or any other act
taken or omitted to be taken in connection with the Chapter 11 Case, except for
willful misconduct or gross negligence as determined by a Final Order and, in
all respects, shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan and the Chapter 11 Case.
56
8. Certain Mutual Releases.
Except as otherwise specifically provided herein, on and after the
Effective Date, each of the Debtors, Reorganized Debtors, past and present
directors and officers of NTELOS, current management of the Debtors, Debtors'
affiliates, the DIP Lenders, the Pre-Petition Secured Lenders, the DIP Agent,
the Agent, the Secured Hedge Parties, Participating Noteholders, the Creditors'
Committee and the members thereof, and each of the holders of Senior Debt
Claims, Subordinated Claims and Old Preferred Stock Interests (and all
subsidiaries and affiliates and officers, directors, partners, members,
attorneys, financial advisors, investment bankers, and other professionals, and
agents of each of the foregoing), for good and valuable consideration,
including, but not limited to, the commitment, obligation and service of each of
the aforementioned to facilitate the expeditious reorganization of the Debtors
and the implementation of the restructuring contemplated by the Plan, shall
automatically be deemed to have released one another unconditionally and forever
from any and all Claims, obligations, rights, suits, damages, causes of action,
remedies and liabilities, whatsoever, whether liquidated or unliquidated, fixed
or contingent, matured or unmatured, known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, that any of the
foregoing persons or entities would have been legally entitled to assert (in
their own right, whether individually or collectively, or on behalf of the
holder of any Claim or Equity Interest or other person or entity), based in
whole or in part upon any act or omission, transaction, agreement, event or
other occurrence taking place on or before the Effective Date, relating in any
way to the Debtors, the Reorganized Debtors, the Chapter 11 Case, the Plan, the
Disclosure Statement, or any related agreements, instruments, or other
documents, except for (i) Claims arising under the Plan, the New Credit
Facility, Modified Hedge Agreements or any related agreements, instruments,
releases, indentures, and other agreements and documents delivered thereunder;
(ii) rights of the Debtors, Reorganized Debtors and the Participating
Noteholders to enforce the Subscription Agreement or Purchase Agreement or any
related agreements, instruments, releases, indentures, and other agreements and
documents delivered thereunder; and (iii) any intentional acts of the past and
present directors and officers of NTELOS, current management of the Debtors,
professionals of the Debtors and their affiliates, Participating Noteholders and
the Creditors' Committee or members thereof which constitute fraud and, when the
party bringing the cause of action (or its respective employees, agents, or
advisors) did not have actual knowledge of such intentional acts (or the
substance of such acts) as of the Effective Date; provided, however, with
respect to any intentional acts which constitute fraud, the knowledge of former
and existing officers and directors of NTELOS shall not be imputed to NTELOS or
Reorganized NTELOS (before or after the Effective Date). Notwithstanding the
foregoing, the past and present directors and officers of NTELOS, and current
management of the Debtors shall not be released or discharged from contractual
obligations to the Debtors or Reorganized Debtors with respect to employment and
other agreements assumed pursuant to the Plan or otherwise.
9. Limited Releases by Holders of Claims and Equity Interests.
On and after the Effective Date, each holder of a Claim or Equity
Interest who is voting on the Plan shall make an election on their Ballot to
either agree or not agree to the release described in the paragraph below (the
"Release"). Any holder of Claims or Equity Interests in each of Class 2 (Secured
Bank Claims), Class 5 (Senior Debt Claims), Class 7 (General Unsecured Claims),
Class 9 (Subordinated Claims) and Class 10 (Old Preferred Stock Interests) that
does not make an election will be deemed to agree to the Release. Holders of
Equity Interests in each of Class 12 (Old Common Stock Interests) and
57
Class 13 (Other Equity Interests and Securities Claims), who are deemed to have
rejected the Plan, shall not be deemed to have agreed to the Release. Holders of
Claims, Equity Interests, or interests in each of Class 1 (Priority Non-Tax
Claims), Class 3 (FCC Secured Claims), Class 4 (RUS/RTB Secured Claims), Class 6
(Convenience Claims), Class 8 (Intercompany Claims) and Class 11 (Subsidiary
Interests) (who are deemed to have accepted the Plan pursuant to Section 1126 of
the Bankruptcy Code) also shall not be deemed to have agreed to the Release.
This Release unconditionally releases the Debtors, Reorganized
Debtors, past and present directors and officers of NTELOS, current management
of the Debtors, Debtors' affiliates, DIP Lenders, Pre-Petition Secured Lenders,
DIP Agent, Agent, Secured Hedge Parties, Participating Noteholders, the
Creditors' Committee and the members thereof, and each of the holders of Senior
Debt Claims, Subordinated Claims and Old Preferred Stock Interests (and all
subsidiaries and affiliates and officers, directors, partners, members,
attorneys, financial advisors, investment bankers and other professionals, and
agents of each of the foregoing) from any and all Claims, obligations, rights,
suits, damages, causes of action, remedies and liabilities whatsoever, whether
known or unknown, foreseen or unforeseen, existing or hereafter arising, in law,
equity or otherwise, that such person or entity would have been legally entitled
to assert (whether individually or collectively), based in whole or in part upon
any act or omission, transaction, agreement, event or other occurrence taking
place on or before the Effective Date in any way relating or pertaining to the
Debtors or the Reorganized Debtors, the Chapter 11 Case, or the negotiation,
formulation and preparation of the Plan or any related agreements, instruments
or other documents.
10. Preservation of Rights of Action.
The Reorganized Debtors will retain all rights on behalf of the
Debtors to commence and pursue any and all cause of actions (under any theory of
law, including, without limitation, the Bankruptcy Code, and in any court or
other tribunal including, without limitation, in an adversary proceeding filed
in the Chapter 11 Case) to the extent the Reorganized Debtors deem appropriate.
Potential causes of action currently being investigated by the Debtors which may
but need not be pursued prior to the Effective Date to the extent warranted
include, without limitation, the following:
a. Any causes of action, whether legal, equitable or statutory in
nature, arising out of, or in connection with, the Debtors'
businesses or operations, including, without limitation, the
following: possible claims against vendors, landlords,
sublessees, assignees, customers or suppliers for warranty,
indemnity, back charge/setoff issues, overpayment or duplicate
payment issues and collections/accounts receivables matters;
deposits or other amounts owed by any creditor, lessor, utility,
supplier, vendor, landlord, sublessee, assignee, or other entity,
employee, management or operational matters; financial reporting;
environmental, and product liability matters; actions against
insurance carriers relating to coverage, indemnity or other
matters; counterclaims and defenses relating to notes or other
obligations or tort claims which may exist or may subsequently
arise; and
58
b. Any and all avoidance actions pursuant to any applicable section
of the Bankruptcy Code, including, without limitation, Sections
544, 545, 547, 548, 549, 550, 551, 553(b) and 724(a) of the
Bankruptcy Code, arising from any transfer or transaction
involving or concerning any of the Debtors.
Unless causes of action against a person or entity are expressly
waived, relinquished, released, compromised or settled in the Plan or by any
Final Order, the Debtors expressly reserve all causes of action for later
adjudication, and therefore, no preclusion doctrine, including, without
limitation, the doctrines of res judicata, collateral estoppel, issue
preclusion, claim preclusion, estoppel (judicial, equitable or otherwise) or
laches will apply to causes of action upon or after the confirmation or
consummation of the Plan. In addition, the Debtors or Reorganized Debtors
expressly reserve the right to pursue or adopt any Claims alleged in any lawsuit
in which any of the Debtors is a defendant or an interested party, against any
person or entity, including, without limitation, the plaintiffs and
co-defendants in such lawsuits.
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement entered into in connection
with the Plan, in accordance with Section 1123(b)(3) of the Bankruptcy Code, any
Claims, rights and causes of action that the respective Debtors or estates may
hold against any person or entity will vest in the Reorganized Debtors, and the
Reorganized Debtors will retain and may exclusively enforce, as the authorized
representatives of the respective estates, any and all such Claims, rights, or
causes of action. Subject to the releases set forth above, the Reorganized
Debtors may pursue any and all Claims, rights, or causes of action, as
appropriate, in accordance with the best interests of the Reorganized Debtors,
and will have the exclusive right, authority, and discretion to institute,
prosecute, abandon, settle, or compromise any and all such Claims, rights and
causes of action without the consent or approval of any third party and without
any further order of the Bankruptcy Court.
11. Injunction
Except as otherwise provided in the Plan, from and after the
Confirmation Date all persons who have held, hold or may hold Claims against or
interests in the Debtors are permanently enjoined from taking any of the
following actions against any of the Debtors, the Reorganized Debtors, the DIP
Lenders, the Pre-Petition Secured Lenders, the DIP Agent, the Agent, the Secured
Hedge Parties, the Participating Noteholders, the Creditors' Committee or the
members thereof or any of their respective property on account of any Claims or
interests: (a) commencing or continuing, in any manner or in any place, any
action or other proceeding; (b) enforcing or attaching, collecting or
recovering, in any manner, any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors; and (e) commencing or continuing, in any manner
or in any place, any action that does not comply with or is inconsistent with
the provisions of the Plan; provided, however, that nothing contained herein
shall preclude such persons from exercising their rights pursuant to and
consistent with the terms of the Plan.
59
12. Committees.
From the Confirmation Date up to and including the Effective Date, the
members of the Creditors' Committee appointed pursuant to Section 1102 of the
Bankruptcy Code and their duly appointed successors will continue to serve. On
the Effective Date, the Creditors' Committee and any other committee appointed
in the Chapter 11 Case pursuant to Section 1102 of the Bankruptcy Code will be
dissolved and the members thereof and the professionals retained by the
Creditors' Committee in accordance with Section 1103 of the Bankruptcy Code
(including, without limitation, attorneys, investment advisors, accountants and
other professionals) will be released and discharged from their respective
fiduciary obligations, duties and responsibilities.
J. Retention of Jurisdiction
The Bankruptcy Court will have exclusive jurisdiction of all matters
arising out of, or related to, the Chapter 11 Case and the Plan pursuant to, and
for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code and for,
among other things, the following purposes:
a. To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases and the
allowance of Claims resulting therefrom.
b. To determine any and all adversary proceedings, applications and
contested matters.
c. To ensure that distributions to holders of Allowed Claims and
Allowed Equity Interests are accomplished as provided in the
Plan.
d. To hear and determine any timely objections to Administrative
Expense Claims or to Claims and Equity Interests, including,
without limitation, any objections to the classification of any
Claim or Equity Interest, and to allow or disallow any Disputed
Claim or Disputed Equity Interest, in whole or in part.
e. To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked,
modified or vacated.
f. To issue such orders in aid of execution of the Plan, to the
extent authorized by Section 1142 of the Bankruptcy Code.
g. To consider any amendments to or modifications of the Plan, or to
cure any defect or omission, or reconcile any inconsistency, in
any order of the Bankruptcy Court, including, without limitation,
the Confirmation Order.
h. To hear and determine all applications under Sections 330, 331
and 503(b) of the Bankruptcy Code for awards of compensation for
services rendered and reimbursement of expenses incurred prior to
the Confirmation Date.
i. To hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan, the
Confirmation Order, the Substantive Consolidation Order, any
transactions or payments contemplated hereby or any agreement,
60
instrument or other document governing or relating to any of the
foregoing.
j. To hear and determine matters concerning state, local and federal
taxes in accordance with Sections 346, 505 and 1146 of the
Bankruptcy Code.
k. To hear any other matter not inconsistent with the Bankruptcy
Code.
l. To hear and determine all disputes involving the existence, scope
and nature of the discharges granted under Section 11.3 of the
Plan.
m. To issue injunctions and effect any other actions that may be
necessary or desirable to restrain interference by any entity
with the consummation or implementation of the Plan.
n. To recover all assets of the Debtors and property of the Debtors'
estates, wherever located.
o. To enter a final decree closing the Chapter 11 Case.
K. Summary of Other Provisions of the Plan.
The following paragraphs summarize certain other significant provisions of
the Plan. The Plan should be referred to for the complete text of these and
other provisions of the Plan.
1. Payment of Statutory Fees.
All fees payable under Section 1930, Chapter 123, title 28, United
States Code, as determined by the Bankruptcy Court at the Confirmation Hearing,
will be paid on the Effective Date. Any such fees accrued after the Effective
Date will be paid in the ordinary course of the Reorganized Debtors' business as
required by statute.
2. Modification of Plan.
Subject to the limitations contained in the Plan, (i) the Debtors
reserve the right, in accordance with the Bankruptcy Code and Bankruptcy Rules,
to amend and modify the Plan prior to entry of the Confirmation Order with the
consent of the Creditors' Committee or its attorneys and (ii) after entry of the
Confirmation Order, the Reorganized Debtors may, upon order of the Bankruptcy
Court, amend or modify the Plan, in accordance with Section 1127(b) of the
Bankruptcy Code, or remedy any defect of omission or reconcile any inconsistency
in the Plan in such manner as may be necessary to carry out the purpose and
intent of the Plan; provided, however, that NTELOS may make a material amendment
or modification to the Plan only with the approval of the DIP Agent, the Agent
and holders of a majority in Claim amount or Equity Interest in each Class
entitled to vote to accept or reject the Plan.
3. Revocation of Plan.
The Debtors reserve the right, at any time prior to entry of the
Confirmation Order, to revoke and withdraw the Plan.
61
4. Section 1146 Exemption.
Pursuant to Section 1146(c) of the Bankruptcy Code, the issuance,
transfer or exchange of notes or issuance of debt or equity securities under the
Plan, the creation of any mortgage, deed of trust or other security interest,
the making or assignment of any lease or sublease, or the making or delivery of
any deed or other instrument of transfer under, in furtherance of, or in
connection with the Plan, including, without limitation, any merger agreements
or agreements of consolidation, deeds, bills of sale or assignments executed in
connection with any of the transactions contemplated under the Plan, shall not
be subject to any stamp, real estate transfer, mortgage recording, sales or
other similar tax. Unless expressly provided otherwise, all sale transactions
consummated by the Debtors or NTELOS and approved by the Bankruptcy Court on and
after the Petition Date through and including the Effective Date, including,
without limitation, the sales, if any, by the Debtors of owned property or
assets pursuant to Section 363(b) of the Bankruptcy Code and the assumptions,
assignments and sales, if any, by the Debtors of unexpired leases of
non-residential real property pursuant to Section 365(a) of the Bankruptcy Code,
shall be deemed to have been made under, in furtherance of, or in connection
with the Plan and, therefore, shall not be subject to any stamp, real estate
transfer, mortgage recording, sales or other similar tax law.
5. Administrative Expenses Incurred After the Confirmation Date.
Administrative expenses incurred by the Debtors or the Reorganized
Debtors after the Confirmation Date, including (without limitation) Claims for
professionals' fees and expenses, will not be subject to application and may be
paid by the Debtors or the Reorganized Debtors, as the case may be, in the
ordinary course of business and without further Bankruptcy Court approval.
6. Section 1125(e) of the Bankruptcy Code.
As of the Confirmation Date, the Debtors will be deemed to have
solicited acceptances of the Plan in good faith and in compliance with the
applicable provisions of the Bankruptcy Code. The Debtors, the DIP Lenders, the
Pre-Petition Secured Lenders, the DIP Agent, the Agent, the Secured Hedge
Parties and each of the Participating Noteholders and the Creditors' Committee
(and each of their respective members, affiliates, agents, directors, officers,
employees, investment bankers, financial advisors, attorneys and other
professionals) have, and will be deemed to have, participated in good faith and
in compliance with the applicable provisions of the Bankruptcy Code in the offer
and issuance of the securities under the Plan, and therefore are not, and on
account of such offer, issuance and solicitation will not be, liable at any time
for the violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer and issuance
of securities under the Plan.
7. Compliance with Tax Requirements.
In connection with the consummation of the Plan, the Debtors will
comply with all withholding and reporting requirements imposed by any taxing
authority, and all distributions thereunder will be subject to such withholding
and reporting requirements.
8. Severability of Plan Provisions.
In the event that, prior to the Confirmation Date, any term or
provision of the Plan is held by the Bankruptcy Court to be invalid, void or
unenforceable, the Bankruptcy Court will have the power to alter and interpret
such term or provision to make it valid or enforceable to the
62
maximum extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
will then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
of the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable in
accordance with its terms.
VII.
CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy Code, the following steps must be taken to confirm the
Plan:
A. Solicitation of Votes.
In accordance with Sections 1126 and 1129 of the Bankruptcy Code, each of
Class 2 (Secured Bank Claims), Class 5 (Senior Debt Claims), Class 7 (General
Unsecured Claims), Class 9 (Subordinated Claims) and Class 10 (Old Preferred
Stock Interests) is impaired under the Plan and the holders of Claims and Equity
Interests in each of such Classes are entitled to vote to accept or reject the
Plan.
Each of Class 1 (Priority Non-Tax Claims), Class 3 (FCC Secured Claims),
Class 4 (RUS/RTB Secured Claims), Class 6 (Convenience Claims), Class 8
(Intercompany Claims) and Class 11 (Subsidiary Interests) is unimpaired under
the Plan and the holders of Claims in each of such Classes are conclusively
presumed to have accepted the Plan and are not entitled to vote to accept or
reject the Plan.
Class 12 (Old Common Stock Interests) and Class 13 (Other Equity Interests
and Securities Claims) are impaired under the Plan and holders of Equity
Interests in Class 12 and Class 13 will receive no distribution in respect
thereof. Class 12 and Class 13 are conclusively presumed to have rejected the
Plan and are not entitled to vote to accept or reject the Plan.
As to classes of claims entitled to vote on a plan, the Bankruptcy Code
defines acceptance of a plan by a class of creditors as acceptance by holders of
at least two-thirds in dollar amount and more than one-half in number of the
allowed claims of that class that have timely voted to accept or reject a plan.
As to classes of equity interests entitled to vote on a plan, the Bankruptcy
Code defines acceptance of a plan by a class of equity interests as acceptance
by at least two-thirds of the Allowed equity interests that have timely voted to
accept or reject a plan. A vote may be disregarded if the Bankruptcy Court
determines, after notice and a hearing, that such acceptance or rejection was
not solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.
B. The Confirmation Hearing.
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
confirmation hearing. The Confirmation Hearing in respect of the Plan has been
scheduled for August __, 2003 at __:__ [p.m.], Eastern Time, before the
Honorable Douglas O. Tice, Jr., United States Bankruptcy Judge, at the United
States Bankruptcy Court, 1100 East Main Street, Room 301, Richmond, Virginia
23219. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement of the
adjourned date
63
made at the Confirmation Hearing. Any objection to confirmation must be made in
writing and specify in detail the name and address of the objector, all grounds
for the objection and the amount of the Claim or number of shares of stock of
NTELOS held by the objector. Any such objection must be filed with the
Bankruptcy Court and served so that it is received by the Bankruptcy Court and
the following parties on or before ___________ ___, 2003 at ___:___ p.m.,
Eastern Time:
NTELOS Inc.
401 Spring Lane, Suite 300
P.O. Box 1990
Waynesboro, Virginia 22980
Attention: James S. Quarforth
Telephone: (540) 946-3500
Telecopier: (540) 946-3595
and
Hunton & Williams LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Attention: Benjamin C. Ackerly, Esq.
Telephone: (804) 788-8479
Telecopier: (804) 788-8218
Counsel to the Debtors
Marcus, Santoro & Kozak, P.C.
355 Crawford Parkway, Suite 700
Portsmouth, Virginia 23704
Attention: Frank J. Santoro, Esq.
Karen M. Crowley, Esq.
Telephone: (757) 393-2555
Telecopier: (757) 399-6870
Co-Counsel to the Debtors
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard G. Mason, Esq.
Seth Gardner, Esq.
Telephone: (212) 403-1252
Telecopier: (212) 403-2252
Counsel to the Creditors' Committee
McGuire Woods LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
64
Attention: H. Slayton Dabney, Jr.,
Sarah B. Boehm, Esq.
Telephone: (804) 775-4311
Telecopier: (804) 698-2037
Co-Counsel to the Creditors' Committee
and
Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Marshall S. Huebner, Esq.
Telephone: (212) 450-4099
Telecopier: (212) 450-3099
Counsel to the DIP Lenders, the Pre-Petition Secured
Lenders, the DIP Agent and the Agent
and
Office of the United States Trustee
600 E. Main St., Suite 301
Richmond, VA 23219
Attention: Leander D. Barnhill
Telephone: (804) 771-2310
Objections to confirmation of the Plan are governed by Bankruptcy Rules
3015 and 9014.
C. Confirmation.
At the Confirmation Hearing, the Bankruptcy Court will determine whether
the requirements of Section 1129(a) of the Bankruptcy Code have been satisfied
with respect to the Plan. Confirmation of a plan under Section 1129(a) of the
Bankruptcy Code requires, among other things, that:
. the plan complies with the applicable provisions of the Bankruptcy Code;
. the proponent of the plan has complied with the applicable provisions of
the Bankruptcy Code;
. the plan has been proposed in good faith and not by any means forbidden by
law;
. any payment made or to be made by the proponent under the plan for services
or for costs and expenses in, or in connection with, the Chapter 11 case,
or in connection with the plan and incident to the case, has been approved
by, or is subject to the approval of, the bankruptcy court as reasonable;
. the proponent has disclosed the identity and affiliations of any individual
proposed to serve, after confirmation of the plan, as a director, officer,
or voting trustee of the debtor, an affiliate of the debtor participating
in the plan with the debtor, or a successor to the debtor under the plan.
The appointment to, or continuance in, such office by such individual, must
be consistent with the interests of creditors and equity security holders
and with public policy and the proponent must have disclosed the identity
of any insider
65
that the reorganized debtor will employ or retain, and the nature of any
compensation for such insider;
. with respect to each impaired class of claims or interests, either each
holder of a claim or interest of such class has accepted the plan, or will
receive or retain under the plan on account of such claim or interest,
property of a value, as of the effective date of the plan, that is not less
than the amount that such holder would receive or retain if the debtor were
liquidated on such date under Chapter 7 of the Bankruptcy Code;
. each class of claims or interests has either accepted the plan or is not
impaired under the plan;
. except to the extent that the holder of a particular claim has agreed to a
different treatment of such claim, the plan provides that allowed
administrative expenses and priority claims (other than priority tax
claims) will be paid in full on the effective date (except that if a class
of priority claims has voted to accept the Plan, holders of such claims may
receive deferred cash payments of a value, as of the effective date of the
plan, equal to the allowed amounts of such claims) and that holders of
priority tax claims may receive on account of such claims deferred cash
payments, over a period not exceeding six years after the date of
assessment of such claims, of a value, as of the effective date, equal to
the allowed amount of such claims;
. if a class of claims is impaired, at least one impaired class of claims has
accepted the plan, determined without including any acceptance of the plan
by any insider holding a claim in such class; and
. confirmation of the plan is not likely to be followed by the liquidation,
or the need for further financial reorganization, of the debtor or any
successor to the debtor under the plan, unless such liquidation or
reorganization is proposed in the plan.
Subject to receiving the requisite votes in accordance with Section
1129(a)(8) of the Bankruptcy Code and any potential "cram down" of Classes not
receiving any distribution under the Plan, the Debtors believe that:
. the Plan satisfies all of the statutory requirements of Chapter 11 of the
Bankruptcy Code;
. the Debtors have complied or will have complied with all of the
requirements of Chapter 11 of the Bankruptcy Code; and
. the Plan has been proposed in good faith.
Set forth below is a summary of the relevant statutory confirmation
requirements.
1. Acceptance.
Class 2 (Secured Bank Claims), Class 5 (Senior Debt Claims), Class 7
(General Unsecured Claims), Class 9 (Subordinated Claims) and Class 10 (Old
Preferred Stock Interests) of the Plan are impaired under the Plan and are
entitled to vote to accept or reject the Plan. The Debtors reserve the right to
seek nonconsensual confirmation of the Plan with respect to any Class of Claims
or Equity Interests that is entitled to vote to accept or reject the Plan if
such Class rejects the Plan.
66
2. Unfair Discrimination and Fair and Equitable Tests.
To obtain nonconsensual confirmation of the Plan, it must be
demonstrated to the Bankruptcy Court that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to each impaired,
nonaccepting Class. The Bankruptcy Code provides a non-exclusive definition of
the phrase "fair and equitable." The Bankruptcy Code establishes "cram down"
tests for secured creditors, unsecured creditors and equity holders, as follows:
a. Secured Creditors.
(i) each impaired secured creditor retains its liens securing its
secured claim and receives on account of its secured claim deferred Cash
payments having a present value equal to the amount of its allowed secured
claim, (ii) each impaired secured creditor realizes the "indubitable equivalent"
of its allowed secured claim or (iii) the property securing the claim is sold
free and clear of liens with such liens to attach to the proceeds of the sale
and the treatment of such liens on proceeds is provided in clause (i) or (ii) of
this subparagraph.
b. Unsecured Creditors.
Either (i) each impaired unsecured creditor receives or retains
under the Plan property of a value equal to the amount of its allowed claim or
(ii) the holders of claims and interests that are junior to the claims of the
dissenting class will not receive any property under the Plan.
c. Equity Interests.
Either (i) each holder of an equity interest will receive or
retain under the Plan property of a value equal to the greatest of the fixed
liquidation preference to which such holder is entitled, the fixed redemption
price to which such holder is entitled or the value of the equity interest or
(ii) the holder of an equity interest that is junior to the nonaccepting class
will not receive or retain any property under the Plan.
3. Feasibility.
a. Financial Projections.
The Bankruptcy Code requires that confirmation of a plan is not
likely to be followed by liquidation or the need for further financial
reorganization. For purposes of determining whether the Plan meets this
requirement, NTELOS has analyzed the Debtors' ability to meet its obligations
under the Plan. As part of this analysis, NTELOS has prepared the Projected
Financial Information for the Projection Period. These projections, and the
assumptions on which they are based, are included in the Projected Financial
Information annexed hereto as Exhibit C. Based upon such projections, NTELOS
believes that the Debtors will be able to make all payments required pursuant to
the Plan and, therefore, that confirmation of the Plan is not likely to be
followed by liquidation or the need for further reorganization.
The financial information and projections appended to the
Disclosure Statement include:
. "Fresh Start" Condensed Consolidated Opening and Closing Balance Sheet
of the Reorganized Debtors as of August 31, 2003;
67
. Projected Condensed Consolidated Balance Sheets of the Reorganized
Debtors as of the end of the fiscal years 2003 through 2008;
. Projected Condensed Consolidated Statement of Operations of the
Reorganized Debtors as of the end of the fiscal years 2003 through
2008; and
. Projected Condensed Consolidated Cash Flow Statements of the
Reorganized Debtors as of the end of the fiscal years 2003 through
2008.
The pro forma financial information and the projections are based
on the assumption that the Plan will be confirmed by the Bankruptcy Court and,
for projection purposes, that the Effective Date under the Plan and the initial
distributions thereunder take place as of August 31, 2003.
NTELOS has prepared these financial projections based upon
certain assumptions which it believes to be reasonable under the circumstances.
Those assumptions considered to be significant are described in the Projected
Financial Information, annexed hereto as Exhibit C. The Projected Financial
Information has not been examined or compiled by independent accountants. NTELOS
makes no representation as to the accuracy of the projections or the Debtors'
ability to achieve the projected results. Many of the assumptions on which the
projections are based are subject to significant uncertainties. Inevitably, some
assumptions will not materialize and unanticipated events and circumstances may
affect the actual financial results. Therefore, the actual results achieved
throughout the Projection Period may vary from the projected results and the
variations may be material. See Section XI.B.1., "Certain Risk Factors to be
Considered - Overall Risk to Recovery by Holders of Claims and Equity Interests
- - Projected Financial Information." All holders of Claims and Equity Interests
that are entitled to vote to accept or reject the Plan are urged to examine
carefully all of the assumptions on which the Projected Financial Information is
based in evaluating the Plan.
b. Business Strategy - Overview.
The Company's strategy is to minimize its fixed interest costs so
it is able to maintain free cash flow immediately following the reorganization
and through the current period of uncertainty affecting the telecommunications
industry. The Company will seek to manage its growth relative to the excess cash
flow produced from its operations and available for reinvestment.
Notwithstanding the foregoing, the Company's objective is to be
the leading integrated communications provider in its region of operations. The
key elements of the Company's business strategy are to:
(i) Increase Market Share by Establishing Service-Driven
Customer Relationships through a Local Presence.
The Company intends to grow its business by leveraging its local
presence and continuing its focus on providing high levels of customer
satisfaction. The Company plans to accomplish this through its local retail
outlets and utilizing a business to business sales team that provides
face-to-face sales and personalized client care. The Company intends to enhance
its local presence by continuing its support of the communities that it serves,
including corporate and employee participation in community programs, and
expanding this support to its target markets. The Company will reinforce its
customer relationships by continuing to provide
68
integrated, personalized customer care in each of its markets. The Company
intends to do this through its retail locations, which also serve as customer
care centers, and its 24 hours-a-day, 365 days-a-year call centers.
(ii) Offering of Bundled Services.
The Company offers a broad range of communications services in a
bundled package and on a single bill. The Company believes that by cross-selling
multiple products and services, it is building new customer relationships,
strengthening the partnership with existing customers and increasing customer
retention.
(iii) Leverage the Company's Fiber Optic Network,
Infrastructure and Technologies.
The Company's infrastructure, including its fiber optic network,
switches and routers, is a technologically-advanced communications system that
connects many of its markets. The Company intends to offer its broad range of
communications services in many of its markets and deliver those services over
infrastructure that it controls and maintains. The Company also intends to
continue using its network to serve as a carrier's carrier, offering switching
and transport services to other communications carriers. As new wireless data
applications become available, the Company also intends to use its PCS bandwidth
capacity, which ranges from 10 MHz to 40 MHz in its markets to capitalize on
opportunities in the growing market for wireless Internet access and data
transmission.
4. Best Interests Test.
With respect to each impaired Class of Claims and Equity Interests,
confirmation of the Plan requires that each holder of a Claim or Equity Interest
either (i) accept the Plan or (ii) receive or retain under the Plan property of
a value, as of the Effective Date, that is not less than the value such holder
would receive or retain if the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code. To determine what holders of Claims and Equity Interests of
each impaired Class would receive if the Debtors were liquidated under Chapter
7, the Bankruptcy Court must determine the dollar amount that would be generated
from the liquidation of the Debtors' assets and properties in the context of a
Chapter 7 liquidation case. The Cash amount which would be available for
satisfaction of General Unsecured Claims and Equity Interests would consist of
the proceeds resulting from the disposition of the unencumbered assets of the
Debtors, any excess proceeds from the disposition of encumbered assets after the
satisfaction of secured claims, and augmented by the unencumbered Cash held by
the Debtors at the time of the commencement of the liquidation case. This Cash
amount would be reduced by the amount of the costs and expenses of the
liquidation and by the additional administrative and priority claims that may
result from the termination of the Debtors' business and the use of Chapter 7
for the purposes of liquidation.
The Debtors' costs of liquidation under Chapter 7 would include the
fees payable to a trustee in bankruptcy, as well as those which might be payable
to attorneys and other professionals that such a trustee may engage. In
addition, claims would arise by reason of the breach or rejection of obligations
incurred and leases and executory contracts assumed or entered into by the
Debtors in Possession during the pendency of the Chapter 11 Case. The foregoing
types of claims and other claims which may arise in a liquidation case or result
from the pending Chapter 11 Case, including any unpaid expenses incurred by the
Debtors in Possession during the Chapter 11 Case such as compensation for
attorneys, financial advisors and accountants,
69
would be paid in full from the liquidation proceeds before the balance of those
proceeds would be made available to pay prepetition General Unsecured Claims.
To determine if the Plan is in the best interests of each impaired
Class, the value of the distributions of proceeds from the liquidation of the
Debtors' unencumbered assets and properties, after subtracting the amounts
attributable to the foregoing Claims, are then compared with the value of the
property offered to such Classes of Claims and Equity Interests under the Plan.
After considering the effects that a Chapter 7 liquidation would have
on the ultimate proceeds available for distribution to creditors in the Chapter
11 Case, including (i) the increased costs and expenses of a liquidation under
Chapter 7 arising from fees payable to a trustee in bankruptcy and professional
advisors to such trustee, (ii) the erosion in value of assets in a Chapter 7
case in the context of the expeditious liquidation required under Chapter 7 and
the "forced sale" atmosphere that would prevail and (iii) the substantial
increases in claims which would be satisfied on a priority basis or on parity
with creditors in the Chapter 11 Case, NTELOS has determined that confirmation
of the Plan will provide each holder of an Allowed Claim or Allowed Equity
Interest with a recovery that is not less than such holder would receive
pursuant to liquidation of the Debtors under Chapter 7 liquidation.
NTELOS also believes that the value of any distributions to each Class
of Allowed Claims in a Chapter 7 case, including all secured Claims, would be
less than the value of distributions under the Plan because such distributions
in a Chapter 7 case would not occur for a substantial period of time. It is
likely that distribution of the proceeds of the liquidation could be delayed
after the completion of such liquidation in order to resolve claims and prepare
for distributions. In the likely event litigation is necessary to resolve claims
asserted in the Chapter 7 case, the delay could be prolonged.
NTELOS' Liquidation Analysis is attached hereto as Exhibit D. The
information set forth in Exhibit D provides a summary of the liquidation values
of the Debtors' assets assuming a Chapter 7 liquidation in which a trustee
appointed by the Bankruptcy Court would liquidate the assets of the Debtors'
estates. Reference should be made to the Liquidation Analysis for a complete
discussion and presentation of the Liquidation Analysis. The Liquidation
Analysis was prepared by management of NTELOS with the assistance of its
financial advisor.
Underlying the Liquidation Analysis are a number of estimates and
assumptions that, although developed and considered reasonable by management,
are inherently subject to significant economic and competitive uncertainties and
contingencies beyond the control of the Debtors and management. The Liquidation
Analysis is also based upon assumptions with regard to liquidation decisions
that are subject to change. Accordingly, the values reflected may not be
realized if the Debtors were, in fact, to undergo such a liquidation. The
Chapter 7 liquidation period is assumed to be a period of at least six (6)
months allowing for the (i) discontinuation of operations, (ii) selling of
assets, and (iii) collection of receivables.
D. Consummation.
The Plan will be consummated on the Effective Date. The Effective Date of
the Plan is the date that is eleven (11) days after the Confirmation Date, or if
such date is not a Business Day, the next succeeding Business Day, or such date
after the Confirmation Date as determined by NTELOS with the prior written
consent of the Agent and the Creditors' Committee so long as
70
no stay of the Confirmation Order is in effect on such date; provided, however,
that if, on or prior to such date, all conditions to the Effective Date set
forth in Section 10 of the Plan have not been satisfied or waived, then the
Effective Date will be the first Business Day following the day on which all
such conditions to the Effective Date have been satisfied or waived or such date
as NTELOS may determine with the prior written consent of the Creditors'
Committee and the Agent. For a more detailed discussion of the conditions
precedent to the Plan and the impact of the failure to meet such conditions, see
Section VI.H., "The Joint Plan of Reorganization - Conditions Precedent to the
Confirmation Date and Effective Date."
The Plan is to be implemented pursuant to the provisions of the Bankruptcy
Code.
VIII.
MANAGEMENT OF REORGANIZED NTELOS
As of the Effective Date, the management, control and operation of
Reorganized NTELOS will become the general responsibility of its Board of
Directors.
A. Board of Directors and Management.
1. Composition of the Board of Directors.
The initial Board of Directors of Reorganized NTELOS will consist of
seven (7) members. The majority holders of the Senior Notes will select four (4)
members, two (2) of whom will be persons independent of the Participating
Noteholders and NTELOS. The majority holders of the Senior Notes and NTELOS
jointly will select two (2) members, which members may be members of the Board
of Directors of NTELOS. The seventh member will be the chief executive officer
of Reorganized NTELOS. The members of the initial Board of Directors of
Reorganized NTELOS will be approved by the Board of Directors of NTELOS. The
directors of NTELOS immediately prior to the Effective Date will resign as of
the Effective Date and will be replaced by the Board of Directors determined as
set forth above. At least fourteen (14) Business Days prior to the commencement
of the Confirmation Hearing, NTELOS will file with the Bankruptcy Court a
schedule of the names of the persons to be appointed as the Directors of
Reorganized NTELOS under the Plan.
The initial Board of Directors of Reorganized NTELOS will serve until
the first annual meeting of the holders of the New Common Stock. Thereafter, the
Board of Directors of Reorganized NTELOS will be elected in accordance with the
New Articles of Incorporation and applicable nonbankruptcy law.
The Board of Directors or other internal governing body of each of the
NTELOS Subsidiaries and the NTELOS Non-filing Subsidiaries will continue as in
effect immediately prior to the Effective Date until removed or replaced under
applicable law or in accordance with the governing instruments of such
subsidiary.
71
2. Identity of Executive Officers.
Each of the executive officers of NTELOS set forth below will continue
in such officer's then current position as an officer of Reorganized NTELOS:
Name Office Age
---- ------ ---
J. S. Quarforth Chief Executive Officer and President 49
C. A. Rosberg Executive Vice President, President--Wireless 50
D. R. Maccarelli Executive Vice President, President--Wireline 51
M. B. Moneymaker Executive Vice President and Chief Financial Officer, 45
Treasurer and Secretary
M. McDermott Senior Vice President--Legal and Regulatory Affairs 48
D. M. Persing Senior Vice President--Information Technology and Human 51
Resources
On the Effective Date, the executive officers of each of the NTELOS
Subsidiaries will be those executive officers in office immediately prior to the
Effective Date.
B. Compensation of Directors and Officers.
Non-employee directors of NTELOS received a 2003 annual retainer fee of
$10,800 and options to purchase 1,818 shares of Old Common Stock. Non-employee
directors also receive a fee of $875 for each meeting of the Board of Directors
attended in 2003.
Directors of NTELOS and/or the NTELOS Subsidiaries who are also employed by
NTELOS do not receive additional compensation for service as directors.
72
The following table sets forth compensation information for certain of the
officers of NTELOS:
2003 PROJECTED 2002 ALL OTHER
SALARY (1) SALARY BONUS (2) COMPENSATION (3) OPTIONS(4)
--------------- ---------- ---------- ---------------- ----------
J.S. Quarforth $ 366,396 $ 362,447 $ - $ 11,866 84,000
Chief Executive Officer and President
C.A. Rosberg $ 245,470 $ 242,824 $ - $ 3,991 38,000
Executive Vice President,
President--Wireless
D.R. Maccarelli $ 167,637 $ 165,830 $ - $ 6,680 18,000
Executive Vice President,
President--Wireline
M.B. Moneymaker $ 191,226 $ 189,165 $ - $ 3,666 24,000
Executive Vice President
and Chief Financial Officer,
Treasurer and Secretary
M. McDermott $ 172,525 $ 170,666 $ - $ 5,222 18,000
Senior Vice President--
Legal and Regulatory Affairs
D.M. Persing $ 167,890 $ 112,171 $ - $ 3,208 18,000
Senior Vice President--Information
Technology and Human Resources
- ----------
(1) The amounts indicated under the column "2003 Projected Salary" reflect
actual salaries through March 31, 2003 and projected salaries for the
remainder of 2003 based on compensation rates in effect on April 1, 2003.
(2) Based on 2002 company operating performance objectives, NTELOS' Board of
Directors approved payment of bonuses under the company's 2002 management
incentive plan following the company's emergence from bankruptcy. In light
of the Chapter 11 Case, the Board of Directors has determined not to
approve such bonuses for the company's officers.
(3) Includes amounts paid by NTELOS as contributions to savings plans, deferred
compensation plans and group life insurance and additional life insurance
premium payments and accidental death and dismemberment payments.
(4) Identifies options to purchase Old Common Stock.
Mr. Quarforth will become Chief Executive Officer and President of NTELOS,
effective as of June 1, 2003. Mr. Quarforth has been Chief Executive Officer of
NTELOS and the NTELOS Subsidiaries since May 1, 1999. Mr. Quarforth served as
President and Chief Executive Officer from May 1, 1990 to May 1, 1999 and
Chairman of the Board from May 1, 1999 to February 13, 2001.
Mr. Rosberg will become Executive Vice President, President--Wireless,
effective as of June 1, 2003. Mr. Rosberg will have served as Executive Vice
President and Chief Operating Officer of NTELOS from February 2001 to June 1,
2003 and as President and Chief Operating Officer from May 1, 1999 to February
13, 2001, when the merger between NTELOS and R&B Communications, Inc. became
effective. From May 1, 1990 to May 1, 1999, he served as Senior Vice President.
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Mr. Maccarelli will become Executive Vice President, President--Wireline,
effective as of June 1, 2003. Mr. Maccarelli will have served as Senior Vice
President - Wireline Engineering and Operations of NTELOS from May 2002 to June
1, 2003. From February 2001 to May 2002 he served as Senior Vice President and
Chief Technology Officer and from January 1994 to February 2001 as Senior Vice
President. From January 1993 to December 1993, he served as Vice President -
Network Services. From June 1974 to December 1992 he held numerous leadership
positions with Bell Atlantic. These positions encompassed operations,
engineering, regulatory and business development.
Mr. Moneymaker will become Executive Vice President and Chief Financial
Officer, Treasurer and Secretary, effective as of June 1, 2003. Mr. Moneymaker
will have served as the Senior Vice President and Chief Financial Officer,
Treasurer and Secretary of NTELOS from May 2000 to June 1, 2003. From May 1999
to April 2000 he served as Vice President and Chief Financial Officer, Treasurer
and Secretary. From May 1998 to April 1999 he served as Vice President and Chief
Financial Officer. From October 1995 to April 1998 he served as Vice President
of Finance. Previously, he was a Senior Manager for Ernst and Young from October
1989 until October 1995.
Ms. McDermott has been the Senior Vice President - Legal and Regulatory
Affairs of NTELOS since August 2001. From March 2000 to August 3, 2001 she
served as Senior Vice President and General Counsel of Pathnet
Telecommunications, Inc. On April 2, 2001, Pathnet Telecommunications, Inc.
filed a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code
with the United States Bankruptcy Court for the District of Delaware. From April
1998 to March 2000 she served as Senior Vice President/Chief of Staff for
Government Relations for the Personal Communications Industry Association. From
May 1994 to April 1998 she served as Vice President - Legal and Regulatory
Affairs for the United States Telecom Association.
Ms. Persing will become Senior Vice President--Information Technology and
Human Resources, effective as of June 1, 2003. Ms. Persing will have served as
Senior Vice President of NTELOS from April 2000 to June 1, 2003. From May 1998
to April 2000 she served as Vice President - Human Resources. From December 1995
to March 1998, she was employed by PrimeCo Personal Communications as Vice
President of Customer Care. From June 1974 to January 1994, she held numerous
leadership positions with AT&T. These positions encompassed customer care,
directory assistance, human resources, network engineering, software development
and large project management. From August 1994 to November 1995, she served as
operations manager for NTELOS' directory assistance operation.
These officers do not receive additional compensation for service as
officers of NTELOS Subsidiaries.
C. Management Contracts.
NTELOS entered into employment agreements on December 31, 2001 with its
executive officers, James S. Quarforth, Carl A. Rosberg, David R. Maccarelli,
Michael B. Moneymaker, Mary McDermott and Don Marie Persing. Each was approved
by the non-employee members of the Board of Directors of NTELOS.
Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker and Mses. McDermott
and Persing entered into employment agreements with NTELOS in December 2001. The
term of the employment agreement with Mr. Quarforth is 36 months, with Mr.
Rosberg is 30 months, and
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with each of Messrs. Maccarelli and Moneymaker and Mses. McDermott and Persing
is 24 months.
In addition to base salary and annual incentive bonuses, the executives are
entitled to participate in NTELOS' long-term stock-based incentive compensation
program and all other employee benefit plans, including NTELOS' executive
supplemental retirement plan.
NTELOS may terminate the executive's employment agreement for continued
disability or, upon written notice, for cause. The executive may terminate the
agreement, upon prior written notice, for good reason.
"Cause" generally means any of the following: gross or willful misconduct;
willful and repeated failure to comply with the lawful directives of the Board
of Directors; any criminal act or act of dishonesty or fraud that has a material
adverse impact on NTELOS or its subsidiaries or any fraud, dishonesty or
misappropriation involving the company or its subsidiaries; material breach of
the terms of any confidentiality, non-competition, non-solicitation or
employment agreement with NTELOS; acts of malfeasance or negligence; material
failure to perform the duties and responsibilities of his or her position;
grossly negligent conduct; or activities materially damaging NTELOS or its
subsidiaries.
"Good reason" generally means any of the following: base salary or target
incentive payments are reduced; responsibilities are diminished; relocation of
more than 50 miles is required; deferred compensation is withheld; benefits
diminish following a change of control; directed by the Board of Directors or an
officer to engage in conduct that is illegal; material breach of NTELOS'
obligations under the agreement; or, with respect to Messrs. Quarforth, Rosberg,
Maccarelli and Moneymaker and Mses. McDermott and Persing, failure to increase
the executive's compensation consistent with performance ratings.
If any of Messrs. Quarforth, Rosberg, Maccarelli or Moneymaker or Mses.
McDermott or Persing is terminated, other than for cause, or if any one of them
terminates the agreement for good reason, he or she is entitled to (1) base
salary for a period of time thereafter equal to the term of his or her
employment agreement, and (2) target incentive payments for the same period and
standard termination payments.
The agreements with Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker
and Mses. McDermott and Persing provide for certain benefits if NTELOS
experiences a change in control during the term of the agreement followed by (1)
termination of the executive's employment without cause, or (2) resignation of
the executive for good reason (even if such termination or resignation occurs
after the term of the agreement). If Messrs. Quarforth, Rosberg, Maccarelli or
Moneymaker or Mses. McDermott or Persing is terminated within 30 months (36
months with respect to Mr. Quarforth) of a change in control, he or she will
receive severance benefits, including three years' base salary and target
incentive payments. Any severance pay due to the executive will be paid in a
lump sum on a net present value basis. In addition, the employment agreements
with Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker and Mses. McDermott
and Persing provide that NTELOS will pay additional amounts to the executive to
compensate him or her for excise taxes and penalties imposed on the severance
pay.
The agreements with Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker
and Mses. McDermott and Persing provide that during the term of the agreement
and for a period of 24 months after the end of his or her employment with
NTELOS, the executive will not compete,
75
directly or indirectly, with NTELOS. In addition, pursuant to non-solicitation
provisions, the executive may not solicit certain current and former employees
during the term of their agreements and for 24 months thereafter.
NTELOS' Executive Supplemental Retirement Plan provides that participation
in the plan may not be rescinded by NTELOS so long as the participant remains
employed with NTELOS. Any payment to a named executive officer required under
the plan following a change of control must be paid in a lump sum in cash on an
actuarial basis. A "change of control" generally means (i) any person or entity,
acquires direct or indirect ownership of more than 30% of the combined voting
power of NTELOS, except WCAS may own up to 40% of the then outstanding
securities or up to 37.5 % of the voting securities (provided that it is in
compliance with the amended and restated shareholders agreement); (ii) during
any period of two consecutive years, individuals who constitute the Board of
Directors, and any new director whose election was approved by a majority of the
directors who either (a) were directors at the beginning of the period or (b)
were so elected, cease for any reason to constitute at least a majority of the
Board of Directors; (iii) NTELOS' shareholders approve a merger or consolidation
with another entity and the merger or consolidation is consummated, other than
(a) a merger or consolidation where NTELOS' voting securities outstanding
immediately prior to the merger or consolidation continue to represent 50% of
the combined voting power of the surviving entity or (b) a merger or
consolidation effected to recapitalize NTELOS where no person acquires more than
30% of the combined voting power of NTELOS' then outstanding securities; (iv)
NTELOS' shareholders approve a plan of complete liquidation or an agreement for
the sale of all or substantially all of the Debtors' assets and such liquidation
or sale is consummated; or (v) the sale or disposition of all or substantially
all of the assets of one or more of the Debtors' material lines of business
(with respect to participants who are employed in such material line of business
and whose employment is terminated by NTELOS or the acquiror prior to the third
anniversary of the sale or who terminates for good reason prior to the third
anniversary). Prior to the date of this Disclosure Statement, each participant
in the Executive Supplemental Retirement Plan consented to an amendment of the
Executive Supplemental Retirement Plan to change the definition of "change in
control" to exclude any event, reorganization, restructuring, equity change or
other transaction that occurs as a result of or in connection with the Chapter
11 Case and the Plan.
D. Stock Option Incentive Plan.
On the Effective Date or as soon thereafter as is practicable, the Board of
Directors of Reorganized NTELOS will implement the Stock Option Incentive Plan.
Under the Stock Option Incentive Plan, incentive options will be granted as set
forth below.
In light of the Chapter 11 Case, the Board of Directors of NTELOS
determined not to approve bonuses to officers of NTELOS under the 2002
Management Incentive Plan, despite the board's determination that the
performance objectives contemplated by the plan were sufficiently achieved to
authorize payment of such bonuses to all other employees. As an officer
retention measure, taking into consideration the board's decision not to approve
2002 bonuses for officers and recognizing the substantial efforts that will be
required of the officers following emergence from bankruptcy, options to
purchase the number of shares equal to 7.5% (with a portion of this 7.5% being
awarded to other key employees) of the fully-diluted New Common Stock will be
awarded by the Board of Directors of Reorganized NTELOS to officers on the
Effective Date or as soon thereafter as is practicable with an exercise price
equal to the conversion price for the New Notes. The options under the Stock
Option Incentive Plan to be awarded on the Effective
76
Date or as soon thereafter as practicable will be vested as to one-third (1/3)
of the options subject to the award on the grant date and as to an additional
one-third (1/3) of the options subject to the award on each of the first and
second anniversaries of the grant date. The vesting of such options will be
accelerated upon a change of control of Reorganized NTELOS.
The plan also contemplates that options to purchase shares equal to up to
2.5% of the fully-diluted New Common Stock will be awarded thereafter at the
discretion of the Board of Directors of Reorganized NTELOS to management and
employees and, subject to compliance with applicable securities laws, other
employees of Reorganized NTELOS.
E. Post-Effective Date Security Ownership of Certain Owners.
To the knowledge of NTELOS, based upon its analysis of the holdings of the
Senior Notes, the Subordinated Notes and the Old Preferred Stock Interests,
NTELOS expects that Capital Research and Management Company and Morgan Stanley &
Co. Incorporated each will beneficially own in excess of 30% of Reorganized
NTELOS. These estimates of beneficial ownership are based upon the most
reasonably current information available to NTELOS. Thus, there can be no
assurance that these estimates remain accurate.
A number of parties may actively trade in Claims during the Chapter 11
Case. See Section XI.B.2., "Certain Risk Factors To Be Considered - Overall Risk
To Recovery By Holders of Claims - Significant Holders."
IX.
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
TO THE SECURITIES TO BE DISTRIBUTED UNDER THE PLAN
A. Section 1145 of the Bankruptcy Code.
Upon the consummation of the Plan, Reorganized NTELOS will rely on Section
1145 of the Bankruptcy Code, to the extent it is applicable, to exempt the
issuance of the New Common Stock and the New Warrants and the issuance of
securities upon exercise of the New Warrants to holders of Allowed Claims and
Allowed Equity Interests from the registration requirements of the Securities
Act and of any state securities or "blue sky" laws. Section 1145 exempts from
registration the sale of a debtor's securities under a Chapter 11 plan if such
securities are offered or sold in exchange for a claim against, or equity
interest in, or a claim for an administrative expense in a case concerning, the
debtor or principally in such exchange and partly for cash or property. In
reliance upon this exemption, issuance of the New Warrants, and the issuance of
New Common Stock upon exercise thereof, generally will be exempt from the
registration requirements of the Securities Act. Accordingly, such recipients
will be able to resell the New Common Stock and the New Warrants and the
securities issued upon exercise of the New Warrants without registration under
the Securities Act or other federal securities laws, unless the recipient is an
"underwriter" with respect to such securities, within the meaning of Section
1145(b) of the Bankruptcy Code. Section 1145(b) of the Bankruptcy Code defines
"underwriter" as one who (a) purchases a claim with a view to distribution of
any security to be received in exchange for the claim, (b) offers to sell
securities issued under a plan for the holders of such securities, (c) offers to
buy securities issued under a plan from persons receiving such securities, if
the offer to buy is made with a view to distribution or (d) is an "issuer" of
the relevant security, as such term is used in Section 2(11) of the Securities
Act.
77
B. Section 4(2) of the Securities Act.
Reorganized NTELOS will rely on Section 4(2) of the Securities Act and
Regulation D promulgated thereunder to exempt the offering, sale and issuance of
the New Notes (and the New Common Stock issued upon conversion thereof or in
connection therewith) to the Participating Noteholders pursuant to the Purchase
Agreement. Section 4(2) exempts from the registration requirements of the
Securities Act any offering by an issuer not involving any public offering.
Regulation D similarly exempts from the registration provisions of the
Securities Act offerings of securities to "Accredited Investors," as such term
is defined under Regulation D, and to other qualified investors.
C. Registration Rights.
Reorganized NTELOS will grant registration rights to holders of New Common
Stock and to certain holders of Senior Notes, including the Participating
Noteholders, pursuant to Registration Rights Agreements entered into with such
holders as of the Effective Date. See Section VI.D, "Joint Plan of
Reorganization - Means of Implementation of the Plan." The forms of the
Registration Rights Agreements will be filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 5 and Exhibit 6.
D. Subsequent Transfers Under State Law.
The state securities laws generally provide registration exemptions for
subsequent transfers by a bona fide owner for his or her own account and
subsequent transfers to institutional or accredited investors. Such exemptions
are generally expected to be available for subsequent transfers of New Common
Stock, the New Notes and the New Warrants.
Any person intending to rely on these exemptions is urged to consult his or
her own counsel as to their applicability to his or her circumstances.
E. Certain Transactions by Stockbrokers.
Under Section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of this Disclosure Statement (and any supplements, if ordered
by the Bankruptcy Court) at or before the time of delivery of securities issued
under the Plan to their customers for the first 40 days after the Effective
Date. This requirement specifically applies to trading and other after-market
transactions in the securities.
X.
VALUATION OF REORGANIZED NTELOS
A. Introduction.
To assist NTELOS' Board of Directors in evaluating the Plan and the
distributions that holders of Claims and Equity Interests will receive under the
Plan, NTELOS' Board of Directors requested that the Debtors' financial advisor,
UBS Warburg, undertake an analysis of the estimated range of the going concern
enterprise value of the Reorganized Debtors, on a consolidated basis, after
giving effect to the reorganization as set forth in the Plan. UBS Warburg
completed and delivered its analysis to NTELOS' Board of Directors on May 23,
2003.
In conducting its analysis, UBS Warburg, among other things:
78
. reviewed certain publicly-available business and historical financial
information relating to the Debtors;
. reviewed certain internal financial information and other data
relating to the business and financial prospects of the Reorganized
Debtors, including financial projections through 2010 (the "Financial
Projections") prepared by management of NTELOS (of which projection
years 2003 - 2008 are set forth in Exhibit C), which were provided to
UBS Warburg by NTELOS;
. conducted discussions with members of NTELOS' senior management
concerning the business and financial prospects of the Reorganized
Debtors;
. reviewed publicly-available financial and stock market data with
respect to certain other companies in lines of business UBS Warburg
believed to be comparable in certain respects to the Reorganized
Debtors' businesses;
. reviewed the financial terms, to the extent available, of certain
transactions that UBS Warburg believed to be generally relevant;
. considered certain industry and economic information relevant to the
Reorganized Debtors' businesses;
. reviewed the Plan and the information in this Disclosure Statement as
of May 13, 2003; and
. conducted such other financial studies, analyses and investigations,
and considered such other information, as UBS Warburg deemed necessary
or appropriate.
THE ESTIMATED GOING CONCERN ENTERPRISE VALUE OF THE REORGANIZED DEBTOR
SET FORTH IN THIS SECTION REPRESENTS A HYPOTHETICAL VALUATION OF THE REORGANIZED
DEBTOR, ASSUMING THAT THE REORGANIZED DEBTOR CONTINUES AS AN OPERATING BUSINESS,
ESTIMATED BASED ON VARIOUS VALUATION METHODOLOGIES. THE ESTIMATED GOING CONCERN
ENTERPRISE VALUE OF THE REORGANIZED DEBTOR SET FORTH IN THIS SECTION DOES NOT
PURPORT TO CONSTITUTE AN APPRAISAL OR NECESSARILY REFLECT THE ACTUAL MARKET
VALUE THAT MIGHT BE REALIZED THROUGH A SALE OR LIQUIDATION OF THE REORGANIZED
DEBTOR, ITS SECURITIES OR ITS ASSETS, WHICH VALUE MAY BE SIGNIFICANTLY HIGHER OR
LOWER THAN THE ESTIMATE SET FORTH IN THIS SECTION. ACCORDINGLY, SUCH ESTIMATED
GOING CONCERN ENTERPRISE VALUE IS NOT NECESSARILY INDICATIVE OF THE PRICES AT
WHICH THE NEW COMMON STOCK OR OTHER SECURITIES OF REORGANIZED NTELOS MAY TRADE
AFTER GIVING EFFECT TO THE REORGANIZATION SET FORTH IN THE PLAN, WHICH PRICES
MAY BE SIGNIFICANTLY HIGHER OR LOWER THAN INDICATED BY SUCH ESTIMATE.
The actual value of an operating business, such as the Reorganized
Debtors, is subject to various factors, many of which are beyond the control or
knowledge of NTELOS or UBS Warburg, and such value will fluctuate with changes
in such factors. In addition, the market prices of Reorganized NTELOS'
securities will depend upon, among other things, prevailing interest rates,
conditions in the financial markets, the investment decisions of prepetition
creditors receiving such securities under the Plan (some of whom may prefer to
liquidate their investment rather than hold it on a long-term basis), and other
factors that generally influence the prices of securities. There can be no
assurance as to the trading market, if any, that may be available in the future
with respect to Reorganized NTELOS' securities.
79
UBS Warburg's analysis was undertaken solely for the purpose of assisting
NTELOS' Board of Directors in evaluating the Plan and the distributions that
holders of Claims and Equity Interests will receive under the Plan. UBS
Warburg's analysis addresses the estimated going concern enterprise value of the
Reorganized Debtors and does not address any other aspect of the proposed
reorganization, the Plan or any other transactions and does not address the
Debtors' underlying business decision to effect the reorganization set forth in
the Plan. UBS WARBURG'S ESTIMATED GOING CONCERN ENTERPRISE VALUE OF THE
REORGANIZED DEBTOR DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDERS OF CLAIMS
OR EQUITY INTERESTS AS TO HOW SUCH HOLDER SHOULD VOTE OR OTHERWISE ACT WITH
RESPECT TO THE PLAN. UBS Warburg has not been asked to, nor did UBS Warburg
express any view as to what the value of Reorganized NTELOS' securities will be
when issued pursuant to the Plan or the prices at which they may trade in the
future. The estimated going concern enterprise value of the Reorganized Debtors
set forth herein does not constitute an opinion as to fairness from a financial
point of view to any person of the consideration to be received by such person
under the Plan or of the terms and provisions of the Plan.
UBS Warburg's analysis is based upon, among other things, the Reorganized
Debtors achieving the Financial Projections prepared by management. The future
results of the Reorganized Debtors are dependent upon various factors, many of
which are beyond the control or knowledge of NTELOS, and consequently are
inherently difficult to project. The financial results reflected in the
Financial Projections are in certain respects materially better than the recent
historical results of operations of the Debtors. The Reorganized Debtors' actual
future results may differ materially from the projections and such differences
may affect the value of the Reorganized Debtors. See Exhibit C, "Projected
Financial Information." ACCORDINGLY, FOR THESE AND OTHER REASONS, THE ESTIMATED
GOING CONCERN ENTERPRISE VALUE OF THE REORGANIZED DEBTOR SET FORTH IN THIS
SECTION MUST BE CONSIDERED INHERENTLY SPECULATIVE. AS A RESULT, SUCH ESTIMATED
GOING CONCERN ENTERPRISE VALUE IS NOT NECESSARILY INDICATIVE OF ACTUAL VALUE,
WHICH MAY BE SIGNIFICANTLY HIGHER OR LOWER THAN THE ESTIMATES HEREIN. NEITHER
THE DEBTOR, UBS WARBURG NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE
ACCURACY OF SUCH ESTIMATED GOING CONCERN ENTERPRISE VALUE.
As part of its investment banking business, UBS Warburg is regularly
engaged in evaluating businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements,
restructurings and reorganizations and valuations for estate, corporate and
other purposes. In the ordinary course of business, UBS Warburg, its successors
and affiliates may trade securities of NTELOS for the accounts of their
customers and may in the future trade securities of Reorganized NTELOS for their
own accounts and the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities.
B. Methodology.
In preparing its valuation, UBS Warburg performed a variety of financial
analyses and considered a variety of factors. The following is a brief summary
of the material financial analyses performed by UBS Warburg, which consisted of
(a) an analysis of the market value and trading multiples of selected
publicly-held companies in lines of business UBS Warburg believed to be
80
comparable in certain respects to the lines of business of the Reorganized
Debtors, (b) an analysis of selected completed or announced transactions that
UBS Warburg believed to be generally relevant and (c) a discounted cash flow
analysis. The summary does not purport to be a complete description of the
analyses performed and factors considered by UBS Warburg. The preparation of a
valuation analysis is a complex analytical process involving various judgmental
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to particular facts and
circumstances, and such analyses and judgments are not readily susceptible to
summary description. In particular, UBS Warburg's valuation of the Debtors
reflects, among other things, the following:
. UBS Warburg has relied upon management's estimated valuation of
certain non-core, non-strategic businesses ("non-core assets")
and has included that estimate in the consolidated valuation of
the Debtors;
. UBS Warburg has applied its financial analyses individually to
each of the Debtors' primary lines of business (respectively,
wireless and wireline telecommunications services), and then has
aggregated those estimated valuations with the estimated value of
non-core assets to establish a going concern enterprise for the
Debtors on a consolidated basis; and
UBS Warburg believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all its analyses, could
create a misleading or incomplete view of the processes underlying UBS Warburg's
conclusions. UBS Warburg did not draw, in isolation, conclusions from or with
regard to any one analysis or factor, nor did UBS Warburg place any particular
reliance or weight on any individual analysis. Rather, UBS Warburg arrived at
its views based on all the analyses undertaken by it assessed as a whole.
For purposes of UBS Warburg's analysis, the estimated going concern
enterprise value of the Reorganized Debtors equals the value of its fully
diluted common equity, plus its outstanding debt, minus cash, determined based
on the Reorganized Debtors (including the NTELOS Non-filing Subsidiaries), on a
consolidated basis, as an operating business, after giving effect to the
reorganization set forth in the Plan.
1. Selected Publicly Traded Companies Analysis.
UBS Warburg analyzed the market value and trading multiples of
selected publicly-held companies in lines of business UBS Warburg believed to be
comparable in certain respects to the lines of business of the Reorganized
Debtors. To the extent such selected companies also operated in lines of
business that were unlike the Debtors' businesses under consideration, UBS
Warburg made adjustments to the market values of the selected companies as
appropriate. UBS Warburg calculated the enterprise value of the selected
companies as a multiple of certain historical and projected financial data of
such companies (adjusted as described above). UBS Warburg then analyzed those
multiples and compared them with multiples derived by assigning a range of
enterprise values to the applicable lines of business of the Reorganized Debtors
and dividing those enterprise values by the corresponding historical and
projected financial data of the applicable lines of business of the Reorganized
Debtors. The projected financial data for the Reorganized Debtors were based on
the Projection Financial Information prepared by NTELOS' management and the
projected financial data for the selected companies were based on publicly
available research analyst reports and other publicly available information.
81
Although the selected companies were used for comparison purposes, no
selected company is either identical or directly comparable to either of the
primary lines of business of the Reorganized Debtors. Accordingly, UBS Warburg's
comparison of the selected companies to the business of the Reorganized Debtors
and analysis of the results of such comparisons was not purely mathematical, but
instead necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the relative values of the selected companies and of the
Reorganized Debtors.
2. Selected Transactions Analysis.
UBS Warburg reviewed selected completed or announced transactions that
UBS Warburg believed to be generally relevant. UBS Warburg calculated the
enterprise value of the companies or wireless spectrum assets in such
transactions implied by the consideration in such transactions as a multiple of
certain historical financial data of such companies. To the extent such
companies also operated in lines of business that were unlike the Debtors'
business under consideration, UBS Warburg made adjustments to the enterprise
values of the selected companies as appropriate. UBS Warburg then analyzed those
multiples and compared them with the multiples derived by assigning a range of
enterprise values to the applicable lines of business of the Reorganized Debtors
and dividing those enterprise values by the corresponding historical financial
data of the applicable lines of business of the Reorganized Debtors.
Although the selected transactions were used for comparison purposes,
no selected transaction is either identical or directly comparable to those set
forth in the Plan and no companies involved in the selected transactions were
either identical or directly comparable to either of the primary lines of
business of the Reorganized Debtors. Accordingly, UBS Warburg's analysis of the
selected transactions was not purely mathematical, but instead necessarily
involved complex considerations and judgments concerning differences in
transaction structure, financial and operating characteristics of the companies
involved and other factors that could affect the relative values achieved in
such transactions and the enterprise value of the Reorganized Debtors. In
reviewing the relevant transactions, UBS Warburg noted that many of the
transactions were announced in a materially more favorable valuation environment
for telecommunications companies.
3. Discounted Cash Flow Analysis.
UBS Warburg performed a discounted cash flow analysis to estimate the
present value of the Reorganized Debtors' future consolidated unlevered,
after-tax cash flows available to debt and equity investors based on the
Financial Projections. UBS Warburg used the projections of the Reorganized
Debtors' consolidated cash flow through 2010. For the purpose of calculating the
terminal value as of 2010, the cash flow projection from NTELOS' financial
projections for 2010 were adjusted for a statutory tax rate and the assumption
that annual depreciation expense would equal annual capital expenditures. UBS
Warburg calculated a range of terminal values by applying a perpetual growth
factor to the terminal year cash flow projection. UBS Warburg then applied a
range of discount rates to arrive at a range of present values of those cash
flows and terminal values. The discounted cash flow analysis also involves
complex considerations and judgments concerning appropriate adjustments to
terminal year cash flows for perpetuity purposes, perpetuity growth factors and
discount rates.
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C. Estimated Going Concern Enterprise Value of the Reorganized Debtors.
IN CONNECTION WITH UBS WARBURG'S ANALYSIS, WITH NTELOS' CONSENT, UBS
WARBURG HAS NOT ASSUMED ANY RESPONSIBILITY FOR INDEPENDENT VERIFICATION OF ANY
OF THE INFORMATION PROVIDED TO UBS WARBURG, PUBLICLY AVAILABLE TO UBS WARBURG OR
OTHERWISE REVIEWED BY UBS WARBURG, AND UBS WARBURG, WITH NTELOS' CONSENT, HAS
RELIED ON SUCH INFORMATION BEING COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS.
UBS WARBURG HAS FURTHER RELIED UPON THE REPRESENTATIONS OF NTELOS' SENIOR
MANAGEMENT THAT THEY ARE NOT AWARE OF ANY FACTS OR CIRCUMSTANCES THAT WOULD MAKE
SUCH INFORMATION INACCURATE OR MISLEADING. WITH RESPECT TO NTELOS' FINANCIAL
PROJECTIONS, UBS WARBURG HAS ASSUMED, AT NTELOS' DIRECTION, THAT SUCH FINANCIAL
PROJECTIONS HAVE BEEN REASONABLY PREPARED ON A BASIS REFLECTING THE BEST
CURRENTLY AVAILABLE ESTIMATES AND JUDGMENTS OF NTELOS' SENIOR MANAGEMENT AS TO
THE FUTURE PERFORMANCE OF THE REORGANIZED DEBTOR AFTER GIVING EFFECT TO THE
REORGANIZATION AS SET FORTH IN THE PLAN.
In addition, with NTELOS' consent, UBS Warburg has not independently
evaluated the achievability of the Financial Projections or the reasonableness
of the assumptions upon which it is based, has not contacted any of the Debtors'
customers regarding the likelihood that such customers will continue to purchase
services from the Reorganized Debtors and has not conducted a physical
inspection of the properties and facilities of the Debtors. Furthermore, with
NTELOS' consent, UBS Warburg has not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Debtors, nor has UBS Warburg been furnished with any such evaluation or
appraisal.
UBS Warburg has also assumed, with NTELOS' consent, among other things, the
following (as to which UBS Warburg makes no representation):
. The Plan will be confirmed and consummated in accordance with its
terms, and the Debtors will be reorganized as set forth in the
Plan;
. For purposes of the UBS Warburg analysis, the effective date will
be September 30, 2003;
. Reorganized NTELOS' capitalization and available cash will be as
set forth in the Plan and this Disclosure Statement. In
particular, the pro forma principal amount of indebtedness of
Reorganized NTELOS as of the effective date will be $311.1
million, excluding amounts payable under interest rate swap
agreements;
. Certain tax benefits and attributes (including NOLs) will be
available to the Reorganized Debtors, as reflected in the Plan
and the Financial Projections prepared by NTELOS;
. Reorganized NTELOS will be able to obtain all future financings,
on the terms and at the times, necessary to achieve the
projections;
. Neither the Debtors nor the Reorganized Debtors will engage in
any material asset sales or other strategic transaction, and no
such asset sales or strategic
83
transactions are required to meet the Reorganized Debtors'
ongoing cash requirements;
. All governmental, regulatory or other consents and approvals
necessary for the consummation of the Plan will be obtained
without any material adverse effect on the Reorganized Debtors or
the Plan;
. There will not be any material change in the business, condition
(financial or otherwise), results of operations, assets,
liabilities or prospects of the Debtors other than as reflected
in the Financial Projections;
. The Debtors' wholesale relationship with Horizon PCS will
continue and the revenues realized by the Debtors from this
relationship will be as projected in the Financial Projections;
. For purposes of this valuation, UBS Warburg has not been asked to
evaluate, and has not evaluated, the potential impact of a
Horizon PCS bankruptcy on the Reorganized Debtors' future
performance; and
. There will not be any material change in economic, market,
financial and other conditions.
The estimated range of the going concern enterprise value of the
Reorganized Debtors is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information available to UBS as
of the date of its analysis, May 23, 2003. Although subsequent developments may
affect UBS Warburg's analysis and views, UBS Warburg does not have any
obligation to update, revise or reaffirm its estimate.
Based upon and subject to the review and analysis described herein, and
subject to the assumptions, limitations and qualifications described herein, UBS
Warburg's view, as of May 23, 2003, was that, subject to no material change in
economic, market, financial or other conditions and no material change in the
condition, projections or prospects of the Reorganized Debtors, the estimated
going concern enterprise value of the Reorganized Debtors, as of the assumed
effective date (September 30, 2003), would be in a range between $446 million
and $549 million.
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XI.
CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTOR SHOULD READ
AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER
INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED
TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT
OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS
CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS
IMPLEMENTATION.
A. General Bankruptcy Risk Factors.
1. Parties in interest may object to the Debtors' classification of
Claims.
Section 1122 of the Bankruptcy Code provides that a plan of
reorganization may place a claim or an interest in a particular class only if
such claim or interest is substantially similar to the other claims or interests
of such class. The Debtors believe that the classification of claims and
interests under the Plan complies with the requirements set forth in the
Bankruptcy Code. However, the Debtors cannot assure you that the Bankruptcy
Court will reach the same conclusion.
2. The commencement of the Chapter 11 Case may have negative implications
under certain contracts of the Debtors.
The Debtors are party to various contractual arrangements under which
the commencement of the Chapter 11 Case and the other transactions contemplated
by the Plan could, subject to the Debtors' rights and powers under Sections 362
and 365 of the Bankruptcy Code, (a) result in a breach, violation, default or
conflict, (b) give other parties thereto rights of termination or cancellation,
or (c) have other adverse consequences for the Debtors or the Reorganized
Debtors. The magnitude of any such adverse consequences may depend on, among
other factors, the diligence and vigor with which other parties to such
contracts may seek to assert any such rights and pursue any such remedies in
respect of such matters, and the ability of the Debtors or Reorganized Debtors
to resolve such matters on acceptable terms through negotiations with such other
parties or otherwise.
3. The proposed recapitalization will reduce favorable tax attributes.
Although the Debtors do not believe that implementation of the
Plan will itself result in significant tax liability, it likely will reduce
substantially the amount of the Debtors' existing net operating loss carryovers
and could result in limitations on the Debtors' ability to use remaining loss
carryovers and built-in losses. The reduction of, and potential limitations on
the Debtors' ability to use, such favorable tax attributes could adversely
affect the Debtors' financial position in future years.
4. The Debtors may not be able to secure confirmation of the Plan.
The Debtors cannot assure you that the requisite acceptances to
confirm the Plan will be received. Even if the requisite acceptances are
received, the Debtors cannot assure you
85
that the Bankruptcy Court will confirm the Plan. A non-accepting holder of a
Claim or Equity Interest might challenge the balloting procedures and results as
not being in compliance with the Bankruptcy Code or Bankruptcy Rules. Even if
the Bankruptcy Court determined that the Disclosure Statement and the balloting
procedures and results were appropriate, the Bankruptcy Court could still
decline to confirm the Plan if it found that any of the statutory requirements
for confirmation had not been met.
Section 1129 of the Bankruptcy Code sets forth the requirements for
confirmation and requires, among other things, a finding by the Bankruptcy Court
that the confirmation of the Plan is not likely to be followed by a liquidation
or a need for further financial reorganization and that the value of
distributions to non-accepting holders of claims and interests within a
particular class under the Plan will not be less than the value of distributions
such holders would receive if the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code. While the Debtors cannot assure you that the Bankruptcy Court
will conclude that these requirements have been met, the Debtors believe that
the Plan will not be followed by a need for further financial reorganization and
that non-accepting holders within each Class under the Plan will receive
distributions at least as great as would be received following a liquidation
under Chapter 7 of the Bankruptcy Code when taking into consideration all
administrative claims and the costs and uncertainty associated with any such
Chapter 7 case.
The confirmation and consummation of the Plan are also subject to
certain conditions, including the purchase of the New Notes by the Participating
Noteholders. If the Plan is not confirmed, it is unclear whether a restructuring
of the Debtors could be implemented and what distribution holders of Claims or
Equity Interests ultimately would receive with respect to their Claims or Equity
Interests. If an alternative reorganization could not be agreed to, it is
possible that the Debtors would have to liquidate their assets, in which case it
is likely that holders of Claims or Equity Interests would receive substantially
less favorable treatment than they would receive under the Plan.
5. The Debtors may object to the amount or classification of your claim.
The Debtors reserve the right to object to the amount or
classification of any claim or interest. The estimates set forth in this
Disclosure Statement cannot be relied on by any creditor whose claim or interest
is subject to an objection. Any such holder of a Claim or Equity Interest may
not receive its specified share of the estimated distributions described in this
Disclosure Statement.
B. Overall Risk to Recovery by Holders of Claims and Equity Interests.
The ultimate recoveries under the Plan to holders of Claims (other than
those holders who are paid in Cash under the Plan) depend upon the realizable
value of the New Common Stock. The securities to be issued pursuant to the Plan
are subject to a number of material risks, including, but not limited to, those
specified below. The factors specified below assume that the Plan is approved by
the Bankruptcy Court and that the Effective Date occurs on or about August 31,
2003. Prior to voting on the Plan, each holder of a Claim should carefully
consider the risk factors specified or referred to below, including the Exhibits
annexed hereto, as well as all of the information contained in the Plan.
1. The Projected Financial Information included in this Disclosure
Statement is dependent upon the successful implementation of the
business plan and the validity of the other assumptions contained
therein.
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The Projected Financial Information reflects numerous assumptions,
including confirmation and consummation of the Plan in accordance with its
terms, certain assumptions with respect to competitors of the general business
of the Company and economic conditions and other matters, many of which are
beyond the control of the Company, including certain matters which are the
subject of risk factors described below. In addition, unanticipated events and
circumstances occurring subsequent to the preparation of the Projected Financial
Information may affect the actual financial results of the Company. Although
NTELOS believes that the projected results included in the Projected Financial
Information are reasonably attainable, some or all of the estimates will vary
and variations between the actual financial results and those projected may be
material.
THE PROJECTED FINANCIAL INFORMATION WAS NOT PREPARED WITH A VIEW
TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE AICPA OR FASB.
FURTHERMORE, THE PROJECTED FINANCIAL INFORMATION HAS NOT BEEN AUDITED OR
REVIEWED BY NTELOS' INDEPENDENT ACCOUNTANTS. WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ESTIMATES AND
ASSUMPTIONS, WHICH, ALTHOUGH DEVELOPED AND CONSIDERED REASONABLE BY THE
MANAGEMENT OF NTELOS, MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF
WHICH ARE BEYOND THE CONTROL OF THE REORGANIZED DEBTOR AND THE MANAGEMENT OF
NTELOS. CONSEQUENTLY, THE PROJECTED FINANCIAL INFORMATION SHOULD NOT BE REGARDED
AS A REPRESENTATION OR WARRANTY BY THE DEBTOR, OR ANY OTHER PERSON, AS TO THE
ACCURACY OF THE PROJECTIONS OR THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTED FINANCIAL
INFORMATION.
2. After consummation of the Plan, certain holders of Equity Interests
and Claims will own in excess of five percent of the outstanding
shares of New Common Stock.
Upon the consummation of the Plan, certain holders of Equity Interests
and Claims will receive distributions of shares of the New Common Stock
representing in excess of 5.0% of the outstanding shares of the New Common
Stock. See Section VIII.E, "Management of Reorganized NTELOS - Post-Effective
Date Security Ownership of Certain Owners." If holders of significant numbers of
shares of New Common Stock were to act as a group, such holders may be in a
position to control the outcome of actions requiring shareholder approval,
including the election of directors. Certain of these holders of Claims are
Participating Noteholders who could increase their ownership of New Common
Stock. This concentration of ownership could also facilitate or hinder a
negotiated change of control of the Reorganized Debtors and, consequently,
affect the value of the New Common Stock.
Further, if a trading market were to develop, the possibility that one
or more of the holders of significant numbers of shares of New Common Stock may
determine to sell all or a large portion of their shares of New Common Stock
within a short period of time may adversely affect the market price of the New
Common Stock.
3. There is no established market for the New Common Stock nor is it
expected that one will develop.
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The New Common Stock will be issued to holders of the Allowed Claims
and Allowed Equity Interests in Classes 5, 9 and 10, some of whom may prefer to
liquidate their investment rather than to hold it on a long-term basis. There is
currently no trading market for the New Common Stock (such as the Nasdaq Stock
Market or a national or regional stock exchange) nor is it known whether or when
a trading market would develop. Further, if such a market was to develop, there
can be no assurance to the degree of price volatility in any such particular
market. The Plan was developed utilizing an assumed value of $19.77 per share of
New Common Stock (based on the implied equity value associated with the New
Notes). No representation is made that such implied equity value represents the
fair market value nor that it is an estimate of the price at which the New
Common Stock may trade in a market, if any. NTELOS has not attempted to make any
such estimate in connection with the development of the Plan.
4. Reorganized NTELOS may discontinue its registration and Exchange Act
reporting obligations.
NTELOS is currently subject to registration and reporting requirements
under the Exchange Act. Whether Reorganized NTELOS will continue to be subject
to registration and reporting requirements will depend upon whether Reorganized
NTELOS will have at least three hundred (300) security holders following the
Effective Date. Reorganized NTELOS may determine to discontinue its registration
and reporting obligations under the Exchange Act if it is eligible to do so, in
which case less information concerning Reorganized NTELOS and its financial
condition would be publicly available to Reorganized NTELOS' security holders.
Continued compliance with Exchange Act reporting requirements would result in a
substantial expense and may be administratively burdensome for Reorganized
NTELOS.
5. Resale of the New Common Stock will be restricted by the Shareholders'
Agreement.
Pursuant to the terms of the Plan, as of the Effective Date,
Reorganized NTELOS and the holders of the New Common Stock likely will be bound
by a Shareholders' Agreement that will limit, restrict or prohibit the ability
of holders of New Common Stock to sell or otherwise transfer such securities for
a specified or indefinite period of time. It is anticipated that the
Shareholders' Agreement will contain such provisions (but may contain different
or additional provisions), including transfer restrictions with respect to the
New Common Stock, as set forth on Exhibit I hereto.
6. Resale of the New Notes, New Common Stock and New Warrants may be
restricted by law.
The New Common Stock and the New Warrants will be distributed under
the Plan without registration under the Securities Act or any state securities
laws under exemptions from registration contained in Section 1145(a) of the
Bankruptcy Code. The New Notes will be issued and sold to the Participating
Noteholders under the Plan without registration under the Securities act or any
state securities laws under the exemption from registration contained in Section
4(2) of the Securities Act. If a holder of securities offered and sold under the
Plan is deemed to be an "underwriter" with respect to such securities (with
certain exceptions for "ordinary trading transactions" by certain persons) or an
"affiliate" of the issuer of such securities, resales of such securities by such
holder would not be exempt from the registration requirements under the
Securities Act and securities laws under Section 1145 of the Bankruptcy Code
and, accordingly,
88
could be effected only under an effective registration statement or a reliance
on another applicable exemption from these registration requirements.
7. Reorganized NTELOS will not pay dividends on the New Common Stock.
NTELOS has not declared or paid any cash dividends on the Old Common
Stock since March 2000 and Reorganized NTELOS does not currently expect to
declare or pay any cash dividends on the New Common Stock in the foreseeable
future.
8. The rights of the New Notes will be senior to the rights of the New
Common Stock.
The holders of the New Notes will have a claim against Reorganized
NTELOS' assets senior to the claim of the holders of the New Common Stock in the
event of Reorganized NTELOS' liquidation, dissolution or winding-up. The
aggregate amount of that senior claim will be $75.0 million.
9. Conversion of the New Notes and exercise of the New Warrants will
dilute the ownership of holders of shares of New Common Stock.
Investors owning New Notes and New Warrants are entitled to acquire a
substantial percentage of the outstanding shares of New Common Stock upon
conversion or exercise of those securities. The actual amount of their future
percentage ownership of the New Common Stock, and the extent of dilution to
holders of the New Common Stock, will depend on a number of factors. The holders
of New Notes also would have the right to convert the New Notes into an
increased number of shares of New Common Stock if antidilution adjustments under
the New Indenture were triggered.
The New Notes will be convertible in whole or in part into shares of
New Common Stock at any time the New Notes are outstanding. Reorganized NTELOS
may redeem the New Notes at any time upon sixty (60) days prior notice to
holders of the New Notes. The New Notes may be redeemed by Reorganized NTELOS
during (a) the two (2) years following the Effective Date at a redemption price
equal to an amount that is 109.0% of the face value of the New Notes, (b) the
third year following the Effective Date at a redemption price equal to an amount
that is 104.5% of the face value of the New Notes and (c) the period thereafter
at a redemption price equal to an amount that is 100.0% of the face value of the
New Notes. Each New Warrant will be exercisable for New Common Stock in whole or
in part at any time during a five-year exercise period beginning on the
Effective Date. Any redemption of the New Notes permits the holder thereof to
exercise its conversion rights within a notice period of not less than 60 days.
10. The restrictive debt covenants under the New Credit Agreement and New
Indenture will limit NTELOS' discretion on certain business matters.
From and after the Effective Date, Reorganized NTELOS will be subject
to restrictions under the New Credit Agreement and the New Indenture that limit
Reorganized NTELOS' discretion on some business matters, which could make it
more difficult for Reorganized NTELOS to expand, finance its operations or
engage in other business activities that may be in Reorganized NTELOS' interest.
The restrictions under the New Credit Agreement or the New Indenture will limit
Reorganized NTELOS' ability to:
89
. incur additional debt;
. pay dividends or make other distributions;
. make investments or other restricted payments;
. make capital expenditures;
. create any Lien on its properties; or
. sell certain assets;
. consolidate, merge or sell all or substantially all of its
assets; and
. change the nature of its business.
Reorganized NTELOS' indebtedness may limit its flexibility in
responding to important business developments, which could place Reorganized
NTELOS at a competitive disadvantage. Reorganized NTELOS' indebtedness may:
. limit its ability to obtain necessary financing in the
future;
. limit its ability to refinance all or a portion of its
indebtedness on or before maturity;
. limit its ability to fund planned capital expenditures;
. require Reorganized NTELOS to use a significant portion of
its cash flow from operations to pay its debt obligations
rather than for other purposes, such as funding working
capital or capital expenditures; and
. make Reorganized NTELOS more vulnerable to a downturn in its
business or in the economy in general.
These agreements also may limit Reorganized NTELOS' flexibility to
plan for, or react to, changes in its business, place Reorganized NTELOS at a
competitive disadvantage relative to its competitors who have less debt, make
Reorganized NTELOS more vulnerable to a downturn in its business or the economy
generally, and require Reorganized NTELOS to use a substantial portion of its
cash flow from operations to pay principal and interest on its debt, rather than
for working capital and capital expenditures.
C. Risks Related to the Business of the Company.
1. The Company faces substantial competition in the telecommunications
industry generally from competitors with substantially greater
resources than the Company and from competing technologies.
The Company operates in an increasingly competitive environment. As a
wireless communications provider, the Company faces intense competition from
other wireless providers, including Sprint and its affiliates, AT&T/SunCom,
Verizon Wireless, ALLTEL, Nextel, Cellular One, T-Mobile and Cingular Wireless.
Many of the Company's competitors are, or are affiliated with, major
communications companies that have substantially greater financial, technical
and marketing resources than the Company and may have greater name recognition
and more established relationships with a larger base of current and potential
customers, and accordingly, the Company may not be able to compete successfully.
The Company expects that increased competition will result in more competitive
pricing. Companies that have the resources to
90
sustain losses for some time have an advantage over those companies without
access to these resources. The Company cannot assure you that it will be able to
achieve or maintain adequate market share or revenue or compete effectively in
any of its markets.
Competition may cause the prices for wireless products and services to
continue to decline in the future. The Company's ability to compete will depend,
in part, on its ability to anticipate and respond to various competitive factors
affecting the telecommunications industry.
Additionally, many of the Company's competitors have national
networks, which enable them to offer long-distance telephone services to their
subscribers at a lower cost. Therefore, some of the Company's competitors are
able to offer pricing plans that include "free" long-distance. The Company does
not have a national network, and it must pay other carriers a per-minute charge
for carrying long-distance calls made by subscribers. To remain competitive, the
Company absorbs the long-distance charges without increasing the prices it
charges to its subscribers.
The Company expects competition to intensify as a result of the rapid
development of new technologies, including improvements in the capacity and
quality of digital technology, such as the move to third generation, or 3G,
wireless technologies. Technological advances and industry changes could cause
the technology used on the Company's network to become obsolete. The Company may
not be able to respond to such changes and implement new technology on a timely
basis or at an acceptable cost. To the extent that the Company does not keep
pace with technological advances or fail to timely respond to changes in
competitive factors in its industry, it could experience a decline in revenue
and net income. Each of the factors and sources of competition discussed above
could have a material adverse effect on the Company's business.
As a wireline telephone business, the Company faces competition from
CLEC and wireless service providers. Many communications services can be
provided without incurring a short-run incremental cost for an additional unit
of service. For example, there is little marginal cost for a carrier to transmit
a call over its own telephone network. As a result, once there are several
facilities-based carriers providing a service in a given market, price
competition is likely and can be severe. The Company has experienced such price
competition, which is expected to continue. In each of the Company's service
areas, additional competitors could build facilities. If additional competitors
build facilities in the Company's service areas, this price competition may
increase significantly.
As an integrated communications provider, the Company also faces
competition in its business from:
. national and regional Internet service providers;
. cable television companies; and
. resellers of communications services and enhanced services
providers.
2. If the Company fails to raise the capital required to build-out and
operate its planned networks or fails to have access to funds under
the Pre-Petition Credit Agreement, it may experience a material
adverse effect on its business.
The Company requires additional capital to build-out and operate
planned networks and for general working capital needs. The Company expects its
capital expenditures
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for 2003 to be approximately $58.0 million to $66.0 million in the aggregate,
including approximately $8.0 million to $10.0 million relating to a planned
wireless network upgrade to 3G-1XRTT technology. The Company may require
additional and unanticipated funds if there are significant industry, market or
other economic developments not contemplated by its current business plan, if it
has unforeseen delays, cost overruns, unanticipated expenses due to regulatory
changes, if it incurs engineering design changes or other technological risks.
The Company's network build-out may not occur as scheduled or at the cost it has
anticipated. The Company believes that proceeds from the issuance of the New
Notes and the availability of the $36.0 million revolver under the Pre-Petition
Credit Agreement will provide such additional funds; however, there can be no
assurance that the New Notes will be issued or that the Pre-Petition Credit
Agreement will be in place.
3. The Company needs to add a sufficient number of new PCS customers to
support its PCS business plans and to generate sufficient cash flow to
service its debt.
The wireless industry generally has experienced a decline in customer
growth rates. The Company also experienced a decline in its subscriber base in
2002. The Company's future success will depend on its ability to continue
expanding its current customer base, penetrate its target markets and otherwise
capitalize on wireless opportunities. The Company must increase its subscriber
base without excessively reducing the prices it charges to realize the
anticipated cash flow, operating efficiencies and cost benefits of its network.
4. If the Company experiences a high rate of PCS customer turnover, its
costs could increase and its revenues could decline.
Many PCS providers in the U.S. have experienced a high rate of
customer turnover. The rate of customer turnover may be the result of several
factors, including limited network coverage, reliability issues such as blocked
or dropped calls, handset problems, inability to roam onto third-party networks
at competitive rates, or at all, price competition and affordability, customer
care concerns and other competitive factors. The Company cannot assure you that
its strategies to address customer turnover will be successful. A high rate of
customer turnover could reduce revenues and increase marketing and customer
acquisition costs to attract the minimum number of replacement customers
required to sustain the Company's business plan, which, in turn, could have a
material adverse effect on the Company's business, prospects, operating results
and ability to service its debt.
5. The loss of significant customers or a decrease in their usage could
cause the Company's revenues to decline.
For the year ended December 31, 2002, Horizon Personal Communications,
Inc. accounted for approximately 12.4% of the Company's revenue. In late 2002,
Horizon notified the Company that it disputed certain categories of charges
invoiced to Horizon. In connection with this dispute, on March 24, 2003, a
stipulation was filed with the Bankruptcy Court pursuant to which the Company
agreed with Horizon to negotiate in good faith toward resolution of the dispute.
If the Company is unable to resolve this dispute, its relationship with Horizon
may be significantly impacted. A description of the Stipulation appears in
Section V.I., "Events During the Chapter 11 Case - Litigation". The Company's
ability to maintain strong relationships with its principal customers is
essential to its future performance. If the Company loses Horizon or any other
key customer or if Horizon or any of its other key customers reduce their usage,
92
require it to reduce its prices or are unable to pay its charges, the Company's
revenue could decline, which could cause its business, financial condition and
operating results to suffer.
6. The Company's larger competitors and/or wholesale customers may build
networks in its markets, which may result in decreased roaming
revenues and severe price-based competition.
The Company's current roaming partners, larger wireless providers
and/or wholesale customers might build their own digital PCS networks in the
Company's service areas. Should this occur, use of the Company's networks would
decrease and its roaming and/or wholesale revenues would be adversely affected.
Once a digital PCS system is built out, there are only marginal costs to
carrying an additional call, so a larger number of competitors in the Company's
service areas could introduce significantly higher levels of price competition
and reduce its revenues, as has occurred in many areas in the United States.
Over the last three years, the per-minute rate for wireless services has
declined. The Company expects this trend to continue into the foreseeable
future. As per-minute rates continue to decline, the Company's revenues and cash
flows may be adversely impacted.
7. The Company's largest customer may face severe financial problems.
On March 28, 2003, Horizon filed its Form 10-K for the year ending
December 31, 2002. In this report, Horizon disclosed that there was substantial
doubt about its ability to continue as a going concern because of the
probability that Horizon will violate one or more of its debt covenants in 2003.
The Company's future wholesale revenues under its wholesale network services
agreement with Horizon could be materially impacted if Horizon was to be unable
to continue as a going concern.
8. The Company's results of operations may decline if the roaming rates
it charges for the use of its network by outside customers decrease or
the roaming rates it pays for its customers' usage of third-party
networks increase.
The Company earns revenues from customers of other wireless
communications providers who enter its service areas and its network, commonly
referred to as roaming. Roaming rates per minute have declined over the last
several years and the Company expects that these declines will continue for the
foreseeable future. Similarly, because the Company does not have a national
network, it must pay roaming charges to other communications providers when its
wireless customers use their networks. The Company has entered into roaming
agreements with other communications providers that govern the roaming rates
that it is permitted to charge and that it is required to pay. If these roaming
agreements are terminated, the roaming rates the Company currently charges may
further decrease and the roaming rates that it is charged may increase and,
accordingly, the Company's revenues and cash flow may decline.
9. The Company may incur significantly higher wireless handset subsidy
costs than it anticipates for existing subscribers who upgrade to a
new handset.
As the Company's subscriber base grows, and technological innovations
occur, more existing subscribers will begin to upgrade to new wireless handsets.
The Company subsidizes a portion of the price of wireless handsets and incurs
sales commissions, even for handset upgrades. The Company does not have any
historical experience regarding the adoption rate for wireless handset upgrades.
If more subscribers upgrade to new wireless handsets than the Company projects,
its results of operations would be adversely affected.
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10. The loss of the Company's licenses could adversely affect its ability
to provide wireless and wireline services.
In the United States, cellular, personal communications services and
microwave licenses are valid for ten (10) years from the effective date of the
license. Licensees may renew their licenses for additional ten-year periods by
filing a renewal application with the FCC. The renewal applications are subject
to FCC review and are put out for public comment to ensure that the licensees
meet their licensing requirements and comply with other applicable FCC mandates.
If the Company fails to file for renewal of these licenses or fails to meet any
licensing requirements, it could be denied a license renewal and, accordingly,
its ability to continue to provide service in that license area would be
adversely affected.
11. Because the Company relies heavily on a retail distribution channel,
it is subject to risks generally associated with retail operations
that could adversely impact its operations and financial condition.
The Company's strategy emphasizes product and service distribution
through retail stores located across the regions which it serves. As of December
31, 2002, the Company owned or operated 97 retail stores and kiosks.
Furthermore, the Company will continue to open new retail outlets. Accordingly,
the Company must successfully manage various risks associated with retail
operations, including inventory management, internal and external theft, the
ability to hire and retain qualified and knowledgeable employees, employee
turnover and training expenses, collective employee action, and identifying and
securing suitable locations. The Company's inability to successfully manage any
of these factors could have a material adverse impact on its business strategy,
operations and financial condition.
D. Risks Relating to the Communications Industry.
1. Rapid and significant technological changes in the communications
industry may adversely affect the Company.
The Company faces rapid and significant changes in technology, and it
relies on third parties for the development of and access to new technology. New
technologies may be protected by patents or other intellectual property laws and
therefore may not be available to the Company. The Company employs code division
multiple access, known as CDMA, which is a relatively new technology. CDMA may
not provide the advantages that the Company expects. If another technology
becomes the preferred industry standard, the Company may be at a competitive
disadvantage and competitive pressures may require it to change its digital
technology which, in turn, may require it to incur substantial costs. The
Company may not be able to respond to such pressures and implement new
technology on a timely basis, or at an acceptable cost.
In particular, the wireless communications and Internet industries are
experiencing significant technological change, including:
. an increasing pace in digital upgrades of existing analog
wireless systems;
. evolving industry standards;
. the allocation of new radio frequency spectrum in which to
license and operate advanced wireless services;
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. ongoing improvements in the capacity and quality of digital
technology;
. shorter development cycles for new products and
enhancements; and
. changes in end-user requirements and preferences.
2. The Company cannot predict the effect of technological changes on its
business.
The Company believes its future success will depend, in part, on its
ability to anticipate or adapt to such changes and to offer, on a timely basis,
services that meet customer demands. The Company cannot assure you that it will
obtain access to new technology on a timely basis or on satisfactory terms. The
Company's failure to obtain access to this new technology could have a material
adverse effect on its business, prospects, operating results and ability to
service its debt.
3. The Company is subject to a complex and uncertain regulatory
environment that may require it to alter its business plans and may
increase its competition.
The U.S. communications industry is subject to federal, state and
other regulation that is continually evolving. As new communications laws and
regulations are issued, the Company may be required to modify its business plans
or operations. The Company cannot assure you that it can do so in a
cost-effective manner. Federal and state regulatory trends in favor of reduced
regulation have had, and are likely to have, both positive and negative effects
on the Company and its ability to compete. The regulatory environment governing
ILEC operations has been and will likely continue to be very liberal in its
approach to promoting competition and network access. Although no CLECs have
entered the Company's ILEC markets, it is possible that one or more may enter
its markets to compete for its largest business customers. Federal or state
regulatory changes and any resulting increase in competition may have a material
adverse effect on the Company's businesses. Further, the Company cannot assure
you that federal, state or local governments will not enact regulations or take
other actions that might have a material adverse effect on the Company's
business. These changes could materially and adversely affect the Company's
business prospects, operating results or its ability to service its debt.
4. The possible health effects of radio frequency emission may adversely
affect the demand for wireless telephone services.
Media reports have suggested that certain radio frequency emissions
from portable wireless telephones may be linked to various health concerns,
including cancer, and may interfere with heart pacemakers and other medical
devices. Concerns over radio frequency emissions and interference may have the
effect of discouraging the use of wireless telephones, which could have an
adverse effect upon the Company's business. In recent years, the FCC has updated
the guidelines and methods it uses for evaluating radio frequency emissions from
radio equipment, including portable wireless telephones. In addition, interest
groups have requested that the FCC investigate claims that digital technologies
pose health concerns and cause interference with hearing aids and other medical
devices.
5. The risks associated with using wireless telephones while driving may
lead to increased legislation or liability for accidents, which may
have an adverse impact on the Company's operations.
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There may be safety risks associated with the use of portable wireless
phones while driving. Concerns over these putative safety risks and the effect
of any legislation that may be adopted in response to these risks could limit
the Company's ability to market and sell its wireless service. Furthermore, it
is possible that government authorities will increase regulations of wireless
telephones resulting from these concerns or that wireless telephone companies
may be liable for costs or damages associated with these concerns. If new
legislation limits the Company's ability to market and sell wireless service or
results in decreased demand for its services, or it is held liable for
automobile accidents that occur while a driver is using a wireless phone, the
Company's operations and financial condition may be adversely impacted.
XII.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
A. Introduction.
The following discussion summarizes the material federal income tax
consequences expected to result from the consummation of the Plan. This
discussion is based on current provisions of the Tax Code, applicable Treasury
Regulations, judicial authority and current administrative rulings and
pronouncements of the Service, all of which are subject to change, possibly with
retroactive effect. There can be no assurance that the Service will not take a
contrary view; no ruling from the Service or opinion of counsel as to any of the
expected tax consequences set forth below has been or will be sought.
The following discussion is for general information only and describes the
anticipated tax consequences for only those holders of Allowed Claims or Equity
Interests that are entitled to vote on the Plan. The tax treatment of a holder
may vary depending upon such holder's particular situation. This discussion
assumes that holders of the Old Securities (other than the Old Bank Debt) have
held such property as "capital assets" within the meaning of Section 1221 of the
Tax Code (generally, property held for investment) and will also hold the New
Common Stock and the New Warrants as "capital assets." This discussion also
assumes that the Old Bank Debt, the New Bank Debt, the Senior Notes and the
Subordinated Notes are properly treated as indebtedness for federal income tax
purposes. This summary does not address all of the tax consequences that may be
relevant to a holder of an Allowed Claim or Equity Interest, such as the
potential application of the alternative minimum tax, nor does it address the
federal income tax consequences to holders subject to special treatment under
the federal income tax laws, such as brokers or dealers in securities or
currencies, certain securities traders, tax-exempt entities, financial
institutions, insurance companies, foreign corporations, foreign trusts, foreign
estates, holders who are not citizens or residents of the United States, holders
that hold the Old Securities as a position in a "straddle" or as part of a
"synthetic security," "hedging," "conversion" or other integrated instrument,
holders that have a "functional currency" other than the United States dollar
and holders that have acquired the Old Securities in connection with the
performance of services. EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO IT OF THE PLAN, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
B. Federal Income Tax Consequences to the Debtors.
1. Cancellation of Indebtedness and Reduction of Tax Attributes.
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NTELOS or, in the case of Allowed General Unsecured Claims, NTELOS
Subsidiaries generally will realize cancellation of indebtedness income on the
discharge of existing indebtedness exchanged for property to the extent that the
fair market value of any property (including New Common Stock) received by
holders of indebtedness is less than the adjusted issue price (plus the amount
of any accrued but unpaid interest) of the indebtedness exchanged for such
property. The adjusted issue prices of the Senior Notes and the Subordinated
Notes will be equal to their issue prices, plus accrued original issue discount.
Under Section 108 of the Tax Code, realized cancellation of
indebtedness income will not be recognized if the cancellation of indebtedness
income occurs in a case under the Bankruptcy Code, provided the cancellation of
indebtedness is granted by the court or is pursuant to a plan approved by the
court (the "Bankruptcy Exception"). Accordingly, because the cancellation of the
Debtors' indebtedness will occur under such circumstances, the Debtors will not
be required to recognize any cancellation of indebtedness income realized
pursuant to the Plan.
Under Section 108(b) of the Tax Code, a taxpayer that does not
recognize cancellation of indebtedness income under the Bankruptcy Exception
will be required to reduce certain tax attributes, including its NOLs, certain
other losses, credits and carryforwards (if any), and tax basis in its assets
(but not below the amount of liabilities remaining immediately after the
discharge of indebtedness), in an amount generally equal in the aggregate to the
amount of cancellation of indebtedness income excluded under the Bankruptcy
Exception. The taxpayer may elect under Section 108(b)(5) of the Tax Code (the
"Section 108(b)(5) Election") to avoid the prescribed order of attribute
reduction (which begins first with NOLs for the taxable year of the discharge
and NOL carryovers to such taxable year) and instead reduce the basis of
depreciable property first. The limitation prohibiting the reduction of asset
basis below the amount of its remaining undischarged liabilities does not apply
to the basis reduction resulting from the Section 108(b)(5) Election. The
Debtors have not yet determined whether they will make the Section 108(b)(5)
Election.
Whether the reduction in tax attributes occurs on a separate company
or consolidated group basis is not clear. Because the Senior Notes and the
Subordinated Notes are obligations of NTELOS, if attribute reduction were
applied on a separate company basis, only the separate tax attributes of NTELOS
would have to be reduced. The Service's position with respect to NOLs appears to
be that attribute reduction applies to consolidated NOLs on a group basis.
NTELOS currently intends to take the position that attribute reduction with
respect to NOLs will be applied to the Debtors' consolidated NOLs.
The Debtors have reported on their federal income tax returns
approximately $166.5 million of consolidated NOLs and NOL carryovers, and
approximately $138.0 million of consolidated NOLs and NOL carryovers for
purposes of the alternative minimum tax ("AMT NOLs"), through the 2001 tax year.
Some of the existing NOL carryovers may be subject to certain usage limitations
under Section 382 of the Tax Code and the consolidated return rules provided in
the Treasury Regulations. NTELOS believes that the consolidated group generated
an additional consolidated NOL for federal income tax purposes in its 2002 tax
year of approximately $121.2 million (and approximately $108.2 million of AMT
NOLs) and will probably generate an additional NOL (and AMT NOL) for the portion
of its 2003 tax year preceding the Effective Date. However, the amount of the
2002 and 2003 NOLs and AMT NOLs will not be determined by NTELOS until it
prepares the consolidated federal income tax return for such periods.
Furthermore, any NOLs and AMT NOLs are subject to audit and
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possible challenge by the Service and thus may ultimately vary from the amounts
indicated above.
As a result of the application of Section 108(b) of the Tax Code (and
assuming a Section 108(b)(5) Election will not be made), NTELOS believes that a
substantial portion of the Debtors' NOLs (and AMT NOLs) will be eliminated after
consummation of the Plan.
2. Section 382 Limitations on NOLs.
Under Section 382 of the Tax Code, if a Loss Corporation undergoes an
"ownership change," the use of its NOLs (and certain other tax attributes)
generally will be subject to an annual limitation, as described below. In
general, an "ownership change" occurs if the percentage of the value of the Loss
Corporation's stock (including the parent corporation in a consolidated group)
owned by one or more direct or indirect "five percent shareholders" has
increased by more than fifty (50) percentage points over the lowest percentage
of that value owned by such five percent shareholder or shareholders at any time
during the applicable "testing period" (generally, the shorter of (i) the
three-year period preceding the testing date or (ii) the period of time since
the most recent ownership change of the corporation). NTELOS believes it is
likely that the Plan will trigger an ownership change of NTELOS and the NTELOS
Subsidiaries that are corporations (the "Debtor Group") on the Effective Date
under the Tax Code.
Subject to certain bankruptcy exceptions discussed below, a Loss
Corporation's use of NOLs (and certain other tax attributes) after an "ownership
change" generally will be limited annually to the product of the long-term
tax-exempt rate (as published by the Service for the month in which the
"ownership change" occurs) and the value of the Loss Corporation's outstanding
stock immediately before the ownership change, excluding certain capital
contributions (the "Section 382 Limitation"). The Section 382 Limitation for a
taxable year may be increased by the amount of any "built-in gains" recognized
for such taxable year within the five-year period following the date of the
"ownership change". The increase cannot exceed the "net unrealized built-in
gain" (if such gain exists immediately before the "ownership change" and exceeds
a statutorily-defined threshold amount), reduced by recognized built-in gains
from prior years. In addition, any "built-in losses" recognized within such
five-year period may be subject to the Section 382 Limitation in the same manner
as if such losses were an existing NOL, to the extent such recognized built-in
losses do not exceed the "net unrealized built-in loss" (if such loss exists
immediately before the "ownership change" and exceeds a statutorily-defined
threshold amount), reduced by recognized built-in losses for prior taxable
years. NTELOS believes that the Debtors likely will have a "net unrealized
built-in loss" that will exceed the statutorily-defined threshold amount on the
Effective Date, but such a determination will ultimately depend upon the tax
basis of the Debtors' assets and their value as of the Effective Date. To the
extent that the Section 382 Limitation in a given year exceeds taxable income
for such year, the excess will increase the Section 382 Limitation for future
taxable years. Finally, if the Debtor Group does not continue its historic
business or use a significant portion of its historic business assets in a new
business for two (2) years after the Effective Date, the Section 382 Limitation
will become zero. The Debtor Group does not intend to discontinue the conduct of
its historic business after the Effective Date.
Two alternative bankruptcy exceptions for Loss Corporations undergoing
an ownership change pursuant to a bankruptcy proceeding are provided in the Tax
Code. The first exception, Section 382(1)(5) of the Tax Code, applies where
"qualified creditors" of the debtor
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receive at least 50% of the vote and value of the stock of the reorganized
debtor in a case under the Bankruptcy Code. Under this exception, a debtor's
pre-change NOLs are not subject to the Section 382 Limitation but are further
reduced by the amount of any interest deductions, in respect of the debt
converted into stock in the bankruptcy reorganization, for the three taxable
years preceding the taxable year in which the ownership change occurs and for
the part of the taxable year through the effective date of the reorganization.
Moreover, if this exception applies, any further ownership change of the debtor
within the succeeding two years will preclude the debtor's future utilization of
any pre-change losses existing at the time of the subsequent ownership change.
A "qualified creditor" includes a creditor who has held the debt of
the debtor for at least eighteen (18) months prior to the date of the filing of
the bankruptcy case or who has held "ordinary course indebtedness" at all times
it has been outstanding. Any debt owned immediately before an ownership change
by a creditor who does not become a direct or indirect five percent shareholder
of the reorganized debtor generally will be treated as always having been owned
by such creditor, except in the case of a creditor whose participation in
formulating the plan of reorganization makes evident to the debtor that the
creditor has not owned the debt for the required period.
The second bankruptcy exception, Section 382(l)(6) of the Tax Code,
does not require further reduction of NOLs and provides relief in the form of a
relaxed computation of the Section 382 Limitation. In that regard, Section
382(l)(6) of the Tax Code and related Treasury Regulations provide that the
value of the Loss Corporation's outstanding stock for purposes of computing the
Section 382 Limitation will be the value of the stock outstanding immediately
after (rather than before) the ownership change, thus reflecting the
cancellation of indebtedness in the bankruptcy case (subject to a ceiling on
stock value equal to the value of the Loss Corporation's gross assets
immediately before the ownership change).
The Treasury Regulations that apply the Section 382 rules to
consolidated groups do not address how the Section 382(1)(5) and Section
382(1)(6) bankruptcy exceptions apply to consolidated groups. Accordingly, it is
not certain how these exceptions will apply to the Debtor Group. The Debtor
Group currently intends to take the position, consistent with certain rulings
issued by the Service and other authority, that the Section 382(1)(6) rules will
apply on a consolidated group basis. If the requirements of Section 382(1)(5)
are satisfied and Reorganized NTELOS does not elect to apply the rules of
Section 382(1)(6), the Debtors also currently intend to apply the rules of
Section 382(1)(5) on a consolidated group basis.
NTELOS believes it is likely that the Plan will trigger an "ownership
change" of the Debtor Group on the Effective Date. Whether the Section 382(1)(5)
exception will be available is not certain. Even if the Section 382(l)(5)
exception is available, Reorganized NTELOS may determine that the Section
382(1)(6) exception is more desirable and therefore may elect to apply the
provisions of Section 382(1)(6). In that event, the Reorganized Debtors' use of
pre-ownership change NOLs, AMT NOLs and certain other tax attributes, to the
extent remaining after reduction as a result of the cancellation of
indebtedness, will be limited.
3. Alternative Minimum Tax.
In general, AMT is imposed on a corporation's AMTI at a 20% rate to
the extent that AMT exceeds the corporation's regular federal income tax. For
purposes of computing AMTI, certain tax deductions and other beneficial
allowances are modified or eliminated. In
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addition, if a Loss Corporation having a net unrealized built-in loss undergoes
an "ownership change" within the meaning of Section 382 of the Tax Code (as
discussed above), the corporation's aggregate tax basis in its assets must be
reduced for certain AMT purposes to reflect the fair market value of such
assets. Moreover, even though the Debtor Group might be able to offset all of
its taxable income for regular tax purposes by available NOL carryforwards, only
90% of AMTI may be offset by available AMT NOL carryforwards. Thus, the Debtor
Group may have to pay AMT regardless of whether it generates a regular tax NOL
or has sufficient NOL carryforwards to offset regular taxable income for tax
periods after the Effective Date. Any AMT that a corporation pays generally will
be allowed as a nonrefundable credit against its regular federal income tax
liability in future years when the corporation is no longer subject to the AMT.
C. Federal Income Tax Consequences to Holders of Old Bank Debt.
Under Treasury Regulations, changes in the terms of a debt instrument will
be treated as an "exchange" of the original debt instrument for the modified
debt instrument if there has been a "significant modification" of the original
debt instrument. The determination of whether a "significant modification" has
occurred is based on all the facts and circumstances and generally requires that
the legal rights that are altered and the degree to which they are altered are
economically significant.
Because the terms of the Old Bank Debt will be revised on the Effective
Date, it is possible that an "exchange" of Old Bank Debt for New Bank Debt will
be deemed to occur on the Effective Date. If the Old Bank Debt is subject to an
"exchange," the exchange will trigger the recognition of gain or loss for
holders of the Old Bank Debt unless both the "old" and "new" debt constitute
"securities" within the meaning of the provisions of the Tax Code governing
"reorganizations." The test as to whether a debt instrument is a "security"
involves an overall evaluation of the nature of the debt instrument, with the
term to maturity of the debt instrument usually regarded as one of the most
significant factors. Bank debt like the Old Bank Debt and New Bank Debt
generally does not constitute a "security". HOLDERS OF OLD BANK DEBT SHOULD
CONTACT THEIR OWN TAX ADVISORS AS TO WHETHER THE OLD BANK DEBT WILL BE SUBJECT
TO A TAXABLE "EXCHANGE" AND, IF SO, WHETHER THE HOLDER WOULD REALIZE ANY INCOME
FOR FEDERAL INCOME TAX PURPOSES.
D. Federal Income Tax Consequences to Holders of Senior Notes or Subordinated
Notes.
1. Exchanges of Senior Notes or Subordinated Notes for New Common Stock.
Except possibly with respect to accrued interest, gain or loss will
not be recognized by holders who exchange Senior Notes or Subordinated Notes for
New Common Stock pursuant to the Plan, provided that the Senior Notes and the
Subordinated Notes are considered to be "securities" within the meaning of the
provisions of the Tax Code governing reorganizations. The test as to whether a
debt instrument is a "security" involves an overall evaluation of the nature of
the debt instrument, with the term to maturity of the debt instrument usually
regarded as one of the most significant factors. Generally, debt instruments
with a term of five years or less have not qualified as "securities," whereas
debt instruments with a term of ten years or more generally have qualified as
"securities." The Senior Notes and the Subordinated Notes each should be treated
as "securities" for federal income tax purposes. Accordingly, provided the
Senior Notes and Subordinated Notes are so treated, holders of Senior Notes and
holders of Subordinated Notes generally will not recognize any gain or loss upon
the
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exchange of such notes for New Common Stock pursuant to the Plan. However, to
the extent the New Common Stock is attributable, for federal income tax
purposes, to accrued but unpaid interest on the Senior Notes or the Subordinated
Notes, holders generally will be required to treat such amounts as payments of
interest (see "--Accrued Interest" below). Except for New Common Stock
attributable to accrued and unpaid interest, a holder's tax basis in the New
Common Stock will be equal to the holder's tax basis in the Senior Notes or
Subordinated Notes exchanged therefor, and a holder's holding period for the New
Common Stock will include the holder's holding period for such Senior Notes or
Subordinated Notes, provided they are "securities".
If the Senior Notes or the Subordinated Notes were determined not to
constitute "securities" for federal income tax purposes, then a holder of such
Notes would generally recognize gain or loss equal to the difference between the
fair market value of the New Common Stock received in exchange for such Notes
(excluding any New Common Stock attributable, for federal income tax purposes,
to accrued interest) and the holder's tax basis in such Notes. To the extent the
New Common Stock is attributable to accrued but unpaid interest on the Notes,
holders generally will be required to treat such amounts as payments of interest
(see "--Accrued Interest" below). Any such gain or loss generally would be
long-term capital gain or loss (except for market discount, as discussed below),
if such Notes were held for more than one year. Certain limitations apply to the
deduction of capital losses. A holder's tax basis in the New Common Stock
received in the exchange would be equal to its fair market value on the
Effective Date, and the holding period for the New Common Stock would begin on
the day immediately after the Effective Date, if the notes exchanged for the New
Common Stock were not "securities".
2. Accrued Interest.
A holder of Senior Notes or Subordinated Notes will be treated as
receiving a payment of interest (includible in income in accordance with the
holder's method of accounting for federal income tax purposes) to the extent
that any New Common Stock received pursuant to the Plan is attributable, for
federal income tax purposes, to unpaid interest (including original issue
discount) that accrued during the holder's holding period for such Notes. The
extent to which the receipt of New Common Stock should be attributable to
accrued but unpaid interest (including original issue discount) is unclear. The
Reorganized Debtors intend to take the position that New Common Stock
distributed pursuant to the Plan will first be allocable to principal. It is
possible, however, that the Service may take a contrary position.
To the extent any New Common Stock received pursuant to the Plan is
considered attributable to such accrued but unpaid interest, a holder will
recognize ordinary income equal to the fair market value of such New Common
Stock if the interest was not previously taken into income by the holder, and a
holder's basis in such New Common Stock should be equal to its fair market
value. The holding period in such New Common Stock should begin the day after
the Effective Date. A holder generally will be entitled to recognize a loss to
the extent any such accrued interest (including original issue discount) that
was previously included in its gross income exceeds the fair market value of the
New Common Stock attributable to such interest. EACH HOLDER SHOULD CONSULT ITS
OWN TAX ADVISOR REGARDING THE DETERMINATION OF THE AMOUNT OF CONSIDERATION
RECEIVED UNDER THE PLAN THAT IS ATTRIBUTABLE TO INTEREST (IF ANY).
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3. Market Discount.
The Tax Code generally requires holders of Market Discount Bonds to
treat as ordinary income any gain realized on the disposition of such bonds to
the extent the gain does not exceed accrued market discount. For this purpose, a
purchase at a market discount includes a purchase at a price less than the
adjusted issue price of the debt instrument (in the case of a Senior Note or
Subordinated Note, its adjusted issue price will be equal to its issue price
plus accrued original issue discount). Market discount generally accrues on a
straight line basis, unless a holder elects to use a constant interest rate
method. A holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount accrues on a current
basis, in which case the preceding rule with respect to the recognition of
ordinary income on a sale or other disposition of such bond would not apply.
Provided the exchanges of the Senior Notes and the Subordinated Notes
for New Common Stock are treated as non-recognition transactions, any accrued
(but unrecognized) market discount on the Senior Notes and the Subordinated
Notes will not be recognized as income at the time of the exchange but instead
will attach to the New Common Stock received. On a subsequent taxable
disposition of the New Common Stock received in the exchange, gain will be
treated as ordinary income to the extent of market discount accrued prior to the
exchange.
E. Federal Income Tax Consequences to Holders of Old Preferred Stock.
The exchange of Old Preferred Stock for solely New Warrants pursuant to the
Plan apparently will not constitute a non-recognition transaction for holders of
Old Preferred Stock. As a result, it appears that holders of Old Preferred Stock
generally will recognize capital gain or loss on the exchange, equal to the
difference between a holder's tax basis in its Old Preferred Stock and the fair
market value of the New Warrants received in exchange. However, if a holder's
percentage stock ownership in Reorganized NTELOS (taking into account stock that
may be acquired through the exercise of New Warrants and other stock actually
owned by the holder or constructively owned under the rules of Section 318 of
the Tax Code) is not significantly less than the holder's stock ownership in
NTELOS before the exchange (taking into account stock constructively owned), the
holder might be treated as receiving a dividend distribution equal to the fair
market value of the New Warrants, instead of recognizing gain or loss. A
holder's tax basis in New Warrants received in exchange for Old Preferred Stock
should equal their fair market value on the Effective Date, and a holder's
holding period for New Warrants should begin the day after the Effective Date.
Upon the exercise of a New Warrant, a holder should recognize no gain or
loss. The holder's tax basis in shares of New Common Stock acquired through such
exercise should equal the holder's basis in the exercised New Warrant plus the
exercise price. The holding period for such New Common Stock should begin on the
date the New Warrant is exercised. If a New Warrant is never exercised and
expires, the holder should recognize a loss equal to the holder's tax basis in
the New Warrant; such loss generally will be a capital loss.
F. Federal Income Tax Consequences to Holders of General Unsecured Claims.
Although not entirely clear, the discharge of an Allowed General Unsecured
Claim in exchange for Cash on the Effective Date equal to 30.6% of a holder's
Allowed General Unsecured Claim, Cash on the first anniversary of the Effective
Date equal to 20.4% of such claim, and Cash on the second anniversary of the
Effective Date equal to 17% of such Claim apparently should be treated as an
exchange of the Claim for (i) the Cash to be received on the Effective Date and
(ii) a debt instrument of the Reorganized Debtor, payable on the first and
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second anniversaries of the Effective Date. In that case, each holder of an
Allowed General Unsecured Claim should recognize gain or loss in an amount equal
to the difference between the "amount realized" by the holder in satisfaction of
its Claim and the holder's tax basis in its Claim. The "amount realized" will
equal the sum of the amount of Cash payable to the holder on the Effective Date
plus the "issue price" of such debt instrument. The "issue price" apparently
should be the present value of the payments to be made on the first and second
anniversary dates, determined by discounting those payments by the "applicable
federal rate" for short-term debt instruments determined under Section 1274(d)
of the Tax Code for the month in which the Effective Date occurs. The short-term
applicable federal rate currently is 1.53%, compounded annually, but the
applicable rate could be more or less in the month the Effective Date occurs.
The difference between the total amount payable to a holder of an Allowed
General Unsecured Claim on the first and second anniversaries of the Effective
Date and the total present value of those payments will be taxable as imputed
interest income (or original interest discount), computed on a constant-yield
method from the Effective Date until the second anniversary. A portion of each
payment on the two anniversary dates will represent imputed interest, but
holders apparently will be required to accrue the imputed interest into income
on a daily basis. Consequently, holders may have imputed interest income before
receiving Cash representing the imputed interest. It is arguable, however, that
a holder who is to receive no more than $250,000 for all of the holder's Allowed
General Unsecured Claims will not be required to include the imputed interest in
income until payments are received, if the holder otherwise uses the cash method
of accounting for federal income tax purposes.
The character of gain or loss recognized by a holder of an Allowed General
Unsecured Claim on the deemed exchange of such Claim will depend on the holder's
particular circumstances. Accounts receivable acquired in the ordinary course of
business for services rendered or from the sale of inventory generally do not
constitute capital assets; consequently, gain or loss with respect to an Allowed
General Unsecured Claim acquired in that manner generally will be ordinary,
rather than capital, gain or loss. A holder who realizes a gain with respect to
an Allowed General Unsecured Claim might qualify to use the installment method
under Section 453 of the Tax Code to report the gain, under certain
circumstances.
HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS SHOULD CONSULT THEIR TAX
ADVISORS REGARDING THE COMPUTATION AND CHARACTER OF GAIN OR LOSS WITH RESPECT TO
SUCH CLAIMS, THE AMOUNT AND TIMING OF IMPUTED INTEREST INCOME, AND (FOR HOLDERS
RECOGNIZING GAIN) THE POTENTIAL APPLICATION OF THE INSTALLMENT METHOD.
G. Backup Withholding and Information Reporting.
A holder of an Allowed Claim or Equity Interest may be subject to backup
withholding tax on the receipt of consideration received pursuant to the Plan,
unless the holder (1) is a corporation or other type of exempt recipient and,
when required, demonstrates this fact or (2) provides a correct TIN on IRS Form
W-9 (or substitute form) and certifies that the TIN is accurate, that the holder
is not subject to backup withholding for failure to report certain income, and
that the holder is a United States person. Backup withholding is not an
additional tax. Rather, the federal income tax liability of persons subject to
backup withholding is to be credited for the amount of tax withheld. If
withholding results in an overpayment of federal income taxes, a holder may
obtain a refund of any excess amounts withheld under the backup withholding
rules by filing the appropriate claim for refund with the Service. Reorganized
103
NTELOS (or its paying agent) may be obligated to provide information statements,
to the Service and to holders who receive consideration pursuant to the Plan,
reporting such payments (except with respect to holders that are exempt from the
information reporting rules).
The backup withholding and information reporting rules noted above may also
apply with respect to payments made after the Effective Date with respect to
Allowed General Unsecured Claims, the New Common Stock and the New Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
HOLDER OF AN ALLOWED CLAIM OR EQUITY INTEREST SHOULD CONSULT ITS OWN TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE PLAN AND THE APPLICATION OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. NEITHER THE PROPONENTS NOR THEIR
PROFESSIONALS WILL HAVE ANY LIABILITY TO ANY PERSON OR HOLDER ARISING FROM OR
RELATED TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN OR
THE FOREGOING DISCUSSION.
XIII.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the Debtors' alternatives
include (i) liquidation of the Debtors under Chapter 7 of the Bankruptcy Code
and (ii) the preparation and presentation of an alternative plan or plans of
reorganization.
A. Liquidation Under Chapter 7.
If no Chapter 11 plan can be confirmed, the Chapter 11 Case may be
converted to a case under Chapter 7 of the Bankruptcy Code in which a trustee
would be elected or appointed to liquidate the assets of the Debtors. A
discussion of the effect that a Chapter 7 liquidation would have on the recovery
of holders of Claims and Equity Interests is set forth in Section VII.C.4.,
"Confirmation and Consummation Procedure - Confirmation - Best Interests Test."
NTELOS believes that liquidation under Chapter 7 would result in (i) smaller
distributions being made to creditors than those provided for in the Plan
because of the additional administrative expenses involved in the appointment of
a trustee and attorneys and other professionals to assist such trustee, (ii)
additional expenses and claims, some of which would be entitled to priority,
which would be generated during the liquidation and from the rejection of leases
and other executory contracts in connection with a cessation of the Debtors'
operations, and (iii) the failure to realize the greater, going concern value of
the Debtors' assets. NTELOS' Liquidation Analysis is attached hereto as Exhibit
D.
B. Alternative Plan of Reorganization.
If the Plan is not confirmed, the Debtors or any other party in interest
could attempt to formulate a different plan of reorganization. Such a plan might
involve either a reorganization and continuation of the Debtors' businesses or
an orderly liquidation of its assets. With respect to an alternative plan,
NTELOS has explored various other alternatives in connection with the extensive
negotiation process involved in the formulation and development of the Plan.
NTELOS believes that the Plan enables the Debtors to emerge successfully
and expeditiously from Chapter 11, preserves the Debtors' business and allows
creditors to realize
104
the highest recoveries under the circumstances. In a liquidation under Chapter
11 of the Bankruptcy Code, the assets of the Debtors would be sold in an orderly
fashion over a more extended period of time than in a liquidation under Chapter
7 and a trustee need not be appointed. Accordingly, creditors would receive
greater recoveries than in a Chapter 7 liquidation. Although a Chapter 11
liquidation is preferable to a Chapter 7 liquidation, NTELOS believes that a
liquidation under Chapter 11 is a much less attractive alternative to creditors
than the Plan because a greater return to creditors is provided for by the Plan.
XIV.
ADDITIONAL INFORMATION
The Debtors are subject to the information requirements of the Exchange Act
and in accordance therewith file reports and other information with the
Securities and Exchange Commission. Any statements contained in this Disclosure
Statement concerning the provisions of any document are not necessarily
complete, and in each instance reference is made to the copy of such document
for the full text thereof. Each such statement is qualified in its entirety by
such reference. Certain documents referred to in this Disclosure Statement have
not been attached as exhibits because of the impracticability of furnishing
copies thereof to all of the Debtors' creditors and equity security holders.
Additional financial and other information about NTELOS and the other Debtors
can be found in NTELOS' Form 10- K for the fiscal year ended December 31, 2002,
its Form 10-Q for the quarter ended March 31, 2003 and its other filings from
time to time with the Securities and Exchange Commission, each of which is
incorporated in this Disclosure Statement by reference and is available at
www.sec.gov. All of the exhibits to the Plan, the Plan Supplement and to this
Disclosure Statement are available for inspection by contacting the Claims and
Noticing Agent.
XV.
CONCLUSION AND RECOMMENDATION
The Debtors believe that confirmation and implementation of the Plan is
preferable to any of the alternatives described above because it will provide
the greatest recoveries to holders of Claims and Equity Interests. In addition,
other alternatives would involve significant delay, uncertainty and substantial
additional administrative costs. The Debtors urge holders of impaired Claims and
Equity Interests entitled to vote on the Plan to vote to accept the Plan and to
evidence such acceptance by returning their ballots so that they will be
received not later than __:__ p.m., Eastern Time, on ______________ ____, 2003.
Dated: May 30, 2003
Respectfully submitted,
NTELOS Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
105
NTELOS Wireless Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS of Maryland Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS of Kentucky Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS PCS North Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Cable of Virginia Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Communication Services Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
106
NTELOS NetAccess Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Telephone Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Network Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Licenses Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Cable Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
R&B Communications, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
107
NTELOS Cornerstone Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS PCS Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Virginia RSA 6 Cellular Limited
Partnership
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Wireless Inc., General
Partner
Richmond 20 MHz, LLC
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NA Communications, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Roanoke & Botetourt Telephone
Company
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
108
R&B Network, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Botetourt Leasing, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
R&B Cable, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
The Beeper Company
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Virginia PCS Alliance, L.C.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS PCS Inc., Member
West Virginia PCS Alliance, L.C.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Inc., Member
109
Virginia Telecommunications
Partnership
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Network Inc., Partner
110
EXHIBIT 2.1
IN THE UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF VIRGINIA
Richmond Division
)
In re: )
)
NTELOS Inc. f/k/a ) Case No. 03-32094 (DOT)
CFW Communications Company, et al./1/ ) Chapter 11
) (Jointly Administered)
Debtors. )
)
DEBTORS' DISCLOSURE STATEMENT PURSUANT TO
SECTION 1125 OF THE BANKRUPTCY CODE
May 30, 2003
THIS PROPOSED DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE BANKRUPTCY COURT
FOR USE IN THE SOLICITATION OF ACCEPTANCES OF THE PLAN DISCLOSED PURSUANT TO
SECTION 1125(b) OF THE BANKRUPTCY CODE. ACCORDINGLY, THE FILING AND
DISSEMINATION OF THIS PROPOSED DISCLOSURE STATEMENT IS NOT INTENDED, NOR SHOULD
IT BE CONSTRUED, AS SUCH A SOLICITATION, NOR SHOULD THE INFORMATION CONTAINED
HEREIN BE RELIED UPON FOR ANY PURPOSE PRIOR TO A DETERMINATION BY THE BANKRUPTCY
COURT THAT THE PROPOSED DISCLOSURE STATEMENT CONTAINS ADEQUATE INFORMATION.
DISSEMINATION OF THIS PROPOSED DISCLOSURE STATEMENT IS CONTROLLED BY BANKRUPTCY
RULE 3017.
HUNTON & WILLIAMS LLP MARCUS, SANTORO & KOZAK, P.C.
Benjamin C. Ackerly Frank J. Santoro
Michael C. Shepherd Karen M. Crowley
Riverfront Plaza, East Tower 355 Crawford Parkway, Suite 700
951 West Byrd Street Portsmouth, Virginia 23704
Richmond, Virginia 23219-4074 (757) 393-2555
(804) 788-8200
Counsel to the Debtors and Co-Counsel to the Debtors and
Debtors in Possession Debtors in Possession
The deadline by which each holder of an impaired Claim or Equity Interest
must cast a properly completed and delivered Ballot for its vote to
accept or reject the Plan to be counted is _________, 2003, at __:00
p.m. (Eastern time), unless extended.
- ----------
/1/ The Debtors are the following entities: NTELOS Inc. f/k/a CFW
Communications Company, NTELOS Wireless Inc. f/k/a CFW Wireless Inc. f/k/a CFW
Cellular Inc., NTELOS of Maryland Inc., NTELOS of Kentucky Inc., NTELOS PCS
North Inc. f/k/a NTELOS of Pennsylvania Inc., NTELOS Cable of Virginia Inc.
f/k/a CFW Cable of Virginia Inc., NTELOS Communications Services Inc. f/k/a CFW
Communications Services Inc., NTELOS NetAccess Inc. f/k/a NetAccess, Inc.,
NTELOS Telephone Inc. f/k/a CFW Telephone Inc. f/k/a Clifton Forge-Waynesboro
Telephone Company, NTELOS Network Inc. f/k/a CFW Network, Inc., NTELOS Licenses
Inc. f/k/a CFW Licenses Inc., NTELOS Cable Inc. f/k/a CFW Cable Inc., R&B
Communications, Inc., NTELOS Cornerstone Inc. f/k/a CFW Cornerstone, Inc.,
NTELOS PCS Inc. f/k/a CFW PCS Inc., Virginia RSA 6 Cellular Limited Partnership,
Richmond 20MHz, LLC, NA Communications, Inc., Roanoke & Botetourt Telephone
Company a/k/a Roanoke and Botetourt Telephone Company, R&B Network, Inc.,
Botetourt Leasing, Inc., R&B Cable, Inc., The Beeper Company, Virginia PCS
Alliance, L.C., West Virginia PCS Alliance, L.C. and Virginia Telecommunications
Partnership.
IMPORTANT NOTICE
This Disclosure Statement and its related documents are the only documents
authorized by the Bankruptcy Court to be used in connection with the
solicitation of votes to accept the Plan. No representations have been
authorized by the Bankruptcy Court concerning the Debtors, their business
operations or the value of their assets, except as explicitly set forth in this
Disclosure Statement.
Please refer to the Glossary and the Plan (or, where indicated, certain
motions filed with the Bankruptcy Court) for definitions of the capitalized
terms used in this Disclosure Statement.
The Debtors reserve the right to file an amended Plan and Disclosure
Statement from time to time. The Debtors urge you to read this Disclosure
Statement carefully for a discussion of voting instructions, recovery
information, classification of claims, the history of the Debtors and the
Chapter 11 Cases, the Debtors' businesses, properties and results of operations,
historical and projected financial results and a summary and analysis of the
Plan. The Plan and this Disclosure Statement have not been required to be
prepared in accordance with federal or state securities laws or other applicable
nonbankruptcy law. None of the Securities and Exchange Commission, any state
securities commission or similar public, governmental or regulatory authority
has approved this Disclosure Statement, the Plan or the securities offered under
the Plan, or has passed on the accuracy or adequacy of the statements in this
Disclosure Statement. Any representation to the contrary is a criminal offense.
Persons trading in or otherwise purchasing, selling or transferring securities
of NTELOS should evaluate the Plan in light of the purposes for which it was
prepared.
This Disclosure Statement contains only a summary of the Plan. This
Disclosure Statement is not intended to replace the careful and detailed review
and analysis of the Plan, it is intended only to aid and supplement such review.
This Disclosure Statement is qualified in its entirety by reference to the Plan
and the exhibits attached thereto and the agreements and documents described
therein. If there is a conflict between the Plan and this Disclosure Statement,
the provisions of the Plan will govern. You are encouraged to review the full
text of the Plan and to read carefully the entire Disclosure Statement,
including all exhibits, before deciding how to vote with respect to the Plan.
Further, summaries of certain provisions of agreements referred to in this
Disclosure Statement do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the full text of the applicable
agreement, including the definitions of terms contained in such agreement.
Except as otherwise indicated, the statements in this Disclosure Statement
are made as of the date hereof, and the delivery of this Disclosure Statement
will not, under any circumstances, imply that the information contained in this
Disclosure Statement is correct at any time after such date. Any estimates of
claims or interests in this Disclosure Statement may vary from the final amounts
of claims or interests allowed by the Bankruptcy Court. You should not construe
this Disclosure Statement as providing any legal, business, financial or tax
advice. You should, therefore, consult with your own legal, business, financial
and tax advisors as to any such matters in connection with the Plan, the
solicitation of votes to accept or reject the Plan and the transactions
contemplated by the Plan.
As to contested matters, adversary proceedings and other actions or
threatened actions, this Disclosure Statement is not, and is in no event to be
construed as, an admission or stipulation. Instead, this Disclosure Statement
is, and is for all purposes to be construed as, solely and exclusively a
statement made in settlement negotiations. The settlements and compromises
described in the Plan and this Disclosure Statement remain subject to ongoing
negotiations with the respective parties.
TABLE OF CONTENTS
Page
----
I. INTRODUCTION................................................................................................. 1
A. Holders of Claims and Equity Interests Entitled to Vote.......................................... 2
B. Voting Procedures................................................................................ 3
C. Confirmation Hearing............................................................................. 4
II. OVERVIEW OF THE PLAN........................................................................................ 5
III. OVERVIEW OF CHAPTER 11..................................................................................... 9
IV. GENERAL INFORMATION......................................................................................... 9
A. Description and History of Business.............................................................. 9
B. Events Leading to the Commencement of the Chapter 11 Case........................................ 19
V. EVENTS DURING THE CHAPTER 11 CASE............................................................................ 22
A. Post-Petition Agreements......................................................................... 22
B. Continuation of Business; Stay of Litigation..................................................... 22
C. DIP Credit Agreement............................................................................. 23
D. First Day and Various Other Motions.............................................................. 25
E. Bar Date Motion.................................................................................. 27
F. Statutory Committee.............................................................................. 27
G. Preferences and Fraudulent Conveyances........................................................... 27
H. Litigation....................................................................................... 28
I. Affiliated Claims and Transactions............................................................... 29
VI. THE JOINT PLAN OF REORGANIZATION............................................................................ 30
A. Classification and Treatment of Claims and Equity Interests...................................... 30
B. Securities to be Issued Under the Plan........................................................... 34
C. New Investment................................................................................... 35
D. Means of Implementation of the Plan.............................................................. 38
E. Provisions Governing Distributions............................................................... 46
F. Procedures for Treating Disputed, Contingent and Unliquidated Claims and
Disputed Equity Interests under the Plan......................................................... 50
G. Executory Contracts and Unexpired Leases......................................................... 51
H. Conditions Precedent to the Confirmation Date and the Effective Date............................. 53
I. Effect of Confirmation........................................................................... 55
J. Retention of Jurisdiction........................................................................ 60
K. Summary of Other Provisions of the Plan.......................................................... 61
VII. CONFIRMATION AND CONSUMMATION PROCEDURE.................................................................... 63
A. Solicitation of Votes............................................................................ 63
B. The Confirmation Hearing......................................................................... 63
C. Confirmation..................................................................................... 65
D. Consummation..................................................................................... 70
i
VIII. MANAGEMENT OF REORGANIZED NTELOS.......................................................................... 71
A. Board of Directors and Management................................................................ 71
B. Compensation of Directors and Officers........................................................... 72
C. Management Contracts............................................................................. 74
D. Stock Option Incentive Plan...................................................................... 76
E. Post-Effective Date Security Ownership of Certain Owners......................................... 77
IX. APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS TO THE SECURITIES TO BE DISTRIBUTED UNDER THE PLAN....... 77
A. Section 1145 of the Bankruptcy Code.............................................................. 77
B. Section 4(2) of the Securities Act............................................................... 77
C. Registration Rights.............................................................................. 78
D. Subsequent Transfers Under State Law............................................................. 78
E. Certain Transactions by Stockbrokers............................................................. 78
X. VALUATION OF REORGANIZED NTELOS.............................................................................. 78
A. Introduction..................................................................................... 78
B. Methodology...................................................................................... 80
C. Estimated Going Concern Enterprise Value of the Reorganized Debtors.............................. 82
XI. CERTAIN RISK FACTORS TO BE CONSIDERED....................................................................... 85
A. General Bankruptcy Risk Factors.................................................................. 85
B. Overall Risk to Recovery by Holders of Claims and Equity Interests............................... 86
C. Risks Related to the Business of the Company..................................................... 90
D. Risks Relating to the Communications Industry.................................................... 94
XII. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS.................................................................. 96
A. Introduction..................................................................................... 96
B. Federal Income Tax Consequences to the Debtors................................................... 96
C. Federal Income Tax Consequences to Holders of Old Bank Debt...................................... 100
D. Federal Income Tax Consequences to Holders of Senior Notes or Subordinated Notes................. 100
E. Federal Income Tax Consequences to Holders of Old Preferred Stock................................ 102
F. Federal Income Tax Consequences to Holders of General Unsecured Claims........................... 102
G. Backup Withholding and Information Reporting..................................................... 103
XIII. ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN................................................. 104
A. Liquidation Under Chapter 7...................................................................... 104
B. Alternative Plan of Reorganization............................................................... 104
XIV. ADDITIONAL INFORMATION..................................................................................... 105
XV. CONCLUSION AND RECOMMENDATION............................................................................... 105
ii
INDEX OF EXHIBITS
Exhibit A - The Plan
Exhibit to Plan
Exhibit 1 Contract Rejection Schedule
Exhibit B - Order of the Bankruptcy Court dated ______ __, 2003,
among other things, approving this Disclosure Statement
and establishing certain procedures with respect to the
solicitation and tabulation of votes to accept or reject
the Plan
Exhibit C - Projected Financial Information
Exhibit D - Liquidation Analysis
Exhibit E - Historical Financial Statements
Exhibit F - Subscription Agreement
Exhibit G - Plan Support Agreement
Exhibit H - Exit Financing Term Sheet
Exhibit I - Shareholders' Agreement
iii
GLOSSARY
Administrative Expense Claim means any right to payment constituting
a cost or expense of administration of
the Chapter 11 Case allowed under
Sections 503(b) and 507(a)(1) of the
Bankruptcy Code, including, without
limitation, (a) any actual and necessary
costs and expenses of preserving the
Debtors' estates, (b) any actual and
necessary costs and expenses of
operating the Debtors' businesses in the
ordinary course of business, (c) any
indebtedness or obligations incurred or
assumed by the Debtors in Possession
during the Chapter 11 Case in the
ordinary course of business, (d) any
allowances of compensation and
reimbursement of expenses to the extent
allowed by Final Order under Section
328, 330 or 503 of the Bankruptcy Code,
(e) any amounts due and payable to the
DIP Lenders or the Pre-Petition Secured
Lenders under the DIP Credit Agreement
or the Final DIP Order, (f) any fees or
charges assessed against the Debtors'
estates under Section 1930, title 28,
United States Code, (g) any monetary
amounts by which each executory contract
and unexpired lease to be assumed
pursuant to the Plan is in default, and
(h) any valid reclamation claims under
Section 546 of the Bankruptcy Code.
Agent means Morgan Stanley & Co. Incorporated
from July 26, 2000 though January 14,
2003 and Wachovia Bank, National
Association from and after January 14,
2003 in their respective capacities as
agent for the Pre-Petition Secured
Lenders under the Pre-Petition Credit
Agreement.
AICPA means American Institute of Certified
Public Accountants.
Allowed means, with respect to Claims or Equity
Interests, (a) any Claim against or
Equity Interest in the Debtors, proof of
which is timely filed, or by order of
the Bankruptcy Court is not or will not
be required to be filed, (b) any Claim
or Equity Interest that has been or is
hereafter listed in the Schedules as
neither Disputed, contingent or
unliquidated, and for which no timely
filed proof of claim or interest has
been filed, or (c) any Claim or Equity
Interest allowed pursuant to the Plan;
provided, however, that with respect to
any Claim or Equity Interest described
in clauses (a) or (b) above, such Claim
or Equity Interest shall be allowed only
if (i) no objection
iv
to allowance thereof has been interposed
within the applicable period of time
fixed by the Plan, the Bankruptcy Code,
the Bankruptcy Rules or the Bankruptcy
Court or (ii) such an objection is so
interposed and the Claim or Equity
Interest shall have been allowed by a
Final Order (but only if such allowance
was not solely for the purpose of voting
to accept or reject the Plan). Unless
otherwise specified in the Plan or in a
Final Order of the Bankruptcy Court
allowing such claim, "Allowed" in
reference to a Claim shall not include
(a) interest on the amount of such Claim
accruing from and after the Petition
Date, (b) punitive or exemplary damages
or (c) any fine, penalty or forfeiture.
AMT means alternative minimum tax.
AMT NOLs has the meaning set forth in Section
XII.B.1.
AMTI means alternative minimum taxable
income.
Ballot means the enclosed ballot to be used by
holders of Claims or Equity Interests
for the purpose of voting to accept or
reject the Plan.
Bankruptcy Code means Title 11, United States Code, as
amended from time to time, as applicable
to the Chapter 11 Case.
Bankruptcy Court means the United States Bankruptcy Court
for the Eastern District of Virginia,
Richmond Division having jurisdiction
over the Chapter 11 Case and, to the
extent of any reference made under
Section 157, title 28, United States
Code, the unit of such District Court
having jurisdiction over the Chapter 11
Case under Section 151, title 28, United
States Code.
Bankruptcy Exception has the meaning set forth in Section
XII.B.1.
Bankruptcy Rules means the Federal Rules of Bankruptcy
Procedure as promulgated by the United
States Supreme Court under Section 2075,
title 28, United States Code, as amended
from time to time, applicable to the
Chapter 11 Case, and any Local Rules of
the Bankruptcy Court.
Bar Date means June 10, 2003, the last date on
which creditors, other than governmental
units as defined in Section 101 of the
Bankruptcy Code, may file proofs of
claim against the Debtors.
v
Business Day means any day other than a Saturday, a
Sunday or any legal holiday as set forth
in Bankruptcy Rule 9006(a).
Cash means legal tender of the United States
of America and equivalents thereof.
Chapter 11 Case means the Debtors' voluntary cases,
numbers 03-32093 through 03-32109,
03-32111, 03-32112, 03-32114, 03-32115,
03-32119, 03-32121, 03-32123, 03-32127
and 03-32131, which are being jointly
administered, for procedural purposes
only, as case number 03-32094, filed
with the Bankruptcy Court under Chapter
11 of the Bankruptcy Code.
Claim has the meaning set forth in Section 101
of the Bankruptcy Code.
Class means any group of substantially similar
Claims or Equity Interests classified in
Section 4 of the Plan and pursuant to
Section 1129(a)(1) of the Bankruptcy
Code.
CLEC means competitive local exchange
carrier.
Collateral means any property or interest in
property of the Debtors' estates subject
to a Lien to secure the payment or
performance of a Claim, which Lien is
not subject to avoidance or otherwise
invalid under the Bankruptcy Code or
applicable state law.
Company means, prior to the Effective Date, the
Debtors, and after the Effective Date,
the Reorganized Debtors.
Confirmation Date means the date on which the Bankruptcy
Court enters the Confirmation Order on
its docket with respect to the Chapter
11 Case.
Confirmation Hearing means the hearing held by the Bankruptcy
Court pursuant to Section 1128 of the
Bankruptcy Code regarding confirmation
of the Plan pursuant to Section 1129 of
the Bankruptcy Code, as such hearing may
be adjourned or continued from time to
time.
Confirmation Order means the order of the Bankruptcy Court
confirming the Plan pursuant to Section
1129 of the Bankruptcy Code.
Contract Rejection Schedule means the schedule of executory contracts
and unexpired leases to be rejected by
the Debtors pursuant to Sections 365(a)
and 1123 of the Bankruptcy Code annexed
to the
vi
Plan as Exhibit 1, or any amendments
thereto filed prior to the Effective Date
as permitted by Section 9.1 of the Plan.
Convenience Claim means an Allowed General Unsecured Claim
of $10,000 or less.
Creditors' Committee means the official statutory committee of
unsecured creditors appointed in the
Chapter 11 Case by the United States
Trustee on March 13, 2003, consisting of
Morgan Stanley & Co. Incorporated; WCAS;
Capital Research and Management Company;
The Bank of New York; INVESCO Funds
Group; Motorola, Inc. and CellStar, Ltd.
or their replacements, if any.
Debtors means NTELOS and the NTELOS Subsidiaries,
jointly or severally, as of the Petition
Date.
Debtors in Possession means the Debtors in their capacities as
debtors in possession in the Chapter 11
Case under Sections 1101, 1107(a) and
1108 of the Bankruptcy Code.
DIP Agent means Wachovia Bank, National Association
in its capacity as agent for the DIP
Lenders under the DIP Credit Agreement.
DIP Credit Agreement means the $35,000,000
debtor-in-possession credit agreement
dated as of March 6, 2003 among NTELOS,
the NTELOS Subsidiaries named therein as
guarantors, the DIP Agent and the DIP
Lenders.
DIP Lenders means Wachovia Bank, National
Association, General Electric Capital
Corporation, H/Z Acquisition Partners
LLC, Morgan Stanley Senior Funding, Inc.,
Branch Banking and Trust Company, Rural
Telephone Finance Cooperative, SunAmerica
Senior Floating Rate Fund Inc. and
Deutsche Bank Trust Company Americas.
DIP Lender Claim means a Claim of the DIP Lenders arising
under or as a result of the DIP Credit
Agreement or the Final DIP Order.
Disbursing Agent means any entity in its capacity as a
disbursing agent under Sections 7.2 and
7.11 of the Plan.
Disclosure Statement means the disclosure document relating to
the Plan, including, without limitation,
all exhibits and schedules
vii
thereto as approved by the Bankruptcy
Court pursuant to Section 1125 of the
Bankruptcy Code.
Disclosure Statement Order means the order of the Bankruptcy Court,
dated ______ __, 2003, which, among other
things, approves the Disclosure Statement
and establishes certain procedures with
respect to the solicitation and
tabulation of votes to accept or reject
the Plan.
Disputed means, with respect to a Claim or Equity
Interest, any such Claim or Equity
Interest that is not Allowed.
Distribution Record Date means the date provided in the
Confirmation Order as the record date for
distributions under the Plan.
DTC means the Depository Trust Company.
EBITDA means earnings before interest, taxes,
depreciation, amortization and other
items, adjusted as specified.
Effective Date means the date that is eleven (11) days
after the Confirmation Date, or if such
date is not a Business Day, the next
succeeding Business Day, or such date
after the Confirmation Date as determined
by the Debtors with the prior written
consent of the Agent and the Creditors'
Committee so long as no stay of the
Confirmation Order is in effect on such
date; provided, however, that if, on or
prior to such date, all conditions to the
Effective Date set forth in Section 10 of
the Plan have not been satisfied or
waived, then the Effective Date shall be
the first Business Day following the day
on which all such conditions to the
Effective Date have been satisfied or
waived or such date as the Debtors may
determine with the prior written consent
of the Creditors' Committee and/or the
Agent in accordance with Section 10.3 of
the Plan.
Eligible Institution means a member firm of a registered
national securities exchange in the
United States, a member of the National
Association of Securities Dealers, Inc.,
or a commercial bank or trust company
having an office or correspondent in the
United States.
Equity Interest means the interest of any holder of
equity securities of NTELOS represented
by any issued and outstanding shares of
common or preferred stock or other
instrument evidencing a present ownership
interest in NTELOS, whether or not
transferable, or any option, warrant or
viii
right, contractual or otherwise, to
acquire, in connection with or related
to, any such interest, including, without
limitation, any rights with respect to
NTELOS under any registration rights
agreement or shareholders agreement to
which NTELOS is a party.
Exchange Act means the Securities Exchange Act of
1934, as amended.
Exit Financing Term Sheet means the term sheet which sets forth the
terms of the New Credit Agreement to be
entered into on the Effective Date and
which is annexed hereto as Exhibit H.
FASB means the Financial Accounting Standards
Board.
FCC Secured Claim means all Secured Claims of the FCC
against the Debtors arising under or in
connection with conditional licenses,
denominated as PBB479C, PBB075C, and
CWB179F, to use broadband personal
communications spectrum.
Final DIP Order means the Final Order entered on March
24, 2003 (i) authorizing Debtors (a) to
obtain post-petition financing pursuant
to 11 U.S.C. Sections 105, 361, 362,
364(c)(1), 364(c)(2), 364(c)(3) and
364(d)(1) and (b) to utilize cash
collateral pursuant to 11 U.S.C. Section
363 and (ii) granting adequate protection
to pre-petition secured parties pursuant
to 11 U.S.C. Sections 361, 362, 363 and
364.
Final Order means an order or judgment of the
Bankruptcy Court entered by the Clerk of
the Bankruptcy Court on the docket in the
Chapter 11 Case, which has not been
reversed, vacated or stayed and as to
which (a) the time to appeal, petition
for certiorari or move for a new trial,
reargument or rehearing has expired and
as to which no appeal, petition for
certiorari or other proceedings for a new
trial, reargument or rehearing shall then
be pending or (b) if an appeal, writ of
certiorari, new trial, reargument or
rehearing thereof has been sought, such
order or judgment of the Bankruptcy Court
shall have been affirmed by the highest
court to which such order was appealed,
or certiorari shall have been denied or a
new trial, reargument or rehearing shall
have been denied or resulted in no
modification of such order, and the time
to take any further appeal, petition for
certiorari or move for a new trial,
reargument or rehearing shall have
expired; provided, however, that the
possibility that a motion under Rule 60
of the Federal Rules of Civil Procedure,
or any analogous rule under the
Bankruptcy
ix
Rules, may be filed relating to such
order, shall not cause such order not to
be a Final Order.
Financial Projections has the meaning set forth in Section X.A.
General Unsecured Claim means any Claim against the Debtors other
than a DIP Lender Claim, an
Administrative Expense Claim, a
Professional Compensation and
Reimbursement Claim, a Priority Tax
Claim, a Secured Claim, a Senior Debt
Claim, a Convenience Claim, an
Intercompany Claim or a Subordinated
Claim. General Unsecured Claims include,
but are not limited to any Rejection
Claim.
ILEC means incumbent local exchange carrier.
Intercompany Claim means any Claim held by any of the
non-Debtor direct or indirect
subsidiaries of NTELOS against the
Debtors or by any Debtor against any
other Debtor.
Letter of Transmittal means the letter of transmittal to be
disbursed to holders of Voting Securities
by the Disbursing Agent promptly after
the Confirmation Date and containing such
representations and warranties as are
described in the Disclosure Statement.
Lien has the meaning set forth in Section 101
of the Bankruptcy Code.
Liquidation Analysis means the analysis undertaken by NTELOS
to determine the value of property that
would be received by each holder of a
Claim or Equity Interest if the Debtors
were liquidated in a proceeding under
Chapter 7 of the Bankruptcy Code.
Loss Corporation means a corporation or a consolidated
group with NOLs.
Market Discount Bond means a debt obligation purchased at a
market discount subject to a statutorily
defined de minimis exception.
Modified Hedge Agreements means the Pre-Petition Hedge Agreements,
as modified such that, among other
things, references in the Pre-Petition
Hedge Agreements to the "Financial
Agreement" or the "Loan Agreement" shall
be deemed to refer to the New Credit
Agreement and as assumed by the Debtors
under the Plan.
New Articles of Incorporation means the amended and restated Articles
of Incorporation of Reorganized NTELOS,
which will be
x
filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the
Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 1.
New By-Laws means the amended and restated By-Laws of
Reorganized NTELOS, which will be filed
with the Bankruptcy Court at least
fourteen (14) Business Days prior to the
Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 1.
New Bank Debt means the indebtedness outstanding under
the New Credit Agreement on the Effective
Date.
New Common Stock means the shares of common stock of
Reorganized NTELOS (no par value) to be
issued and outstanding as of the
Effective Date pursuant to the Plan.
New Common Stock Price means $19.77 per share, based on the
approximate equity value implied by the
New Notes and the total number of shares
to be issued.
New Common Stock Registration means the registration rights agreement
Rights Agreement by and among certain holders of New
Common Stock and Reorganized NTELOS,
which will be filed with the Bankruptcy
Court at least fourteen (14) Business
Days prior to the Confirmation Hearing
and be annexed to the Plan Supplement as
Exhibit 5.
New Credit Agreement means the credit agreement containing the
terms set forth in the Exit Financing
Term Sheet, between the Agent, the
Pre-Petition Secured Lenders and NTELOS
to become effective on the Effective Date
if certain conditions are satisfied.
New Indenture means that certain indenture with respect
to the New Notes to be dated as of the
Effective Date, which will be filed with
the Bankruptcy Court at least fourteen
(14) Business Days prior to the
Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 3.
New Investment means the purchase by the Participating
Noteholders of the New Notes and the New
Common Stock in accordance with the
Subscription Agreement.
New Notes means the 9.0% Senior Convertible Notes
due 2013, issued by Reorganized NTELOS
having an aggregate principal amount of
$75.0 million.
xi
New Notes Registration Rights means the registration rights agreement
Agreement by and between the Participating
Noteholders and Reorganized NTELOS, which
will be filed with the Bankruptcy Court
at least fourteen (14) Business Days
prior to the Confirmation Hearing and be
annexed to the Plan Supplement as Exhibit
6.
New Warrant Agreement means the agreement between NTELOS and
the holders of the New Warrants in
connection with the issuance of the New
Warrants, which will be filed with the
Bankruptcy Court at least fourteen (14)
Business Days prior to the Confirmation
Hearing and be annexed to the Plan
Supplement as Exhibit 4.
New Warrants means the warrants to purchase up to 3.0%
of the fully-diluted New Common Stock at
an initial exercise price equal to 120%
of the New Common Stock Price, to be
issued pursuant to the New Warrant
Agreement by Reorganized NTELOS to
holders of Old Preferred Stock Interests
in accordance with the terms set forth in
the New Warrant Agreement.
NOLs means net operating losses and loss
carryforwards.
NTELOS means NTELOS Inc., a Virginia
corporation.
NTELOS Non-filing Subsidiaries means Virginia Independent Telephone
Alliance, L.C., NTELOS Net LLC, NTELOS
Telephone LLC, R&B Telephone LLC and
Roanoke & Botetourt Network LLC.
NTELOS Subsidiaries means each entity in which NTELOS owns,
directly or indirectly, 50.0% or more of
the issued and outstanding capital stock,
partnership interests or membership
interests, as the case may be, except the
NTELOS Non-filing Subsidiaries.
Old Bank Debt means the indebtedness outstanding under
the Pre-Petition Credit Agreement on the
Effective Date.
Old Common Stock means the issued and outstanding common
stock of NTELOS (no par value) as of the
Petition Date.
Old Common Stock Interest means an Equity Interest represented by
shares of Old Common Stock.
Old Preferred Stock means the issued and outstanding Series B
and Series C Preferred Stock of NTELOS as
of the Petition Date.
xii
Old Preferred Stock Distribution means the New Warrants and those shares
Amount of New Common Stock issuable upon
exercise of the New Warrants.
Old Preferred Stock Interest means an Equity Interest represented by
(a) shares of Old Preferred Stock and (b)
any warrant or right, contractual or
otherwise, to acquire, in connection with
or related to, any such interest
(including, without limitation, any
rights with respect to NTELOS under any
registration rights agreement or
shareholders agreement to which NTELOS is
a party).
Old Securities means the Old Bank Debt, the Senior
Notes, the Subordinated Notes, the Old
Preferred Stock and the Old Common Stock.
Other Equity Interests and means (a) an Equity Interest in NTELOS
Securities Claims (including, without limitation, any
option, warrant or right, contractual or
otherwise, to acquire the Old Common
Stock and any rights with respect to
NTELOS under any registration rights
agreement or shareholders agreement to
which NTELOS is a party) other than the
Old Common Stock Interests and the Old
Preferred Stock Interests, and (b) any
Claims, obligations, rights, suits,
damages, causes of action, remedies, and
liabilities whatsoever, whether known or
unknown, foreseen or unforeseen,
currently existing or hereafter arising,
in law, equity or otherwise arising from
rescission of a purchase or sale of a
security of NTELOS or the purchase or
sale of a security of an NTELOS
Subsidiary, for damages arising from the
purchase, sale or holding of such
securities or the exercise of an option,
warrant, conversion privilege or
contractual right to such purchase or
sale, or for reimbursement,
indemnification or contribution allowed
under Section 502 of the Bankruptcy Code
on account of such a Claim.
Participating Noteholders has the meaning set forth in Section I.B.
Petition Date means March 4, 2003, the date on which
the Debtors commenced the Chapter 11
Case.
Plan means the Joint Plan of Reorganization
Under Chapter 11 of the Bankruptcy Code,
dated as of May 30, 2003, including,
without limitation, the exhibits and
schedules thereto, as the same may be
amended or modified from time to time in
accordance with the provisions of the
xiii
Bankruptcy Code and the terms thereof.
Plan Supplement means the supplemental appendix to the
Plan that will contain the New Articles
of Incorporation and New By-Laws of
Reorganized NTELOS Inc. (Exhibit 1
thereto), the Purchase Agreement (Exhibit
2 thereto), the New Indenture (Exhibit 3
thereto), the New Warrant Agreement
(Exhibit 4 thereto), the New Common Stock
Registration Rights Agreement (Exhibit 5
thereto), and the New Notes Registration
Rights Agreement (Exhibit 6 thereto) to
be filed with the Bankruptcy Court no
later than fourteen (14) Business Days
prior to the Confirmation Hearing.
Plan Support Agreement means the Plan Support Agreement, dated
as of April 10, 2003, by and between
NTELOS and certain Pre-Petition Secured
Lenders, annexed hereto as Exhibit G.
Pre-Petition Credit Agreement means the $325,000,000 credit agreement
dated July 26, 2000, as amended by
Amendment No. 1 thereto dated as of July
23, 2001, Amendment No. 2 thereto dated
as of November 14, 2001, Amendment No. 3
thereto dated as of March 6, 2002, by the
Letter Amendment thereto dated as of
April 11, 2002, Amendment No. 4 and
Waiver No. 1 thereto dated as of November
29, 2002, Amendment No. 5 thereto dated
as of January 14, 2003, Amendment No. 6
thereto dated as of February 28, 2003 and
as heretofore so amended, supplemented by
certain guaranty supplements thereto and
otherwise modified in accordance with its
terms, among NTELOS (formerly known as
CFW Communications Company), the
subsidiary guarantors party thereto, the
Pre-Petition Secured Lenders and the
Agent.
Pre-Petition Hedge Agreements means the interest rate swap, cap or
collar agreements, interest rate future
or option contracts, currency swap
agreements, currency future or option
contracts and other hedging agreements
among NTELOS (formerly known as CFW
Communications Company) and the Secured
Hedge Parties in connection with the
Pre-Petition Credit Agreement.
Pre-Petition Secured Lenders means those financial institutions that
are from time to time parties to the
Pre-Petition Credit Agreement.
Priority Non-Tax Claim means Claims which are entitled to
priority in accordance with Section
507(a) of the Bankruptcy Code
xiv
(other than Administrative Expense Claims
and Priority Tax Claims).
Priority Tax Claim means any Claim of a governmental unit of
the kind entitled to priority in payment
as specified in Sections 502(i) and
507(a)(8) of the Bankruptcy Code.
Professional Compensation and means a Claim for compensation,
Reimbursement Claim indemnification or reimbursement of
expenses pursuant to Sections 327, 328,
330, 331 or 503(b) of the Bankruptcy Code
in connection with the Chapter 11 Case.
Projected Financial Information means the projections of the Reorganized
Debtors' financial performance for the
Projection Period prepared by NTELOS.
Projection Period means each of the five (5) fiscal years,
ending December 31, following the year of
confirmation of the Plan.
Purchase Agreement means the purchase agreement among NTELOS
and the Participating Noteholders, which
governs the purchase of the New Notes and
the New Common Stock by the Participating
Noteholders and will be filed with the
Bankruptcy Court at least fourteen (14)
Business Days prior to the Confirmation
Hearing and be annexed to the Plan
Supplement as Exhibit 2.
Ratable Proportion means, with reference to any distribution
on account of any Claim or Equity
Interest in any Class, as the case may
be, a distribution equal in amount to the
ratio (expressed as a percentage) that
the amount of such Claim or number of
shares evidencing such Equity Interests,
as applicable, bears to the aggregate
amount of Claims or aggregate number of
outstanding shares of Equity Interests in
the same Class, as applicable.
Rejection Claim means any Claim against the Debtors
arising from the rejection of any
executory contract or unexpired lease,
including any Claim of (a) a lessor for
damages resulting from the rejection of a
lease of real property as such claim
shall be calculated in accordance with
Section 502(b)(6) of the Bankruptcy Code
and (b) an employee for damages resulting
from the rejection of an employment
agreement as such Claim shall be
calculated in accordance with Section
502(b)(7) of the Bankruptcy Code.
Reorganized Debtors means the Debtors as they will be
reorganized as of the
xv
Effective Date in accordance with the
Plan.
Reorganized NTELOS means NTELOS as it will be reorganized as
of the Effective Date in accordance with
the Plan.
Reorganized NTELOS Subsidiaries means each entity in which NTELOS owns,
directly or indirectly, 50.0% or more of
the issued and outstanding capital stock,
partnership interests or membership
interests, as the case may be, except the
NTELOS Non-filing Subsidiaries, as it
will be reorganized as of the Effective
Date in accordance with the Plan.
RTB means the Rural Telephone Bank.
RUS means the Rural Utilities Service.
RUS/RTB Secured Claims means the Secured Claims of the RUS and
RTB arising from loans received from the
United States (acting through the
Administrator of the Rural
Electrification Administration, a
predecessor in interest of the RUS) and
RTB pursuant to the Rural Electrification
Act of 1936, as amended, 7 U.S.C. Section
901 et seq.
Schedules means the schedules of assets and
liabilities and the statement of
financial affairs filed by the Debtors in
accordance with Section 521 of the
Bankruptcy Code, Bankruptcy Rule 1007 and
the Official Bankruptcy Forms of the
Bankruptcy Rules as such schedules and
statements have been or may be
supplemented or amended through the
Confirmation Date.
Section 108(b)(5) Election has the meaning set forth in Section
XII.B.1.
Section 382 Limitation has the meaning set forth in Section
XII.B.2.
Secured Bank Claims means all Secured Claims of the
Pre-Petition Secured Lenders against
NTELOS or the Debtors arising under or in
connection with the Pre-Petition Credit
Agreement and all Secured Claims of the
Secured Hedge Parties against NTELOS or
the Debtors arising under or in
connection with the Pre-Petition Hedge
Agreements.
Secured Claim means a Claim secured by a Lien on
Collateral to the extent of the value of
such Collateral (a) as set forth in the
Plan, (b) as agreed to by the holder of
such Claim and the Debtors or (c) as
determined by a Final Order in accordance
with Section 506(a) of the Bankruptcy
Code or, in the event that such Claim is
subject to setoff under
xvi
Section 553 of the Bankruptcy Code, to
the extent of such setoff.
Secured Hedge Parties means those financial institutions that
are parties to the Pre-Petition Hedge
Agreements.
Securities Act means the Securities Act of 1933, as
amended.
Senior Debt Claim means any unsecured Claim for principal
and interest through the Petition Date
under the Senior Notes.
Senior Debt New Common Stock means 9,433,509 shares of the issued and
Distribution Amount outstanding New Common Stock,
representing 68.4% of the New Common
Stock as of the Effective Date, giving
effect to the conversion of the New Notes
into New Common Stock (or 94.3% of the
New Common Stock as of the Effective
Date, without giving effect to the
conversion of the New Notes into New
Common Stock) but subject to further
dilution for shares of New Common Stock
issuable under the Stock Option Incentive
Plan and those shares of New Common Stock
issuable upon exercise of the New
Warrants.
Senior Indenture means that certain indenture with respect
to the Senior Notes dated as of July 26,
2000 between NTELOS and The Bank of New
York, as trustee.
Senior Indenture Trustee means The Bank of New York, the trustee
pursuant to the Senior Indenture.
Senior Notes means the 13.0% senior notes due 2010,
issued by NTELOS pursuant to the Senior
Indenture having an aggregate principal
amount of $280.0 million.
Series B Preferred Stock means the 8.5% Series B Redeemable,
Convertible Preferred Stock of NTELOS.
Series C Preferred Stock means the 5.5% Series C Redeemable,
Convertible Preferred Stock of NTELOS.
Service means the Internal Revenue Service.
Shareholders' Agreement means the shareholders' agreement to be
entered into on the Effective Date, to be
annexed hereto as Exhibit I.
Stock Option Incentive Plan means the incentive option plan of
Reorganized NTELOS which will authorize
the grant of options to purchase up to an
aggregate of 10% of the fully-diluted
xvii
New Common Stock as set forth herein.
Subordinated Claim means a Claim for principal and interest
through the Petition Date under the
Subordinated Notes.
Subordinated Indenture means that certain indenture with respect
to the Subordinated Notes dated as of
July 26, 2000 between NTELOS and The Bank
of New York, as trustee.
Subordinated Indenture Trustee means The Bank of New York, the trustee
pursuant to the Subordinated Indenture.
Subordinated Note New Common Stock means 500,000 shares of the issued and
Distribution Amount outstanding New Common Stock,
representing 3.6% of the New Common Stock
as of the Effective Date, giving effect
to the conversion of the New Notes into
New Common Stock (or 5.0% of the New
Common Stock as of the Effective Date,
without giving effect to the conversion
of the New Notes into New Common Stock)
but subject to further dilution for
shares of New Common Stock issuable under
the Stock Option Incentive Plan and those
shares of New Common Stock issuable upon
exercise of the New Warrants.
Subordinated Notes means the 13.5% subordinated notes due
2011, issued by NTELOS pursuant to the
Subordinated Indenture having an
aggregate principal amount of $95.0
million.
Subscription Agreement means the subscription agreement among
NTELOS and the Participating Noteholders,
dated as of April 10, 2003, which
provides for a commitment to purchase New
Notes the terms of which will be
incorporated into the Purchase Agreement.
Subsidiary Interests means any and all interests of the
Debtors owned by the Debtors and all
membership interests owned by the
non-Debtor members of Virginia PCS
Alliance, L.C. and West Virginia PCS
Alliance, L.C.
Substantive Consolidation Order means the Order of the Bankruptcy Court
substantively consolidating the Debtors
solely for purposes of actions associated
with confirmation and consummation of the
Plan, including but not limited to
voting, confirmation and distribution.
Tax Code means the Internal Revenue Code of 1986,
as amended.
xviii
Tendered Certificates has the meaning set forth in Section
7.3(ii) of the Plan.
TIN means taxpayer identification number.
UBS Warburg means UBS Warburg LLC.
Virginia Code means the Code of Virginia.
Voting Securities means the Senior Notes, the Subordinated
Notes and the Old Preferred Stock.
WCAS means WCAS Capital Partners III, L.P.,
Welsh, Carson, Anderson & Stowe VIII,
L.P., Welsh, Carson, Anderson & Stowe IX,
L.P., LTSE Holdings Corporation and their
respective affiliates.
xix
I.
INTRODUCTION
On March 4, 2003, the Debtors commenced cases under Chapter 11 of the
Bankruptcy Code and hereby submit this Disclosure Statement, dated May 30, 2003,
pursuant to Section 1125 the Bankruptcy Code to holders of Claims and Equity
Interests in the Debtors in connection with (i) the solicitation of acceptances
or rejections of the Debtors' Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated May 30, 2003 filed by the Debtors with the United
States Bankruptcy Court for the Eastern District of Virginia, Richmond Division
and (ii) the hearing to consider confirmation of the Plan scheduled for August
__, 2003 at _:__ [p.m.], Eastern Time. Unless otherwise defined herein, all
capitalized terms contained herein have the meanings ascribed to them in the
Plan.
Attached as Exhibits to this Disclosure Statement are copies of the
following:
. The Plan (Exhibit A)
Exhibit 1 Contract Rejection Schedule;
. The Disclosure Statement Order (Exhibit B);
. Projected Financial Information (Exhibit C);
. Liquidation Analysis (Exhibit D);
. Historical Financial Statements (Exhibit E);
. Subscription Agreement (Exhibit F);
. Plan Support Agreement (Exhibit G);
. Exit Financing Term Sheet (Exhibit H); and
. Shareholders' Agreement (Exhibit I).
In addition, a Ballot for the acceptance or rejection of the Plan is enclosed
with this Disclosure Statement to enable each holder of a Claim or Equity
Interest entitled to do so to vote to accept or reject the Plan.
On July __, 2003, after notice and a hearing, the Bankruptcy Court approved
this Disclosure Statement as containing adequate information of a kind and in
sufficient detail to enable hypothetical reasonable investors typical of the
Debtors' creditors and equity interest holders to make an informed judgment
whether to accept or reject the Plan. APPROVAL OF THIS DISCLOSURE STATEMENT DOES
NOT, HOWEVER, CONSTITUTE A DETERMINATION BY THE BANKRUPTCY COURT AS TO THE
FAIRNESS OR MERITS OF THE PLAN.
The Disclosure Statement Order, a copy of which is annexed hereto as
Exhibit B, sets forth in detail the deadlines, procedures and instructions for
voting to accept or reject the Plan and for filing objections to confirmation of
the Plan, the record date for voting purposes, and the applicable standards for
tabulating Ballots. In addition, detailed voting instructions accompany each
Ballot. Each holder of a Claim or an Equity Interest entitled to vote on the
Plan should read
the Disclosure Statement, the Plan, the Disclosure Statement Order and the
instructions accompanying the Ballots in their entirety before voting on the
Plan. These documents contain, among other things, important information
concerning the classification of Claims and Equity Interests for voting purposes
and the tabulation of votes. No solicitation of votes to accept the Plan may be
made except pursuant to Section 1125 of the Bankruptcy Code.
Additional financial and other information about the Debtors can be found
in NTELOS' Form 10-K for the fiscal year ended December 31, 2002, its Form 10-Q
for the quarter ended March 31, 2003 and its other filings from time to time
with the Securities and Exchange Commission ("SEC"), each of which is
incorporated in this Disclosure Statement by reference. Copies of NTELOS' SEC
filings may be obtained over the Internet at www.sec.gov.
A. Holders of Claims and Equity Interests Entitled to Vote.
Pursuant to the provisions of the Bankruptcy Code, only holders of allowed
claims or equity interests in classes of claims or equity interests that are
impaired under the terms and provisions of a Chapter 11 plan and that will
receive distributions under the Chapter 11 plan are entitled to vote to accept
or reject the plan. Classes of claims or equity interests in which the holders
of claims or interests will not receive or retain any property under a Chapter
11 plan are deemed to have rejected the plan and are not entitled to vote to
accept or reject the plan. Classes of claims or equity interests in which the
holders of claims or interests are unimpaired under a Chapter 11 plan are deemed
to have accepted the plan and are not entitled to vote to accept or reject the
plan.
Class 2 (Secured Bank Claims), Class 5 (Senior Debt Claims), Class 7
(General Unsecured Claims), Class 9 (Subordinated Claims) and Class 10 (Old
Preferred Stock Interests) are impaired by the Plan and the holders of Allowed
Claims and Allowed Equity Interests in those Classes will receive distributions
under the Plan. Holders of Claims and Equity Interests in those Classes are
entitled to vote to accept or reject the Plan. Class 1 (Priority Non-Tax
Claims), Class 3 (FCC Secured Claims), Class 4 (RUS/RTB Secured Claims), Class 6
(Convenience Claims), Class 8 (Intercompany Claims) and Class 11 (Subsidiary
Interests) are unimpaired by the Plan and the holders of Allowed Claims in those
Classes are conclusively presumed to have accepted the Plan. Class 12 (Old
Common Stock Interests) and Class 13 (Other Equity Interests and Securities
Claims) are impaired under the Plan and holders of Equity Interests in Class 12
and Class 13 will receive no distribution in respect thereof. Class 12 and Class
13 are conclusively presumed to have rejected the Plan. Accordingly, holders of
Equity Interests in each of Class 12 and Class 13 are not entitled to vote to
accept or reject the Plan and the votes of such holders will not be solicited.
Therefore, the Debtors are soliciting votes on the Plan only from holders of
Allowed Claims and Equity Interests in Class 2, Class 5, Class 7, Class 9 and
Class 10.
The Bankruptcy Code defines "acceptance" of a plan by a class of claims as
acceptance by creditors in that class that hold at least two-thirds in dollar
amount and more than one-half in number of the allowed claims that cast ballots
for acceptance or rejection of the plan. For a complete description of the
requirements for confirmation of the Plan, see Section VII., "Confirmation and
Consummation Procedure."
If a Class of Claims or Equity Interests rejects the Plan or is deemed to
reject the Plan, the Debtors have the right to request confirmation of the Plan
pursuant to Section 1129(b) of the
2
Bankruptcy Code. Section 1129(b) permits the confirmation of a plan
notwithstanding the nonacceptance of such plan by one or more impaired classes
of claims or equity interests. Under that section, a plan may be confirmed by a
bankruptcy court if it does not "discriminate unfairly" and is "fair and
equitable" with respect to each nonaccepting class. For a more detailed
description of the requirements for confirmation of a nonconsensual plan, see
Section VII.C.2., "Confirmation and Consummation Procedure - Confirmation -
Unfair Discrimination and Fair and Equitable Tests."
If one or more of the Classes entitled to vote on the Plan votes to reject
the Plan, the Debtors may request confirmation of the Plan over the rejection of
the Plan by such Class or Classes. The determination as to whether the Debtors
will seek confirmation of the Plan under such circumstances will be announced
before or at the Confirmation Hearing.
B. Voting Procedures.
If you are entitled to vote to accept or reject the Plan, a Ballot is
enclosed. If you hold Claims and/or Equity Interests in more than one Class and
you are entitled to vote such Claims and/or Equity Interests in more than one
Class, you will receive separate Ballots which must be used for each separate
Class of Claims and Equity Interests. If you hold your Claim or Equity Interest
in your own name, return your Ballot(s) to:
Administar Services Group, Inc.
8475 Western Way, Suite 150
Jacksonville, Florida 32256
Telephone: (904) 363-2004
Telecopier: (904) 519-9092
If you are the beneficial holder but not a record holder of your Claim or
Equity Interest, please either mail your Ballot to your bank, broker or their
agent in the return envelope provided.
DO NOT RETURN YOUR NOTES OR SECURITIES WITH YOUR BALLOT.
TO BE COUNTED, YOUR BALLOT INDICATING ACCEPTANCE OR REJECTION OF THE PLAN
MUST BE RECEIVED NO LATER THAN _:00 P.M., EASTERN TIME, ON ______ __, 2003. ANY
EXECUTED BALLOT RECEIVED THAT DOES NOT INDICATE EITHER AN ACCEPTANCE OR
REJECTION OF THE PLAN SHALL NOT BE COUNTED.
Any Claim or Equity Interest in an impaired Class as to which an objection
or request for estimation is pending or which is scheduled by the Debtors as
unliquidated, disputed or contingent is not entitled to vote unless the holder
of such Claim or Equity Interest has obtained an order of the Bankruptcy Court
temporarily allowing such Claim or Equity Interest for the purpose of voting on
the Plan.
Pursuant to the Disclosure Statement Order, the Bankruptcy Court set July
__, 2003 as the record date for voting on the Plan. Accordingly, only holders of
record as of ______ __, 2003 that are otherwise entitled to vote under the Plan
will receive a Ballot and may vote on the Plan.
If you are a holder of a Claim or Equity Interest entitled to vote on the
Plan and did not receive a Ballot, received a damaged Ballot or lost your
Ballot, or if you have any questions
3
concerning the Disclosure Statement, the Plan or the procedures for voting on
the Plan, please call Administar Services Group, Inc. at (904) 363-2004 (NTELOS'
Claims and Noticing Agent).
Holders of a Secured Bank Claim (Class 2), Senior Debt Claim (Class 5),
General Unsecured Claim (Class 7), Subordinated Claim (Class 9) or Old Preferred
Stock Interest (Class 10) shall make an election on their Ballot to either agree
or not agree to release any claims or causes of action that such holders may
have against the Debtors, Reorganized Debtors, past and present directors and
officers of NTELOS, current management of the Debtors, Debtors' affiliates, DIP
Lenders, Pre-Petition Secured Lenders, DIP Agent, Agent, Secured Hedge Parties,
the holders of Senior Notes who have agreed to purchase the New Notes pursuant
to the Subscription Agreement (the "Participating Noteholders"), the Creditors'
Committee and the members thereof, and each of the holders of Senior Debt
Claims, Subordinated Claims and Old Preferred Stock Interests (and all
subsidiaries and affiliates and officers, directors, partners, members,
attorneys, financial advisors, investment bankers and other professionals, and
agents of each of the foregoing). The specific terms of the release are set
forth in Section VI.I.9, "Joint Plan of Reorganization - Effect of Confirmation
- - Limited Releases by Holders of Claims and Equity Interests." If holders of
such Claims and Equity Interests wish to grant such release, such holders must
specifically decline to grant it by so indicating in the space provided on the
Ballot.
C. Confirmation Hearing.
Pursuant to Section 1128 of the Bankruptcy Code, the Confirmation Hearing
will be held on [August 11, 2003 at 2:00 p.m.] Eastern Time, before the
Honorable Douglas O. Tice, Jr., United States Bankruptcy Judge, at the United
States Bankruptcy Court, 1100 East Main Street, Room 301, Richmond, Virginia
23219. The Bankruptcy Court has directed that objections, if any, to
confirmation of the Plan be served and filed so that they are received on or
before ______ __, 2003 at _:__ [p.m.] Eastern Time, in the manner described
below in Section VII.B., "Confirmation and Consummation Procedure - The
Confirmation Hearing." The Confirmation Hearing may be adjourned from time to
time by the Bankruptcy Court without further notice except for the announcement
of the adjournment date made at the Confirmation Hearing or at any subsequent
adjourned Confirmation Hearing.
THE DEBTORS BELIEVE THAT THE PLAN WILL ENABLE IT TO REORGANIZE SUCCESSFULLY
AND ACCOMPLISH THE OBJECTIVES OF CHAPTER 11 AND THAT ACCEPTANCE OF THE PLAN IS
IN THE BEST INTERESTS OF THE DEBTORS AND THEIR CREDITORS AND EQUITY INTEREST
HOLDERS. THE DEBTORS URGE THAT CREDITORS AND EQUITY INTEREST HOLDERS VOTE TO
ACCEPT THE PLAN.
After carefully reviewing this Disclosure Statement, including the
Exhibits, each holder of an Allowed Claim or Equity Interest in Class 2 (Secured
Bank Claims), Class 5 (Senior Debt Claims), Class 7 (General Unsecured Claims),
Class 9 (Subordinated Claims) and Class 10 (Old Preferred Stock Interests)
should vote to accept or reject the Plan.
PRIOR TO THE PETITION DATE, THE DEBTORS COMMENCED NEGOTIATIONS WITH THE
BANKS, CERTAIN HOLDERS OF SENIOR NOTES, THE HOLDER OF THE SUBORDINATED NOTES AND
HOLDERS OF OLD PREFERRED STOCK. THE PLAN REFLECTS THE TERMS OF A TERM SHEET
NEGOTIATED AND SUPPORTED BY MANY OF THESE PARTIES. ON MARCH 13, 2003, THE UNITED
STATES TRUSTEE FORMED AN OFFICIAL COMMITTEE OF UNSECURED CREDITORS CONSISTING OF
MORGAN STANLEY & CO. INCORPORATED, WCAS, CAPITAL
4
RESEARCH AND MANAGEMENT COMPANY, THE BANK OF NEW YORK, INVESCO FUNDS GROUP,
MOTOROLA, INC. AND CELLSTAR, LTD. THE PLAN HAS THE SUPPORT OF [THE CREDITORS'
COMMITTEE AND] CERTAIN [OTHER] HOLDERS OF THE SENIOR NOTES, THE HOLDER OF THE
SUBORDINATED NOTES, HOLDERS OF THE OLD PREFERRED STOCK AND THE PRE-PETITION
SECURED LENDERS WHO SIGNED THE PLAN SUPPORT AGREEMENT.
II.
OVERVIEW OF THE PLAN
The following table briefly summarizes the classification and treatment of
Claims and Equity Interests under the Plan. The recoveries set forth below are
merely estimated recoveries based upon various assumptions. The estimated
recoveries assume that the New Common Stock issued as of the Effective Date will
have an approximate value of $197.7 million, based on the implied equity value
associated with the New Notes. For a discussion of the range of enterprise
valuations of the Reorganized Debtors, see Section X., "Valuation of Reorganized
NTELOS." There is no assurance that the New Common Stock issued under the Plan
will actually trade at the projected reorganization value or that any trading
market in the New Common Stock will develop or be sustained. For a description
of certain risks associated with the recoveries provided under the Plan, see
Section XI., "Certain Risk Factors To Be Considered."
THE PLAN SEEKS LIMITED SUBSTANTIVE CONSOLIDATION OF THE ESTATES OF THE
DEBTORS SOLELY FOR THE LIMITED PURPOSE ENUMERATED IN THE PLAN, AS FURTHER
DESCRIBED IN SECTION 6.15 THEREIN. IF SUCH LIMITED SUBSTANTIVE CONSOLIDATION IS
AUTHORIZED AND ORDERED BY THE COURT, ALL ALLOWED CLAIMS AGAINST THE DEBTORS OR
THEIR ESTATES SHALL BE SATISFIED FROM THE COMBINED CASH AND OTHER ASSETS OF ALL
OF THE DEBTORS. SUCH TREATMENT WILL GREATLY EASE THE ADMINISTRATION OF THE
ESTATES, WILL STREAMLINE THE SOLICITATION AND CONFIRMATION PROCESS, WILL
MINIMIZE EXPENSE, AND WILL NOT PREJUDICE THE CREDITORS OF ANY OF THE DEBTORS'
ESTATES.
5
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN/2/
Estimated
Type of Claim or Allowable Estimated
Class Equity Interest Treatment Amount Recovery
- ----------- --------------------------- ------------------------------------------ -------------- ---------
1 Priority Non-Tax Claims (to Unimpaired; each Allowed Priority $ 560,944 100%
be paid in the ordinary Non-Tax Claim will be unimpaired in
course of business) accordance with Section 1124 of the
Bankruptcy Code. All Allowed Priority
Non-Tax Claims which are not due and
payable on or before the Effective Date
will be paid in the ordinary course of
business in accordance with the terms
thereof.
2 Secured Bank Claims Impaired; on the Effective Date, $ [274,513,009] 100%
Reorganized NTELOS and the Reorganized
NTELOS Subsidiaries shall enter into (i)
the New Credit Agreement on
substantially the terms set forth in the
Exit Financing Term Sheet and (ii) the
Modified Hedge Agreements. Accordingly,
from and after the Effective Date, (i)
the Pre-Petition Secured Lenders' Claims
against the Debtors in respect of the
Pre-Petition Credit Agreement and the
rights and obligations of the
Reorganized Debtors and the Pre-Petition
Secured Lenders shall be governed by the
terms of the New Credit Agreement, and
(ii) the Secured Hedge Parties' Claims
against the Debtors in respect of the
Pre-Petition Hedge Agreements and the
rights and obligations of the
Reorganized Debtors and the Secured
Hedge Parties shall be governed by the
terms of the Modified Hedge Agreements.
3 FCC Secured Claims Unimpaired; each FCC Secured Claim will $ 7,738,829 100%
be treated as follows: (i) the Plan will
leave unaltered the legal, equitable and
contractual rights to which such Claim
entitles the holder or (ii)
notwithstanding any contractual
provision or applicable law that
entitles the holder of an Allowed Claim
in Class 3 to demand or receive payment
of such Claim prior to the stated
maturity of such Claims from and after
the occurrence of a default, such
Allowed Claim in Class 3 will be
reinstated and rendered unimpaired in
accordance with Section 1124(2) of the
- ----------
/2/ This table is only a summary of the classification and treatment of
Claims and Equity Interests under the Plan. Reference should be made to the
entire Disclosure Statement and to the Plan for a complete description of the
classification and treatment of Claims and Equity Interests.
6
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN/2/
Estimated
Type of Claim or Allowable Estimated
Class Equity Interest Treatment Amount Recovery
- ----------- --------------------------- ------------------------------------------ -------------- ---------
Bankruptcy Code.
4 RUS/RTB Secured Claims Unimpaired; each RUS/RTB Secured Claim $ 6,628,605 100%
will be treated as follows: (i) the Plan
will leave unaltered the legal,
equitable and contractual rights to
which such Claim entitles the holder or
(ii) notwithstanding any contractual
provision or applicable law that
entitles the holder of an Allowed Claim
in Class 4 to demand or receive payment
of such Claim prior to the stated
maturity of such Claims from and after
the occurrence of a default, such
Allowed Claim in Class 4 will be
reinstated and rendered unimpaired in
accordance with Section 1124(2) of the
Bankruptcy Code.
5 Senior Debt Claims Impaired; each holder of an Allowed $ 296,694,261 63%
Senior Debt Claim will receive its
Ratable Proportion of the Senior Debt
New Common Stock Distribution Amount.
Any securities, notes, instruments or
documents evidencing the Senior Debt
Claims will be cancelled on the
Effective Date.
6 Convenience Claims Unimpaired; each Convenience Claim will $ 1,200,000 100%
be rendered unimpaired in accordance
with Section 1124 of the Bankruptcy
Code. All Convenience Claims that have
become due and payable on or before the
Effective Date (unless previously paid)
will be paid in full, in Cash on, or as
soon as practicable after the Effective
Date, or at such other time as is
mutually agreed upon by the Debtors or
the Reorganized Debtors, as the case may
be, and the holder of such Claim. All
Convenience Claims which are not due and
payable on or before the Effective Date
will be paid in the ordinary course of
business in accordance with the terms
thereof.
7 General Unsecured Claims Impaired; each Allowed General Unsecured $ 9,000,000 68%
Claim will receive on account of and in
full and complete settlement, release
and discharge of such General Unsecured
Claim: (i) Cash on the Effective Date
equal to 30.6% of such holder's Allowed
General Unsecured Claim; (ii) Cash on
the first anniversary of the Effective
Date equal to 20.4% of such holder's
Allowed General Unsecured Claim;
7
SUMMARY OF CLASSIFICATION AND TREATMENT
OF CLAIMS AND EQUITY INTERESTS UNDER THE PLAN/2/
Estimated
Type of Claim or Allowable Estimated
Class Equity Interest Treatment Amount Recovery
- ----------- --------------------------- ------------------------------------------ -------------- ---------
and (iii) Cash on the second anniversary
of the Effective Date equal to 17.0% of
such holder's Allowed General Unsecured
Claim.
8 Intercompany Claims Unimpaired; the legal, equitable and $ 0/3/ 100%
contractual rights of the holders of
Intercompany Claims are unaltered.
9 Subordinated Claims Impaired; each holder of an Allowed $ 102,053,750 10%
Subordinated Claim will receive its
Ratable Proportion of the Subordinated
Note New Common Stock Distribution
Amount. Any securities, notes,
instruments or documents evidencing the
Subordinated Claims will be cancelled on
the Effective Date.
10 Old Preferred Stock Impaired; each holder of an Allowed Old 250,000 shares 1%/4/
Interests Preferred Stock Interest will receive
its Ratable Proportion of the New
Warrants to purchase up to 3.0% of the
fully-diluted New Common Stock at an
initial exercise price equal to 120% of
the New Common Stock Price. The Old
Preferred Stock Interests will be
cancelled on the Effective Date.
11 Subsidiary Interests Unimpaired; the legal, equitable and $ (543,184,085)/5/ 100%
contractual rights of the holders of
Subsidiary Interests are unaltered.
12 Old Common Stock Interests Impaired; no holder of an Old Common 17,780,248 0%
Stock Interest will receive a shares
distribution on account of such
interests. The Old Common Stock will be
cancelled on the Effective Date.
13 Other Equity Interests and Impaired; holders of Other Equity $ 0 0%
Securities Claims Interests and Securities Claims will
receive no distribution on account of
such interests.
- ----------
/3/ Intercompany Claims, which total $1,108,767,021 on the Debtors'
Schedules, ultimately have a net value of zero because they are internally
offsetting.
/4/ As set forth in the footnotes to the Projected Financial Information,
the Company used the Black-Scholes option pricing model to determine the value
assigned to the New Warrants as of the Effective Date.
/5/ Amount represents the shareholders' deficit, members' deficit,
partners' deficit, or negative book value of the NTELOS Subsidiaries as of March
3, 2003.
8
DIP Lender Claims, Administrative Expense Claims, Professional Compensation and
Reimbursement Claims, and Priority Tax Claims have not been classified (as set
forth in Section 2 of the Plan) and are excluded from the foregoing classes in
accordance with Section 1123(a)(1) of the Bankruptcy Code.
III.
OVERVIEW OF CHAPTER 11
Chapter 11 is the principal business reorganization chapter of the
Bankruptcy Code. Under Chapter 11, a debtor is authorized to reorganize its
business for the benefit of itself, its creditors and equity interest holders.
In addition to permitting rehabilitation of a debtor, another goal of Chapter 11
is to promote equality of treatment for similarly situated creditors and equity
interest holders with respect to the distribution of a debtor's assets.
The commencement of a Chapter 11 case creates an estate that is comprised
of all of the legal and equitable interests of the debtor as of the filing date.
The Bankruptcy Code provides that the debtor may continue to operate its
business and remain in possession of its property as a "debtor in possession."
The consummation of a plan of reorganization is the principal objective of
a Chapter 11 reorganization case. A plan of reorganization sets forth the means
for satisfying claims against and equity interests in the debtor. Confirmation
of a plan of reorganization by the bankruptcy court makes the plan binding upon
a debtor, any issuer of securities under the plan, any person acquiring property
under the plan and any creditor or equity interest holder of a debtor. Subject
to certain limited exceptions, the confirmation order discharges a debtor from
any debt that arose prior to the date of confirmation of the plan and
substitutes therefor the obligations specified under the confirmed plan.
After a plan of reorganization has been filed, the holders of claims
against or equity interests in a debtor are permitted to vote to accept or
reject the plan. Before soliciting acceptances of the proposed plan, however,
Section 1125 of the Bankruptcy Code requires a debtor to prepare a disclosure
statement containing adequate information of a kind, and in sufficient detail,
to enable a hypothetical reasonable investor to make an informed judgment about
the plan. The Debtors are submitting this Disclosure Statement to holders of
Claims against and Equity Interests in the Debtors to satisfy the requirements
of Section 1125 of the Bankruptcy Code.
IV.
GENERAL INFORMATION
A. Description and History of Business.
1. Business.
a. General.
The Company is a regional integrated communications provider
offering a broad range of wireless and wireline products and services to
business and residential customers in Virginia, West Virginia, Kentucky,
Tennessee and North Carolina. The Company is a digital PCS licensee, and owns a
fiber optic network, switches and routers, which enable the Company to offer its
customers end-to-end connectivity in many of the regions it serves.
9
The Company's wireless business consists primarily of digital PCS
services, which the Company offers in Virginia, West Virginia, North Carolina
and Kentucky. The Company began offering digital PCS services in late 1997 and
offered analog cellular services until July 2000. The Company's PCS network
utilizes digital CDMA technology. As of March 31, 2003, the Company owned
licenses covering approximately 10.2 million pops and provided PCS services to
approximately 279,700 subscribers.
The Company provides ILEC and CLEC services in Virginia and CLEC
services in West Virginia. As an ILEC, the Company owns and operates two local
telephone companies. As of March 31, 2003, the Company's ILECs had approximately
52,000 residential and business access lines installed. As a CLEC, the Company
serves 16 markets in three states. Since commencing CLEC operations in mid-1998,
the Company has grown its number of installed business access lines to
approximately 44,000 as of March 31, 2003. The Company also provides dial-up
Internet access through a local presence in Virginia, West Virginia and
Tennessee. The Company offers high-speed data services, such as dedicated
service and DSL within these three states. As of March 31, 2003, the Company's
Internet customer base totaled approximately 60,000 dial-up subscribers and
6,000 DSL subscribers.
The Company's wireless and wireline businesses are supported by
its fiber optic network, which currently includes 1,800 route-miles. This
network gives the Company the ability to originate, transport and terminate much
of its customers' communications traffic in many of its service markets. The
Company also uses its network to back-haul communications traffic for its retail
services and to serve as a carrier's carrier, providing transport services to
third parties for long distance, Internet and private network services. The
Company's fiber optic network is connected to and marketed with adjacent fiber
optic networks in the mid-Atlantic region.
NTELOS (formerly CFW Communications Company) was incorporated in
Virginia on January 22, 1988, and its principal offices are located in
Waynesboro, Virginia. The Company employed 1,310 regular full-time and part-time
persons as of March 31, 2003.
b. Products and Services.
The Company segregates its services into three primary
categories: wireless communications, wireline communications and other
communications services.
(i) Wireless.
(1) Digital PCS.
The Company's wireless business provides digital PCS services and
other packages with the following affordable and reliable services:
. Digital Features. The features of the Company's basic PCS service
include voice mail with notification, caller ID, call waiting, three-way
calling, call forwarding, voice activated dialing and 2 way mobile
messaging. For an additional fee, the Company also provides wireless
Internet access.
. Nationwide Service. The Company's nationwide roaming agreements and
dual-mode handsets allow its customers to roam on wireless networks of
other wireless providers.
10
The Company has nationwide roaming agreements with Sprint, Verizon and
ALLTEL that allows its PCS customers to make and receive calls.
. Advanced Handsets. The Company offers tri-mode handsets employing 1XRTT
data capable CDMA technology, which allow customers to make and receive
calls on both CDMA PCS and analog frequency bands. These handsets allow
roaming on digital or analog networks where the Company's digital PCS
service is not available. These handsets are equipped with preprogrammed
features such as speed dial and last number redial.
. Extended Battery Life. The CDMA handsets that the Company offers provide
extended battery life. These handsets generally offer four days of
standby and two and one-half hours of talk time battery life. Handsets
operating on a digital system are capable of saving battery life while
turned on but not in use, improving efficiency and extending the
handset's use.
. Enhanced Voice Quality. The Company's CDMA technology offers enhanced
voice quality and clarity, powerful error correction, less
susceptibility to call fading and enhanced interference rejection, as
compared to analog cellular systems, all of which result in fewer
dropped calls.
. Privacy and Security. The Company's PCS services provide secure voice
transmissions encoded into a digital format, designed to prevent
eavesdropping and unauthorized cloning of subscriber identification
numbers.
. Customer Care. The Company offers customer care 24 hours-a-day, 365
days-a-year. Customers can call the Company's toll-free customer care
number from anywhere. The Company's PCS handsets can be preprogrammed
with a speed dial feature that allows customers to easily reach customer
care at any time. The Company's local retail stores also serve as
customer contact centers, where customers can receive personalized
customer service.
. Simple Rate Plans. Customers can select from rate plans that include
expanded local, state or regional one-rate calling areas.
(2) Wholesale Wireless Services.
The Company provides digital PCS services on a wholesale basis to
Horizon Personal Communications, Inc., a Sprint affiliate, and to various other
PCS service providers under roaming agreements. The Company currently is party
to a ten-year agreement with Horizon to provide wholesale PCS services through a
contiguous thirteen (13) BTA footprint. Horizon uses the Company's network to
provide retail service to its customers in these BTAs. The agreement with
Horizon was amended in 2001 to provide pricing changes, including minimum
monthly revenue commitments from July 2001 through December 2003, and additional
revenue for minutes of use that exceed predetermined thresholds.
(ii) Wireline.
The Company's wireline communications services include ILEC and
CLEC services, Internet access, including high-speed DSL and dial-up, and data
transmission services. The Company also owns and operates a fiber optic cable
network, switches and routers
11
through which it delivers many of its services.
The Company currently provides ILEC and CLEC services in Virginia
and CLEC services in West Virginia. As an ILEC, the Company owns and operates a
106-year-old telephone company in western Virginia that serves business and
residential customers. In February 2001, through NTELOS' merger with R&B
Communications, Inc., NTELOS acquired the R&B Communications, Inc. ILEC, a
102-year-old telephone company in southwestern Virginia that serves business and
residential customers. As a CLEC, the Company serves business customers in
sixteen (16) markets.
The Company's ILEC and CLEC services provide customers with a
broad range of services and custom calling features. Calling features provided
by the Company include call waiting, continuous redialing, caller ID and voice
mail. The Company offers to its business customers Centrex services, which
replace a customer's private branch exchange, or PBX, system. In lieu of a PBX
system, the Company's Centrex services provide the switching function, along
with multiple access lines. Additionally, the Company offers domestic and
international long distance services to its ILEC and CLEC customers using its
network facilities or through resale arrangements with interexchange carriers
such as MCI WorldCom.
The Company provides Internet access services in Virginia, West
Virginia, Tennessee and North Carolina and Web hosting services on both LINUX
and Windows 2000 servers. This service provides to the Company's customers
dial-up Internet access through 59 local Internet points of presence and
multiple e-mail accounts, free software and personal disk space. Customers also
may connect to the Internet through the Company's DSL and high speed Internet
services.
The Company owns and operates a fiber optic cable network which
provides a backbone for the delivery of its ILEC, CLEC, Internet access and
digital PCS services to business and residential customers. The Company's
network enables it to originate, transport and terminate communications traffic
within its service territory, facilitating its ability to control quality and
contain network operating costs. The Company also uses its network to serve as a
carrier's carrier, leasing capacity on the network to other communications
carriers for the provision of long distance services, private network facilities
and Internet access.
(iii) Other.
The Company owns and operates wireless cable systems in the
Charlottesville, Roanoke Valley, Shenandoah Valley and Richmond, Virginia
markets. As of March 31, 2003, these systems provided wireless cable service to
approximately 5,400 customers. The Company offers its subscribers up to 25 basic
cable channels, including ESPN, CNN, TBS and the Disney Channel, and one to
three premium channels, including HBO, Cinemax and Showtime. The Company also
operates a 750 MHz wireline cable system in Alleghany County, Virginia with a
similar product offering. As of March 31, 2003, there were approximately 6,600
wireline cable subscribers. In February 2003, the Company entered into an
agreement for the sale of the assets of this wireline cable system for $8.7
million (subject to certain downward adjustments), conditioned on franchise
authority approval. The Bankruptcy Court approved this sale on April 17, 2003.
The Company also provides its customers with paging services that cover most of
Virginia. As of March 31, 2003, the Company had approximately 10,000 paging
customers, and offered numeric, alphanumeric, tone-only and tone and voice
paging services, as well as wide-area paging.
12
2. Capital Structure.
The Company's business has required substantial amounts of capital and
liquidity to fund its operations and the significant capital expenditures
necessary to expand the Company's network, operations and services according to
its business plan.
As of December 31, 2002, the Company's financial records reflected
assets with a book value totaling approximately $729.5 million and liabilities
and preferred stock obligations totaling approximately $1,072.2 million.
a. Equity Securities.
NTELOS has established two classes of equity securities, which
consist of common stock and preferred stock in multiple series. As of December
31, 2002, there were outstanding 17,780,248 shares of NTELOS' common stock,
112,500 shares of Series B Preferred Stock and 137,500 shares of Series C
Preferred Stock.
On July 11, 2000, NTELOS issued pursuant to a stock purchase
agreement, 112,500 shares of its Series B Preferred Stock to WCAS (100,000
shares) and Morgan Stanley Dean Witter Equity Funding, Inc. (12,500 shares) in
exchange for an aggregate of $112.5 million. The Series B Preferred Stock is
entitled to receive dividends at an annual rate of 8.5% of the stated value and
is convertible into shares of NTELOS common stock at any time at the option of
the holders at a conversion rate equal to the stated value divided by $41.00. In
connection with the issuance of the Series B Preferred Stock, NTELOS issued to
WCAS and Morgan Stanley Dean Witter Equity Funding, Inc. warrants to purchase an
aggregate of 500,000 shares of NTELOS common stock at an exercise price of
$50.00 per share.
Pursuant to stock purchase agreements dated as of July 26, 2000
and August 14, 2000, respectively, WCAS also purchased 55,022 shares of Series C
Preferred Stock for $55.0 million and 69,978 shares of Series D Preferred Stock
for $70.0 million. Pursuant to the same respective purchase agreements, Morgan
Stanley Dean Witter Equity Funding, Inc. purchased 5,278 shares of Series C
Preferred Stock for $5.3 million and 7,222 shares of Series D Preferred Stock
for $7.2 million. The Series C Preferred Stock is entitled to receive dividends
at an annual rate of 5.5% of the stated value and is convertible into shares of
NTELOS common stock at any time at the option of the holders at a conversion
rate equal to the stated value divided by $45.00. The Series D Preferred Stock
automatically converted into shares of Series C Preferred Stock on December 4,
2000, following approval by NTELOS' shareholders of such conversion. No shares
of Series D Preferred Stock have been outstanding since NTELOS' shareholders
approved its conversion.
b. Debt Securities.
(i) Senior Notes.
NTELOS issued, pursuant to an indenture dated as of July 26,
2000, between NTELOS, as issuer, and The Bank of New York, as Trustee, $280.0
million aggregate principal amount of 13.0% senior notes due 2010.
The Senior Notes are unsecured unsubordinated obligations of
NTELOS, and will mature on August 15, 2010. Interest accrued on the Senior Notes
is payable semiannually (to holders of record at the close of business on the
February 1 or August 1
13
immediately preceding the interest payment date) on February 15 and August 15 of
each year, commencing February 15, 2001.
The Senior Notes are issued only in fully registered form,
without coupons, in denominations of $1,000 of principal amount and any integral
multiple thereof.
The Senior Notes are redeemable, at NTELOS' option, in whole or
in part, at any time or from time to time, on or after August 15, 2005 and prior
to maturity, upon not less than thirty (30) nor more than sixty (60) days' prior
notice mailed by first class mail to each holder's last address as it appears in
the security register, at the following redemption prices (expressed in
percentages of principal amount), plus accrued and unpaid interest, if any, to
the redemption date (subject to the right of holders of record on the relevant
regular record date that is on or prior to the redemption date to receive
interest due on an interest payment date), if redeemed during the 12-month
period commencing August 15, of the years set forth below:
REDEMPTION
YEAR PRICE
---- ----------
2005.................. 106.500%
2006.................. 104.333%
2007.................. 102.167%
2008 and thereafter... 100.000%
In addition, at any time prior to August 15, 2003, NTELOS may
redeem up to 35.0% of the principal amount of the Senior Notes with the net cash
proceeds of one or more sales of capital stock of NTELOS (other than certain
disqualified stock), at any time or from time to time in part, at a redemption
price (expressed as a percentage of principal amount) of 113.0%, plus accrued
and unpaid interest to the redemption date (subject to the rights of holders of
record on the relevant regular record date that is prior to the redemption date
to receive interest due on an interest payment date); provided that at least
65.0% of the aggregate principal amount of notes originally issued remains
outstanding after each such redemption and that notice of any such redemption is
mailed within sixty (60) days after each such sale of capital stock.
In the case of any partial redemption, selection of the Senior
Notes for redemption will be made by the Senior Indenture Trustee in compliance
with the requirements of the principal national securities exchange, if any, on
which the Senior Notes are listed or, if the Senior Notes are not listed on a
national securities exchange, by lot or by such other method as the Senior
Indenture Trustee in its sole discretion shall deem to be fair and appropriate;
provided that no note of $1,000 in principal amount or less shall be redeemed in
part. If any Senior Note is to be redeemed in part only, the notice of
redemption relating to such Senior Note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
(ii) Subordinated Notes.
NTELOS issued, pursuant to an indenture dated as of July 26,
2000, between NTELOS, as issuer, and The Bank of New York, as trustee, $95.0
million aggregate principal amount of 13.5% subordinated notes due 2011.
14
The terms of the Subordinated Indenture, under which the
Subordinated Notes were issued, are substantially similar to the terms of the
Senior Indenture, with the exception that the rights and Claims of holders of
the Subordinated Notes are subordinated to those of the holders of the senior
indebtedness of NTELOS and to those of the Pre-Petition Secured Lenders pursuant
to the Pre-Petition Credit Agreement.
The Subordinated Notes are redeemable, at NTELOS' option, in
whole or in part, at any time or from time to time, on or after August 15, 2005
and prior to maturity, upon not less than thirty (30) nor more than sixty (60)
days' prior notice mailed by first class mail to each holder's last address as
it appears in the security register, at the following redemption prices
(expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the redemption date (subject to the right of holders of
record on the relevant regular record date that is on or prior to the redemption
date to receive interest due on an interest payment date), if redeemed during
the 12-month period commencing August 15, of the years set forth below:
REDEMPTION
YEAR PRICE
---- ----------
2005.................. 106.750%
2006.................. 104.500%
2007.................. 102.250%
2008 and thereafter... 100.000%
In addition, at any time prior to August 15, 2003, NTELOS may
redeem up to 35.0% of the principal amount of the Subordinated Notes with the
net cash proceeds of one or more sales of capital stock of NTELOS (other than
certain disqualified stock), at any time or from time to time in part, at a
redemption price (expressed as a percentage of principal amount) of 113.5%, plus
accrued and unpaid interest to the redemption date (subject to the rights of
holders of record on the relevant regular record date that is prior to the
redemption date to receive interest due on an interest payment date); provided
that at least 65.0% of the aggregate principal amount of notes originally issued
remains outstanding after each such redemption and that notice of any such
redemption is mailed within sixty (60) days after each such sale of capital
stock.
In the case of any partial redemption, selection of the
Subordinated Notes for redemption will be made by the Subordinated Indenture
Trustee in compliance with the requirements of the principal national securities
exchange, if any, on which the Subordinated Notes are listed or, if the
Subordinated Notes are not listed on a national securities exchange, by lot or
by such other method as the Subordinated Indenture Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no note of
$1,000 in principal amount or less shall be redeemed in part. If any
Subordinated Note is to be redeemed in part only, the notice of redemption
relating to such Subordinated Note shall state the portion of the principal
amount thereof to be redeemed. A new note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the holder thereof upon
cancellation of the original note.
c. Pre-Petition Credit Agreement.
On July 26, 2000, NTELOS entered into the Pre-Petition Credit
Agreement, which originally consisted of a $100.0 million revolving credit
facility and $225.0 million in term loans and term loan commitments, divided
into a $50 million Term Loan A, a $100.0 million Term Loan B and a $75.0 million
Term Loan C.
15
The term loans were used to finance certain acquisitions made by
NTELOS, to refinance NTELOS' senior debt and certain debt of the NTELOS
Subsidiaries and for working capital and general corporate purposes.
By the original terms of the Pre-Petition Credit Agreement, the
revolving credit facility was repayable in a single payment on July 25, 2007.
Amounts outstanding under Term Loan A on July 26, 2001 were repayable beginning
September 30, 2003 in increasing quarterly installments, with a final maturity
on July 25, 2007. Amounts outstanding under Term Loan B were repayable beginning
on September 30, 2002 in quarterly installments equal to approximately 1.0% per
year of principal during each year through July 25, 2008, with the entire
balance of Term Loan B repayable on July 25, 2008. Amounts outstanding under
Term Loan C were repayable in a single payment on July 25, 2008.
NTELOS may choose to have interest accrue on loans outstanding
under the Pre-Petition Credit Agreement at rates based on the adjusted prime
rate or the fully reserve adjusted London interbank offered rate, or LIBOR, plus
an applicable margin. The applicable margin on the Petition Date was:
. in respect of the revolving credit facility and the Term Loan A,
3.25% per annum over LIBOR and 2.25% per annum over adjusted prime,
provided that the applicable percentage per annum may vary
depending on NTELOS' leverage ratio;
. in respect of the Term Loan B, 4.00% per annum over LIBOR and 3.00%
per annum over adjusted prime; and
. in respect of the Term Loan C, 2.75% per annum over LIBOR and 1.75%
per annum over adjusted prime.
A commitment fee is payable periodically on the unused portion of
the revolving credit commitment at a rate equal to between 0.50% and 0.75% per
annum depending on the amounts drawn under the revolving credit facility. Letter
of credit fees are payable on the face amount of letters of credit NTELOS asks
be issued for its account, at a rate equal to the margin over LIBOR that is
applicable at the time to revolving credit loans that bear interest based on
LIBOR paid proportionately to all of the Pre-Petition Secured Lenders, plus an
additional 0.25% for the account of the issuing bank.
NTELOS' obligations under the Pre-Petition Credit Agreement are
secured by substantially all of its assets, including real property. NTELOS
pledged to the collateral agent for the Pre-Petition Secured Lenders' benefit,
its equity interests in certain of its subsidiaries. Certain of NTELOS'
subsidiaries have guaranteed NTELOS' obligations under the Pre-Petition Credit
Agreement and have also pledged their assets to secure their guarantees.
NTELOS is bound by certain financial covenants under the
Pre-Petition Credit Agreement, including a maximum total debt to EBITDA, a
maximum senior secured debt to EBITDA, a minimum interest coverage ratio and a
minimum debt service coverage ratio.
In addition, NTELOS is required to make financial statements and
other reports available to the Pre-Petition Secured Lenders on a regular basis
and there are limits on NTELOS' ability to incur additional debt, to grant Liens
on its property, to declare dividends or
16
make other distributions to its shareholders, or to repurchase its own stock or
prepay other debt, to make capital expenditures or loans to or investments in
others, to merge, consolidate, sell and buy assets or acquire other businesses,
to engage in transactions with its affiliates (other than subsidiary guarantors)
or to amend its Articles of Incorporation.
The Pre-Petition Credit Agreement provides for customary events
of default, including non-payment, breaches of covenants, making misleading or
inaccurate representations and warranties, cross-default to certain other debt,
certain events of bankruptcy and insolvency, ERISA violations and change in
control.
3. Selected Historical Financial Data.
The selected historical operating data set forth below for the years
ended December 31, 2002, December 31, 2001 and December 31, 2000 and the
three-month periods ended March 31, 2003 and 2002, have been derived from the
audited consolidated financial statements of the Debtors. The data should be
read in conjunction with the historical consolidated financial statements of the
Debtors, and the related notes thereto, set forth in Exhibit E annexed hereto.
17
NTELOS INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(in thousands)
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- ----------------------------
2002 2001 2000 2003 2002
----------------------------------------------------------------------------
SELECTED OPERATING DATA:
OPERATING REVENUES:
Wireless PCS $ 156,860 $ 118,832 $ 39,096 $ 46,782 $ 35,771
Wireline communications 96,916 86,485 58,280 25,130 22,318
Other communications services 8,951 9,746 16,143 1,539 1,932
----------------------------------------------------------------------------
262,727 215,063 113,519 73,451 60,021
----------------------------------------------------------------------------
OPERATING EXPENSES:
Cost of wireless sales (exclusive of items shown
separately below) 48,868 47,808 18,657 10,780 12,223
Operating expenses (exclusive of items shown
separately below) 148,329 146,751 74,610 39,419 38,516
Depreciation and amortization 82,924 82,281 37,678 17,911 23,095
Accretion of asset retirement obligations - - - 152 -
Asset impairment charge 402,880 - - - -
Operational and capital restructuring charges 4,285 - - 2,427 1,267
----------------------------------------------------------------------------
687,286 276,840 130,945 70,689 75,101
----------------------------------------------------------------------------
OPERATING (LOSS) INCOME (424,559) (61,777) (17,426) 2,762 (15,080)
OTHER INCOME (EXPENSES)
Interest expense (78,351) (76,251) (31,407) (15,285) (19,004)
Other gains (losses), financing costs, equity
investment losses and investment income, net 7,018 36,238 50,791 (37,769) 1,822
----------------------------------------------------------------------------
(Loss) income before taxes and minority interests in
losses (earnings) of subsidiaries (495,892) (101,790) 1,958 (50,292) (32,262)
----------------------------------------------------------------------------
Net (loss) income before preferred stock dividend and
cumulative effect of an accounting change (488,947) (63,713) 18,639 (50,597) (30,664)
Cumulative effect of an accounting change - - - (2,754) -
(Loss) income applicable to common shares (509,364) (82,556) 10,471 (57,108) (35,683)
Cash flow and other financial data:
Net cash provided by (used in) operating activities 22,015 (11,501) 9,878 24,417 5,939
Net cash used in investing activities (42,403) (29,796) (621,502) (11,042) (18,514)
Net cash provided by (used in) financing activities 25,311 46,953 613,063 (752) 7,196
Capital expenditures (1) 73,164 102,872 65,590 11,377 29,120
Reconciliation of Operating Income (Loss) to EBITDA (a
non-GAAP measure) (2)
Operating Income (Loss) (424,559) (61,777) (17,426) 2,762 (15,080)
Reconciling items to arrive at EBITDA:
Depreciation and Amortization 82,924 82,281 37,678 17,911 23,095
Asset impairment charges 402,880 - - - -
Accretion of asset retirement obligations - - - 152 -
----------------------------------------------------------------------------
EBITDA (2) 61,245 20,504 20,252 20,825 8,015
============================================================================
DECEMBER 31, MARCH 31,
2002 2003
-------------------------
BALANCE SHEET DATA:
Cash and cash equivalents 12,216 24,839
Property, plant and equipment, net 434,455 430,156
Radio spectrum licenses 116,961 116,782
Total assets 729,521 724,856
Total current and long-term debt 642,722 642,568
Redeemable, convertible preferred stock 286,164 298,246
Shareholders' deficit (342,677) (399,333)
OPERATING STATISTICS:
Total PCS licensed POP's 10,271,000 10,271,000
PCS subscribers 266,467 279,681
DSL subscribers 5,534 5,972
Internet subscribers 61,486 60,327
ILEC access lines installed 52,014 51,817
CLEC access lines installed 43,815 45,986
18
(1) Capital expenditures represent additions to: land and buildings; network
plant and equipment; furniture, fixtures and other equipment; and radio spectrum
licenses.
(2) Represents operating income (loss) before depreciation and amortization,
accretion of asset retirement obligations and asset impairment charges. The
Company references non-GAAP measures, such as EBITDA, to measure operating
performance. Management believes EBITDA to be a meaningful indicator of the
Company's performance that provides useful information to investors regarding
the Company's financial condition and results of its operations. Presentation of
EBITDA is consistent with the Company's past practice and EBITDA is a non-GAAP
measure commonly used in the communications industry and by financial analysts
and others who follow the industry to measure operating performance. EBITDA
should not be construed as an alternative to operating income or cash flows from
operating activities (both of which are determined in accordance with generally
accepted accounting principles) or as a measure of liquidity.
B. Events Leading to the Commencement of the Chapter 11 Case.
NTELOS believes that its financial difficulties, and the events leading up
to the Chapter 11 Case, are attributable to a number of factors. The dramatic
downturn in the economy generally in the latter half of 2001 and in 2002, and
the telecommunications sector in particular, adversely impacted NTELOS' ability
to build its revenue base and generate funds adequate to meet its debt servicing
requirements at the holding company level. Further, NTELOS and the NTELOS
Subsidiaries have grown dramatically since NTELOS' founding, through
acquisitions and capital expenditures. Such transactions have left the companies
highly leveraged and thus vulnerable to general adverse economic and industry
conditions.
1. Debt Structure.
The principal contributing factor for the Debtors filing petitions for
relief under Chapter 11 of the Bankruptcy Code is the Debtors' debt structure.
The Debtors' prepetition debt consists of: approximately $261.0 million of
outstanding secured indebtedness under the Pre-Petition Credit Agreement; an
aggregate face amount of $280.0 million (carrying amount of approximately $271.0
million) of Senior Notes; an aggregate face amount of $95.0 million (carrying
amount of approximately $86.0 million) of Subordinated Notes; approximately
$15.0 million of secured claims held by the Federal Communications Commission,
Rural Utilities Service and the Rural Telephone Bank; and approximately $27.0
million of unsecured claims.
The Debtors' consolidated balance sheet further reflects: accrued
interest and other expenses of $43.0 million, obligations to benefit and pension
plans of $26.0 million and long-term liabilities of $56.0 million. The Debtors'
total current and long-term liabilities as of December 31, 2002 were
approximately $785.0 million.
This significant amount of indebtedness results in an annual interest
expense of approximately $78.2 million. The Debtors have experienced significant
increases in cash flow in each year since putting in place their existing
capital structure (as discussed below); however, the Debtors continue to require
access to capital to support its operations.
2. Evaluation of Debt Restructuring Alternatives
In light of the significant level of indebtedness discussed above, the
Board of Directors of NTELOS formed a Special Committee on June 10, 2002 in
order to evaluate the strategic business alternatives available to NTELOS and to
recommend a course of action with respect to a financial restructuring of the
Debtors. In September 2002, NTELOS retained UBS Warburg as its financial advisor
to assist it in exploring a variety of restructuring alternatives in order to
address its capital structure. Thereafter, continued competition in the wireless
telecommunications sector resulted in a reduction of NTELOS' long-term outlook
on its wireless operations, including a decrease in the projected wireless
subscriber growth, wholesale revenue growth, and average revenue per wireless
subscriber. In addition, capital and lending prospects for telecommunication
companies continued to deteriorate. As a result of these conditions, on
19
November 29, 2002, NTELOS entered into an amendment and waiver with the
Pre-Petition Secured Lenders which restricted the amounts that NTELOS could
borrow under the Pre-Petition Credit Agreement and waived NTELOS' obligation to
make certain representations in order to submit a borrowing request, including a
representation that the present fair salable value of the Debtors' assets is not
less than the amount that would be required to pay the Debtors' debts as they
become absolute and matured. Upon expiration of the waiver, NTELOS did not have
access to the Pre-Petition Credit Agreement following January 31, 2003. For
these reasons, NTELOS announced it would not make the semi-annual interest
payments of $18.2 and $6.4 million on its Senior Notes and Subordinated Notes,
respectively, which were due February 18, 2003.
Under the terms of its engagement letter with UBS Warburg dated
September 13, 2002, as amended March 3, 2003, NTELOS agreed to pay UBS Warburg
monthly advisory fees in the amount of $200,000, provided that 100.0% of such
monthly advisory fees would be credited against any restructuring transaction
fee payable to UBS Warburg. The engagement letter provides that if NTELOS
restructures, directly or indirectly, the Pre-Petition Credit Agreement, Senior
Notes, Subordinated Notes, Series B and/or Series C Preferred Stock, it will pay
to UBS Warburg a restructuring transaction fee equal to the greater of (i) $2.0
million, subject to certain minimum conditions, and (ii) the sum of (a) 1.0% of
the principal amount of the Senior Notes and 0.5% of the principal amount or
liquidation preference of the Subordinated Notes, Series B and Series C
Preferred Stock directly affected by the transaction, plus (b) $250,000 if
NTELOS requests UBS Warburg's assistance in obtaining Pre-Petition Credit
Agreement covenant modifications and such efforts are successful, plus 0.5% of
the principal amount of the Pre-Petition Credit Agreement if NTELOS requests UBS
Warburg's assistance in seeking other modifications and such efforts are
successful, subject to certain limitations. For a discussion of the Bankruptcy
Court modification to the engagement letter, see Section V.D, "Events During the
Chapter 11 Case - First Day and Various Other Motions."
3. Factors Impacting Decision to File the Chapter 11 Case
This section describes the following events NTELOS believes impacted
its decision to commence a Chapter 11 Case: (i) market conditions generally,
(ii) the amendment of the Pre-Petition Credit Agreement, (iii) unsuccessful
refinancing efforts and (iv) negotiations with certain holders of the Senior
Notes and the holder of the Subordinated Notes.
a. Market Conditions.
The general slowdown of the entire telecommunications industry
and increased competition experienced in the wireless PCS industry has resulted
in a decrease of several industry analysts' projections, including subscriber
growth, average revenue per unit ("ARPU"), subscriber churn improvement and
reductions in average costs per subscriber. This decrease in industry-wide
projections, combined with an economic environment not conducive to strategic
transactions, such as mergers and acquisitions, has resulted in dramatic
decreases in the value of wireless PCS assets.
In response, NTELOS performed a comprehensive evaluation of the
Debtors' long-term business plan and made several modifications including a
reduction in subscriber growth, a decrease in ARPU, a slower improvement in
subscriber churn and lower wholesale revenues. Based on this assessment, NTELOS
recognized an asset impairment charge
20
to the value of the Debtors' wireless PCS radio spectrum licenses, goodwill and
other intangible assets, property, plant and equipment of $404.0 million.
b. Amendment to the Pre-Petition Credit Agreement.
On November 29, 2002, NTELOS entered into Amendment No. 4 and
Waiver No. 1 to the Pre-Petition Credit Agreement. In connection with the
Amendment and Waiver, the Pre-Petition Secured Lenders agreed to provide NTELOS
with borrowing capacity under its revolving credit facility up to an amount
sufficient to fund NTELOS' business plan during the period in which NTELOS
addressed its capital structure.
The Amendment and Waiver provided a waiver through January 31,
2003 of NTELOS' obligation to make certain representations and warranties. The
Amendment and Waiver also provided for a cap on the amounts that could be
borrowed through January 31, 2003 under the revolving credit facility portion of
the Pre-Petition Credit Agreement of $36.0 million, or $15.0 million of
borrowings in excess of amounts outstanding as of the date immediately prior to
the Amendment and Waiver. This borrowing cap was removed after January 31, 2003.
Additionally, after December 1, 2002, NTELOS was limited to borrowing no more
than $2.5 million per week.
The waiver expired on February 1, 2003. NTELOS actively attempted
to develop a plan with respect to its future capital structure during December
2002 and January 2003 (as discussed below). Upon expiration of the waiver,
NTELOS was required, in connection with any borrowing request, to make all of
the representations and warranties contained in the Pre-Petition Credit
Agreement. The representations under the Pre-Petition Credit Agreement include a
representation that the present fair salable value of the Debtors' assets is not
less than the amount that would be required to pay the Debtors' debts as they
become absolute and matured. Due to market conditions, NTELOS was uncertain
whether it could make this representation.
c. Refinancing Efforts.
NTELOS, with the assistance of UBS Warburg, has explored various
strategic alternatives by which to recapitalize NTELOS. None of the strategic
alternatives explored, however, presented a viable out-of-court approach to
undertaking a comprehensive restructuring of NTELOS' capital structure. NTELOS,
with the assistance of UBS Warburg, determined that a reorganization under
Chapter 11 of the Bankruptcy Code was the most viable means to restructure
NTELOS' capital structure.
d. Negotiations with Certain Holders of the Senior Notes and the
Holder of the Subordinated Notes.
In September 2002, NTELOS retained UBS Warburg as its financial
advisor to assist in exploring a variety of restructuring alternatives in order
to address NTELOS' capital structure. As a result of these efforts, and after
the amendment to the Pre-Petition Credit Agreement and NTELOS' unsuccessful
refinancing efforts, NTELOS' management concluded that the best available
alternative for recapitalizing NTELOS and maximizing the recovery for creditors
and equity interest holders was through a plan of reorganization that would
restructure NTELOS' balance sheet through a cancellation of NTELOS' public debt
and equity securities and the issuance of new convertible debt securities and
common stock of Reorganized NTELOS. Therefore, NTELOS, with the assistance of
UBS Warburg, began negotiations with certain
21
holders of the Senior Notes and the holder of the Subordinated Notes in an
attempt to reach an agreement on the terms of a plan to restructure NTELOS'
securities.
Throughout December 2002, and up to the Petition Date, NTELOS
engaged in discussions and negotiations with certain holders of the Senior
Notes, the holder of the Subordinated Notes and its advisor on the terms of a
proposed restructuring of NTELOS.
V.
EVENTS DURING THE CHAPTER 11 CASE
On March 4, 2003, the Debtors commenced the Chapter 11 Case in the
Bankruptcy Court. The Debtors continue to operate their businesses and manage
their properties as Debtors in Possession pursuant to Sections 1107 and 1108 of
the Bankruptcy Code.
A. Post-Petition Agreements.
As a result of its negotiations with certain holders of the Senior Notes,
NTELOS and the Participating Noteholders have entered into the Subscription
Agreement, under which the Participating Noteholders have agreed to purchase
$75.0 million principal aggregate amount of New Notes to be issued by
Reorganized NTELOS, subject to the terms and conditions set forth therein. The
Subscription Agreement is subject to a number of termination events, relating
primarily to the progress of the Chapter 11 Case proceeding according to a
specified timetable. For a discussion of the investment by the Participating
Noteholders in the New Notes, see Section VI.C, "The Joint Plan of
Reorganization - New Investment."
Further, NTELOS and certain Pre-Petition Secured Lenders have structured
the terms of a proposed plan of reorganization for which such Pre-Petition
Secured Lenders have expressed their support. In connection with these
restructuring efforts, such Pre-Petition Secured Lenders entered into a Plan
Support Agreement with NTELOS. The Debtors believe that the Plan discussed
herein reflects the terms of the Plan Support Agreement. A copy of the Plan
Support Agreement is annexed hereto as Exhibit G. The Plan Support Agreement is
subject to a number of termination events, relating primarily to the progress of
the Chapter 11 Case proceeding according to a specified timetable.
B. Continuation of Business; Stay of Litigation.
Following the commencement of the Chapter 11 Case, the Debtors have
continued to operate as Debtors in Possession with the protection of the
Bankruptcy Court. The Bankruptcy Court has certain supervisory powers over the
operations of the Debtors during the pendency of the bankruptcy case. The
Debtors have been operating in the ordinary course of business and will seek
approval for any transactions that are outside the ordinary course of business.
An immediate effect of the filing of the Chapter 11 Case was the imposition
of the automatic stay under the Bankruptcy Code which, with limited exceptions,
enjoins the commencement or continuation of all litigation against the Debtors.
The automatic stay will remain in effect until the Effective Date unless
modified or vacated by the order of the Bankruptcy Court.
22
C. DIP Credit Agreement.
As discussed below, the Bankruptcy Court approved NTELOS' entrance into the
DIP Credit Agreement. The DIP Credit Agreement consists of a revolving credit
facility in an aggregate principal amount of up to $35.0 million (with a $5.0
million sublimit for letters of credit).
On March 4, 2003, the Bankruptcy Court granted access to up to $10.0
million under DIP Credit Agreement, with access to the full $35.0 million
subject to final Bankruptcy Court approval, certain state regulatory approvals
and the Pre-Petition Secured Lenders' receiving satisfactory assurances
regarding the Participating Noteholders' proposed $75.0 million investment in
NTELOS upon emergence from the Chapter 11 Case. On March 24, 2003, the
Bankruptcy Court entered a final order authorizing NTELOS to access up to $35.0
million under the DIP Credit Agreement and, as of April 11, 2003, NTELOS
satisfied all other conditions to full access to the DIP Credit Agreement.
Proceeds from advances under the DIP Credit Agreement are to be used solely
for working capital, capital expenditures and other general corporate purposes
of the Debtors including, to the extent permitted under the DIP Credit
Agreement, the NTELOS Non-filing Subsidiaries. Postpetition advances will bear
interest at a rate equal to 4.0% over the Eurodollar Rate (as defined in the DIP
Credit Agreement), with respect to Eurodollar advances, and 3.0% over the Base
Rate (as defined in the DIP Credit Agreement), with respect to base rate
advances.
The facility provided under the DIP Credit Agreement matures 180 days after
the Petition Date, provided that it may be extended to 270 days after the
Petition Date under certain circumstances. NTELOS secured its obligations under
the DIP Credit Agreement by granting the DIP Lenders a superpriority
Administrative Expense Claim against the Debtors' estates. Subject to carve-outs
for professional fees and disbursements in an aggregate amount not to exceed
$1.75 million, plus fees payable to the United States Trustee pursuant to 28
U.S.C. Section 1930(a), as collateral for the provision of debtor in possession
financing, the DIP Lenders received:
. a perfected first priority priming Lien on all assets of the
Debtors that secure NTELOS' obligations under the Pre-Petition
Credit Agreement pursuant to Section 364(d)(1) of the Bankruptcy
Code,
. a superpriority administrative expense claim with priority over any
and all other Administrative Expense Claims pursuant to Section
364(c)(1) of the Bankruptcy Code,
. a perfected first priority Lien on all unencumbered assets of the
Debtors, if any, pursuant to Section 364(c)(2) of the Bankruptcy
Code, and
. a perfected junior Lien on all encumbered assets of the Debtors
other than those referred to in the first clause of this sentence,
pursuant to Section 364(c)(3) of the Bankruptcy Code.
As adequate protection of their interest in Collateral described in the
Pre-Petition Credit Agreement, that Security Agreement, dated as of July 26,
2000, the mortgages and all documentation executed in connection with therewith,
including certain Hedge Agreements (collectively, the "Existing Agreements"),
the Pre-Petition Secured Lenders:
23
. were granted certain Adequate Protection Liens (as defined in the
Final DIP Order),
. were granted a superpriority claim as provided for in Section
507(b) of the Bankruptcy Code, immediately junior to the Claims
under Section 364(c)(1) of the Bankruptcy Code held by the Agent
and the DIP Lenders to the extent of diminution,
. shall receive or received from the Debtors (i) scheduled principal
amortization payments as set forth in Section 2.04 of the
Pre-Petition Credit Agreement, (ii) immediate cash payment of all
accrued and unpaid interest on the Pre-Petition Debt (as defined in
the Final DIP Order) and letter of credit fees at the rates
provided for in the Existing Agreements, and all other accrued and
unpaid fees and disbursements (including, but not limited to, fees
owed to the Agent) owing to the Agent under the Existing Agreements
and incurred prior to the Petition Date, (iii) current cash
payments of all fees and expenses payable to the Agent under the
Existing Agreements, including, but not limited to, the reasonable
fees and disbursements of counsel, financial and other consultants
for the Agent and (iv) on the first business day of each month, all
accrued but unpaid interest on the Pre-Petition Debt (as defined in
the Final DIP Order), and letter of credit and other fees at the
non-default contract rate applicable on the Petition Date
(including LIBOR pricing options) under the Existing Agreements,
provided that, without prejudice to the rights of any other party
to contest such assertion, the Pre-Petition Secured Lenders reserve
their rights to assert claims for the payment of additional
interest calculated at any other applicable rate of interest
(including, without limitation, default rates), or on any other
basis, provided for in the Existing Agreements,
. shall be permitted to retain expert consultants and financial
advisors at the reasonable expense of the Debtors, which
consultants and advisors shall be given reasonable access for
purposes of monitoring the business of the Debtors and the value of
the Collateral described in the Existing Agreements, and
. shall receive 100% of the Net Cash Proceeds (as defined in the DIP
Credit Agreement) resulting from any sale, lease, transfer, license
or other disposition of property outside the ordinary course of
business or of any surplus property, all as permitted by the DIP
Credit Agreement, that are not required to be paid in respect of
the DIP Obligations (as defined in the Final DIP Order).
Further, except to the extent of the Carve Out (as defined in the Final DIP
Order) and the amounts of any compensation or reimbursement of expenses
incurred, awarded or paid prior to the occurrence of an Event of Default (as
defined in the DIP Order) in respect of which the Carve Out is invoked, no
expenses of administration of the Cases or any future bankruptcy proceeding that
may result therefrom, including liquidation in bankruptcy or other proceedings
under the Bankruptcy Code, shall be charged against or recovered from the
Collateral described in the Existing Agreements pursuant to section 506(c) of
the Bankruptcy Code or any similar principle of law, without the prior written
consent of the DIP Agent and/or the Agent, as the case may be, and no such
consent shall be implied from any other action, inaction, or acquiescence by the
DIP Agent, the DIP Lenders, the Agent or the Pre-Petition Secured Lenders.
24
As adequate protection for the interests of counterparties to the Hedge
Agreements, such counterparties were to receive from the Debtors all regularly
scheduled interest payments under the Hedge Agreements.
D. First Day and Various Other Motions.
Together with their petitions for relief, the Debtors filed a number of
"first day" motions on the Petition Date. In addition to these motions seeking
affirmative relief (some of which are discussed below), several sought
administrative relief necessary to permit the Debtors to operate in the Chapter
11 Case. Capitalized terms used in this section and not defined in this
Disclosure Statement have the meanings ascribed to them in the applicable
motion. The Debtors' first day motions included motions for orders:
. authorizing the joint administration of the Chapter 11 Case;
. establishing administrative procedures to aid the expeditious
prosecution of the Chapter 11 Case;
. establishing procedures for interim compensation and reimbursement
of expenses of professionals;
. authorizing the Debtors to mail initial notices, to file a list of
creditors in lieu of a creditor matrix and to file a consolidated
Bankruptcy Rule 1007(d) list of the Debtors' 30 largest unsecured
creditors;
. extending the time for the Debtors to file the Schedules;
. authorizing the retention of the Debtors' professionals, including
Hunton & Williams LLP and Marcus, Santoro & Kozak, P.C. as
co-counsel to the Debtors, and retention of Navigant Consulting
Inc. as Debtors' bankruptcy accountant and bankruptcy service
advisor;
. authorizing the engagement of Administar Services Group, Inc. as
official claims and noticing agent of the Clerk of the Bankruptcy
Court;
. authorizing the continued use of the Debtors' centralized cash
management system, existing bank accounts and business forms;
. authorizing the Debtors to (i) pay prepetition wages, salaries and
other employee compensation and make all related and other
withholdings; (ii) continue employee plans, programs and policies
and pay employee and certain retiree benefits; and (iii) reimburse
employee business expenses;
. authorizing the Debtors to (i) continue promotional programs; (ii)
honor or pay all pre- and postpetition obligations arising from
promotional programs in the ordinary course; and (iii) honor or pay
pre- and postpetition obligations to customers arising from
deposits and refunds in the ordinary course;
. establishing procedures for utility companies to request adequate
assurance of payment;
25
. authorizing (i) payment of prepetition sales and use taxes,
telecommunication taxes, income taxes, property taxes, license and
franchise taxes and regulatory fees; and (ii) the bank to honor and
process checks related to such taxes and regulatory fees;
. authorizing the Debtors to remit certain insurance premiums; and
. authorizing NTELOS to enter into the DIP Credit Agreement.
Each of these motions was granted by the Bankruptcy Court. Nothing in the
Plan will preclude the Reorganized Debtors from paying Claims that the Debtors
were authorized to pay under any Final Order entered by the Bankruptcy Court
before the Confirmation Date.
In addition to the "first day" motions, the Debtors have filed, or expect
to file, various other motions, including:
. a motion for authority to retain and employ UBS Warburg as
financial advisor to the Debtors
. a motion to sell the Debtors' Portsmouth, Virginia call center
facility and certain personal property related thereto, to assume
and assign certain unexpired leases on nonresidential real property
related thereto, to set a deadline for filing cure claims with
respect to executory contracts and unexpired leases to be assumed
and assigned in relation to the sale, for authorization to enter
into a leaseback of real property, for approval of payment of the
related real estate commission, and for authorization to escrow
such commission pending approval of the Debtors' employment of the
Debtors' broker;
. a motion to approve a stipulation entered into between the Debtor,
the DIP Lender and Horizon Personal Communications, Inc. relating
to the provision of adequate protection;
. a motion to sell certain real and personal property related to the
Debtors' wireline cable television business, to assume and assign
certain unexpired leases of nonresidential real property and
executory contracts related thereto, for authorization to enter
into related agreements, and for authorization to pay related fees;
. a motion for authorization to pay the attorney's fees of the
Participating Noteholders as they relate to the New Investment;
. motions for authorization to retain brokers relating to the sales
of the Debtors' Portsmouth, Virginia call center and wireline cable
television business;
. a motion to extend the deadline for the Debtors' to assume or
reject unexpired leases of nonresidential real property;
. a motion for authority to continue the Debtors' prepetition
management incentive plans and, thereby, establish a retention plan
for certain eligible employees of the Debtors;
26
. a motion for authority to reject certain employment and related
agreements and to settle claims arising therefrom; and
. a motion to approve a stipulation entered into between the Debtor,
the FCC and the RUS and RTB relating to the provision as adequate
protection.
By order dated April 16, 2003, the Bankruptcy Court authorized the
retention of UBS Warburg under its existing engagement letter, and the Court
approved the modification of NTELOS' engagement letter with UBS Warburg, which
now provides that if the Debtors confirmed a plan of reorganization which (i)
provides for an infusion of at least $50.0 million in new money junior to the
indebtedness of the secured lender and (ii) provides for the conversion of all
or substantially all of the Debtors' existing bond indebtedness to equity of the
Reorganized Debtors, UBS Warburg will be entitled to the $160,000 monthly
advisory fees contemplated by the engagement letter from its inception through
March 1, 2003, the $200,000 monthly advisory fees contemplated by the
modification of the engagement letter from March 1, 2003, and a $3.5 million
restructuring transaction fee, provided that 100.0% of the monthly advisory fees
earned through August 31, 2003 and paid or expected to be paid will be credited
against the restructuring transaction fee. The restructuring transaction fee, as
adjusted, will be earned and payable to UBS Warburg upon consummation of the
Plan.
By order dated May 30, 2003, the Bankruptcy Court approved NTELOS entering
into a Separation Agreement with J. Allen Layman, the President and a Chairman
of NTELOS, and a Separation and Consulting Agreement with Warren C. Catlett, the
Senior Vice President--Corporate Development of NTELOS, each effective as of
June 1, 2003. Pursuant to the terms of the Layman Separation Agreement, as
negotiated consideration in exchange for Mr. Layman's continued agreement to
honor the non-competition provisions of Mr. Layman's pre-petition employment
agreements, Mr. Layman will receive, subject to confirmation of the Plan,
$564,712.00 of New Common Stock (based on the implied equity value associated
with the New Notes), such shares to be distributed in accordance with the terms
of the Plan. The balance of the financial terms and conditions of the departure
of Messrs. Layman and Catlett are set forth in the Separation Agreement and the
Separation and Consulting Agreement, respectively.
E. Bar Date Motion.
On March 11, 2003, the Debtors filed a motion seeking entry of an order
setting the Bar Date. The Debtors sought to have the Bar Date set for June 10,
2003. On March 26, 2003 the Bankruptcy Court issued an Order establishing a Bar
Date of June 10, 2003.
F. Statutory Committee.
On March 13, 2003, the United States Trustee appointed a statutory
committee of unsecured creditors pursuant to Section 1102 of the Bankruptcy Code
consisting of Morgan Stanley & Co. Incorporated, WCAS, Capital Research and
Management Company, The Bank of New York, INVESCO Funds Group, Motorola, Inc.
and CellStar, Ltd. On March 13, 2003, the Creditors' Committee selected
Wachtell, Lipton, Rosen & Katz as its legal counsel and McGuire Woods LLP as
co-counsel.
G. Preferences and Fraudulent Conveyances.
Under the Bankruptcy Code, a debtor may seek to recover, through adversary
proceedings in the bankruptcy court, certain transfers of the debtor's property,
including
27
payments of cash, made while the debtor was insolvent during the 90 days
immediately prior to the commencement of the bankruptcy case (or, in the case of
a transfer to or on behalf of an "insider," one year prior to the commencement
of the bankruptcy case) in respect of antecedent debts to the extent the
transferee received more than it would have received on account of such
preexisting debt had the debtor been liquidated under Chapter 7 of the
Bankruptcy Code. Such transfers include cash payments, pledges of security
interests or other transfers of an interest in property. In order to be
preferential, such payments must have been made while the debtor was insolvent;
debtors are rebuttably presumed to have been insolvent during the 90-day
preference period. The Bankruptcy Code's preference statute can be very broad in
its application because it allows the debtor to recover payments regardless of
whether there was any impropriety in such payments.
However, there are certain defenses to such claims. For example, transfers
made in the ordinary course of the debtor's and the transferee's business
according to ordinary business terms are not recoverable. Furthermore, if the
transferee extended credit contemporaneously with or subsequent to the transfer,
and prior to the commencement of the bankruptcy case, for which the transferee
was not repaid, such extension constitutes an offset against an otherwise
recoverable transfer of property. If a transfer is recovered by a debtor, the
transferee has a general unsecured claim against the debtor to the extent of the
recovery.
Under the Bankruptcy Code and under various state laws, a debtor may also
recover or set aside certain transfers of property (fraudulent transfers),
including the grant of a security interest in property, made while the debtor
was insolvent or which rendered the debtor insolvent or undercapitalized to the
extent that the debtor received less than reasonably equivalent value for such
transfer.
H. Litigation.
Dispute with Horizon. In late 2002, Horizon Personal Communications, Inc.
disputed certain categories of charges under the Network Services Agreement with
West Virginia PCS Alliance, L.C. and Virginia PCS Alliance, L.C. (collectively,
the "Alliances"), alleging that the Alliances overcharged Horizon $4.8 million
during the period commencing October 1999 and ending September 2002 and $1.2
million for the period commencing October 2002 and ending December 2002. Horizon
withheld these categories of charges from payments made from and after December
2002 and failed to timely pay their January 2003 invoice due following the
Petition Date. On March 11, 2003, Horizon filed a motion with the Bankruptcy
Court which effected an administrative freeze as to the amounts payable on the
January invoice. On March 12, 2003, the Alliances notified Horizon of the
failure to make payment on the January invoice, reserving the right to terminate
the agreement in accordance with the terms thereof. On March 24, 2003, the
parties entered a stipulation approved by the Bankruptcy Court pursuant to which
Horizon paid the January invoice and agreed to pay all future invoices and the
Alliances agreed not to exercise their termination right, assuming all future
payments are made in accordance with the agreement. The stipulation further
provides that Horizon is permitted to withhold amounts under monthly invoices in
excess of $3.0 million if it determines in good faith that such amounts in
excess of $3.0 million represent an overcharge by the Alliances, pending
resolution of the dispute. In addition, the parties agreed to continue to
discuss and negotiate, in good faith, their dispute regarding Horizon's claim.
Following a 30 day-period, either party had the right to submit the dispute to
arbitration in accordance with the agreement. Neither party has filed for
arbitration. The parties are continuing to discuss the dispute.
28
Tax Related Litigation. In connection with a review of NTELOS' federal tax
returns for the years ended December 31, 1998 and 1999, the Service Examination
Agent formally proposed various adjustments that would, if sustained, result in
increasing the taxable income of NTELOS and the NTELOS Subsidiaries (including
R&B Communications, Inc., which was not an NTELOS Subsidiary during the years in
issue) by aggregate amounts of approximately $5.1 million and approximately $9.2
million, respectively. The principal issues with respect to the proposed
adjustments involve (i) the deductibility of costs of cellular telephones sold
to customers incident to entering into contracts to provide cellular telephone
service and (ii) the depreciation period of certain cellular telephone system
equipment. NTELOS disagrees with and intends to contest substantially all of the
proposed adjustments. On February 27, 2003 and March 21, 2003, NTELOS and the
affected NTELOS Subsidiaries filed protests to appeal the unagreed, proposed
adjustments to the Service Appeals Office.
The outcome of these proceedings cannot be predicted. However, to the
extent the proposed adjustments are sustained, the likely federal income tax
result would be to use available net operating losses to offset increases in
taxable income, thereby reducing NOLs. In that event, NTELOS and the NTELOS
Subsidiaries likely would owe interest on temporary tax deficiencies for 1996
and 1997.
The Debtors are party to certain other ongoing litigation, none of which
the Debtors anticipate having a material effect on their operations or the
Chapter 11 Case.
I. Affiliated Claims and Transactions.
In May 2000, R&B Communications, Inc. entered into a lease agreement with
Layman Family, LLC. Under the terms of the agreement, R&B Communications, Inc.
leases a 34,000 square foot building from Layman Family, LLC for a term of 20
years at a rental rate of $15.00 per square foot. In February 2001, NTELOS
engaged in a merger whereby R&B Communications, Inc. became a wholly-owned
subsidiary. Mr. Layman became the President and a director of NTELOS following
the merger and he is the manager of Layman Family, LLC. Effective June 1, 2003,
Mr. Layman ceased to be the President and a director of NTELOS.
Non-employee directors of the Company were not paid for their attendance at
meetings of the Board of Directors and committees thereunder during the period
commencing February 1, 2003 and ending March 3, 2003.
On February 12, 2003, the Company notified the shareholders' representative
under the merger agreement with R&B Communications, Inc. ("R&B") of a threatened
tax claim that could result in escrow losses. At the closing of the merger, 10%
of the shares of the Company's common stock issued to R&B shareholders were
placed in escrow to satisfy the Company's claims for indemnification. In
accordance with the escrow agreement, the Company instructed the escrow agent to
continue to hold any remaining shares in escrow pending resolution of the tax
claim.
On May 29, 2003, R&B Communications, Inc. and Layman Family, LLC entered
into an amendment to the lease agreement, among other things, to reduce the term
of the lease and the rent payable thereunder and to reallocate certain repair
responsibilities to Layman Family, LLC, as landlord and the Debtors intend to
assume the lease, as amended, pursuant to the Plan.
By order dated May 30, 2003, the Bankruptcy Court approved NTELOS entering
into a Separation Agreement with J. Allen Layman, the President and a Chairman
of NTELOS, and a
29
Separation and Consulting Agreement with Warren C. Catlett, the Senior Vice
President--Corporate Development of NTELOS, each effective as of June 1, 2003.
Pursuant to the terms of the Layman Separation Agreement, as negotiated
consideration in exchange for Mr. Layman's continued agreement to honor the
non-competition provisions of Mr. Layman's pre-petition employment agreements,
Mr. Layman will receive, subject to confirmation of the Plan, $564,712.00 of New
Common Stock (based on the implied equity value associated with the New Notes),
such shares to be distributed in accordance with the terms of the Plan. The
balance of the financial terms and conditions of the departure of Messrs. Layman
and Catlett are set forth in the Separation Agreement and the Separation and
Consulting Agreement, respectively.
VI.
THE JOINT PLAN OF REORGANIZATION
NTELOS believes that (i) through the Plan, creditors will obtain a
substantially greater recovery from the estates of the Debtors than the recovery
which would be available if the assets of the Debtors were liquidated under
Chapter 7 of the Bankruptcy Code and (ii) the Plan will afford the Debtors the
opportunity and ability to continue in business as a viable going concern.
The Plan is annexed hereto as Exhibit A and forms a part of this Disclosure
Statement. The summary of the Plan set forth below is qualified in its entirety
by reference to the more detailed provisions set forth in the Plan.
A. Classification and Treatment of Claims and Equity Interests.
1. DIP Lender Claims.
Pursuant to the terms of the DIP Credit Agreement, Reorganized NTELOS
will pay to the DIP Lenders, on account of any DIP Lender Claims, Cash equal to
the amount of DIP Lender Claims, unless the DIP Lenders and NTELOS or
Reorganized NTELOS, as the case may be, agree or will have agreed to other
treatment of such Claims.
2. Administrative Expense Claims.
Subject to certain additional requirements for professionals and
certain other entities set forth in this section, the Reorganized Debtors will
pay to each holder of an Allowed Administrative Expense Claim (other than the
DIP Lender Claims which shall be treated as set forth in Section 2.1 of the
Plan), on account of its Administrative Expense Claim and in full satisfaction
thereof, Cash equal to the amount of such Allowed Administrative Expense Claim
on, or as soon as practicable after, the later of the Effective Date and the day
on which such Claim becomes an Allowed Claim, unless the holder and the Debtors
or Reorganized Debtors, as the case may be, agree or will have agreed to other
treatment of such Claim, or an order of the Bankruptcy Court provides for other
terms; provided, that if incurred in the ordinary course of business or
otherwise assumed by the Debtors pursuant to the Plan (including Administrative
Expense Claims of governmental units for taxes), an Allowed Administrative
Expense Claim will be assumed on the Effective Date and paid, performed or
settled by the Reorganized Debtors when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation in the
absence of the Chapter 11 Case.
30
3. Professional Compensation and Reimbursement Claims.
All persons seeking an award by the Bankruptcy Court of a Professional
Compensation and Reimbursement Claim incurred through and including the
Effective Date are required (unless otherwise ordered by the Bankruptcy Court)
to file final applications for the allowance of compensation for services
rendered and reimbursement of expenses incurred within 30 days after the
Effective Date. Holders of Professional Compensation and Reimbursement Claims
that file final applications in accordance with the Plan will be paid in full in
Cash in the amounts approved by the Bankruptcy Court: (a) on or as soon as
reasonably practicable following the later to occur of (i) the Effective Date
and (ii) the date on which the order relating to any such Professional
Compensation and Reimbursement Claim becomes a Final Order; or (b) on other
terms mutually agreed on between the Professional Compensation and Reimbursement
Claim holder and the Debtors or, as applicable, the Reorganized Debtors.
4. Priority Tax Claims.
Priority Tax Claims are those Claims for taxes entitled to priority in
payment under Section 507(a)(8) of the Bankruptcy Code. Except to the extent
that a holder of an Allowed Priority Tax Claim agrees to a different treatment
of such Allowed Priority Tax Claim, the Reorganized Debtors will, at their sole
option, pay to each holder of an Allowed Priority Tax Claim (i) Cash in an
amount equal to such Allowed Priority Tax Claim on the later of the Effective
Date and the date on which such Claim becomes an Allowed Priority Tax Claim, or
as soon thereafter as is practicable, (ii) deferred Cash payments made on the
last Business Day of every three-month period following the Effective Date, over
a period not exceeding six (6) years after the date of assessment of the tax on
which such Claim is based, totaling the principal amount of such Allowed Claim,
plus simple interest on any outstanding balance from the Effective Date
calculated at the interest rate available on ninety (90) day United States
Treasuries on the Effective Date or (iii) such other treatment agreed to by the
Allowed Priority Tax Claim holder and the Debtors. All Allowed Priority Tax
Claims which are not due and payable on or before the Effective Date will be
paid in the ordinary course of business in accordance with the terms thereof or
accorded such other treatment as may be permitted under Section 1129(a)(9) of
the Bankruptcy Code.
5. Full Settlement.
The distributions provided for in Section 2.2 of the Plan are in full
settlement, release and discharge of all Administrative Expense Claims. The
distributions provided for in Section 2.3 of the Plan are in full settlement,
release and discharge of all Professional Compensation and Reimbursement Claims.
The distributions provided for in Section 2.4 of the Plan are in full
settlement, release and discharge of all Priority Tax Claims.
6. Class 1 - Priority Non-Tax Claims.
Class 1 consists of all Allowed Priority Non-Tax Claims. Class 1 is
unimpaired. On the Effective Date, except to the extent that the Debtors and a
holder of an Allowed Priority Non-Tax Claim agree to a different treatment of
such Allowed Priority Non-Tax Claim, each holder of an Allowed Priority Non-Tax
Claim will, at the Reorganized Debtors' election, receive (i) Cash in the amount
of such Allowed Priority Non-Tax Claim in accordance with Section 1129(a)(9) of
the Bankruptcy Code and/or (ii) such other treatment required to render such
Claim unimpaired pursuant to Section 1124 of the Bankruptcy Code. All Allowed
Priority Non-Tax Claims which are not due and payable on or before the Effective
Date will be paid in the
31
ordinary course of business in accordance with the terms thereof. Any default
with respect to any Class 1 Claim that existed immediately prior to the Petition
Date will be deemed cured upon the Effective Date.
7. Class 2 - Secured Bank Claims.
Class 2 consists of all Allowed Secured Bank Claims. The Secured Bank
Claims are deemed Allowed pursuant to the Plan. Class 2 is impaired. The Allowed
Claims in Class 2 will be treated as follows: on the Effective Date, Reorganized
NTELOS and the Reorganized NTELOS Subsidiaries shall enter into (i) the New
Credit Agreement on substantially the terms set forth in the Exit Financing Term
Sheet and (ii) the Modified Hedge Agreements. Accordingly, from and after the
Effective Date, (i) the Pre-Petition Secured Lenders' Claims against the Debtors
in respect of the Pre-Petition Credit Agreement and the rights and obligations
of the Reorganized Debtors and the Pre-Petition Secured Lenders shall be
governed by the terms of the New Credit Agreement, and (ii) the Secured Hedge
Parties' Claims against the Debtors in respect of the Pre-Petition Hedge
Agreements and the rights and obligations of the Reorganized Debtors and the
Secured Hedge Parties shall be governed by the terms of the Modified Hedge
Agreements.
8. Class 3 - FCC Secured Claims.
Class 3 consists of all Allowed FCC Secured Claims. Class 3 is
unimpaired. Each Allowed Claim in Class 3 will be treated as follows: (i) the
Plan will leave unaltered the legal, equitable and contractual rights to which
such Claim entitles the holder or (ii) notwithstanding any contractual provision
or applicable law that entitles the holder of an Allowed Claim in Class 3 to
demand or receive payment of such Claim prior to the stated maturity of such
Claims from and after the occurrence of a default, such Allowed Claim in Class 3
will be reinstated and rendered unimpaired in accordance with Section 1124(2) of
the Bankruptcy Code.
9. Class 4 - RUS/RTB Secured Claims.
Class 4 consists of all Allowed RUS/RTB Secured Claims. Class 4 is
unimpaired. Each Allowed Claim in Class 4 will be treated as follows: (i) the
Plan will leave unaltered the legal, equitable and contractual rights to which
such Claim entitles the holder or (ii) notwithstanding any contractual provision
or applicable law that entitles the holder of an Allowed Claim in Class 4 to
demand or receive payment of such Claim prior to the stated maturity of such
Claims from and after the occurrence of a default, such Allowed Claim in Class 4
will be reinstated and rendered unimpaired in accordance with Section 1124(2) of
the Bankruptcy Code.
10. Class 5 - Senior Debt Claims
Class 5 consists of all Senior Debt Claims which will be Allowed in
the amount of [$296,694,261]. Class 5 is impaired. On the Effective Date or as
soon as practicable thereafter, each holder of an Allowed Senior Debt Claim as
of the Distribution Record Date will receive its Ratable Proportion of the
Senior Debt New Common Stock Distribution Amount. Any securities, notes,
instruments or documents evidencing the Senior Debt Claims will be cancelled on
the Effective Date.
To the extent, if any, that the classification and manner of
satisfying Claims under the Plan does not take into consideration all
contractual, legal and equitable subordination rights
32
that holders of Allowed Senior Debt Claims may have against holders of Claims or
Equity Interests with respect to distributions made pursuant to the Plan, each
holder of an Allowed Senior Debt Claim will be deemed, upon the Effective Date,
to have waived all contractual, legal or equitable subordination rights that
such holder might have, including, without limitation, any such rights arising
out of the Senior Notes, the Subordinated Notes, the Senior Indenture, the
Subordinated Indenture or otherwise.
The payments and distributions to be made under the Plan to holders of
Senior Notes shall be made to the Senior Indenture Trustee or a Disbursing Agent
selected by NTELOS and the Creditors' Committee, which shall transmit such
payments and distributions to holders of such Allowed Senior Debt Claims. In
addition, on the Effective Date, the Debtors will pay to the Senior Indenture
Trustee an amount equal to the reasonable fees and expenses incurred by the
Senior Indenture Trustee on behalf of the holders of the Senior Notes during the
period up to and including the Effective Date (such amount not to exceed
$[75,000]). In exchange, the Senior Indenture Trustee will be deemed to have
waived any entitlement to any Lien, claim or interest granted under the Senior
Indenture (including those described in the preceding paragraph of this section)
with respect to any distributions made to holders of Senior Debt Claims under
the Plan.
11. Class 6 - Convenience Claims.
Class 6 consists of Convenience Claims. Class 6 is unimpaired. Each
holder of a Convenience Claim will be rendered unimpaired in accordance with
Section 1124 of the Bankruptcy Code. All Convenience Claims which are not due
and payable on or before the Effective Date will be paid in the ordinary course
of business in accordance with the terms thereof.
In any event, all Convenience Claims in Class 6 that have become due
and payable on or before the Effective Date (unless previously paid) will
receive on account of and in full and complete settlement, release and discharge
of such Convenience Class Claim, Cash on, or as soon as practicable after the
Effective Date, or at such other time as is mutually agreed upon by the Debtors
or the Reorganized Debtors, as the case may be, and the holder of such Claim, or
if not due and payable on the Effective Date, such Claim will be reinstated and
paid in full in accordance with its terms or otherwise rendered unimpaired.
12. Class 7 - General Unsecured Claims.
Class 7 consists of all Allowed General Unsecured Claims. Each holder
of an Allowed General Unsecured Claim will receive on account of and in full and
complete settlement, release and discharge of such General Unsecured Claim, Cash
equal to 68% of such holder's Allowed General Unsecured Claim to be distributed
as follows:
(i) on the Effective Date, Cash equal to 30.6% of such holder's
Allowed General Unsecured Claim;
(ii) on the first anniversary of the Effective Date, Cash equal
to 20.4% of such holder's Allowed General Unsecured Claim; and
(iii) on the second anniversary of the Effective Date, Cash equal
to 17.0% of such holder's Allowed General Unsecured Claim.
33
13. Class 8 - Intercompany Claims.
Class 8 consists of Intercompany Claims. Class 8 is unimpaired. The
legal equitable and contractual rights of the holders of Class 8 Claims are
unaltered by the Plan.
14. Class 9 - Subordinated Claims.
Class 9 consists of all Subordinated Claims which shall be Allowed in
the amount of [$102,053,750]. Class 9 is impaired. On the Effective Date or as
soon as practicable thereafter, each holder of an Allowed Subordinated Claim as
of the Distribution Record Date will receive its Ratable Proportion of the
Subordinated Note New Common Stock Distribution Amount. Any securities, notes,
instruments or documents evidencing the Subordinated Claims will be cancelled on
the Effective Date.
The payments and distributions to be made under the Plan to holders of
Subordinated Notes will be made to the Subordinated Indenture Trustee, which
will transmit such payments and distributions to holders of such Allowed
Subordinated Claims.
15. Class 10 - Old Preferred Stock Interests.
Class 10 consists of all Allowed Old Preferred Stock Interests. Class
10 is impaired. On the Effective Date or as soon as practicable thereafter, each
holder of an Allowed Old Preferred Stock Interest as of the Distribution Record
Date will receive its Ratable Proportion of New Warrants. The Old Preferred
Stock Interests will be cancelled on the Effective Date.
16. Class 11 - Subsidiary Interests.
Class 11 consists of Subsidiary Interests. Class 11 is unimpaired. The
legal, equitable and contractual rights of the holders of Subsidiary Interests
are unaltered by the Plan.
17. Class 12 - Old Common Stock Interests.
Class 12 consists of all Old Common Stock Interests. Class 12 is
impaired. The Old Common Stock will be cancelled on the Effective Date and no
distribution will be made in respect thereof.
18. Class 13 - Other Equity Interests and Securities Claims.
Class 13 consists of all Other Equity Interests and Securities Claims.
Class 13 is impaired. The Other Equity Interests and Securities Claims will be
cancelled on the Effective Date and of no further force and effect and no
distribution will be made in respect thereof.
B. Securities to be Issued Under the Plan.
1. New Common Stock.
On the Effective Date, the Senior Notes, the Subordinated Notes, any
documents and instruments which evidence the Senior Debt Claims and the
Subordinated Claims, the Old Preferred Stock Interests, Old Common Stock
Interests and the Other Equity Interests and Securities Claims will (a) be
cancelled and (b) have no effect other than the right to participate in the
distributions, if any, provided under the Plan in respect of such Claims and
Equity Interests.
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Commencing on the Effective Date, Reorganized NTELOS will distribute New Common
Stock to holders of Allowed Senior Debt Claims and Allowed Subordinated Claims
and in accordance with Section 6.7 of the Plan. Pursuant to the New Articles of
Incorporation, Reorganized NTELOS is authorized to issue no less than 16,000,000
shares of New Common Stock.
Holders of the New Common Stock will be entitled:
. to one vote per share on all matters submitted to a vote of the
shareholders;
. to receive, on a pro rata basis, dividends and distributions, if
any, as the Board of Directors may declare out of legally
available funds; and
. upon a liquidation, dissolution or winding-up of Reorganized
NTELOS, to share equally and ratably in any assets remaining
after the payment of all debt and other liabilities, subject to
any prior rights of holders of the New Notes.
Holders of New Common Stock will not have any preemptive, cumulative
voting, subscription, conversion, redemption or sinking fund rights. The New
Common Stock will not be subject to future calls or assessments by Reorganized
NTELOS.
Subject to the rights of the holders of the New Notes described below,
holders of a plurality of the shares of New Common Stock voting for the election
of directors will be able to elect all of the directors, since the holders of
the New Common Stock will not have cumulative voting rights. For a more detailed
description of the process by which the initial Board of Directors of
Reorganized NTELOS will be selected, see Section VIII.A, "Management of
Reorganized NTELOS - Board of Directors and Management."
2. New Warrants.
On the Effective Date, Reorganized NTELOS will issue New Warrants. The
New Warrants collectively will represent 3.0% of the fully-diluted New Common
Stock (475,624 shares). Each New Warrant initially will be exercisable for one
(1) share of the New Common Stock at any time for a period of five (5) years
from the Effective Date at an initial exercise price equal to 120% of the New
Common Stock Price. The New Warrants may be exercised at any time during their
five-year term by the surrender of the specified exercise documents and the
payment of the exercise price in Cash.
C. New Investment.
1. Subscription Agreement.
The Participating Noteholders have committed pursuant to the terms of
the Subscription Agreement to provide an aggregate of $75.0 million in Cash to
Reorganized NTELOS for the purchase of New Notes issuable under the Subscription
Agreement. A copy of the Subscription Agreement is attached hereto as Exhibit F.
As described below, the Purchase Agreement, upon execution by NTELOS and the
Participating Noteholders, will incorporate and supersede the terms of the
Subscription Agreement.
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The Subscription Agreement contains a number of conditions to the
obligations of the Participating Noteholders to provide the funds described
above. These conditions include the following:
(i) NTELOS shall not have failed to perform any of its
obligations under the Subscription Agreement or breached any
agreements set forth therein;
(ii) a Plan conforming to the terms described in the Subscription
Agreement (a "Conforming Plan") (and accompanying disclosure
statement), providing for a New Credit Agreement conforming in all
material respects with the Exit Financing Term Sheet, and in all other
respects reasonably satisfactory to the Participating Noteholders,
shall have been filed with the Bankruptcy Court on or before May 31,
2003, and the disclosure statement in respect of such final Conforming
Plan reasonably acceptable to the Participating Noteholders shall have
been approved by the Bankruptcy Court on or before August 15, 2003;
(iii) a Conforming Plan shall have been confirmed by a final order
of the Bankruptcy Court (which final order shall be reasonably
acceptable to the Participating Noteholders) on or before September
30, 2003, with the Effective Date occurring on or before October 15,
2003;
(iv) a Conforming Plan shall provide for the cancellation of all
Senior Notes, Subordinated Notes, indentures, debt for borrowed money
and Equity Interests (provided that they may be entitled to receive
equity securities of the Reorganized Debtors), subject to certain
exceptions, including the New Credit Agreement and New Notes, and
certain other limited indebtedness following the Effective Date.
(v) the Bankruptcy Court shall not have denied at any time
confirmation of a Conforming Plan, subject to certain exceptions;
(vi) there shall not have been a material modification of a
Conforming Plan not acceptable to the Participating Noteholders in
their sole discretion, subject to certain exceptions;
(vii) the Debtors, committee approved by the Bankruptcy Court or
United States Trustee shall not have filed (i) a plan of
reorganization or plan of liquidation that is not a Conforming Plan,
(ii) any motion or pleading materially inconsistent with confirmation
or consummation of a Conforming Plan, subject to certain exceptions,
or (iii) a motion seeking (and the Bankruptcy Court shall not have
entered) an order appointing a trustee, officer or examiner with power
beyond the duty to investigate and report, as set forth in subclauses
(3) and (4) and clause (a) of section 1106 of the Bankruptcy Code, in
the Chapter 11 Case;
(viii) no event of default shall have occurred under the DIP Credit
Agreement that was not waived by the DIP Lenders;
(ix) the Plan Support Agreement shall not have been amended,
modified or supplemented in manner adverse to NTELOS or the
Participating Noteholders, without the prior written consent of the
Participating Noteholders;
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(x) the New Credit Agreement, conforming in all material
respects with the Exit Financing Term Sheet, shall have become
effective on the Effective Date;
(xi) the New Notes to be purchased and sold on the Effective Date
shall conform in all material respects with the terms in the
Subscription Agreement;
(xii) NTELOS and the Participating Noteholders shall have executed
and delivered such other documents as are customary for such
transactions, including, without limitation, the Purchase Agreement
containing customary representations, warranties, covenants
(including, without limitation, covenants of NTELOS providing for
securities registration rights with respect to the New Notes and the
New Common Stock) and closing conditions (with customary exceptions
relating to the filing and continuation of the Chapter 11 Case), which
documents shall be satisfactory to the Participating Noteholders and
NTELOS;
(xiii) no preliminary or permanent injunction or other order by any
governmental entity which prevents the sale and issuance of the New
Notes shall have been issued and remain in effect;
(xiv) no statute, rule, regulation or other law shall have been
enacted by any governmental entity which would prevent or make illegal
the sale and issuance of the New Notes;
(xv) all necessary or required consents, orders, approvals or
authorizations of, notifications or submissions to, filings with,
licenses or permits from, or exemptions or waivers by, any
governmental entity, stock exchange or other person shall have been
made or obtained, except where the failure by a party to make or
obtain any of the foregoing would not have a material adverse effect
on (i) the properties, assets, operations, business, prospects,
results of operations or financial condition of the Debtors, taken as
a whole, or (ii) such party's ability to perform its obligations under
the Subscription Agreement;
(xvi) the Participating Noteholders shall have purchased,
severally and not jointly, at least $65.0 million aggregate principal
amount of the New Notes on the terms set forth in the Subscription
Agreement; and
(xvii) since December 31, 2002, no event, damage to or destruction
or loss of any property or asset of the Debtors and no condition or
set of circumstances shall exist that, individually or in the
aggregate, could have or has had a material adverse effect on the
properties, assets, operations, business, prospects, results of
operations or financial condition of the Debtors, taken as a whole, or
on the ability of NTELOS to perform its obligations under the
Subscription Agreement, subject to certain exceptions.
2. New Notes.
Pursuant to the terms of the Subscription Agreement, $75.0 million
aggregate principal amount of New Notes (75,000 New Notes each with a principal
amount of $1,000.00) will be issued and sold on the Effective Date to the
Participating Noteholders. As of the Effective Date, the outstanding New Notes
will represent, on an as converted basis, 27.5% of the issued and outstanding
New Common Stock. The terms of the New Notes to be issued to the
37
Participating Noteholders are set forth in the New Indenture, the form of which
will be filed with the Bankruptcy Court at least fourteen (14) Business Days
prior to the Confirmation Hearing and be annexed to the Plan Supplement as
Exhibit 3.
The New Notes will be unsecured and otherwise rank pari passu with all
other senior debt of Reorganized NTELOS. The New Notes will accrue interest at
the rate of 9.0%, payable semi-annually. Interest will accrue and be cumulative
from the date of issuance of the New Notes and will be payable in Cash. The New
Notes will mature 10 years from the date of issuance.
The New Notes will be redeemable by Reorganized NTELOS (i) at any time
upon sixty (60) days notice of such redemption during (a) the two-year period
following the Effective Date at a redemption price equal to an amount that is
109.0% of the face value of the New Notes; (b) the third year following the
Effective Date at a redemption price equal to an amount that is 104.5% of the
face value of the New Notes and (ii) at any time during the period thereafter
with sixty (60) days notice at a redemption price equal to an amount that is
100.0% of the face value of the New Notes. Any redemption of the New Notes shall
permit the holders of New Notes to exercise their conversion rights within a
notice period of not less than sixty (60) days.
As of the Effective Date, an aggregate principal amount of New Notes
of $75.0 million, on an as converted basis, will represent 27.5% of the New
Common Stock (3,793,103 shares) prior to dilution for shares of New Common Stock
issuable under the Stock Option Incentive Plan and those shares of New Common
Stock issuable upon exercise of the New Warrants. Each New Note will be
convertible, in whole or in part, at any time after it is issued, at the option
of the holder, into 50.5747 shares of New Common Stock. Each New Note will have
an initial conversion price per share set at the New Common Stock Price.
In consideration for purchasing the New Notes, the Participating
Noteholders will receive shares of New Common Stock issuable under the
Subscription Agreement.
D. Means of Implementation of the Plan.
1. Continued Existence.
The Debtors will continue to exist after the Effective Date as
separate corporate entities, limited liability companies, limited liability
partnerships and partnerships, in accordance with the applicable law in the
respective jurisdictions in which they are incorporated or organized and
pursuant to their respective certificates, articles of incorporation, operating
agreements, partnership agreements, and by-laws in effect prior to the Effective
Date, except to the extent such certificates, articles of incorporation,
operating agreements, partnership agreements and by-laws are amended by the
Plan.
2. Amended and Restated Articles of Incorporation.
On the Effective Date, or as soon thereafter as is practicable,
Reorganized NTELOS will file with the Clerk of the Virginia State Corporation
Commission in accordance with Section 13.1-604.1 of the Virginia Code, the New
Articles of Incorporation which will, among other things, authorize no less than
16,000,000 shares of New Common Stock, all shares of such New Common Stock
having equal rights with respect to voting and distributions. On the Effective
Date, the New Articles of Incorporation will become effective subject to the
requirements of Section 13.1-605 of the Virginia Code, and all other matters
provided under the
38
Plan involving the corporate structure of Reorganized NTELOS, or corporate
action by it, will be deemed to have occurred and will be in effect from and
after the Effective Date pursuant to Section 13.1-605 of the Virginia Code.
3. Corporate Action.
a. Board of Directors of Reorganized NTELOS.
On the Effective Date, the operation of Reorganized NTELOS will
become the general responsibility of its Board of Directors, subject to, and in
accordance with, the New Articles of Incorporation and the New By-Laws. The
initial Board of Directors of Reorganized NTELOS will consist of seven (7)
members to be selected as follows: (i) the majority holders of the Senior Notes
will select four (4) members, two (2) of whom will be persons independent of the
Participating Noteholders and NTELOS, and (ii) the majority holders of the
Senior Notes and NTELOS will select jointly two (2) members, which members may
be members of the Board of Directors of NTELOS. The seventh member of the
initial Board of Directors of Reorganized NTELOS will be the chief executive
officer of Reorganized NTELOS. The members of the initial Board of Directors of
Reorganized NTELOS will be approved by the Board of Directors of NTELOS. The
initial members of the Board of Directors of Reorganized NTELOS will be
disclosed in a filing to be made with the Bankruptcy Court fourteen (14)
Business Days prior to the Confirmation Hearing. The directors of NTELOS
immediately prior to the Effective Date will be deemed to have resigned as of
the Effective Date and will be replaced by the Board of Directors of Reorganized
NTELOS.
b. Executive Officers of Reorganized NTELOS.
The initial executive officers of Reorganized NTELOS are
disclosed in this Disclosure Statement. The selection of officers of Reorganized
NTELOS after the Effective Date will be as provided in the New Articles of
Incorporation and New By-Laws. See Section VIII.A.2. "Management of Reorganized
NTELOS - Board of Directors and Management - Identity of Executive Officers"
4. New Credit Agreement.
The entry of Reorganized NTELOS into the New Credit Agreement with the
Pre-Petition Secured Lenders on the terms set forth in the Exit Financing Term
Sheet is authorized without further act or action under applicable law,
regulation, order or rule. Reorganized NTELOS is authorized to enter into such
agreements and documents and issue such instruments as may be necessary to
effectuate the entry of Reorganized NTELOS and the Reorganized Debtors into such
New Credit Agreement, in form and substance reasonably acceptable to the
Pre-Petition Secured Lenders.
On April 11, 2003, as the means to consummate NTELOS' comprehensive
financial restructuring, NTELOS and certain Pre-Petition Secured Lenders agreed
on certain terms of the New Credit Agreement. The terms of the proposed
amendment and restatement are set forth in the Exit Financing Term Sheet, which
is annexed hereto as Exhibit H. The terms set forth in the Exit Financing Term
Sheet do not constitute a commitment by the Pre-Petition Secured Lenders to
amend the Pre-Petition Credit Agreement. Those terms are subject to the
negotiation, execution and delivery of a New Credit Agreement and other
definitive credit documents by the Pre-Petition Secured Lenders and NTELOS. The
New Credit Agreement shall be reasonably acceptable to the Creditors' Committee.
Certain of the actual conditions,
39
covenants and other terms of the New Credit Agreement may differ from, or be in
addition to, those set forth in the Exit Financing Term Sheet. The following
summary of the material provisions of the Exit Financing Term Sheet does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Exit Financing Term Sheet.
The Exit Financing Term Sheet contemplates that the Pre-Petition
Secured Lenders would agree to covenants under the Pre-Petition Credit Agreement
as reflected therein. The revolver commitment would be $36.0 million, with a
$5.0 million letter of credit sublimit. The Pre-Petition Secured Lenders would
receive a reinstatement commitment fee at twenty five (25) basis points on the
$36.0 million Revolver, Tranche A loan and Tranche B loan.
The interest rates applicable to the Revolver and Tranche A loan,
Tranche B loan and Tranche C loan shall be as follows:
Tranche A & Revolver: Base Rate plus 2.25%
LIBOR plus 3.25%
Tranche B: Base Rate plus 3.00%
LIBOR plus 4.00%
Tranche C : Base Rate plus 1.75%
LIBOR plus 2.75%
On and after the day that is three (3) months after closing of the New
Credit Agreement, the interest rate margins will be reduced 25 bps for each of
the Revolver, Tranche A and Tranche B loans when NTELOS' total leverage ratio is
less than 3.0:1.0, following certification by the chief financial officer.
The obligation of the Pre-Petition Secured Lenders to enter into the
New Credit Agreement will be subject to the conditions, among others, that the
Plan will have been consummated and that the Participating Noteholders fulfill
their obligations under the Purchase Agreement.
5. Modified Hedge Agreements.
The entry of Reorganized NTELOS into the Modified Hedge Agreements
with the Secured Hedge Parties to continue existing hedge arrangements is
authorized without further act or action under applicable law, regulation, order
or rule. Reorganized NTELOS is hereby authorized to enter into such agreements
and documents and issue such instruments as may be necessary to effectuate its
entry into such Modified Hedge Agreements, in form and substance acceptable to
the Secured Hedge Parties.
6. Cancellation of Existing Securities and Agreements.
On the Effective Date, the Senior Notes, the Subordinated Notes, any
documents and instruments which evidence the Senior Debt Claims and the
Subordinated Claims, the Old Preferred Stock Interests, the Old Common Stock
Interests and the Other Equity Interests and Securities Claims will (a) be
cancelled and (b) have no effect other than the right to participate in the
distributions, if any, provided under the Plan in respect of such Claims and
Equity Interests. Except for purposes of effectuating the distributions under
the Plan on the Effective Date and to
40
allow the Senior Indenture Trustee and the Subordinated Indenture Trustee to
retain all Liens pursuant to the terms of the Senior Indenture and the
Subordinated Indenture with respect to distributions under the Plan, the Senior
Indenture and the Subordinated Indenture will be cancelled and discharged
pursuant to Section 1141 of the Bankruptcy Code. Except as otherwise provided in
the Plan, NTELOS, on the one hand, and the Senior Indenture Trustee or
Subordinated Indenture Trustee, on the other hand, will be released from any and
all obligations under the Senior Indenture or Subordinated Indenture except with
respect to the distributions required to be made to the Senior Indenture Trustee
or Subordinated Indenture Trustee as provided in the Plan or with respect to
such other rights of the Senior Indenture Trustee or Subordinated Indenture
Trustee that, pursuant to the terms of the Senior Indenture or Subordinated
Indenture, survive the termination of the Senior Indenture or Subordinated
Indenture.
7. Issuance of New Securities.
The issuance of New Common Stock, New Notes and New Warrants is hereby
authorized without further act or action under applicable law, regulation, order
or rule. Subject to the terms of the Purchase Agreement, Reorganized NTELOS is
hereby authorized to enter into such agreements and documents and issue such
instruments as may be necessary to effectuate the issuance of New Common Stock,
New Notes and New Warrants, in each case reasonably acceptable to the
Pre-Petition Secured Lenders, including the New Indenture and the New Warrant
Agreement. To the maximum extent provided by Section 1145 of the Bankruptcy Code
and applicable nonbankruptcy laws, the shares of New Common Stock and New
Warrants issued pursuant to the Plan are exempt from registration under the
Securities Act and any state or local law requiring registration for offer or
sale of a security.
8. Shareholders' Agreement.
Pursuant to the terms of the Plan, as of the Effective Date,
Reorganized NTELOS and the holders of the New Common Stock likely will be bound
by a Shareholders' Agreement that will limit, restrict or prohibit the ability
of holders of New Common Stock to sell or otherwise transfer such securities for
a specified or indefinite period of time. It is anticipated that the
Shareholders' Agreement will contain such provisions (but may contain different
or additional provisions), including transfer restrictions with respect to the
New Common Stock, as set forth on Exhibit I hereto.
9. Registration Rights Agreements.
a. New Common Stock Registration Rights Agreement.
As of the Effective Date, Reorganized NTELOS and certain holders
of New Common Stock will enter into the New Common Stock Registration Rights
Agreement, the form of which will be filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 5. The New Common Stock Registration Rights
Agreement will provide that such holders of New Common Stock will be entitled to
certain demand registrations and piggyback rights for the resale of their shares
of New Common Stock (subject to customary limitations).
41
b. New Notes Registration Rights Agreement.
As of the Effective Date, Reorganized NTELOS and the
Participating Noteholders will enter into the New Notes Registration Rights
Agreement, the form of which will be filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 6, providing for specified registration rights
with respect to the New Notes issued on the Effective Date and the New Common
Stock issuable upon conversion of such securities held by such holders. The New
Notes Registration Rights Agreement will provide that the holders of those
securities will be entitled to certain demand registrations and to certain
piggyback rights for the resale of their securities (subject to customary
limitations).
10. New Investment.
Pursuant to the terms of the Subscription Agreement, the Participating
Noteholders have agreed to purchase $75.0 million aggregate principal amount of
the New Notes and 37,931 shares of New Common Stock (based on the New Common
Stock Price) issuable under the Subscription Agreement, thereby providing
Reorganized NTELOS with $75.0 million of funding through the New Investment. The
proceeds of the New Investment will be used (i) to pay in full all DIP Lender
Claims on the Effective Date, unless the DIP Lenders and NTELOS or Reorganized
NTELOS, as the case may be, agree or will have agreed to other treatment of such
Claim, (ii) to pay in full the revolving loans then outstanding under the
Pre-Petition Credit Agreement upon the Effective Date in accordance with the
Exit Financing Term Sheet, and (iii) to fund the operations of the Reorganized
Debtors on a going forward basis including obligations under the Plan. For a
more detailed discussion of the New Notes, see Section VI.C.2, "The Joint Plan
of Reorganization - New Investment - New Notes."
11. Termination of Subordination.
The classification and manner of satisfying all Claims and Equity
Interests under the Plan and the distributions under the Plan take into
consideration all contractual, legal and equitable subordination rights, whether
arising under any agreement, general principles of equitable subordination,
Section 510 of the Bankruptcy Code or otherwise, that a holder of a Claim or
Equity Interest may have against another holder of a Claim or Equity Interest
with respect to any distribution made pursuant to the Plan. The Plan
incorporates a proposed compromise and settlement relating to the operation of
the subordination provisions contained in the Subordinated Indenture. The
provisions of the Plan relating to the distribution of New Common Stock to
holders of Senior Debt Claims (Class 5) and Subordinated Claims (Class 9)
reflect this compromise and settlement which, upon the Effective Date, will be
binding upon the Debtors, all creditors and all persons and governmental units
receiving any payments or other distributions under the Plan. On the Effective
Date, all contractual, legal or equitable subordination rights that such holder
may have with respect to any distribution to be made pursuant to the Plan will
be deemed to be waived, discharged and terminated, and all actions related to
the enforcement of such subordination rights will be permanently enjoined.
Accordingly, distributions pursuant to the Plan to holders of Allowed Claims and
Allowed Equity Interests will not be subject to payment to a beneficiary of such
terminated subordination rights, or to levy, garnishment, attachment or other
legal process by any beneficiary of such terminated subordination rights.
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12. Cash Payments by the Debtors.
Unless otherwise provided in the Plan, on the Effective Date, the
Reorganized Debtors shall pay holders of Allowed Claims such Cash as is
necessary to make the Cash distributions and any other Cash payments required
thereunder. All Cash necessary for the Reorganized Debtors to make payments
pursuant to the Plan shall be obtained from existing Cash balances, proceeds
from the sale of the New Notes, the operations of the Debtors or Reorganized
Debtors or post-Confirmation borrowing under the available facility of the
Debtors or Reorganized Debtors, including under the New Credit Agreement, to the
extent permitted thereunder. Reorganized NTELOS may also make such payments
using Cash received from the NTELOS Subsidiaries in the ordinary course of
business.
13. Bar Date for Administrative Expense Claims.
a. Pre-Effective Date Claims and Expenses.
No proof of Administrative Expense Claim or application for
payment of an Administrative Expense Claim need be filed for the allowance of
any of the following types of Claims (a) expenses of liabilities incurred in the
ordinary course of the Reorganized Debtors' businesses on or after the Effective
Date, (b) Administrative Expense Claims held by trade vendors where such
administrative liability was incurred in the ordinary course of the Debtors' and
such creditors' businesses after the Petition Date, (c) Professional
Compensation and Reimbursement Claims, (d) DIP Lender Claims, (e) claims of the
Pre-Petition Secured Lenders arising from the DIP Credit Agreement or Final DIP
Order, or (f) fees of the United States Trustee arising under 28 U.S.C. Section
1930.
TO BE ELIGIBLE FOR PAYMENT UNDER THE PLAN, ALL PERSONS AND GOVERNMENTAL UNITS
ASSERTING ADMINISTRATIVE EXPENSE CLAIMS OF ANY KIND NOT DESCRIBED ABOVE ARISING
ON OR AFTER THE PETITION DATE MUST BE FILED AND SERVE PROOFS OF SUCH CLAIMS
PURSUANT TO THE PROCEDURES IN THE CONFIRMATION ORDER OR NOTICE OF ENTRY OF
CONFIRMATION ORDER, NO LATER THAN 60 DAYS AFTER THE EFFECTIVE DATE.
Expenses and liabilities incurred on or after the Effective Date
are not subject to the Plan or the treatment of Claims described therein. All of
the Administrative Expense Claims described above other than Professional
Compensation and Reimbursement Claims will be paid by the Reorganized Debtors in
the ordinary course of business.
b. Effect of Failure to File Timely Claim or Requests for Payment.
Any request for payment of an Administrative Expense Claim that
is not exempt from the Bar Date and that is not filed by the applicable deadline
set forth above will be barred. Any persons or governmental units that fail to
file a proof of Administrative Expense Claim or request for payment thereof on
or before the applicable deadline set forth above as required under the Plan
will be forever barred from asserting such Claim against the Debtors or the
Reorganized Debtors or their property and the holder thereof will be enjoined
from commencing or continuing any action, employment of process or act to
collect, offset or recover such Administrative Expense Claim.
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14. Allocation of Plan Distributions Between Principal and Interest.
To the extent that any Allowed Claim entitled to a distribution under
the Plan is composed of indebtedness and accrued but unpaid interest thereon,
such distribution will, to the extent permitted by applicable law, be allocated
for federal income tax purposes to the principal amount of the Claim first and
then, to the extent the consideration exceeds the principal amount of the Claim,
to the portion of such Claim representing accrued but unpaid interest.
15. Limited Substantive Consolidation.
The Plan is premised upon the limited substantive consolidation of the
Debtors solely for purposes of actions associated with confirmation and
consummation of the Plan, including but not limited to voting, confirmation and
distribution. The Plan does not contemplate the merger or dissolution of any of
the Debtors or the transfer or commingling of any assets of the Debtors, except
to accomplish the distributions under the Plan, other than distributions on
account of Intercompany Claims, which will be made in the ordinary course of
business following the Effective Date. Such limited substantive consolidation
will not affect (other than for Plan voting, treatment, and/or distribution
purposes) (i) the legal and corporate structures of the Reorganized Debtors,
(ii) Subsidiary Interests, or (iii) pre- and post-Petition Date guarantees that
are required to be maintained (x) in connection with the executory contracts
assumed herein, (y) in connection with the terms of the New Credit Agreement,
and (z) pursuant to the terms and conditions contained herein.
The Plan will serve as a motion seeking entry of an order
substantively consolidating the Chapter 11 cases of the Debtors, as described
herein. In determining whether substantive consolidation is appropriate, courts
have not employed a "bright-line" test but rather have identified and developed
various factors to be considered. The principal factors relied upon in finding
grounds sufficient to warrant substantive consolidation include, but are not
limited to:
. Common ownership or control of the debtor and the entities sought to
be consolidated;
. Identical or overlapping officers or directors among the debtor and
the entities sought to be consolidated;
. Filing of tax returns and financial reporting on a consolidated basis;
. Presence of numerous inter-affiliate debts or guarantees among the
affiliates sought to be consolidated if such debts would be difficult
or costly to untangle;
. Undercapitalization of affiliates in relation to their business
undertakings;
. Commingling of assets or business functions among the debtor and the
entities sought to be consolidated;
. Economic benefits or potential profitability of consolidating the
debtor and its affiliates;
. Degree of difficulty in segregating the debtor's assets from those of
its affiliates;
44
. Absence of reliance by creditors on the credit of the separate
entities to be consolidated;
. Absence of inequitable prejudice to creditors resulting from
consolidation; and
. Whether the entities to be consolidated are debtors.
No single factor is determinative, nor is it necessary that all factors exist to
warrant substantive consolidation.
The Debtors submit that limited substantive consolidation of the
Debtors solely for purposes of actions associated with confirmation and
consummation of the Plan, including but not limited to voting, confirmation and
distribution, is warranted. Unless an objection to substantive consolidation is
made in writing by any creditor affected by the Plan as herein provided on or
before five (5) days prior to the date that is fixed by the Bankruptcy Court,
the Substantive Consolidation Order (which may be the Confirmation Order) may be
entered by the Bankruptcy Court. In the event that any such objections are
timely filed, a hearing with respect thereto will be scheduled before the Court,
which hearing may, but need not, coincide with the Confirmation Hearing. The
Debtors reserve the right to present evidence or other information sufficient to
meet the applicable standards for substantive consolidation at the time of such
hearing.
16. Employee Compensation and Benefit Plans.
Except and to the extent previously assumed or rejected by Final Order
on or before the Confirmation Date, all employment and severance agreements and
policies, and all employee compensation and benefit plans, policies, and
programs of the Debtors applicable generally to their employees, as in effect on
the Effective Date, including, without limitation, all savings plans, retirement
plans, health care plans, disability plans, severance benefit plans, incentive
plans, life, accidental death, and dismemberment insurance plans, and programs
subject to Sections 1114 and 1129(a)(13) of the Bankruptcy Code, entered into
before and after the Petition Date and not since terminated, will be deemed to
be, and will be treated as though they are, executory contracts that are assumed
under the Plan, and the Debtors' obligations under such agreements and programs
will survive the Effective Date of the Plan, without prejudice to the
Reorganized Debtors' rights under applicable non-bankruptcy law to modify,
amend, or terminate the foregoing arrangements, except for (i) such executory
contracts or plans specifically rejected pursuant to the Plan, and (ii) such
executory contracts or plans as have previously been terminated, or rejected,
pursuant to a Final Order, or specifically waived by the beneficiaries of such
plans, contracts, or programs. Likewise, except and to the extent previously
assumed or rejected by Final Order on or before the Confirmation Date, certain
salary continuation agreements, supplemental retirement agreements, supplemental
retirement plans and employment agreements of retirees entered into before the
Petition Date and not since terminated, shall be deemed to be, and shall be
treated as though they are, executory contracts that are assumed under the Plan,
and the Debtors' obligations under such agreements and plans shall survive the
Effective Date of the Plan.
17. Stock Option Incentive Plan.
On the Effective Date or as soon thereafter as is practicable, the
Board of Directors of Reorganized NTELOS will implement the Stock Option
Incentive Plan. Under the Stock Option Incentive Plan, incentive options will be
granted as set forth below.
45
In light of the Chapter 11 Case, the Board of Directors of NTELOS
determined not to approve bonuses to officers of NTELOS under the 2002
Management Incentive Plan, despite the board's determination that the
performance objectives contemplated by the plan were sufficiently achieved to
authorize payment of such bonuses to all other employees. As an officer
retention measure, taking into consideration the board's decision not to approve
2002 bonuses for officers and recognizing the substantial efforts that will be
required of the officers following emergence from bankruptcy, options to
purchase the number of shares equal to 7.5% (with a portion of this 7.5% being
awarded to other key employees) of the fully-diluted New Common Stock will be
awarded by the Board of Directors of Reorganized NTELOS to officers on the
Effective Date or as soon thereafter as is practicable with an exercise price
equal to the conversion price for the New Notes. The options under the Stock
Option Incentive Plan to be awarded on the Effective Date or as soon thereafter
as practicable will be vested as to one-third (1/3) of the options subject to
the award on the grant date and as to an additional one-third (1/3) of the
options subject to the award on each of the first and second anniversaries of
the grant date. The vesting of such options will be accelerated upon a change of
control of Reorganized NTELOS.
The plan also contemplates that options to purchase shares equal to up
to 2.5% of the fully-diluted New Common Stock will be awarded thereafter at the
discretion of the Board of Directors of Reorganized NTELOS to management and
employees and, subject to compliance with applicable securities laws, other
employees of Reorganized NTELOS.
18. Distribution on Account of Executive Separation.
By order dated ______, __ 2003, the Bankruptcy Court approved NTELOS
entering into a separation agreement with J. Allen Layman, the President and
Chairman of NTELOS, effective as of June 1, 2003. On the Effective Date of the
Plan and in order to effectuate the terms of the separation agreement, as
negotiated consideration in exchange for Mr. Layman's continued agreement to
honor the non-competition provisions of Mr. Layman's pre-petition employment
agreements, Mr. Layman will receive $564,712.00 worth of New Common Stock (or
..3% of the New Common Stock as of the Effective Date without giving effect to
the conversion of the New Notes into New Common Stock), such shares to be valued
and distributed in accordance with the terms hereof. The balance of the
financial terms and conditions of the departure of Mr. Layman are set forth in
the separation agreement.
E. Provisions Governing Distributions.
1. Date of Distributions.
Unless otherwise provided in the Plan, any distributions and
deliveries to be made under the Plan will be made on the Effective Date or as
soon as practicable thereafter and deemed made on the Effective Date. In the
event that any payment or act under the Plan is required to be made or performed
on a date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
and if so completed will be deemed to have been completed as of the required
date.
2. Disbursing Agents.
Distributions to holders of Senior Notes will be made by the Senior
Indenture Trustee as Disbursing Agent for such holders. Distributions to holders
of Subordinated Notes will be made by the Subordinated Indenture Trustee as
Disbursing Agent for such holders. All
46
other distributions under the Plan will be made by Reorganized NTELOS as
Disbursing Agent or such other entity designated by Reorganized NTELOS as a
Disbursing Agent. A Disbursing Agent will not be required to give any bond or
surety or other security for the performance of its duties unless otherwise
ordered by the Bankruptcy Court, and, in the event that a Disbursing Agent is so
otherwise ordered, all costs and expenses of procuring any such bond or surety
will be borne by Reorganized NTELOS.
3. Surrender of Instruments.
As a condition to receiving any distribution under the Plan, each
holder of Senior Notes, Subordinated Notes or Old Preferred Stock must surrender
such Senior Notes, Subordinated Notes or Old Preferred Stock to the appropriate
Disbursing Agent. Any holder of Senior Notes, Subordinated Notes or Old
Preferred Stock that fails to (a) surrender such instrument or (b) execute and
deliver an affidavit of loss and/or indemnity reasonably satisfactory to
Reorganized NTELOS and, if requested by Reorganized NTELOS, furnish a bond in
form, substance, and amount reasonably satisfactory to Reorganized NTELOS before
the first anniversary of the Effective Date will be deemed to have forfeited all
rights and Claims and may not participate in any distribution under the Plan.
The procedures by which holders of Allowed Claims and Allowed Equity
Interests in Class 5, Class 9 or Class 10 surrender their Voting Securities and
exchange such Voting Securities for New Common Stock or New Warrants, as
applicable, will be determined based upon the manner in which the Voting
Securities were issued and the manner in which they are held, as set forth
below.
a. Voting Securities Held in Book-Entry Form.
Voting Securities held in book-entry form through bank and broker
nominee accounts will be mandatorily exchanged for New Common Stock or New
Warrants, as applicable, through the facilities of such nominees and the systems
of the applicable securities depository or DTC.
b. Voting Securities in Physical, Registered, Certificated Form.
Each holder of Voting Securities in physical, registered,
certificated form will be required, promptly after the Confirmation Date, to
deliver its physical certificates (the "Tendered Certificates") to the
Disbursing Agent, accompanied by a properly executed Letter of Transmittal.
Any New Common Stock or New Warrants to be distributed pursuant
to the Plan on account of any Allowed Claim or Allowed Equity Interest in Class
5, Class 9 or Class 10 represented by a Voting Security held in physical,
registered, certificated form will, pending such surrender, be treated as an
undeliverable distribution pursuant to Section 7.4 of the Plan.
Signatures on a Letter of Transmittal must be guaranteed by an
Eligible Institution, unless the Voting Securities tendered pursuant thereto are
tendered for the account of an Eligible Institution. If Voting Securities are
registered in the name of a person other than the person signing the Letter of
Transmittal, the Voting Securities, in order to be tendered validly, must be
endorsed or accompanied by a properly completed power of authority, with
signature guaranteed by an Eligible Institution.
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All questions as to the validity, form, eligibility (including
time of receipt), and acceptance of Letters of Transmittal and Tendered
Certificates will be resolved by the applicable Disbursing Agent, whose
determination will be final and binding, subject only to review by the
Bankruptcy Court upon application with due notice to any affected parties in
interest. NTELOS reserves the right, on behalf of itself and the Disbursing
Agent, to reject any and all Letters of Transmittal and Tendered Certificates
not in proper form, or Letters of Transmittal and Tendered Certificates, the
Disbursing Agent's acceptance of which would, in the opinion of the Disbursing
Agent or its counsel, be unlawful.
c. Voting Securities in Bearer Form Held Through a Broker or Bank
Participant in DTC.
Voting Securities held in bearer form through a broker or bank
participant in DTC will be mandatorily exchanged for New Common Stock or New
Warrants, as applicable, through the facilities of such nominees and the
securities depository holding such Voting Securities on behalf of the broker or
bank.
d. Delivery of New Common Stock and New Warrants in Exchange for
Voting Securities.
On the Effective Date, Reorganized NTELOS or the Disbursing Agent
will issue and authenticate the New Common Stock and the New Warrants, and will
apply to DTC to make the New Common Stock and the New Warrants eligible for
deposit at DTC. With respect to holders of Voting Securities who hold such
Voting Securities through nominee accounts at bank and broker participants in
DTC, the Disbursing Agent will deliver the New Common Stock or New Warrants, as
applicable, to DTC or to the registered address specified by DTC. DTC (or its
depositary) will return the applicable Voting Securities to the Disbursing Agent
for cancellation.
The Disbursing Agent will request that DTC effect a mandatory
exchange of the applicable Voting Securities for New Common Stock or New
Warrants, as applicable, by crediting the accounts of its participants with New
Common Stock or New Warrants, as applicable, in exchange for the Voting
Securities. On the effective date of such exchange, each DTC participant will
effect a similar exchange for accounts of the beneficial owners holding Voting
Securities through such firms. None of the Reorganized Debtors, nor the
Disbursing Agent will have any responsibility or liability in connection with
DTC's or such participants' effecting, or failing to effect, such exchanges.
Holders of Voting Securities holding such Voting Securities
outside DTC will be required to surrender their Voting Securities by delivering
them to the Disbursing Agent, along with properly executed Letters of
Transmittal (as described in Section 7.3(ii) of the Plan). The Disbursing Agent
will forward New Common Stock or New Warrants, as applicable, on account of such
Voting Securities to such holders.
4. Delivery of Distributions.
Subject to Bankruptcy Rule 9010, all distributions to any holder of an
Allowed Claim or an Allowed Equity Interest will be made at the address of such
holder as set forth on the books and records of NTELOS or its agents, unless
NTELOS has been notified in writing of a change of address. In the event that
any distribution to any holder is returned as undeliverable, the appropriate
Disbursing Agent will use reasonable efforts to determine the current address of
48
such holder, but no distribution to such holder will be made unless and until
the appropriate Disbursing Agent has determined the then current address of such
holder, at which time such distribution will be made to such holder without
interest; provided that such distributions will be deemed unclaimed property
under Section 347(b) of the Bankruptcy Code at the expiration of one (1) year
from the Effective Date. After such date, all unclaimed property or interest in
property will revert to Reorganized NTELOS, and the claim of any other holder to
such property or interest in property will be discharged and forever barred.
5. Manner of Payment Under the Plan.
At the option of the appropriate Disbursing Agent, any Cash payment to
be made thereunder may be made by a check or wire transfer or as otherwise
required or provided in applicable agreements.
6. Time Bar to Cash Payments.
Checks issued by Reorganized NTELOS on account of Allowed Claims will
be null and void if not negotiated within ninety (90) days from and after the
date of issuance thereof. Requests for reissuance of any check will be made
directly to Reorganized NTELOS by the holder of the Allowed Claim with respect
to which the check was originally issued. Any Claim in respect of a voided check
will be made on or before the first anniversary of the date of issuance. After
such date, all Claims and respective voided checks will be discharged and
forever barred and Reorganized NTELOS will retain all moneys related thereto.
7. Fractional Shares.
No fractional shares of the New Common Stock will be distributed. When
any distribution pursuant to the Plan on account of an Allowed Claim or an
Allowed Equity Interest would otherwise result in the issuance of New Common
Stock that is not a whole number of shares, the actual distribution of New
Common Stock will be rounded as follows: (i) fractions of one-half (1/2) or
greater will be rounded to the next higher whole number of shares; and (ii)
fractions of less than one-half (1/2) will be rounded to the next lower whole
number of shares. The total number of shares of New Common Stock to be
distributed to a Class of Claims or Equity Interests will be adjusted as
necessary to account for the rounding provided for in this section. No
consideration will be provided in lieu of fractional shares that are rounded
down.
8. De Minimis or Fractional Distributions.
No Cash payment of less than ten dollars ($10.00) will be made by
Reorganized NTELOS on account of any Allowed Claim, unless a specific request
therefore is made in writing by that Claim's holder, unless required by
applicable non-bankruptcy law. In the event a holder of an Allowed Claim is
entitled to distribution that is not a whole dollar number, the actual payment
or issuance made may reflect a rounding of such fractional portion of such
distribution down or up to the nearest whole dollar, but in any case will not
result in a distribution that exceeds the total distribution authorized by the
Plan for such holder.
9. Setoffs and Recoupment.
Pursuant to Sections 502(d) and 553 of the Bankruptcy Code or
applicable non-bankruptcy law, the Debtors may, but shall not be required to,
set off against, or recoup from, any Claim other than Secured Bank Claims and
DIP Lender Claims and the payments to be made
49
pursuant to the Plan in respect of such Claim (before any distribution is made
on account of such Claim), any claims, rights and causes of action of any nature
that the Debtors or Reorganized Debtors may have against the holder of such
Claim; provided, however, that neither the failure to effect a set off or
recoupment nor the allowance of any Claim thereunder will constitute a waiver or
release by the Debtor or Reorganized Debtor of any such claim, right or cause of
action that the Debtors or Reorganized Debtors may have against such holder of a
Claim.
10. Distributions After the Effective Date.
Distributions made after the Effective Date to holders of Disputed
Claims or Disputed Equity Interests that are not Allowed Claims or Allowed
Equity Interests as of the Effective Date but which later become Allowed Claims
or Allowed Equity Interests will be deemed to have been made on the Effective
Date.
11. Rights and Powers of Disbursing Agents.
a. Powers of the Disbursing Agents.
Each Disbursing Agent will be empowered to (i) effect all actions
and execute all agreements, instruments and other documents necessary to perform
its duties under the Plan, (ii) make all distributions contemplated hereby,
(iii) employ professionals to represent it with respect to its responsibilities
and (iv) exercise such other powers as may be vested in the Disbursing Agents by
order of the Bankruptcy Court, pursuant to the Plan, or as deemed by the
Disbursing Agents to be necessary and proper to implement the provisions of the
Plan.
b. Expenses Incurred On or After the Effective Date.
Except as otherwise ordered by the Bankruptcy Court, the amount
of any reasonable fees and expenses incurred by a Disbursing Agent on or after
the Effective Date (including, without limitation, taxes) and any reasonable
compensation and expense reimbursement claims (including, without limitation,
reasonable attorney fees and expenses) made by the Disbursing Agents will be
paid in Cash by Reorganized NTELOS.
12. Retention of Ballots.
Each custodian bank, agent, broker, or other nominee for voting on
behalf of beneficial owners of Voting Securities or registered holders who are
beneficial owners of Voting Securities will retain all Ballots for possible
inspection for a period of at least two (2) years following the Effective Date.
F. Procedures for Treating Disputed, Contingent and Unliquidated Claims and
Disputed Equity Interests under the Plan
1. Disputed Claims Process.
Except as to applications for allowances of compensation and
reimbursement of expenses under Sections 328, 330 and 503 of the Bankruptcy
Code, the Debtors or Reorganized Debtors will have the exclusive right to make
and file objections to Administrative Expense Claims, Claims or Equity Interests
subsequent to the Confirmation Date. After the Confirmation Date, the
Reorganized Debtors will have the authority to compromise, settle, otherwise
resolve or withdraw any objections, without approval of the Bankruptcy Court.
50
2. Estimation of Claims.
The Debtors or Reorganized Debtors may, at any time, request that the
Bankruptcy Court estimate any contingent or unliquidated Claim pursuant to
Section 502(c) of the Bankruptcy Code regardless of whether the Debtors or
Reorganized Debtors previously have objected to such Claim or whether the
Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will
retain jurisdiction to estimate any Claim at any time during the litigation
concerning any objection to any Claims, including without limitation, during the
pendency of any appeal relating to any such objection. Subject to the provisions
of Section 502(j) of the Bankruptcy Code, in the event that the Bankruptcy Court
estimated any contingent or unliquidated Claim, the amount so estimated will
constitute the Allowed amount of such Claim. If the estimated amount constitutes
a maximum limitation on the amount of such Claim, the Debtor may pursue
supplementary proceedings to object to the allowance of such Claim. All of the
aforementioned objection, estimation and resolution procedures are intended to
be cumulative and not necessarily exclusive of one another. Claims may be
estimated and subsequently compromised, settled, withdrawn or resolved by any
mechanism approved by the Bankruptcy Court.
3. No Distributions Pending Allowance.
Notwithstanding any other provision of the Plan, except as otherwise
agreed by the Debtors or the Reorganized Debtors in their sole discretion, no
partial payments and no partial distributions will be made with respect to a
disputed Claim until the resolution of such dispute by settlement or Final
Order.
4. Distributions After Allowance.
To the extent that a Disputed Claim or Disputed Equity Interest
ultimately becomes an Allowed Claim or Allowed Equity Interest, a distribution
will be made to the holder of such Allowed Claim or Allowed Equity Interest in
accordance with the provisions of the Plan. As soon as practicable after the
date that the order or judgment of the Bankruptcy Court allowing any Disputed
Claim or Disputed Equity Interest becomes a Final Order, the applicable
Disbursing Agent will provide to the holder of such Claim or Equity Interest the
distribution to which such holder is entitled under the Plan as if the Disputed
Claim or Disputed Equity Interest had been an Allowed Claim or Allowed Equity
Interest on or prior to the Effective Date, without any post-Effective Date
interest thereon.
G. Executory Contracts and Unexpired Leases.
1. Assumption and Rejection of Executory Contracts and Unexpired Leases.
The Plan constitutes a motion by the Debtors to assume, as of the
Effective Date, all executory contracts and unexpired leases to which the
Debtors are a party, except for an executory contract or unexpired lease that,
prior to the Effective Date, (a) has been assumed or rejected pursuant to Final
Order of the Bankruptcy Court, (b) is included on the Contract Rejection
Schedule or (c) is the subject of a separate then pending motion filed under
Section 365 of the Bankruptcy Code by the Debtors. For purposes of the Plan,
each executory contract and unexpired lease listed on the Contract Rejection
Schedule that relates to the use or occupancy of real property will include (i)
modifications, amendments, supplements, restatements, or other agreements made
directly or indirectly by any agreement, instrument, or other document that in
any manner affects such executory contract or unexpired lease, without
51
regard to whether such agreement, instrument or other document is listed on the
Contract Rejection Schedule and (ii) executory contracts or unexpired leases
appurtenant to the premises listed on the Contract Rejection Schedule including
all easements, licenses, permits, rights, privileges, immunities, options,
rights of first refusal, powers, uses, usufructs, reciprocal easement
agreements, vault, tunnel or bridge agreements or franchises, and any other
interests in real estate or rights in rem relating to such premises to the
extent any of the foregoing are executory contracts or unexpired leases, unless
any of the foregoing agreements is assumed. The Confirmation Order will
constitute approval of such rejections pursuant to Sections 365(a) and 1123 of
the Bankruptcy Code. The Debtors may, in the future, identify additional
executory contracts and unexpired leases that they may wish to reject and
reserve the right to seek such rejection prior to the Effective Date.
Any executory contracts or unexpired leases which (i) have not expired
by their own terms on or prior to the Effective Date, (ii) have not been
assumed, assumed and assigned or rejected prior to the Effective Date, (iii)
have not been rejected pursuant to the terms of the Plan, or (iv) are not the
subject of a motion to reject pending as of the Effective Date, will be deemed
assumed by the Debtors on the Effective Date, and the entry of the Confirmation
Order will constitute approval of such assumptions pursuant to Sections 365(a)
and 1123 of the Bankruptcy Code.
2. Cure of Defaults in Connection with Assumption.
Any monetary amounts by which each executory contract and unexpired
lease to be assumed pursuant to the Plan is in default will be satisfied,
pursuant to Section 365(b)(1) of the Bankruptcy Code, at the option of Debtors
or Reorganized Debtors, as the case may be: (a) by payment of the cure amount in
Cash on the Effective Date or as soon as practicable thereafter; or (b) on such
other terms as are agreed to by the parties to such executory contract or
unexpired lease.
IF A COUNTERPARTY TO ANY EXECUTORY CONTRACT OR UNEXPIRED LEASE BELIEVES THAT
CURE PAYMENTS ARE DUE PURSUANT TO SECTION 365(b)(1) OF THE BANKRUPTCY CODE, OR
THAT THERE IS A DISPUTE REGARDING THE ABILITY OF THE REORGANIZED DEBTORS OR
REORGANIZED NTELOS, AS THE CASE MAY BE, TO PROVIDE "ADEQUATE ASSURANCE OF FUTURE
PERFORMANCE" WITHIN THE MEANING OF SECTION 365 OF THE BANKRUPTCY CODE UNDER THE
CONTRACT OR LEASE TO BE ASSUMED, OR ANY OTHER MATTER PERTAINING TO ASSUMPTION,
SUCH COUNTERPARTY MUST FILE AN OBJECTION TO THE ASSUMPTION OF ITS EXECUTORY
CONTRACT OR UNEXPIRED LEASE BY THE DEBTORS NOT LATER THAN TEN (10) DAYS PRIOR TO
THE CONFIRMATION DATE.
Such objection shall be subject to the jurisdiction of the Bankruptcy
Court and shall be resolved by a Final Order. The effective date of the
assumption of an executory contract or unexpired lease subject to such an
objection shall be determined by a Final Order, and the cure payments required
by Section 365(b)(1) of the Bankruptcy Code will be made following the entry of
a Final Order resolving the dispute and approving the assumption.
3. Amendments to Schedule; Effect of Amendments.
Pursuant to the Plan, the Debtors will assume each of the executory
contracts and unexpired leases except as provided for in Section 9.1 of the
Plan; provided, that the Debtors
52
may at any time on or before the first Business Day before the date of the
commencement of the Confirmation Hearing amend the Contract Rejection Schedule
to delete or add any executory contract or unexpired lease thereto, in which
event such executory contract or unexpired lease will be deemed to be,
respectively, assumed and, if applicable, assigned as provided therein, or
rejected. The Debtors will provide notice of any amendments to the Contract
Rejection Schedule to the parties to the executory contracts or unexpired leases
affected thereby and to the Creditors' Committee. The fact that any contract or
lease is scheduled on the Contract Rejection Schedule will not constitute or be
construed to constitute an admission by the Debtors that the Debtors have any
liability thereunder.
4. Rejection Damage Claims and Bar.
IN THE EVENT THAT THE REJECTION OF AN EXECUTORY CONTRACT OR UNEXPIRED LEASE BY
THE DEBTORS RESULTS IN DAMAGES TO THE OTHER PARTY OR PARTIES TO SUCH CONTRACT OR
LEASE, A CLAIM FOR SUCH DAMAGES, IF NOT HERETOFORE EVIDENCED BY A FILED PROOF OF
CLAIM, SHALL BE FOREVER BARRED AND SHALL NOT BE ENFORCEABLE AGAINST THE DEBTORS
OR THEIR PROPERTIES OR INTERESTS IN PROPERTY AS AGENTS, SUCCESSORS, OR ASSIGNS,
UNLESS A PROOF OF CLAIM IS FILED WITH THE BANKRUPTCY COURT AND SERVED UPON
COUNSEL FOR THE DEBTORS ON OR BEFORE THIRTY (30) DAYS AFTER THE ENTRY OF AN
ORDER BY THE BANKRUPTCY COURT, WHICH MAY BE THE CONFIRMATION ORDER, AUTHORIZING
REJECTION OF A PARTICULAR EXECUTORY CONTRACT OR LEASE.
5. Indemnification Obligations.
The obligations of the Debtors pursuant to, or under, their respective
governing documents, contracts, Virginia or Delaware state law or otherwise to
indemnify their directors and officers or members or partners who were or are
directors, officers, members or partners, respectively, shall be deemed to be,
and shall be treated as though they are, executory contracts that are assumed
under the Plan.
H. Conditions Precedent to the Confirmation Date and the Effective Date.
1. Conditions Precedent to the Confirmation Date of the Plan.
The occurrence of the Confirmation Date of the Plan is subject to the
satisfaction of the following conditions precedent:
a. The Clerk of the Bankruptcy Court will have entered an order
granting approval of the Disclosure Statement and finding that it
contains adequate information pursuant to Section 1125 of the
Bankruptcy Code and that order will have become a Final Order;
and
b. The Confirmation Order and Substantive Consolidation Order, in
form and substance satisfactory to the Debtors, will have been
entered by the Clerk of the Bankruptcy Court.
2. Conditions Precedent to the Effective Date of the Plan.
53
The occurrence of the Effective Date of the Plan is subject to
satisfaction of the following conditions precedent:
a. The Confirmation Order and Substantive Consolidation Order shall
be Final Order(s);
b. All other actions and all agreements, instruments or other
documents (in form and substance reasonably satisfactory to the
Creditors' Committee and the Pre-Petition Secured Lenders except
as set forth below) necessary to implement the terms and
provisions hereof shall have been effected;
c. The commitments under the DIP Credit Agreement shall have
terminated, all amounts owing under or in respect of the DIP
Credit Agreement shall have been paid in full in Cash and any
outstanding letters of credit issued under or in connection with
the DIP Credit Agreement shall have been terminated or satisfied;
d. The New Credit Agreement shall have become effective according to
its terms;
e. The Purchase Agreement shall be in full force and effect and all
conditions therein to the obligation of the Participating
Noteholders to purchase New Notes shall have been satisfied or
waived, including the execution and delivery of such agreements,
documents and instruments contemplated therein;
f. The statutory fees owing to the United States Trustee shall have
been paid in full;
g. Any alteration or interpretation of any term or provision of the
Plan by the Bankruptcy Court pursuant to Section 13.2 of the Plan
shall be reasonably acceptable to the Debtors, the Agent and the
Creditors' Committee;
h. The Debtors shall have received all authorizations, consents,
regulatory approvals that are determined to be necessary to
implement the Plan; and
i. The aggregate amount of Allowed General Unsecured Claims in Class
7 shall not exceed, as of the close of business on the Business
Day immediately preceding the Effective Date, $13,500,000.
3. Waiver of Conditions Precedent.
Each of the conditions precedent to the Effective Date of the Plan set
forth above other than those set forth in Sections VI.H.2.d, e, f, and i. may be
waived, in whole or in part, by the Debtors, with the prior written consent of
the Agent and the Creditors' Committee. The condition precedent set forth in
Section VI.H.2.i may be waived by the Debtors, with the prior written consent of
a majority in number of the members of the Creditors' Committee. Any such
waivers of a condition precedent in Section VI.H.2 may be effected at any time,
without notice, without leave or order of the Bankruptcy Court and without any
formal action (other than by NTELOS, the Agent and the Creditors' Committee).
54
4. Effect of Failure of Conditions.
Unless the Bankruptcy Court orders otherwise for cause, in the event
that one or more of the conditions specified in Section 10.2 of the Plan, other
than the condition specified in Section 10.2(ix), have not occurred on or before
ninety (90) days after the Confirmation Date or have not been waived pursuant to
Section 10.3 thereof, (a) the Confirmation Order will be vacated, (b) no
distributions under the Plan will be made, (c) the Debtors and all holders of
Claims and Equity Interests will be restored to the status quo ante as of the
day immediately preceding the Confirmation Date as though the Confirmation Date
never occurred and (d) the Debtors' obligations with respect to Claims and
Equity Interests will remain unchanged and nothing contained herein will
constitute or be deemed a waiver or release of any Claims or Equity Interests by
or against the Debtors or any other person or to prejudice in any manner the
rights of the Debtors or any person in any further proceeding involving the
Debtors.
I. Effect of Confirmation.
1. Vesting of Assets and Releases of Liens.
On the Effective Date and upon consummation of the Plan, the property
of the Debtors' estates, together with any property of the Debtors that is not
property of their estates and that is not specifically disposed of upon
consummation of the Plan, will revest in the Debtors or Reorganized Debtors.
Thereafter, the Reorganized Debtors may operate their businesses and may use,
acquire, and dispose of property free of any restrictions of the Bankruptcy
Code, the Bankruptcy Rules, and the Bankruptcy Court. As of the Effective Date,
all property of the Reorganized Debtors will be free and clear of all Claims and
Equity Interests, except as specifically provided in the Plan or the
Confirmation Order. Without limiting the generality of the foregoing, the
Reorganized Debtors may, without application to or approval by the Bankruptcy
Court, pay fees that the Debtors incur after the Effective Date for reasonable
professional fees and expenses.
2. Binding Effect.
Except as otherwise provided in Section 1141(d)(3) of the Bankruptcy
Code and subject to the occurrence of the Effective Date, on and after the
Confirmation Date, the provisions of the Plan will bind any holder of a Claim
against, or Equity Interest in, the Debtors and such holder's respective
successors and assigns, whether or not the Claim or Equity Interest of such
holder is impaired under the Plan and whether or not such holder has accepted
the Plan. The Plan shall be binding upon and inure to the benefit of the
Debtors, the holders of Claims and Equity Interests and their respective
successors and assigns, including without limitation, the Reorganized Debtors.
3. Discharge of Debtors.
Except to the extent otherwise provided in the Plan, the treatment of
all Claims against or Equity Interests in the Debtors hereunder will be in
exchange for and in complete satisfaction, discharge and release of all (a)
Claims against or Equity Interests in the Debtors of any nature whatsoever,
known or unknown, including, without limitation, any interest accrued or
expenses incurred thereon from and after the Petition Date, and (b) all Claims
against and interests in the Debtors' estates or properties or interests in
property. Except as otherwise provided in the Plan, upon the Effective Date, all
Claims against and Equity Interests in the Debtors will be satisfied, discharged
and released in full exchange for the consideration provided
55
hereunder. Except as otherwise provided in the Plan, all entities will be
precluded from asserting against the Debtors or the Reorganized Debtors or their
respective properties or interests in property any other Claims based upon any
act or omission, transaction or other activity of any kind or nature that
occurred prior to the Effective Date.
4. Term of Injunctions or Stays.
Unless otherwise provided, all injunctions or stays arising under or
entered during the Chapter 11 Case under Section 105 or 362 of the Bankruptcy
Code, or otherwise, and in existence on the Confirmation Date, will remain in
full force and effect until the Effective Date.
5. Preservation of Insurance.
The Debtors' discharge and release from all Claims as provided in the
Plan, except as necessary to be consistent with the Plan, shall not diminish or
impair the enforceability of any insurance policy that may cover Claims against
the Debtors, the Reorganized Debtors (including, without limitation, such
entities officers and directors) or any other person or entity.
6. Indemnification Obligations.
Subject to the occurrence of the Effective Date, the obligations of
the Debtors, only to the extent permitted under the laws of the Commonwealth of
Virginia or the State of Delaware, as applicable, to indemnify, defend or
reimburse directors or officers or members or partners who were or are
directors, officers, members or partners of the Debtors, respectively, against
any claims or causes of action as provided in the Debtors' respective governing
documents, Virginia or Delaware state law or contract shall survive confirmation
of the Plan, remain unaffected thereby and not be discharged.
7. Exculpation.
The Debtors, the DIP Lenders, the Pre-Petition Secured Lenders, the
DIP Agent, the Agent, the Secured Hedge Parties, the Participating Noteholders,
the Creditors' Committee and the members thereof, holders of Old Preferred
Stock, the Disbursing Agents, the holders of Subordinated Claims and each of
their respective members, partners, officers, directors, employees and
representatives (including any attorneys, financial advisors, investment bankers
and other professionals retained by such persons) shall have no liability to any
person for any act or omission in connection with, or arising out of, the
Disclosure Statement, the Plan, the solicitation of votes for and the pursuit of
confirmation of the Plan, the formulation, preparation, implementation or
consummation of the Plan or the transactions contemplated thereby, including the
prepetition and postpetition negotiations with respect thereto, the
administration of the Plan or the property to be distributed under the Plan or
the Chapter 11 Case or any contract, instrument, release or other agreement or
document created or entered into in connection with the Plan, or any other act
taken or omitted to be taken in connection with the Chapter 11 Case, except for
willful misconduct or gross negligence as determined by a Final Order and, in
all respects, shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan and the Chapter 11 Case.
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8. Certain Mutual Releases.
Except as otherwise specifically provided herein, on and after the
Effective Date, each of the Debtors, Reorganized Debtors, past and present
directors and officers of NTELOS, current management of the Debtors, Debtors'
affiliates, the DIP Lenders, the Pre-Petition Secured Lenders, the DIP Agent,
the Agent, the Secured Hedge Parties, Participating Noteholders, the Creditors'
Committee and the members thereof, and each of the holders of Senior Debt
Claims, Subordinated Claims and Old Preferred Stock Interests (and all
subsidiaries and affiliates and officers, directors, partners, members,
attorneys, financial advisors, investment bankers, and other professionals, and
agents of each of the foregoing), for good and valuable consideration,
including, but not limited to, the commitment, obligation and service of each of
the aforementioned to facilitate the expeditious reorganization of the Debtors
and the implementation of the restructuring contemplated by the Plan, shall
automatically be deemed to have released one another unconditionally and forever
from any and all Claims, obligations, rights, suits, damages, causes of action,
remedies and liabilities, whatsoever, whether liquidated or unliquidated, fixed
or contingent, matured or unmatured, known or unknown, foreseen or unforeseen,
existing or hereafter arising, in law, equity or otherwise, that any of the
foregoing persons or entities would have been legally entitled to assert (in
their own right, whether individually or collectively, or on behalf of the
holder of any Claim or Equity Interest or other person or entity), based in
whole or in part upon any act or omission, transaction, agreement, event or
other occurrence taking place on or before the Effective Date, relating in any
way to the Debtors, the Reorganized Debtors, the Chapter 11 Case, the Plan, the
Disclosure Statement, or any related agreements, instruments, or other
documents, except for (i) Claims arising under the Plan, the New Credit
Facility, Modified Hedge Agreements or any related agreements, instruments,
releases, indentures, and other agreements and documents delivered thereunder;
(ii) rights of the Debtors, Reorganized Debtors and the Participating
Noteholders to enforce the Subscription Agreement or Purchase Agreement or any
related agreements, instruments, releases, indentures, and other agreements and
documents delivered thereunder; and (iii) any intentional acts of the past and
present directors and officers of NTELOS, current management of the Debtors,
professionals of the Debtors and their affiliates, Participating Noteholders and
the Creditors' Committee or members thereof which constitute fraud and, when the
party bringing the cause of action (or its respective employees, agents, or
advisors) did not have actual knowledge of such intentional acts (or the
substance of such acts) as of the Effective Date; provided, however, with
respect to any intentional acts which constitute fraud, the knowledge of former
and existing officers and directors of NTELOS shall not be imputed to NTELOS or
Reorganized NTELOS (before or after the Effective Date). Notwithstanding the
foregoing, the past and present directors and officers of NTELOS, and current
management of the Debtors shall not be released or discharged from contractual
obligations to the Debtors or Reorganized Debtors with respect to employment and
other agreements assumed pursuant to the Plan or otherwise.
9. Limited Releases by Holders of Claims and Equity Interests.
On and after the Effective Date, each holder of a Claim or Equity
Interest who is voting on the Plan shall make an election on their Ballot to
either agree or not agree to the release described in the paragraph below (the
"Release"). Any holder of Claims or Equity Interests in each of Class 2 (Secured
Bank Claims), Class 5 (Senior Debt Claims), Class 7 (General Unsecured Claims),
Class 9 (Subordinated Claims) and Class 10 (Old Preferred Stock Interests) that
does not make an election will be deemed to agree to the Release. Holders of
Equity Interests in each of Class 12 (Old Common Stock Interests) and
57
Class 13 (Other Equity Interests and Securities Claims), who are deemed to have
rejected the Plan, shall not be deemed to have agreed to the Release. Holders of
Claims, Equity Interests, or interests in each of Class 1 (Priority Non-Tax
Claims), Class 3 (FCC Secured Claims), Class 4 (RUS/RTB Secured Claims), Class 6
(Convenience Claims), Class 8 (Intercompany Claims) and Class 11 (Subsidiary
Interests) (who are deemed to have accepted the Plan pursuant to Section 1126 of
the Bankruptcy Code) also shall not be deemed to have agreed to the Release.
This Release unconditionally releases the Debtors, Reorganized
Debtors, past and present directors and officers of NTELOS, current management
of the Debtors, Debtors' affiliates, DIP Lenders, Pre-Petition Secured Lenders,
DIP Agent, Agent, Secured Hedge Parties, Participating Noteholders, the
Creditors' Committee and the members thereof, and each of the holders of Senior
Debt Claims, Subordinated Claims and Old Preferred Stock Interests (and all
subsidiaries and affiliates and officers, directors, partners, members,
attorneys, financial advisors, investment bankers and other professionals, and
agents of each of the foregoing) from any and all Claims, obligations, rights,
suits, damages, causes of action, remedies and liabilities whatsoever, whether
known or unknown, foreseen or unforeseen, existing or hereafter arising, in law,
equity or otherwise, that such person or entity would have been legally entitled
to assert (whether individually or collectively), based in whole or in part upon
any act or omission, transaction, agreement, event or other occurrence taking
place on or before the Effective Date in any way relating or pertaining to the
Debtors or the Reorganized Debtors, the Chapter 11 Case, or the negotiation,
formulation and preparation of the Plan or any related agreements, instruments
or other documents.
10. Preservation of Rights of Action.
The Reorganized Debtors will retain all rights on behalf of the
Debtors to commence and pursue any and all cause of actions (under any theory of
law, including, without limitation, the Bankruptcy Code, and in any court or
other tribunal including, without limitation, in an adversary proceeding filed
in the Chapter 11 Case) to the extent the Reorganized Debtors deem appropriate.
Potential causes of action currently being investigated by the Debtors which may
but need not be pursued prior to the Effective Date to the extent warranted
include, without limitation, the following:
a. Any causes of action, whether legal, equitable or statutory in
nature, arising out of, or in connection with, the Debtors'
businesses or operations, including, without limitation, the
following: possible claims against vendors, landlords,
sublessees, assignees, customers or suppliers for warranty,
indemnity, back charge/setoff issues, overpayment or duplicate
payment issues and collections/accounts receivables matters;
deposits or other amounts owed by any creditor, lessor, utility,
supplier, vendor, landlord, sublessee, assignee, or other entity,
employee, management or operational matters; financial reporting;
environmental, and product liability matters; actions against
insurance carriers relating to coverage, indemnity or other
matters; counterclaims and defenses relating to notes or other
obligations or tort claims which may exist or may subsequently
arise; and
58
b. Any and all avoidance actions pursuant to any applicable section
of the Bankruptcy Code, including, without limitation, Sections
544, 545, 547, 548, 549, 550, 551, 553(b) and 724(a) of the
Bankruptcy Code, arising from any transfer or transaction
involving or concerning any of the Debtors.
Unless causes of action against a person or entity are expressly
waived, relinquished, released, compromised or settled in the Plan or by any
Final Order, the Debtors expressly reserve all causes of action for later
adjudication, and therefore, no preclusion doctrine, including, without
limitation, the doctrines of res judicata, collateral estoppel, issue
preclusion, claim preclusion, estoppel (judicial, equitable or otherwise) or
laches will apply to causes of action upon or after the confirmation or
consummation of the Plan. In addition, the Debtors or Reorganized Debtors
expressly reserve the right to pursue or adopt any Claims alleged in any lawsuit
in which any of the Debtors is a defendant or an interested party, against any
person or entity, including, without limitation, the plaintiffs and
co-defendants in such lawsuits.
Except as otherwise provided in the Plan or in any contract,
instrument, release, indenture or other agreement entered into in connection
with the Plan, in accordance with Section 1123(b)(3) of the Bankruptcy Code, any
Claims, rights and causes of action that the respective Debtors or estates may
hold against any person or entity will vest in the Reorganized Debtors, and the
Reorganized Debtors will retain and may exclusively enforce, as the authorized
representatives of the respective estates, any and all such Claims, rights, or
causes of action. Subject to the releases set forth above, the Reorganized
Debtors may pursue any and all Claims, rights, or causes of action, as
appropriate, in accordance with the best interests of the Reorganized Debtors,
and will have the exclusive right, authority, and discretion to institute,
prosecute, abandon, settle, or compromise any and all such Claims, rights and
causes of action without the consent or approval of any third party and without
any further order of the Bankruptcy Court.
11. Injunction
Except as otherwise provided in the Plan, from and after the
Confirmation Date all persons who have held, hold or may hold Claims against or
interests in the Debtors are permanently enjoined from taking any of the
following actions against any of the Debtors, the Reorganized Debtors, the DIP
Lenders, the Pre-Petition Secured Lenders, the DIP Agent, the Agent, the Secured
Hedge Parties, the Participating Noteholders, the Creditors' Committee or the
members thereof or any of their respective property on account of any Claims or
interests: (a) commencing or continuing, in any manner or in any place, any
action or other proceeding; (b) enforcing or attaching, collecting or
recovering, in any manner, any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors; and (e) commencing or continuing, in any manner
or in any place, any action that does not comply with or is inconsistent with
the provisions of the Plan; provided, however, that nothing contained herein
shall preclude such persons from exercising their rights pursuant to and
consistent with the terms of the Plan.
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12. Committees.
From the Confirmation Date up to and including the Effective Date, the
members of the Creditors' Committee appointed pursuant to Section 1102 of the
Bankruptcy Code and their duly appointed successors will continue to serve. On
the Effective Date, the Creditors' Committee and any other committee appointed
in the Chapter 11 Case pursuant to Section 1102 of the Bankruptcy Code will be
dissolved and the members thereof and the professionals retained by the
Creditors' Committee in accordance with Section 1103 of the Bankruptcy Code
(including, without limitation, attorneys, investment advisors, accountants and
other professionals) will be released and discharged from their respective
fiduciary obligations, duties and responsibilities.
J. Retention of Jurisdiction
The Bankruptcy Court will have exclusive jurisdiction of all matters
arising out of, or related to, the Chapter 11 Case and the Plan pursuant to, and
for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code and for,
among other things, the following purposes:
a. To hear and determine pending applications for the assumption or
rejection of executory contracts or unexpired leases and the
allowance of Claims resulting therefrom.
b. To determine any and all adversary proceedings, applications and
contested matters.
c. To ensure that distributions to holders of Allowed Claims and
Allowed Equity Interests are accomplished as provided in the
Plan.
d. To hear and determine any timely objections to Administrative
Expense Claims or to Claims and Equity Interests, including,
without limitation, any objections to the classification of any
Claim or Equity Interest, and to allow or disallow any Disputed
Claim or Disputed Equity Interest, in whole or in part.
e. To enter and implement such orders as may be appropriate in the
event the Confirmation Order is for any reason stayed, revoked,
modified or vacated.
f. To issue such orders in aid of execution of the Plan, to the
extent authorized by Section 1142 of the Bankruptcy Code.
g. To consider any amendments to or modifications of the Plan, or to
cure any defect or omission, or reconcile any inconsistency, in
any order of the Bankruptcy Court, including, without limitation,
the Confirmation Order.
h. To hear and determine all applications under Sections 330, 331
and 503(b) of the Bankruptcy Code for awards of compensation for
services rendered and reimbursement of expenses incurred prior to
the Confirmation Date.
i. To hear and determine disputes arising in connection with the
interpretation, implementation or enforcement of the Plan, the
Confirmation Order, the Substantive Consolidation Order, any
transactions or payments contemplated hereby or any agreement,
60
instrument or other document governing or relating to any of the
foregoing.
j. To hear and determine matters concerning state, local and federal
taxes in accordance with Sections 346, 505 and 1146 of the
Bankruptcy Code.
k. To hear any other matter not inconsistent with the Bankruptcy
Code.
l. To hear and determine all disputes involving the existence, scope
and nature of the discharges granted under Section 11.3 of the
Plan.
m. To issue injunctions and effect any other actions that may be
necessary or desirable to restrain interference by any entity
with the consummation or implementation of the Plan.
n. To recover all assets of the Debtors and property of the Debtors'
estates, wherever located.
o. To enter a final decree closing the Chapter 11 Case.
K. Summary of Other Provisions of the Plan.
The following paragraphs summarize certain other significant provisions of
the Plan. The Plan should be referred to for the complete text of these and
other provisions of the Plan.
1. Payment of Statutory Fees.
All fees payable under Section 1930, Chapter 123, title 28, United
States Code, as determined by the Bankruptcy Court at the Confirmation Hearing,
will be paid on the Effective Date. Any such fees accrued after the Effective
Date will be paid in the ordinary course of the Reorganized Debtors' business as
required by statute.
2. Modification of Plan.
Subject to the limitations contained in the Plan, (i) the Debtors
reserve the right, in accordance with the Bankruptcy Code and Bankruptcy Rules,
to amend and modify the Plan prior to entry of the Confirmation Order with the
consent of the Creditors' Committee or its attorneys and (ii) after entry of the
Confirmation Order, the Reorganized Debtors may, upon order of the Bankruptcy
Court, amend or modify the Plan, in accordance with Section 1127(b) of the
Bankruptcy Code, or remedy any defect of omission or reconcile any inconsistency
in the Plan in such manner as may be necessary to carry out the purpose and
intent of the Plan; provided, however, that NTELOS may make a material amendment
or modification to the Plan only with the approval of the DIP Agent, the Agent
and holders of a majority in Claim amount or Equity Interest in each Class
entitled to vote to accept or reject the Plan.
3. Revocation of Plan.
The Debtors reserve the right, at any time prior to entry of the
Confirmation Order, to revoke and withdraw the Plan.
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4. Section 1146 Exemption.
Pursuant to Section 1146(c) of the Bankruptcy Code, the issuance,
transfer or exchange of notes or issuance of debt or equity securities under the
Plan, the creation of any mortgage, deed of trust or other security interest,
the making or assignment of any lease or sublease, or the making or delivery of
any deed or other instrument of transfer under, in furtherance of, or in
connection with the Plan, including, without limitation, any merger agreements
or agreements of consolidation, deeds, bills of sale or assignments executed in
connection with any of the transactions contemplated under the Plan, shall not
be subject to any stamp, real estate transfer, mortgage recording, sales or
other similar tax. Unless expressly provided otherwise, all sale transactions
consummated by the Debtors or NTELOS and approved by the Bankruptcy Court on and
after the Petition Date through and including the Effective Date, including,
without limitation, the sales, if any, by the Debtors of owned property or
assets pursuant to Section 363(b) of the Bankruptcy Code and the assumptions,
assignments and sales, if any, by the Debtors of unexpired leases of
non-residential real property pursuant to Section 365(a) of the Bankruptcy Code,
shall be deemed to have been made under, in furtherance of, or in connection
with the Plan and, therefore, shall not be subject to any stamp, real estate
transfer, mortgage recording, sales or other similar tax law.
5. Administrative Expenses Incurred After the Confirmation Date.
Administrative expenses incurred by the Debtors or the Reorganized
Debtors after the Confirmation Date, including (without limitation) Claims for
professionals' fees and expenses, will not be subject to application and may be
paid by the Debtors or the Reorganized Debtors, as the case may be, in the
ordinary course of business and without further Bankruptcy Court approval.
6. Section 1125(e) of the Bankruptcy Code.
As of the Confirmation Date, the Debtors will be deemed to have
solicited acceptances of the Plan in good faith and in compliance with the
applicable provisions of the Bankruptcy Code. The Debtors, the DIP Lenders, the
Pre-Petition Secured Lenders, the DIP Agent, the Agent, the Secured Hedge
Parties and each of the Participating Noteholders and the Creditors' Committee
(and each of their respective members, affiliates, agents, directors, officers,
employees, investment bankers, financial advisors, attorneys and other
professionals) have, and will be deemed to have, participated in good faith and
in compliance with the applicable provisions of the Bankruptcy Code in the offer
and issuance of the securities under the Plan, and therefore are not, and on
account of such offer, issuance and solicitation will not be, liable at any time
for the violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer and issuance
of securities under the Plan.
7. Compliance with Tax Requirements.
In connection with the consummation of the Plan, the Debtors will
comply with all withholding and reporting requirements imposed by any taxing
authority, and all distributions thereunder will be subject to such withholding
and reporting requirements.
8. Severability of Plan Provisions.
In the event that, prior to the Confirmation Date, any term or
provision of the Plan is held by the Bankruptcy Court to be invalid, void or
unenforceable, the Bankruptcy Court will have the power to alter and interpret
such term or provision to make it valid or enforceable to the
62
maximum extent practicable, consistent with the original purpose of the term or
provision held to be invalid, void or unenforceable, and such term or provision
will then be applicable as altered or interpreted. Notwithstanding any such
holding, alteration or interpretation, the remainder of the terms and provisions
of the Plan will remain in full force and effect and will in no way be affected,
impaired or invalidated by such holding, alteration or interpretation. The
Confirmation Order will constitute a judicial determination and will provide
that each term and provision of the Plan, as it may have been altered or
interpreted in accordance with the foregoing, is valid and enforceable in
accordance with its terms.
VII.
CONFIRMATION AND CONSUMMATION PROCEDURE
Under the Bankruptcy Code, the following steps must be taken to confirm the
Plan:
A. Solicitation of Votes.
In accordance with Sections 1126 and 1129 of the Bankruptcy Code, each of
Class 2 (Secured Bank Claims), Class 5 (Senior Debt Claims), Class 7 (General
Unsecured Claims), Class 9 (Subordinated Claims) and Class 10 (Old Preferred
Stock Interests) is impaired under the Plan and the holders of Claims and Equity
Interests in each of such Classes are entitled to vote to accept or reject the
Plan.
Each of Class 1 (Priority Non-Tax Claims), Class 3 (FCC Secured Claims),
Class 4 (RUS/RTB Secured Claims), Class 6 (Convenience Claims), Class 8
(Intercompany Claims) and Class 11 (Subsidiary Interests) is unimpaired under
the Plan and the holders of Claims in each of such Classes are conclusively
presumed to have accepted the Plan and are not entitled to vote to accept or
reject the Plan.
Class 12 (Old Common Stock Interests) and Class 13 (Other Equity Interests
and Securities Claims) are impaired under the Plan and holders of Equity
Interests in Class 12 and Class 13 will receive no distribution in respect
thereof. Class 12 and Class 13 are conclusively presumed to have rejected the
Plan and are not entitled to vote to accept or reject the Plan.
As to classes of claims entitled to vote on a plan, the Bankruptcy Code
defines acceptance of a plan by a class of creditors as acceptance by holders of
at least two-thirds in dollar amount and more than one-half in number of the
allowed claims of that class that have timely voted to accept or reject a plan.
As to classes of equity interests entitled to vote on a plan, the Bankruptcy
Code defines acceptance of a plan by a class of equity interests as acceptance
by at least two-thirds of the Allowed equity interests that have timely voted to
accept or reject a plan. A vote may be disregarded if the Bankruptcy Court
determines, after notice and a hearing, that such acceptance or rejection was
not solicited or procured in good faith or in accordance with the provisions of
the Bankruptcy Code.
B. The Confirmation Hearing.
The Bankruptcy Code requires the Bankruptcy Court, after notice, to hold a
confirmation hearing. The Confirmation Hearing in respect of the Plan has been
scheduled for August __, 2003 at __:__ [p.m.], Eastern Time, before the
Honorable Douglas O. Tice, Jr., United States Bankruptcy Judge, at the United
States Bankruptcy Court, 1100 East Main Street, Room 301, Richmond, Virginia
23219. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement of the
adjourned date
63
made at the Confirmation Hearing. Any objection to confirmation must be made in
writing and specify in detail the name and address of the objector, all grounds
for the objection and the amount of the Claim or number of shares of stock of
NTELOS held by the objector. Any such objection must be filed with the
Bankruptcy Court and served so that it is received by the Bankruptcy Court and
the following parties on or before ___________ ___, 2003 at ___:___ p.m.,
Eastern Time:
NTELOS Inc.
401 Spring Lane, Suite 300
P.O. Box 1990
Waynesboro, Virginia 22980
Attention: James S. Quarforth
Telephone: (540) 946-3500
Telecopier: (540) 946-3595
and
Hunton & Williams LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Attention: Benjamin C. Ackerly, Esq.
Telephone: (804) 788-8479
Telecopier: (804) 788-8218
Counsel to the Debtors
Marcus, Santoro & Kozak, P.C.
355 Crawford Parkway, Suite 700
Portsmouth, Virginia 23704
Attention: Frank J. Santoro, Esq.
Karen M. Crowley, Esq.
Telephone: (757) 393-2555
Telecopier: (757) 399-6870
Co-Counsel to the Debtors
and
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard G. Mason, Esq.
Seth Gardner, Esq.
Telephone: (212) 403-1252
Telecopier: (212) 403-2252
Counsel to the Creditors' Committee
McGuire Woods LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219
64
Attention: H. Slayton Dabney, Jr.,
Sarah B. Boehm, Esq.
Telephone: (804) 775-4311
Telecopier: (804) 698-2037
Co-Counsel to the Creditors' Committee
and
Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Marshall S. Huebner, Esq.
Telephone: (212) 450-4099
Telecopier: (212) 450-3099
Counsel to the DIP Lenders, the Pre-Petition Secured
Lenders, the DIP Agent and the Agent
and
Office of the United States Trustee
600 E. Main St., Suite 301
Richmond, VA 23219
Attention: Leander D. Barnhill
Telephone: (804) 771-2310
Objections to confirmation of the Plan are governed by Bankruptcy Rules
3015 and 9014.
C. Confirmation.
At the Confirmation Hearing, the Bankruptcy Court will determine whether
the requirements of Section 1129(a) of the Bankruptcy Code have been satisfied
with respect to the Plan. Confirmation of a plan under Section 1129(a) of the
Bankruptcy Code requires, among other things, that:
. the plan complies with the applicable provisions of the Bankruptcy Code;
. the proponent of the plan has complied with the applicable provisions of
the Bankruptcy Code;
. the plan has been proposed in good faith and not by any means forbidden by
law;
. any payment made or to be made by the proponent under the plan for services
or for costs and expenses in, or in connection with, the Chapter 11 case,
or in connection with the plan and incident to the case, has been approved
by, or is subject to the approval of, the bankruptcy court as reasonable;
. the proponent has disclosed the identity and affiliations of any individual
proposed to serve, after confirmation of the plan, as a director, officer,
or voting trustee of the debtor, an affiliate of the debtor participating
in the plan with the debtor, or a successor to the debtor under the plan.
The appointment to, or continuance in, such office by such individual, must
be consistent with the interests of creditors and equity security holders
and with public policy and the proponent must have disclosed the identity
of any insider
65
that the reorganized debtor will employ or retain, and the nature of any
compensation for such insider;
. with respect to each impaired class of claims or interests, either each
holder of a claim or interest of such class has accepted the plan, or will
receive or retain under the plan on account of such claim or interest,
property of a value, as of the effective date of the plan, that is not less
than the amount that such holder would receive or retain if the debtor were
liquidated on such date under Chapter 7 of the Bankruptcy Code;
. each class of claims or interests has either accepted the plan or is not
impaired under the plan;
. except to the extent that the holder of a particular claim has agreed to a
different treatment of such claim, the plan provides that allowed
administrative expenses and priority claims (other than priority tax
claims) will be paid in full on the effective date (except that if a class
of priority claims has voted to accept the Plan, holders of such claims may
receive deferred cash payments of a value, as of the effective date of the
plan, equal to the allowed amounts of such claims) and that holders of
priority tax claims may receive on account of such claims deferred cash
payments, over a period not exceeding six years after the date of
assessment of such claims, of a value, as of the effective date, equal to
the allowed amount of such claims;
. if a class of claims is impaired, at least one impaired class of claims has
accepted the plan, determined without including any acceptance of the plan
by any insider holding a claim in such class; and
. confirmation of the plan is not likely to be followed by the liquidation,
or the need for further financial reorganization, of the debtor or any
successor to the debtor under the plan, unless such liquidation or
reorganization is proposed in the plan.
Subject to receiving the requisite votes in accordance with Section
1129(a)(8) of the Bankruptcy Code and any potential "cram down" of Classes not
receiving any distribution under the Plan, the Debtors believe that:
. the Plan satisfies all of the statutory requirements of Chapter 11 of the
Bankruptcy Code;
. the Debtors have complied or will have complied with all of the
requirements of Chapter 11 of the Bankruptcy Code; and
. the Plan has been proposed in good faith.
Set forth below is a summary of the relevant statutory confirmation
requirements.
1. Acceptance.
Class 2 (Secured Bank Claims), Class 5 (Senior Debt Claims), Class 7
(General Unsecured Claims), Class 9 (Subordinated Claims) and Class 10 (Old
Preferred Stock Interests) of the Plan are impaired under the Plan and are
entitled to vote to accept or reject the Plan. The Debtors reserve the right to
seek nonconsensual confirmation of the Plan with respect to any Class of Claims
or Equity Interests that is entitled to vote to accept or reject the Plan if
such Class rejects the Plan.
66
2. Unfair Discrimination and Fair and Equitable Tests.
To obtain nonconsensual confirmation of the Plan, it must be
demonstrated to the Bankruptcy Court that the Plan "does not discriminate
unfairly" and is "fair and equitable" with respect to each impaired,
nonaccepting Class. The Bankruptcy Code provides a non-exclusive definition of
the phrase "fair and equitable." The Bankruptcy Code establishes "cram down"
tests for secured creditors, unsecured creditors and equity holders, as follows:
a. Secured Creditors.
(i) each impaired secured creditor retains its liens securing its
secured claim and receives on account of its secured claim deferred Cash
payments having a present value equal to the amount of its allowed secured
claim, (ii) each impaired secured creditor realizes the "indubitable equivalent"
of its allowed secured claim or (iii) the property securing the claim is sold
free and clear of liens with such liens to attach to the proceeds of the sale
and the treatment of such liens on proceeds is provided in clause (i) or (ii) of
this subparagraph.
b. Unsecured Creditors.
Either (i) each impaired unsecured creditor receives or retains
under the Plan property of a value equal to the amount of its allowed claim or
(ii) the holders of claims and interests that are junior to the claims of the
dissenting class will not receive any property under the Plan.
c. Equity Interests.
Either (i) each holder of an equity interest will receive or
retain under the Plan property of a value equal to the greatest of the fixed
liquidation preference to which such holder is entitled, the fixed redemption
price to which such holder is entitled or the value of the equity interest or
(ii) the holder of an equity interest that is junior to the nonaccepting class
will not receive or retain any property under the Plan.
3. Feasibility.
a. Financial Projections.
The Bankruptcy Code requires that confirmation of a plan is not
likely to be followed by liquidation or the need for further financial
reorganization. For purposes of determining whether the Plan meets this
requirement, NTELOS has analyzed the Debtors' ability to meet its obligations
under the Plan. As part of this analysis, NTELOS has prepared the Projected
Financial Information for the Projection Period. These projections, and the
assumptions on which they are based, are included in the Projected Financial
Information annexed hereto as Exhibit C. Based upon such projections, NTELOS
believes that the Debtors will be able to make all payments required pursuant to
the Plan and, therefore, that confirmation of the Plan is not likely to be
followed by liquidation or the need for further reorganization.
The financial information and projections appended to the
Disclosure Statement include:
. "Fresh Start" Condensed Consolidated Opening and Closing Balance Sheet
of the Reorganized Debtors as of August 31, 2003;
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. Projected Condensed Consolidated Balance Sheets of the Reorganized
Debtors as of the end of the fiscal years 2003 through 2008;
. Projected Condensed Consolidated Statement of Operations of the
Reorganized Debtors as of the end of the fiscal years 2003 through
2008; and
. Projected Condensed Consolidated Cash Flow Statements of the
Reorganized Debtors as of the end of the fiscal years 2003 through
2008.
The pro forma financial information and the projections are based
on the assumption that the Plan will be confirmed by the Bankruptcy Court and,
for projection purposes, that the Effective Date under the Plan and the initial
distributions thereunder take place as of August 31, 2003.
NTELOS has prepared these financial projections based upon
certain assumptions which it believes to be reasonable under the circumstances.
Those assumptions considered to be significant are described in the Projected
Financial Information, annexed hereto as Exhibit C. The Projected Financial
Information has not been examined or compiled by independent accountants. NTELOS
makes no representation as to the accuracy of the projections or the Debtors'
ability to achieve the projected results. Many of the assumptions on which the
projections are based are subject to significant uncertainties. Inevitably, some
assumptions will not materialize and unanticipated events and circumstances may
affect the actual financial results. Therefore, the actual results achieved
throughout the Projection Period may vary from the projected results and the
variations may be material. See Section XI.B.1., "Certain Risk Factors to be
Considered - Overall Risk to Recovery by Holders of Claims and Equity Interests
- - Projected Financial Information." All holders of Claims and Equity Interests
that are entitled to vote to accept or reject the Plan are urged to examine
carefully all of the assumptions on which the Projected Financial Information is
based in evaluating the Plan.
b. Business Strategy - Overview.
The Company's strategy is to minimize its fixed interest costs so
it is able to maintain free cash flow immediately following the reorganization
and through the current period of uncertainty affecting the telecommunications
industry. The Company will seek to manage its growth relative to the excess cash
flow produced from its operations and available for reinvestment.
Notwithstanding the foregoing, the Company's objective is to be
the leading integrated communications provider in its region of operations. The
key elements of the Company's business strategy are to:
(i) Increase Market Share by Establishing Service-Driven
Customer Relationships through a Local Presence.
The Company intends to grow its business by leveraging its local
presence and continuing its focus on providing high levels of customer
satisfaction. The Company plans to accomplish this through its local retail
outlets and utilizing a business to business sales team that provides
face-to-face sales and personalized client care. The Company intends to enhance
its local presence by continuing its support of the communities that it serves,
including corporate and employee participation in community programs, and
expanding this support to its target markets. The Company will reinforce its
customer relationships by continuing to provide
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integrated, personalized customer care in each of its markets. The Company
intends to do this through its retail locations, which also serve as customer
care centers, and its 24 hours-a-day, 365 days-a-year call centers.
(ii) Offering of Bundled Services.
The Company offers a broad range of communications services in a
bundled package and on a single bill. The Company believes that by cross-selling
multiple products and services, it is building new customer relationships,
strengthening the partnership with existing customers and increasing customer
retention.
(iii) Leverage the Company's Fiber Optic Network,
Infrastructure and Technologies.
The Company's infrastructure, including its fiber optic network,
switches and routers, is a technologically-advanced communications system that
connects many of its markets. The Company intends to offer its broad range of
communications services in many of its markets and deliver those services over
infrastructure that it controls and maintains. The Company also intends to
continue using its network to serve as a carrier's carrier, offering switching
and transport services to other communications carriers. As new wireless data
applications become available, the Company also intends to use its PCS bandwidth
capacity, which ranges from 10 MHz to 40 MHz in its markets to capitalize on
opportunities in the growing market for wireless Internet access and data
transmission.
4. Best Interests Test.
With respect to each impaired Class of Claims and Equity Interests,
confirmation of the Plan requires that each holder of a Claim or Equity Interest
either (i) accept the Plan or (ii) receive or retain under the Plan property of
a value, as of the Effective Date, that is not less than the value such holder
would receive or retain if the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code. To determine what holders of Claims and Equity Interests of
each impaired Class would receive if the Debtors were liquidated under Chapter
7, the Bankruptcy Court must determine the dollar amount that would be generated
from the liquidation of the Debtors' assets and properties in the context of a
Chapter 7 liquidation case. The Cash amount which would be available for
satisfaction of General Unsecured Claims and Equity Interests would consist of
the proceeds resulting from the disposition of the unencumbered assets of the
Debtors, any excess proceeds from the disposition of encumbered assets after the
satisfaction of secured claims, and augmented by the unencumbered Cash held by
the Debtors at the time of the commencement of the liquidation case. This Cash
amount would be reduced by the amount of the costs and expenses of the
liquidation and by the additional administrative and priority claims that may
result from the termination of the Debtors' business and the use of Chapter 7
for the purposes of liquidation.
The Debtors' costs of liquidation under Chapter 7 would include the
fees payable to a trustee in bankruptcy, as well as those which might be payable
to attorneys and other professionals that such a trustee may engage. In
addition, claims would arise by reason of the breach or rejection of obligations
incurred and leases and executory contracts assumed or entered into by the
Debtors in Possession during the pendency of the Chapter 11 Case. The foregoing
types of claims and other claims which may arise in a liquidation case or result
from the pending Chapter 11 Case, including any unpaid expenses incurred by the
Debtors in Possession during the Chapter 11 Case such as compensation for
attorneys, financial advisors and accountants,
69
would be paid in full from the liquidation proceeds before the balance of those
proceeds would be made available to pay prepetition General Unsecured Claims.
To determine if the Plan is in the best interests of each impaired
Class, the value of the distributions of proceeds from the liquidation of the
Debtors' unencumbered assets and properties, after subtracting the amounts
attributable to the foregoing Claims, are then compared with the value of the
property offered to such Classes of Claims and Equity Interests under the Plan.
After considering the effects that a Chapter 7 liquidation would have
on the ultimate proceeds available for distribution to creditors in the Chapter
11 Case, including (i) the increased costs and expenses of a liquidation under
Chapter 7 arising from fees payable to a trustee in bankruptcy and professional
advisors to such trustee, (ii) the erosion in value of assets in a Chapter 7
case in the context of the expeditious liquidation required under Chapter 7 and
the "forced sale" atmosphere that would prevail and (iii) the substantial
increases in claims which would be satisfied on a priority basis or on parity
with creditors in the Chapter 11 Case, NTELOS has determined that confirmation
of the Plan will provide each holder of an Allowed Claim or Allowed Equity
Interest with a recovery that is not less than such holder would receive
pursuant to liquidation of the Debtors under Chapter 7 liquidation.
NTELOS also believes that the value of any distributions to each Class
of Allowed Claims in a Chapter 7 case, including all secured Claims, would be
less than the value of distributions under the Plan because such distributions
in a Chapter 7 case would not occur for a substantial period of time. It is
likely that distribution of the proceeds of the liquidation could be delayed
after the completion of such liquidation in order to resolve claims and prepare
for distributions. In the likely event litigation is necessary to resolve claims
asserted in the Chapter 7 case, the delay could be prolonged.
NTELOS' Liquidation Analysis is attached hereto as Exhibit D. The
information set forth in Exhibit D provides a summary of the liquidation values
of the Debtors' assets assuming a Chapter 7 liquidation in which a trustee
appointed by the Bankruptcy Court would liquidate the assets of the Debtors'
estates. Reference should be made to the Liquidation Analysis for a complete
discussion and presentation of the Liquidation Analysis. The Liquidation
Analysis was prepared by management of NTELOS with the assistance of its
financial advisor.
Underlying the Liquidation Analysis are a number of estimates and
assumptions that, although developed and considered reasonable by management,
are inherently subject to significant economic and competitive uncertainties and
contingencies beyond the control of the Debtors and management. The Liquidation
Analysis is also based upon assumptions with regard to liquidation decisions
that are subject to change. Accordingly, the values reflected may not be
realized if the Debtors were, in fact, to undergo such a liquidation. The
Chapter 7 liquidation period is assumed to be a period of at least six (6)
months allowing for the (i) discontinuation of operations, (ii) selling of
assets, and (iii) collection of receivables.
D. Consummation.
The Plan will be consummated on the Effective Date. The Effective Date of
the Plan is the date that is eleven (11) days after the Confirmation Date, or if
such date is not a Business Day, the next succeeding Business Day, or such date
after the Confirmation Date as determined by NTELOS with the prior written
consent of the Agent and the Creditors' Committee so long as
70
no stay of the Confirmation Order is in effect on such date; provided, however,
that if, on or prior to such date, all conditions to the Effective Date set
forth in Section 10 of the Plan have not been satisfied or waived, then the
Effective Date will be the first Business Day following the day on which all
such conditions to the Effective Date have been satisfied or waived or such date
as NTELOS may determine with the prior written consent of the Creditors'
Committee and the Agent. For a more detailed discussion of the conditions
precedent to the Plan and the impact of the failure to meet such conditions, see
Section VI.H., "The Joint Plan of Reorganization - Conditions Precedent to the
Confirmation Date and Effective Date."
The Plan is to be implemented pursuant to the provisions of the Bankruptcy
Code.
VIII.
MANAGEMENT OF REORGANIZED NTELOS
As of the Effective Date, the management, control and operation of
Reorganized NTELOS will become the general responsibility of its Board of
Directors.
A. Board of Directors and Management.
1. Composition of the Board of Directors.
The initial Board of Directors of Reorganized NTELOS will consist of
seven (7) members. The majority holders of the Senior Notes will select four (4)
members, two (2) of whom will be persons independent of the Participating
Noteholders and NTELOS. The majority holders of the Senior Notes and NTELOS
jointly will select two (2) members, which members may be members of the Board
of Directors of NTELOS. The seventh member will be the chief executive officer
of Reorganized NTELOS. The members of the initial Board of Directors of
Reorganized NTELOS will be approved by the Board of Directors of NTELOS. The
directors of NTELOS immediately prior to the Effective Date will resign as of
the Effective Date and will be replaced by the Board of Directors determined as
set forth above. At least fourteen (14) Business Days prior to the commencement
of the Confirmation Hearing, NTELOS will file with the Bankruptcy Court a
schedule of the names of the persons to be appointed as the Directors of
Reorganized NTELOS under the Plan.
The initial Board of Directors of Reorganized NTELOS will serve until
the first annual meeting of the holders of the New Common Stock. Thereafter, the
Board of Directors of Reorganized NTELOS will be elected in accordance with the
New Articles of Incorporation and applicable nonbankruptcy law.
The Board of Directors or other internal governing body of each of the
NTELOS Subsidiaries and the NTELOS Non-filing Subsidiaries will continue as in
effect immediately prior to the Effective Date until removed or replaced under
applicable law or in accordance with the governing instruments of such
subsidiary.
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2. Identity of Executive Officers.
Each of the executive officers of NTELOS set forth below will continue
in such officer's then current position as an officer of Reorganized NTELOS:
Name Office Age
---- ------ ---
J. S. Quarforth Chief Executive Officer and President 49
C. A. Rosberg Executive Vice President, President--Wireless 50
D. R. Maccarelli Executive Vice President, President--Wireline 51
M. B. Moneymaker Executive Vice President and Chief Financial Officer, 45
Treasurer and Secretary
M. McDermott Senior Vice President--Legal and Regulatory Affairs 48
D. M. Persing Senior Vice President--Information Technology and Human 51
Resources
On the Effective Date, the executive officers of each of the NTELOS
Subsidiaries will be those executive officers in office immediately prior to the
Effective Date.
B. Compensation of Directors and Officers.
Non-employee directors of NTELOS received a 2003 annual retainer fee of
$10,800 and options to purchase 1,818 shares of Old Common Stock. Non-employee
directors also receive a fee of $875 for each meeting of the Board of Directors
attended in 2003.
Directors of NTELOS and/or the NTELOS Subsidiaries who are also employed by
NTELOS do not receive additional compensation for service as directors.
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The following table sets forth compensation information for certain of the
officers of NTELOS:
2003 PROJECTED 2002 ALL OTHER
SALARY (1) SALARY BONUS (2) COMPENSATION (3) OPTIONS(4)
--------------- ---------- ---------- ---------------- ----------
J.S. Quarforth $ 366,396 $ 362,447 $ - $ 11,866 84,000
Chief Executive Officer and President
C.A. Rosberg $ 245,470 $ 242,824 $ - $ 3,991 38,000
Executive Vice President,
President--Wireless
D.R. Maccarelli $ 167,637 $ 165,830 $ - $ 6,680 18,000
Executive Vice President,
President--Wireline
M.B. Moneymaker $ 191,226 $ 189,165 $ - $ 3,666 24,000
Executive Vice President
and Chief Financial Officer,
Treasurer and Secretary
M. McDermott $ 172,525 $ 170,666 $ - $ 5,222 18,000
Senior Vice President--
Legal and Regulatory Affairs
D.M. Persing $ 167,890 $ 112,171 $ - $ 3,208 18,000
Senior Vice President--Information
Technology and Human Resources
- ----------
(1) The amounts indicated under the column "2003 Projected Salary" reflect
actual salaries through March 31, 2003 and projected salaries for the
remainder of 2003 based on compensation rates in effect on April 1, 2003.
(2) Based on 2002 company operating performance objectives, NTELOS' Board of
Directors approved payment of bonuses under the company's 2002 management
incentive plan following the company's emergence from bankruptcy. In light
of the Chapter 11 Case, the Board of Directors has determined not to
approve such bonuses for the company's officers.
(3) Includes amounts paid by NTELOS as contributions to savings plans, deferred
compensation plans and group life insurance and additional life insurance
premium payments and accidental death and dismemberment payments.
(4) Identifies options to purchase Old Common Stock.
Mr. Quarforth will become Chief Executive Officer and President of NTELOS,
effective as of June 1, 2003. Mr. Quarforth has been Chief Executive Officer of
NTELOS and the NTELOS Subsidiaries since May 1, 1999. Mr. Quarforth served as
President and Chief Executive Officer from May 1, 1990 to May 1, 1999 and
Chairman of the Board from May 1, 1999 to February 13, 2001.
Mr. Rosberg will become Executive Vice President, President--Wireless,
effective as of June 1, 2003. Mr. Rosberg will have served as Executive Vice
President and Chief Operating Officer of NTELOS from February 2001 to June 1,
2003 and as President and Chief Operating Officer from May 1, 1999 to February
13, 2001, when the merger between NTELOS and R&B Communications, Inc. became
effective. From May 1, 1990 to May 1, 1999, he served as Senior Vice President.
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Mr. Maccarelli will become Executive Vice President, President--Wireline,
effective as of June 1, 2003. Mr. Maccarelli will have served as Senior Vice
President - Wireline Engineering and Operations of NTELOS from May 2002 to June
1, 2003. From February 2001 to May 2002 he served as Senior Vice President and
Chief Technology Officer and from January 1994 to February 2001 as Senior Vice
President. From January 1993 to December 1993, he served as Vice President -
Network Services. From June 1974 to December 1992 he held numerous leadership
positions with Bell Atlantic. These positions encompassed operations,
engineering, regulatory and business development.
Mr. Moneymaker will become Executive Vice President and Chief Financial
Officer, Treasurer and Secretary, effective as of June 1, 2003. Mr. Moneymaker
will have served as the Senior Vice President and Chief Financial Officer,
Treasurer and Secretary of NTELOS from May 2000 to June 1, 2003. From May 1999
to April 2000 he served as Vice President and Chief Financial Officer, Treasurer
and Secretary. From May 1998 to April 1999 he served as Vice President and Chief
Financial Officer. From October 1995 to April 1998 he served as Vice President
of Finance. Previously, he was a Senior Manager for Ernst and Young from October
1989 until October 1995.
Ms. McDermott has been the Senior Vice President - Legal and Regulatory
Affairs of NTELOS since August 2001. From March 2000 to August 3, 2001 she
served as Senior Vice President and General Counsel of Pathnet
Telecommunications, Inc. On April 2, 2001, Pathnet Telecommunications, Inc.
filed a Voluntary Petition under Chapter 11 of the United States Bankruptcy Code
with the United States Bankruptcy Court for the District of Delaware. From April
1998 to March 2000 she served as Senior Vice President/Chief of Staff for
Government Relations for the Personal Communications Industry Association. From
May 1994 to April 1998 she served as Vice President - Legal and Regulatory
Affairs for the United States Telecom Association.
Ms. Persing will become Senior Vice President--Information Technology and
Human Resources, effective as of June 1, 2003. Ms. Persing will have served as
Senior Vice President of NTELOS from April 2000 to June 1, 2003. From May 1998
to April 2000 she served as Vice President - Human Resources. From December 1995
to March 1998, she was employed by PrimeCo Personal Communications as Vice
President of Customer Care. From June 1974 to January 1994, she held numerous
leadership positions with AT&T. These positions encompassed customer care,
directory assistance, human resources, network engineering, software development
and large project management. From August 1994 to November 1995, she served as
operations manager for NTELOS' directory assistance operation.
These officers do not receive additional compensation for service as
officers of NTELOS Subsidiaries.
C. Management Contracts.
NTELOS entered into employment agreements on December 31, 2001 with its
executive officers, James S. Quarforth, Carl A. Rosberg, David R. Maccarelli,
Michael B. Moneymaker, Mary McDermott and Don Marie Persing. Each was approved
by the non-employee members of the Board of Directors of NTELOS.
Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker and Mses. McDermott
and Persing entered into employment agreements with NTELOS in December 2001. The
term of the employment agreement with Mr. Quarforth is 36 months, with Mr.
Rosberg is 30 months, and
74
with each of Messrs. Maccarelli and Moneymaker and Mses. McDermott and Persing
is 24 months.
In addition to base salary and annual incentive bonuses, the executives are
entitled to participate in NTELOS' long-term stock-based incentive compensation
program and all other employee benefit plans, including NTELOS' executive
supplemental retirement plan.
NTELOS may terminate the executive's employment agreement for continued
disability or, upon written notice, for cause. The executive may terminate the
agreement, upon prior written notice, for good reason.
"Cause" generally means any of the following: gross or willful misconduct;
willful and repeated failure to comply with the lawful directives of the Board
of Directors; any criminal act or act of dishonesty or fraud that has a material
adverse impact on NTELOS or its subsidiaries or any fraud, dishonesty or
misappropriation involving the company or its subsidiaries; material breach of
the terms of any confidentiality, non-competition, non-solicitation or
employment agreement with NTELOS; acts of malfeasance or negligence; material
failure to perform the duties and responsibilities of his or her position;
grossly negligent conduct; or activities materially damaging NTELOS or its
subsidiaries.
"Good reason" generally means any of the following: base salary or target
incentive payments are reduced; responsibilities are diminished; relocation of
more than 50 miles is required; deferred compensation is withheld; benefits
diminish following a change of control; directed by the Board of Directors or an
officer to engage in conduct that is illegal; material breach of NTELOS'
obligations under the agreement; or, with respect to Messrs. Quarforth, Rosberg,
Maccarelli and Moneymaker and Mses. McDermott and Persing, failure to increase
the executive's compensation consistent with performance ratings.
If any of Messrs. Quarforth, Rosberg, Maccarelli or Moneymaker or Mses.
McDermott or Persing is terminated, other than for cause, or if any one of them
terminates the agreement for good reason, he or she is entitled to (1) base
salary for a period of time thereafter equal to the term of his or her
employment agreement, and (2) target incentive payments for the same period and
standard termination payments.
The agreements with Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker
and Mses. McDermott and Persing provide for certain benefits if NTELOS
experiences a change in control during the term of the agreement followed by (1)
termination of the executive's employment without cause, or (2) resignation of
the executive for good reason (even if such termination or resignation occurs
after the term of the agreement). If Messrs. Quarforth, Rosberg, Maccarelli or
Moneymaker or Mses. McDermott or Persing is terminated within 30 months (36
months with respect to Mr. Quarforth) of a change in control, he or she will
receive severance benefits, including three years' base salary and target
incentive payments. Any severance pay due to the executive will be paid in a
lump sum on a net present value basis. In addition, the employment agreements
with Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker and Mses. McDermott
and Persing provide that NTELOS will pay additional amounts to the executive to
compensate him or her for excise taxes and penalties imposed on the severance
pay.
The agreements with Messrs. Quarforth, Rosberg, Maccarelli and Moneymaker
and Mses. McDermott and Persing provide that during the term of the agreement
and for a period of 24 months after the end of his or her employment with
NTELOS, the executive will not compete,
75
directly or indirectly, with NTELOS. In addition, pursuant to non-solicitation
provisions, the executive may not solicit certain current and former employees
during the term of their agreements and for 24 months thereafter.
NTELOS' Executive Supplemental Retirement Plan provides that participation
in the plan may not be rescinded by NTELOS so long as the participant remains
employed with NTELOS. Any payment to a named executive officer required under
the plan following a change of control must be paid in a lump sum in cash on an
actuarial basis. A "change of control" generally means (i) any person or entity,
acquires direct or indirect ownership of more than 30% of the combined voting
power of NTELOS, except WCAS may own up to 40% of the then outstanding
securities or up to 37.5 % of the voting securities (provided that it is in
compliance with the amended and restated shareholders agreement); (ii) during
any period of two consecutive years, individuals who constitute the Board of
Directors, and any new director whose election was approved by a majority of the
directors who either (a) were directors at the beginning of the period or (b)
were so elected, cease for any reason to constitute at least a majority of the
Board of Directors; (iii) NTELOS' shareholders approve a merger or consolidation
with another entity and the merger or consolidation is consummated, other than
(a) a merger or consolidation where NTELOS' voting securities outstanding
immediately prior to the merger or consolidation continue to represent 50% of
the combined voting power of the surviving entity or (b) a merger or
consolidation effected to recapitalize NTELOS where no person acquires more than
30% of the combined voting power of NTELOS' then outstanding securities; (iv)
NTELOS' shareholders approve a plan of complete liquidation or an agreement for
the sale of all or substantially all of the Debtors' assets and such liquidation
or sale is consummated; or (v) the sale or disposition of all or substantially
all of the assets of one or more of the Debtors' material lines of business
(with respect to participants who are employed in such material line of business
and whose employment is terminated by NTELOS or the acquiror prior to the third
anniversary of the sale or who terminates for good reason prior to the third
anniversary). Prior to the date of this Disclosure Statement, each participant
in the Executive Supplemental Retirement Plan consented to an amendment of the
Executive Supplemental Retirement Plan to change the definition of "change in
control" to exclude any event, reorganization, restructuring, equity change or
other transaction that occurs as a result of or in connection with the Chapter
11 Case and the Plan.
D. Stock Option Incentive Plan.
On the Effective Date or as soon thereafter as is practicable, the Board of
Directors of Reorganized NTELOS will implement the Stock Option Incentive Plan.
Under the Stock Option Incentive Plan, incentive options will be granted as set
forth below.
In light of the Chapter 11 Case, the Board of Directors of NTELOS
determined not to approve bonuses to officers of NTELOS under the 2002
Management Incentive Plan, despite the board's determination that the
performance objectives contemplated by the plan were sufficiently achieved to
authorize payment of such bonuses to all other employees. As an officer
retention measure, taking into consideration the board's decision not to approve
2002 bonuses for officers and recognizing the substantial efforts that will be
required of the officers following emergence from bankruptcy, options to
purchase the number of shares equal to 7.5% (with a portion of this 7.5% being
awarded to other key employees) of the fully-diluted New Common Stock will be
awarded by the Board of Directors of Reorganized NTELOS to officers on the
Effective Date or as soon thereafter as is practicable with an exercise price
equal to the conversion price for the New Notes. The options under the Stock
Option Incentive Plan to be awarded on the Effective
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Date or as soon thereafter as practicable will be vested as to one-third (1/3)
of the options subject to the award on the grant date and as to an additional
one-third (1/3) of the options subject to the award on each of the first and
second anniversaries of the grant date. The vesting of such options will be
accelerated upon a change of control of Reorganized NTELOS.
The plan also contemplates that options to purchase shares equal to up to
2.5% of the fully-diluted New Common Stock will be awarded thereafter at the
discretion of the Board of Directors of Reorganized NTELOS to management and
employees and, subject to compliance with applicable securities laws, other
employees of Reorganized NTELOS.
E. Post-Effective Date Security Ownership of Certain Owners.
To the knowledge of NTELOS, based upon its analysis of the holdings of the
Senior Notes, the Subordinated Notes and the Old Preferred Stock Interests,
NTELOS expects that Capital Research and Management Company and Morgan Stanley &
Co. Incorporated each will beneficially own in excess of 30% of Reorganized
NTELOS. These estimates of beneficial ownership are based upon the most
reasonably current information available to NTELOS. Thus, there can be no
assurance that these estimates remain accurate.
A number of parties may actively trade in Claims during the Chapter 11
Case. See Section XI.B.2., "Certain Risk Factors To Be Considered - Overall Risk
To Recovery By Holders of Claims - Significant Holders."
IX.
APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS
TO THE SECURITIES TO BE DISTRIBUTED UNDER THE PLAN
A. Section 1145 of the Bankruptcy Code.
Upon the consummation of the Plan, Reorganized NTELOS will rely on Section
1145 of the Bankruptcy Code, to the extent it is applicable, to exempt the
issuance of the New Common Stock and the New Warrants and the issuance of
securities upon exercise of the New Warrants to holders of Allowed Claims and
Allowed Equity Interests from the registration requirements of the Securities
Act and of any state securities or "blue sky" laws. Section 1145 exempts from
registration the sale of a debtor's securities under a Chapter 11 plan if such
securities are offered or sold in exchange for a claim against, or equity
interest in, or a claim for an administrative expense in a case concerning, the
debtor or principally in such exchange and partly for cash or property. In
reliance upon this exemption, issuance of the New Warrants, and the issuance of
New Common Stock upon exercise thereof, generally will be exempt from the
registration requirements of the Securities Act. Accordingly, such recipients
will be able to resell the New Common Stock and the New Warrants and the
securities issued upon exercise of the New Warrants without registration under
the Securities Act or other federal securities laws, unless the recipient is an
"underwriter" with respect to such securities, within the meaning of Section
1145(b) of the Bankruptcy Code. Section 1145(b) of the Bankruptcy Code defines
"underwriter" as one who (a) purchases a claim with a view to distribution of
any security to be received in exchange for the claim, (b) offers to sell
securities issued under a plan for the holders of such securities, (c) offers to
buy securities issued under a plan from persons receiving such securities, if
the offer to buy is made with a view to distribution or (d) is an "issuer" of
the relevant security, as such term is used in Section 2(11) of the Securities
Act.
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B. Section 4(2) of the Securities Act.
Reorganized NTELOS will rely on Section 4(2) of the Securities Act and
Regulation D promulgated thereunder to exempt the offering, sale and issuance of
the New Notes (and the New Common Stock issued upon conversion thereof or in
connection therewith) to the Participating Noteholders pursuant to the Purchase
Agreement. Section 4(2) exempts from the registration requirements of the
Securities Act any offering by an issuer not involving any public offering.
Regulation D similarly exempts from the registration provisions of the
Securities Act offerings of securities to "Accredited Investors," as such term
is defined under Regulation D, and to other qualified investors.
C. Registration Rights.
Reorganized NTELOS will grant registration rights to holders of New Common
Stock and to certain holders of Senior Notes, including the Participating
Noteholders, pursuant to Registration Rights Agreements entered into with such
holders as of the Effective Date. See Section VI.D, "Joint Plan of
Reorganization - Means of Implementation of the Plan." The forms of the
Registration Rights Agreements will be filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 5 and Exhibit 6.
D. Subsequent Transfers Under State Law.
The state securities laws generally provide registration exemptions for
subsequent transfers by a bona fide owner for his or her own account and
subsequent transfers to institutional or accredited investors. Such exemptions
are generally expected to be available for subsequent transfers of New Common
Stock, the New Notes and the New Warrants.
Any person intending to rely on these exemptions is urged to consult his or
her own counsel as to their applicability to his or her circumstances.
E. Certain Transactions by Stockbrokers.
Under Section 1145(a)(4) of the Bankruptcy Code, stockbrokers are required
to deliver a copy of this Disclosure Statement (and any supplements, if ordered
by the Bankruptcy Court) at or before the time of delivery of securities issued
under the Plan to their customers for the first 40 days after the Effective
Date. This requirement specifically applies to trading and other after-market
transactions in the securities.
X.
VALUATION OF REORGANIZED NTELOS
A. Introduction.
To assist NTELOS' Board of Directors in evaluating the Plan and the
distributions that holders of Claims and Equity Interests will receive under the
Plan, NTELOS' Board of Directors requested that the Debtors' financial advisor,
UBS Warburg, undertake an analysis of the estimated range of the going concern
enterprise value of the Reorganized Debtors, on a consolidated basis, after
giving effect to the reorganization as set forth in the Plan. UBS Warburg
completed and delivered its analysis to NTELOS' Board of Directors on May 23,
2003.
In conducting its analysis, UBS Warburg, among other things:
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. reviewed certain publicly-available business and historical financial
information relating to the Debtors;
. reviewed certain internal financial information and other data
relating to the business and financial prospects of the Reorganized
Debtors, including financial projections through 2010 (the "Financial
Projections") prepared by management of NTELOS (of which projection
years 2003 - 2008 are set forth in Exhibit C), which were provided to
UBS Warburg by NTELOS;
. conducted discussions with members of NTELOS' senior management
concerning the business and financial prospects of the Reorganized
Debtors;
. reviewed publicly-available financial and stock market data with
respect to certain other companies in lines of business UBS Warburg
believed to be comparable in certain respects to the Reorganized
Debtors' businesses;
. reviewed the financial terms, to the extent available, of certain
transactions that UBS Warburg believed to be generally relevant;
. considered certain industry and economic information relevant to the
Reorganized Debtors' businesses;
. reviewed the Plan and the information in this Disclosure Statement as
of May 13, 2003; and
. conducted such other financial studies, analyses and investigations,
and considered such other information, as UBS Warburg deemed necessary
or appropriate.
THE ESTIMATED GOING CONCERN ENTERPRISE VALUE OF THE REORGANIZED DEBTOR
SET FORTH IN THIS SECTION REPRESENTS A HYPOTHETICAL VALUATION OF THE REORGANIZED
DEBTOR, ASSUMING THAT THE REORGANIZED DEBTOR CONTINUES AS AN OPERATING BUSINESS,
ESTIMATED BASED ON VARIOUS VALUATION METHODOLOGIES. THE ESTIMATED GOING CONCERN
ENTERPRISE VALUE OF THE REORGANIZED DEBTOR SET FORTH IN THIS SECTION DOES NOT
PURPORT TO CONSTITUTE AN APPRAISAL OR NECESSARILY REFLECT THE ACTUAL MARKET
VALUE THAT MIGHT BE REALIZED THROUGH A SALE OR LIQUIDATION OF THE REORGANIZED
DEBTOR, ITS SECURITIES OR ITS ASSETS, WHICH VALUE MAY BE SIGNIFICANTLY HIGHER OR
LOWER THAN THE ESTIMATE SET FORTH IN THIS SECTION. ACCORDINGLY, SUCH ESTIMATED
GOING CONCERN ENTERPRISE VALUE IS NOT NECESSARILY INDICATIVE OF THE PRICES AT
WHICH THE NEW COMMON STOCK OR OTHER SECURITIES OF REORGANIZED NTELOS MAY TRADE
AFTER GIVING EFFECT TO THE REORGANIZATION SET FORTH IN THE PLAN, WHICH PRICES
MAY BE SIGNIFICANTLY HIGHER OR LOWER THAN INDICATED BY SUCH ESTIMATE.
The actual value of an operating business, such as the Reorganized
Debtors, is subject to various factors, many of which are beyond the control or
knowledge of NTELOS or UBS Warburg, and such value will fluctuate with changes
in such factors. In addition, the market prices of Reorganized NTELOS'
securities will depend upon, among other things, prevailing interest rates,
conditions in the financial markets, the investment decisions of prepetition
creditors receiving such securities under the Plan (some of whom may prefer to
liquidate their investment rather than hold it on a long-term basis), and other
factors that generally influence the prices of securities. There can be no
assurance as to the trading market, if any, that may be available in the future
with respect to Reorganized NTELOS' securities.
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UBS Warburg's analysis was undertaken solely for the purpose of assisting
NTELOS' Board of Directors in evaluating the Plan and the distributions that
holders of Claims and Equity Interests will receive under the Plan. UBS
Warburg's analysis addresses the estimated going concern enterprise value of the
Reorganized Debtors and does not address any other aspect of the proposed
reorganization, the Plan or any other transactions and does not address the
Debtors' underlying business decision to effect the reorganization set forth in
the Plan. UBS WARBURG'S ESTIMATED GOING CONCERN ENTERPRISE VALUE OF THE
REORGANIZED DEBTOR DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDERS OF CLAIMS
OR EQUITY INTERESTS AS TO HOW SUCH HOLDER SHOULD VOTE OR OTHERWISE ACT WITH
RESPECT TO THE PLAN. UBS Warburg has not been asked to, nor did UBS Warburg
express any view as to what the value of Reorganized NTELOS' securities will be
when issued pursuant to the Plan or the prices at which they may trade in the
future. The estimated going concern enterprise value of the Reorganized Debtors
set forth herein does not constitute an opinion as to fairness from a financial
point of view to any person of the consideration to be received by such person
under the Plan or of the terms and provisions of the Plan.
UBS Warburg's analysis is based upon, among other things, the Reorganized
Debtors achieving the Financial Projections prepared by management. The future
results of the Reorganized Debtors are dependent upon various factors, many of
which are beyond the control or knowledge of NTELOS, and consequently are
inherently difficult to project. The financial results reflected in the
Financial Projections are in certain respects materially better than the recent
historical results of operations of the Debtors. The Reorganized Debtors' actual
future results may differ materially from the projections and such differences
may affect the value of the Reorganized Debtors. See Exhibit C, "Projected
Financial Information." ACCORDINGLY, FOR THESE AND OTHER REASONS, THE ESTIMATED
GOING CONCERN ENTERPRISE VALUE OF THE REORGANIZED DEBTOR SET FORTH IN THIS
SECTION MUST BE CONSIDERED INHERENTLY SPECULATIVE. AS A RESULT, SUCH ESTIMATED
GOING CONCERN ENTERPRISE VALUE IS NOT NECESSARILY INDICATIVE OF ACTUAL VALUE,
WHICH MAY BE SIGNIFICANTLY HIGHER OR LOWER THAN THE ESTIMATES HEREIN. NEITHER
THE DEBTOR, UBS WARBURG NOR ANY OTHER PERSON ASSUMES RESPONSIBILITY FOR THE
ACCURACY OF SUCH ESTIMATED GOING CONCERN ENTERPRISE VALUE.
As part of its investment banking business, UBS Warburg is regularly
engaged in evaluating businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements,
restructurings and reorganizations and valuations for estate, corporate and
other purposes. In the ordinary course of business, UBS Warburg, its successors
and affiliates may trade securities of NTELOS for the accounts of their
customers and may in the future trade securities of Reorganized NTELOS for their
own accounts and the accounts of their customers and, accordingly, may at any
time hold a long or short position in such securities.
B. Methodology.
In preparing its valuation, UBS Warburg performed a variety of financial
analyses and considered a variety of factors. The following is a brief summary
of the material financial analyses performed by UBS Warburg, which consisted of
(a) an analysis of the market value and trading multiples of selected
publicly-held companies in lines of business UBS Warburg believed to be
80
comparable in certain respects to the lines of business of the Reorganized
Debtors, (b) an analysis of selected completed or announced transactions that
UBS Warburg believed to be generally relevant and (c) a discounted cash flow
analysis. The summary does not purport to be a complete description of the
analyses performed and factors considered by UBS Warburg. The preparation of a
valuation analysis is a complex analytical process involving various judgmental
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to particular facts and
circumstances, and such analyses and judgments are not readily susceptible to
summary description. In particular, UBS Warburg's valuation of the Debtors
reflects, among other things, the following:
. UBS Warburg has relied upon management's estimated valuation of
certain non-core, non-strategic businesses ("non-core assets")
and has included that estimate in the consolidated valuation of
the Debtors;
. UBS Warburg has applied its financial analyses individually to
each of the Debtors' primary lines of business (respectively,
wireless and wireline telecommunications services), and then has
aggregated those estimated valuations with the estimated value of
non-core assets to establish a going concern enterprise for the
Debtors on a consolidated basis; and
UBS Warburg believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering all its analyses, could
create a misleading or incomplete view of the processes underlying UBS Warburg's
conclusions. UBS Warburg did not draw, in isolation, conclusions from or with
regard to any one analysis or factor, nor did UBS Warburg place any particular
reliance or weight on any individual analysis. Rather, UBS Warburg arrived at
its views based on all the analyses undertaken by it assessed as a whole.
For purposes of UBS Warburg's analysis, the estimated going concern
enterprise value of the Reorganized Debtors equals the value of its fully
diluted common equity, plus its outstanding debt, minus cash, determined based
on the Reorganized Debtors (including the NTELOS Non-filing Subsidiaries), on a
consolidated basis, as an operating business, after giving effect to the
reorganization set forth in the Plan.
1. Selected Publicly Traded Companies Analysis.
UBS Warburg analyzed the market value and trading multiples of
selected publicly-held companies in lines of business UBS Warburg believed to be
comparable in certain respects to the lines of business of the Reorganized
Debtors. To the extent such selected companies also operated in lines of
business that were unlike the Debtors' businesses under consideration, UBS
Warburg made adjustments to the market values of the selected companies as
appropriate. UBS Warburg calculated the enterprise value of the selected
companies as a multiple of certain historical and projected financial data of
such companies (adjusted as described above). UBS Warburg then analyzed those
multiples and compared them with multiples derived by assigning a range of
enterprise values to the applicable lines of business of the Reorganized Debtors
and dividing those enterprise values by the corresponding historical and
projected financial data of the applicable lines of business of the Reorganized
Debtors. The projected financial data for the Reorganized Debtors were based on
the Projection Financial Information prepared by NTELOS' management and the
projected financial data for the selected companies were based on publicly
available research analyst reports and other publicly available information.
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Although the selected companies were used for comparison purposes, no
selected company is either identical or directly comparable to either of the
primary lines of business of the Reorganized Debtors. Accordingly, UBS Warburg's
comparison of the selected companies to the business of the Reorganized Debtors
and analysis of the results of such comparisons was not purely mathematical, but
instead necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
could affect the relative values of the selected companies and of the
Reorganized Debtors.
2. Selected Transactions Analysis.
UBS Warburg reviewed selected completed or announced transactions that
UBS Warburg believed to be generally relevant. UBS Warburg calculated the
enterprise value of the companies or wireless spectrum assets in such
transactions implied by the consideration in such transactions as a multiple of
certain historical financial data of such companies. To the extent such
companies also operated in lines of business that were unlike the Debtors'
business under consideration, UBS Warburg made adjustments to the enterprise
values of the selected companies as appropriate. UBS Warburg then analyzed those
multiples and compared them with the multiples derived by assigning a range of
enterprise values to the applicable lines of business of the Reorganized Debtors
and dividing those enterprise values by the corresponding historical financial
data of the applicable lines of business of the Reorganized Debtors.
Although the selected transactions were used for comparison purposes,
no selected transaction is either identical or directly comparable to those set
forth in the Plan and no companies involved in the selected transactions were
either identical or directly comparable to either of the primary lines of
business of the Reorganized Debtors. Accordingly, UBS Warburg's analysis of the
selected transactions was not purely mathematical, but instead necessarily
involved complex considerations and judgments concerning differences in
transaction structure, financial and operating characteristics of the companies
involved and other factors that could affect the relative values achieved in
such transactions and the enterprise value of the Reorganized Debtors. In
reviewing the relevant transactions, UBS Warburg noted that many of the
transactions were announced in a materially more favorable valuation environment
for telecommunications companies.
3. Discounted Cash Flow Analysis.
UBS Warburg performed a discounted cash flow analysis to estimate the
present value of the Reorganized Debtors' future consolidated unlevered,
after-tax cash flows available to debt and equity investors based on the
Financial Projections. UBS Warburg used the projections of the Reorganized
Debtors' consolidated cash flow through 2010. For the purpose of calculating the
terminal value as of 2010, the cash flow projection from NTELOS' financial
projections for 2010 were adjusted for a statutory tax rate and the assumption
that annual depreciation expense would equal annual capital expenditures. UBS
Warburg calculated a range of terminal values by applying a perpetual growth
factor to the terminal year cash flow projection. UBS Warburg then applied a
range of discount rates to arrive at a range of present values of those cash
flows and terminal values. The discounted cash flow analysis also involves
complex considerations and judgments concerning appropriate adjustments to
terminal year cash flows for perpetuity purposes, perpetuity growth factors and
discount rates.
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C. Estimated Going Concern Enterprise Value of the Reorganized Debtors.
IN CONNECTION WITH UBS WARBURG'S ANALYSIS, WITH NTELOS' CONSENT, UBS
WARBURG HAS NOT ASSUMED ANY RESPONSIBILITY FOR INDEPENDENT VERIFICATION OF ANY
OF THE INFORMATION PROVIDED TO UBS WARBURG, PUBLICLY AVAILABLE TO UBS WARBURG OR
OTHERWISE REVIEWED BY UBS WARBURG, AND UBS WARBURG, WITH NTELOS' CONSENT, HAS
RELIED ON SUCH INFORMATION BEING COMPLETE AND ACCURATE IN ALL MATERIAL RESPECTS.
UBS WARBURG HAS FURTHER RELIED UPON THE REPRESENTATIONS OF NTELOS' SENIOR
MANAGEMENT THAT THEY ARE NOT AWARE OF ANY FACTS OR CIRCUMSTANCES THAT WOULD MAKE
SUCH INFORMATION INACCURATE OR MISLEADING. WITH RESPECT TO NTELOS' FINANCIAL
PROJECTIONS, UBS WARBURG HAS ASSUMED, AT NTELOS' DIRECTION, THAT SUCH FINANCIAL
PROJECTIONS HAVE BEEN REASONABLY PREPARED ON A BASIS REFLECTING THE BEST
CURRENTLY AVAILABLE ESTIMATES AND JUDGMENTS OF NTELOS' SENIOR MANAGEMENT AS TO
THE FUTURE PERFORMANCE OF THE REORGANIZED DEBTOR AFTER GIVING EFFECT TO THE
REORGANIZATION AS SET FORTH IN THE PLAN.
In addition, with NTELOS' consent, UBS Warburg has not independently
evaluated the achievability of the Financial Projections or the reasonableness
of the assumptions upon which it is based, has not contacted any of the Debtors'
customers regarding the likelihood that such customers will continue to purchase
services from the Reorganized Debtors and has not conducted a physical
inspection of the properties and facilities of the Debtors. Furthermore, with
NTELOS' consent, UBS Warburg has not made any independent evaluation or
appraisal of any of the assets or liabilities (contingent or otherwise) of the
Debtors, nor has UBS Warburg been furnished with any such evaluation or
appraisal.
UBS Warburg has also assumed, with NTELOS' consent, among other things, the
following (as to which UBS Warburg makes no representation):
. The Plan will be confirmed and consummated in accordance with its
terms, and the Debtors will be reorganized as set forth in the
Plan;
. For purposes of the UBS Warburg analysis, the effective date will
be September 30, 2003;
. Reorganized NTELOS' capitalization and available cash will be as
set forth in the Plan and this Disclosure Statement. In
particular, the pro forma principal amount of indebtedness of
Reorganized NTELOS as of the effective date will be $311.1
million, excluding amounts payable under interest rate swap
agreements;
. Certain tax benefits and attributes (including NOLs) will be
available to the Reorganized Debtors, as reflected in the Plan
and the Financial Projections prepared by NTELOS;
. Reorganized NTELOS will be able to obtain all future financings,
on the terms and at the times, necessary to achieve the
projections;
. Neither the Debtors nor the Reorganized Debtors will engage in
any material asset sales or other strategic transaction, and no
such asset sales or strategic
83
transactions are required to meet the Reorganized Debtors'
ongoing cash requirements;
. All governmental, regulatory or other consents and approvals
necessary for the consummation of the Plan will be obtained
without any material adverse effect on the Reorganized Debtors or
the Plan;
. There will not be any material change in the business, condition
(financial or otherwise), results of operations, assets,
liabilities or prospects of the Debtors other than as reflected
in the Financial Projections;
. The Debtors' wholesale relationship with Horizon PCS will
continue and the revenues realized by the Debtors from this
relationship will be as projected in the Financial Projections;
. For purposes of this valuation, UBS Warburg has not been asked to
evaluate, and has not evaluated, the potential impact of a
Horizon PCS bankruptcy on the Reorganized Debtors' future
performance; and
. There will not be any material change in economic, market,
financial and other conditions.
The estimated range of the going concern enterprise value of the
Reorganized Debtors is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information available to UBS as
of the date of its analysis, May 23, 2003. Although subsequent developments may
affect UBS Warburg's analysis and views, UBS Warburg does not have any
obligation to update, revise or reaffirm its estimate.
Based upon and subject to the review and analysis described herein, and
subject to the assumptions, limitations and qualifications described herein, UBS
Warburg's view, as of May 23, 2003, was that, subject to no material change in
economic, market, financial or other conditions and no material change in the
condition, projections or prospects of the Reorganized Debtors, the estimated
going concern enterprise value of the Reorganized Debtors, as of the assumed
effective date (September 30, 2003), would be in a range between $446 million
and $549 million.
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XI.
CERTAIN RISK FACTORS TO BE CONSIDERED
HOLDERS OF CLAIMS AGAINST AND EQUITY INTERESTS IN THE DEBTOR SHOULD READ
AND CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER
INFORMATION SET FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED
TOGETHER HEREWITH AND/OR INCORPORATED BY REFERENCE), PRIOR TO VOTING TO ACCEPT
OR REJECT THE PLAN. THESE RISK FACTORS SHOULD NOT, HOWEVER, BE REGARDED AS
CONSTITUTING THE ONLY RISKS INVOLVED IN CONNECTION WITH THE PLAN AND ITS
IMPLEMENTATION.
A. General Bankruptcy Risk Factors.
1. Parties in interest may object to the Debtors' classification of
Claims.
Section 1122 of the Bankruptcy Code provides that a plan of
reorganization may place a claim or an interest in a particular class only if
such claim or interest is substantially similar to the other claims or interests
of such class. The Debtors believe that the classification of claims and
interests under the Plan complies with the requirements set forth in the
Bankruptcy Code. However, the Debtors cannot assure you that the Bankruptcy
Court will reach the same conclusion.
2. The commencement of the Chapter 11 Case may have negative implications
under certain contracts of the Debtors.
The Debtors are party to various contractual arrangements under which
the commencement of the Chapter 11 Case and the other transactions contemplated
by the Plan could, subject to the Debtors' rights and powers under Sections 362
and 365 of the Bankruptcy Code, (a) result in a breach, violation, default or
conflict, (b) give other parties thereto rights of termination or cancellation,
or (c) have other adverse consequences for the Debtors or the Reorganized
Debtors. The magnitude of any such adverse consequences may depend on, among
other factors, the diligence and vigor with which other parties to such
contracts may seek to assert any such rights and pursue any such remedies in
respect of such matters, and the ability of the Debtors or Reorganized Debtors
to resolve such matters on acceptable terms through negotiations with such other
parties or otherwise.
3. The proposed recapitalization will reduce favorable tax attributes.
Although the Debtors do not believe that implementation of the
Plan will itself result in significant tax liability, it likely will reduce
substantially the amount of the Debtors' existing net operating loss carryovers
and could result in limitations on the Debtors' ability to use remaining loss
carryovers and built-in losses. The reduction of, and potential limitations on
the Debtors' ability to use, such favorable tax attributes could adversely
affect the Debtors' financial position in future years.
4. The Debtors may not be able to secure confirmation of the Plan.
The Debtors cannot assure you that the requisite acceptances to
confirm the Plan will be received. Even if the requisite acceptances are
received, the Debtors cannot assure you
85
that the Bankruptcy Court will confirm the Plan. A non-accepting holder of a
Claim or Equity Interest might challenge the balloting procedures and results as
not being in compliance with the Bankruptcy Code or Bankruptcy Rules. Even if
the Bankruptcy Court determined that the Disclosure Statement and the balloting
procedures and results were appropriate, the Bankruptcy Court could still
decline to confirm the Plan if it found that any of the statutory requirements
for confirmation had not been met.
Section 1129 of the Bankruptcy Code sets forth the requirements for
confirmation and requires, among other things, a finding by the Bankruptcy Court
that the confirmation of the Plan is not likely to be followed by a liquidation
or a need for further financial reorganization and that the value of
distributions to non-accepting holders of claims and interests within a
particular class under the Plan will not be less than the value of distributions
such holders would receive if the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code. While the Debtors cannot assure you that the Bankruptcy Court
will conclude that these requirements have been met, the Debtors believe that
the Plan will not be followed by a need for further financial reorganization and
that non-accepting holders within each Class under the Plan will receive
distributions at least as great as would be received following a liquidation
under Chapter 7 of the Bankruptcy Code when taking into consideration all
administrative claims and the costs and uncertainty associated with any such
Chapter 7 case.
The confirmation and consummation of the Plan are also subject to
certain conditions, including the purchase of the New Notes by the Participating
Noteholders. If the Plan is not confirmed, it is unclear whether a restructuring
of the Debtors could be implemented and what distribution holders of Claims or
Equity Interests ultimately would receive with respect to their Claims or Equity
Interests. If an alternative reorganization could not be agreed to, it is
possible that the Debtors would have to liquidate their assets, in which case it
is likely that holders of Claims or Equity Interests would receive substantially
less favorable treatment than they would receive under the Plan.
5. The Debtors may object to the amount or classification of your claim.
The Debtors reserve the right to object to the amount or
classification of any claim or interest. The estimates set forth in this
Disclosure Statement cannot be relied on by any creditor whose claim or interest
is subject to an objection. Any such holder of a Claim or Equity Interest may
not receive its specified share of the estimated distributions described in this
Disclosure Statement.
B. Overall Risk to Recovery by Holders of Claims and Equity Interests.
The ultimate recoveries under the Plan to holders of Claims (other than
those holders who are paid in Cash under the Plan) depend upon the realizable
value of the New Common Stock. The securities to be issued pursuant to the Plan
are subject to a number of material risks, including, but not limited to, those
specified below. The factors specified below assume that the Plan is approved by
the Bankruptcy Court and that the Effective Date occurs on or about August 31,
2003. Prior to voting on the Plan, each holder of a Claim should carefully
consider the risk factors specified or referred to below, including the Exhibits
annexed hereto, as well as all of the information contained in the Plan.
1. The Projected Financial Information included in this Disclosure
Statement is dependent upon the successful implementation of the
business plan and the validity of the other assumptions contained
therein.
86
The Projected Financial Information reflects numerous assumptions,
including confirmation and consummation of the Plan in accordance with its
terms, certain assumptions with respect to competitors of the general business
of the Company and economic conditions and other matters, many of which are
beyond the control of the Company, including certain matters which are the
subject of risk factors described below. In addition, unanticipated events and
circumstances occurring subsequent to the preparation of the Projected Financial
Information may affect the actual financial results of the Company. Although
NTELOS believes that the projected results included in the Projected Financial
Information are reasonably attainable, some or all of the estimates will vary
and variations between the actual financial results and those projected may be
material.
THE PROJECTED FINANCIAL INFORMATION WAS NOT PREPARED WITH A VIEW
TOWARD COMPLIANCE WITH THE GUIDELINES ESTABLISHED BY THE AICPA OR FASB.
FURTHERMORE, THE PROJECTED FINANCIAL INFORMATION HAS NOT BEEN AUDITED OR
REVIEWED BY NTELOS' INDEPENDENT ACCOUNTANTS. WHILE PRESENTED WITH NUMERICAL
SPECIFICITY, THE PROJECTIONS ARE BASED UPON A VARIETY OF ESTIMATES AND
ASSUMPTIONS, WHICH, ALTHOUGH DEVELOPED AND CONSIDERED REASONABLE BY THE
MANAGEMENT OF NTELOS, MAY NOT BE REALIZED AND ARE SUBJECT TO SIGNIFICANT
BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES, MANY OF
WHICH ARE BEYOND THE CONTROL OF THE REORGANIZED DEBTOR AND THE MANAGEMENT OF
NTELOS. CONSEQUENTLY, THE PROJECTED FINANCIAL INFORMATION SHOULD NOT BE REGARDED
AS A REPRESENTATION OR WARRANTY BY THE DEBTOR, OR ANY OTHER PERSON, AS TO THE
ACCURACY OF THE PROJECTIONS OR THAT THE PROJECTIONS WILL BE REALIZED. ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE PRESENTED IN THE PROJECTED FINANCIAL
INFORMATION.
2. After consummation of the Plan, certain holders of Equity Interests
and Claims will own in excess of five percent of the outstanding
shares of New Common Stock.
Upon the consummation of the Plan, certain holders of Equity Interests
and Claims will receive distributions of shares of the New Common Stock
representing in excess of 5.0% of the outstanding shares of the New Common
Stock. See Section VIII.E, "Management of Reorganized NTELOS - Post-Effective
Date Security Ownership of Certain Owners." If holders of significant numbers of
shares of New Common Stock were to act as a group, such holders may be in a
position to control the outcome of actions requiring shareholder approval,
including the election of directors. Certain of these holders of Claims are
Participating Noteholders who could increase their ownership of New Common
Stock. This concentration of ownership could also facilitate or hinder a
negotiated change of control of the Reorganized Debtors and, consequently,
affect the value of the New Common Stock.
Further, if a trading market were to develop, the possibility that one
or more of the holders of significant numbers of shares of New Common Stock may
determine to sell all or a large portion of their shares of New Common Stock
within a short period of time may adversely affect the market price of the New
Common Stock.
3. There is no established market for the New Common Stock nor is it
expected that one will develop.
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The New Common Stock will be issued to holders of the Allowed Claims
and Allowed Equity Interests in Classes 5, 9 and 10, some of whom may prefer to
liquidate their investment rather than to hold it on a long-term basis. There is
currently no trading market for the New Common Stock (such as the Nasdaq Stock
Market or a national or regional stock exchange) nor is it known whether or when
a trading market would develop. Further, if such a market was to develop, there
can be no assurance to the degree of price volatility in any such particular
market. The Plan was developed utilizing an assumed value of $19.77 per share of
New Common Stock (based on the implied equity value associated with the New
Notes). No representation is made that such implied equity value represents the
fair market value nor that it is an estimate of the price at which the New
Common Stock may trade in a market, if any. NTELOS has not attempted to make any
such estimate in connection with the development of the Plan.
4. Reorganized NTELOS may discontinue its registration and Exchange Act
reporting obligations.
NTELOS is currently subject to registration and reporting requirements
under the Exchange Act. Whether Reorganized NTELOS will continue to be subject
to registration and reporting requirements will depend upon whether Reorganized
NTELOS will have at least three hundred (300) security holders following the
Effective Date. Reorganized NTELOS may determine to discontinue its registration
and reporting obligations under the Exchange Act if it is eligible to do so, in
which case less information concerning Reorganized NTELOS and its financial
condition would be publicly available to Reorganized NTELOS' security holders.
Continued compliance with Exchange Act reporting requirements would result in a
substantial expense and may be administratively burdensome for Reorganized
NTELOS.
5. Resale of the New Common Stock will be restricted by the Shareholders'
Agreement.
Pursuant to the terms of the Plan, as of the Effective Date,
Reorganized NTELOS and the holders of the New Common Stock likely will be bound
by a Shareholders' Agreement that will limit, restrict or prohibit the ability
of holders of New Common Stock to sell or otherwise transfer such securities for
a specified or indefinite period of time. It is anticipated that the
Shareholders' Agreement will contain such provisions (but may contain different
or additional provisions), including transfer restrictions with respect to the
New Common Stock, as set forth on Exhibit I hereto.
6. Resale of the New Notes, New Common Stock and New Warrants may be
restricted by law.
The New Common Stock and the New Warrants will be distributed under
the Plan without registration under the Securities Act or any state securities
laws under exemptions from registration contained in Section 1145(a) of the
Bankruptcy Code. The New Notes will be issued and sold to the Participating
Noteholders under the Plan without registration under the Securities act or any
state securities laws under the exemption from registration contained in Section
4(2) of the Securities Act. If a holder of securities offered and sold under the
Plan is deemed to be an "underwriter" with respect to such securities (with
certain exceptions for "ordinary trading transactions" by certain persons) or an
"affiliate" of the issuer of such securities, resales of such securities by such
holder would not be exempt from the registration requirements under the
Securities Act and securities laws under Section 1145 of the Bankruptcy Code
and, accordingly,
88
could be effected only under an effective registration statement or a reliance
on another applicable exemption from these registration requirements.
7. Reorganized NTELOS will not pay dividends on the New Common Stock.
NTELOS has not declared or paid any cash dividends on the Old Common
Stock since March 2000 and Reorganized NTELOS does not currently expect to
declare or pay any cash dividends on the New Common Stock in the foreseeable
future.
8. The rights of the New Notes will be senior to the rights of the New
Common Stock.
The holders of the New Notes will have a claim against Reorganized
NTELOS' assets senior to the claim of the holders of the New Common Stock in the
event of Reorganized NTELOS' liquidation, dissolution or winding-up. The
aggregate amount of that senior claim will be $75.0 million.
9. Conversion of the New Notes and exercise of the New Warrants will
dilute the ownership of holders of shares of New Common Stock.
Investors owning New Notes and New Warrants are entitled to acquire a
substantial percentage of the outstanding shares of New Common Stock upon
conversion or exercise of those securities. The actual amount of their future
percentage ownership of the New Common Stock, and the extent of dilution to
holders of the New Common Stock, will depend on a number of factors. The holders
of New Notes also would have the right to convert the New Notes into an
increased number of shares of New Common Stock if antidilution adjustments under
the New Indenture were triggered.
The New Notes will be convertible in whole or in part into shares of
New Common Stock at any time the New Notes are outstanding. Reorganized NTELOS
may redeem the New Notes at any time upon sixty (60) days prior notice to
holders of the New Notes. The New Notes may be redeemed by Reorganized NTELOS
during (a) the two (2) years following the Effective Date at a redemption price
equal to an amount that is 109.0% of the face value of the New Notes, (b) the
third year following the Effective Date at a redemption price equal to an amount
that is 104.5% of the face value of the New Notes and (c) the period thereafter
at a redemption price equal to an amount that is 100.0% of the face value of the
New Notes. Each New Warrant will be exercisable for New Common Stock in whole or
in part at any time during a five-year exercise period beginning on the
Effective Date. Any redemption of the New Notes permits the holder thereof to
exercise its conversion rights within a notice period of not less than 60 days.
10. The restrictive debt covenants under the New Credit Agreement and New
Indenture will limit NTELOS' discretion on certain business matters.
From and after the Effective Date, Reorganized NTELOS will be subject
to restrictions under the New Credit Agreement and the New Indenture that limit
Reorganized NTELOS' discretion on some business matters, which could make it
more difficult for Reorganized NTELOS to expand, finance its operations or
engage in other business activities that may be in Reorganized NTELOS' interest.
The restrictions under the New Credit Agreement or the New Indenture will limit
Reorganized NTELOS' ability to:
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. incur additional debt;
. pay dividends or make other distributions;
. make investments or other restricted payments;
. make capital expenditures;
. create any Lien on its properties; or
. sell certain assets;
. consolidate, merge or sell all or substantially all of its
assets; and
. change the nature of its business.
Reorganized NTELOS' indebtedness may limit its flexibility in
responding to important business developments, which could place Reorganized
NTELOS at a competitive disadvantage. Reorganized NTELOS' indebtedness may:
. limit its ability to obtain necessary financing in the
future;
. limit its ability to refinance all or a portion of its
indebtedness on or before maturity;
. limit its ability to fund planned capital expenditures;
. require Reorganized NTELOS to use a significant portion of
its cash flow from operations to pay its debt obligations
rather than for other purposes, such as funding working
capital or capital expenditures; and
. make Reorganized NTELOS more vulnerable to a downturn in its
business or in the economy in general.
These agreements also may limit Reorganized NTELOS' flexibility to
plan for, or react to, changes in its business, place Reorganized NTELOS at a
competitive disadvantage relative to its competitors who have less debt, make
Reorganized NTELOS more vulnerable to a downturn in its business or the economy
generally, and require Reorganized NTELOS to use a substantial portion of its
cash flow from operations to pay principal and interest on its debt, rather than
for working capital and capital expenditures.
C. Risks Related to the Business of the Company.
1. The Company faces substantial competition in the telecommunications
industry generally from competitors with substantially greater
resources than the Company and from competing technologies.
The Company operates in an increasingly competitive environment. As a
wireless communications provider, the Company faces intense competition from
other wireless providers, including Sprint and its affiliates, AT&T/SunCom,
Verizon Wireless, ALLTEL, Nextel, Cellular One, T-Mobile and Cingular Wireless.
Many of the Company's competitors are, or are affiliated with, major
communications companies that have substantially greater financial, technical
and marketing resources than the Company and may have greater name recognition
and more established relationships with a larger base of current and potential
customers, and accordingly, the Company may not be able to compete successfully.
The Company expects that increased competition will result in more competitive
pricing. Companies that have the resources to
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sustain losses for some time have an advantage over those companies without
access to these resources. The Company cannot assure you that it will be able to
achieve or maintain adequate market share or revenue or compete effectively in
any of its markets.
Competition may cause the prices for wireless products and services to
continue to decline in the future. The Company's ability to compete will depend,
in part, on its ability to anticipate and respond to various competitive factors
affecting the telecommunications industry.
Additionally, many of the Company's competitors have national
networks, which enable them to offer long-distance telephone services to their
subscribers at a lower cost. Therefore, some of the Company's competitors are
able to offer pricing plans that include "free" long-distance. The Company does
not have a national network, and it must pay other carriers a per-minute charge
for carrying long-distance calls made by subscribers. To remain competitive, the
Company absorbs the long-distance charges without increasing the prices it
charges to its subscribers.
The Company expects competition to intensify as a result of the rapid
development of new technologies, including improvements in the capacity and
quality of digital technology, such as the move to third generation, or 3G,
wireless technologies. Technological advances and industry changes could cause
the technology used on the Company's network to become obsolete. The Company may
not be able to respond to such changes and implement new technology on a timely
basis or at an acceptable cost. To the extent that the Company does not keep
pace with technological advances or fail to timely respond to changes in
competitive factors in its industry, it could experience a decline in revenue
and net income. Each of the factors and sources of competition discussed above
could have a material adverse effect on the Company's business.
As a wireline telephone business, the Company faces competition from
CLEC and wireless service providers. Many communications services can be
provided without incurring a short-run incremental cost for an additional unit
of service. For example, there is little marginal cost for a carrier to transmit
a call over its own telephone network. As a result, once there are several
facilities-based carriers providing a service in a given market, price
competition is likely and can be severe. The Company has experienced such price
competition, which is expected to continue. In each of the Company's service
areas, additional competitors could build facilities. If additional competitors
build facilities in the Company's service areas, this price competition may
increase significantly.
As an integrated communications provider, the Company also faces
competition in its business from:
. national and regional Internet service providers;
. cable television companies; and
. resellers of communications services and enhanced services
providers.
2. If the Company fails to raise the capital required to build-out and
operate its planned networks or fails to have access to funds under
the Pre-Petition Credit Agreement, it may experience a material
adverse effect on its business.
The Company requires additional capital to build-out and operate
planned networks and for general working capital needs. The Company expects its
capital expenditures
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for 2003 to be approximately $58.0 million to $66.0 million in the aggregate,
including approximately $8.0 million to $10.0 million relating to a planned
wireless network upgrade to 3G-1XRTT technology. The Company may require
additional and unanticipated funds if there are significant industry, market or
other economic developments not contemplated by its current business plan, if it
has unforeseen delays, cost overruns, unanticipated expenses due to regulatory
changes, if it incurs engineering design changes or other technological risks.
The Company's network build-out may not occur as scheduled or at the cost it has
anticipated. The Company believes that proceeds from the issuance of the New
Notes and the availability of the $36.0 million revolver under the Pre-Petition
Credit Agreement will provide such additional funds; however, there can be no
assurance that the New Notes will be issued or that the Pre-Petition Credit
Agreement will be in place.
3. The Company needs to add a sufficient number of new PCS customers to
support its PCS business plans and to generate sufficient cash flow to
service its debt.
The wireless industry generally has experienced a decline in customer
growth rates. The Company also experienced a decline in its subscriber base in
2002. The Company's future success will depend on its ability to continue
expanding its current customer base, penetrate its target markets and otherwise
capitalize on wireless opportunities. The Company must increase its subscriber
base without excessively reducing the prices it charges to realize the
anticipated cash flow, operating efficiencies and cost benefits of its network.
4. If the Company experiences a high rate of PCS customer turnover, its
costs could increase and its revenues could decline.
Many PCS providers in the U.S. have experienced a high rate of
customer turnover. The rate of customer turnover may be the result of several
factors, including limited network coverage, reliability issues such as blocked
or dropped calls, handset problems, inability to roam onto third-party networks
at competitive rates, or at all, price competition and affordability, customer
care concerns and other competitive factors. The Company cannot assure you that
its strategies to address customer turnover will be successful. A high rate of
customer turnover could reduce revenues and increase marketing and customer
acquisition costs to attract the minimum number of replacement customers
required to sustain the Company's business plan, which, in turn, could have a
material adverse effect on the Company's business, prospects, operating results
and ability to service its debt.
5. The loss of significant customers or a decrease in their usage could
cause the Company's revenues to decline.
For the year ended December 31, 2002, Horizon Personal Communications,
Inc. accounted for approximately 12.4% of the Company's revenue. In late 2002,
Horizon notified the Company that it disputed certain categories of charges
invoiced to Horizon. In connection with this dispute, on March 24, 2003, a
stipulation was filed with the Bankruptcy Court pursuant to which the Company
agreed with Horizon to negotiate in good faith toward resolution of the dispute.
If the Company is unable to resolve this dispute, its relationship with Horizon
may be significantly impacted. A description of the Stipulation appears in
Section V.I., "Events During the Chapter 11 Case - Litigation". The Company's
ability to maintain strong relationships with its principal customers is
essential to its future performance. If the Company loses Horizon or any other
key customer or if Horizon or any of its other key customers reduce their usage,
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require it to reduce its prices or are unable to pay its charges, the Company's
revenue could decline, which could cause its business, financial condition and
operating results to suffer.
6. The Company's larger competitors and/or wholesale customers may build
networks in its markets, which may result in decreased roaming
revenues and severe price-based competition.
The Company's current roaming partners, larger wireless providers
and/or wholesale customers might build their own digital PCS networks in the
Company's service areas. Should this occur, use of the Company's networks would
decrease and its roaming and/or wholesale revenues would be adversely affected.
Once a digital PCS system is built out, there are only marginal costs to
carrying an additional call, so a larger number of competitors in the Company's
service areas could introduce significantly higher levels of price competition
and reduce its revenues, as has occurred in many areas in the United States.
Over the last three years, the per-minute rate for wireless services has
declined. The Company expects this trend to continue into the foreseeable
future. As per-minute rates continue to decline, the Company's revenues and cash
flows may be adversely impacted.
7. The Company's largest customer may face severe financial problems.
On March 28, 2003, Horizon filed its Form 10-K for the year ending
December 31, 2002. In this report, Horizon disclosed that there was substantial
doubt about its ability to continue as a going concern because of the
probability that Horizon will violate one or more of its debt covenants in 2003.
The Company's future wholesale revenues under its wholesale network services
agreement with Horizon could be materially impacted if Horizon was to be unable
to continue as a going concern.
8. The Company's results of operations may decline if the roaming rates
it charges for the use of its network by outside customers decrease or
the roaming rates it pays for its customers' usage of third-party
networks increase.
The Company earns revenues from customers of other wireless
communications providers who enter its service areas and its network, commonly
referred to as roaming. Roaming rates per minute have declined over the last
several years and the Company expects that these declines will continue for the
foreseeable future. Similarly, because the Company does not have a national
network, it must pay roaming charges to other communications providers when its
wireless customers use their networks. The Company has entered into roaming
agreements with other communications providers that govern the roaming rates
that it is permitted to charge and that it is required to pay. If these roaming
agreements are terminated, the roaming rates the Company currently charges may
further decrease and the roaming rates that it is charged may increase and,
accordingly, the Company's revenues and cash flow may decline.
9. The Company may incur significantly higher wireless handset subsidy
costs than it anticipates for existing subscribers who upgrade to a
new handset.
As the Company's subscriber base grows, and technological innovations
occur, more existing subscribers will begin to upgrade to new wireless handsets.
The Company subsidizes a portion of the price of wireless handsets and incurs
sales commissions, even for handset upgrades. The Company does not have any
historical experience regarding the adoption rate for wireless handset upgrades.
If more subscribers upgrade to new wireless handsets than the Company projects,
its results of operations would be adversely affected.
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10. The loss of the Company's licenses could adversely affect its ability
to provide wireless and wireline services.
In the United States, cellular, personal communications services and
microwave licenses are valid for ten (10) years from the effective date of the
license. Licensees may renew their licenses for additional ten-year periods by
filing a renewal application with the FCC. The renewal applications are subject
to FCC review and are put out for public comment to ensure that the licensees
meet their licensing requirements and comply with other applicable FCC mandates.
If the Company fails to file for renewal of these licenses or fails to meet any
licensing requirements, it could be denied a license renewal and, accordingly,
its ability to continue to provide service in that license area would be
adversely affected.
11. Because the Company relies heavily on a retail distribution channel,
it is subject to risks generally associated with retail operations
that could adversely impact its operations and financial condition.
The Company's strategy emphasizes product and service distribution
through retail stores located across the regions which it serves. As of December
31, 2002, the Company owned or operated 97 retail stores and kiosks.
Furthermore, the Company will continue to open new retail outlets. Accordingly,
the Company must successfully manage various risks associated with retail
operations, including inventory management, internal and external theft, the
ability to hire and retain qualified and knowledgeable employees, employee
turnover and training expenses, collective employee action, and identifying and
securing suitable locations. The Company's inability to successfully manage any
of these factors could have a material adverse impact on its business strategy,
operations and financial condition.
D. Risks Relating to the Communications Industry.
1. Rapid and significant technological changes in the communications
industry may adversely affect the Company.
The Company faces rapid and significant changes in technology, and it
relies on third parties for the development of and access to new technology. New
technologies may be protected by patents or other intellectual property laws and
therefore may not be available to the Company. The Company employs code division
multiple access, known as CDMA, which is a relatively new technology. CDMA may
not provide the advantages that the Company expects. If another technology
becomes the preferred industry standard, the Company may be at a competitive
disadvantage and competitive pressures may require it to change its digital
technology which, in turn, may require it to incur substantial costs. The
Company may not be able to respond to such pressures and implement new
technology on a timely basis, or at an acceptable cost.
In particular, the wireless communications and Internet industries are
experiencing significant technological change, including:
. an increasing pace in digital upgrades of existing analog
wireless systems;
. evolving industry standards;
. the allocation of new radio frequency spectrum in which to
license and operate advanced wireless services;
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. ongoing improvements in the capacity and quality of digital
technology;
. shorter development cycles for new products and
enhancements; and
. changes in end-user requirements and preferences.
2. The Company cannot predict the effect of technological changes on its
business.
The Company believes its future success will depend, in part, on its
ability to anticipate or adapt to such changes and to offer, on a timely basis,
services that meet customer demands. The Company cannot assure you that it will
obtain access to new technology on a timely basis or on satisfactory terms. The
Company's failure to obtain access to this new technology could have a material
adverse effect on its business, prospects, operating results and ability to
service its debt.
3. The Company is subject to a complex and uncertain regulatory
environment that may require it to alter its business plans and may
increase its competition.
The U.S. communications industry is subject to federal, state and
other regulation that is continually evolving. As new communications laws and
regulations are issued, the Company may be required to modify its business plans
or operations. The Company cannot assure you that it can do so in a
cost-effective manner. Federal and state regulatory trends in favor of reduced
regulation have had, and are likely to have, both positive and negative effects
on the Company and its ability to compete. The regulatory environment governing
ILEC operations has been and will likely continue to be very liberal in its
approach to promoting competition and network access. Although no CLECs have
entered the Company's ILEC markets, it is possible that one or more may enter
its markets to compete for its largest business customers. Federal or state
regulatory changes and any resulting increase in competition may have a material
adverse effect on the Company's businesses. Further, the Company cannot assure
you that federal, state or local governments will not enact regulations or take
other actions that might have a material adverse effect on the Company's
business. These changes could materially and adversely affect the Company's
business prospects, operating results or its ability to service its debt.
4. The possible health effects of radio frequency emission may adversely
affect the demand for wireless telephone services.
Media reports have suggested that certain radio frequency emissions
from portable wireless telephones may be linked to various health concerns,
including cancer, and may interfere with heart pacemakers and other medical
devices. Concerns over radio frequency emissions and interference may have the
effect of discouraging the use of wireless telephones, which could have an
adverse effect upon the Company's business. In recent years, the FCC has updated
the guidelines and methods it uses for evaluating radio frequency emissions from
radio equipment, including portable wireless telephones. In addition, interest
groups have requested that the FCC investigate claims that digital technologies
pose health concerns and cause interference with hearing aids and other medical
devices.
5. The risks associated with using wireless telephones while driving may
lead to increased legislation or liability for accidents, which may
have an adverse impact on the Company's operations.
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There may be safety risks associated with the use of portable wireless
phones while driving. Concerns over these putative safety risks and the effect
of any legislation that may be adopted in response to these risks could limit
the Company's ability to market and sell its wireless service. Furthermore, it
is possible that government authorities will increase regulations of wireless
telephones resulting from these concerns or that wireless telephone companies
may be liable for costs or damages associated with these concerns. If new
legislation limits the Company's ability to market and sell wireless service or
results in decreased demand for its services, or it is held liable for
automobile accidents that occur while a driver is using a wireless phone, the
Company's operations and financial condition may be adversely impacted.
XII.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
A. Introduction.
The following discussion summarizes the material federal income tax
consequences expected to result from the consummation of the Plan. This
discussion is based on current provisions of the Tax Code, applicable Treasury
Regulations, judicial authority and current administrative rulings and
pronouncements of the Service, all of which are subject to change, possibly with
retroactive effect. There can be no assurance that the Service will not take a
contrary view; no ruling from the Service or opinion of counsel as to any of the
expected tax consequences set forth below has been or will be sought.
The following discussion is for general information only and describes the
anticipated tax consequences for only those holders of Allowed Claims or Equity
Interests that are entitled to vote on the Plan. The tax treatment of a holder
may vary depending upon such holder's particular situation. This discussion
assumes that holders of the Old Securities (other than the Old Bank Debt) have
held such property as "capital assets" within the meaning of Section 1221 of the
Tax Code (generally, property held for investment) and will also hold the New
Common Stock and the New Warrants as "capital assets." This discussion also
assumes that the Old Bank Debt, the New Bank Debt, the Senior Notes and the
Subordinated Notes are properly treated as indebtedness for federal income tax
purposes. This summary does not address all of the tax consequences that may be
relevant to a holder of an Allowed Claim or Equity Interest, such as the
potential application of the alternative minimum tax, nor does it address the
federal income tax consequences to holders subject to special treatment under
the federal income tax laws, such as brokers or dealers in securities or
currencies, certain securities traders, tax-exempt entities, financial
institutions, insurance companies, foreign corporations, foreign trusts, foreign
estates, holders who are not citizens or residents of the United States, holders
that hold the Old Securities as a position in a "straddle" or as part of a
"synthetic security," "hedging," "conversion" or other integrated instrument,
holders that have a "functional currency" other than the United States dollar
and holders that have acquired the Old Securities in connection with the
performance of services. EACH HOLDER SHOULD CONSULT ITS OWN TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO IT OF THE PLAN, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN TAX LAWS.
B. Federal Income Tax Consequences to the Debtors.
1. Cancellation of Indebtedness and Reduction of Tax Attributes.
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NTELOS or, in the case of Allowed General Unsecured Claims, NTELOS
Subsidiaries generally will realize cancellation of indebtedness income on the
discharge of existing indebtedness exchanged for property to the extent that the
fair market value of any property (including New Common Stock) received by
holders of indebtedness is less than the adjusted issue price (plus the amount
of any accrued but unpaid interest) of the indebtedness exchanged for such
property. The adjusted issue prices of the Senior Notes and the Subordinated
Notes will be equal to their issue prices, plus accrued original issue discount.
Under Section 108 of the Tax Code, realized cancellation of
indebtedness income will not be recognized if the cancellation of indebtedness
income occurs in a case under the Bankruptcy Code, provided the cancellation of
indebtedness is granted by the court or is pursuant to a plan approved by the
court (the "Bankruptcy Exception"). Accordingly, because the cancellation of the
Debtors' indebtedness will occur under such circumstances, the Debtors will not
be required to recognize any cancellation of indebtedness income realized
pursuant to the Plan.
Under Section 108(b) of the Tax Code, a taxpayer that does not
recognize cancellation of indebtedness income under the Bankruptcy Exception
will be required to reduce certain tax attributes, including its NOLs, certain
other losses, credits and carryforwards (if any), and tax basis in its assets
(but not below the amount of liabilities remaining immediately after the
discharge of indebtedness), in an amount generally equal in the aggregate to the
amount of cancellation of indebtedness income excluded under the Bankruptcy
Exception. The taxpayer may elect under Section 108(b)(5) of the Tax Code (the
"Section 108(b)(5) Election") to avoid the prescribed order of attribute
reduction (which begins first with NOLs for the taxable year of the discharge
and NOL carryovers to such taxable year) and instead reduce the basis of
depreciable property first. The limitation prohibiting the reduction of asset
basis below the amount of its remaining undischarged liabilities does not apply
to the basis reduction resulting from the Section 108(b)(5) Election. The
Debtors have not yet determined whether they will make the Section 108(b)(5)
Election.
Whether the reduction in tax attributes occurs on a separate company
or consolidated group basis is not clear. Because the Senior Notes and the
Subordinated Notes are obligations of NTELOS, if attribute reduction were
applied on a separate company basis, only the separate tax attributes of NTELOS
would have to be reduced. The Service's position with respect to NOLs appears to
be that attribute reduction applies to consolidated NOLs on a group basis.
NTELOS currently intends to take the position that attribute reduction with
respect to NOLs will be applied to the Debtors' consolidated NOLs.
The Debtors have reported on their federal income tax returns
approximately $166.5 million of consolidated NOLs and NOL carryovers, and
approximately $138.0 million of consolidated NOLs and NOL carryovers for
purposes of the alternative minimum tax ("AMT NOLs"), through the 2001 tax year.
Some of the existing NOL carryovers may be subject to certain usage limitations
under Section 382 of the Tax Code and the consolidated return rules provided in
the Treasury Regulations. NTELOS believes that the consolidated group generated
an additional consolidated NOL for federal income tax purposes in its 2002 tax
year of approximately $121.2 million (and approximately $108.2 million of AMT
NOLs) and will probably generate an additional NOL (and AMT NOL) for the portion
of its 2003 tax year preceding the Effective Date. However, the amount of the
2002 and 2003 NOLs and AMT NOLs will not be determined by NTELOS until it
prepares the consolidated federal income tax return for such periods.
Furthermore, any NOLs and AMT NOLs are subject to audit and
97
possible challenge by the Service and thus may ultimately vary from the amounts
indicated above.
As a result of the application of Section 108(b) of the Tax Code (and
assuming a Section 108(b)(5) Election will not be made), NTELOS believes that a
substantial portion of the Debtors' NOLs (and AMT NOLs) will be eliminated after
consummation of the Plan.
2. Section 382 Limitations on NOLs.
Under Section 382 of the Tax Code, if a Loss Corporation undergoes an
"ownership change," the use of its NOLs (and certain other tax attributes)
generally will be subject to an annual limitation, as described below. In
general, an "ownership change" occurs if the percentage of the value of the Loss
Corporation's stock (including the parent corporation in a consolidated group)
owned by one or more direct or indirect "five percent shareholders" has
increased by more than fifty (50) percentage points over the lowest percentage
of that value owned by such five percent shareholder or shareholders at any time
during the applicable "testing period" (generally, the shorter of (i) the
three-year period preceding the testing date or (ii) the period of time since
the most recent ownership change of the corporation). NTELOS believes it is
likely that the Plan will trigger an ownership change of NTELOS and the NTELOS
Subsidiaries that are corporations (the "Debtor Group") on the Effective Date
under the Tax Code.
Subject to certain bankruptcy exceptions discussed below, a Loss
Corporation's use of NOLs (and certain other tax attributes) after an "ownership
change" generally will be limited annually to the product of the long-term
tax-exempt rate (as published by the Service for the month in which the
"ownership change" occurs) and the value of the Loss Corporation's outstanding
stock immediately before the ownership change, excluding certain capital
contributions (the "Section 382 Limitation"). The Section 382 Limitation for a
taxable year may be increased by the amount of any "built-in gains" recognized
for such taxable year within the five-year period following the date of the
"ownership change". The increase cannot exceed the "net unrealized built-in
gain" (if such gain exists immediately before the "ownership change" and exceeds
a statutorily-defined threshold amount), reduced by recognized built-in gains
from prior years. In addition, any "built-in losses" recognized within such
five-year period may be subject to the Section 382 Limitation in the same manner
as if such losses were an existing NOL, to the extent such recognized built-in
losses do not exceed the "net unrealized built-in loss" (if such loss exists
immediately before the "ownership change" and exceeds a statutorily-defined
threshold amount), reduced by recognized built-in losses for prior taxable
years. NTELOS believes that the Debtors likely will have a "net unrealized
built-in loss" that will exceed the statutorily-defined threshold amount on the
Effective Date, but such a determination will ultimately depend upon the tax
basis of the Debtors' assets and their value as of the Effective Date. To the
extent that the Section 382 Limitation in a given year exceeds taxable income
for such year, the excess will increase the Section 382 Limitation for future
taxable years. Finally, if the Debtor Group does not continue its historic
business or use a significant portion of its historic business assets in a new
business for two (2) years after the Effective Date, the Section 382 Limitation
will become zero. The Debtor Group does not intend to discontinue the conduct of
its historic business after the Effective Date.
Two alternative bankruptcy exceptions for Loss Corporations undergoing
an ownership change pursuant to a bankruptcy proceeding are provided in the Tax
Code. The first exception, Section 382(1)(5) of the Tax Code, applies where
"qualified creditors" of the debtor
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receive at least 50% of the vote and value of the stock of the reorganized
debtor in a case under the Bankruptcy Code. Under this exception, a debtor's
pre-change NOLs are not subject to the Section 382 Limitation but are further
reduced by the amount of any interest deductions, in respect of the debt
converted into stock in the bankruptcy reorganization, for the three taxable
years preceding the taxable year in which the ownership change occurs and for
the part of the taxable year through the effective date of the reorganization.
Moreover, if this exception applies, any further ownership change of the debtor
within the succeeding two years will preclude the debtor's future utilization of
any pre-change losses existing at the time of the subsequent ownership change.
A "qualified creditor" includes a creditor who has held the debt of
the debtor for at least eighteen (18) months prior to the date of the filing of
the bankruptcy case or who has held "ordinary course indebtedness" at all times
it has been outstanding. Any debt owned immediately before an ownership change
by a creditor who does not become a direct or indirect five percent shareholder
of the reorganized debtor generally will be treated as always having been owned
by such creditor, except in the case of a creditor whose participation in
formulating the plan of reorganization makes evident to the debtor that the
creditor has not owned the debt for the required period.
The second bankruptcy exception, Section 382(l)(6) of the Tax Code,
does not require further reduction of NOLs and provides relief in the form of a
relaxed computation of the Section 382 Limitation. In that regard, Section
382(l)(6) of the Tax Code and related Treasury Regulations provide that the
value of the Loss Corporation's outstanding stock for purposes of computing the
Section 382 Limitation will be the value of the stock outstanding immediately
after (rather than before) the ownership change, thus reflecting the
cancellation of indebtedness in the bankruptcy case (subject to a ceiling on
stock value equal to the value of the Loss Corporation's gross assets
immediately before the ownership change).
The Treasury Regulations that apply the Section 382 rules to
consolidated groups do not address how the Section 382(1)(5) and Section
382(1)(6) bankruptcy exceptions apply to consolidated groups. Accordingly, it is
not certain how these exceptions will apply to the Debtor Group. The Debtor
Group currently intends to take the position, consistent with certain rulings
issued by the Service and other authority, that the Section 382(1)(6) rules will
apply on a consolidated group basis. If the requirements of Section 382(1)(5)
are satisfied and Reorganized NTELOS does not elect to apply the rules of
Section 382(1)(6), the Debtors also currently intend to apply the rules of
Section 382(1)(5) on a consolidated group basis.
NTELOS believes it is likely that the Plan will trigger an "ownership
change" of the Debtor Group on the Effective Date. Whether the Section 382(1)(5)
exception will be available is not certain. Even if the Section 382(l)(5)
exception is available, Reorganized NTELOS may determine that the Section
382(1)(6) exception is more desirable and therefore may elect to apply the
provisions of Section 382(1)(6). In that event, the Reorganized Debtors' use of
pre-ownership change NOLs, AMT NOLs and certain other tax attributes, to the
extent remaining after reduction as a result of the cancellation of
indebtedness, will be limited.
3. Alternative Minimum Tax.
In general, AMT is imposed on a corporation's AMTI at a 20% rate to
the extent that AMT exceeds the corporation's regular federal income tax. For
purposes of computing AMTI, certain tax deductions and other beneficial
allowances are modified or eliminated. In
99
addition, if a Loss Corporation having a net unrealized built-in loss undergoes
an "ownership change" within the meaning of Section 382 of the Tax Code (as
discussed above), the corporation's aggregate tax basis in its assets must be
reduced for certain AMT purposes to reflect the fair market value of such
assets. Moreover, even though the Debtor Group might be able to offset all of
its taxable income for regular tax purposes by available NOL carryforwards, only
90% of AMTI may be offset by available AMT NOL carryforwards. Thus, the Debtor
Group may have to pay AMT regardless of whether it generates a regular tax NOL
or has sufficient NOL carryforwards to offset regular taxable income for tax
periods after the Effective Date. Any AMT that a corporation pays generally will
be allowed as a nonrefundable credit against its regular federal income tax
liability in future years when the corporation is no longer subject to the AMT.
C. Federal Income Tax Consequences to Holders of Old Bank Debt.
Under Treasury Regulations, changes in the terms of a debt instrument will
be treated as an "exchange" of the original debt instrument for the modified
debt instrument if there has been a "significant modification" of the original
debt instrument. The determination of whether a "significant modification" has
occurred is based on all the facts and circumstances and generally requires that
the legal rights that are altered and the degree to which they are altered are
economically significant.
Because the terms of the Old Bank Debt will be revised on the Effective
Date, it is possible that an "exchange" of Old Bank Debt for New Bank Debt will
be deemed to occur on the Effective Date. If the Old Bank Debt is subject to an
"exchange," the exchange will trigger the recognition of gain or loss for
holders of the Old Bank Debt unless both the "old" and "new" debt constitute
"securities" within the meaning of the provisions of the Tax Code governing
"reorganizations." The test as to whether a debt instrument is a "security"
involves an overall evaluation of the nature of the debt instrument, with the
term to maturity of the debt instrument usually regarded as one of the most
significant factors. Bank debt like the Old Bank Debt and New Bank Debt
generally does not constitute a "security". HOLDERS OF OLD BANK DEBT SHOULD
CONTACT THEIR OWN TAX ADVISORS AS TO WHETHER THE OLD BANK DEBT WILL BE SUBJECT
TO A TAXABLE "EXCHANGE" AND, IF SO, WHETHER THE HOLDER WOULD REALIZE ANY INCOME
FOR FEDERAL INCOME TAX PURPOSES.
D. Federal Income Tax Consequences to Holders of Senior Notes or Subordinated
Notes.
1. Exchanges of Senior Notes or Subordinated Notes for New Common Stock.
Except possibly with respect to accrued interest, gain or loss will
not be recognized by holders who exchange Senior Notes or Subordinated Notes for
New Common Stock pursuant to the Plan, provided that the Senior Notes and the
Subordinated Notes are considered to be "securities" within the meaning of the
provisions of the Tax Code governing reorganizations. The test as to whether a
debt instrument is a "security" involves an overall evaluation of the nature of
the debt instrument, with the term to maturity of the debt instrument usually
regarded as one of the most significant factors. Generally, debt instruments
with a term of five years or less have not qualified as "securities," whereas
debt instruments with a term of ten years or more generally have qualified as
"securities." The Senior Notes and the Subordinated Notes each should be treated
as "securities" for federal income tax purposes. Accordingly, provided the
Senior Notes and Subordinated Notes are so treated, holders of Senior Notes and
holders of Subordinated Notes generally will not recognize any gain or loss upon
the
100
exchange of such notes for New Common Stock pursuant to the Plan. However, to
the extent the New Common Stock is attributable, for federal income tax
purposes, to accrued but unpaid interest on the Senior Notes or the Subordinated
Notes, holders generally will be required to treat such amounts as payments of
interest (see "--Accrued Interest" below). Except for New Common Stock
attributable to accrued and unpaid interest, a holder's tax basis in the New
Common Stock will be equal to the holder's tax basis in the Senior Notes or
Subordinated Notes exchanged therefor, and a holder's holding period for the New
Common Stock will include the holder's holding period for such Senior Notes or
Subordinated Notes, provided they are "securities".
If the Senior Notes or the Subordinated Notes were determined not to
constitute "securities" for federal income tax purposes, then a holder of such
Notes would generally recognize gain or loss equal to the difference between the
fair market value of the New Common Stock received in exchange for such Notes
(excluding any New Common Stock attributable, for federal income tax purposes,
to accrued interest) and the holder's tax basis in such Notes. To the extent the
New Common Stock is attributable to accrued but unpaid interest on the Notes,
holders generally will be required to treat such amounts as payments of interest
(see "--Accrued Interest" below). Any such gain or loss generally would be
long-term capital gain or loss (except for market discount, as discussed below),
if such Notes were held for more than one year. Certain limitations apply to the
deduction of capital losses. A holder's tax basis in the New Common Stock
received in the exchange would be equal to its fair market value on the
Effective Date, and the holding period for the New Common Stock would begin on
the day immediately after the Effective Date, if the notes exchanged for the New
Common Stock were not "securities".
2. Accrued Interest.
A holder of Senior Notes or Subordinated Notes will be treated as
receiving a payment of interest (includible in income in accordance with the
holder's method of accounting for federal income tax purposes) to the extent
that any New Common Stock received pursuant to the Plan is attributable, for
federal income tax purposes, to unpaid interest (including original issue
discount) that accrued during the holder's holding period for such Notes. The
extent to which the receipt of New Common Stock should be attributable to
accrued but unpaid interest (including original issue discount) is unclear. The
Reorganized Debtors intend to take the position that New Common Stock
distributed pursuant to the Plan will first be allocable to principal. It is
possible, however, that the Service may take a contrary position.
To the extent any New Common Stock received pursuant to the Plan is
considered attributable to such accrued but unpaid interest, a holder will
recognize ordinary income equal to the fair market value of such New Common
Stock if the interest was not previously taken into income by the holder, and a
holder's basis in such New Common Stock should be equal to its fair market
value. The holding period in such New Common Stock should begin the day after
the Effective Date. A holder generally will be entitled to recognize a loss to
the extent any such accrued interest (including original issue discount) that
was previously included in its gross income exceeds the fair market value of the
New Common Stock attributable to such interest. EACH HOLDER SHOULD CONSULT ITS
OWN TAX ADVISOR REGARDING THE DETERMINATION OF THE AMOUNT OF CONSIDERATION
RECEIVED UNDER THE PLAN THAT IS ATTRIBUTABLE TO INTEREST (IF ANY).
101
3. Market Discount.
The Tax Code generally requires holders of Market Discount Bonds to
treat as ordinary income any gain realized on the disposition of such bonds to
the extent the gain does not exceed accrued market discount. For this purpose, a
purchase at a market discount includes a purchase at a price less than the
adjusted issue price of the debt instrument (in the case of a Senior Note or
Subordinated Note, its adjusted issue price will be equal to its issue price
plus accrued original issue discount). Market discount generally accrues on a
straight line basis, unless a holder elects to use a constant interest rate
method. A holder of a debt instrument acquired at a market discount may elect to
include the market discount in income as the discount accrues on a current
basis, in which case the preceding rule with respect to the recognition of
ordinary income on a sale or other disposition of such bond would not apply.
Provided the exchanges of the Senior Notes and the Subordinated Notes
for New Common Stock are treated as non-recognition transactions, any accrued
(but unrecognized) market discount on the Senior Notes and the Subordinated
Notes will not be recognized as income at the time of the exchange but instead
will attach to the New Common Stock received. On a subsequent taxable
disposition of the New Common Stock received in the exchange, gain will be
treated as ordinary income to the extent of market discount accrued prior to the
exchange.
E. Federal Income Tax Consequences to Holders of Old Preferred Stock.
The exchange of Old Preferred Stock for solely New Warrants pursuant to the
Plan apparently will not constitute a non-recognition transaction for holders of
Old Preferred Stock. As a result, it appears that holders of Old Preferred Stock
generally will recognize capital gain or loss on the exchange, equal to the
difference between a holder's tax basis in its Old Preferred Stock and the fair
market value of the New Warrants received in exchange. However, if a holder's
percentage stock ownership in Reorganized NTELOS (taking into account stock that
may be acquired through the exercise of New Warrants and other stock actually
owned by the holder or constructively owned under the rules of Section 318 of
the Tax Code) is not significantly less than the holder's stock ownership in
NTELOS before the exchange (taking into account stock constructively owned), the
holder might be treated as receiving a dividend distribution equal to the fair
market value of the New Warrants, instead of recognizing gain or loss. A
holder's tax basis in New Warrants received in exchange for Old Preferred Stock
should equal their fair market value on the Effective Date, and a holder's
holding period for New Warrants should begin the day after the Effective Date.
Upon the exercise of a New Warrant, a holder should recognize no gain or
loss. The holder's tax basis in shares of New Common Stock acquired through such
exercise should equal the holder's basis in the exercised New Warrant plus the
exercise price. The holding period for such New Common Stock should begin on the
date the New Warrant is exercised. If a New Warrant is never exercised and
expires, the holder should recognize a loss equal to the holder's tax basis in
the New Warrant; such loss generally will be a capital loss.
F. Federal Income Tax Consequences to Holders of General Unsecured Claims.
Although not entirely clear, the discharge of an Allowed General Unsecured
Claim in exchange for Cash on the Effective Date equal to 30.6% of a holder's
Allowed General Unsecured Claim, Cash on the first anniversary of the Effective
Date equal to 20.4% of such claim, and Cash on the second anniversary of the
Effective Date equal to 17% of such Claim apparently should be treated as an
exchange of the Claim for (i) the Cash to be received on the Effective Date and
(ii) a debt instrument of the Reorganized Debtor, payable on the first and
102
second anniversaries of the Effective Date. In that case, each holder of an
Allowed General Unsecured Claim should recognize gain or loss in an amount equal
to the difference between the "amount realized" by the holder in satisfaction of
its Claim and the holder's tax basis in its Claim. The "amount realized" will
equal the sum of the amount of Cash payable to the holder on the Effective Date
plus the "issue price" of such debt instrument. The "issue price" apparently
should be the present value of the payments to be made on the first and second
anniversary dates, determined by discounting those payments by the "applicable
federal rate" for short-term debt instruments determined under Section 1274(d)
of the Tax Code for the month in which the Effective Date occurs. The short-term
applicable federal rate currently is 1.53%, compounded annually, but the
applicable rate could be more or less in the month the Effective Date occurs.
The difference between the total amount payable to a holder of an Allowed
General Unsecured Claim on the first and second anniversaries of the Effective
Date and the total present value of those payments will be taxable as imputed
interest income (or original interest discount), computed on a constant-yield
method from the Effective Date until the second anniversary. A portion of each
payment on the two anniversary dates will represent imputed interest, but
holders apparently will be required to accrue the imputed interest into income
on a daily basis. Consequently, holders may have imputed interest income before
receiving Cash representing the imputed interest. It is arguable, however, that
a holder who is to receive no more than $250,000 for all of the holder's Allowed
General Unsecured Claims will not be required to include the imputed interest in
income until payments are received, if the holder otherwise uses the cash method
of accounting for federal income tax purposes.
The character of gain or loss recognized by a holder of an Allowed General
Unsecured Claim on the deemed exchange of such Claim will depend on the holder's
particular circumstances. Accounts receivable acquired in the ordinary course of
business for services rendered or from the sale of inventory generally do not
constitute capital assets; consequently, gain or loss with respect to an Allowed
General Unsecured Claim acquired in that manner generally will be ordinary,
rather than capital, gain or loss. A holder who realizes a gain with respect to
an Allowed General Unsecured Claim might qualify to use the installment method
under Section 453 of the Tax Code to report the gain, under certain
circumstances.
HOLDERS OF ALLOWED GENERAL UNSECURED CLAIMS SHOULD CONSULT THEIR TAX
ADVISORS REGARDING THE COMPUTATION AND CHARACTER OF GAIN OR LOSS WITH RESPECT TO
SUCH CLAIMS, THE AMOUNT AND TIMING OF IMPUTED INTEREST INCOME, AND (FOR HOLDERS
RECOGNIZING GAIN) THE POTENTIAL APPLICATION OF THE INSTALLMENT METHOD.
G. Backup Withholding and Information Reporting.
A holder of an Allowed Claim or Equity Interest may be subject to backup
withholding tax on the receipt of consideration received pursuant to the Plan,
unless the holder (1) is a corporation or other type of exempt recipient and,
when required, demonstrates this fact or (2) provides a correct TIN on IRS Form
W-9 (or substitute form) and certifies that the TIN is accurate, that the holder
is not subject to backup withholding for failure to report certain income, and
that the holder is a United States person. Backup withholding is not an
additional tax. Rather, the federal income tax liability of persons subject to
backup withholding is to be credited for the amount of tax withheld. If
withholding results in an overpayment of federal income taxes, a holder may
obtain a refund of any excess amounts withheld under the backup withholding
rules by filing the appropriate claim for refund with the Service. Reorganized
103
NTELOS (or its paying agent) may be obligated to provide information statements,
to the Service and to holders who receive consideration pursuant to the Plan,
reporting such payments (except with respect to holders that are exempt from the
information reporting rules).
The backup withholding and information reporting rules noted above may also
apply with respect to payments made after the Effective Date with respect to
Allowed General Unsecured Claims, the New Common Stock and the New Notes.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH
HOLDER OF AN ALLOWED CLAIM OR EQUITY INTEREST SHOULD CONSULT ITS OWN TAX
ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES OF THE PLAN AND THE APPLICATION OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. NEITHER THE PROPONENTS NOR THEIR
PROFESSIONALS WILL HAVE ANY LIABILITY TO ANY PERSON OR HOLDER ARISING FROM OR
RELATED TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE PLAN OR
THE FOREGOING DISCUSSION.
XIII.
ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN
If the Plan is not confirmed and consummated, the Debtors' alternatives
include (i) liquidation of the Debtors under Chapter 7 of the Bankruptcy Code
and (ii) the preparation and presentation of an alternative plan or plans of
reorganization.
A. Liquidation Under Chapter 7.
If no Chapter 11 plan can be confirmed, the Chapter 11 Case may be
converted to a case under Chapter 7 of the Bankruptcy Code in which a trustee
would be elected or appointed to liquidate the assets of the Debtors. A
discussion of the effect that a Chapter 7 liquidation would have on the recovery
of holders of Claims and Equity Interests is set forth in Section VII.C.4.,
"Confirmation and Consummation Procedure - Confirmation - Best Interests Test."
NTELOS believes that liquidation under Chapter 7 would result in (i) smaller
distributions being made to creditors than those provided for in the Plan
because of the additional administrative expenses involved in the appointment of
a trustee and attorneys and other professionals to assist such trustee, (ii)
additional expenses and claims, some of which would be entitled to priority,
which would be generated during the liquidation and from the rejection of leases
and other executory contracts in connection with a cessation of the Debtors'
operations, and (iii) the failure to realize the greater, going concern value of
the Debtors' assets. NTELOS' Liquidation Analysis is attached hereto as Exhibit
D.
B. Alternative Plan of Reorganization.
If the Plan is not confirmed, the Debtors or any other party in interest
could attempt to formulate a different plan of reorganization. Such a plan might
involve either a reorganization and continuation of the Debtors' businesses or
an orderly liquidation of its assets. With respect to an alternative plan,
NTELOS has explored various other alternatives in connection with the extensive
negotiation process involved in the formulation and development of the Plan.
NTELOS believes that the Plan enables the Debtors to emerge successfully
and expeditiously from Chapter 11, preserves the Debtors' business and allows
creditors to realize
104
the highest recoveries under the circumstances. In a liquidation under Chapter
11 of the Bankruptcy Code, the assets of the Debtors would be sold in an orderly
fashion over a more extended period of time than in a liquidation under Chapter
7 and a trustee need not be appointed. Accordingly, creditors would receive
greater recoveries than in a Chapter 7 liquidation. Although a Chapter 11
liquidation is preferable to a Chapter 7 liquidation, NTELOS believes that a
liquidation under Chapter 11 is a much less attractive alternative to creditors
than the Plan because a greater return to creditors is provided for by the Plan.
XIV.
ADDITIONAL INFORMATION
The Debtors are subject to the information requirements of the Exchange Act
and in accordance therewith file reports and other information with the
Securities and Exchange Commission. Any statements contained in this Disclosure
Statement concerning the provisions of any document are not necessarily
complete, and in each instance reference is made to the copy of such document
for the full text thereof. Each such statement is qualified in its entirety by
such reference. Certain documents referred to in this Disclosure Statement have
not been attached as exhibits because of the impracticability of furnishing
copies thereof to all of the Debtors' creditors and equity security holders.
Additional financial and other information about NTELOS and the other Debtors
can be found in NTELOS' Form 10- K for the fiscal year ended December 31, 2002,
its Form 10-Q for the quarter ended March 31, 2003 and its other filings from
time to time with the Securities and Exchange Commission, each of which is
incorporated in this Disclosure Statement by reference and is available at
www.sec.gov. All of the exhibits to the Plan, the Plan Supplement and to this
Disclosure Statement are available for inspection by contacting the Claims and
Noticing Agent.
XV.
CONCLUSION AND RECOMMENDATION
The Debtors believe that confirmation and implementation of the Plan is
preferable to any of the alternatives described above because it will provide
the greatest recoveries to holders of Claims and Equity Interests. In addition,
other alternatives would involve significant delay, uncertainty and substantial
additional administrative costs. The Debtors urge holders of impaired Claims and
Equity Interests entitled to vote on the Plan to vote to accept the Plan and to
evidence such acceptance by returning their ballots so that they will be
received not later than __:__ p.m., Eastern Time, on ______________ ____, 2003.
Dated: May 30, 2003
Respectfully submitted,
NTELOS Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
105
NTELOS Wireless Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS of Maryland Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS of Kentucky Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS PCS North Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Cable of Virginia Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Communication Services Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
106
NTELOS NetAccess Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Telephone Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Network Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Licenses Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Cable Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
R&B Communications, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
107
NTELOS Cornerstone Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NTELOS PCS Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Virginia RSA 6 Cellular Limited
Partnership
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Wireless Inc., General
Partner
Richmond 20 MHz, LLC
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
NA Communications, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Roanoke & Botetourt Telephone
Company
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
108
R&B Network, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Botetourt Leasing, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
R&B Cable, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
The Beeper Company
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer
Virginia PCS Alliance, L.C.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS PCS Inc., Member
West Virginia PCS Alliance, L.C.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Inc., Member
109
Virginia Telecommunications
Partnership
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
--------------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Network Inc., Partner
110
EXHIBIT A
IN THE UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF VIRGINIA
RICHMOND DIVISION
)
In re: )
)
NTELOS Inc. f/k/a ) Case No. 03-32094 (DOT)
CFW Communications Company, et al./1/ ) Chapter 11
) (Jointly Administered)
Debtors. )
)
DEBTORS' JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
May 30, 2003
HUNTON & WILLIAMS LLP MARCUS, SANTORO & KOZAK, P.C.
Benjamin C. Ackerly Frank J. Santoro
Michael C. Shepherd Karen M. Crowley
Riverfront Plaza, East Tower 355 Crawford Parkway, Suite 700
951 West Byrd Street Portsmouth, Virginia 23704
Richmond, Virginia 23219-4074 (757) 393-2555
(804) 788-8200
Counsel to the Debtors and Co-Counsel to the Debtors and
Debtors in Possession Debtors in Possession
- ----------
/1/ The Debtors are the following entities: NTELOS Inc. f/k/a CFW
Communications Company, NTELOS Wireless Inc. f/k/a CFW Wireless Inc. f/k/a CFW
Cellular Inc., NTELOS of Maryland Inc., NTELOS of Kentucky Inc., NTELOS PCS
North Inc. f/k/a NTELOS of Pennsylvania Inc., NTELOS Cable of Virginia Inc.
f/k/a CFW Cable of Virginia Inc., NTELOS Communications Services Inc. f/k/a CFW
Communications Services Inc., NTELOS NetAccess Inc. f/k/a NetAccess, Inc.,
NTELOS Telephone Inc. f/k/a CFW Telephone Inc. f/k/a Clifton Forge-Waynesboro
Telephone Company, NTELOS Network Inc. f/k/a CFW Network, Inc., NTELOS Licenses
Inc. f/k/a CFW Licenses Inc., NTELOS Cable Inc. f/k/a CFW Cable Inc., R&B
Communications, Inc., NTELOS Cornerstone Inc. f/k/a CFW Cornerstone, Inc.,
NTELOS PCS Inc. f/k/a CFW PCS Inc., Virginia RSA 6 Cellular Limited Partnership,
Richmond 20MHz, LLC, NA Communications, Inc., Roanoke & Botetourt Telephone
Company a/k/a Roanoke and Botetourt Telephone Company, R&B Network, Inc.,
Botetourt Leasing, Inc., R&B Cable, Inc., The Beeper Company, Virginia PCS
Alliance, L.C., West Virginia PCS Alliance, L.C. and Virginia Telecommunications
Partnership.
TABLE OF CONTENTS
Page
----
Section 1 DEFINITIONS AND INTERPRETATION................................................................ 1
1.1 Definitions................................................................................... 1
1.2 Interpretation; Application of Definitions and Rules of Construction.......................... 11
1.3 Computation of Time........................................................................... 12
1.4 Governing Law................................................................................. 12
Section 2 PROVISIONS FOR PAYMENT OF UNCLASSIFIED CLAIMS................................................. 12
2.1 DIP Lender Claims............................................................................. 12
2.2 Administrative Expense Claims................................................................. 12
2.3 Professional Compensation and Reimbursement Claims............................................ 13
2.4 Priority Tax Claims........................................................................... 13
2.5 Full Settlement............................................................................... 13
Section 3 CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS................................................. 13
Section 4 PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS....................................... 15
4.1 Class 1 - Priority Non-Tax Claims............................................................. 15
4.2 Class 2 - Secured Bank Claims................................................................. 15
4.3 Class 3 - FCC Secured Claims.................................................................. 15
4.4 Class 4 - RUS/RTB Secured Claims.............................................................. 16
4.5 Class 5 - Senior Debt Claims.................................................................. 16
4.6 Class 6 - Convenience Claims.................................................................. 17
4.7 Class 7 - General Unsecured Claims............................................................ 17
4.8 Class 8 - Intercompany Claims................................................................. 18
4.9 Class 9 - Subordinated Claims................................................................. 18
4.10 Class 10 - Old Preferred Stock Interests...................................................... 18
4.11 Class 11 - Subsidiary Interests............................................................... 18
4.12 Class 12 - Old Common Stock Interests......................................................... 19
4.13 Class 13 - Other Equity Interests and Securities Claims....................................... 19
4.14 Alternate Treatment for Holders of Allowed Claims............................................. 19
Section 5 IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND UNIMPAIRED BY THE PLAN;
ACCEPTANCE OR REJECTION OF THE PLAN........................................................... 19
5.1 Holders of Claims and Equity Interests Impaired by the Plan and Entitled to Vote.............. 19
5.2 Acceptance by Holders of Claims and Equity Interests Impaired by the Plan..................... 19
ii
5.3 Holders of Claims and Equity Interests Not Impaired by the Plan and Conclusively
Presumed to Have Accepted the Plan............................................................ 20
5.4 Holders of Equity Interests Impaired by the Plan and Conclusively Presumed
Not to Have Accepted the Plan................................................................. 20
5.5 Non-consensual Confirmation................................................................... 20
Section 6 MEANS OF IMPLEMENTATION OF THE PLAN........................................................... 20
6.1 Continued Existence........................................................................... 20
6.2 Amended and Restated Articles of Incorporation................................................ 21
6.3 Corporate Action.............................................................................. 21
6.4 New Credit Agreement.......................................................................... 21
6.5 Modified Hedge Agreements..................................................................... 22
6.6 Cancellation of Existing Securities and Agreements............................................ 22
6.7 Issuance of New Securities.................................................................... 22
6.8 Shareholders' Agreement....................................................................... 22
6.9 Registration Rights Agreements................................................................ 23
6.10 New Investment................................................................................ 23
6.11 Termination of Subordination.................................................................. 23
6.12 Cash Payments by the Debtors.................................................................. 24
6.13 Bar Date for Administrative Expense Claims.................................................... 24
6.14 Allocation of Plan Distributions Between Principal and Interest............................... 25
6.15 Limited Substantive Consolidation............................................................. 25
6.16 Employee Compensation and Benefit Plans....................................................... 25
6.17 Stock Option Incentive Plan................................................................... 26
6.18 Distribution on Account of Executive Separation............................................... 27
Section 7 PROVISIONS GOVERNING DISTRIBUTIONS............................................................ 27
7.1 Date of Distributions......................................................................... 27
7.2 Disbursing Agents............................................................................. 27
7.3 Surrender of Instruments...................................................................... 27
7.4 Delivery of Distributions..................................................................... 29
7.5 Manner of Payment Under the Plan.............................................................. 30
7.6 Time Bar to Cash Payments..................................................................... 30
7.7 Fractional Shares............................................................................. 30
7.8 De Minimis or Fractional Distributions........................................................ 30
7.9 Setoffs and Recoupment........................................................................ 30
7.10 Distributions After the Effective Date........................................................ 31
7.11 Rights and Powers of Disbursing Agents........................................................ 31
7.12 Retention of Ballots.......................................................................... 31
Section 8 PROCEDURES FOR TREATING DISPUTED, CONTINGENT AND UNLIQUIDATED CLAIMS AND DISPUTED EQUITY
INTERESTS UNDER THE PLAN...................................................................... 31
8.1 Disputed Claims Process....................................................................... 31
8.2 Estimation of Claims.......................................................................... 32
8.3 No Distributions Pending Allowance............................................................ 32
iii
8.4 Distributions After Allowance................................................................. 32
Section 9 PROVISIONS GOVERNING EXECUTORY CONTRACTS AND UNEXPIRED LEASES................................. 32
9.1 Assumption or Rejection of Executory Contracts and Unexpired Leases........................... 32
9.2 Cure of Defaults in Connection with Assumption................................................ 33
9.3 Amendments to Schedule; Effect of Amendments.................................................. 34
9.4 Rejection Damage Claims and Bar............................................................... 34
9.5 Indemnification Obligations................................................................... 34
Section 10 CONDITIONS PRECEDENT TO THE CONFIRMATION DATE AND THE EFFECTIVE DATE.......................... 35
10.1 Conditions Precedent to the Confirmation Date of the Plan..................................... 35
10.2 Conditions Precedent to the Effective Date of the Plan........................................ 35
10.3 Waiver of Conditions Precedent................................................................ 36
10.4 Effect of Failure of Conditions............................................................... 36
Section 11 EFFECT OF CONFIRMATION........................................................................ 36
11.1 Vesting of Assets and Releases of Liens....................................................... 36
11.2 Binding Effect................................................................................ 37
11.3 Discharge of Debtors.......................................................................... 37
11.4 Term of Injunctions or Stays.................................................................. 37
11.5 Preservation of Insurance..................................................................... 37
11.6 Indemnification Obligations................................................................... 37
11.7 Exculpation................................................................................... 38
11.8 Certain Mutual Releases....................................................................... 38
11.9 Limited Releases by Holders of Claims and Equity Interests.................................... 39
11.10 Preservation of Rights of Action.............................................................. 40
11.11 Injunction.................................................................................... 41
11.12 Committees.................................................................................... 41
Section 12 RETENTION OF JURISDICTION..................................................................... 41
Section 13 MISCELLANEOUS PROVISIONS...................................................................... 43
13.1 Payment of Statutory Fees..................................................................... 43
13.2 Modification of Plan.......................................................................... 43
13.3 Revocation of Plan............................................................................ 43
13.4 Section 1146 Exemption........................................................................ 43
13.5 Administrative Expenses Incurred After the Confirmation Date.................................. 44
13.6 Section 1125(e) of the Bankruptcy Code........................................................ 44
13.7 Compliance with Tax Requirements.............................................................. 44
13.8 Exemption from Securities Regulation.......................................................... 44
13.9 Severability of Plan Provisions............................................................... 44
13.10 Conflicts..................................................................................... 45
13.11 Effectuating Documents, Further Transactions and Corporate Action............................. 45
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13.12 Further Assurances............................................................................ 45
13.13 Notices....................................................................................... 45
13.14 Reservation of Rights......................................................................... 47
13.15 Closing of Cases.............................................................................. 47
EXHIBIT TO PLAN
Exhibit 1 Contract Rejection Schedule
PLAN SUPPLEMENT
Exhibit 1 New Articles of Incorporation and New By-Laws of
Reorganized NTELOS Inc.
Exhibit 2 Purchase Agreement
Exhibit 3 New Indenture
Exhibit 4 New Warrant Agreement
Exhibit 5 New Common Stock Registration Rights Agreement
Exhibit 6 New Notes Registration Rights Agreement
v
DEBTORS' JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
NTELOS Inc. and certain of its affiliated debtors which have
filed petitions under Chapter 11 of the Bankruptcy Code, propose the following
Joint Plan of Reorganization Under Chapter 11 of the Bankruptcy Code, dated as
of May 30, 2003, pursuant to Section 1121(a) of the Bankruptcy Code:
Section 1 DEFINITIONS AND INTERPRETATION
1.1 Definitions.
"Administrative Expense Claim" means any right to payment
constituting a cost or expense of administration of the Chapter 11 Case allowed
under Sections 503(b) and 507(a)(1) of the Bankruptcy Code, including, without
limitation, (a) any actual and necessary costs and expenses of preserving the
Debtors' estates, (b) any actual and necessary costs and expenses of operating
the Debtors' businesses in the ordinary course of business, (c) any indebtedness
or obligations incurred or assumed by the Debtors in Possession during the
Chapter 11 Case in the ordinary course of business, (d) any allowances of
compensation and reimbursement of expenses to the extent allowed by Final Order
under Section 328, 330 or 503 of the Bankruptcy Code, (e) any amounts due and
payable to the DIP Lenders or the Pre-Petition Secured Lenders under the DIP
Credit Agreement or the Final DIP Order, (f) any fees or charges assessed
against the Debtors' estates under Section 1930, title 28, United States Code,
(g) any monetary amounts by which each executory contract and unexpired lease to
be assumed pursuant to the Plan is in default, and (h) any valid reclamation
claims under Section 546 of the Bankruptcy Code.
"Agent" means Morgan Stanley & Co. Incorporated from July 26,
2000 though January 14, 2003 and Wachovia Bank, National Association from and
after January 14, 2003 in their respective capacities as agent for the
Pre-Petition Secured Lenders under the Pre-Petition Credit Agreement.
"Allowed" means, with respect to Claims or Equity Interests,
(a) any Claim against or Equity Interest in the Debtors, proof of which is
timely filed, or by order of the Bankruptcy Court is not or will not be required
to be filed, (b) any Claim or Equity Interest that has been or is hereafter
listed in the Schedules as neither Disputed, contingent or unliquidated, and for
which no timely filed proof of claim or interest has been filed, or (c) any
Claim or Equity Interest allowed pursuant to the Plan; provided, however, that
with respect to any Claim or Equity Interest described in clauses (a) or (b)
above, such Claim or Equity Interest shall be Allowed only if (i) no objection
to allowance thereof has been interposed within the applicable period of time
fixed by the Plan, the Bankruptcy Code, the Bankruptcy Rules or the Bankruptcy
Court or (ii) such an objection is so interposed and the Claim or Equity
Interest shall have been allowed by a Final Order (but only if such allowance
was not solely for the purpose of voting to accept or reject the Plan). Unless
otherwise specified in the Plan or in a Final Order of the Bankruptcy Court
allowing such claim, "Allowed" in reference to a Claim shall not include (a)
interest on the amount of such Claim accruing from and after the Petition Date,
(b) punitive or exemplary damages or (c) any fine, penalty or forfeiture.
"Ballot" means the enclosed ballot to be used by holders of
Claims and Equity Interests for the purpose of voting to accept or reject the
Plan.
"Bankruptcy Code" means title 11, United States Code, as
amended from time to time, as applicable to the Chapter 11 Case.
"Bankruptcy Court" means the United States Bankruptcy Court
for the Eastern District of Virginia, Richmond Division having jurisdiction over
the Chapter 11 Case and, to the extent of any reference made under Section 157,
title 28, United States Code, the unit of such District Court having
jurisdiction over the Chapter 11 Case under Section 151, title 28, United States
Code.
"Bankruptcy Rules" means the Federal Rules of Bankruptcy
Procedure as promulgated by the United States Supreme Court under Section 2075,
title 28, United States Code, as amended from time to time, applicable to the
Chapter 11 Case, and any Local Rules of the Bankruptcy Court.
"Bar Date" means June 10, 2003, the last date on which
creditors, other than governmental units as defined in Section 101 of the
Bankruptcy Code, may file proofs of claim against the Debtors.
"Business Day" means any day other than a Saturday, a Sunday
or any legal holiday as set forth in Bankruptcy Rule 9006(a).
"Cash" means legal tender of the United States of America and
equivalents thereof.
"Chapter 11 Case" means the Debtors' voluntary cases, numbers
03-32093 through 03-32109, 03-32111, 03-32112, 03-32114, 03-32115, 03-32119,
03-32121, 03-32123, 03-32127 and 03-32131, which are being jointly administered,
for procedural purposes only, as case number 03-32094, filed with the Bankruptcy
Court under Chapter 11 of the Bankruptcy Code.
"Claim" has the meaning set forth in Section 101 of the
Bankruptcy Code.
"Class" means any group of substantially similar Claims or
Equity Interests classified in Section 4 of the Plan and pursuant to Section
1129(a)(1) of the Bankruptcy Code.
"Collateral" means any property or interest in property of the
Debtors' estates subject to a Lien to secure the payment or performance of a
Claim, which Lien is not subject to avoidance or otherwise invalid under the
Bankruptcy Code or applicable state law.
"Confirmation Date" means the date on which the Bankruptcy
Court enters the Confirmation Order on its docket with respect to the Chapter 11
Case.
"Confirmation Hearing" means the hearing held by the
Bankruptcy Court pursuant to Section 1128 of the Bankruptcy Code regarding
confirmation of the Plan pursuant to
2
Section 1129 of the Bankruptcy Code, as such hearing may be adjourned or
continued from time to time.
"Confirmation Order" means the order of the Bankruptcy Court
confirming the Plan pursuant to Section 1129 of the Bankruptcy Code.
"Contract Rejection Schedule" means the schedule of executory
contracts and unexpired leases to be rejected by the Debtors pursuant to
Sections 365(a) and 1123 of the Bankruptcy Code and, to the extent that each
executory contract and unexpired lease listed on the Contract Rejection Schedule
relates to the use or occupancy of real property, (i) any modifications,
amendments, supplements, restatements, or other agreements made directly or
indirectly by any agreement, instrument, or other document that in any manner
affects such executory contract or unexpired lease, without regard to whether
such agreement, instrument or other document is listed on the Contract Rejection
Schedule and (ii) executory contracts or unexpired leases appurtenant to the
premises listed in the Contract Rejection Schedule including all easements,
licenses, permits, rights, privileges, immunities, options, rights of first
refusal, powers, uses, usufructs, reciprocal easement agreements, vault, tunnel
or bridge agreements or franchises, and any other interests in real estate or
rights in rem relating to such premises to the extent any of the foregoing are
executory contracts or unexpired leases, unless any of the foregoing agreements
is assumed, annexed hereto as Exhibit 1, or any amendments thereto filed prior
to the Effective Date as permitted by Section 9.1 hereof.
"Convenience Claim" means an Allowed General Unsecured Claim
of $10,000 or less.
"Creditors' Committee" means the official statutory committee
of unsecured creditors appointed in the Chapter 11 Case by the United States
Trustee on March 13, 2003, consisting of Morgan Stanley & Co. Incorporated;
WCAS; Capital Research and Management Company; The Bank of New York; INVESCO
Funds Group; Motorola, Inc. and CellStar, Ltd., or their replacements, if any.
"Debtors" means NTELOS and the NTELOS Subsidiaries, jointly or
severally, as of the Petition Date.
"Debtors in Possession" means the Debtors in their capacities
as debtors in possession in the Chapter 11 Case under Sections 1101, 1107(a) and
1108 of the Bankruptcy Code.
"DIP Agent" means Wachovia Bank, National Association in its
capacity as agent for the DIP Lenders under the DIP Credit Agreement.
"DIP Credit Agreement" means the $35,000,000
debtor-in-possession credit agreement dated as of March 6, 2003 among NTELOS,
the NTELOS Subsidiaries named therein as guarantors, the DIP Agent and the DIP
Lenders.
"DIP Lenders" means Wachovia Bank, National Association,
General Electric Capital Corporation, H/Z Acquisition Partners LLC, Morgan
Stanley Senior Funding, Inc.,
3
Branch Banking and Trust Company, Rural Telephone Finance Cooperative,
SunAmerica Senior Floating Rate Fund Inc. and Deutsche Bank Trust Company
Americas.
"DIP Lender Claim" means a Claim of the DIP Lenders arising
under or as a result of the DIP Credit Agreement or the Final DIP Order.
"Disbursing Agent" means any entity in its capacity as a
disbursing agent under Sections 7.2 and 7.11 of the Plan.
"Disclosure Statement" means the disclosure document relating
to the Plan, including, without limitation, all exhibits and schedules thereto
as approved by the Bankruptcy Court pursuant to Section 1125 of the Bankruptcy
Code.
"Disputed" means, with respect to a Claim or Equity Interest,
any such Claim or Equity Interest that is not Allowed.
"Distribution Record Date" means the date provided in the
Confirmation Order as the record date for distributions under the Plan.
"DTC" means the Depository Trust Company.
"Effective Date" means the date that is eleven (11) days after
the Confirmation Date, or if such date is not a Business Day, the next
succeeding Business Day, or such date after the Confirmation Date as determined
by the Debtors with the prior written consent of the Agent and the Creditors'
Committee so long as no stay of the Confirmation Order is in effect on such
date; provided, however, that if, on or prior to such date, all conditions to
the Effective Date set forth in Section 10 hereof have not been satisfied or
waived, then the Effective Date shall be the first Business Day following the
day on which all such conditions to the Effective Date have been satisfied or
waived or such date as the Debtors may determine with the prior written consent
of the Creditors' Committee and/or the Agent in accordance with Section 10.3
hereof.
"Eligible Institution" means a member firm of a registered
national securities exchange in the United States, a member of the National
Association of Securities Dealers, Inc., or a commercial bank or trust company
having an office or correspondent in the United States.
"Equity Interest" means the interest of any holder of equity
securities of NTELOS represented by any issued and outstanding shares of common
or preferred stock or other instrument evidencing a present ownership interest
in NTELOS, whether or not transferable, or any option, warrant or right,
contractual or otherwise, to acquire, in connection with or related to, any such
interest, including, without limitation, any rights with respect to NTELOS under
any registration rights agreement or shareholders agreement to which NTELOS is a
party.
"Exit Financing Term Sheet" means the term sheet which sets
forth the terms of the New Credit Agreement to be entered into on the Effective
Date and which is annexed to the Disclosure Statement as Exhibit H.
"FCC" means the Federal Communication Commission.
4
"FCC Secured Claim" means all Secured Claims of the FCC
against the Debtors arising under or in connection with conditional licenses,
denominated as PBB479C, PBB075C, and CWB179F, to use broadband personal
communications spectrum.
"Final DIP Order" means the Final Order entered on March 24,
2003 (i) authorizing debtors (a) to obtain post-petition financing pursuant to
11 U.S.C. Sections 105, 361, 362, 364(c)(1), 364(c)(2), 364(c)(3) and 364(d)(1)
and (b) to utilize cash collateral pursuant to 11 U.S.C. Section 363 and (ii)
granting adequate protection to pre-petition secured parties pursuant to 11
U.S.C. Sections 361, 362, 363 and 364.
"Final Order" means an order or judgment of the Bankruptcy
Court entered by the Clerk of the Bankruptcy Court on the docket in the Chapter
11 Case, which has not been reversed, vacated or stayed and as to which (a) the
time to appeal, petition for certiorari or move for a new trial, reargument or
rehearing has expired and as to which no appeal, petition for certiorari or
other proceedings for a new trial, reargument or rehearing shall then be pending
or (b) if an appeal, writ of certiorari, new trial, reargument or rehearing
thereof has been sought, such order or judgment of the Bankruptcy Court shall
have been affirmed by the highest court to which such order was appealed, or
certiorari shall have been denied or a new trial, reargument or rehearing shall
have been denied or resulted in no modification of such order, and the time to
take any further appeal, petition for certiorari or move for a new trial,
reargument or rehearing shall have expired; provided, however, that the
possibility that a motion under Rule 60 of the Federal Rules of Civil Procedure,
or any analogous rule under the Bankruptcy Rules, may be filed relating to such
order, shall not cause such order not to be a Final Order.
"General Unsecured Claim" means any Claim against the Debtors
other than a DIP Lender Claim, an Administrative Expense Claim, a Professional
Compensation and Reimbursement Claim, a Priority Tax Claim, a Secured Claim, a
Senior Debt Claim, a Convenience Claim, an Intercompany Claim or a Subordinated
Claim. General Unsecured Claims include, but are not limited to any Rejection
Claim.
"Intercompany Claim" means any Claim held by any of the
non-Debtor direct or indirect subsidiaries of NTELOS against the Debtors or by
any Debtor against any other Debtor.
"Letter of Transmittal" means the letter of transmittal to be
disbursed to holders of Voting Securities by the Disbursing Agent promptly after
the Confirmation Date and containing such representations and warranties as are
described in the Disclosure Statement.
"Lien" has the meaning set forth in Section 101 of the
Bankruptcy Code.
"Modified Hedge Agreements" means the Pre-Petition Hedge
Agreements, as modified such that, among other things, references in the
Pre-Petition Hedge Agreements to the "Financial Agreement" or the "Loan
Agreement" shall be deemed to refer to the New Credit Agreement and assumed by
the Debtors under the Plan.
"New Articles of Incorporation" means the amended and restated
Articles of Incorporation of Reorganized NTELOS and will be filed with the
Bankruptcy Court at least
5
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 1.
"New By-Laws" means the amended and restated By-Laws of
Reorganized NTELOS and will be filed with the Bankruptcy Court at least fourteen
(14) Business Days prior to the Confirmation Hearing and be annexed to the Plan
Supplement as Exhibit 1.
"New Common Stock" means the shares of common stock of
Reorganized NTELOS (no par value) to be issued and outstanding as of the
Effective Date pursuant to the Plan.
"New Common Stock Price" means $19.77 per share, based on the
approximate equity value implied by the New Notes and the total number of shares
to be issued.
"New Common Stock Registration Rights Agreement" means the
registration rights agreement by and among certain holders of New Common Stock
and Reorganized NTELOS and will be filed with the Bankruptcy Court at least
fourteen (14) Business Days prior to the Confirmation Hearing and be annexed to
the Plan Supplement as Exhibit 5.
"New Credit Agreement" means the credit agreement containing
the terms set forth in the Exit Financing Term Sheet, between the Agent, the
Pre-Petition Secured Lenders and NTELOS to become effective on the Effective
Date if certain conditions are satisfied.
"New Indenture" means that certain indenture with respect to
the New Notes to be dated as of the Effective Date and will be filed with the
Bankruptcy Court at least fourteen (14) Business Days prior to the Confirmation
Hearing and be annexed to the Plan Supplement as Exhibit 3.
"New Investment" means the purchase by the Participating
Noteholders of the New Notes and the New Common Stock in accordance with the
Subscription Agreement.
"New Notes" means the 9.0% Senior Convertible Notes due 2013,
issued by Reorganized NTELOS pursuant to the New Indenture, having an aggregate
principal amount of $75.0 million.
"New Notes Registration Rights Agreement" means the
registration rights agreement by and between the Participating Noteholders and
Reorganized NTELOS and will be filed with the Bankruptcy Court at least fourteen
(14) Business Days prior to the Confirmation Hearing and be annexed to the Plan
Supplement as Exhibit 6.
"New Warrant Agreement" means the agreement between NTELOS and
the holders of the New Warrants in connection with the issuance of the New
Warrants, which will be filed with the Bankruptcy Court at least fourteen (14)
Business Days prior to the Confirmation Hearing and be annexed to the Plan
Supplement as Exhibit 4.
"New Warrants" means the warrants to purchase up to 3.0% of
the fully-diluted New Common Stock at an initial exercise price equal to 120% of
the New Common Stock Price,
6
to be issued pursuant to the New Warrant Agreement by Reorganized NTELOS to
holders of Old Preferred Stock Interests in accordance with the terms set forth
in the New Warrant Agreement.
"NTELOS" means NTELOS Inc., a Virginia corporation.
"NTELOS Non-filing Subsidiaries" means Virginia Independent
Telephone Alliance, L.C., NTELOS Net LLC, NTELOS Telephone LLC, R&B Telephone
LLC and Roanoke & Botetourt Network LLC.
"NTELOS Subsidiaries" means each entity in which NTELOS owns,
directly or indirectly, 50.0% or more of the issued and outstanding capital
stock, partnership interests or membership interests, as the case may be, except
the NTELOS Non-filing Subsidiaries.
"Old Common Stock" means the issued and outstanding common
stock of NTELOS (no par value) as of the Petition Date.
"Old Common Stock Interest" means an Equity Interest
represented by shares of Old Common Stock.
"Old Preferred Stock" means the issued and outstanding Series
B Preferred Stock and Series C Preferred Stock of NTELOS as of the Petition
Date.
"Old Preferred Stock Distribution Amount" means the New
Warrants and those shares of New Common Stock issuable upon exercise of the New
Warrants.
"Old Preferred Stock Interest" means an Equity Interest
represented by (a) shares of Old Preferred Stock and (b) any warrant or right,
contractual or otherwise, to acquire, in connection with or related to, any such
interest (including, without limitation, any rights with respect to NTELOS under
any registration rights agreement or shareholders agreement to which NTELOS is a
party).
"Other Equity Interests and Securities Claims" means (a) an
Equity Interest in NTELOS (including, without limitation, any option, warrant or
right, contractual or otherwise, to acquire the Old Common Stock and any rights
with respect to NTELOS under any registration rights agreement or shareholders
agreement to which NTELOS is a party) other than the Old Common Stock Interests
and the Old Preferred Stock Interests, and (b) any Claims, obligations, rights,
suits, damages, causes of action, remedies, and liabilities whatsoever, whether
known or unknown, foreseen or unforeseen, currently existing or hereafter
arising, in law, equity or otherwise arising from rescission of a purchase or
sale of a security of NTELOS or the purchase or sale of a security of an NTELOS
Subsidiary, for damages arising from the purchase, sale or holding of such
securities or the exercise of an option, warrant, conversion privilege or
contractual right to such purchase or sale, or for reimbursement,
indemnification or contribution allowed under Section 502 of the Bankruptcy Code
on account of such a Claim.
"Participating Noteholders" means the holders of Senior Notes
who have agreed to purchase the New Notes pursuant to the Subscription
Agreement, which is annexed to the Disclosure Statement as Exhibit F.
7
"Petition Date" means March 4, 2003, the date on which the
Debtors commenced the Chapter 11 Case.
"Plan" means this Joint Plan of Reorganization Under Chapter
11 of the Bankruptcy Code, dated as of May 30, 2003, including, without
limitation, the exhibits and schedules hereto, as the same may be amended or
modified from time to time in accordance with the provisions of the Bankruptcy
Code and the terms hereof.
"Plan Supplement" means the supplemental appendix to the Plan
that will contain the New Articles of Incorporation and New By-Laws of
Reorganized NTELOS Inc. (Exhibit 1 thereto), the Purchase Agreement (Exhibit 2
thereto), the New Indenture (Exhibit 3 thereto), the New Warrant Agreement
(Exhibit 4 thereto), the New Common Stock Registration Rights Agreement (Exhibit
5 thereto), and the New Notes Registration Rights Agreement (Exhibit 6 thereto)
to be filed with the Bankruptcy Court no later than fourteen (14) Business Days
prior to the Confirmation Hearing.
"Pre-Petition Credit Agreement" means the $325,000,000 credit
agreement dated July 26, 2000, as amended by Amendment No. 1 thereto dated as of
July 23, 2001, Amendment No. 2 thereto dated as of November 14, 2001, Amendment
No. 3 thereto dated as of March 6, 2002, by the Letter Amendment thereto dated
as of April 11, 2002, Amendment No. 4 and Waiver No. 1 thereto dated as of
November 29, 2002, Amendment No. 5 thereto dated as of January 14, 2003,
Amendment No. 6 thereto dated as of February 28, 2003 and as heretofore so
amended, supplemented by certain guaranty supplements thereto and otherwise
modified in accordance with its terms, among NTELOS (formerly known as CFW
Communications Company), the subsidiary guarantors party thereto, the
Pre-Petition Secured Lenders and the Agent.
"Pre-Petition Hedge Agreements" means the interest rate swap,
cap or collar agreements, interest rate future or option contracts, currency
swap agreements, currency future or option contracts and other hedging
agreements among NTELOS (formerly known as CFW Communications Company) and the
Secured Hedge Parties in connection with the Pre-Petition Credit Agreement.
"Pre-Petition Secured Lenders" means those financial
institutions that are from time to time parties to the Pre-Petition Credit
Agreement.
"Priority Non-Tax Claim" means Claims which are entitled to
priority in accordance with Section 507(a) of the Bankruptcy Code (other than
Administrative Expense Claims and Priority Tax Claims).
"Priority Tax Claim" means any Claim of a governmental unit of
the kind entitled to priority in payment as specified in Sections 502(i) and
507(a)(8) of the Bankruptcy Code.
"Professional Compensation and Reimbursement Claim" means a
Claim for compensation, indemnification or reimbursement of expenses pursuant to
Sections 327, 328, 330, 331 or 503(b) of the Bankruptcy Code in connection with
the Chapter 11 Case.
8
"Purchase Agreement" means the purchase agreement among NTELOS
and the Participating Noteholders, which governs the purchase of the New Notes
and the New Common Stock by the Participating Noteholders and will be filed with
the Bankruptcy Court at least fourteen (14) Business Days prior to the
Confirmation Hearing and be annexed to the Plan Supplement as Exhibit 2.
"Ratable Proportion" means, with reference to any distribution
on account of any Claim or Equity Interest in any Class, as the case may be, a
distribution equal in amount to the ratio (expressed as a percentage) that the
amount of such Claim or number of shares evidencing such Equity Interests, as
applicable, bears to the aggregate amount of Claims or aggregate number of
outstanding shares of Equity Interests in the same Class, as applicable.
"Rejection Claim" means any Claim against the Debtors arising
from the rejection of any executory contract or unexpired lease, including any
Claim of (a) a lessor for damages resulting from the rejection of a lease of
real property as such claim shall be calculated in accordance with Section
502(b)(6) of the Bankruptcy Code and (b) an employee for damages resulting from
the rejection of an employment agreement as such Claim shall be calculated in
accordance with Section 502(b)(7) of the Bankruptcy Code.
"Reorganized Debtors" means the Debtors as they will be
reorganized as of the Effective Date in accordance with the Plan.
"Reorganized NTELOS" means NTELOS as it will be reorganized as
of the Effective Date in accordance with the Plan.
"Reorganized NTELOS Subsidiaries" means each entity in which
NTELOS owns, directly or indirectly, 50.0% or more of the issued and outstanding
capital stock, partnership interest or membership interest, as the case may be,
except the NTELOS Non-filing Subsidiaries, as it will be reorganized as of the
Effective Date in accordance with the Plan.
"RTB" means the Rural Telephone Bank.
"RUS" means the Rural Utilities Service.
"RUS/RTB Secured Claims" means the Secured Claims of the RUS
and RTB arising from loans received from the United States (acting through the
Administrator of the Rural Electrification Administration, a predecessor in
interest of the RUS) and RTB pursuant to the Rural Electrification Act of 1936,
as amended, 7 U.S.C. Section 901 et seq.
"Schedules" means the schedules of assets and liabilities and
the statement of financial affairs filed by the Debtors in accordance with
Section 521 of the Bankruptcy Code, Bankruptcy Rule 1007 and the Official
Bankruptcy Forms of the Bankruptcy Rules as such schedules and statements have
been or may be supplemented or amended through the Confirmation Date.
"Secured Bank Claims" means all Secured Claims of the
Pre-Petition Secured Lenders against NTELOS or the Debtors arising under or in
connection with the Pre-Petition
9
Credit Agreement and all Secured Claims of the Secured Hedge Parties against
NTELOS or the Debtors arising under or in connection with the Pre-Petition Hedge
Agreements.
"Secured Claim" means a Claim secured by a Lien on Collateral
to the extent of the value of such Collateral (a) as set forth in the Plan, (b)
as agreed to by the holder of such Claim and the Debtors or (c) as determined by
a Final Order in accordance with Section 506(a) of the Bankruptcy Code or, in
the event that such Claim is subject to setoff under Section 553 of the
Bankruptcy Code, to the extent of such setoff.
"Secured Hedge Parties" means those financial institutions
that are parties to the Pre-Petition Hedge Agreements.
"Senior Debt Claim" means any unsecured Claim for principal
and interest through the Petition Date under the Senior Notes.
"Senior Debt New Common Stock Distribution Amount" means
9,433,509 shares of the issued and outstanding New Common Stock, representing
68.4% of the New Common Stock as of the Effective Date, giving effect to the
conversion of the New Notes into New Common Stock (or 94.3% of the New Common
Stock as of the Effective Date, without giving effect to the conversion of the
New Notes into New Common Stock) but subject to further dilution for shares of
New Common Stock issuable under the Stock Option Incentive Plan and those shares
of New Common Stock issuable upon exercise of the New Warrants.
"Senior Indenture" means that certain indenture with respect
to the 13.0% Senior Notes dated as of July 26, 2000 between NTELOS and The Bank
of New York, as trustee.
"Senior Indenture Trustee" means The Bank of New York, the
trustee pursuant to the Senior Indenture.
"Senior Notes" means the 13.0% senior notes due 2010, issued
by NTELOS pursuant to the Senior Indenture having an aggregate principal amount
of $280.0 million.
"Series B Preferred Stock" means the 8.5% Series B Redeemable,
Convertible Preferred Stock of NTELOS.
"Series C Preferred Stock" means the 5.5% Series C Redeemable,
Convertible Preferred Stock of NTELOS.
"Shareholders' Agreement" means the shareholders' agreement to
be entered into on the Effective Date and which is annexed to the Disclosure
Statement as Exhibit I.
"Stock Option Incentive Plan" means the incentive option plan
of Reorganized NTELOS which will authorize the grant of options to purchase up
to an aggregate of 10% of the fully-diluted New Common Stock as set forth
herein.
"Subordinated Claim" means a Claim for principal and interest
through the Petition Date under the Subordinated Notes.
10
"Subordinated Indenture" means that certain indenture with
respect to the Subordinated Notes dated as of July 26, 2000 between NTELOS and
The Bank of New York, as trustee.
"Subordinated Indenture Trustee" means The Bank of New York,
the trustee pursuant to the Subordinated Indenture.
"Subordinated Note New Common Stock Distribution Amount" means
500,000 shares of the issued and outstanding New Common Stock, representing 3.6%
of the New Common Stock as of the Effective Date, giving effect to the
conversion of the New Notes into New Common Stock (or 5.0% of the New Common
Stock as of the Effective Date, without giving effect to the conversion of the
New Notes into New Common Stock) but subject to further dilution for shares of
New Common Stock issuable under the Stock Option Incentive Plan and those shares
of New Common Stock issuable upon exercise of the New Warrants.
"Subordinated Notes" means the 13.5% subordinated notes due
2011, issued by NTELOS pursuant to the Subordinated Indenture having an
aggregate principal amount of $95.0 million.
"Subscription Agreement" means the subscription agreement
among NTELOS and the Participating Noteholders, dated as of April 10, 2003,
which provides for a commitment to purchase New Notes the terms of which will be
incorporated into the Purchase Agreement.
"Subsidiary Interests" means any and all interests of the
Debtors owned by the Debtors and all membership interests owned by the
non-Debtor members of Virginia PCS Alliance, L.C. and West Virginia PCS
Alliance, L.C.
"Substantive Consolidation Order" means the Order of the
Bankruptcy Court substantively consolidating the Debtors solely for purposes of
actions associated with confirmation and consummation of the Plan, including but
not limited to voting, confirmation and distribution.
"Tendered Certificates" has the meaning set forth in Section
7.3(ii).
"Virginia Code" means the Code of Virginia.
"Voting Securities" means the Senior Notes, the Subordinated
Notes and the Old Preferred Stock.
"WCAS" means WCAS Capital Partners III, L.P., Welsh, Carson,
Anderson & Stowe VIII, L.P., Welsh, Carson, Anderson & Stowe IX, L.P., LTSE
Holdings Corporation and their respective affiliates.
1.2 Interpretation; Application of Definitions and Rules of
Construction.
Unless otherwise specified, all section, schedule or exhibit
references in the Plan are to the respective section in or schedule or exhibit
to, the Plan, as the same may be amended, waived or modified from time to time.
The words "herein," "hereof," "hereto," "hereunder" and
11
other words of similar import refer to the Plan as a whole and not to any
particular section, subsection or clause contained in the Plan. A term used
herein that is not defined herein shall have the meaning assigned to that term
in the Bankruptcy Code. The rules of construction contained in Section 102 of
the Bankruptcy Code shall apply to the construction of the Plan. The headings in
the Plan are for convenience of reference only and shall not limit or otherwise
affect the provisions hereof.
1.3 Computation of Time.
In computing any period of time prescribed or allowed by the
Plan, the provisions of Fed. R. Bankr. P. 9006(a) shall apply.
1.4 Governing Law.
Except to the extent that the Bankruptcy Code or the
Bankruptcy Rules are applicable, and subject to the provisions of any contract,
instrument, release, indenture or other agreement or document entered into in
connection with the Plan, the rights and obligations arising under the Plan
shall be governed by, and construed and enforced in accordance with, the laws of
the States in which the Bankruptcy Court resides, without giving effect to the
principles of conflicts of law thereof.
Section 2 PROVISIONS FOR PAYMENT OF UNCLASSIFIED CLAIMS
2.1 DIP Lender Claims.
Pursuant to the terms of the DIP Credit Agreement, Reorganized
NTELOS shall pay to the DIP Lenders, on account of the DIP Lender Claims, Cash
equal to the amount of the DIP Lender Claims, unless the DIP Lenders and NTELOS
or Reorganized NTELOS, as the case may be, agree or shall have agreed to other
treatment of such Claims.
2.2 Administrative Expense Claims.
Subject to certain additional requirements for professionals
and certain other entities set forth in this section, the Reorganized Debtors
will pay to each holder of an Allowed Administrative Expense Claim (other than
the DIP Lender Claims which shall be treated as set forth in section 2.1
hereof), on account of its Administrative Expense Claim and in full satisfaction
thereof, Cash equal to the amount of such Allowed Administrative Expense Claim
on, or as soon as practicable after, the later of the Effective Date and the day
on which such Claim becomes an Allowed Claim, unless the holder and the Debtors
or Reorganized Debtors, as the case may be, agree or will have agreed to other
treatment of such Claim, or an order of the Bankruptcy Court provides for other
terms; provided, that if incurred in the ordinary course of business or
otherwise assumed by the Debtors pursuant to the Plan (including Administrative
Expense Claims of governmental units for taxes), an Allowed Administrative
Expense Claim will be assumed on the Effective Date and paid, performed or
settled by the Reorganized Debtors when due in accordance with the terms and
conditions of the particular agreement(s) governing the obligation in the
absence of the Chapter 11 Case.
12
2.3 Professional Compensation and Reimbursement Claims.
All persons seeking an award by the Bankruptcy Court of a
Professional Compensation and Reimbursement Claim incurred through and including
the Effective Date are required (unless otherwise ordered by the Bankruptcy
Court) to file final applications for the allowance of compensation for services
rendered and reimbursement of expenses incurred within 30 days after the
Effective Date. Holders of Professional Compensation and Reimbursement Claims
that file final applications in accordance with the Plan will be paid in full in
Cash in the amounts approved by the Bankruptcy Court: (a) on or as soon as
reasonably practicable following the later to occur of (i) the Effective Date
and (ii) the date on which the order relating to any such Professional
Compensation and Reimbursement Claim becomes a Final Order; or (b) on other
terms mutually agreed on between the Professional Compensation and Reimbursement
Claim holder and the Debtors or, as applicable, the Reorganized Debtors.
2.4 Priority Tax Claims.
Except to the extent that a holder of an Allowed Priority Tax
Claim agrees to a different treatment of such Allowed Priority Tax Claim, the
Reorganized Debtors shall, at their sole option, pay to each holder of an
Allowed Priority Tax Claim (i) Cash in an amount equal to such Allowed Priority
Tax Claim on the later of the Effective Date and the date on which such Claim
becomes an Allowed Priority Tax Claim, or as soon thereafter as is practicable,
(ii) deferred Cash payments made on the last Business Day of every three-month
period following the Effective Date, over a period not exceeding six (6) years
after the date of assessment of the tax on which such Claim is based, totaling
the principal amount of such Allowed Claim, plus simple interest on any
outstanding balance from the Effective Date calculated at the interest rate
available on ninety (90) day United States Treasuries on the Effective Date or
(iii) such other treatment agreed to by the Allowed Priority Tax Claim holder
and the Debtors. All Allowed Priority Tax Claims which are not due and payable
on or before the Effective Date shall be paid in the ordinary course of business
in accordance with the terms thereof or accorded such other treatment as may be
permitted under Section 1129(a)(9) of the Bankruptcy Code.
2.5 Full Settlement.
The distributions provided for in Section 2.2 hereof are in
full settlement, release and discharge of all Administrative Expense Claims. The
distributions provided for in Section 2.3 are in full settlement, release and
discharge of all Professional Compensation and Reimbursement Claims. The
distributions provided for in Section 2.4 hereof are in full settlement, release
and discharge of all Priority Tax Claims.
Section 3 CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Pursuant to Sections 1122 and 1123(a)(1) of the Bankruptcy
Code, the categories of Claims and Equity Interests listed below classify Claims
and Equity Interests for all purposes, including voting and distribution
pursuant to the Plan. A Claim and Equity Interest shall be deemed classified in
a particular Class only to the extent that such Claim or Equity Interest
qualifies within the description of that Class and shall be deemed classified in
a different Class to
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the extent that any remainder of such Claim or Equity Interest qualifies within
the description of such different Class. A Claim or Equity Interest is in a
particular Class only to the extent that such Claim or Equity Interest is
Allowed in the Class and has not been paid or otherwise settled prior to the
Effective Date.
THE PLAN SEEKS LIMITED SUBSTANTIVE CONSOLIDATION OF THE ESTATES OF THE DEBTORS
SOLELY FOR THE LIMITED PURPOSE ENUMERATED IN THE PLAN, AS FURTHER DESCRIBED IN
SECTION 6.15 HEREIN. IF SUCH LIMITED SUBSTANTIVE CONSOLIDATION IS AUTHORIZED AND
ORDERED BY THE COURT, ALL ALLOWED CLAIMS AGAINST THE DEBTORS OR THEIR ESTATES
SHALL BE SATISFIED FROM THE COMBINED CASH AND OTHER ASSETS OF ALL OF THE
DEBTORS. SUCH TREATMENT WILL GREATLY EASE THE ADMINISTRATION OF THE ESTATES,
WILL STREAMLINE THE SOLICITATION AND CONFIRMATION PROCESS, WILL MINIMIZE
EXPENSE, AND WILL NOT PREJUDICE THE CREDITORS OF ANY OF THE DEBTORS' ESTATES.
The classification of Claims and Equity Interests pursuant to
the Plan is as follows:
Class Claim Status Voting Rights
- ----------------------------------------------------------------------------------------------------------------------
1 Priority Non-Tax Claims Unimpaired Not entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
2 Secured Bank Claims Impaired Entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
3 FCC Secured Claims Unimpaired Not entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
4 RUS/RTB Secured Claims Unimpaired Not entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
5 Senior Debt Claims Impaired Entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
6 Convenience Claims Unimpaired Not entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
7 General Unsecured Claims Impaired Entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
8 Intercompany Claims Unimpaired Not entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
9 Subordinated Claims Impaired Entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
10 Old Preferred Stock Interests Impaired Entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
11 Subsidiary Interests Unimpaired Not entitled to vote
- ----------------------------------------------------------------------------------------------------------------------
12 Old Common Stock Interests Impaired Not entitled to vote (deemed to
have rejected the Plan)
- ----------------------------------------------------------------------------------------------------------------------
13 Other Equity Interests and Securities Impaired Not entitled to vote (deemed to
Claims have rejected the Plan)
The DIP Lender Claims, Administrative Expense Claims, Professional Compensation
and Reimbursement Claims, and Priority Tax Claims have not been classified (as
set forth in Section 2 hereof) and are excluded from the foregoing classes in
accordance with Section 1123(a)(1) of the Bankruptcy Code.
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Section 4 PROVISIONS FOR TREATMENT OF CLAIMS AND EQUITY INTERESTS
4.1 Class 1 - Priority Non-Tax Claims.
Class 1 consists of all Allowed Priority Non-Tax Claims. On
the Effective Date, except to the extent that the Debtors and a holder of an
Allowed Priority Non-Tax Claim agree to a different treatment of such Allowed
Priority Non-Tax Claim, each holder of an Allowed Priority Non-Tax Claim shall,
at the Reorganized Debtors' election, receive (i) Cash in the amount of such
Allowed Priority Non-Tax Claim in accordance with Section 1129(a)(9) of the
Bankruptcy Code and/or (ii) such other treatment required to render such Claim
unimpaired pursuant to Section 1124 of the Bankruptcy Code. All Allowed Priority
Non-Tax Claims which are not due and payable on or before the Effective Date
shall be paid in the ordinary course of business in accordance with the terms
thereof. Any default with respect to any Class 1 Claim that existed immediately
prior to the Petition Date shall be deemed cured upon the Effective Date.
Class 1 is not impaired, and the holders of Claims in Class 1
are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of
the Bankruptcy Code. Therefore, holders of Claims in Class 1 are not entitled to
vote to accept or reject the Plan.
4.2 Class 2 - Secured Bank Claims.
Class 2 consists of all Allowed Secured Bank Claims. The
Secured Bank Claims are deemed Allowed pursuant to the Plan. The Allowed Claims
in Class 2 will be treated as follows: on the Effective Date, Reorganized NTELOS
and the Reorganized NTELOS Subsidiaries shall enter into (i) the New Credit
Agreement on substantially the terms set forth in the Exit Financing Term Sheet
and (ii) the Modified Hedge Agreements. Accordingly, from and after the
Effective Date, (i) the Pre-Petition Secured Lenders' Claims against the Debtors
in respect of the Pre-Petition Credit Agreement and the rights and obligations
of the Reorganized Debtors and the Pre-Petition Secured Lenders shall be
governed by the terms of the New Credit Agreement, and (ii) the Secured Hedge
Parties' Claims against the Debtors in respect of the Pre-Petition Hedge
Agreements and the rights and obligations of the Reorganized Debtors and the
Secured Hedge Parties shall be governed by the terms of the Modified Hedge
Agreements.
Class 2 is impaired, and the holders of Claims in Class 2 are
entitled to vote to accept or reject the Plan. In the event Class 2 rejects the
Plan, the Debtors reserve the right to seek confirmation pursuant to Section
1129(b) of the Bankruptcy Code as set forth in Section 5.5 hereof.
4.3 Class 3 - FCC Secured Claims.
Class 3 consists of all Allowed FCC Secured Claims. Each
Allowed Claim in Class 3 will be treated as follows: (i) the Plan will leave
unaltered the legal, equitable and contractual rights to which such Claim
entitles the holder or (ii) notwithstanding any contractual provision or
applicable law that entitles the holder of an Allowed Claim in Class 3 to demand
or receive payment of such Claim prior to the stated maturity of such Claims
from and after the
15
occurrence of a default, such Allowed Claim in Class 3 will be reinstated and
rendered unimpaired in accordance with Section 1124(2) of the Bankruptcy Code.
Class 3 is unimpaired, and the holder of Claims in Class 3 is
conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of the
Bankruptcy Code. Therefore, the holder of Claims in Class 3 is not entitled to
vote to accept or reject the Plan.
4.4 Class 4 - RUS/RTB Secured Claims.
Class 4 consists of all Allowed RUS/RTB Secured Claims. Each
Allowed Claim in Class 4 will be treated as follows: (i) the Plan will leave
unaltered the legal, equitable and contractual rights to which such Claim
entitles the holder or (ii) notwithstanding any contractual provision or
applicable law that entitles the holder of an Allowed Claim in Class 4 to demand
or receive payment of such Claim prior to the stated maturity of such Claims
from and after the occurrence of a default, such Allowed Claim in Class 4 will
be reinstated and rendered unimpaired in accordance with Section 1124(2) of the
Bankruptcy Code.
Class 4 is unimpaired, and the holders of Claims in Class 4
are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of
the Bankruptcy Code. Therefore, holders of Claims in Class 4 are not entitled to
vote to accept or reject the Plan.
4.5 Class 5 - Senior Debt Claims.
Class 5 consists of all Senior Debt Claims which shall be
Allowed in the amount of [$296,694,261]. On the Effective Date or as soon as
practicable thereafter, each holder of an Allowed Senior Debt Claim as of the
Distribution Record Date will receive its Ratable Proportion of the Senior Debt
New Common Stock Distribution Amount. Any securities, notes, instruments or
documents evidencing the Senior Debt Claims will be cancelled on the Effective
Date.
To the extent, if any, that the classification and manner of
satisfying Claims under the Plan does not take into consideration all
contractual, legal and equitable subordination rights that holders of Allowed
Senior Debt Claims may have against holders of Claims or Equity Interests with
respect to distributions made pursuant to the Plan, each holder of an Allowed
Senior Debt Claim shall be deemed, upon the Effective Date, to have waived all
contractual, legal or equitable subordination rights that such holder might
have, including, without limitation, any such rights arising out of the Senior
Notes, the Subordinated Notes, the Senior Indenture, the Subordinated Indenture
or otherwise.
The payments and distributions to be made under the Plan to
holders of Senior Notes shall be made to the Senior Indenture Trustee or a
Disbursing Agent selected by NTELOS and the Creditors' Committee, which shall
transmit such payments and distributions to holders of such Allowed Senior Debt
Claims. In addition, on the Effective Date, the Debtors will pay to the Senior
Indenture Trustee an amount equal to the reasonable fees and expenses incurred
by the Senior Indenture Trustee on behalf of the holders of the Senior Notes
during the period up to and including the Effective Date (such amount not to
exceed $[75,000]). In exchange, the Senior Indenture Trustee will be deemed to
have waived any entitlement to any Lien, claim or interest
16
granted under the Senior Indenture (including those described in the preceding
paragraph of this section) with respect to any distributions made to holders of
Senior Debt Claims hereunder.
Class 5 is impaired, and the holders of Claims in Class 5 are
entitled to vote to accept or reject the Plan. In the event Class 5 rejects the
Plan, the Debtors reserve the right to seek confirmation pursuant to Section
1129(b) of the Bankruptcy Code as set forth in Section 5.5 thereof.
4.6 Class 6 - Convenience Claims.
Class 6 consists of Convenience Claims. Each holder of a
Convenience Claim shall be rendered unimpaired in accordance with Section 1124
of the Bankruptcy Code. All Convenience Claims which are not due and payable on
or before the Effective Date shall be paid in the ordinary course of business in
accordance with the terms thereof.
In any event, all Convenience Claims in Class 6 that have
become due and payable on or before the Effective Date (unless previously paid)
will receive on account of and in full and complete settlement, release and
discharge of such Convenience Claim, Cash on, or as soon as practicable after
the Effective Date, or at such other time as is mutually agreed upon by the
Debtors or the Reorganized Debtors, as the case may be, and the holder of such
Claim, or if not due and payable on the Effective Date, such Claim will be
reinstated and paid in full in accordance with its terms or otherwise rendered
unimpaired.
Class 6 is not impaired, and the holders of claims in Class 6
are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of
the Bankruptcy Code. Therefore, the holders of Claims in Class 6 are not
entitled to vote to accept or reject the Plan.
4.7 Class 7 - General Unsecured Claims.
Class 7 consists of all Allowed General Unsecured Claims. Each
holder of an Allowed General Unsecured Claim will receive on account of and in
full and complete settlement, release and discharge of such General Unsecured
Claim, Cash equal to 68% of such holder's Allowed General Unsecured Claim to be
distributed as follows:
(i) on the Effective Date, Cash equal to 30.6% of such
holder's Allowed General Unsecured Claim;
(ii) on the first anniversary of the Effective Date, Cash
equal to 20.4% of such holder's Allowed General Unsecured Claim; and
(iii) on the second anniversary of the Effective Date, Cash
equal to 17.0% of such holder's Allowed General Unsecured Claim.
Class 7 is impaired, and the holders of Claims in Class 7 are
entitled to vote to accept or reject the Plan. In the event Class 7 rejects the
Plan, the Debtors reserve the right to seek confirmation pursuant to Section
1129(b) of the Bankruptcy Code as set forth in Section 5.5 thereof.
17
4.8 Class 8 - Intercompany Claims.
Class 8 consists of Intercompany Claims. The legal equitable
and contractual rights of the holders of Class 8 Claims are unaltered by the
Plan.
Class 8 is unimpaired, and the holders of Claims in Class 8
are conclusively deemed to have accepted the Plan pursuant to Section 1126(f) of
the Bankruptcy Code. Therefore, the holders of Claims in Class 8 are not
entitled to vote to accept or reject the Plan.
4.9 Class 9 - Subordinated Claims.
Class 9 consists of all Subordinated Claims which shall be
Allowed in the amount of [$102,053,750]. On the Effective Date or as soon as
practicable thereafter, each holder of an Allowed Subordinated Claim as of the
Distribution Record Date will receive its Ratable Proportion of the Subordinated
Note New Common Stock Distribution Amount. Any securities, notes, instruments or
documents evidencing the Subordinated Claims will be cancelled on the Effective
Date.
The payments and distributions to be made under the Plan to
holders of Subordinated Notes shall be made to the Subordinated Indenture
Trustee, which shall transmit such payments and distributions to holders of such
Allowed Subordinated Claims.
Class 9 is impaired, and the holders of Claims in Class 9 are
entitled to vote to accept or reject the Plan. In the event Class 9 rejects the
Plan, the Debtors reserve the right to seek confirmation pursuant to Section
1129(b) of the Bankruptcy Code as set forth in Section 5.5 hereof.
4.10 Class 10 - Old Preferred Stock Interests.
Class 10 consists of all Allowed Old Preferred Stock
Interests. On the Effective Date or as soon as practicable thereafter, each
holder of an Allowed Old Preferred Stock Interest as of the Distribution Record
Date will receive its Ratable Proportion of New Warrants. The Old Preferred
Stock Interests will be cancelled on the Effective Date.
Class 10 is impaired, and the holders of Interests in Class 10
are entitled to vote to accept or reject the Plan. In the event Class 10 rejects
the Plan, the Debtors reserve the right to seek confirmation pursuant to Section
1129(b) of the Bankruptcy Code as set forth in Section 5.5 hereof.
4.11 Class 11 - Subsidiary Interests.
Class 11 consists of Subsidiary Interests. The legal,
equitable and contractual rights of the holders of Subsidiary Interests are
unaltered by the Plan.
Class 11 is unimpaired, and the holders of Subsidiary 11
Interests are conclusively deemed to have accepted the Plan pursuant to Section
1126(f) of the Bankruptcy Code. Therefore, the holders of Interests in Class 11
are not entitled to vote to accept or reject the Plan.
18
4.12 Class 12 - Old Common Stock Interests.
Class 12 consists of all Old Common Stock Interests. The Old
Common Stock will be cancelled on the Effective Date and no distribution will be
made in respect thereof.
Class 12 is impaired, but since holders of Old Common Stock
Interests are receiving no distribution hereunder, Class 12 shall be deemed to
have rejected the Plan and are not entitled to vote to accept or reject the
Plan.
4.13 Class 13 - Other Equity Interests and Securities Claims.
Class 13 consists of all Other Equity Interests and Securities
Claims. The Other Equity Interests and Securities Claims will be cancelled on
the Effective Date and of no further force and effect thereafter and no
distribution will be made in respect thereof.
Class 13 is impaired, but since holders of Other Equity
Interests and Securities Claims are receiving no distribution hereunder, Class
13 shall be deemed to have rejected the Plan and are holders of Other Equity
Interests and Securities Claims are not entitled to vote to accept or reject the
Plan.
4.14 Alternate Treatment for Holders of Allowed Claims.
Notwithstanding the treatment provided for holders of Allowed
Claims in this Section 4, the Reorganized Debtors and the holder of an Allowed
Claim may agree to other treatment of such Claim, including payment in Cash,
provided that such treatment shall not provide a return having a present value
in excess of the present value of the distribution that otherwise would be made
to such holder under Section 4 hereof.
Section 5 IDENTIFICATION OF CLASSES OF CLAIMS AND INTERESTS IMPAIRED AND
UNIMPAIRED BY THE PLAN; ACCEPTANCE OR REJECTION OF THE PLAN
5.1 Holders of Claims and Equity Interests Impaired by the Plan
and Entitled to Vote.
Each of Class 2 (Secured Bank Claims), Class 5 (Senior Debt
Claims), Class 7 (General Unsecured Claims), Class 9 (Subordinated Claims), and
Class 10 (Old Preferred Stock Interests) is impaired by the Plan and the holders
of Allowed Claims and Allowed Equity Interests in each of such Classes are
entitled to vote to accept or reject the Plan.
5.2 Acceptance by Holders of Claims and Equity Interests Impaired
by the Plan.
An Impaired Class of Claims shall be deemed to have accepted
the Plan if: (a) the holders (other than any holder designated under Section
1126(e) of the Bankruptcy Code) of at least two-thirds in amount of the Allowed
Claims actually voting in such Class have accepted the Plan; and (b) the holders
(other than holders designated under Section 1126(e) of the Bankruptcy Code) of
more than one-half in number of the Allowed Claims actually voting in the Class
have voted to accept the Plan. An Impaired Class of Equity Interests shall be
deemed to have accepted the Plan if the holders (other than holders designated
under Section 1126(e) of the
19
Bankruptcy Code) of at least two-thirds in amount of the Allowed Equity
Interests actually voting in such Class have voted to accept the Plan.
5.3 Holders of Claims and Equity Interests Not Impaired by the
Plan and Conclusively Presumed to Have Accepted the Plan.
Each of Class 1 (Priority Non-Tax Claims), Class 3 (FCC
Secured Claims), Class 4 (RUS/RTB Secured Claims), Class 6 (Convenience Claims),
Class 8 (Intercompany Claims) and Class 11 (Subsidiary Interests) is unimpaired
by the Plan and the holders of Allowed Claims and Allowed Equity Interests in
each of such Classes are conclusively presumed to have accepted the Plan under
Section 1126(f) of the Bankruptcy Code and are not entitled to vote to accept or
reject the Plan.
5.4 Holders of Equity Interests Impaired by the Plan and
Conclusively Presumed Not to Have Accepted the Plan.
Each of Class 12 (Old Common Stock Interests) and Class 13
(Other Equity Interests and Securities Claims) is impaired by the Plan and
holders of Equity Interests in Class 12 and Equity Interests and Claims in Class
13 will receive no distribution in respect thereof. Each of Class 12 and Class
13 is conclusively presumed to have rejected the Plan. Accordingly, holders of
Equity Interests in Class 12 and Equity Interests and Claims in Class 13 are not
entitled to vote to accept or reject the Plan and the votes of such holders will
not be solicited.
5.5 Non-consensual Confirmation.
If any impaired Class of Claims or Equity Interests entitled
to vote shall not accept the Plan by the requisite majorities provided in
Section 1126(c) of the Bankruptcy Code, or if any impaired Class of Claims or
Equity Interests is deemed to reject the Plan, the Debtors reserve the right (a)
to amend the Plan in accordance with Section 13.2 hereof and/or (b) to undertake
to have the Bankruptcy Court confirm the Plan under Section 1129(b) of the
Bankruptcy Code.
Section 6 MEANS OF IMPLEMENTATION OF THE PLAN
6.1 Continued Existence.
The Debtors shall continue to exist after the Effective Date
as separate corporate entities, limited liability companies, limited liability
partnerships and partnerships, in accordance with the applicable law in the
respective jurisdictions in which they are incorporated or organized and
pursuant to their respective certificates, articles of incorporation, operating
agreements, partnership agreements, and by-laws in effect prior to the Effective
Date, except to the extent such certificates, articles of incorporation,
operating agreements, partnership agreements and by-laws are amended by the
Plan.
20
6.2 Amended and Restated Articles of Incorporation.
On the Effective Date, or as soon thereafter as is
practicable, Reorganized NTELOS shall file with the Clerk of the Virginia State
Corporation Commission in accordance with Section 13.1-604.1 of the Virginia
Code, the New Articles of Incorporation which shall, among other things,
authorize no less than 16,000,000 shares of New Common Stock, all shares of such
New Common Stock having equal rights with respect to voting and distributions.
On the Effective Date, the New Articles of Incorporation shall become effective
subject to the requirements of Section 13.1-605 of the Virginia Code, and all
other matters provided under the Plan involving the corporate structure of
Reorganized NTELOS, or corporate action by it, shall be deemed to have occurred
and shall be in effect from and after the Effective Date pursuant to Section
13.1-605 of the Virginia Code.
6.3 Corporate Action.
(i) Board of Directors of Reorganized NTELOS.
On the Effective Date, the operation of Reorganized NTELOS
will become the general responsibility of its Board of Directors, subject to,
and in accordance with, the New Articles of Incorporation and the New By-Laws.
The initial Board of Directors of Reorganized NTELOS will consist of seven (7)
members to be selected as follows: (i) the majority holders of the Senior Notes
will select four (4) members, two (2) of whom will be persons independent of the
Participating Noteholders and NTELOS, and (ii) the majority holders of the
Senior Notes and NTELOS will select jointly two (2) members, which members may
be members of the Board of Directors of NTELOS. The seventh member of the
initial Board of Directors of Reorganized NTELOS will be the chief executive
officer of Reorganized NTELOS. The members of the initial Board of Directors of
Reorganized NTELOS will be approved by the Board of Directors of NTELOS. The
initial members of the Board of Directors of Reorganized NTELOS will be
disclosed in a filing to be made with the Bankruptcy Court fourteen (14)
Business Days prior to the Confirmation Hearing. The directors of NTELOS
immediately prior to the Effective Date will be deemed to have resigned as of
the Effective Date and will be replaced by the Board of Directors of Reorganized
NTELOS.
(ii) Officers of Reorganized NTELOS.
The initial officers of Reorganized NTELOS are disclosed in
the Disclosure Statement. The selection of officers of Reorganized NTELOS after
the Effective Date shall be as provided in the New Articles of Incorporation and
the New By-Laws.
6.4 New Credit Agreement.
The entry of Reorganized NTELOS into the New Credit Agreement
with the Pre-Petition Secured Lenders on the terms set forth in the Exit
Financing Term Sheet is authorized without further act or action under
applicable law, regulation, order or rule. Reorganized NTELOS is hereby
authorized to enter into such agreements and documents and issue such
instruments as may be necessary to effectuate its entry into such New Credit
Agreement, in form and substance reasonably acceptable to the Pre-Petition
Secured Lenders.
21
6.5 Modified Hedge Agreements.
The entry of Reorganized NTELOS into the Modified Hedge
Agreements with the Secured Hedge Parties is authorized without further act or
action under applicable law, regulation, order or rule. Reorganized NTELOS is
hereby authorized to enter into such agreements and documents and issue such
instruments as may be necessary to effectuate its entry into such Modified Hedge
Agreements, in form and substance acceptable to the Secured Hedge Parties.
6.6 Cancellation of Existing Securities and Agreements.
On the Effective Date, the Senior Notes, the Subordinated
Notes, any documents and instruments which evidence the Senior Debt Claims and
the Subordinated Claims, the Old Preferred Stock Interests, the Old Common Stock
Interests and the Other Equity Interests and Securities Claims shall (a) be
cancelled and (b) have no effect other than the right to participate in the
distributions, if any, provided under the Plan in respect of such Claims and
Equity Interests. Except for purposes of effectuating the distributions under
the Plan on the Effective Date and to allow the Senior Indenture Trustee and the
Subordinated Indenture Trustee to retain all Liens pursuant to the terms of the
Senior Indenture and the Subordinated Indenture with respect to distributions
hereunder, the Senior Indenture and the Subordinated Indenture shall be
cancelled and discharged pursuant to Section 1141 of the Bankruptcy Code. Except
as otherwise provided in the Plan, NTELOS, on the one hand, and the Senior
Indenture Trustee or Subordinated Indenture Trustee, on the other hand, will be
released from any and all obligations under the Senior Indenture or Subordinated
Indenture except with respect to the distributions required to be made to the
Senior Indenture Trustee or Subordinated Indenture Trustee as provided in the
Plan or with respect to such other rights of the Senior Indenture Trustee or
Subordinated Indenture Trustee that, pursuant to the terms of the Senior
Indenture or Subordinated Indenture, survive the termination of the Senior
Indenture or Subordinated Indenture.
6.7 Issuance of New Securities.
The issuance of New Common Stock, New Notes and New Warrants
is hereby authorized without further act or action under applicable law,
regulation, order or rule. Subject to the terms of the Purchase Agreement,
Reorganized NTELOS is hereby authorized to enter into such agreements and
documents and issue such instruments as may be necessary to effectuate the
issuance of New Common Stock, New Notes and New Warrants, in each case
reasonably acceptable to the Pre-Petition Secured Lenders, including the New
Indenture and the New Warrant Agreement. To the maximum extent provided by
Section 1145 of the Bankruptcy Code and applicable nonbankruptcy laws, the
shares of New Common Stock and New Warrants issued pursuant to the Plan are
exempt from registration under the Securities Act of 1933, as amended, and any
state or local law requiring registration for offer or sale of a security.
6.8 Shareholders' Agreement.
As of the Effective Date, Reorganized NTELOS and the holders of the New
Common Stock likely will be bound by a Shareholders' Agreement that will limit,
restrict or prohibit the
22
ability of holders of New Common Stock to sell or otherwise transfer such
securities for a specified or indefinite period of time. It is anticipated that
the Shareholders' Agreement will contain such provisions (but may contain
different or additional provisions), including transfer restrictions with
respect to the New Common Stock, as set forth on Exhibit I to the Disclosure
Statement.
6.9 Registration Rights Agreements.
As of the Effective Date, Reorganized NTELOS and certain
holders of New Common Stock shall enter into the New Common Stock Registration
Rights Agreement. As of the Effective Date, Reorganized NTELOS and certain
holders of New Notes shall enter into the New Notes Registration Rights
Agreement.
6.10 New Investment.
Pursuant to the terms of the Subscription Agreement, the
Participating Noteholders have agreed to purchase $75.0 million aggregate
principal amount of the New Notes and 37,931 shares of New Common Stock (based
on the New Common Stock Price) issuable under the Subscription Agreement,
thereby providing Reorganized NTELOS with $75.0 million of funding through the
New Investment. The proceeds of the New Investment will be used (i) to pay in
full the DIP Lender Claims on the Effective Date, unless the DIP Lenders and
NTELOS or Reorganized NTELOS, as the case may be, agree or shall have agreed to
other treatment of such Claims, (ii) to pay in full the revolving loans then
outstanding under the Pre-Petition Credit Agreement upon the Effective Date in
accordance with the Exit Financing Term Sheet, and (iii) to fund the operations
of the Reorganized Debtors on a going forward basis including obligations under
the Plan.
6.11 Termination of Subordination.
The classification and manner of satisfying all Claims and
Equity Interests under the Plan and the distributions hereunder take into
consideration all contractual, legal and equitable subordination rights, whether
arising under any agreement, general principles of equitable subordination,
Section 510 of the Bankruptcy Code or otherwise, that a holder of a Claim or
Equity Interest may have against another holder of a Claim or Equity Interest
with respect to any distribution made pursuant to the Plan. The Plan
incorporates a proposed compromise and settlement relating to the operation of
the subordination provisions contained in the Subordinated Indenture. The
provisions of the Plan relating to the distribution of New Common Stock to
holders of Senior Debt Claims (Class 5) and Subordinated Claims (Class 9)
reflect this compromise and settlement which, upon the Effective Date, shall be
binding upon the Debtors, all creditors and all persons and governmental units
receiving any payments or other distributions under the Plan. On the Effective
Date, all contractual, legal or equitable subordination rights that such holder
may have with respect to any distribution to be made pursuant to the Plan shall
be deemed to be waived, discharged and terminated, and all actions related to
the enforcement of such subordination rights will be permanently enjoined.
Accordingly, distributions pursuant to the Plan to holders of Allowed Claims and
Allowed Equity Interests shall not be subject to payment to a beneficiary of
such terminated
23
subordination rights, or to levy, garnishment, attachment or other legal process
by any beneficiary of such terminated subordination rights.
6.12 Cash Payments by the Debtors.
Unless otherwise provided herein, on the Effective Date, the
Reorganized Debtors shall pay holders of Allowed Claims such Cash as is
necessary to make the Cash distributions and any other Cash payments required
hereunder. All Cash necessary for the Reorganized Debtors to make payments
pursuant to the Plan shall be obtained from existing Cash balances, proceeds
from the sale of the New Notes, the operations of the Debtors or Reorganized
Debtors or post-Confirmation borrowing under the available facility of the
Debtors or Reorganized Debtors, including under the New Credit Agreement, to the
extent permitted thereunder. Reorganized NTELOS may also make such payments
using Cash received from the NTELOS Subsidiaries in the ordinary course of
business.
6.13 Bar Date for Administrative Expense Claims.
(i) Pre-Effective Date Claims and Expenses.
No proof of Administrative Expense Claim or application for
payment of an Administrative Expense Claim need be filed for the allowance of
any of the following types of Claims (a) expenses of liabilities incurred in the
ordinary course of the Reorganized Debtors' businesses on or after the Effective
Date, (b) Administrative Expense Claims held by trade vendors where such
administrative liability was incurred in the ordinary course of the Debtors' and
such creditors' businesses after the Petition Date, (c) Professional
Compensation and Reimbursement Claims, (d) the DIP Lender Claims, (e) claims of
the Pre-Petition Secured Lenders arising from the DIP Credit Agreement or Final
DIP Order, or (f) fees of the United States Trustee arising under 28 U.S.C.
Section 1930.
TO BE ELIGIBLE FOR PAYMENT UNDER THE PLAN, ALL PERSONS AND GOVERNMENTAL UNITS
ASSERTING ADMINISTRATIVE EXPENSE CLAIMS OF ANY KIND NOT DESCRIBED ABOVE ARISING
ON OR AFTER THE PETITION DATE MUST FILE AND SERVE PROOFS OF SUCH CLAIMS PURSUANT
TO THE PROCEDURES IN THE CONFIRMATION ORDER OR NOTICE OF ENTRY OF CONFIRMATION
ORDER, NO LATER THAN 60 DAYS AFTER THE EFFECTIVE DATE.
Expenses and liabilities incurred on or after the Effective
Date are not subject to the Plan or the treatment of Claims described herein.
All of the Administrative Expense Claims described above other than Professional
Compensation and Reimbursement Claims will be paid by the Reorganized Debtors in
the ordinary course of business.
(ii) Effect of Failure to File Timely Claim or Requests
for Payment.
Any request for payment of an Administrative Expense Claim
that is not exempt from the Bar Date and that is not filed by the applicable
deadline set forth above will be barred. Any persons or governmental units that
fail to file a proof of Administrative Expense Claim or request for payment
thereof on or before the applicable
24
deadline set forth above as required hereunder will be forever barred from
asserting such Claim against the Debtors or the Reorganized Debtors or their
property and the holder thereof will be enjoined from commencing or continuing
any action, employment of process or act to collect, offset or recover such
Administrative Expense Claim.
6.14 Allocation of Plan Distributions Between Principal and
Interest.
To the extent that any Allowed Claim entitled to a
distribution under the Plan is composed of indebtedness and accrued but unpaid
interest thereon, such distribution shall, to the extent permitted by applicable
law, be allocated for federal income tax purposes to the principal amount of the
Claim first and then, to the extent the consideration exceeds the principal
amount of the Claim, to the portion of such Claim representing accrued but
unpaid interest.
6.15 Limited Substantive Consolidation.
The Plan is premised upon the limited substantive
consolidation of the Debtors solely for purposes of actions associated with
confirmation and consummation of the Plan, including but not limited to voting,
confirmation and distribution. The Plan does not contemplate the merger or
dissolution of any of the Debtors or the transfer or commingling of any assets
of the Debtors, except to accomplish the distributions under the Plan, other
than distributions on account of Intercompany Claims, which shall be made in the
ordinary course of business following the Effective Date. Such limited
substantive consolidation shall not affect (other than for Plan voting,
treatment, and/or distribution purposes) (i) the legal and corporate structures
of the Reorganized Debtors, (ii) Subsidiary Interests, or (iii) pre- and
post-Petition Date guarantees that are required to be maintained (x) in
connection with the executory contracts assumed herein, (y) in connection with
the terms of the New Credit Agreement, and (z) pursuant to the terms and
conditions contained herein.
THE PLAN SHALL SERVE AS A MOTION SEEKING ENTRY OF AN ORDER SUBSTANTIVELY
CONSOLIDATING THE CHAPTER 11 CASES OF THE DEBTORS, AS DESCRIBED HEREIN. UNLESS
AN OBJECTION TO SUBSTANTIVE CONSOLIDATION IS MADE IN WRITING BY ANY CREDITOR
AFFECTED BY THE PLAN AS HEREIN PROVIDED ON OR BEFORE FIVE (5) DAYS PRIOR TO THE
DATE THAT IS FIXED BY THE BANKRUPTCY COURT, THE SUBSTANTIVE CONSOLIDATION ORDER
(WHICH MAY BE THE CONFIRMATION ORDER) MAY BE ENTERED BY THE BANKRUPTCY COURT. IN
THE EVENT THAT ANY SUCH OBJECTIONS ARE TIMELY FILED, A HEARING WITH RESPECT
THERETO SHALL BE SCHEDULED BEFORE THE COURT, WHICH HEARING MAY, BUT NEED NOT,
COINCIDE WITH THE CONFIRMATION HEARING.
6.16 Employee Compensation and Benefit Plans.
Except and to the extent previously assumed or rejected by
Final Order on or before the Confirmation Date, all employment and severance
agreements and policies, and all employee compensation and benefit plans,
policies, and programs of the Debtors applicable generally to their employees,
as in effect on the Effective Date, including, without limitation, all savings
plans, retirement plans, health care plans, disability plans, severance benefit
plans,
25
incentive plans, life, accidental death, and dismemberment insurance plans, and
programs subject to Sections 1114 and 1129(a)(13) of the Bankruptcy Code,
entered into before and after the Petition Date and not since terminated, shall
be deemed to be, and shall be treated as though they are, executory contracts
that are assumed under the Plan, and the Debtors' obligations under such
agreements and programs shall survive the Effective Date of the Plan, without
prejudice to the Reorganized Debtors' rights under applicable non-bankruptcy law
to modify, amend, or terminate the foregoing arrangements, except for (i) such
executory contracts or plans specifically rejected pursuant to the Plan, and
(ii) such executory contracts or plans as have previously been terminated, or
rejected, pursuant to a Final Order, or specifically waived by the beneficiaries
of such plans, contracts, or programs. Likewise, except and to the extent
previously assumed or rejected by Final Order on or before the Confirmation
Date, certain salary continuation agreements, supplemental retirement
agreements, supplemental retirement plans and employments agreements of retirees
entered into before the Petition Date and not since terminated, shall be deemed
to be, and shall be treated as though they are, executory contracts that are
assumed under the Plan, and the Debtors' obligations under such agreements and
plans shall survive the Effective Date of the Plan.
6.17 Stock Option Incentive Plan.
On the Effective Date or as soon thereafter as is practicable,
the Board of Directors of Reorganized NTELOS will implement the Stock Option
Incentive Plan. Under the Stock Option Incentive Plan, incentive options will be
granted as set forth below.
In light of the Chapter 11 Case, the Board of Directors of
NTELOS determined not to approve bonuses to officers of NTELOS under the 2002
Management Incentive Plan, despite the board's determination that the
performance objectives contemplated by the plan were sufficiently achieved to
authorize payment of such bonuses to all other employees. As an officer
retention measure, taking into consideration the board's decision not to approve
2002 bonuses for officers and recognizing the substantial efforts that will be
required of the officers following emergence from bankruptcy, options to
purchase the number of shares equal to 7.5% (with a portion of this 7.5% being
awarded to other key employees) of the fully-diluted New Common Stock will be
awarded by the Board of Directors of Reorganized NTELOS to officers on the
Effective Date or as soon thereafter as is practicable with an exercise price
equal to the conversion price for the New Notes. The options under the Stock
Option Incentive Plan to be awarded on the Effective Date or as soon thereafter
as practicable will be vested as to one-third (1/3) of the options subject to
the award on the grant date and as to an additional one-third (1/3) of the
options subject to the award on each of the first and second anniversaries of
the grant date. The vesting of such options will be accelerated upon a change of
control of Reorganized NTELOS.
The Stock Option Incentive Plan also contemplates that options
to purchase shares equal to up to 2.5% of the fully-diluted New Common Stock
will be awarded thereafter at the discretion of the Board of Directors of
Reorganized NTELOS to management and employees and, subject to compliance with
applicable securities laws, other employees of Reorganized NTELOS.
26
6.18 Distribution on Account of Executive Separation.
By order dated May 30, 2003, the Bankruptcy Court approved
NTELOS entering into a separation agreement with J. Allen Layman, the President
and Chairman of NTELOS, effective as of June 1, 2003. On the Effective Date of
the Plan and in order to effectuate the terms of the separation agreement, as
negotiated consideration in exchange for Mr. Layman's continued agreement to
honor the non-competition provisions of Mr. Layman's pre-petition employment
agreements, Mr. Layman will receive $564,712.00 worth of New Common Stock (or
..3% of the New Common Stock as of the Effective Date without giving effect to
the conversion of the New Notes into New Common Stock), such shares to be valued
and distributed in accordance with the terms hereof.
Section 7 PROVISIONS GOVERNING DISTRIBUTIONS
7.1 Date of Distributions.
Unless otherwise provided herein, any distributions and
deliveries to be made hereunder shall be made on the Effective Date or as soon
as practicable thereafter and deemed made on the Effective Date. In the event
that any payment or act under the Plan is required to be made or performed on a
date that is not a Business Day, then the making of such payment or the
performance of such act may be completed on the next succeeding Business Day,
and if so completed shall be deemed to have been completed as of the required
date.
7.2 Disbursing Agents.
Distributions to holders of Senior Notes shall be made by the
Senior Indenture Trustee as Disbursing Agent for such holders. Distributions to
holders of Subordinated Notes shall be made by the Subordinated Indenture
Trustee as Disbursing Agent for such holders. All other distributions under the
Plan shall be made by Reorganized NTELOS as Disbursing Agent or such other
entity designated by Reorganized NTELOS as a Disbursing Agent. A Disbursing
Agent shall not be required to give any bond or surety or other security for the
performance of its duties unless otherwise ordered by the Bankruptcy Court, and,
in the event that a Disbursing Agent is so otherwise ordered, all costs and
expenses of procuring any such bond or surety shall be borne by Reorganized
NTELOS.
7.3 Surrender of Instruments.
Subject to the provisions of this section, as a condition to
receiving any distribution under the Plan, each holder of Senior Notes,
Subordinated Notes or Old Preferred Stock must surrender such Senior Notes,
Subordinated Notes or Old Preferred Stock to the appropriate Disbursing Agent.
Any holder of Senior Notes, Subordinated Notes or Old Preferred Stock that fails
to (a) surrender such instrument or (b) execute and deliver an affidavit of loss
and/or indemnity reasonably satisfactory to Reorganized NTELOS and, if requested
by Reorganized NTELOS, furnish a bond in form, substance, and amount reasonably
satisfactory to Reorganized NTELOS before the first anniversary of the Effective
Date shall be deemed to have forfeited all rights and Claims and may not
participate in any distribution under the Plan.
27
The procedures by which holders of Allowed Claims and Allowed
Equity Interests in Class 5, Class 9 or Class 10 surrender their Voting
Securities and exchange such Voting Securities for New Common Stock or New
Warrants, as applicable, shall be determined based upon the manner in which the
Voting Securities were issued and the manner in which they are held, as set
forth below.
(i) Voting Securities Held in Book-Entry Form.
Voting Securities held in book-entry form through bank and
broker nominee accounts shall be mandatorily exchanged for New Common Stock or
New Warrants, as applicable, through the facilities of such nominees and the
systems of the applicable securities depository or DTC.
(ii) Voting Securities in Physical, Registered,
Certificated Form.
Each holder of Voting Securities in physical, registered,
certificated form will be required, promptly after the Confirmation Date, to
deliver its physical certificates (the "Tendered Certificates") to the
Disbursing Agent, accompanied by a properly executed Letter of Transmittal.
Any New Common Stock or New Warrants to be distributed
pursuant to the Plan on account of any Allowed Claim or Equity Interest in Class
5, Class 9 or Class 10 represented by a Voting Security held in physical,
registered, certificated form shall, pending such surrender, be treated as an
undeliverable distribution pursuant to Section 7.4 below.
Signatures on a Letter of Transmittal must be guaranteed by an
Eligible Institution, unless the Voting Securities tendered pursuant thereto are
tendered for the account of an Eligible Institution. If Voting Securities are
registered in the name of a person other than the person signing the Letter of
Transmittal, the Voting Securities, in order to be tendered validly, must be
endorsed or accompanied by a properly completed power of authority, with
signature guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including
time of receipt), and acceptance of Letters of Transmittal and Tendered
Certificates will be resolved by the applicable Disbursing Agent, whose
determination shall be final and binding, subject only to review by the
Bankruptcy Court upon application with due notice to any affected parties in
interest. NTELOS reserves the right, on behalf of itself and the Disbursing
Agent, to reject any and all Letters of Transmittal and Tendered Certificates
not in proper form, or Letters of Transmittal and Tendered Certificates, the
Disbursing Agent's acceptance of which would, in the opinion of the Disbursing
Agent or its counsel, be unlawful.
(iii) Voting Securities in Bearer Form Held Through a
Broker or Bank Participant in DTC.
Voting Securities held in bearer form through a broker or bank
participant in DTC shall be mandatorily exchanged for New Common Stock or New
Warrants, as applicable,
28
through the facilities of such nominees and the securities depository holding
such Voting Securities on behalf of the broker or bank.
(iv) Delivery of New Common Stock in Exchange for Voting
Securities.
On the Effective Date, Reorganized NTELOS or the Disbursing
Agent shall issue and authenticate the New Common Stock and the New Warrants,
and shall apply to DTC to make the New Common Stock and the New Warrants
eligible for deposit at DTC. With respect to holders of Voting Securities who
hold such Voting Securities through nominee accounts at bank and broker
participants in DTC, the Disbursing Agent shall deliver the New Common Stock or
New Warrants, as applicable, to DTC or to the registered address specified by
DTC. DTC (or its depositary) shall return the applicable Voting Securities to
the Disbursing Agent for cancellation.
The Disbursing Agent will request that DTC effect a mandatory
exchange of the applicable Voting Securities for New Common Stock or New
Warrants, as applicable, by crediting the accounts of its participants with New
Common Stock or New Warrants, as applicable, in exchange for the Voting
Securities. On the effective date of such exchange, each DTC participant will
effect a similar exchange for accounts of the beneficial owners holding Voting
Securities through such firms. None of the Reorganized Debtors, nor the
Disbursing Agent shall have any responsibility or liability in connection with
DTC's or such participants' effecting, or failing to effect, such exchanges.
Holders of Voting Securities holding such Voting Securities
outside DTC will be required to surrender their Voting Securities by delivering
them to the Disbursing Agent, along with properly executed Letters of
Transmittal (as described above in Section 7.3(ii)). The Disbursing Agent shall
forward New Common Stock or New Warrants, as applicable, on account of such
Voting Securities to such holders.
7.4 Delivery of Distributions.
Subject to Bankruptcy Rule 9010, all distributions to any
holder of an Allowed Claim or an Allowed Equity Interest shall be made at the
address of such holder as set forth on the books and records of NTELOS or its
agents, unless NTELOS has been notified in writing of a change of address. In
the event that any distribution to any holder is returned as undeliverable, the
appropriate Disbursing Agent shall use reasonable efforts to determine the
current address of such holder, but no distribution to such holder shall be made
unless and until the appropriate Disbursing Agent has determined the then
current address of such holder, at which time such distribution shall be made to
such holder without interest; provided that such distributions shall be deemed
unclaimed property under Section 347(b) of the Bankruptcy Code at the expiration
of one (1) year from the Effective Date. After such date, all unclaimed property
or interest in property shall revert to Reorganized NTELOS, and the claim of any
other holder to such property or interest in property shall be discharged and
forever barred.
29
7.5 Manner of Payment Under the Plan.
At the option of the appropriate Disbursing Agent, any Cash
payment to be made hereunder may be made by a check or wire transfer or as
otherwise required or provided in applicable agreements.
7.6 Time Bar to Cash Payments.
Checks issued by Reorganized NTELOS on account of Allowed
Claims shall be null and void if not negotiated within ninety (90) days from and
after the date of issuance thereof. Requests for reissuance of any check shall
be made directly to Reorganized NTELOS by the holder of the Allowed Claim with
respect to which the check was originally issued. Any Claim in respect of a
voided check shall be made on or before the first anniversary of the date of
issuance. After such date, all Claims and respective voided checks shall be
discharged and forever barred and Reorganized NTELOS shall retain all moneys
related thereto.
7.7 Fractional Shares.
No fractional shares of the New Common Stock shall be
distributed. When any distribution pursuant to the Plan on account of an Allowed
Claim or an Allowed Equity Interest would otherwise result in the issuance of
New Common Stock that is not a whole number of shares, the actual distribution
of New Common Stock shall be rounded as follows: (i) fractions of one-half (1/2)
or greater shall be rounded to the next higher whole number of shares; and (ii)
fractions of less than one-half (1/2) shall be rounded to the next lower whole
number of shares. The total number of shares of New Common Stock to be
distributed to a Class of Claims or Equity Interests will be adjusted as
necessary to account for the rounding provided for in this section. No
consideration will be provided in lieu of fractional shares that are rounded
down.
7.8 De Minimis or Fractional Distributions.
No Cash payment of less than ten dollars ($10.00) shall be
made by Reorganized NTELOS on account of any Allowed Claim, unless a specific
request therefore is made in writing by that Claim's holder, unless required by
applicable non-bankruptcy law. In the event a holder of an Allowed Claim is
entitled to distribution that is not a whole dollar number, the actual payment
or issuance made may reflect a rounding of such fractional portion of such
distribution down or up to the nearest whole dollar, but in any case shall not
result in a distribution that exceeds the total distribution authorized by the
Plan for such holder.
7.9 Setoffs and Recoupment.
Pursuant to Sections 502(d) and 553 of the Bankruptcy Code or
applicable non-bankruptcy law, the Debtors may, but shall not be required to,
set off against, or recoup from, any Claim other than Secured Bank Claims and
DIP Lender Claims and the payments to be made pursuant to the Plan in respect of
such Claim (before any distribution is made on account of such Claim), any
claims, rights and causes of action of any nature that the Debtors or
Reorganized Debtors may have against the holder of such Claim; provided,
however, that neither the failure to
30
effect a set off or recoupment nor the allowance of any Claim hereunder shall
constitute a waiver or release by the Debtor or Reorganized Debtor of any such
claim, right or cause of action that the Debtors or Reorganized Debtors may have
against such holder of a Claim.
7.10 Distributions After the Effective Date.
Distributions made after the Effective Date to holders of
Disputed Claims or Disputed Equity Interests that are not Allowed Claims or
Allowed Equity Interests as of the Effective Date but which later become Allowed
Claims or Allowed Equity Interests shall be deemed to have been made on the
Effective Date.
7.11 Rights and Powers of Disbursing Agents.
(i) Powers of the Disbursing Agents.
Each Disbursing Agent shall be empowered to (a) effect all
actions and execute all agreements, instruments and other documents necessary to
perform its duties under the Plan, (b) make all distributions contemplated
hereby, (c) employ professionals to represent it with respect to its
responsibilities and (d) exercise such other powers as may be vested in the
Disbursing Agents by order of the Bankruptcy Court, pursuant to the Plan, or as
deemed by the Disbursing Agents to be necessary and proper to implement the
provisions hereof.
(ii) Expenses Incurred On or After the Effective Date.
Except as otherwise ordered by the Bankruptcy Court, the
amount of any reasonable fees and expenses incurred by a Disbursing Agent on or
after the Effective Date (including, without limitation, taxes) and any
reasonable compensation and expense reimbursement claims (including, without
limitation, reasonable attorney fees and expenses) made by the Disbursing Agents
shall be paid in Cash by Reorganized NTELOS.
7.12 Retention of Ballots.
Each custodian bank, agent, broker, or other nominee for
voting on behalf of beneficial owners of Voting Securities or registered holders
who are beneficial owners of Voting Securities shall retain all Ballots for
possible inspection for a period of at least two (2) years following the
Effective Date.
Section 8 PROCEDURES FOR TREATING DISPUTED, CONTINGENT AND UNLIQUIDATED
CLAIMS AND DISPUTED EQUITY INTERESTS UNDER THE PLAN
8.1 Disputed Claims Process.
Except as to applications for allowances of compensation and
reimbursement of expenses under Sections 328, 330 and 503 of the Bankruptcy
Code, the Debtors or Reorganized Debtors shall have the exclusive right to make
and file objections to Administrative Expense Claims, Claims or Equity Interests
subsequent to the Confirmation Date. After the Confirmation
31
Date, the Reorganized Debtors shall have the authority to compromise, settle,
otherwise resolve or withdraw any objections, without approval of the Bankruptcy
Court.
8.2 Estimation of Claims.
The Debtors or Reorganized Debtors may, at any time, request
that the Bankruptcy Court estimate any contingent or unliquidated Claim pursuant
to Section 502(c) of the Bankruptcy Code regardless of whether the Debtors or
Reorganized Debtors previously have objected to such Claim or whether the
Bankruptcy Court has ruled on any such objection, and the Bankruptcy Court will
retain jurisdiction to estimate any Claim at any time during the litigation
concerning any objection to any Claims, including without limitation, during the
pendency of any appeal relating to any such objection. Subject to the provisions
of Section 502(j) of the Bankruptcy Code, in the event that the Bankruptcy Court
estimated any contingent or unliquidated Claim, the amount so estimated shall
constitute the Allowed amount of such Claim. If the estimated amount constitutes
a maximum limitation on the amount of such Claim, the Debtor may pursue
supplementary proceedings to object to the allowance of such Claim. All of the
aforementioned objection, estimation and resolution procedures are intended to
be cumulative and not necessarily exclusive of one another. Claims may be
estimated and subsequently compromised, settled, withdrawn or resolved by any
mechanism approved by the Bankruptcy Court.
8.3 No Distributions Pending Allowance.
Notwithstanding any other provision herein to the contrary,
except as otherwise agreed by the Debtors or the Reorganized Debtors in their
sole discretion, no partial payments and no partial distributions will be made
with respect to a disputed Claim until the resolution of such dispute by
settlement or Final Order.
8.4 Distributions After Allowance.
To the extent that a Disputed Claim or Disputed Equity
Interest ultimately becomes an Allowed Claim or Allowed Equity Interest, a
distribution shall be made to the holder of such Allowed Claim or Allowed Equity
Interest in accordance with the provisions of the Plan. As soon as practicable
after the date that the order or judgment of the Bankruptcy Court allowing any
Disputed Claim or Disputed Equity Interest becomes a Final Order, the applicable
Disbursing Agent shall provide to the holder of such Claim or Equity Interest
the distribution to which such holder is entitled under the Plan as if the
Disputed Claim or Disputed Equity Interest had been an Allowed Claim or Allowed
Equity Interest on or prior to the Effective Date, without any post-Effective
Date interest thereon.
Section 9 PROVISIONS GOVERNING EXECUTORY CONTRACTS AND UNEXPIRED LEASES
9.1 Assumption or Rejection of Executory Contracts and Unexpired
Leases.
The Plan constitutes a motion by the Debtors to assume, as of
the Effective Date, all executory contracts and unexpired leases to which the
Debtors are a party, except for an
32
executory contract or unexpired lease that, prior to the Effective Date, (a) has
been assumed or rejected pursuant to Final Order of the Bankruptcy Court, (b) is
included on the Contract Rejection Schedule or (c) is the subject of a separate
then pending motion filed under Section 365 of the Bankruptcy Code by the
Debtors. For purposes hereof, each executory contract and unexpired lease listed
on the Contract Rejection Schedule that relates to the use or occupancy of real
property shall include (i) modifications, amendments, supplements, restatements,
or other agreements made directly or indirectly by any agreement, instrument, or
other document that in any manner affects such executory contract or unexpired
lease, without regard to whether such agreement, instrument or other document is
listed on the Contract Rejection Schedule and (ii) executory contracts or
unexpired leases appurtenant to the premises listed on the Contract Rejection
Schedule including all easements, licenses, permits, rights, privileges,
immunities, options, rights of first refusal, powers, uses, usufructs,
reciprocal easement agreements, vault, tunnel or bridge agreements or
franchises, and any other interests in real estate or rights in rem relating to
such premises to the extent any of the foregoing are executory contracts or
unexpired leases, unless any of the foregoing agreements is assumed. The
Confirmation Order shall constitute approval of such rejections pursuant to
Sections 365(a) and 1123 of the Bankruptcy Code. The Debtors may, in the future,
identify additional executory contracts and unexpired leases that they may wish
to reject and reserve the right to seek such rejection prior to the Effective
Date.
Any executory contracts or unexpired leases which (i) have not
expired by their own terms on or prior to the Effective Date, (ii) have not been
assumed, assumed and assigned or rejected prior to the Effective Date, (iii)
have not been rejected pursuant to the terms of the Plan, or (iv) are not the
subject of a motion to reject pending as of the Effective Date, shall be deemed
assumed by the Debtors on the Effective Date, and the entry of the Confirmation
Order shall constitute approval of such assumptions pursuant to Sections 365(a)
and 1123 of the Bankruptcy Code.
9.2 Cure of Defaults in Connection with Assumption.
Any monetary amounts by which each executory contract and
unexpired lease to be assumed pursuant to the Plan is in default will be
satisfied, pursuant to Section 365(b)(1) of the Bankruptcy Code, at the option
of Debtors or Reorganized Debtors, as the case may be: (a) by payment of the
cure amount in Cash on the Effective Date or as soon as practicable thereafter;
or (b) on such other terms as are agreed to by the parties to such executory
contract or unexpired lease.
IF A COUNTERPARTY TO ANY EXECUTORY CONTRACT OR UNEXPIRED LEASE BELIEVES THAT
CURE PAYMENTS ARE DUE PURSUANT TO SECTION 365(B)(1) OF THE BANKRUPTCY CODE, OR
THAT THERE IS A DISPUTE REGARDING THE ABILITY OF THE REORGANIZED DEBTORS OR
REORGANIZED NTELOS, AS THE CASE MAY BE, TO PROVIDE "ADEQUATE ASSURANCE OF FUTURE
PERFORMANCE" WITHIN THE MEANING OF SECTION 365 OF THE BANKRUPTCY CODE UNDER THE
CONTRACT OR LEASE TO BE ASSUMED, OR ANY OTHER MATTER PERTAINING TO ASSUMPTION,
SUCH COUNTERPARTY MUST FILE AN OBJECTION TO THE ASSUMPTION OF ITS EXECUTORY
CONTRACT OR UNEXPIRED
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LEASE BY THE DEBTORS NOT LATER THAN TEN (10) DAYS PRIOR TO THE CONFIRMATION
DATE.
Such objection shall be subject to the jurisdiction of the
Bankruptcy Court and shall be resolved by a Final Order. The effective date of
the assumption of an executory contract or unexpired lease subject to such an
objection shall be determined by a Final Order, and the cure payments required
by Section 365(b)(1) of the Bankruptcy Code will be made following the entry of
a Final Order resolving the dispute and approving the assumption.
9.3 Amendments to Schedule; Effect of Amendments.
Pursuant to the Plan, the Debtors shall assume each of the
executory contracts and unexpired leases except as provided for in Section 9.1
hereto; provided, that the Debtors may at any time on or before the first
Business Day before the date of the commencement of the Confirmation Hearing
amend the Contract Rejection Schedule to delete or add any executory contract or
unexpired lease thereto, in which event such executory contract or unexpired
lease shall be deemed to be, respectively, assumed and, if applicable, assigned
as provided therein, or rejected. The Debtors shall provide notice of any
amendments to the Contract Rejection Schedule to the parties to the executory
contracts or unexpired leases affected thereby and to the Creditors' Committee.
The fact that any contract or lease is scheduled on the Contract Rejection
Schedule shall not constitute or be construed to constitute an admission by the
Debtors that the Debtors have any liability thereunder.
9.4 Rejection Damage Claims and Bar.
IN THE EVENT THAT THE REJECTION OF AN EXECUTORY CONTRACT OR UNEXPIRED LEASE BY
THE DEBTORS RESULTS IN DAMAGES TO THE OTHER PARTY OR PARTIES TO SUCH CONTRACT OR
LEASE, A CLAIM FOR SUCH DAMAGES, IF NOT HERETOFORE EVIDENCED BY A FILED PROOF OF
CLAIM, SHALL BE FOREVER BARRED AND SHALL NOT BE ENFORCEABLE AGAINST THE DEBTORS
OR THEIR PROPERTIES OR INTERESTS IN PROPERTY AS AGENTS, SUCCESSORS, OR ASSIGNS,
UNLESS A PROOF OF CLAIM IS FILED WITH THE BANKRUPTCY COURT AND SERVED UPON
COUNSEL FOR THE DEBTORS ON OR BEFORE THIRTY (30) DAYS AFTER THE ENTRY OF AN
ORDER BY THE BANKRUPTCY COURT, WHICH MAY BE THE CONFIRMATION ORDER, AUTHORIZING
REJECTION OF A PARTICULAR EXECUTORY CONTRACT OR LEASE.
9.5 Indemnification Obligations.
The obligations of the Debtors pursuant to, or under, their
respective governing documents, contracts, Virginia or Delaware state law or
otherwise to indemnify their directors and officers or members or partners who
were or are directors, officers, members or partners, respectively, shall be
deemed to be, and shall be treated as though they are, executory contracts that
are assumed under the Plan.
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Section 10 CONDITIONS PRECEDENT TO THE CONFIRMATION DATE AND THE
EFFECTIVE DATE
10.1 Conditions Precedent to the Confirmation Date of the Plan.
The occurrence of the Confirmation Date of the Plan is subject
to the satisfaction of the following conditions precedent:
(i) The Bankruptcy Court shall have entered an order
granting approval of the Disclosure Statement and finding that it contains
adequate information pursuant to Section 1125 of the Bankruptcy Code and that
order shall have become a Final Order; and
(ii) The Confirmation Order and Substantive Consolidation
Order, in form and substance satisfactory to the Debtors, shall have been
entered by the Bankruptcy Court.
10.2 Conditions Precedent to the Effective Date of the Plan.
The occurrence of the Effective Date of the Plan is subject to
satisfaction of the following conditions precedent:
(i) The Confirmation Order and Substantive Consolidation
Order shall be Final Order(s);
(ii) All other actions and all agreements, instruments or
other documents (in form and substance reasonably satisfactory to the Creditors'
Committee and the Pre-Petition Secured Lenders except as set forth below)
necessary to implement the terms and provisions hereof shall have been effected;
(iii) The commitments under the DIP Credit Agreement shall
have terminated, all amounts owing under or in respect of the DIP Credit
Agreement shall have been paid in full in Cash and any outstanding letters of
credit issued under or in connection with the DIP Credit Agreement shall have
been terminated or satisfied;
(iv) The New Credit Agreement shall have become effective
according to its terms;
(v) The Purchase Agreement shall be in full force and
effect and all conditions therein to the obligation of the Participating
Noteholders to purchase New Notes shall have been satisfied or waived, including
the execution and delivery of such agreements, documents and instruments
contemplated therein;
(vi) The statutory fees owing to the United States Trustee
shall have been paid in full;
(vii) Any alteration or interpretation of any term or
provision of the Plan by the Bankruptcy Court pursuant to Section 13.9 of the
Plan shall be reasonably acceptable to the Debtors, the Agent and the Creditors'
Committee;
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(viii) The Debtors shall have received all authorizations,
consents, regulatory approvals that are determined to be necessary to implement
the Plan; and
(ix) The aggregate amount of Allowed General Unsecured
Claims in Class 7 shall not exceed, as of the close of business on the Business
Day immediately preceding the Effective Date, $13,500,000.
10.3 Waiver of Conditions Precedent.
Each of the conditions precedent in Section 10.2 hereof other
than Sections 10.2(iv), 10.2(v), 10.2(vi) and 10.2(ix) may be waived, in whole
or in part, by the Debtors, with the prior written consent of the Agent and the
Creditors' Committee. The condition precedent in Section 10.2(ix) may be waived
by the Debtors, with the prior written consent of a majority in number of the
members of the Creditors' Committee. Any such waivers of a condition precedent
in Section 10.2 hereof may be effected at any time, without notice, without
leave or order of the Bankruptcy Court and without any formal action (other than
by NTELOS, the Agent and the Creditors' Committee).
10.4 Effect of Failure of Conditions.
Unless the Bankruptcy Court orders otherwise for cause, in the
event that one or more of the conditions specified in Section 10.2 of the Plan,
other than the condition specified in Section 10.2 (ix), have not occurred on or
before ninety (90) days after the Confirmation Date or have not been waived
pursuant to Section 10.3 hereof, (a) the Confirmation Order shall be vacated,
(b) no distributions under the Plan shall be made, (c) the Debtors and all
holders of Claims and Equity Interests shall be restored to the status quo ante
as of the day immediately preceding the Confirmation Date as though the
Confirmation Date never occurred and (d) the Debtors' obligations with respect
to Claims and Equity Interests shall remain unchanged and nothing contained
herein shall constitute or be deemed a waiver or release of any Claims or Equity
Interests by or against the Debtors or any other person or to prejudice in any
manner the rights of the Debtors or any person in any further proceeding
involving the Debtors.
Section 11 EFFECT OF CONFIRMATION
11.1 Vesting of Assets and Releases of Liens.
On the Effective Date and upon consummation of the Plan, the
property of the Debtors' estates, together with any property of the Debtors that
is not property of its estate and that is not specifically disposed of upon
consummation of the Plan, shall revest in the Debtors or Reorganized Debtors.
Thereafter, the Reorganized Debtors may operate their businesses and may use,
acquire, and dispose of property free of any restrictions of the Bankruptcy
Code, the Bankruptcy Rules, and the Bankruptcy Court. As of the Effective Date,
all property of the Reorganized Debtors shall be free and clear of all Claims
and Equity Interests, except as specifically provided in the Plan or the
Confirmation Order. Without limiting the generality of the foregoing, the
Reorganized Debtors may, without application to or approval by the Bankruptcy
Court, pay fees that the Debtors incur after the Effective Date for reasonable
professional fees and expenses.
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11.2 Binding Effect.
Except as otherwise provided in Section 1141(d)(3) of the
Bankruptcy Code and subject to the occurrence of the Effective Date, on and
after the Confirmation Date, the provisions of the Plan shall bind any holder of
a Claim against, or Equity Interest in, the Debtors and such holder's respective
successors and assigns, whether or not the Claim or Equity Interest of such
holder is impaired under the Plan and whether or not such holder has accepted
the Plan. The Plan shall be binding upon and inure to the benefit of the
Debtors, the holders of Claims and Equity Interests, and their respective
successors and assigns, including, without limitation, the Reorganized Debtors.
11.3 Discharge of Debtors.
Except to the extent otherwise provided herein, the treatment
of all Claims against or Equity Interests in the Debtors hereunder shall be in
exchange for and in complete satisfaction, discharge and release of all (a)
Claims against or Equity Interests in the Debtors of any nature whatsoever,
known or unknown, including, without limitation, any interest accrued or
expenses incurred thereon from and after the Petition Date, and (b) all Claims
against and interests in the Debtors' estates or properties or interests in
property. Except as otherwise provided herein, upon the Effective Date, all
Claims against and Equity Interests in the Debtors will be satisfied, discharged
and released in full exchange for the consideration provided hereunder. Except
as otherwise provided herein, all entities shall be precluded from asserting
against the Debtors or the Reorganized Debtors or their respective properties or
interests in property any other Claims based upon any act or omission,
transaction or other activity of any kind or nature that occurred prior to the
Effective Date.
11.4 Term of Injunctions or Stays.
Unless otherwise provided, all injunctions or stays arising
under or entered during the Chapter 11 Case under Section 105 or 362 of the
Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall
remain in full force and effect until the Effective Date.
11.5 Preservation of Insurance.
The Debtors' discharge and release from all Claims as provided
in the Plan, except as necessary to be consistent with the Plan, shall not
diminish or impair the enforceability of any insurance policy that may cover
Claims against the Debtors, the Reorganized Debtors (including, without
limitation, such entities officers and directors) or any other person or entity.
11.6 Indemnification Obligations.
Subject to the occurrence of the Effective Date, the
obligations of the Debtors, only to the extent permitted under the laws of the
Commonwealth of Virginia or the State of Delaware, as applicable, to indemnify,
defend or reimburse directors or officers or members or partners who were or are
directors, officers, members or partners of the Debtors, respectively,
37
against any claims or causes of action as provided in the Debtors' respective
governing documents, Virginia or Delaware state law or contract shall survive
confirmation of the Plan, remain unaffected thereby and not be discharged.
11.7 Exculpation.
The Debtors, the DIP Lenders, the Pre-Petition Secured
Lenders, the DIP Agent, the Agent, the Secured Hedge Parties, the Participating
Noteholders, the Creditors' Committee and the members thereof, holders of Old
Preferred Stock, the Disbursing Agents, the holders of Subordinated Claims and
each of their respective members, partners, officers, directors, employees and
representatives (including any attorneys, financial advisors, investment bankers
and other professionals retained by such persons) shall have no liability to any
person for any act or omission in connection with, or arising out of, the
Disclosure Statement, the Plan, the solicitation of votes for and the pursuit of
confirmation of the Plan, the formulation, preparation, implementation or
consummation of the Plan or the transactions contemplated thereby, including the
pre-petition and post-petition negotiations with respect thereto, the
administration of the Plan or the property to be distributed under the Plan or
the Chapter 11 Case or any contract, instrument, release or other agreement or
document created or entered into in connection with the Plan, or any other act
taken or omitted to be taken in connection with the Chapter 11 Case, except for
willful misconduct or gross negligence as determined by a Final Order and, in
all respects, shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan and the Chapter 11 Case.
11.8 Certain Mutual Releases.
Except as otherwise specifically provided herein, on and after
the Effective Date, each of the Debtors, Reorganized Debtors, past and present
directors and officers of NTELOS, current management of the Debtors, Debtors'
affiliates, DIP Lenders, Pre-Petition Secured Lenders, DIP Agent, Agent, Secured
Hedge Parties, Creditors' Committee and the members thereof, Participating
Noteholders, and each of the holders of Senior Debt Claims, Subordinated Claims
and Old Preferred Stock Interests (and all subsidiaries and affiliates and
officers, directors, partners, members, attorneys, financial advisors,
investment bankers and other professionals, and agents of each of the
foregoing), for good and valuable consideration, including, but not limited to,
the commitment, obligation and service of each of the aforementioned to
facilitate the expeditious reorganization of the Debtors and the implementation
of the restructuring contemplated by the Plan, shall automatically be deemed to
have released one another unconditionally and forever from any and all Claims,
obligations, rights, suits, damages, causes of action, remedies and liabilities,
whatsoever, whether liquidated or unliquidated, fixed or contingent, matured or
unmatured, known or unknown, foreseen or unforeseen, existing or hereafter
arising, in law, equity or otherwise, that any of the foregoing persons or
entities would have been legally entitled to assert (in their own right, whether
individually or collectively, or on behalf of the holder of any Claim or Equity
Interest or other person or entity), based in whole or in part upon any act or
omission, transaction, agreement, event or other occurrence taking place on or
before the Effective Date, relating in any way to the Debtors, the Reorganized
Debtors, the Chapter 11 Case, the Plan, the Disclosure Statement, or any
38
related agreements, instruments, or other documents, except for (i) Claims
arising under the Plan, the New Credit Facility, Modified Hedge Agreements or
any related agreements, instruments, releases, indentures, and other agreements
and documents delivered thereunder; (ii) rights of the Debtors, Reorganized
Debtors and the Participating Noteholders to enforce the Subscription Agreement
or Purchase Agreement or any related agreements, instruments, releases,
indentures, and other agreements and documents delivered thereunder; and (iii)
any intentional acts of the past and present directors and officers of NTELOS,
current management of the Debtors, professionals of the Debtors and their
affiliates, Participating Noteholders and the Creditors' Committee or members
thereof which constitute fraud and, when the party bringing the cause of action
(or its respective employees, agents, or advisors) did not have actual knowledge
of such intentional acts (or the substance of such acts) as of the Effective
Date; provided, however, with respect to any intentional acts which constitute
fraud, the knowledge of former and existing officers and directors of NTELOS
shall not be imputed to NTELOS or Reorganized NTELOS (before or after the
Effective Date). Notwithstanding the foregoing, the past and present directors
and officers of NTELOS, and current management of the Debtors shall not be
released or discharged from contractual obligations to the Debtors or
Reorganized Debtors with respect to employment and other agreements assumed
pursuant to the Plan or otherwise.
11.9 Limited Releases by Holders of Claims and Equity Interests.
On and after the Effective Date, each holder of a Claim or
Equity Interest who is voting on the Plan shall make an election on their Ballot
to either agree or not agree to the release described in the paragraph below
(the "Release"). Any holder of Claims or Equity Interests in each of Class 2
(Secured Bank Claims), Class 5 (Senior Debt Claims), Class 7 (General Unsecured
Claims), Class 9 (Subordinated Claims) and Class 10 (Old Preferred Stock
Interests) that does not make an election will be deemed to agree to the
Release. Holders of Equity Interests in each of Class 12 (Old Common Stock
Interests) and Class 13 (Other Equity Interests and Securities Claims), who are
deemed to have rejected the Plan, shall be deemed not to have agreed to the
Release. Holders of Claims, Equity Interests, or interests in each of Class 1
(Priority Non-Tax Claims), Class 3 (FCC Secured Claims), Class 4 (RUS/RTB
Secured Claims), Class 6 (Convenience Claims), Class 8 (Intercompany Claims) and
Class 11 (Subsidiary Interests) (who are deemed to have accepted the Plan
pursuant to Section 1126 of the Bankruptcy Code) also shall be deemed not to
have agreed to the Release.
This Release unconditionally releases the Debtors, Reorganized
Debtors, past and present directors and officers of NTELOS, current management
of the Debtors, Debtors' affiliates, DIP Lenders, Pre-Petition Secured Lenders,
DIP Agent, Agent, Secured Hedge Parties, Creditors' Committee and members
thereof, Participating Noteholders, and each of the holders of Senior Debt
Claims, Subordinated Claims and Old Preferred Stock Interests (and all
subsidiaries and affiliates and officers, directors, partners, members,
attorneys, financial advisors, investment bankers and other professionals, and
agents of each of the foregoing) from any and all Claims, obligations, rights,
suits, damages, causes of action, remedies and liabilities whatsoever, whether
known or unknown, foreseen or
39
unforeseen, existing or hereafter arising, in law, equity or otherwise, that
such person or entity would have been legally entitled to assert (whether
individually or collectively), based in whole or in part upon any act or
omission, transaction, agreement, event or other occurrence taking place on or
before the Effective Date in any way relating or pertaining to the Debtors or
the Reorganized Debtors, the Chapter 11 Case, or the negotiation, formulation
and preparation of the Plan or any related agreements, instruments or other
documents.
11.10 Preservation of Rights of Action.
The Reorganized Debtors shall retain all rights on behalf of
the Debtors to commence and pursue any and all cause of actions (under any
theory of law, including, without limitation, the Bankruptcy Code, and in any
court or other tribunal including, without limitation, in an adversary
proceeding filed in the Chapter 11 Case) to the extent the Reorganized Debtors
deem appropriate. Potential causes of action currently being investigated by the
Debtors which may but need not be pursued prior to the Effective Date to the
extent warranted include, without limitation, the following:
(i) Any causes of action, whether legal, equitable or
statutory in nature, arising out of, or in connection with, the Debtors'
businesses or operations, including, without limitation, the following: possible
claims against vendors, landlords, sublessees, assignees, customers or suppliers
for warranty, indemnity, back charge/setoff issues, overpayment or duplicate
payment issues and collections/accounts receivables matters; deposits or other
amounts owed by any creditor, lessor, utility, supplier, vendor, landlord,
sublessee, assignee, or other entity, employee, management or operational
matters; financial reporting; environmental, and product liability matters;
actions against insurance carriers relating to coverage, indemnity or other
matters; counterclaims and defenses relating to notes or other obligations or
tort claims which may exist or may subsequently arise; and
(ii) Any and all avoidance actions pursuant to any
applicable Section of the Bankruptcy Code, including, without limitation,
Sections 544, 545, 547, 548, 549, 550, 551, 553(b) and 724(a) of the Bankruptcy
Code, arising from any transfer or transaction involving or concerning any of
the Debtors.
Unless causes of action against a person or entity are
expressly waived, relinquished, released, compromised or settled herein or by
any Final Order, the Debtors expressly reserve all causes of action for later
adjudication, and therefore, no preclusion doctrine, including, without
limitation, the doctrines of res judicata, collateral estoppel, issue
preclusion, claim preclusion, estoppel (judicial, equitable or otherwise) or
laches shall apply to causes of action upon or after the confirmation or
consummation of the Plan. In addition, the Debtors or Reorganized Debtors
expressly reserve the right to pursue or adopt any Claims alleged in any lawsuit
in which any of the Debtors is a defendant or an interested party, against any
person or entity, including, without limitation, the plaintiffs and
co-defendants in such lawsuits.
Except as otherwise provided herein or in any contract,
instrument, release, indenture or other agreement entered into in connection
with the Plan, in accordance with Section 1123(b)(3) of the Bankruptcy Code, any
Claims, rights and causes of action that the
40
respective Debtors or estates may hold against any person or entity shall vest
in the Reorganized Debtors, and the Reorganized Debtors shall retain and may
exclusively enforce, as the authorized representatives of the respective
estates, any and all such Claims, rights, or causes of action. Subject to the
releases set forth in section 11.8 above, the Reorganized Debtors may pursue any
and all Claims, rights, or causes of action, as appropriate, in accordance with
the best interests of the Reorganized Debtors, and shall have the exclusive
right, authority, and discretion to institute, prosecute, abandon, settle, or
compromise any and all such Claims, rights and causes of action without the
consent or approval of any third party and without any further order of the
Bankruptcy Court.
11.11 Injunction
Except as otherwise provided in the Plan, from and after the
Confirmation Date all persons who have held, hold or may hold Claims against or
interests in the Debtors are permanently enjoined from taking any of the
following actions against any of the Debtors, the Reorganized Debtors, the DIP
Lenders, the Pre-Petition Secured Lenders, the DIP Agent, the Agent, the Secured
Hedge Parties, the Participating Noteholders, the Creditors' Committee or the
members thereof or any of their respective property on account of any Claims or
interests: (a) commencing or continuing, in any manner or in any place, any
action or other proceeding; (b) enforcing or attaching, collecting or
recovering, in any manner, any judgment, award, decree or order; (c) creating,
perfecting or enforcing any lien or encumbrance; (d) asserting a setoff, right
of subrogation or recoupment of any kind against any debt, liability or
obligation due to the Debtors; and (e) commencing or continuing, in any manner
or in any place, any action that does not comply with or is inconsistent with
the provisions of the Plan; provided, however, that nothing contained herein
shall preclude such persons from exercising their rights pursuant to and
consistent with the terms of the Plan.
11.12 Committees.
From the Confirmation Date up to and including the Effective
Date, the members of the Creditors' Committee appointed pursuant to Section 1102
of the Bankruptcy Code and their duly appointed successors shall continue to
serve. On the Effective Date, the Creditors' Committee and any other committee
appointed in the Chapter 11 Case pursuant to Section 1102 of the Bankruptcy Code
shall be dissolved and the members thereof and the professionals retained by the
Creditors' Committee in accordance with Section 1103 of the Bankruptcy Code
(including, without limitation, attorneys, investment advisors, accountants and
other professionals) shall be released and discharged from their respective
fiduciary obligations, duties and responsibilities.
Section 12 RETENTION OF JURISDICTION
The Bankruptcy Court shall have exclusive jurisdiction of all
matters arising out of, or related to, the Chapter 11 Case and the Plan pursuant
to, and for the purposes of Sections 105(a) and 1142 of the Bankruptcy Code and
for, among other things, the following purposes:
41
(i) To hear and determine pending applications for the
assumption or rejection of executory contracts or unexpired leases and the
allowance of Claims resulting therefrom.
(ii) To determine any and all adversary proceedings,
applications and contested matters.
(iii) To ensure that distributions to holders of Allowed
Claims and Allowed Equity Interests are accomplished as provided herein.
(iv) To hear and determine any timely objections to
Administrative Expense Claims or to Claims and Equity Interests, including,
without limitation, any objections to the classification of any Claim or Equity
Interest, and to allow or disallow any Disputed Claim or Disputed Equity
Interest, in whole or in part.
(v) To enter and implement such orders as may be
appropriate in the event the Confirmation Order is for any reason stayed,
revoked, modified or vacated.
(vi) To issue such orders in and of execution of the Plan,
to the extent authorized by Section 1142 of the Bankruptcy Code.
(vii) To consider any amendments to or modifications of the
Plan, or to cure any defect or omission, or reconcile any inconsistency, in any
order of the Bankruptcy Court, including, without limitation, the Confirmation
Order.
(viii) To hear and determine all applications under Sections
330, 331 and 503(b) of the Bankruptcy Code for awards of compensation for
services rendered and reimbursement of expenses incurred prior to the
Confirmation Date.
(ix) To hear and determine disputes arising in connection
with the interpretation, implementation or enforcement of the Plan, the
Confirmation Order, the Substantive Consolidation Order, any transactions or
payments contemplated hereby or any agreement, instrument or other document
governing or relating to any of the foregoing.
(x) To hear and determine matters concerning state, local
and federal taxes in accordance with Sections 346, 505 and 1146 of the
Bankruptcy Code.
(xi) To hear any other matter not inconsistent with the
Bankruptcy Code.
(xii) To hear and determine all disputes involving the
existence, scope and nature of the discharges granted under Section 11.3 hereof.
(xiii) To issue injunctions and effect any other actions
that may be necessary or desirable to restrain interference by any entity with
the consummation or implementation of the Plan.
(xiv) To recover all assets of the Debtors and property of
the Debtors' estates, wherever located.
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(xv) To enter a final decree closing the Chapter 11 Case.
Section 13 MISCELLANEOUS PROVISIONS
13.1 Payment of Statutory Fees.
All fees payable under Section 1930, Chapter 123, title 28,
United States Code, as determined by the Bankruptcy Court at the Confirmation
Hearing, shall be paid on the Effective Date. Any such fees accrued after the
Effective Date shall be paid in the ordinary course of the Reorganized Debtors'
business as required by statute.
13.2 Modification of Plan.
Subject to the limitations contained herein, (i) the Debtors
reserve the right, in accordance with the Bankruptcy Code and the Bankruptcy
Rules, to amend or modify the Plan prior to the entry of the Confirmation Order
with the consent of the Creditors' Committee or its attorney and (ii) after the
entry of the Confirmation Order, the Reorganized Debtors may, upon order of the
Bankruptcy Court, amend or modify the Plan, in accordance with Section 1127(b)
of the Bankruptcy Code, or remedy any defect of omission or reconcile any
inconsistency in the Plan in such manner as may be necessary to carry out the
purpose and intent of the Plan; provided, however, that NTELOS may make a
material amendment of or modification to the Plan only with the approval of the
DIP Agent, Agent and holders of a majority in Claim amount or Equity Interest in
each Class entitled to vote to accept or reject the Plan.
13.3 Revocation of Plan.
The Debtors reserve the right, at any time prior to entry of
the Confirmation Order, to revoke and withdraw the Plan.
13.4 Section 1146 Exemption.
Pursuant to Section 1146(c) of the Bankruptcy Code, the
issuance, transfer or exchange of notes or issuance of debt or equity securities
under the Plan, the creation of any mortgage, deed of trust or other security
interest, the making or assignment of any lease or sublease, or the making or
delivery of any deed or other instrument of transfer under, in furtherance of,
or in connection with the Plan, including, without limitation, any merger
agreements or agreements of consolidation, deeds, bills of sale or assignments
executed in connection with any of the transactions contemplated under the Plan,
shall not be subject to any stamp, real estate transfer, mortgage recording,
sales or other similar tax. Unless expressly provided otherwise, all sale
transactions consummated by the Debtors or NTELOS and approved by the Bankruptcy
Court on and after the Petition Date through and including the Effective Date,
including, without limitation, the sales, if any, by the Debtors of owned
property or assets pursuant to Section 363(b) of the Bankruptcy Code and the
assumptions, assignments and sales, if any, by the Debtors of unexpired leases
of non-residential real property pursuant to Section 365(a) of the Bankruptcy
Code, shall be deemed to have been made under, in furtherance of, or in
connection with the Plan and, therefore, shall not be subject to any stamp, real
estate transfer, mortgage recording, sales or other similar tax law.
43
13.5 Administrative Expenses Incurred After the Confirmation Date.
Administrative expenses incurred by the Debtors or the
Reorganized Debtors after the Confirmation Date, including (without limitation)
Claims for professionals' fees and expenses, shall not be subject to application
and may be paid by the Debtors or the Reorganized Debtors, as the case may be,
in the ordinary course of business and without further Bankruptcy Court
approval.
13.6 Section 1125(e) of the Bankruptcy Code.
As of the Confirmation Date, the Debtors shall be deemed to
have solicited acceptances of the Plan in good faith and in compliance with the
applicable provisions of the Bankruptcy Code. The Debtors, the DIP Lenders, the
Pre-Petition Secured Lenders, the DIP Agent, the Agent, the Secured Hedge
Parties and each of the Participating Noteholders and the Creditors' Committee
(and each of their respective members, affiliates, agents, directors, officers,
employees, investment bankers, financial advisors, attorneys and other
professionals) have, and shall be deemed to have, participated in good faith and
in compliance with the applicable provisions of the Bankruptcy Code in the offer
and issuance of the securities under the Plan, and therefore are not, and on
account of such offer, issuance and solicitation will not be, liable at any time
for the violation of any applicable law, rule or regulation governing the
solicitation of acceptances or rejections of the Plan or the offer and issuance
of securities under the Plan.
13.7 Compliance with Tax Requirements.
In connection with the consummation of the Plan, the Debtors
shall comply with all withholding and reporting requirements imposed by any
taxing authority, and all distributions hereunder shall be subject to such
withholding and reporting requirements.
13.8 Exemption from Securities Regulation.
To the maximum extent provided by Section 1145 of the
Bankruptcy Code and applicable non-bankruptcy laws, the issuance of the New
Common Stock and the New Warrants and the issuance of securities upon exercise
of the New Warrants to holders of Allowed Claim and Allowed Equity Interests
pursuant to the Plan shall be exempt from registration under the Securities Act
of 1933, as amended, and any state securities or "blue sky" laws.
13.9 Severability of Plan Provisions.
In the event that, prior to the Confirmation Date, any term or
provision of the Plan is held by the Bankruptcy Court to be invalid, void or
unenforceable, the Bankruptcy Court shall have the power to alter and interpret
such term or provision to make it valid or enforceable to the maximum extent
practicable, consistent with the original purpose of the term or provision held
to be invalid, void or unenforceable, and such term or provision shall then be
applicable as altered or interpreted. Notwithstanding any such holding,
alteration or interpretation, the remainder of the terms and provisions hereof
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated by such holding, alteration or interpretation. The Confirmation
44
Order shall constitute a judicial determination and shall provide that each term
and provision hereof, as it may have been altered or interpreted in accordance
with the foregoing, is valid and enforceable in accordance with its terms.
13.10 Conflicts.
To the extent any provision of the Disclosure Statement, and
any documents executed in connection with the Confirmation Order (or any
exhibits, schedules, appendices, supplements or amendments to the foregoing)
conflicts with or is in any way inconsistent with the terms of the Plan, the
terms and provisions of the Plan shall govern and control.
13.11 Effectuating Documents, Further Transactions and Corporate
Action.
Each of the Debtors and the Reorganized Debtors are authorized
to execute, deliver, file or record such contracts, instruments, releases and
other agreements or documents and take such actions as may be necessary or
appropriate to effectuate, implement and further evidence the terms and
conditions herein and the notes and securities issued pursuant to the terms and
conditions herein.
Prior to, on or after the Effective Date (as appropriate), all
matters provided for under the Plan that would otherwise require approval of the
shareholders, directors, members, or partners of the Debtors or the Reorganized
Debtors shall be deemed to have occurred and shall be in effect prior to, on or
after the Effective Date (as appropriate) pursuant to the applicable law of the
Commonwealth of Virginia and State of Delaware without any requirement of
further action by the shareholders, directors members or partners of the Debtors
or Reorganized Debtors.
13.12 Further Assurances.
The Debtors, Reorganized Debtors, all holders of Claims and
Equity Interests receiving distributions under the Plan, and all other parties
in interest shall, from time to time, prepare, execute and deliver any
agreements or documents and take any other actions as may be necessary or
advisable to effectuate the provisions and intent of the Plan.
13.13 Notices.
For any notice, request, or demand to or upon the Debtors or
the Reorganized Debtors to be effective, it shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made when actually delivered or, in the
case of notice by facsimile transmission, when received and telephonically
confirmed, addressed as follows:
45
If to the Debtors or the Reorganized Debtors:
NTELOS Inc.
401 Spring Lane, Suite 300
P.O. Box 1990
Waynesboro, Virginia 22980
Attention: James S. Quarforth
Telephone: (540) 946-3500
Telecopier: (540) 946-3595
and
Hunton & Williams LLP
Bank of America Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: David M. Carter, Esq.
Telephone: (404) 888-4246
Telecopier: (404) 888-4190
Hunton & Williams LLP
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Attention: Benjamin C. Ackerly, Esq.
Telephone: (804) 788-8200
Telecopier: (804) 788-8218
Marcus, Santoro & Kozak, P.C.
355 Crawford Parkway, Suite 700
Portsmouth, Virginia 23704
Attention: Karen M. Crowley, Esq.
Telephone: (757) 393-2555
Telecopier: (757) 399-6870
If to the Creditors' Committee:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard G. Mason, Esq.
Seth Gardner, Esq.
Telephone: (212) 403-1252
Telecopier: (212) 403-2252
McGuire Woods LLP
One James Center
46
901 East Cary Street
Richmond, Virginia 23219
Attention: H. Slayton Dabney, Jr.,
Sarah B. Boehm, Esq.
Telephone: (804) 775-4311
Telecopier: (804) 698-2037
Co-Counsel to the Creditors' Committee
If to the DIP Lenders, the Pre-Petition Secured Lenders, the
DIP Agent, or the Agent:
Davis, Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Marshall S. Huebner, Esq.
Telephone: (212) 450-4099
Telecopier: (212) 450-3099
13.14 Reservation of Rights.
Except as expressly set forth herein, the Plan shall have no
force and effect unless the Bankruptcy Court shall enter the Confirmation Order.
The filing of the Plan, any statement or provision contained in the Plan, or the
taking of any action by the Debtors or Debtors in Possession with respect to the
Plan shall not be and shall not be deemed to be an admission or waiver of any
rights of the Debtors or Debtors in Possession with respect to the holders of
Claims or Equity Interests.
13.15 Closing of Cases.
The Reorganized Debtors shall promptly, upon full
administration of the Chapter 11 Case, file with the Bankruptcy Court all
documents required by Bankruptcy Rules 3022 and any applicable order of the
Bankruptcy Court.
Respectfully submitted,
NTELOS Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
47
NTELOS Wireless Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS of Maryland Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS of Kentucky Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS PCS North Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Cable of Virginia Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
48
NTELOS Communication Services Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS NetAccess Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Telephone Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Network Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Licenses Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
49
NTELOS Cable Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
R&B Communications, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS Cornerstone Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NTELOS PCS Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
Virginia RSA 6 Cellular Limited
Partnership
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Wireless Inc.,
General Partner
50
Richmond 20 MHz, LLC
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
NA Communications, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
Roanoke & Botetourt Telephone
Company
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
R&B Network, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
Botetourt Leasing, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
51
R&B Cable, Inc.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
The Beeper Company
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer
Virginia PCS Alliance, L.C.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS PCS Inc., Member
West Virginia PCS Alliance, L.C.
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Inc., Member
Virginia Telecommunications
Partnership
Debtor and Debtor in Possession
By: /s/ James S. Quarforth
----------------------------
James S. Quarforth
Chief Executive Officer of
NTELOS Network Inc., Partner
52
EXHIBIT 1
(to Joint Plan of Reorganization)
CONTRACT REJECTION SCHEDULE
(Dated May 30, 2003)
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Debtor Non-Debtor Non-Debtor
Non-Debtor Party Party Party Description Agreement
Debtor Party Party Address(1) Address(2) Address(3) of Services Date
- ------------------------------------------------------------------------------------------------------------------------------------
1 NTELOS Cable Inc. Daniel A. Newberry P.O. Box 368 Harrisonburg, Wireless Cable 7/28/1994
f/k/a CFW Cable Inc. t/a/ Daniel's Plaza VA 22801 Leased Space
- ------------------------------------------------------------------------------------------------------------------------------------
2 NTELOS Network Inc. St. James Management 401 Tenth Huntington, Office Space- 12/1/2000
f/k/a CFW Network Company, LLC Street #600 WV 25701 401 Tenth Street,
Inc. Suite 330,
Huntington, WV
25701
- ------------------------------------------------------------------------------------------------------------------------------------
3 Virginia PCS Milton & Neal, a Milton Realty P.O. Box 4207 Lynchburg, Office Space- 8/1/1998
Alliance, L.C. General Partnership Service Company, VA 24502 Units A and B of
Inc. 221 Business
Attn. Norman Moon Center,
Forest, VA
- ------------------------------------------------------------------------------------------------------------------------------------
4 NTELOS Inc. Lucent/Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Waynesboro- 8/26/1998
f/k/a CFW VA 23060 0050296583
Communications
Company
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Corporation P.O. Box 1463 Richmond,
Service Company, VA 23218
Registered Agent
- ------------------------------------------------------------------------------------------------------------------------------------
5 NTELOS Inc. Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Waynesboro- 12/9/2000
f/k/a CFW VA 23060 0050011245
Communications
Company
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
6 NTELOS Inc. Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Waynesboro- 6/28/2001
VA 23060 0050243066
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
7 NTELOS Inc. Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Waynesboro- 12/1/2001
VA 23060 0050022155
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Debtor Non-Debtor Non-Debtor
Non-Debtor Party Party Party Description Agreement
Debtor Party Party Address(1) Address(2) Address(3) of Services Date
- ------------------------------------------------------------------------------------------------------------------------------------
8 NTELOS Inc. Lucent/Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Portsmouth- 5/16/2000
f/k/a CFW VA 23060 0050413974
Communications
Company
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Corporation P.O. Box 1463 Richmond,
Service Company, VA 23218
Registered Agent
- ------------------------------------------------------------------------------------------------------------------------------------
9 NTELOS Inc. Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Portsmouth- 12/9/2000
f/k/a CFW VA 23060 0050009014
Communications
Company
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
10 NTELOS Inc. Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Portsmouth- 5/29/2001
f/k/a CFW VA 23060 0050224294
Communications
Company
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
11 NTELOS Inc. Avaya 4121 Cox Road Suite 200 Glen Allen, PBX Portsmouth- 12/21/2001
VA 23060 0050303456
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
12 NTELOS Inc. In-Ter-Space c/o Victoria Pannell, Route 1, Millboro, VA Airport Advertising- 2/15/1998
f/k/a CFW Services, Inc. Registered Agent Box 239 24460-0000
Communications d/b/a Interspace
Company Airport Advertising
- ------------------------------------------------------------------------------------------------------------------------------------
13 NTELOS NetAccess Inc. In-Ter-Space c/o Victoria Pannell, Route 1, Millboro, VA Airport Advertising, 1/1/2001
f/k/a NetAccess, Inc. Services, Inc. Registered Agent Box 239 24460-0000 Tri-Cities Regional
d/b/a Interspace Airport
Airport Advertising
- ------------------------------------------------------------------------------------------------------------------------------------
14 NTELOS Telephone Inc. Pinnacle Towers 301 N. Cattlemen Road Suite 300 Sarasota, FL Radio System Lease 1978
34232
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Marshall H. 2000 North Arlington,
Brooks, 14th Street, VA 22201
Registered Agent Suite 210
- ------------------------------------------------------------------------------------------------------------------------------------
15 NTELOS Cable Inc. Shannondale Wireless Michael R. Kelley 3623 Parklane Fairfax, VA Call Sign- WMY489, 8/1/1996
f/k/a CFW Cable Inc. d/b/a Shannondale Road 22030 Channel H1
Wireless
- ------------------------------------------------------------------------------------------------------------------------------------
2
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Debtor Non-Debtor Non-Debtor
Non-Debtor Party Party Party Description Agreement
Debtor Party Party Address(1) Address(2) Address(3) of Services Date
- ------------------------------------------------------------------------------------------------------------------------------------
16 NTELOS Cable Inc. Shannondale Wireless Michael R. Kelley 3623 Parklane Fairfax, Fairfax, 8/1/1996
f/k/a CFW Cable Inc. d/b/a Shannondale Road VA 22030 VA 22030
Wireless
- ------------------------------------------------------------------------------------------------------------------------------------
17 NTELOS Cable Inc. Shannondale Wireless Michael R. Kelley 3623 Parklane Fairfax, Call Sign- WLK242, 8/1/1996
f/k/a CFW Cable Inc. d/b/a Shannondale Road VA 22030 Channel MSD-2
Wireless
- ------------------------------------------------------------------------------------------------------------------------------------
18 R&B Communications, Richard J. Amons, Jr. Richard J. Amons, Jr. 6507 Ridge Mclean, Call Sign- WNTH926, 9/11/1995
Inc. Street VA 22101 Channel H1
- ------------------------------------------------------------------------------------------------------------------------------------
19 NTELOS Inc. Planters Bank & Trust Attn: William D. 24 Augusta Staunton, License of Politzer 5/30/2001
Company of Virginia Stegal, Street VA 24401 & Haney ACH Web Cash
President & CEO Manager
- ------------------------------------------------------------------------------------------------------------------------------------
20 NTELOS Inc. Planters Bank & Trust Attn: William D. 24 Augusta Staunton, Electronic Fund 5/8/2001
Company of Virginia Stegal, Street VA 24401 Transfer via ACH
President & CEO
- ------------------------------------------------------------------------------------------------------------------------------------
21 NTELOS Inc. Cox Communications Attn: Clark Armentrout 225 Clearfield Virginia Circuit ID 2/13/2001
Ave. Beach, 19.hfgs.210421.530.CXHR
VA 23462
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Corporation P.O. Box 1463 Richmond,
Service Company, VA 23218
Registered Agent
- ------------------------------------------------------------------------------------------------------------------------------------
22 Richmond 20 MHz, Crown Communications Attn: Licensing 2000 Corporate Canonsburg, Site Lease (815370) 3/31/2001
LLC Dr. PA 15317 Meredithville
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Glen Allen,
Services Corporation, Road, VA 23060-6802
Registered Agent Suite 301
- ------------------------------------------------------------------------------------------------------------------------------------
23 Richmond 20 MHz, Crown Communications Attn: Licensing 2000 Corporate Canonsburg, Site Lease (815939) 6/1/2001
LLC Dr. PA 15317 South Hill
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Road, Glen Allen,
Services Corporation, Suite 301 VA 23060-6802
Registered Agent
- ------------------------------------------------------------------------------------------------------------------------------------
24 Richmond 20 MHz, Verizon Attn: Lease 1 E. Pratt Baltimore, Site Lease (VA07432-A) 4/1/1999
LLC Administrator Street 8N MD 21202 Bay Bridge
- ------------------------------------------------------------------------------------------------------------------------------------
3
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Debtor Non-Debtor Non-Debtor
Non-Debtor Party Party Party Description Agreement
Debtor Party Party Address(1) Address(2) Address(3) of Services Date
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Glen Allen,
Services Corporation, Road, VA 23060-6802
Registered Agent Suite 301
- ------------------------------------------------------------------------------------------------------------------------------------
25 Richmond 20 MHz, American Tower, LP Attn: Contracts 10 Woburn, Site Lease 12/31/2000
LLC Administrator Presidential MA 01801 (ATC 212707) Isle of
Way Wight
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Corporation P.O. Box 1463 Richmond,
Service Company, VA 23218
Registered Agent
- ------------------------------------------------------------------------------------------------------------------------------------
26 Virginia PCS Crown Communications Attn: Legal Dept. 2000 Corporate Canonsburg, Site Lease (802134) 10/17/2000
Alliance, L.C. Dr. PA 15317 Lewis Run
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Road, Glen Allen,
Services Corporation, Suite 301 VA 23060-6802
Registered Agent
- ------------------------------------------------------------------------------------------------------------------------------------
27 West Virginia PCS Crown Communications Attn: Legal Dept. 2000 Corporate Canonsburg, Site Lease (803942) 5/25/2001
Alliance, L.C. Dr. PA 15317 Enterprise
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Glen Allen,
Services Corporation, Road, VA 23060-6802
Registered Agent Suite 301
- ------------------------------------------------------------------------------------------------------------------------------------
28 West Virginia PCS Crown Communications Attn: Legal Dept. 2000 Corporate Canonsburg, Site Lease (804036) 5/25/2001
Alliance, L.C. Dr. PA 15317 Worthington
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Road, Glen Allen,
Services Corporation, Suite 301 VA 23060-6802
Registered Agent
- ------------------------------------------------------------------------------------------------------------------------------------
29 West Virginia PCS Crown Communications Attn: Legal Dept. 2000 Corporate Canonsburg, Site Lease (802446) 5/25/2001
Alliance, L.C. Dr. PA 15317 Central Station
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
4
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Debtor Non-Debtor Non-Debtor
Non-Debtor Party Party Party Description Agreement
Debtor Party Party Address(1) Address(2) Address(3) of Services Date
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Glen Allen,
Services Corporation, Road, VA 23060-6802
Registered Agent Suite 301
- ------------------------------------------------------------------------------------------------------------------------------------
30 West Virginia PCS Crown Communications Attn: Legal Dept. 2000 Corporate Canonsburg, Site Lease (816498) 3/1/2001
Alliance, L.C. Dr. PA 15317 St. Albans
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Beverly L. Crump, 11 S. 12th Richmond,
Registered Agent Street VA 23219
- ------------------------------------------------------------------------------------------------------------------------------------
c/o Commonwealth Legal 4701 Cox Glen Allen,
Services Corporation, Road, VA 23060-6802
Registered Agent Suite 301
- ------------------------------------------------------------------------------------------------------------------------------------
31 NTELOS Inc. MTV 1515 Broadway New York, CMT 7/1/1999
f/k/a CFW NY 10036
Communications
Company
- ------------------------------------------------------------------------------------------------------------------------------------
32 NTELOS Cable Inc. MTV 1515 Broadway New York, TNN 6/14/1995
f/k/a CFW Cable Inc. NY 10036
- ------------------------------------------------------------------------------------------------------------------------------------
33 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 8/1/2000
Television KS 66219 distribute the AMC
Cooperative, Inc. Network
- ------------------------------------------------------------------------------------------------------------------------------------
34 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 12/1/1997
f/k/a CFW Television KS 66219 Discovery Animal
Communications Cooperative, Inc. Planet
Company
- ------------------------------------------------------------------------------------------------------------------------------------
35 NTELOS Cable Inc. National Cable 11200 Corporate Ave. Lenexa, BET 4/1/1996
f/k/a CFW Cable Inc. Television KS 66219
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
36 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 7/1/1998
f/k/a CFW Television KS 66219 the Cartoon Network
Communications Cooperative, Inc.
Company
- ------------------------------------------------------------------------------------------------------------------------------------
37 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 9/16/1996
f/k/a CFW Television KS 66219 Comedy Central
Communications Cooperative, Inc.
Company
- ------------------------------------------------------------------------------------------------------------------------------------
38 NTELOS Cable Inc. National Cable 11200 Corporate Ave. Lenexa, Disney 7/7/1998
Television KS 66219
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
39 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 11/1/1998
Television KS 66219 ESPN
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
5
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Debtor Non-Debtor Non-Debtor
Non-Debtor Party Party Party Description Agreement
Debtor Party Party Address(1) Address(2) Address(3) of Services Date
- ------------------------------------------------------------------------------------------------------------------------------------
40 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 11/1/1998
Television KS 66219 ESPN2
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
41 NTELOS Cable Inc. National Cable 11200 Corporate Ave. Lenexa, Family Channel 11/21/2000
f/k/a CFW Cable Inc. Television KS 66219
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
42 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, FX 7/1/2000
f/k/a CFW Television KS 66219
Communications Cooperative, Inc.
Company
- ------------------------------------------------------------------------------------------------------------------------------------
43 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 11/11/1994
f/k/a CFW Television KS 66219 to distribute the
Communications Cooperative, Inc. History Channel
Company
- ------------------------------------------------------------------------------------------------------------------------------------
44 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 1/1/2001
Television KS 66219 to distribute Home
Cooperative, Inc. and Garden Television
- ------------------------------------------------------------------------------------------------------------------------------------
45 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 3/18/1999
f/k/a CFW Television KS 66219 to distribute MTV
Communications Cooperative, Inc.
Company
- ------------------------------------------------------------------------------------------------------------------------------------
46 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 3/18/1999
f/k/a CFW Television KS 66219 to distribute
Communications Cooperative, Inc. Nickelodeon
Company
- ------------------------------------------------------------------------------------------------------------------------------------
47 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 7/1/2000
f/k/a CFW Television KS 66219 the Outdoor Life
Communications Cooperative, Inc. Network
Company
- ------------------------------------------------------------------------------------------------------------------------------------
48 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 7/1/1999
f/k/a CFW Television KS 66219 the Sci Fi Channel
Communications Cooperative, Inc.
Company
- ------------------------------------------------------------------------------------------------------------------------------------
49 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 7/1/1998
f/k/a CFW Television KS 66219 to distribute the
Communications Cooperative, Inc. Travel Channel
Company
- ------------------------------------------------------------------------------------------------------------------------------------
50 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, License to distribute 7/1/1999
f/k/a CFW Television KS 66219 Nick at Nite's TV Land
Communications Cooperative, Inc.
Company
- ------------------------------------------------------------------------------------------------------------------------------------
51 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 3/18/1999
f/k/a CFW Television KS 66219 to distribute VH-1
Communications Cooperative, Inc.
Company
- ------------------------------------------------------------------------------------------------------------------------------------
6
- ------------------------------------------------------------------------------------------------------------------------------------
Non-Debtor Non-Debtor Non-Debtor
Non-Debtor Party Party Party Description Agreement
Debtor Party Party Address(1) Address(2) Address(3) of Services Date
- ------------------------------------------------------------------------------------------------------------------------------------
52 NTELOS Cable Inc. National Cable 11200 Corporate Ave. Lenexa, C-Span II 7/1/1995
f/k/a CFW Cable Inc. Television KS 66219
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
53 NTELOS Cable Inc. National Cable 11200 Corporate Ave. Lenexa, Headline News 4/15/1994
f/k/a CFW Cable Inc. Television KS 66219
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
54 NTELOS Cable Inc. National Cable 11200 Corporate Ave. Lenexa, Home Shopping 7/16/1997
f/k/a CFW Cable Inc. Television KS 66219
Cooperative, Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
55 NTELOS Inc. National Cable 11200 Corporate Ave. Lenexa, Renewal for license 1/27/2000
Television KS 66219 to distribute the
Cooperative, Inc. Inspiration Network
- ------------------------------------------------------------------------------------------------------------------------------------
56 NTELOS Inc. TV 7140 South Lewis Avenue Tulsa, Prevue 11/1/2000
OK 74136
- ------------------------------------------------------------------------------------------------------------------------------------
57 NTELOS Cable Inc. USA 1230 Avenue of the New York, USA 6/8/2000
f/k/a CFW Cable Inc. Americas NY 10020
- ------------------------------------------------------------------------------------------------------------------------------------
58 NTELOS Inc. WE 1111 Stewart Avenue Bethpage, Romance Classics 5/20/1999
f/k/a CFW NY 11714-3581
Communications
Company
- ------------------------------------------------------------------------------------------------------------------------------------
59 NTELOS Inc. WGN 7140 South Lewis Avenue Tulsa, WGN 2/1/2001
OK 74136
- ------------------------------------------------------------------------------------------------------------------------------------
60 NTELOS Cable Inc. BET 1232 31st Street N.W. Washington DC BET 5/1/1993
f/k/a CFW Cable Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
7
Exhibit B
Order Approving Disclosure Statement
EXHIBIT C
DEBTORS' PROJECTED FINANCIAL INFORMATION
NTELOS' management analyzed the ability of the Debtors to meet their
obligations upon consummation of the Plan with sufficient liquidity and capital
resources to conduct their businesses. NTELOS' management also has developed the
Debtors' business plan and prepared certain projections of NTELOS' operating
profit, free cash flow and certain other items for the Projection Period. Such
projections summarized below are based upon assumptions and have been adjusted
to reflect the restructuring, including the Plan, certain subsequent events and
additional assumptions, including those set forth below (as adjusted, the
"Projections").
NTELOS DOES NOT, AS A MATTER OF COURSE, PUBLISH ITS BUSINESS PLANS, BUDGETS
OR STRATEGIES OR MAKE EXTERNAL PROJECTIONS OR FORECASTS OF ITS ANTICIPATED
FINANCIAL POSITIONS OR RESULTS OF OPERATIONS. ACCORDINGLY, NTELOS DOES NOT
ANTICIPATE THAT IT WILL, AND DISCLAIMS ANY OBLIGATION TO SHAREHOLDERS AND
CREDITORS, FURNISH UPDATED BUSINESS PLANS, BUDGETS OR PROJECTIONS AFTER THE
EFFECTIVE DATE OF ANY RESTRUCTURING OR TO INCLUDE SUCH INFORMATION IN DOCUMENTS
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ("SEC") OR
OTHERWISE MAKE SUCH INFORMATION PUBLICLY AVAILABLE.
The following forecast was not prepared with a view toward compliance with
published guidelines of the SEC or the AICPA regarding forecasts. No independent
auditor of NTELOS has examined, compiled or otherwise applied procedures to the
forecast and, consequently, does not express an opinion or any other form of
assurance with respect to the forecast. NTELOS believes, however, that the
forecast data are measured on a basis consistent with GAAP as applied to NTELOS'
historical financial statements.
The Projections should be read in conjunction with the assumptions,
qualifications and explanations set forth in this Disclosure Statement.
Principal Assumptions for the Projections
The Projections are based on, and assume the successful implementation of,
NTELOS' business plan and the restructuring. Both the business plan and the
Projections reflect numerous assumptions, including various assumptions
regarding the anticipated future performance of NTELOS, industry performance,
general business and economic conditions and other matters, most of which are
beyond the control of NTELOS. In addition, the assumptions take into account the
uncertainty and disruption of business that accompany a Chapter 11 filing.
Therefore, although the Projections are necessarily presented with numerical
specificity, the actual results achieved during the Projection Period will vary
from the projected results. These variations may be material. Accordingly, no
representation can be or is being made with respect to the accuracy of the
Projections or the ability of NTELOS or Reorganized NTELOS to achieve the
projected results of operations. See Section XI. of this Disclosure Statement,
"Certain Risk Factors To Be Considered," for further discussion of the risks
associated with the Projections.
Although NTELOS believes that the assumptions underlying the
Projections, when considered on an overall basis, are reasonable in light of
current circumstances, no assurance can be or is given that the Projections will
be realized. In deciding whether to vote to accept or reject the Plan, preferred
shareholders and creditors must make their own determinations as to the
reasonableness of such assumptions and the reliability of the Projections. See
Section XI. of this Disclosure Statement, "Certain Risk Factors To Be
Considered," for further discussion of the risks associated with the
Projections.
Additional information relating to the principal assumptions used in
preparing the Projections is set forth below:
C-1
General Economic Conditions: The Projections take into account the current
difficult economic environment which is negatively impacting the demand for
communications services. The Projections assume that the general weakness in
economic activity will continue to affect NTELOS' near term financial
performance. Thereafter, a return to a more favorable economic climate is
expected, which should increase demand for wireless and wireline communications
services. Accordingly, the Projections assume a relatively low inflationary
effect on revenues and costs.
Other General Assumptions: The Chapter 11 Case will also negatively impact
NTELOS' near-term performance by increasing customer uncertainty and by
distracting management from the day-to-day operation of the business to focus on
taking the actions necessary to promote the long-term stability of the
enterprise.
Revenues: Revenue figures are an aggregation of revenues from the wireline
and wireless lines of business within NTELOS. NTELOS continues to experience
market saturation, pricing pressures on monthly subscriber revenue and
subscriber churn rates related to wireless revenue stream. As such, NTELOS is
forecasting a compound annual growth rate ("CAGR") of 5.5% in consolidated
revenues over the Projection Period.
NTELOS is forecasting a CAGR of 6.7% over the projection period for
wireless revenues. Wireless PCS gross subscriber additions are projected to
decline in 2003 by 11.8% from 2002 levels, continuing the industry trend of the
past two years. Gross subscriber addition growth rate is projected to improve in
2004 reflecting a more favorable economic climate. Long-term growth rates are
expected to gradually decline from less than 4% in 2004 to less than 1% by 2008.
Wireless PCS monthly subscriber churn is projected to continue to improve, with
churn rates gradually declining from 3.5% in 2003 to 2.8% by 2008. Wireless PCS
ARPU is assumed to decrease slightly from $44 to $43 over the Projection Period
to recognize continued competitive pricing pressures.
Access line growth in the ILEC segment is assumed to remain flat until
2005, where 1% to 1.5% growth rates are planned based on some macro economic
recovery, improving household growth and new business openings, with ILEC ARPU
growing approximately 1% per year reflecting continued minute of use growth.
Access line growth in the CLEC segment is assumed to continue at a growth rate
of 18% in 2003, gradually declining to a growth rate of 5% by 2008, as market
share approaches mature levels, with CLEC access line and PRI ARPUs projected to
remain flat during the Projection Period. Dial-up Internet subscriber growth
rates are assumed to be flat for 2003, with modest growth rates of 1.5% to 2.5%
thereafter reflecting maturity of the dial-up market share and a more favorable
economic climate. High-speed DSL subscribers, still in growth stages, is
projected to grow at 42% in 2003, declining to 20% in 2004, and gradually
declining to 9% by 2008 as this product matures. Blended Internet ARPUs are
projected to remain relatively flat over the period. Network segment revenues
are expected to decline in 2003 due to rate reductions and slow growth in new
circuits, with growth rates of 3% to 4% there after based on an assumed more
favorable economic climate.
These assumptions result in a CAGR in wireline revenues of 4.1% during the
Projection Period. This growth rate is a result of a 1.8% CAGR for ILEC, a 6.9%
CAGR for CLEC, 5.5% for ISP, and 4.2% for longhaul. The increase in revenue is
primarily a result of the growth in customers and new communications access
lines and increased usage of the Company's network.
Cost of Wireless Sales: Cost of wireless sales includes costs that we incur
to subsidize long-distance charges, payments made to roaming partners, access
fees paid to local exchange service providers and subsidies associated with the
sale of handsets to subscribers. Handset costs are expected to decline by 4% per
year over the projection period, continuing the current downward trend in
handset costs. The cost of wireless sales will increase in lockstep with the
forecasted revenue growth, but will remain relatively flat as a percentage of
revenue.
Maintenance and Support: Wireless maintenance and support will increase
with the growth of wireless revenues but are projected to remain near 15% of
total wireless revenues, with a marginal decline in costs as a percentage of
wireless revenues reflecting economies of scale and spreading of certain fixed
costs. Wireless maintenance and support includes cost associated with cell site
backhaul, site collocation rents, and general maintenance of the wireless
network. Wireline maintenance and support is projected to remain at about 28%
C-2
of wireline revenues given the more mature nature of the wireline operations.
Wireline maintenance and support includes intra and inter city backhaul, the
cost of CLEC leased UNE's, CLEC collocation expense, and general maintenance of
the wireline network.
Customer Operations: Customer operations is expected to decline slightly as
a percentage of revenues during the Projection Period. Costs as a percentage of
service revenue are expected to gradually decline from 28% in 2003 to 23% by
2008 for wireless, reflecting economies of scale, and remain at 13% for
wireline, reflecting the more mature nature of the wireline operations. Customer
operations includes costs associated with customer care and retail distribution.
Corporate Operations: Corporate operations is expected to decline slightly
as a percentage of revenues during the Projection Period reflecting economies of
scale, primarily due to growth in the wireless PCS operations. Costs as a
percentage of service revenue are expected to gradually decline from 7.5% in
2003 to 6.4% in 2008 for wireless and remaining relatively flat at 8.4% for
wireline.
Depreciation Expense: Depreciation expense consists of the Company's
estimated annual depreciation on its fixed assets, including wireline and
wireless switching equipment, wireless base stations, fiber optic network,
network equipment, furniture and buildings. As a component of the "Fresh Start"
accounting adjustment, the Company will be required to re-value its assets as of
the effective date of the restructuring as well as re-assess the useful life of
such assets. As a result of the projected negative "Fresh Start" adjustment, the
Company anticipates a decrease in current depreciation expense followed by
incremental increases as the Company makes additional capital investments.
Interest Expense: The Projections reflect the continuation of interest
expense on the Pre-Petition Credit Agreement and other secured debt at pricing
terms consistent with the pre-filing credit facility and on the planned issuance
of the $75 million New Notes. The Projections reflect the elimination of all
interest expense on $280 million of Senior Notes and $95 million of Subordinated
Notes as a result of the restructuring.
Income Taxes: The projections reflect that NTELOS does not anticipate to
incur income tax expense, exclusive of state minimum taxes, through 2005, as a
result of net losses expected to be incurred in 2003 and 2004 and sufficient
existing Net Operating Loss Carryforwards remaining after the realization of
cancellation of debt income related to the Company's reorganization. The Company
anticipates that it will incur tax expense starting in 2005 primarily as a
result of the Alternative Minimum Tax and Net Operating Loss limitations imposed
by the Internal Revenue Code.
Capital Expenditures: Capital expenditures are lower as a percent of
revenue than historical levels principally due to the completion in 2002 and
2003 of the 3G-1XRTT wireless upgrade in certain of our western markets. We
project capital expenditures of over $60 million in 2003, inclusive of $10
million for completion of the aforementioned wireless upgrade in certain of our
western markets. Capital expenditures are projected to range from $53 million to
$61 million per year for 2004 through 2006 and from $46 million to $51 million
per year in 2007 and 2008. The downward trend in capital expenditures is
consistent with the lowering of projected wireless PCS subscriber growth and an
assumed decline in year over year growth in minute of usage by existing wireless
PCS subscribers.
Working Capital: Trade receivables, inventory, and accounts payable levels
are projected according to historical relationships with respect to purchase and
sales volumes.
Fresh Start Reporting: The American Institute of Certified Public
Accountants has issued a Statement of Position on Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code (the "Reorganization SOP").
Because NTELOS has commenced the Chapter 11 Case, the Projections have been
prepared generally in accordance with the "Fresh Start" reporting principles set
forth in the Reorganization SOP, giving effect thereto as of August 31, 2003.
The principal effects of the application of these "Fresh Start" principles are
summarized below: For purposes of the Projections, it has been assumed the
leveraged net equity balance as of the Effective Date is $197.7 million. The
Projections also assume that after giving effect to certain eliminations in
connection with the reorganization, the fair value of Reorganized NTELOS' fixed
assets
C-3
and other non-current assets will be equal to the projected net book value of
such assets as of the Effective Date, except that the property, plant and
equipment and goodwill accounts will be reduced accordingly.
The foregoing assumptions and resulting computations were made solely for
purposes of preparing the Projections. Upon emergence from the Chapter 11 Case,
NTELOS would be required to determine the amount by which its reorganization
value as of the Effective Date exceeds, or is less than, the fair value of its
assets as of the Effective Date. Such determination would be based upon the fair
values at that time, which may be based on, among other things, a different
methodology with respect to the valuation of NTELOS' value. In any event, such
valuations, as well as the determination of the fair value of NTELOS' assets and
the determination of its actual liabilities, would be made as of the Effective
Date, and the changes between the amounts of any or all of the foregoing items
as assumed in the Projections and the actual amounts thereof as of the Effective
Date may be material.
Projections
The projected condensed consolidated financial statements of NTELOS set
forth below have been prepared based on the assumption that the Effective Date
would be August 31, 2003. Although NTELOS would seek to cause the Effective Date
to occur as soon as practicable, there would be no assurance as to when the
Effective Date actually would occur. The Reorganized NTELOS and Subsidiaries
Projected Condensed Consolidated Balance Sheets as of August 31, 2003 (the
"Projected Condensed Consolidated Opening and Closing Balance Sheet") set forth
below present: (a) the projected condensed consolidated financial position
required to reflect confirmation and the consummation of the transactions
contemplated by a plan of reorganization (collectively, the "Balance Sheet
Adjustments"); and (b) the projected condensed consolidated financial position
of NTELOS after giving effect to the Balance Sheet Adjustments, for the period
ending August 31, 2003. The Balance Sheet Adjustments set forth in the columns
captioned "Effects of Plan of Reorganization" and "Fresh Start Accounting
Adjustments" reflect the assumed effects of confirmation and the consummation of
the transactions contemplated by a plan of reorganization, including the
settlement of various liabilities and related securities issuances, cash
payments and borrowings. The various Balance Sheet Adjustments are described in
greater detail in the Notes to the Projected Condensed Consolidated Opening and
Closing Balance Sheet.
The Reorganized NTELOS and Subsidiaries Projected Condensed Consolidated
Balance Sheets as of the end of fiscal years 2003 through 2008 set forth on the
following pages present the projected condensed consolidated position of NTELOS
after giving effect to confirmation and the consummation of the transactions
contemplated by the Plan, as of the end of each fiscal year in the Projection
Period. The Reorganized NTELOS and Subsidiaries Projected Condensed Consolidated
Statement of Operations set forth below presents the projected condensed
consolidated results of operations for each fiscal year included in the
Projection Period.
C-4
NTELOS Inc.
Projected Condensed Consolidated Opening and Closing Balance Sheet
As of August 31, 2003
Fresh Start
Projected Effects of Plan of Accounting Projected
Pre-Confirmation Reorganization Adjustments Post-Confirmation
-------------------------------------------------------------------------------
Assets (Dollars in thousands)
Current Assets
Cash and cash equivalents $ 1,598 $ 28,000 $ - $ 29,598
Accounts receivable, net 33,013 - - 33,013
Other receivables and deposits 3,049 - - 3,049
Inventories and supplies 2,039 - - 2,039
Prepaid expenses and other 6,405 - - 6,405
-------------------------------------------------------------------------------
Total current assets 46,104 28,000 - 74,104
Securities and investments 8,362 - - 8,362
Property, Plant and Equipment, net 418,300 - (9,362) 408,938
Other Assets
Cost in excess of net assets of businesses
acquired 79,979 - (79,979) -
Radio spectrum licenses 116,782 - (22,295) 94,487
Other 15,280 750 - 16,030
Deferred income taxes 6,026 - - 6,026
-------------------------------------------------------------------------------
Total other assets 218,067 750 (102,274) 116,543
-------------------------------------------------------------------------------
Total Assets $ 690,833 $ 28,750 $ (111,636) $ 607,947
===============================================================================
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities
Current maturities of long-term debt $ 2,371 $ 4,674 $ - $ 7,045
Liabilities subject to compromise - 4,721 - 4,721
Accounts payable 9,470 6,072 - 15,542
Other accrued liabilities 15,929 5,852 - 21,781
-------------------------------------------------------------------------------
Total current liabilities 27,770 21,319 - 49,089
Liabilities subject to compromise 734,049 (732,476) - 1,574
Long-term Debt 21,828 285,536 - 307,364
Long-term Liabilities
Retirement benefits 287 25,843 - 26,130
Other 21,233 25,504 (11,703) 35,034
-------------------------------------------------------------------------------
Total long-term liabilities 21,520 51,347 (11,703) 61,164
-------------------------------------------------------------------------------
Minority interests 503 - - 503
Redeemable convertible preferred stock 298,246 (298,246) - -
-------------------------------------------------------------------------------
Shareholders' Equity (Deficit)
Common stock 182,380 197,727 (182,380) 197,727
Stock warrants 22,874 (19,725) - 3,149
Retained earnings (accumulated deficit) (605,715) 523,268 82,447 -
Accumulated other comprehensive loss (12,623) - - (12,623)
-------------------------------------------------------------------------------
(413,083) 701,271 (99,933) 188,253
-------------------------------------------------------------------------------
Total liabilities and shareholders' equity
(deficit) $ 690,833 $ 28,750 $ (111,636) $ 607,947
===============================================================================
C-5
Notes to Projected Condensed Consolidated Opening and Closing Balance Sheet
The Projected Condensed Consolidated Opening and Closing Balance Sheet has been
derived by the application of projected adjustments to the Debtors' historical
financial statements as of the date noted.
(a) Effects of Plan adjustments to the Projected Condensed Consolidated Opening
and Closing Balance Sheet are summarized in the following table (dollars in
thousands) and are described in the notes that follow.
Treatment of Total
Debt Issuance of Preferred Stock Liabilities Subject Net
Discharge (1) New Notes(2) Extinguishment(3) to Compromise Adjustment
-----------------------------------------------------------------------------------------
Cash and cash equivalents $ - $ 28,000 $ - $ - $ 28,000
Debt issuance costs - 750 - - 750
Accounts payable - - - 6,072 6,072
Liabilities subject to compromise - - - 4,721 4,721
Other accrued liabilities - - - 5,852 5,852
Current maturities of long-term debt - - - 4,674 4,674
Liabilities subject to compromise
Accounts payable - - - (13,755) (13,755)
Other accrued liabilities (27,074) - - (5,852) (32,926)
Long-term debt (371,674) - - (262,209) (633,883)
Retirement benefits - - - (25,843) (25,843)
Other - - - (26,068) (26,068)
Long-term debt - 28,000 - 257,536 285,536
Retirement benefits - - - 25,843 25,843
Other (564) - - 26,068 25,504
Redeemable convertible preferred stock - - (298,246) - (298,246)
Retained earnings 221,424 - 298,882 2,962 523,268
Warrants (19,089) - (636) - (19,725)
Common stock 196,977 750 - - 197,727
(b) Fresh Start accounting adjustments to the Projected Condensed
Consolidated Opening and Closing Balance Sheet are summarized in the
following table (dollars in thousands) and are described in the notes that
follow.
Elimination of
Historical Common Reallocation of Total
Stock and Retained Fresh Start Deemed Negative Net
Earnings (5a) Adjustment (5b) Goodwill (5c) Adjustment
----------------------------------------------------------------------------------
Property and equipment, net - - (9,362) (9,362)
Cost in excess of net assets of business acquired - - (79,979) (79,979)
Reorganization value in excess of amounts
allocable to identifiable assets 423,335 (523,268) 99,933 -
Spectrum licenses - - (19,954) (19,954)
Long-term other liabilities - - (22,295) (22,295)
Retained earnings 605,715 (523,268) - 82,447
Common stock (182,380) - - (182,380)
C-6
Notes to Projected Condensed Consolidated Opening and Closing Balance Sheet
(1) The adjustment relates to the issuance of New Common Stock in exchange for
outstanding Senior Notes and Subordinated Notes and other liabilities as
follows:
The issuance of 9,433,509 shares of New Common Stock to holders of Senior Notes
and 500,000 shares of New Common Stock to holders of Subordinated Notes. Holders
of Senior Notes will receive 59.5% of the fully diluted New Common Stock (or
94.3% of the New Common Stock prior to the conversion of the New Notes). Holders
of Subordinated Notes will receive 3.2% of the fully diluted New Common Stock
(or 5.0% of the New Common Stock prior to the conversion of the New Notes). Gain
on discharge of Senior Notes and Subordinated Notes was determined as follows:
(dollars in thousands)
Senior Subordinated
Notes Notes Total
-------------------------------------------------------------
Accreted balance of outstanding notes $ 280,000 $ 95,000 $ 375,000
Accrued unpaid interest 20,020 7,054 27,074
Detachable warrants issued with notes 6,890 12,199 19,089
Unamortized note discount (3,326) - (3,326)
-------------------------------------------------------------
Net carrying balance of discharged outstanding notes 303,584 114,253 417,837
Value of common stock to be received 186,528 9,885 196,413
-------------------------------------------------------------
Gain on discharge of outstanding notes $ 117,056 $ 104,368 $ 221,424
=============================================================
Issuance of New Common Stock with a value of $564,712 to J. Allen Layman in
settlement of an existing non-compete obligation.
(2) Represents the sale of $75.0 million of New Notes to the Participating
Noteholders. The New Notes will accrue interest at a rate of 9.0% per annum,
payable semi-annually in cash. The New Notes will rank pari passu with all other
senior debt. The New Notes are redeemable by Reorganized NTELOS during the first
two (2) years at a redemption price of 109.0% of the face value, for the third
year at a redemption price of 104.5% of the face value of the note, and
redeemable thereafter at the face value of the note. The New Notes are
convertible at the holder's option into New Common Stock representing 27.5% of
the New Common Stock on an as converted basis, before dilution for exercise of
New Warrants and the new options. The Participating Noteholders will receive as
backstop consideration for providing commitments to purchase the New Notes,
37,931 shares of New Common Stock, valued at $750,000, representing .4% of the
New Common Stock prior to conversion of the New Notes. Proceeds from the
issuance of the New Notes will be used to repay the DIP Credit Agreement and
approximately $36 million of amounts borrowed under the Pre-Petition Credit
Agreement revolving working capital loan.
(3) Represents the cancellation of $112.5 million of Series B Preferred Stock
and related warrants and $137.5 million of Series C Preferred Stock. Holders of
Old Preferred Stock Interests will receive 475,624 warrants to purchase, at an
exercise price of $23.73 per share, New Common Stock representing 3.0% of the
fully diluted New Common Stock.
(dollars in thousands)
Carrying amount of preferred stock $ 250,000
Accrued dividends (PIK from original issuance) 48,246
Warrants issued with Series B subscription 3,785
------------
Total carrying balance of preferred stock 302,031
Value assigned to New Warrants 3,149
------------
Net adjustment for settlement of preferred stock $ 298,882
============
C-7
The Company used the Black-Scholes option pricing model to determine the value
assigned to the New Warrants as of the Effective Date. For purposes of this
calculation the volatility factor was assumed to be 41% and the expected life of
the New Warrants was assumed to be five years.
(4) Represents the treatment of unpaid liabilities subject to compromise that
remain outstanding following settlement of claims noted above as of the
Effective Date. All Priority Tax Claims and Priority Non-Tax Claims, Secured
Bank Claims and Convenience Claims have been reclassified and presented in their
customary financial statement line items at amounts expected to be paid in the
ordinary course of business. General Unsecured Claims that are impaired and that
will be liquidated in future periods in accordance with the Plan have been
adjusted to the amounts expected to be paid and are presented separately from
all other liabilities. Following is an analysis of the reclassification and
valuation adjustment:
(dollars in thousands)
Liabilities subject to compromise, net of other settlements $ 335,300
Long-term debt and capital lease obligations (262,209)
Interest rate swap agreement (15,522)
Retirement and post-employment benefits (25,843)
Priority tax and non-tax claims (6,072)
Deferred revenues and customer deposits (5,852)
Other long-term obligations (10,546)
------------------
Unsecured claims subject to payment treatment 9,256
Recoverable value 6,294
------------------
Net adjustment to retained earnings $ 2,962
==================
Schedule of Distribution of funds for General Unsecured Claims
Distribution on the Effective Date $ 2,832
Distribution on the first anniversary 1,888
Distribution on the second anniversary 1,574
------------------
Total distributions for General Unsecured Claims $ 6,294
==================
(5) The Company proposes to account for the reorganization and the related
transactions using the principles of "Fresh Start" accounting as required by
Statement of Position 90-07 "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" issued by the American Institute of Certified Public
Accountants (the "AICPA"). Following are explanations of the various
adjustments:
(a) As scheduled below, the Company has estimated a total reorganization
value of $607.9 million on a post-money basis, approximately $197.7 million
of which is assumed to be attributable to shareholder's common equity. The
Company used the estimated equity value of the New Notes, on an as
converted ownership basis, to determine the implied equity value of the
Reorganized Company as of the Effective Date. This value approximates the
mid-point of the equity values derived by the use of accepted valuation
models and methodologies employed by the Company's financial advisors.
Accordingly, historical common stock and retained earnings have been
eliminated.
(dollars in thousands)
Postpetition current liabilities $ 25,398
Postpetition non-current liabilities 9,253
Prepetition claims allowed at fair value 70,130
Debt obligations 314,409
Equity and minority interest 188,757
------------------
$ 607,947
==================
(b) In accordance with SOP 90-07, the reorganization value has been
allocated to specific tangible and identifiable intangible assets and
liabilities. The excess of the Debtors' historical tangible and identified
C-8
intangible assets over the reorganization value is reflected as an
adjustment to record these assets at their fair value. The Company is
currently evaluating the value of various assets, including certain of the
Debtors' fixed assets and spectrum licenses, which may lead to additional
pro forma adjustments to book values and result in a different allocation
of fair market values over the Debtors' tangible and identifiable
intangible assets as of the Effective Date. The amount of shareholders'
equity in the Fresh Start balance sheet is not an estimate of the trading
value of the New Common Stock after confirmation of the Plan, which value
is subject to many uncertainties and cannot be reasonably estimated at this
time. The Debtors make no representation as to the trading value of the New
Common Stock or New Warrants to be issued pursuant to the Plan.
(c) In accordance with SFAS 141 "Business Combinations" and SFAS 142
"Goodwill and Other Intangible Assets" the excess of amounts allocable to
identifiable assets over reorganization value, "negative goodwill", has
been adjusted to the carrying balance of identifiable assets.
C-9
NTELOS Inc.
Projected Condensed Consolidated Balance Sheets
(In thousands)
2003 2004 2005 2006 2007 2008
--------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 29,265 $ 30,219 $ 34,014 $ 58,710 $ 104,081 $ 20,038
Accounts receivable 36,287 38,772 41,094 43,427 45,613 47,393
Inventories and supplies 2,849 3,008 3,090 3,496 3,573 3,622
Other receivables and deposits 3,426 3,660 3,880 4,100 4,306 4,474
Prepaid expenses and other 2,537 1,913 2,073 1,184 1,629 2,069
--------------------------------------------------------------------------------
74,364 77,572 84,151 110,917 159,202 77,596
--------------------------------------------------------------------------------
Securities and investments 8,496 8,496 8,496 8,496 8,496 1,195
--------------------------------------------------------------------------------
Property, Plant and Equipment 608,592 648,593 695,789 735,122 771,229 801,688
Less accumulated depreciation 192,266 250,090 319,656 384,722 441,688 498,754
--------------------------------------------------------------------------------
416,326 398,503 376,133 350,400 329,541 302,934
--------------------------------------------------------------------------------
Other Assets
Other intangibles 1,793 1,793 1,793 1,134 1,134 1,134
Deferred charges 5,667 5,667 5,667 5,667 5,667 5,667
Radio spectrum licenses 94,355 93,832 93,308 92,784 92,260 91,736
Deferred income tax asset, net 5,913 2,645 - - - -
Other assets 8,570 - - - - -
--------------------------------------------------------------------------------
116,298 103,937 100,768 99,585 99,061 98,537
--------------------------------------------------------------------------------
Total Assets $ 615,484 $ 588,508 $569,548 $569,398 $ 596,300 $480,262
================================================================================
C-10
NTELOS Inc.
Projected Condensed Consolidated Balance Sheets (continued)
(In thousands)
2003 2004 2005 2006 2007 2008
-----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Current maturities of long-term debt $ 17,189 $ 16,195 $ 20,765 $ 10,355 $ 165,287 $ 339
Liabilities subject to compromise 1,888 1,574 - - - -
Accounts payable 34,313 34,489 35,663 35,638 36,063 36,122
Advance billings and customer deposits 14,515 14,647 15,525 14,476 15,204 13,691
Accrued payroll 2,488 2,974 3,322 3,696 4,041 4,308
Accrued interest 2,250 2,250 2,250 2,250 2,250 2,250
Deferred revenue 4,838 5,170 5,478 5,790 4,663 5,055
Other accrued liabilities 2,995 2,123 - 57 - 333
-----------------------------------------------------------------------------
80,476 79,422 83,003 72,262 227,508 62,098
-----------------------------------------------------------------------------
Liabilities subject to compromise 1,574 - - - - -
-----------------------------------------------------------------------------
Long-term Debt 291,423 275,228 254,463 244,108 78,821 78,482
-----------------------------------------------------------------------------
Long-term Liabilities
Deferred income tax liability, net - - 856 9,101 20,217 32,186
Retirement benefits 23,130 21,795 20,901 19,348 19,349 19,350
Long-term deferred liabilities 30,212 21,812 15,012 15,012 15,012 15,012
-----------------------------------------------------------------------------
53,342 43,607 36,769 43,461 54,578 66,548
-----------------------------------------------------------------------------
Minority Interests 523 523 523 523 523 523
-----------------------------------------------------------------------------
Shareholders' Equity
Common stock 197,727 197,727 197,727 197,727 197,727 197,727
Stock warrants 3,149 3,149 3,149 3,149 3,149 3,149
Retained earnings (deficit) (317) (5,203) (5,191) 8,168 33,994 71,735
Accumulated other comprehensive income (loss) (12,413) (5,945) (895) - - -
-----------------------------------------------------------------------------
188,146 189,728 194,790 209,044 234,870 272,611
-----------------------------------------------------------------------------
$ 615,484 $ 588,508 $ 569,548 $ 569,398 $ 596,300 $ 480,262
=============================================================================
C-11
NTELOS Inc.
Projected Condensed Consolidated Statement of Operations
(In thousands)
2003 2004 2005 2006 2007 2008
-----------------------------------------------------------------------------
Operating Revenues
Wireless PCS ........................... $ 187,274 $ 205,202 $ 219,738 $ 234,805 $ 247,696 $ 258,626
Wireline Communications ................ 100,725 105,627 110,238 114,379 119,367 122,955
Other Communications Services .......... 6,329 3,656 3,346 3,054 2,906 2,829
-----------------------------------------------------------------------------
294,328 314,485 333,322 352,238 369,969 384,410
-----------------------------------------------------------------------------
Operating Expenses
Cost of Wireless Sales (exclusive of
items shown separately below) ......... 51,990 54,884 56,382 57,707 58,804 59,524
Maintenance and Support ................ 68,310 71,093 74,141 76,494 78,644 80,444
Depreciation and Amortization .......... 70,048 76,490 83,190 79,590 72,190 72,890
Customer Operations .................... 66,963 67,295 69,442 71,739 74,038 76,325
Corporate Operations ................... 21,714 22,085 22,636 23,099 23,780 24,518
Restructuring Charge ................... 2,427 - - - - -
-----------------------------------------------------------------------------
281,452 291,847 305,791 308,629 307,456 313,701
-----------------------------------------------------------------------------
Operating Income .......................... 12,876 22,638 27,531 43,609 62,513 70,709
Interest Expense ....................... (32,810) (26,124) (25,056) (18,963) (17,135) (8,940)
-----------------------------------------------------------------------------
Income (Loss) Before Income Taxes ......... (19,934) (3,486) 2,475 24,646 45,378 61,769
-----------------------------------------------------------------------------
Current taxes ............................. 1,400 1,400 1,607 3,042 8,436 12,059
Deferred taxes ............................ - - 856 8,245 11,116 11,969
-----------------------------------------------------------------------------
Income Taxes .............................. 1,400 1,400 2,463 11,287 19,552 24,028
-----------------------------------------------------------------------------
Net Income (Loss) ......................... $ (21,334) $ (4,886) $ 12 $ 13,359 $ 25,826 $ 37,741
=============================================================================
Reconciliation of Operating Income to
EBITDA (a non-GAAP measure)/1/
- -------------------------------------------------------------------------------------------------------------------------
Operating Income .......................... $ 12,876 $ 22,638 $ 27,531 $ 43,609 $ 62,513 $ 70,709
Reconciling items to arrive at EBITDA/1/:
Depreciation and Amortization ....... 70,048 76,490 83,190 79,590 72,190 72,890
-----------------------------------------------------------------------------
EBITDA/1/.................................. $ 82,924 $ 99,128 $ 110,721 $ 123,199 $ 134,703 $ 143,599
=============================================================================
/1/ Represents operating income (loss) before depreciation and amortization and
accretion of asset retirement obligations. The Company references non-GAAP
measures, such as EBITDA, to measure operating performance. Management
believes EBITDA to be a meaningful indicator of the Company's performance
that provides useful information to investors regarding the Company's
financial condition and results of its operations. Presentation of EBITDA
is consistent with the Company's past practice and EBITDA is a non-GAAP
measure commonly used in the communications industry and by financial
analysts and others who follow the industry to measure operating
performance. EBITDA should not be construed as an alternative to operating
income or cash flows from operating activities (both of which are
determined in accordance with generally accepted accounting principles) or
as a measure of liquidity.
Notes:
During February of 2003 the Company executed an Asset Purchase Agreement whereby
substantially all of the assets and operations of its wireline cable operations
would be sold. This transaction is still pending resolution of certain
conditions to closing. For purposes of presentation of these projected financial
statements the Company has elected to effect the closing of this transaction on
January 1, 2004.
The Statement of Operations for 2003 excludes certain gains and losses
associated with the reorganization that the Company expects to realize. These
reorganization transactions will be accounted for in accordance with the
principals of Fresh Start accounting.
C-12
NTELOS Inc.
Projected Condensed Consolidated Statements of Cash Flows
(In thousands)
2003 2004 2005 2006 2007 2008
----------------------------------------------------------------------------------
Cash Flows from Operating Activities
Net income(loss) $ (21,334) $ (4,886) $ 12 $ 13,359 $ 25,826 $ 37,741
Adjustments to reconcile net income(loss)
to net cash provided by operating
activities:
Depreciation and amortization
Deferred taxes 70,048 76,490 83,190 79,590 72,190 72,890
- - 856 8,245 11,116 11,969
Changes in assets and liabilities from
operations, net 10,428 (3,887) (3,772) (2,400) (2,599) (2,898)
----------------------------------------------------------------------------------
Net cash provided by operating activities 59,142 67,717 80,286 98,794 106,533 119,702
----------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of property and equipment (60,601) (58,144) (60,296) (53,333) (50,807) (45,759)
Proceeds from sale of assets 6,037 8,570 - - - 7,301
----------------------------------------------------------------------------------
Net cash used in investing activities (54,564) (49,574) (60,296) (53,333) (50,807) (38,458)
----------------------------------------------------------------------------------
Cash Flows from Financing Activities
Proceeds from New Convertible Notes 75,000 - - - - -
Scheduled repayments of debt obligations (15,529) (17,189) (16,195) (20,765 (10,355) (165,287)
Other repayment of debt obligations (47,000) - - - - -
----------------------------------------------------------------------------------
Net (cash used in) provided by financing
activities 12,471 (17,189) (16,195) (20,765) (10,355) (165,287)
----------------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents 17,049 954 3,795 24,696 45,371 (84,044)
Beginning cash and cash equivalents 12,216 29,265 30,219 34,014 58,710 104,081
----------------------------------------------------------------------------------
Ending cash and cash equivalents $ 29,265 $ 30,219 $ 34,014 $ 58,710 $ 104,081 $ 20,038
==================================================================================
C-13
NTELOS Inc.
Projected Supplemental Consolidated Operating Results
(In thousands)
(Unaudited)
-------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 2008
-------------------------------------------------------------------------------------
Operating Revenues
Wireless PCS Digital $ 187,274 $ 205,202 $ 219,738 $ 234,805 $ 247,696 $ 258,626
Subscriber Revenues 134,866 152,723 167,998 181,918 193,494 203,140
Wholesale/Roaming Revenues 40,638 40,671 40,065 41,330 42,859 44,349
Equipment Revenues 10,274 10,229 10,006 9,791 9,472 9,153
Other Revenues 1,496 1,579 1,669 1,766 1,871 1,984
Wireline Operations
Telephone (ILEC) 48,998 49,184 50,161 51,166 52,389 53,643
CLEC 25,849 28,810 30,510 32,529 34,750 35,976
Network 6,684 7,023 7,327 7,652 7,927 8,213
Internet & DSL 19,194 20,610 22,240 23,032 24,301 25,124
-------------------------------------------------------------------------------------
Wireline Total 100,725 105,627 110,238 114,379 119,367 122,955
Other Operations 6,329 3,656 3,346 3,054 2,906 2,829
-------------------------------------------------------------------------------------
Total Operating Revenues $ 294,328 $ 314,485 $ 333,322 $ 352,238 $ 369,969 $ 384,410
=====================================================================================
Wireless PCS Digital $ 152,901 $ 156,883 $ 161,715 $ 165,564 $ 169,938 $ 173,859
Cost of Sales - Equipment 26,661 27,045 26,664 26,237 25,681 25,069
Cost of Sales - Access & Other 25,329 27,839 29,717 31,470 33,123 34,455
Customer Care 7,698 8,113 8,560 8,732 9,040 9,313
Engineering & Operations 30,657 31,126 31,852 32,446 33,261 34,098
Selling & Marketing 42,661 42,981 44,446 45,623 46,844 48,070
General & Administrative 19,896 19,779 20,475 21,056 21,989 22,854
Wireline Operations
Telephone (ILEC) 15,889 16,469 16,943 17,457 18,003 18,413
CLEC 17,168 19,611 21,484 22,941 23,812 24,524
Network 1,970 2,097 2,211 2,252 2,364 2,409
Internet & DSL 12,957 13,568 14,085 14,315 14,662 15,084
-------------------------------------------------------------------------------------
Wireline Total 47,984 51,745 54,723 56,965 58,841 60,430
Other Operations/1/ 10,519 6,729 6,163 6,510 6,486 6,521
-------------------------------------------------------------------------------------
Total Operating Expenses $ 211,404 $ 215,357 $ 222,601 $ 229,039 $ 235,265 240,810
=====================================================================================
Wireless PCS Digital $ 34,373 $ 48,319 $ 58,023 $ 69,240 $ 77,758 $ 84,767
Wireline Operations
Telephone (ILEC) 33,110 32,715 33,218 33,709 34,386 35,230
CLEC 8,681 9,199 9,026 9,588 10,938 11,452
Network 4,713 4,926 5,116 5,400 5,563 5,803
Internet & DSL 6,237 7,042 8,155 8,716 9,639 10,040
-------------------------------------------------------------------------------------
Wireline Total 52,741 53,882 55,515 57,414 60,526 62,525
Other Operations (4,190) (3,073) (2,817) (3,456) (3,580) (3,692)
-------------------------------------------------------------------------------------
Total Operating Cash Flows $ 82,924 $ 99,128 $ 110,721 $ 123,199 $ 134,703 $ 143,599
=====================================================================================
/1/ Other operating expenses include $2,427 of restructuring costs for 2003.
C-14
EXHIBIT D
DEBTOR'S LIQUIDATION ANALYSIS
I. SIGNIFICANT UNCERTAINTIES
In addition to the General Assumptions and the Notes to the Liquidation Analysis
that are set forth below, there are significant areas of uncertainty that exist
with respect to this Liquidation Analysis.
1. The Liquidation Analysis assumes that the liquidation of the Debtors
would commence and would be substantially complete within a six-month period.
The wind-down cash flows during the liquidation period have been estimated by
the Debtors' management and any deviation from this assumed period could have a
material impact on the wind-down cash flows, the amount of administrative
claims, proceeds from asset sales, and the ultimate recovery to the creditors of
the Debtors' estates.
2. In any liquidation there is a general risk of unanticipated events,
which could have a significant impact on the projected cash receipts and
disbursements. These events include changes in the general economic condition,
changes in consumer preferences, obsolescence, changes in the market value of
the Debtors' assets and problems with current and former employees.
In addition to the specific assumptions described in the footnotes to the table
below, the following general assumptions were used in formulating the
Liquidation Analysis.
II. GENERAL ASSUMPTIONS
1. This Liquidation Analysis was prepared in accordance with section
1129(a)(7)(A)(ii) of the Bankruptcy Code to determine whether the Plan is in the
best interest of each holder of a claim or interest.
2. The Liquidation Analysis is based upon a number of estimates and
assumptions that, although developed and considered reasonable by management,
are inherently subject to significant economic, business, governmental
regulation, competitive uncertainties, and contingencies beyond the control of
the Debtors or their management. The Liquidation Analysis is also based on
assumptions with regard to liquidation decisions that are subject to change.
Accordingly, there can be no assurance that the values reflected in this
Liquidation Analysis would be realized if the Debtors were, in fact, to undergo
such a liquidation and actual results could vary materially and adversely from
those contained herein.
3. The hypothetical Chapter 7 liquidation analysis assumes the liquidation
of certain wireless assets and West Virginia (CLEC, ISP) & Corporate. The
remaining wireless and wireline businesses are assumed to be sold as going
concern businesses with the proceeds used to repay the Debtors' obligations.
4. The Liquidation Analysis uses the Company's unaudited financial
statements as of March 31, 2003 to estimate the recovery values of certain
wireless assets and West Virginia (CLEC, ISP) & Corporate and for the remaining
wireless and wireline businesses assumed to be sold as going concern businesses.
5. Nature and Timing of the Liquidation Process--Under section 704 of the
Bankruptcy Code, a Chapter 7 trustee must, among other duties, collect and
convert the property of the Debtors' estates to cash and close the estate as
expeditiously as is compatible with the best interests of the parties in
interest. Solely for purposes of preparing this Liquidation Analysis, it is
assumed that the Debtors would voluntarily convert the pending Chapter 11 Case
to a Chapter 7 liquidation. The Debtors' assets and certain business units would
be sold during a six-month period. Management believes that it is unlikely that
the actual sale periods would be shorter than those assumed, and there can be no
assurance that the actual sale period would not be longer than assumed.
6. Estimated Liquidation Proceeds--All wireless telecommunications
equipment and wireless spectrum are assumed to be sold in a straight liquidation
to the highest bidder. The following list identifies factors considered by the
Debtors in estimating the proceeds that might be received from the liquidation
sales.
. The historical cost of the assets,
. Asset location and local market demand,
. Recently transacted telecommunications equipment and wireless
spectrum sales,
. Management's experience and expertise in asset resale values,
D-1
. Analysis of liabilities and obligations relating to particular assets,
. Current industry trends including general availability of used
telecommunications equipment and wireless spectrum,
. The number of companies in the industry selling telecommunications
equipment, and
. The current technology being used in telecommunications equipment
build outs.
7. This Liquidation Analysis was prepared assuming a distressed sale
scenario of certain wireless assets and West Virginia (CLEC, ISP) & Corporate.
The Liquidation Analysis also assumes the sale of remaining wireless and
wireline businesses as going concerns. Given the valuation uncertainty within
the telecommunications industry that currently exists, particularly for wireless
spectrum, management has made its best estimates of the high and low values
realizable by the Debtors for their wireless assets in a liquidation process and
certain business units as going concerns.
8. Certain Tax Matters--Management believes that it is unlikely that any
taxable gains would be triggered through a liquidation of the Debtors' assets.
However, if for some reason there were to be a taxable gain from the liquidation
of the Debtors' assets, any realized gains would be reduced to zero by the
Debtors' net operating loss carryforward.
9. Additional Liabilities and Reserves--The Debtors believe that in
addition to the expenses that would be incurred in a Chapter 11 reorganization,
there would be certain actual and contingent liabilities and expenses for which
provision would be required in a Chapter 7 liquidation before distributions
could be made to priority or general unsecured creditors, including: (a)
Administrative Claims including damages from rejected post petition contracts,
the fees of a trustee and of counsel and other professionals (including
financial advisors and accountants), retention and severance payments to
employees required to effectuate the wind-down process and other liabilities
(including retirement, vacation pay, and other employee-related administrative
costs and liabilities) that would be funded from continuing operations if the
Debtors were reorganized as a going concern; and (b) certain administrative
costs. Management believes that there is significant uncertainty as to the
reliability of the Debtors' estimates of the amounts related to the foregoing
that have been assumed in this Liquidation Analysis.
10. Distributions--Under a Chapter 7 liquidation, all secured claims are
required to be satisfied from the proceeds of the collateral securing such
claims before any such proceeds would be distributed to any other creditors. The
remaining proceeds of the Debtors, to the extent proceeds remain after
satisfaction of all secured claims, would be allocated in the following
priority: the proceeds would first be distributed to the holders of
Administrative Claims, then to Priority Unsecured Claims and finally to the
Unsecured Claims (giving effect, as necessary, to the subordination provisions
in the Subordinated Notes). Based on the liquidation assumptions of the Debtors'
management, the proceeds generated from the liquidation of the Debtors' assets
would not likely be sufficient to pay all of the Unsecured Claims.
The Bankruptcy Court order approving the DIP Credit Agreement contained
stipulations acknowledging, among other things, that the Pre-Petition Credit
Agreement was secured by valid, first-priority liens and security interests in
the Debtors' personal and real property and that the aggregate value of such
property exceeds the aggregate amount of the debt evidenced by the Pre-Petition
Credit Agreement. The Bankruptcy Court order further provided that these
stipulations shall be binding upon all parties in interest, unless a party in
interest filed a timely adversary proceeding no later than May 12, 2003. No
party in interest has filed such an adversary proceeding. However, the
Creditors' Committee and Wachovia Bank, National Association, as agent for the
Pre-Petition Secured Lenders and DIP Lenders, have engaged in discussions
concerning a stipulation (though no such stipulation has been filed with the
Bankruptcy Court) which would provide that, in the event the Debtors are
liquidated and cease business operations, then the Creditors' Committee may
challenge the validity, enforceability and priority of the Pre-Petition Liens
with respect to: (i) any motor vehicles owned by the Debtors on the Petition
Date, (ii) any copyrights registered by the Debtors with the U.S. Copyright
Office on and as of the Petition Date, (iii) any petty cash held by the Debtors
(and not in any bank accounts) on the Petition Date, (iv) assets of Virginia
Telecommunications Partnership as of the Petition Date, (v) assets of R&B
Communications Inc. as of the Petition Date other than rights, shares, ownership
interests, capital contributions and membership interests in Virginia PCS
Alliance, L.C., and West Virginia PCS Alliance, L.C., and all distributions,
dividends, and proceeds related thereto and (vi) certain cash held, as of the
Petition Date, in deposit accounts. Because the Pre-Petition Secured Lenders are
fully secured by other collateral, even if the Creditors' Committee were
successful in avoiding the Pre-Petition Secured Lenders' liens on the enumerated
collateral, it would have no material impact on the conclusions reached in the
Liquidation Analysis.
11. Conclusion--The Debtors believe that a Chapter 7 liquidation of the
Debtors would result in a meaningful diminution in the value to be realized by
the aggregate claimants against the Debtors. Consequently, the Debtors believe
that the Plan will provide a greater aggregate return to the creditors than
would a Chapter 7 liquidation.
D-2
CHAPTER 7 LIQUIDATION ANALYSIS
NTELOS INC.
(dollars in millions)
ASSET REALIZATION LIQUIDATION RECOVERIES
NOTES BOOK VALUE ----------------- ----------------------
REF. 3/31/2003 LOW HIGH LOW HIGH
----- ---------- --------- ------- --------- ---------
STATEMENT OF ASSETS
WIRELESS, WEST VIRGINIA (CLEC, ISP) & CORPORATE
Cash & Cash Equivalents A $ 24.8 100.0% 100.0% $ 24.8 $ 24.8
Accounts Receivable, Net B 19.0 38.3% 56.6% 7.3 10.7
Investments C 8.3 98.5% 98.5% 8.2 8.2
Materials & Supplies, Net D 2.0 20.9% 41.3% 0.4 0.8
Prepaid Expenses E 2.5 0.0% 0.0% 0.0 0.0
Property, Plant & Equipment, Net F 285.5 8.1% 12.4% 23.1 35.4
PCS Subscribers G 0.0 N/A N/A 0.0 5.3
Spectrum Licenses H 114.6 42.0% 58.1% 48.1 66.6
Other Assets I 2.9 0.0% 0.0% 0.0 0.0
--------- ---------
Total Proceeds from Wireless,
West Virginia & Corporate 111.9 151.8
PROCEEDS FROM SALES OF BUSINESS UNITS
Wireline Business J 220.0 288.8
Wireline Cable Business K 8.5 8.5
Wireless Cable Business L 1.5 3.0
Paging Business M 0.5 1.4
Cash Flows From Wind Down -- Wireless and WV N 15.0 17.3
--------- ---------
Total Proceeds from Sales of Business Units 245.5 319.0
Total Liquidated Proceeds Available to Pay
Chapter 7 Administrative Claims $ 357.4 $ 470.8
LIQUIDATION RECOVERIES
----------------------
LOW HIGH
--------- ---------
CHAPTER 7 ADMINISTRATIVE CLAIMS
Trustee Fees O $ 10.7 $ 14.1
Professional Fees P 1.3 1.8
Liquidation Costs Q 4.4 6.1
--------- ---------
Total Chapter 7 Administrative Claims $ 16.4 $ 22.0
Net Estimated Recovery - Chapter 7 Admin Claims 100.0% 100.0%
Net Estimated Proceeds Available for Distribution
After Chapter 7 Administrative Claims $ 341.0 $ 448.8
See Notes to Liquidation Analysis.
D-3
CHAPTER 7 LIQUIDATION ANALYSIS
NTELOS INC.
(dollars in millions)
REALIZATION
PERCENTAGE LIQUIDATION RECOVERIES
NOTES ESTIMATED ----------------- ----------------------
REF. BALANCE LOW HIGH LOW HIGH
----- ---------- --------- ------- --------- ---------
SECURED CLAIMS
FCC Debt Including Estimated Accrued Interest R $ 8.1 49.6% 74.4% $ 4.0 $ 6.0
R&B Debt Including Estimated Accrued Interest R 6.9 100.0% 100.0% 6.9 6.9
---------- --------- ------- --------- ---------
Total Secured Claims $ 15.0 72.7% 86.1% $ 10.9 $ 12.9
Net Estimated Proceeds Available for Distribution
After FCC Debt and R&B Debt $ 330.1 $ 435.9
SENIOR SECURED BANK FACILITIES/INTEREST RATE SWAP
Senior Secured Bank Facilities R $ 260.3 100.0% 100.0% $ 260.3 $ 260.3
Accrued Interest R 7.9 100.0% 100.0% 7.9 7.9
Interest Rate Swap R 19.3 100.0% 100.0% 19.3 19.3
---------- --------- ------- --------- ---------
Total Senior Secured Bank Facilities/Interest Rate
Swap $ 287.5 100.0% 100.0% $ 287.5 $ 287.5
Net Estimated Proceeds Available for Distribution
After Secured Claims $ 42.6 $ 148.4
REALIZATION
PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ----------------- ----------------------
BALANCE LOW HIGH LOW HIGH
---------- --------- ------- --------- ---------
ADMINISTRATIVE CLAIMS
Post-Petition Taxes, Accrued Salaries, Accrued
Bonuses S $ 13.3 100.0% 100.0% $ 13.3 $ 13.3
---------- --------- ------- --------- ---------
Total Administrative Claims $ 13.3 100.0% 100.0% $ 13.3 $ 13.3
Balance Available for Distribution to Priority
Unsecured Claims $ 29.3 $ 135.1
REALIZATION
PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ----------------- ----------------------
BALANCE LOW HIGH LOW HIGH
---------- --------- ------- --------- ---------
PRIORITY UNSECURED CLAIMS
Pre-Petition Section 507 Claims T $ 1.7 100.0% 100.0% $ 1.7 $ 1.7
---------- --------- ------- --------- ---------
Total Priority Unsecured Claims $ 1.7 100.0% 100.0% $ 1.7 $ 1.7
Balance Available for Distribution to Unsecured Claims $ 27.6 $ 133.4
REALIZATION
PERCENTAGE LIQUIDATION RECOVERIES
ESTIMATED ----------------- ----------------------
BALANCE LOW HIGH LOW HIGH
---------- --------- ------- --------- ---------
UNSECURED CLAIMS
Trade Payables U $ 52.8 5.9% 28.6% $ 3.1 $ 15.1
FCC Debt Including Estimated Accrued Interest U 2.1 5.9% 28.6% 0.1 0.6
Capital Leases Including Estimated Accrued Interest U 10.1 5.9% 28.6% 0.6 2.9
Senior Notes Including Accrued & Unpaid Interest U 300.0 5.9% 28.6% 17.8 85.7
Subordinated Notes Including Accrued & Unpaid
Interest U 102.1 5.9% 28.6% 6.0 29.1
---------- --------- ------- --------- ---------
Total Unsecured Claims $ 467.1 5.9% 28.6% $ 27.6 $ 133.4
Balance Available for Distribution to Equity
Interests $ 0.0 $ 0.0
See Notes to Liquidation Analysis.
D-4
NOTES TO LIQUIDATION ANALYSIS:
Note A: Cash & Cash Equivalents are assumed recoverable at 100% in both high and
low liquidation scenarios.
Note B: For purposes of this analysis, Accounts Receivables, Net were first
divided into sub-categories based on receivable type and then divided into aging
periods of 0 > 30 days, 30 > 60 days, 60 > 90 days, 90 > 120 days and >120 days.
Specific high and low recovery values were then applied to each category.
Individual recovery percentages ranged from 20% to 90% of outstanding balances,
which rendered an overall recovery range for all receivables of 38% to 57%.
Note C: Investments were divided into a number of different classes, and high
and low recovery values were applied to each class. Individual recovery
percentages ranged from 0% to 100% of outstanding balances, which rendered an
overall recovery for Investments of 99% in both high and low liquidation
scenarios.
Note D: Materials and Supplies, Net consist mainly of recently purchased
wireless handsets. Individual recovery percentages ranged from 10% to 40% of
outstanding balances, which rendered an overall recovery range of 21% to 41%.
Note E: Prepaid expenses were assumed to carry no value.
Note F: Property, Plant & Equipment (PP&E) assets were divided into a number of
different classes, and high and low recovery values were applied to each class.
Individual recovery percentages ranged from 0% to 70% of net book value and were
based on management's estimate of market demand for each class of asset. The
overall recovery of PP&E ranged from 8% to 12%.
Note G: PCS Subscribers were assumed to carry no value in a low liquidation
scenario and approximately $5.3 million in a high liquidation scenario.
Note H: Spectrum Licenses were valued on a license-by-license basis based on a
discount to the average pricing of prior FCC auctions (excluding Auction 35).
Individual recovery percentages by market ranged from 40% to 90% of the average
pricing of prior FCC auctions.
Note I: Other Assets were assumed to carry no value.
Note J: Sale of Wireline Businesses (Excluding West Virginia CLEC and Internet)
assumes a 4.0x and 5.3x multiple of LTM 3/31/03 EBITDA for the low and high
liquidation scenarios, respectively.
Note K: The $8.5 million high and low values represent the actual sale price in
the signed definitive agreement as of May 2003.
Note L: Sale of Wireless Cable Business assumes $0.60/POP and $1.20/POP for the
low and high liquidation scenarios, respectively.
Note M: Sale of Paging Business assumes a 1.0x and 3.0x multiple of LTM 3/31/03
EBITDA, for the low and high liquidation scenarios, respectively.
Note N: Wind-Down Cash Flows assume a six-month period to decommission the cell
sites and switches of certain wireless assets as well as to sell off the
remaining wireless and wireline businesses as going concern businesses.
Note O: Chapter 7 Trustee fees are estimated at 3.0% of the gross liquidated
proceeds.
Note P: Professional Fees were estimated at $1.3 to $1.8 million.
Note Q: Liquidation Costs are estimated as 3.0% of the total realization for
PP&E and Spectrum Licenses and 1.0% of the total realization for the sale of
business units. These charges are the costs associated with liquidating the
fixed assets and wireless licenses of the company through auction or other
means.
Note R: Secured Claims consist of the estimated balances of the FCC Debt, R&B
Debt, and Senior Secured Bank Facilities at March 31, 2003. FCC Debt is only
presented as secured to the extent of the estimated value of the assets securing
the obligation. The remainder of the balance of the obligation is considered an
Unsecured Claim.
Note S: Administrative Claims consist of accrued salaries, accrued bonuses, and
post-petition taxes and exclude Section 507 claims.
Note T: Pre-petition Section 507 claims are estimated to be $1.7 million.
Note U: Unsecured Claims in the amount of $467.1 million consist of all
pre-petition trade payables, the unsecured portion of the FCC Debt, Capital
Lease obligations, the Senior Notes and Subordinated Notes and accrued but
unpaid interest at March 4, 2003.
D-5
EXHIBIT E
HISTORICAL FINANCIAL STATEMENTS OF
NTELOS INC. AND SUBSIDIARIES (DEBTORS-IN-POSSESSION)
Consolidated Financial Statements for the Year Ended December 31, 2002 1-39
Unaudited Condensed Consolidated Financial Statements for the
Three Months Ended March 31, 2003 40-55
NTELOS INC. AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
---------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 1
Consolidated Statements of Operations 3
Consolidated Statements of Cash Flows 4
Consolidated Statements of Shareholders' Equity (Deficit) 5
Notes to Consolidated Financial Statements 6
INDEPENDENT AUDITORS' REPORT 38
---------------------------------------------------------------------------------
Consolidated Balance Sheets
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
(In thousands)
December 31, 2002 2001
- -------------------------------------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 12,216 $ 7,293
Restricted cash - 18,069
Accounts receivable, net of allowance of $23,170 ($13,971 in 2001) 33,748 30,328
Inventories and supplies 2,588 9,619
Other receivables and deposits 3,058 4,669
Prepaid expenses and other 3,557 3,929
Income taxes receivable - 1,945
- -------------------------------------------------------------------------------------------------------------
55,167 75,852
- -------------------------------------------------------------------------------------------------------------
Investments and Advances
Securities and investments 867 6,134
Restricted investments 7,829 7,829
Restricted cash - 18,094
- -------------------------------------------------------------------------------------------------------------
8,696 32,057
- -------------------------------------------------------------------------------------------------------------
Property, Plant and Equipment
Land and building 51,026 50,836
Network plant and equipment 437,938 447,585
Furniture, fixtures and other equipment 65,366 65,283
- -------------------------------------------------------------------------------------------------------------
Total in service 554,330 563,704
Under construction 15,722 35,753
- -------------------------------------------------------------------------------------------------------------
570,052 599,457
Less accumulated depreciation 135,597 133,513
- -------------------------------------------------------------------------------------------------------------
434,455 465,944
- -------------------------------------------------------------------------------------------------------------
Other Assets
Goodwill, less accumulated amortization of $7,524 ($10,264 in 2001) 86,016 135,635
Other intangibles, less accumulated amortization of $1,379 ($8,261 in
2001) 1,879 23,677
Radio spectrum licenses in service 107,234 423,181
Other radio spectrum licenses 2,572 11,930
Radio spectrum licenses not in service 7,155 9,935
Deferred charges 18,563 18,675
Deferred income taxes 7,784 -
- -------------------------------------------------------------------------------------------------------------
231,203 623,033
- -------------------------------------------------------------------------------------------------------------
$ 729,521 $ 1,196,886
=============================================================================================================
See Notes to Consolidated Financial Statements.
1
Consolidated Balance Sheets
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
(In thousands)
December 31, 2002 2001
- -----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity (Deficit)
Current Liabilities
Long-term debt in default and scheduled maturities $ 623,762 $ -
Deferred liabilities - interest rate swap agreements relating to debt in default 20,012 -
Accounts payable 22,350 39,917
Advance billings and customer deposits 13,013 8,889
Accrued payroll 6,160 5,540
Accrued interest 19,131 18,332
Deferred revenue 4,455 5,092
Other accrued liabilities 5,227 4,927
- -----------------------------------------------------------------------------------------------------------------------
714,110 82,697
- -----------------------------------------------------------------------------------------------------------------------
Long-term Debt 18,960 612,416
- -----------------------------------------------------------------------------------------------------------------------
Long-term Liabilities
Deferred income taxes - 2,200
Retirement benefits 25,542 18,101
Long-term deferred liabilities 26,899 41,312
- -----------------------------------------------------------------------------------------------------------------------
52,441 61,613
- -----------------------------------------------------------------------------------------------------------------------
Minority Interests 523 847
- -----------------------------------------------------------------------------------------------------------------------
Redeemable Convertible Preferred Stock 286,164 265,747
- -----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies
Shareholders' Equity (Deficit)
Preferred stock, no par value per share, authorized 1,000 shares; none issued - -
Common stock, no par value per share, authorized 75,000 shares; issued 17,780
shares (17,209 in 2001) 182,380 182,093
Stock warrants 22,874 22,874
Accumulated deficit (532,565) (23,201)
Accumulated other comprehensive loss (15,366) (8,200)
- -----------------------------------------------------------------------------------------------------------------------
(342,677) 173,566
- -----------------------------------------------------------------------------------------------------------------------
$ 729,521 $ 1,196,886
=======================================================================================================================
See Notes to Consolidated Financial Statements.
2
Consolidated Statements of Operations
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
(In thousands, except per share amounts)
Years Ended December 31, 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues
Wireless PCS $ 156,860 $ 118,832 $ 39,096
Wireline communications 96,916 86,485 58,280
Other communications services 8,951 9,746 16,143
- ---------------------------------------------------------------------------------------------------------------------
262,727 215,063 113,519
- ---------------------------------------------------------------------------------------------------------------------
Operating Expenses
Cost of wireless sales (exclusive of the items shown separately below) 48,868 47,808 18,657
Maintenance and support 64,408 62,508 31,177
Depreciation and amortization 82,924 82,281 37,678
Asset impairment charges 402,880 - -
Customer operations 66,007 65,657 31,992
Corporate operations 17,914 18,586 11,441
Operational and capital restructuring charges 4,285 - -
- ---------------------------------------------------------------------------------------------------------------------
687,286 276,840 130,945
- ---------------------------------------------------------------------------------------------------------------------
Operating Loss (424,559) (61,777) (17,426)
Other Income (Expenses)
Equity loss from PCS investees
VA PCS Alliance - - (3,679)
WV PCS Alliance - (1,286) (8,580)
Gain on sale of assets 8,472 31,845 62,616
Other financing costs - - (6,536)
Interest expense (78,351) (76,251) (31,407)
Other (expense) income (1,454) 5,679 6,970
- ---------------------------------------------------------------------------------------------------------------------
(495,892) (101,790) 1,958
Income Taxes (Benefit) (6,464) (34,532) 1,326
- ---------------------------------------------------------------------------------------------------------------------
(489,428) (67,258) 632
Minority Interests in Losses of Subsidiaries 481 3,545 1,638
- ---------------------------------------------------------------------------------------------------------------------
(Loss) Income from Continuing Operations (488,947) (63,713) 2,270
Discontinued Operation
Income from discontinued operation, net of tax - - 396
Gain on sale of discontinued operation, net of tax - - 15,973
- ---------------------------------------------------------------------------------------------------------------------
Net (Loss) Income (488,947) (63,713) 18,639
Dividend requirements on preferred stock 20,417 18,843 8,168
- ---------------------------------------------------------------------------------------------------------------------
(Loss) Income Applicable to Common Shares $ (509,364) $ (82,556) $ 10,471
=====================================================================================================================
Basic and Diluted Earnings per common share:
(Loss) Income from continuing operations $ (29.34) $ (5.02) $ (0.45)
Income from discontinued operation - - 1.25
- ---------------------------------------------------------------------------------------------------------------------
Basic and diluted (loss) earnings per common share $ (29.34) $ (5.02) $ 0.80
Average shares outstanding - basic and diluted 17,358 16,442 13,106
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends per share $ - $ - $ 0.115
See Notes to Consolidated Financial Statements.
3
Consolidated Statements of Cash Flows
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
(In thousands)
Years Ended December 31, 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $ (488,947) $ (63,713) $ 18,639
Deduct income from discontinued operation - - (396)
Deduct gain on sale of discontinued operation - - (15,973)
- --------------------------------------------------------------------------------------------------------------------------
(Loss) income from continuing operations (488,947) (63,713) 2,270
Adjustments to reconcile net income to net cash provided by
operating activities:
Gain on sale of assets (8,472) (31,845) (62,616)
Gain from merger termination fee - (2,204) -
Asset impairment charges 402,880 - -
Depreciation 79,528 70,679 32,666
Amortization 3,396 11,602 5,012
Non-cash restructuring charge 1,101 - -
Deferred taxes (7,421) (35,313) 915
Retirement benefits and other 1,902 1,803 1,556
Interest paid from restricted cash 25,781 35,711 20,121
Accrued interest income on restricted cash (238) (3,460) (1,862)
Equity loss from PCS Alliances - 1,286 12,259
Accretion of loan discount and origination fees 4,601 4,265 1,772
Changes in assets and liabilities from operations, net of
effects of acquisitions and dispositions:
Increase in accounts receivable (3,497) (388) (5,746)
Decrease (increase) in inventories and supplies 6,941 (8) (2,164)
Decrease (increase) in other current assets 1,942 (1,820) (792)
Changes in income taxes 1,983 1,790 2,400
Decrease in accounts payable (17,922) (497) (1,313)
Increase in other current liabilities 18,457 611 5,451
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing operations 22,015 (11,501) 9,929
Net cash used in discontinued operation - - (51)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 22,015 (11,501) 9,878
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (73,164) (102,872) (65,590)
Proceeds from sale of assets 31,116 60,818 3,200
Cash payment on purchase of PrimeCo VA - - (408,644)
Investments in restricted cash, net - - (69,162)
Proceeds from sale of discontinued operation - 3,500 30,343
Investments in PCS Alliances - (687) (15,292)
Cash from merged entity, net of closing costs - 2,192 -
Advances to PCS Alliances - (2,960) (62,385)
Deposit refunds (deposit) on assets - 8,000 (14,852)
Proceeds from merger termination fee, net - 2,918 -
Purchase of minority interest - (93) (10,745)
Purchase of investments and other (355) (612) (8,375)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (42,403) (29,796) (621,502)
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 36,000 50,000 544,357
Proceeds from issuance of preferred stock and warrants - - 242,523
Payoff of VA PCS Alliance long-term debt - - (118,570)
Cash dividends - - (1,501)
Payments on senior notes - - (12,727)
Additional payments under lines of credit (net) and other
debt instruments (10,976) (3,422) (23,530)
Net proceeds from exercise of stock options and stock
issuance through Employee Stock Purchase Plan 287 670 1,133
Payment of debt financing closing costs - (295) (18,622)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 25,311 46,953 613,063
- --------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 4,923 5,656 1,439
Cash and cash equivalents:
Beginning 7,293 1,637 198
- --------------------------------------------------------------------------------------------------------------------------
Ending $ 12,216 $ 7,293 $ 1,637
==========================================================================================================================
See Notes to Consolidated Financial Statements.
4
Consolidated Statements of Shareholders' Equity (Deficit)
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
Retained Accumulated Total
Earnings Other Shareholders'
Common Stock Stock (Accumulated Comprehensive Equity
-------------------
(In thousands) Shares Amount Warrants Deficit) Income (Loss) (Deficit)
-----------------------------------------------------------------------------
Balance, January 1, 2000 13,060 $ 43,943 $ - $ 50,385 $ 21,856 $ 116,184
Comprehensive income:
Net income 18,639
Unrealized loss on securities available for sale,
net of $8,529 of deferred tax benefit (13,398)
Comprehensive income 5,241
Tax benefit related to stock options 196 196
Dividends on common shares (1,501) (1,501)
Dividends on preferred shares (8,168) (8,168)
Issuance of warrants 22,874 22,874
Stock options exercised, net 70 1,095 1,095
Shares issued through Employee Stock Purchase Plan 2 38 38
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 13,132 45,272 22,874 59,355 8,458 135,959
Comprehensive loss:
Net loss (63,713)
Cash flow hedge:
Cumulative effect on the adoption of SFAS No. 133,
net of $2,489 of deferred tax benefit (3,900)
Derivative losses, net of $2,608 of deferred
tax benefit (4,105)
Unrealized loss on securities available for
sale, net of $124 of deferred tax benefit (195)
Realization of gain due to sale of equity
interest in Illuminet Holdings, Inc., net of
$5,484 deferred tax obligation (8,458)
Comprehensive loss (80,371)
Dividends on preferred shares (18,843) (18,843)
Common stock issuance pursuant to R&B Merger 3,704 131,376 131,376
Common stock issuance for purchase of additional 320 4,775 4,775
interest in Alliances
Stock options exercised, net 16 106 106
Shares issued through Employee Stock Purchase Plan 37 564 564
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 17,209 182,093 22,874 (23,201) (8,200) 173,566
Comprehensive loss:
Net loss (488,947)
Cash flow hedge:
Derivative losses, net of $2,687 of deferred (4,221)
tax benefit
Unrealized loss on securities available for sale (321)
Reclassification of unrealized loss to realized
loss, included in net income 509
Minimum pension liability charge (3,133)
Comprehensive loss (496,113)
Dividends on preferred shares (20,417) (20,417)
Common stock issuance (cancellation), net (2) (155) (155)
Shares issued through Employee Stock Purchase Plan 573 442 442
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 17,780 $182,380 $ 22,874 $(532,565) $(15,366) $(342,677)
==================================================================================================================================
See Notes to Consolidated Financial Statements.
5
Notes to Consolidated Financial Statements
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
Note 1. ORGANIZATION
Overview
NTELOS Inc. (debtor-in-possession, hereafter referred to as "NTELOS" or the
"Company") is an integrated communications provider that provides a broad range
of products and services to businesses, telecommunication carriers and
residential customers in Virginia and surrounding states. The Company's services
include wireless digital personal communications services ("PCS"), local and
long distance telephone services, dial-up Internet access, high-speed DSL
(high-speed Internet access), paging, and wireline and wireless cable
television.
On March 4, 2003 (the "Petition Date"), the Company and certain of its
subsidiaries (collectively, the "Debtors"), filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Eastern
District of Virginia (the "Bankruptcy Court"). By order of the Bankruptcy Court,
the Debtors' respective cases are being jointly administered under the case
number 03-32094 (the "Bankruptcy Case") for procedural purposes only. The
Bankruptcy Case was commenced in order to implement a comprehensive financial
restructuring of the Company.
In the first half of 2002, the Company took a number of restructuring steps
to improve operating results, financial condition and conserve cash on hand by
reducing its operating expenses, including a reduction in workforce, an early
retirement program, termination of certain services in selected unprofitable
locations, and curtailing or deferring certain capital expenditures. Despite the
improved operating performance resulting from these measures and continued
execution of the Company's business plan, the Company continues to require
additional cash to fund its operating expenses, debt service and capital
expenditures.
In September 2002, the Company retained UBS Warburg as its financial
advisor to assist the Company in exploring a variety of restructuring
alternatives. Thereafter, continued competition in the wireless
telecommunications sector resulted in a modification to the Company's long-term
business plan, including a reduction in wireless subscriber growth, a decrease
in average revenue per wireless subscriber, a slower improvement in subscriber
churn and slower growth in wholesale revenues. In addition, capital and lending
prospects for telecommunication companies continued to deteriorate. On November
29, 2002, the Company entered into an amendment and waiver with the lenders
under the Senior Credit Facility which restricted the amounts that the Company
could borrow and waived the Company's obligation to make certain representations
in order to submit a borrowing request. Without an extension of the waiver, the
Company did not have access to the Senior Credit Facility following January 31,
2003. During this period, the Company was actively negotiating with its
debtholders to develop a comprehensive financial restructuring plan. The Company
was unable to reach an agreement with its debtholders on an out-of-court
restructuring plan and, accordingly, on March 4, 2003, the Company filed a
petition for relief under Chapter 11 of the Bankruptcy Code.
The Company conducts its operations through a number of wholly-owned or
majority-owned subsidiaries. While it implements the proposed recapitalization,
the Company expects its subsidiaries to continue to operate in the ordinary
course of business.
Proposed Restructuring
The Bankruptcy Case was commenced in order to implement a comprehensive
financial restructuring of the Company, including the senior notes due 2010 (the
"Senior Notes"), subordinated notes due 2011 and preferred and common equity
securities. As of the date of this report, a plan of reorganization (the "Plan")
has not been submitted to the Bankruptcy Court.
6
In order to meet ongoing obligations during the reorganization process, the
Company entered into a $35 million debtor-in-possession financing facility (the
"DIP Financing Facility"), subject to Bankruptcy Court approval. On March 5,
2003, the Bankruptcy Court granted access to up to $10 million of the DIP
Financing Facility, with access to the full $35 million subject to final
Bankruptcy Court approval, certain state regulatory approvals and the banks'
receiving satisfactory assurances regarding the senior noteholders' proposed $75
million investment in the Company upon emergence from bankruptcy. On March 24,
2003, the Bankruptcy Court entered a final order authorizing the Company to
access up to $35 million under the DIP Financing Facility and, as of April 11,
2003, the Company satisfied all other conditions to full access to the DIP
Financing Facility.
The Company anticipates that the Plan will be funded by two sources of capital:
(i) an equity investment made by certain holders of Senior Notes of an aggregate
of $75 million in exchange for new 9% convertible notes ("New Notes") of the
reorganized company and (ii) a credit facility which permits the Company to
continue to have access to its current $225 million of outstanding term loans
with a $36 million revolver commitment ("Exit Financing Facility"). This Exit
Financing Facility also provides that the term loans and any new borrowings
under the revolver will be at current rates and existing maturities.
On April 10, 2003, the Company entered into a Plan Support Agreement (the "Plan
Support Agreement") with a majority of the lenders under its Senior Credit
Facility. The Plan Support Agreement provides that the lenders will agree to
support a "Conforming Plan," which must include the following: (i) financing
upon emergence from bankruptcy on agreed terms, (ii) cancellation of, or
conversion into equity of the reorganized company upon emergence from bankruptcy
of, substantially all of the Company's outstanding debt and equity securities,
(iii) outstanding indebtedness on the effective date of the Plan consisting of
only certain hedge agreements, Exit Financing Facility, New Notes, existing
government loans and certain capital leases, (iv) consummation of the sale of
New Notes on the effective date of the Plan and (v) repayment of the DIP
Financing Facility and the $36 million outstanding under the revolver.
On April 10, 2003, the Company also entered into a Subscription Agreement with
certain holders of Senior Notes for the sale of $75 million aggregate principal
amount of New Notes. The Plan Support Agreement and Subscription Agreement are
subject to, among other things, confirmation of a Conforming Plan.
The Plan Support Agreement provides that a Conforming Plan and accompanying
disclosure statement must be filed with the Bankruptcy Court prior to May 31,
2003 and that a disclosure statement, reasonably acceptable to the lenders, must
be approved by the Bankruptcy Court no later than August 15, 2003. In addition,
the Plan Support Agreement obligates the Company to have filed a Conforming
Plan, solicited votes and conducted a confirmation hearing prior to September
30, 2003.
While a Plan has not been submitted, the Company anticipates that the Plan will
constitute a Conforming Plan, with the conversion of existing debt securities
into substantially all of the common ownership of the reorganized Company. The
Company also anticipates that the holders of common and preferred stock of the
Company will be entitled to little or no recovery. Accordingly, the Company
anticipates that all, or substantially all, of the value of all investments in
the Company's common and preferred stock will be lost.
Bankruptcy Proceeding
In conjunction with the commencement of the Bankruptcy Case, the Debtors sought
and obtained several first day orders from the Bankruptcy Court which were
intended to enable the Debtors to operate in the normal course of business
during the Bankruptcy Case. The most significant of these orders (i) authorize
access to up to $10 million of its $35 million debtor-in-possession financing
facility (the "DIP Financing Facility") with Wachovia Bank, (ii)
7
permit the Debtors to operate their consolidated cash management system during
the Bankruptcy Case in substantially the same manner as it was operated prior to
the commencement of the Bankruptcy Case, (iii) authorize payment of pre-petition
employee salaries, wages, and benefits and reimbursement of pre-petition
employee business expenses, (iv) authorize payment of pre-petition sales,
payroll, and use taxes owed by the Debtors, and (iv) authorize payment of
certain pre-petition obligations to customers.
On March 5, 2003, the Bankruptcy Court entered an interim order authorizing
the Debtors to enter into the DIP Financing Facility, and to grant first
priority mortgages, security interests, liens (including priming liens), and
super priority claims on substantially all of the assets of the Debtors to
secure the DIP Financing Facility. At first day hearings, the Court entered
orders that, among other things, granted authority to continue to pay employee
salaries, wages and benefits, and to honor warranty and service obligations to
customers. On March 24, 2003, the Bankruptcy Court entered a final order
approving the DIP Financing Facility and authorizing the Debtors to utilize up
to $35 million under the DIP Financing Facility. The full $35 million DIP
commitment was subject to final Court approval, certain state regulatory
approvals and the lenders' receiving satisfactory assurances regarding the
proposed $75 million investment in the Company by certain holders of Senior
Notes upon emergence from bankruptcy. Subsequent to March 24, 2003, the Company
satisfied all other conditions to obtain full access to the DIP Financing
Facility. The DIP Financing Facility is available to meet ongoing financial
obligations in connection with the Company's regular business operations,
including obligations to vendors, customers and employees during the Bankruptcy
Case.
The Debtors are currently operating their businesses as
debtors-in-possession under the Bankruptcy Code. Pursuant to the Bankruptcy
Code, pre-petition obligations of the Debtors, including obligations under debt
instruments, generally may not be enforced against the Debtors, and any actions
to collect pre-petition indebtedness are automatically stayed, unless the stay
is lifted by the Bankruptcy Court. The pre-petition obligations of the Debtors
are subject to settlement under a plan of reorganization. In addition, as
debtors-in-possession, the Debtors have the right, subject to the Bankruptcy
Court approval and certain other limitations, to assume or reject executory
contracts and unexpired leases. In this context, "assumption" means that the
Debtors agree to perform their obligations and cure all existing defaults under
the contract or lease, and "rejection" means that the Debtors are relieved from
their obligations to perform further under the contract or lease, but are
subject to a claim for damages for the breach thereof. Any damages resulting
from rejection of executory contracts and unexpired leases will be treated as
general unsecured claims in the Bankruptcy Case unless such claims were secured
prior to the Petition Date. The Debtors are in the process of reviewing their
executory contracts and unexpired leases to determine which, if any, they will
reject. The Debtors cannot presently determine or reasonably estimate the
ultimate liability that may result from rejecting contracts or leases or from
the filing of claims for any rejected contracts or leases, and no provisions
have yet been made for these items. The amount of the claims to be filed by the
creditors could be significantly different than the amount of the liabilities
recorded by the Debtors.
Since the Petition Date, the Debtors have conducted business in the
ordinary course. As noted above, early in 2002 the Company completed an
operational restructuring (see Note 19) and, accordingly, does not contemplate
further operational restructuring at this time. After developing the Plan, the
Debtors will seek the requisite acceptance of the Plan by impaired creditors and
equity holders, if it is determined that equity holders will receive a
distribution under the Plan, and confirmation of the Plan by the Bankruptcy
Court, all in accordance with the applicable provisions of the Bankruptcy Code.
During the pendency of the Bankruptcy Case, the Debtors may, with the Bankruptcy
Court approval, sell assets and settle liabilities, including for amounts other
than those reflected in the financial statements. The administrative and
reorganization expenses resulting from the Bankruptcy Case will unfavorably
affect the Debtor's results of operations. Future results of operations may also
be adversely affected by other factors related to the Bankruptcy Case. No
assurance can be given that the Debtor's creditors will support the proposed
Plan, or that the Plan will be approved by the Bankruptcy Court. Additionally,
there can be no assurance of the level of recovery to which the Debtors' secured
and unsecured creditors will receive.
8
Basis of Presentation
Our consolidated financial statements have been prepared on a going concern
basis of accounting in accordance with accounting principles generally accepted
in the United States. The going concern basis of presentation assumes that the
Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities in the normal course of
business. Because of the Bankruptcy Case and the circumstances leading to the
filing thereof, there is substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to realize the carrying value
of its assets and discharge its liabilities is subject to substantial
uncertainty. The Company's ability to continue as a going concern depends upon,
among other things, the Company's ability to comply with the terms of the DIP
Financing Facility, confirmation of a plan of reorganization, availability of
exit financing from existing lenders under the Senior Credit Facility, receipt
of additional funding through the issuance of an aggregate of $75 million of New
Notes, and the Company's ability to generate sufficient cash flows from
operations. Our financial statements do not reflect adjustments for possible
future effects on the recoverability of assets or the amounts and
classifications of liabilities that may result from the outcome of the
Bankruptcy Case.
Our consolidated financial statements do not reflect adjustments that may
occur in accordance with the AICPA Statement of Position 90-07 ("Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code") ("SOP
90-07"), which the Company will adopt for its financial reporting in periods
ending after emergence from bankruptcy, assuming the Company will continue as a
going concern. In the Bankruptcy Case, substantially all unsecured liabilities
as of the Petition Date are subject to settlement under a plan of reorganization
to be voted on by creditors and equity holders, if it is determined that equity
holders will receive a distribution under the Plan, and approved by the
Bankruptcy Court. It is expected that the proposed Plan will result in "Fresh
Start" reporting pursuant to SOP 90-7. Under Fresh Start reporting, the value of
the reorganized Company would be determined based on the amount a willing buyer
would pay for the Company's assets upon confirmation of the Plan by the
Bankruptcy Court. This value would be allocated to specific tangible and
identifiable intangible assets. Liabilities existing as of the effective date of
the plan of reorganization would be stated at the present value of amounts to be
paid based on current interest rates. For financial reporting purposes for
periods ending after the Bankruptcy filing, those liabilities and obligations
whose treatment and satisfaction is dependent on the outcome of the Bankruptcy
Case will be segregated and classified as Liabilities Subject to Compromise in
the consolidated balance sheet under SOP 90-07.
Generally, all actions to enforce or otherwise effect repayment of
pre-petition liabilities as well as all pending litigation against the Debtors
are stayed while the Debtors continue their business operations as
debtors-in-possession. The ultimate amount of and settlement terms for such
liabilities are subject to an approved plan of reorganization and, accordingly,
are not presently determinable. Pursuant to SOP 90-07, professional fees
associated with the Bankruptcy Case will be expensed as incurred and reported as
reorganization costs. Also, interest expense and preferred dividends will be
reported only to the extent that they will be paid during the Bankruptcy Case or
that it is probable that they will be an allowed claim.
Note 2. Asset Impairment Charges
The Company adopted Statement of Financial Accounting Standard No. 142,
Goodwill and Other Intangible Assets ("SFAS No. 142"), on January 1, 2002 (see
Note 3, "Significant Accounting Policies" for additional discussions of this
standard). The Company completed the transitional impairment testing as of
January 1, 2002 for goodwill and the assembled workforce and determined that no
impairment existed as of that date.
During the first quarter of 2003, the Company completed the 2002 annual
SFAS No. 142 impairment testing of all goodwill and indefinite lived intangible
assets as of October 1, 2002. The Company engaged an independent appraisal firm
to perform valuation work related to the PCS radio spectrum licenses, goodwill
and the assembled workforce intangible asset within the wireless segment. The
Company performed testing of wireless goodwill and the wireless assembled
workforce intangible asset utilizing a combination of a discounted cash flow
method and other market valuation methods. The Company's testing of PCS radio
spectrum licenses and goodwill in the other
9
reporting units utilized a discounted cash flow method. The discounted cash flow
method involved long-term cash flow projections using numerous assumptions and
estimates related to these projections. In performing this testing, the Company
revised its business and financial forecasts to reflect the current and
projected results (see Note 1). During this exercise, revisions to certain of
the Company's short-term and long-term assumptions had a significant impact on
the Company's long-term cash flows. The level of competition in pricing and plan
offerings, customer churn rate and other market condition variables have
negatively affected the Company and the industry sector's financial projections.
Additionally, market valuations have continued to decline. Based on this
testing, the Company has concluded that the wireless radio spectrum licenses
required an impairment adjustment of $313.7 million. Additionally, in connection
with requirements under SFAS No. 142, the Company determined that there was no
intrinsic value of the goodwill and assembled workforce asset and recorded a
$24.8 million impairment charge accordingly.
In addition to the impairment determined in the wireless PCS segment, the
Company's network segment, which contained $27.6 million of goodwill, was found
to be impaired as measured under the provisions of SFAS No. 142. The network
segment experienced unfavorable pricing adjustments throughout 2002 that
resulted in the lowering of cash flow projections. As noted above, the Company
utilized a discounted cash flow model in determining the existence of impairment
in this segment. From these updated calculations, the segment fair value was
determined to be below the carrying value. Upon completing the "memo based"
purchase price allocation as required under step 2 of SFAS No. 142, the Company
determined the goodwill impairment valuation adjustment to be $20.9 million.
The Company's telephone segment, which has $65.5 million of goodwill from
the R&B Communications merger (Note 6), contains two incumbent local exchange
carrier ("ILEC") businesses which are managed as one operating segment as they
are operationally integrated and management reviews results and allocates
resources from a consolidated perspective. Therefore, the SFAS No. 142 testing
is required to be performed on the total segment (similar to the Company's
network and ISP businesses). Based on this testing, the Company determined that
there was no impairment of this goodwill. Had the SFAS No. 142 testing been
performed on the R&B ILEC as a stand alone entity, this goodwill would have been
impaired and an impairment charge would have been required.
In addition to the testing under SFAS No. 142, the Company determined that
impairment indicators were present in all of its operating segments under the
provisions of SFAS No. 144 (see Note 3, "Significant Accounting Policies" for
additional discussions of this standard). Based on the results of the Company's
SFAS No. 144 testing, certain of the wireless PCS segment assets were found to
be impaired. Accordingly, the Company determined the fair market value of these
assets utilizing the services of the third party appraisal firm. Based on this
determination, the Company found the property, plant and equipment to be
impaired by $16.7 million, primarily related to cell site and other network
plant and equipment. Other finite lived intangible assets consist of the
customer list and tower franchise rights originating from the 2000 acquisition
of PrimeCo VA (Note 6). These assets had carrying values of $9.7 million and
$2.1 million, respectively, and were being amortized over useful lives of 5
years and 10 years, respectively. In light of current market conditions, the
Company determined that the market for these intangible assets had significantly
deteriorated and thus, these assets had only marginal or no marketable value.
Accordingly, the Company recorded an additional $11.8 million impairment.
The Company's wireless cable business contains goodwill and licenses of
$3.7 million and $12.8 million, respectively, and property, plant and equipment
totaling $1.4 million. The current use of the licenses and long lived assets is
primarily for one-way video transmission. This application does not produce
sufficient cash flow to recover the carrying value of these assets under SFAS
No. 142 and SFAS No. 144. Management has been testing a two-way high speed
Internet application which, if deployed, is expected to produce cash flows which
recover the carrying value of the goodwill, licenses and property, plant and
equipment. Based on the progress of this new application over the last year,
certain required FCC approvals over the use of the licensed spectrum which are
expected but remain pending at this time, and other factors relating to capital
funding and forecasting uncertainties, the Company has not considered this
application in performing the impairment testing. Accordingly, the Company has
recorded a write-down of the goodwill, licenses and property, plant and
equipment of $3.7 million, $10.3 million and $1.1 million, respectively.
10
The Company reviewed the results of the October 1, 2002 testing as of
December 31, 2002 and concluded that no material changes would have been made to
the underlying assumptions that would have resulted in materially different test
results from those performed as of October 1, 2002.
A summary of the asset impairment charges recorded in the fourth quarter of
2002 and discussed above follows:
Historical Asset
Carrying Impairment
(In thousands) Value Fair value Charges
----------------------------------------------------------------------------------------------------------------
Wireless PCS
Property, Plant and Equipment -VA East Market $ 104,808 $ 88,140 $ 16,668
Goodwill and Assembled Workforce 24,836 - 24,836
Licenses 428,066 114,389 313,677
Other Intangibles 11,769 - 11,769
-------------------------------------------------
Sub-total 569,479 202,529 366,950
Network Segment Goodwill 25,582 4,682 20,900
Wireless Cable
Property, Plant and Equipment 1,383 294 1,089
Goodwill 3,654 - 3,654
MMDS Licenses 12,787 2,500 10,287
-------------------------------------------------
Sub-total 17,824 2,794 15,030
================================================================================================================
Totals $ 612,885 $ 210,005 $ 402,880
================================================================================================================
Note that the table above indicates $104.8 million historical carrying
value of wireless PCS property, plant and equipment. This only represents those
assets used in the VA East market (formerly PrimeCo VA - Note 6) out of the
total $249.5 million of wireless PCS property, plant and equipment. The
remaining assets in the Company's VA West and WV markets were not required to be
adjusted to fair value based on the results of the SFAS No. 144 tests of
recoverability.
After adjustments for the aforementioned asset impairment charges, the cost
and net book value of the remaining goodwill and licenses with indefinite lives
at December 31, 2002 followed by the totals by reportable unit are indicated in
the following table. Additionally, the cost and net bank value of goodwill and
licenses with indefinite lives at December 31, 2001 are also reflected:
2002 2001
--------------------------------- -------------------------------
(In thousands) Cost Net Book Value Cost Net Book Value
- -----------------------------------------------------------------------------------------------------------------------
Goodwill $ 93,540 $ 86,016 $ 147,116 $ 135,634
PCS Radio Spectrum Licenses In Service 107,386 107,234 446,428 423,181
- -----------------------------------------------------------------------------------------------------------------------
Total Indefinite Lived Assets $ 200,926 $ 193,250 $ 593,544 $ 558,815
=======================================================================================================================
Goodwill and Indefinite Lived Assets by Reporting
Unit
- ----------------------------------------------------
Wireless PCS $ 107,386 $ 107,234 $ 472,206 $ 447,108
Telephone 68,472 65,463 68,472 65,463
CLEC - - - -
Network 4,683 4,683 27,000 25,813
Internet 12,665 9,833 12,621 9,789
Other
Wireline Cable 7,720 6,037 7,720 6,037
Wireless Cable - - 4,261 3,654
NAS - - 1,264 951
- -----------------------------------------------------------------------------------------------------------------------
Total Indefinite Lived Assets $ 200,926 $ 193,250 $ 593,544 $ 558,815
=======================================================================================================================
11
Note 3. Significant Accounting Policies
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company, its wholly-owned subsidiaries and those limited
liability corporations where the Company, as managing member, exercises control.
All significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION: The Company's revenue recognition policy is to recognize
revenues when services are rendered or when products are delivered, installed
and functional, as applicable. Certain services of the Company require payment
in advance of service performance. In such cases, the Company records a service
liability at the time of billing and subsequently recognizes revenue over the
service period.
With respect to the Company's wireline and wireless businesses, the Company
earns revenue by providing access to and usage of its networks. Local service
and airtime revenues are recognized as services are provided. Wholesale revenues
are earned by providing switch access and other switching services, including
wireless roamer management, to other carriers. Wholesale prices are based on
actual annual fixed and variable costs or are set by the applicable tariffs.
Other revenues for equipment sales are recognized at the point of sale. PCS
handset equipment is sold at prices below cost. Prices are based on the service
contract period. The Company recognizes the entire cost of the handsets at the
point of sale, rather than deferring such costs over the service contract
period.
The Company charges activation, installation and set-up related fees on
several services. In the fourth quarter of 2000, the Company adopted Securities
and Exchange Commission ("SEC") "Staff Accounting Bulletin 101: Revenue
Recognition in Financial Statements" ("SAB 101"). This interpretative document
requires the Company to defer these types of revenues until the Company performs
the underlying service. The deferral period is determined by the average length
of service period (24 to 36 months, depending on the applicable service). SAB
101 also allows the deferral of the related direct costs incurred up to, but not
in excess of, the revenue. The impact of adopting SAB 101 was not material.
CASH AND CASH EQUIVALENTS: For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments with an original maturity of three
months or less to be cash equivalents. The Company places its temporary cash
investments with high credit quality financial institutions. At times, such
investments may be in excess of the FDIC insurance limit.
TRADE ACCOUNTS RECEIVABLE: The Company sells its services to residential and
commercial end-users and to other communication carriers primarily in Virginia
and West Virginia. The carrying amount of the Company's trade accounts
receivable approximates their fair value. The Company executes credit and
collection policies to ensure collection of trade receivables but generally does
not require collateral on any of its sales. The Company maintains an allowance
for doubtful accounts, which management believes adequately covers all
anticipated losses with respect to trade receivables. Actual credit losses could
differ from such estimates. The Company nets bad debt expenses against
applicable operating revenues.
SECURITIES AND INVESTMENTS: The Company has investments in debt and equity
securities and partnerships. Management determines the appropriate
classification of securities at the date of purchase and continually thereafter.
The classification of those securities and the related accounting policies are
as follows:
AVAILABLE FOR SALE SECURITIES: Securities classified as available for sale
are primarily traded on a national exchange and are those securities that the
Company intends to hold for an indefinite period of time but not necessarily
to maturity. Any decision to sell a security classified as available for sale
would be based on various factors including changes in market conditions,
liquidity needs and other similar factors. Securities available for sale are
stated at fair value and unrealized holding gains and losses, net of the
related deferred tax effect, are reported as a
12
separate component of shareholders' equity. Realized gains and losses and
declines in value judged to be other-than-temporary on available-for-sale
securities are determined on a specific identification basis.
EQUITY METHOD INVESTMENTS: These investments consist of partnership and
corporate investments where the Company's ownership is 20% or more, except
where such investments meet the requirements for consolidation. Under the
equity method, the Company's share in earnings or losses of these companies
is included in earnings.
INVESTMENTS CARRIED AT COST: These are investments in which the Company does
not have significant ownership and for which there is no ready market.
Information regarding these and all other investments is reviewed
continuously for evidence of impairment in value.
Interest on debt securities is recognized in income as accrued and dividends on
marketable equity securities are recognized in income on the record date.
Realized gains or losses are determined on the basis of specific securities sold
and are included in earnings.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is stated at cost.
Accumulated depreciation is charged with the cost of property retired, plus
removal cost, less salvage. Depreciation is determined under the straight-line
method. Buildings are depreciated over a 50-year life. Network plant and
equipment are depreciated over various lives from 3 to 50 years, with an average
life of approximately 9 years. Furniture, fixtures and other equipment are
depreciated over various lives from 5 to 24 years.
Depreciation provisions were approximately 13.5%, 15.4%, and 11.9% of
average depreciable assets for the years 2002, 2001, and 2000, respectively.
In June 2001, the FASB approved SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS No. 143"). SFAS No. 143 establishes accounting
standards for recognition and measurement of a liability for an asset retirement
obligation and the associated asset retirement cost. The fair value of a
liability for an asset retirement obligation is to be recognized in the period
in which it is incurred if a reasonable estimate can be made. The associated
retirement costs are capitalized and included as part of the carrying value of
the long-lived asset and amortized over the useful life of the asset. SFAS No.
143 was effective for the Company beginning on January 1, 2003. The Company has
performed a preliminary assessment of the applicability and materiality of the
adoption of this standard. The Company has determined that this is primarily
applicable to tower sites within the wireless segment and has determined that
the adoption of the standard could be material and may result in capitalizing
costs and offsetting asset retirement obligations estimated of up to $12
million.
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment
or Disposal of Long-Lived Assets ("SFAS No. 144"), that addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This pronouncement establishes a single accounting model, based on the framework
established in SFAS No. 121, for the recognition and measurement of the
impairment of long-lived assets to be held and used or to be disposed of by
sale. The Company adopted SFAS No. 144 at the beginning of fiscal 2002. The
Company has completed its fixed asset testing under this standard as of December
31, 2002. From this testing, the Company determined that impairment existed with
certain of the wireless PCS segment assets. Accordingly, an asset impairment
charge was recorded which totaled $28.5 million, $16.7 million of which
pertained to property, plant and equipment and $11.8 million of which related to
intangible assets with finite lives. In addition to this, the Company reported a
SFAS No. 144 $1.1 million and $10.3 million asset impairment charge of property,
plant and equipment and finite lived radio spectrum licenses, respectively, in
the wireless cable business (see Note 2).
Radio spectrum licenses for areas where the licenses are being used in
operations had historically been classified in the "property, plant and
equipment" section of the balance sheet. In order to better conform with
industry practice, these assets, along with their related accumulated
amortization, have been reclassified to the "other assets" section of the
balance sheet for all periods presented.
INVENTORIES AND SUPPLIES: The Company's inventories and supplies consist
primarily of items held for resale such as PCS handsets, pagers, wireline
business phones and accessories. The Company values its inventory at the lower
of cost or market. Inventory cost is computed on a currently adjusted standard
cost basis (which approximates actual cost
13
on a first-in, first-out basis). The market value is determined by reviewing
current replacement cost, marketability, and obsolescence.
ACCOUNTING FOR INTANGIBLE ASSETS: Beginning January 1, 2002, the Company
accounts for its intangible assets under SFAS No. 142, Goodwill and Other
Intangible Assets. Under these new rules, goodwill, assembled workforce
intangible asset and other intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment tests in
accordance with this Statement. Other intangible assets will continue to be
amortized over their useful lives. Accordingly, the Company ceased amortization
of goodwill, assembled workforce and PCS radio spectrum licenses on January 1,
2002. Based on SFAS No. 142 annual testing performed on values as of October 1,
2002, the Company reported asset impairment charges totaling $363.1 million (see
Note 2).
Amortization of indefinite lived intangible assets was $20.4 million ($12.6
million after tax) for 2001 and $7.4 million ($4.6 million after tax) for 2000.
Had SFAS No. 142 been in effect for 2000 and 2001, no amortization of these
intangible assets would have been recorded. Therefore, the income (loss)
applicable to common shares for the fiscal years 2001 and 2000 adjusted for the
impact of SFAS No. 142 was a $70.0 million ($4.25 per common share) loss in 2001
and income of $15.1 million ($1.15 per common share) in 2000.
The Company wrote off its wireless segment tower franchise rights and
customer list in the fourth quarter of 2002, recording an impairment charge of
$11.8 million. Amortization charges recorded in 2002 related to the tower
franchise rights and the customer list prior to this write off totaled $4.1
million. The Company continued to amortize the remaining intangible assets
related to an employment agreement, non-compete agreements and customer lists
from past acquisitions which have a book value of $1.9 million as of December
31, 2002. For those intangible assets that will continue to be amortized, the
expected amortization is as follows: $.2 million in 2003, $.1 million in 2004,
$.1 million in 2005, $.1 million in 2006, $.1 million in 2007 and $1.1 million
thereafter. See discussions regarding the results of SFAS No. 142 testing in
Note 2 above.
ADVERTISING COSTS: The Company expenses advertising costs and marketing
production costs as incurred. Included in customer operations is $13.4 million,
$13.1 million and $7.1 million of advertising and marketing production expenses
for the years ended December 31, 2002, 2001 and 2000, respectively.
PENSION BENEFITS: The Company sponsors a non-contributory defined benefit
pension plan covering all employees who meet eligibility requirements. Pension
benefits vest after five years of service and are based on years of service and
average final compensation subject to certain reductions if the employee retires
before reaching age 62. The Company's funding policy has been to contribute to
the plan based on applicable regulation requirements. Contributions are intended
to provide not only for benefits based on service to date, but also for those
expected to be earned in the future.
The Company also sponsors a contributory defined contribution plan
under Internal Revenue Code Section 401(k) for substantially all employees.
Until April 2002, the Company contributed 60% of each participant's annual
contribution for contributions up to 6% of each participant's annual
compensation. The employee elects the type of investment fund from the
equity, bond and annuity alternatives offered by the plan.
RETIREMENT BENEFITS OTHER THAN PENSIONS: The Company provides certain health
care benefits for all retired employees that meet eligibility requirements. The
Company's share of the estimated costs of benefits that will be paid after
retirement is generally being accrued by charges to expense over the eligible
employee's service periods to the dates they are fully eligible for benefits.
INCOME TAXES: Deferred income taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
STOCK-BASED COMPENSATION: The Company accounts for stock-based employee
compensation plans under Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations, and
follows the disclosure only provisions of SFAS No. 123, Accounting for
Stock-Based Compensation.
14
At December 31, 2002, the Company has elected to apply the disclosure only
provisions of SFAS No. 123 and the revised disclosure requirements of SFAS No.
148.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation -Transition and Disclosure, an Amendment of FASB Statement No. 123.
SFAS No. 148 provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation prescribed by SFAS No. 123. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require disclosure in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. As the
Company has elected to continue accounting for stock-based employee compensation
using the intrinsic value method under APB Opinion No. 25, the Company has only
adopted the revised disclosure requirements of SFAS No. 148 as of December 31,
2002.
Since the Company applies the disclosure only provision as noted above, no
compensation cost has been recorded. Had compensation cost been recorded based
on the fair value of awards at the grant date, the pro forma impact on the
Company's (loss) income applicable to common shares and (loss) income per common
share - basic and diluted is as follows:
2002 2001 2000
---------------------------------------------------------------------------------------------
(Loss) income applicable to common shares, as
reported $(509,364) $(82,556) $10,471
Deduct: Total stock-based employee compensation
expense determined under fair value based
method, net of tax 1,708 2,052 1,294
---------------------------------------------------------------------------------------------
Pro forma net (loss) income $(511,072) $(84,608) $ 9,177
=============================================================================================
(Loss) earnings per common share:
Basic and diluted - as reported $ (29.34) $ (5.02) $ 0.80
Basic and diluted - pro forma $ (29.44) $ (5.15) $ 0.70
The pro forma effects of applying SFAS No. 123 are not indicative of future
amounts since, among other reasons, the requirements of the SFAS No. 123 have
been applied only to options granted after December 31, 1994.
The fair value of each grant is estimated at the grant date using the
Black-Scholes option-pricing model with the following assumptions: dividend rate
of 0% for 2002, 0% for 2001 and 0% to 1.44% for 2000; risk-free interest rates
of 3.04% to 5.05% for 2002, 4.26% to 5.24% for 2001 and 5.41% to 6.74% for 2000;
expected lives of 6 years for 2002, 2001 and 2000; and, price volatility of
65.7% to 92.4% for 2002, 32.7% to 50.5% for 2001 and 29.6% to 33.4% for 2000.
EARNINGS (LOSS) PER COMMON SHARE: All earnings (loss) per share amounts are
calculated in accordance with SFAS No. 128. Basic and diluted earnings (loss)
per share is presented for earnings (loss) from continuing operations, from
discontinued operations and for income (loss) available to common shares. The
numerator of the earnings (loss) from continuing operations per share
calculation, for both basic and diluted, is income (loss) from continuing
operations less dividend requirements on preferred stock. For basic earnings
(loss) per common share, the denominator is the weighted average number of
common shares outstanding during the year. For diluted earnings (loss) per
common share, the denominator is calculated using the weighted average number of
common and dilutive common equivalent shares outstanding during the period.
Common equivalent shares consist of the incremental common shares issuable upon
the exercise of stock options and warrants (using the treasury stock method),
and the incremental common shares issuable upon the conversion of the
convertible preferred stock (using the if-converted method). Common equivalent
shares are excluded from the calculation if their effect is anti-dilutive. In
the case of a loss from continuing operations, net of preferred dividends, the
denominator for the diluted per common share calculation is average basic shares
outstanding, as using average diluted shares outstanding would result in an
antidilutive effect. See Note 16 for calculations.
FAIR VALUE OF FINANCIAL INSTRUMENTS: SFAS No. 107, Disclosure About Fair Value
of Financial Instruments, requires certain disclosures regarding the fair value
of financial instruments. Cash and cash equivalents, accounts receivable,
accounts payable, accrued liabilities and amounts due to and from affiliates are
reflected in the consolidated financial statements at fair value because of the
short-term maturity of these instruments. The fair value of
15
other financial instruments are based on quoted market prices or discounted cash
flows based on current market conditions.
Interest rate swap contracts are utilized by the Company to manage interest
rate risks. The differential to be paid or received is accrued as interest rates
change and is recognized over the life of the agreements as an adjustment to
interest expense. If we terminate an agreement, the gain or loss is recorded as
an adjustment to the basis of the underlying liability and is amortized over the
remaining original life of the agreement. The Company does not hold or issue
interest rate swap agreements for trading purposes.
In June 1998, the FASB issued SFAS No. 133, as amended by SFAS 138,
Accounting for Derivative Instruments and Hedging Activities. SFAS Nos. 133 and
138 require all derivatives to be measured at fair value and recognized as
either assets or liabilities on the Company's balance sheet. Changes in the fair
values of derivative instruments will be recognized in either earnings or
comprehensive income, depending on the designated use and effectiveness of the
instruments. The Company adopted this standard on January 1, 2001. Upon adoption
of SFAS No. 133, the Company reported the cumulative effect of adoption of $3.9
million reduction in other comprehensive income, net of $2.5 million deferred
tax benefit. For the year ended December 31, 2002, the Company reported
derivative losses of $4.2 million, net of $2.7 million deferred tax benefit. For
the year ended December 31, 2001, the Company reported derivative losses of $4.1
million, net of $2.6 million deferred tax benefit. The related $20.0 million
liability is classified in current liabilities due to defaults under the debt
relating to the interest rate swap agreements (see Note 11).
FINANCIAL STATEMENT CLASSIFICATIONS: Certain amounts on the prior year financial
statements have been reclassified, with no effect on net income, to conform to
classifications adopted in 2002.
OTHER NEW ACCOUNTING PRONOUNCEMENTS: In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146
requires that a liability associated with an exit or disposal activity be
recognized at its fair value when the liability has been incurred, and
supercedes EITF Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity. Under EITF Issue No.
94-3, certain exit costs were accrued upon management's commitment to an exit
plan, which was generally before an actual liability had been incurred. The
Company adopted SFAS No. 146 on January 1, 2003. A restructuring charge was
reported during the first, second and fourth quarters of 2002 for $4.3 million
relating to severance costs and pension curtailment costs for employees affected
by the reduction in force, lease termination obligations associated with the
exit of certain facilities and financial restructuring legal and advisor costs.
Had the Company reported these charges under SFAS No. 146, the timing of
recognition during 2002 would have been impacted as the related liabilities
would have been recognized when incurred.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability for the fair
value of an obligation assumed under a guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and annual financial
statements about the obligations associated with guarantees issued. The
recognition provisions of FIN 45 are effective for guarantees issued after
December 31, 2002, while the disclosure requirements were effective for
financial statements for periods ending after December 15, 2002. At December 31,
2002, the Company had not entered into any material arrangement that would be
subject to the disclosure requirements of FIN 45. The Company does not believe
that the adoption of FIN 45 will have a material impact on its consolidated
financial statements.
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities", which clarifies the application
of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. Certain disclosure requirements of FIN 46 are
effective for financial statements of interim or annual periods issued after
January 31, 2003. FIN 46 applies immediately to variable interest entities
created, or in which an enterprise obtains an interest, after January 31, 2003.
For variable interest entities in which an enterprise holds a variable interest
that it acquired before February 1, 2003, FIN 46 applies to interim or annual
periods beginning after June 15, 2003. The Company is in the process of
evaluating the impact of FIN 46 on its consolidated financial statements.
16
Note 4. Disclosures About Segments of an Enterprise and Related Information
The Company manages its business segments with separable management focus and
infrastructures.
Telephone: The Company has two local telephone businesses subject to the
regulations of the State Corporation Commission of Virginia. The Company has
owned one of these for over 100 years and the other was added in early 2001 as
part of the merger with R&B Communications, Inc. ("R&B") (Note 6). These
businesses are incumbent local exchange carriers ("ILEC's") for several areas in
western Virginia, are fully integrated and are managed as one consolidated
operation. Principal products offered by this segment are local service, which
includes advanced calling features, network access, long distance toll and
directory advertising.
Network: In addition to the ILEC services, the Company directly or indirectly
owns 1,800 miles of fiber optic network and provides transport services for long
distance, Internet and private network services. The addition of R&B added 200
miles of fiber. Also, the Company added over 300 new route miles of fiber during
the second half of 2001, connecting many key cities in which the Company sells
products and services. The Company's network is connected and marketed through
Valley Network Partnership ("ValleyNet"), a partnership of three nonaffiliated
communications companies that have interconnected their networks to a 912
route-mile, nonswitched, fiber optic network. The ValleyNet network is connected
to and marketed with other adjacent fiber networks creating approximately 11,000
route-miles of connected fiber optic network serving ten states.
CLEC: The Company began offering CLEC service in 1998. Through one of its wholly
owned subsidiaries certified in Virginia, West Virginia and Tennessee, it
provided CLEC service in four markets throughout 1999 and commenced offering
CLEC services in four additional markets late in 1999. In 2001, the Company
further expanded its CLEC operation by increasing the coverage area within two
existing markets and adding six additional markets in western Virginia and West
Virginia.
Internet: The Company provides Internet access services through a local presence
in 60 markets in Virginia, West Virginia, Tennessee and North Carolina. Through
internal growth and acquisition, the Company has significantly expanded its
Internet Service Provider ("ISP") business and customer base over the last four
years. The Company offers high-speed data services, such as dedicated service
and Digital Subscriber Line ("DSL") in an increasing number of these markets
within this region. In 2001, the Company began offering residential DSL service
in twenty-four of its markets through line sharing, where the Company is not
required to lease a separate line from the incumbent provider but instead pays
an incremental fee to use bandwidth on the existing telephone line running to
the customer.
Wireless PCS: The Company's wireless PCS business carries digital phones and
services, marketed in the retail and business-to-business channels throughout
much of Virginia and West Virginia. The Company's PCS segment operates in three
primary markets: Virginia East, Virginia West and West Virginia. The Virginia
East market covers a 3.0 million populated area primarily in the Richmond and
Hampton Roads areas of Virginia through Richmond 20MHz, LLC, a wholly owned
subsidiary. The region was added in July 2000 from the PrimeCo VA acquisition
(see Note 6). The Virginia West market currently serves a 1.7 million populated
area in central and western Virginia primarily through the Virginia PCS
Alliance, L.C. ("VA Alliance"), a 97% majority owned limited liability company.
The West Virginia market is served by West Virginia PCS Alliance, L.C. ("WV
Alliance"), a 98% majority owned limited liability company, and currently serves
a 1.6 million populated area primarily in West Virginia, but extending to parts
of eastern Kentucky, southwestern Virginia and eastern Ohio. In addition to the
markets indicated above, the Company has licenses, which are not currently
active, that cover a 4.8 million populated area at December 31, 2002.
In addition to the end-user customer business, the Company provides roaming
services to other PCS providers and has a wholesale network access agreement
with Horizon Personal Communications, Inc. ("Horizon"). Revenue from this
service was $32.5 million, $19.1 million, and $7.0 million for the years ended
December 31, 2002, 2001 and 2000, respectively (see Note 18).
The Company began consolidating the VA Alliance and the WV Alliance in July
2000 and February 2001, respectively. Prior to this, these investments were
accounted for under the equity method of accounting (see Note 5).
17
Analog Cellular: The analog cellular business carried cellular phones and
services in the retail and business-to-business channels in the Company's
cellular territory (VA Rural Service Area No. 6, "RSA6"). The Company sold the
assets and operations of this business to Verizon in July 2000 in connection
with the PrimeCo VA acquisition (Note 6).
Summarized financial information concerning the Company's reportable segments is
shown in the following table. Wireline communications is comprised of the
telephone, network, CLEC and Internet segments. Other communications services
(indicated in the "Other" column below) includes certain unallocated corporate
related items, as well as results from the Company's paging, alarm, other
communication services and wireline and wireless cable businesses, which are not
considered separate reportable segments. Also included in the Other column in
2002 is $4.3 million of organizational and capital restructuring charges (see
Note 19).
The income statement information noted in this table excludes the directory
assistance segment (Note 7), which is accounted for as a discontinued operation.
The discontinued operation assets are reflected in the "Other" category in prior
years.
Wireless Analog
(In thousands) Telephone Network CLEC Internet PCS Cellular Other Total
- -----------------------------------------------------------------------------------------------------------------------------------
2002
Operating Revenues $ 47,128 $ 8,449 $ 22,858 $ 18,481 $ 156,860 $ - $ 8,951 $ 262,727
Operating (Loss) Income 24,791 (17,164) 1,996 1,450 (413,253) - (22,379) (424,559)
Less: Reconciling items to arrive
at EBITDA/1/, a non-GAAP measure:
Depreciation and Amortization 7,817 3,117 3,934 3,470 61,141 - 3,445 82,924
Asset Impairment Charges - 20,900 - - 366,950 - 15,030 402,880
-------- --------- --------- --------- ---------- -------- --------- -----------
EBITDA 32,608 6,853 5,930 4,920 14,838 - (3,904) 61,245
---------------------------------------------------------------------------------------------
Total Segment Assets 140,396 36,944 33,557 16,700 388,537 - 15,884 632,018
Corporate Assets 97,503
-----------
Total Assets $ 729,521
===========
Total expenditures for long-lived
segment assets/2/ $ 7,887 $ 5,889 $ 4,156 $ 2,630 $ 49,330 $ - $ 3,272 $ 73,164
- ----------------------------------------------------------------------------------------------------------------------------------
2001
Operating Revenues $ 42,786 $ 8,694 $ 17,346 $ 17,659 $ 118,832 $ - $ 9,746 $ 215,063
Operating (Loss) Income 18,041 4,061 (629) (2,578) (80,115) - (557) (61,777)
Less: Reconciling items to arrive
at EBITDA/1/, a non-GAAP measure:
Depreciation and Amortization 9,415 3,204 2,533 3,924 59,416 - 3,789 82,281
-------- --------- --------- --------- ---------- -------- --------- -----------
EBITDA 27,456 7,265 1,904 1,346 (20,699) - 3,232 20,504
---------------------------------------------------------------------------------------------
Total Segment Assets 138,448 56,819 31,812 17,715 786,619 - 31,205 1,062,618
Corporate Assets 134,268
-----------
Total Assets $ 1,196,886
===========
Total expenditures for long-lived
segment assets/2/ $ 6,981 $ 10,409 $ 7,973 $ 1,736 $ 56,362 $ - $ 19,411 $ 102,872
- ----------------------------------------------------------------------------------------------------------------------------------
2000
Operating Revenues $ 32,169 $ 3,693 $ 8,975 $ 13,443 $ 39,096 $ 5,556 $ 10,587 $ 113,519
Operating (Loss) Income 18,190 1,545 (1,944) (4,474) (33,048) 2,256 49 (17,426)
Less: Reconciling items to arrive
at EBITDA/1/, a non-GAAP measure:
Depreciation and Amortization 4,266 836 1,564 3,537 23,218 396 3,861 37,678
-------- --------- --------- --------- ---------- -------- --------- -----------
EBITDA 22,456 2,381 (380) (937) (9,830) 2,652 3,910 20,252
---------------------------------------------------------------------------------------------
Total Segment Assets 47,026 13,650 23,107 19,647 698,823 - 33,371 835,624
Corporate Assets 243,393
-----------
Total Assets $ 1,079,017
===========
Total expenditures for long-lived
segment assets/2/ $ 4,405 $ 3,444 $ 7,575 $ 4,139 $ 31,834 $ - $ 14,193 $ 65,590
- -----------------------------------------------------------------------------------------------------------------------------------
/1/ See discussion on use of EBITDA in the management discussion and analysis
overview section.
/2/ Includes purchases of long-lived assets other than deferred charges and
deferred tax assets and excludes additions from business combinations
discussed in Note 6.
18
Wireless cable revenues, which are reflected within the other segment in the
table above, are reported net of programming and equipment costs of $1.2
million, $1.5 million and $1.5 million for the years ended December 31, 2002,
2001 and 2000, respectively.
The accounting policies of the segments are the same as those described in
the significant accounting policies (Note 3). The Company evaluates the
performance of its operating segments principally on operating revenues and
EBITDA (operating income before depreciation and amortization and asset
impairment charges). Corporate functions are allocated at cost to the operating
segments and all other intercompany transactions are cost based. Segment
depreciation and amortization contains an allocation of depreciation and
amortization from corporate assets. Corporate depreciation and amortization
expense not allocated to the segments is indicated in the "Other" column in the
preceding table. Depreciation and amortization of corporate assets was $1.5
million, $1.5 million and $1.4 million of the total "Other" depreciation and
amortization for the years ended December 31, 2002, 2001 and 2000, respectively.
19
Note 5. Investments in Wireless Affiliates
Pursuant to the merger between NTELOS and R&B Communications effective February
13, 2001, the Company's ownership in the VA Alliance and the WV Alliance
increased to 91% and 79%, respectively (see Note 6). Prior to the merger with
R&B, the Company had a 45% and 65% ownership interest in the WV Alliance and VA
Alliance, respectively. Additional minority interest was purchased from other
members during 2001 in exchange for 320,000 shares of common stock and a cash
payment of $.2 million. The Company owned 97% and 98% of the VA Alliance and the
WV Alliance, respectively, at December 31, 2001 and thereafter.
On July 25, 2000, the Company converted its preferred interest to common
interest and exercised its right to fund the redemption of the VA Alliance's
Series A preferred membership interest. As a result of this redemption, the
Company increased its common interest from 21% to 65% and commenced
consolidating the VA Alliance as of July 26, 2000 (Note 6). On February 13,
2001, concurrent with the R&B merger, the Company commenced consolidating the WV
Alliance. For the year ended December 31, 2000, operating revenues, operating
loss and net loss of the VA Alliance were $23.0 million, $20.7 million and $35.3
million, respectively, and of the WV Alliance were $13.2 million, $14.5 million
and $19.4 million, respectively. The Company's share of the VA Alliance's 2000
net loss for the period through July 26, 2000, the date of consolidation, was
$3.7 million. The Company's share of the WV Alliance 2000 net loss for the year
ended December 31, 2000 was $8.6 million. Operating revenue, operating loss and
net loss for the WV Alliance for the 43 day period ended February 13, 2001 were
$2.5 million, $1.7 million and $2.9 million, respectively. The Company's equity
share of the WV Alliance losses for the period January 1, 2001 through February
13, 2001 was $1.3 million. See Note 6 regarding step acquisition accounting.
Note 6. Merger and Acquisitions
R&B Communications Merger
Effective February 13, 2001, the Company closed on its merger with R&B
Communications. Under the terms of the merger, the Company issued approximately
3.7 million shares of its common stock in exchange for 100% of R&B's outstanding
common stock. The transaction was valued at $131.4 million, or $35.47 per share,
based on the average price for the two days preceding May 18, 2000, the date the
merger terms were agreed to and announced. The merger is being accounted for
using the purchase method of accounting. The excess of the total acquisition
cost over the fair value of the net assets acquired of approximately $95.9
million was allocated to goodwill in the telephone and network segments and will
be tested for impairment annually according to the provisions of SFAS No. 142
(see Note 2).
R&B is an Integrated Communications Provider ("ICP") providing local and
long distance telephone service, and dial-up and high-speed Internet service to
business and residential customers in Roanoke, Virginia and the surrounding
area, as well as in the New River Valley of Virginia. This merger added
approximately 11,600, 6,400 and 2,100 customers to the telephone, CLEC and
Internet segments, respectively. Additionally, R&B has a network operation which
added 200 fiber miles.
R&B owns a 26% membership interest in the VA Alliance and a 34% membership
interest in the WV Alliance. Effective with the merger, the Company owned 91%
and 79% of the VA Alliance and WV Alliance, respectively (see Note 5).
Operating revenues, operating income and net loss of R&B for the year ended
December 31, 2000 were $18.9 million, $3.5 million and $7.5 million,
respectively.
20
PrimeCo VA Acquisition
On July 26, 2000, the Company closed on the acquisition of the PCS licenses,
assets and operations of PrimeCo Personal Communications, L.P., which is located
in the Richmond and Hampton Roads areas of Virginia ("PrimeCo VA"). The Company
acquired PrimeCo VA for cash of $408.6 million, the assumption of approximately
$20.0 million of lease obligations and the transfer of a limited partnership
interest and the assets, licenses and operations of our analog wireless
operation, with a combined value of approximately $78.5 million. This
acquisition was accounted for under the purchase method of accounting. The
Company's results of operations include PrimeCo VA operating results commencing
on July 26, 2000. Costs in excess of the fair value of the net assets acquired
were allocated to identifiable intangible assets and goodwill and will be tested
for impairment annually according to the provisions of SFAS No. 142 (see Note
2). Of the total purchase price, $338 million was allocated to the fair value of
the PCS licenses. Total goodwill was $25.8 million and the value of other
intangible assets was $40.1 million.
In connection with the PrimeCo VA acquisition, the Company exchanged
the cellular analog assets and operations of Virginia Rural Service Area No. 6
("VA RSA6") and its 22% limited partnership interest in Virginia Rural Service
Area No. 5 ("VA RSA5") as part of the consideration paid in the acquisition. The
exchange was valued at $78.5 million, in the aggregate, and resulted in a book
gain of $62.6 million, before income tax. VA RSA6's analog operations
contributed revenues and EBITDA of $5.6 million and $2.7 million, respectively,
for the period January 1, 2000 through July 25, 2000, the date of disposition.
The equity income from VA RSA5 was not material for the periods presented.
VA and WV Alliances - Step Acquisitions
Concurrent with the closing of the PrimeCo VA acquisition and the related debt
and equity financing (Note 8), the VA Alliance redeemed its Series A preferred
membership interest for $16.8 million. This payment included consideration for
redemption of $12.9 million in principal, $2.8 million in accrued dividends and
$1.1 million in early redemption fees. The Company then exercised its right to
fund $11.4 million of this redemption in exchange for additional common
membership interest in the VA Alliance. The Company also elected to convert its
convertible preferred membership interest in the VA Alliance into a common
membership interest. These redemptions and conversions increased the Company's
common membership interest in the VA Alliance from 21% to 65%. As mentioned in
Note 5, the Company consolidated the operations of the VA Alliance as of July
26, 2000. Pursuant to this transaction, the basis in the VA Alliance was stepped
up by $43.9 million which was allocated to the PCS licenses.
Pursuant to the merger between NTELOS and R&B Communications effective
February 13, 2001, the Company's ownership in the VA Alliance and WV Alliance
increased to 91% and 79%, respectively (Note 5), at which time the Company began
consolidating the WV Alliance. Pursuant to this transaction, the basis in the WV
Alliance was stepped up by $21.6 million which was allocated to the PCS
licenses.
Additionally, during 2001, the Company issued 320,000 shares with an
aggregate value of $4.8 million and paid cash of $.2 million as consideration to
acquire an additional 5% of the VA Alliance and an additional 19% of the WV
Alliance from other minority interest members. The Company owned 97% of the VA
Alliance and 98% of the WV Alliance (Notes 4 and 5) at December 31, 2001 and
thereafter.
License Acquisitions/Exchanges
During 2001, the Company acquired PCS licenses from AT&T in southern and central
Pennsylvania and southeastern Ohio, an area with a population of approximately
2.9 million which is contiguous to the Company's existing license holdings. This
was a non-cash transaction, accounted for as a like-kind exchange, in which the
Company exchanged certain of its non-operating WCS licenses, with a book value
of $.1 million, for these PCS licenses. Accordingly, no gain or loss was
recorded on this transaction.
21
Note 7. Dispositions
Directory Assistance Segment
Effective July 11, 2000, pursuant to a stock purchase agreement dated May 17,
2000 with telegate AG, a Federal Republic of Germany corporation, the Company
sold the capital stock of CFW Information Services, Inc., through which
directory assistance operations are conducted, and sold its equity interest in
Listing Services Solutions, Inc. In exchange, the Company received $32.0 million
in cash and $3.5 million in deferred consideration that was paid in cash in
January 2001, and recognized a $26.2 million gain, before tax, ($16.0 million
after tax). As such, the directory assistance operation is treated as a
discontinued operation in these financial statements. Accordingly, the overhead
costs which had been allocated to this business segment, but were not
specifically identified and incremental to the directory assistance operation,
were reclassified as corporate expenses and included in "Other" (Note 4). These
costs totaled $.7 million for the year ended December 31, 2000. Operating
revenues, operating income and net income pertaining to the discontinued
operation for the period through July 11, 2000 were $6.8 million, $.6 million
and $.4 million, respectively.
Towers
In January 2002, the Company sold 24 communications towers for $8.2 million. In
November 2001, the Company sold 46 towers in the Virginia East market for $15.6
million. In early 2000, the Company sold 151 towers for $47.4 million. In
connection with these transactions, the Company has certain future leaseback and
other commitments. Accordingly, the gain on these sales has been deferred for
financial reporting purposes and is being amortized over a ten year expected
leaseback period. The remaining unamortized deferred gains totaled $22.2 million
on December 31, 2002.
Other Non-strategic Asset Sales
In the first quarter of 2002, the Company sold certain excess PCS licenses for
proceeds of $2.4 million, recognizing a $2.0 million gain. In April 2002, the
Company sold certain excess PCS radio spectrum licenses for proceeds of $12.0
million, recognizing a $2.8 million gain. In July 2002, the Company sold certain
other PCS radio spectrum licenses for proceeds of $3.6 million, recognizing a
$3.6 million gain.
In May 2002, the Company sold its 3% minority partnership interest in
America's Fiber Network LLC for proceeds of $2.6 million, recognizing a $.2
million loss on the transaction reported in other (expense) income on the
Consolidated Statements of Operations. Concurrently, the Company purchased the
use of approximately 700 new route miles of fiber contiguous to, or an extension
of, the Company's existing fiber for $2.6 million.
In July 2002, the Company agreed to terms with telegate AG, the
purchaser of NTELOS' directory assistance operation in 2000, to release telegate
AG from certain building lease obligations related to that transaction. In
consideration, the Company received $.9 million in cash and $.2 million in
furniture and fixtures. This $1.1 million settlement was reported in operating
revenues within the other communications services line. The original lease term
was five years with annual lease revenue of $.8 million, which was reported in
operating revenues within the other communication services line as well. In
2002, prior to the termination settlement, the Company recorded lease revenue of
$.5 million.
During the year ended December 31, 2002, the Company sold various
investments for $1.6 million, which approximated the related investment carrying
values. Additionally, during the second quarter of 2002, the Company recognized
a $1.1 million permanent impairment loss associated with its investment in
WorldCom, Inc. which is classified in other income (expense) in the consolidated
statements of operations.
In December 2001, the Company sold certain PCS licenses in Kingsport,
Tennessee to Lafayette Communications for $11.6 million, recognizing a gain
before taxes of $8.6 million. In the second and third quarters of 2001, the
Company sold all its holdings in Illuminet, Inc. for proceeds of $30.6 million,
recognizing a gain before taxes of $23.0 million.
22
Note 8. Long-Term Debt in Default (at December 31, 2002) and Other Long-Term
Debt
Long-term debt in default (at December 31, 2002) and other long-term debt
consist of the following as of December 31:
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------------------
Variable rate Senior Secured Term Loans due from 2004 to 2008 $ 260,500 $ 225,000
6.25% to 7.0% Notes payable secured by certain PCS radio spectrum
licenses with original maturities from 2000 through 2006 8,180 12,035
5.0% to 6.05% Notes payable secured by certain assets with original
maturities from 2008 through 2021 6,712 7,308
13.0% Unsecured Senior Notes, issued at 98.61% of par value, with an
effective interest rate of 13.25% due in 2010, net of unamortized
discount of $8.6 million and $9.5 million for the fiscal years
ended 2002 and 2001, respectively 271,416 270,492
13.5% Unsecured Subordinated Notes, issued at par, due in 2011, net of
unamortized discount of $9.2 million and $10.5 million for the
fiscal years ended 2002 and 2001, respectively 85,765 84,545
Net present value of long-term capital leases due 2001 to 2005 10,149 13,036
- -----------------------------------------------------------------------------------------------------------
642,722 612,416
Less current portion - long-term debt in default in 2002 and scheduled
maturities 623,762 -
- -----------------------------------------------------------------------------------------------------------
Long-term debt $ 18,960 $ 612,416
===========================================================================================================
Long-term debt in default and other long-term debt
On March 4, 2003 the Company and certain of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code (see Note 1). In addition, the Company did not make the scheduled
semi-annual interest payments due on February 18, 2003 on its 13% senior notes
due 2010 ("Senior Notes") and 13.5% subordinated notes due 2011 ("Subordinated
Notes") of $18.2 million and $6.4 million, respectively. As a result of the
bankruptcy filing, a default for non-payment of these interest payments and
non-compliance with a debt to capitalization covenant under its Senior Secured
Term Loans (also referred to as "Senior Credit Facility"), the Company has
classified borrowings under its Senior Credit Facility, Senior Notes and
Subordinated Notes as current liabilities within the caption "Long-term debt in
default and scheduled maturities".
In July 2000, the Company obtained financing through issuance of Senior
Notes for $280 million, Subordinated Notes for $95 million, Senior Credit
Facility of up to $325 million and various preferred stock offerings of $250
million. These financing transactions closed concurrent with or just prior to
the PrimeCo VA acquisition. The Company used the proceeds of the financing
vehicles to fund the PrimeCo VA acquisition, to repay substantially all of its
existing indebtedness and that of the Alliances, and for future expansion. Prior
to this closing, the Company had entered into a bridge financing arrangement
which was not utilized. Accordingly, the Company expensed $6.5 million in bridge
financing and other commitment fees in 2000.
The Senior Notes were issued at 98.61% of par value and contain a 13.0%
coupon rate, with an effective rate of 13.25%. They mature in August 2010. Under
the terms of the Senior Note Indenture, the Company purchased investments in
restricted cash instruments in July 2000 totaling $69.1 million. These
instruments were required specifically for the purpose of funding the first four
semi-annual interest payments due in 2001 and 2002 against these notes. The
Senior Notes are redeemable at a redemption price of up to 106.5%, reducing to
100% by August 2008, and contain various financial covenants. Additionally, the
Senior Notes were issued with warrants to purchase an aggregate of 504,000
shares of the Company's common stock at a price of $47.58 per share. The
warrants were valued at $6.9 million using the Black-Scholes option-pricing
model, are exercisable and expire August 2010. The Senior Notes were recorded
net of the $3.9 million discount associated with the issue price and $6.9
million for the related warrants. The
23
discounts and the reduction relating to the warrants are being accreted and this
accretion is reflected as interest expense in the statements of operations. The
accretion period for the discount and reduction for warrants is through 2008 and
2010, respectively. Total accretions were $.9 million for both 2002 and 2001 and
$.4 million for 2000.
The Subordinated Notes were issued at par and contain a 13.5% coupon
rate. They mature in February 2011. These notes are subordinate to all senior
indebtedness, including the Senior Notes. These notes contain early redemption
features similar to the Senior Notes. The Subordinated Notes were issued with
warrants to purchase an aggregate of 300,000 shares of the Company's common
stock at a price of $0.01 per share. These warrants were valued at $12.2 million
using the Black-Scholes option-pricing model, are exercisable one year from July
2000 and expire February 2011. The Subordinated Notes were recorded net of the
$12.2 million for the related warrants which are being accreted through 2011 and
are reflected as interest expense in the statements of operations. Total
accretions were $1.2 million for both 2002 and 2001 and $.5 million for 2000.
The Company has borrowed $261 million as of December 31, 2002 and $225
million as of December 31, 2001 of the $325 million Senior Credit Facility. The
loans contain a tranche A term loan of $50 million, tranche B term loan of $100
million, tranche C term loan of $75 million and a revolving credit facility of
$100 million. Commitment fees are incurred on the unused portion of the
revolving credit facility. Commitment fees incurred for the three years ended
December 31, 2000, 2001 and 2002 were $.4 million, $.8 million and $.6 million,
respectively. The Senior Credit Facility loans began maturing in 2002, with a
$.5 million principal payment on the tranche B term loan made in the second half
of 2002. The loans bear interest at rates of 3% to 4% above the Eurodollar rate
or 2.5% to 3% above the federal funds rates. The loans contain certain financial
covenants and restrictions as to their use. The Company was in default of the
debt to total capitalization covenant requirement at December 31, 2002. This
covenant was not met due to the significant asset impairment charges recognized
in the fourth quarter of 2002. Accordingly, due to this and other issues noted
above, access to the Senior Credit Facility was restricted and the debt, along
with the other debt instruments containing cross-default provisions were listed
as current obligations at December 31, 2002.
The Company has incurred loan origination fees and other closing costs
related to the above financing totaling $19.9 million which are classified as
deferred charges on the Company's balance sheet. These costs are being amortized
to interest expense over the life of the respective instrument. Amortization of
these costs were $2.5 million, $2.2 million and $.9 million for the fiscal years
ended 2002, 2001 and 2000, respectively.
In September 1996, the VA Alliance entered into two 7.0% installment
notes with the Federal Communications Commission ("FCC") related to licenses
awarded in the PCS radio spectrum Block "C" auction. Interest only was payable
quarterly through September 30, 2002. Commencing December 31, 2002, principal
and interest is payable in equal quarterly installments of $.5 million through
June 30, 2006.
At December 31, 2001 the Company classified borrowings under its notes
payable and lines of credit as long-term, since the Company had the ability and
the intent to refinance these borrowings with existing lines of credit that have
a maturity of beyond one year.
The Company's blended interest rate on its long-term debt as of
December 31, 2002, 2001, and 2000 is 11.0%, 11.7%, and 10.4%, respectively.
As of December 31, 2002, aggregate maturities of long-term debt for
each of the next five years, based on the contractual terms of the instruments
is as follows: $9.6 million in 2003, $17.3 million in 2004, $16.2 million in
2005, $21.3 million in 2006, $47.7 million in 2007 and $548.6 million
thereafter. These maturities have not been adjusted to reflect any changes or
acceleration that may occur as a result of the aforementioned events of default
or the filing for Chapter 11.
Capital Leases
In conjunction with the PrimeCo VA acquisition (Note 6), the Company entered
into a series of sublease agreements with PrimeCo Personal Communications L.P.
("PrimeCo PCS") for certain digital switching and network equipment which was
valued at $53 million and is included with network plant and equipment. During
1997 and 1996, PrimeCo VA entered into a series of sale/leaseback transactions
("Master Lease Agreements") with various Japanese banks and leasing companies to
finance the acquisition of the network equipment.
24
The Master Lease Agreements provide for the payment of basic rent,
supplemental rent, and purchase option payments. The Company's sublease
agreements provide for fixed rent and purchase options payments, in fixed US
dollar amounts, to coincide with PrimeCo PCS's obligations under the Master
Lease Agreements. The sublease agreements have been recorded as capital leases
using an 11.33% discount rate on all future minimum payments due under the
leases.
Future minimum lease payments under the capital leases are $4.7 million
in 2003, $6.8 million in 2004, and $.1 million in 2005. At December 31, 2002,
the net present value of these future minimum lease payments is $10.2 million,
which is net of amounts representing interest of $1.4 million, $.9 million of
which relates to 2003. The portion of this obligation due in 2003 is $3.7
million and is classified in current liabilities (included in the long-term debt
in default and scheduled maturities line on the Consolidated Balance Sheets),
while the remaining $6.5 million due in years after 2003 is classified as
long-term debt.
The entire net present value of minimum lease payments was classified
as non-current at December 31, 2001 as the Company had the ability and intent to
pay the current portion ($3.7 million) with existing long-term debt. In addition
to the above payment obligations, the sublease agreements include certain
general and tax indemnifications in favor of PrimeCo PCS and its affiliates.
These indemnifications address loss claims arising from the operation of the
sublease agreements as well as flow through indemnifications from the Master
Lease Agreements.
Note 9. Redeemable, Convertible Preferred Stock
Redeemable, convertible preferred stock consists of the following as of December
31:
(In thousands) 2002 2001
--------------------------------------------------------------------------------------------------------
8.5% Series B redeemable, convertible preferred stock, net of unamortized
discount of $5.8 million ($6.5 million for 2001) $ 132,071 $ 120,314
5.5% Series C redeemable, convertible preferred stock, net of unamortized
discount of $2.8 million ($3.2 million for 2001) 154,093 145,433
--------------------------------------------------------------------------------------------------------
$ 286,164 $ 265,747
========================================================================================================
During the third quarter of 2000, the Company completed preferred stock
offerings consisting of Series B convertible, redeemable preferred stock
("Series B preferred") of $112.5 million, Series C convertible, redeemable
preferred stock ("Series C preferred") of $60.3 million, and Series D redeemable
preferred stock ("Series D preferred") of $77.2 million. The Series B preferred
converts to common stock at $41 per share, contains warrants to purchase an
aggregate of 500,000 shares of the Company's common stock at a price of $50 per
share and pays an 8.5% per annum dividend payable semi-annually on June 30 and
December 31. The related warrants have been valued at $3.8 million using the
Black-Scholes option-pricing model, are exercisable one year from July 2000, and
expire February 2011. In December 2000, the shareholders approved the conversion
of the 18% Series D preferred into Series C preferred, modified the conversion
and dividend terms of the Series C preferred and modified other various terms of
the Series B preferred and Series C preferred. As a result of the shareholder
approval, the Series C preferred is convertible to common stock at $45 per share
and pays a 5.5% per annum dividend payable semi-annually on June 30 and December
31. Under restrictions related to the Company's long-term debt, dividends are
currently paid in-kind and therefore are added to the carrying value of the
preferred stock. The Company has accreted the value of the Series B preferred
for dividends in-kind for a total of $25.3 million as of December 31, 2002
($14.3 million and $4.3 million at December 31, 2001 and 2000, respectively).
Series C preferred has been accreted for dividends in-kind totaling $19.4
million as of December 31, 2002 ($11.1 million and $3.3 million at December 31,
2001 and 2000, respectively). Accordingly, the $19.3 million and $17.8 million
dividend requirements in the fiscal years 2002 and 2001, respectively ($7.6
million in 2000), have not been reflected in our Statements of Cash Flows. The
preferred stock becomes redeemable in 2010 for $250 million plus cumulative
unpaid dividends.
Closing costs associated with the Series B and Series C preferred stock
totaled $7.5 million. These costs, along with the value assigned to the warrants
noted above, are netted against preferred stock on the balance sheet and are
accreted over the term between the date the preferred stocks were issued and the
date they become convertible. Accretion of these costs are included in the
dividend requirements on preferred stock on the Statements of Operations and
totaled $1.1 million for the fiscal years end 2002 and 2001 ($.5 million in
2000).
25
Note 10. Supplementary Disclosures of Cash Flow Information
The following information is presented as supplementary disclosures for
the Consolidated Statements of Cash Flows for the period ended December 31:
(In thousands) 2002 2001 2000
-----------------------------------------------------------------------------------------------
Cash payments (receipts) for:
Interest, net of capitalized interest of $327 in
2002, $1,320 in 2001, and $1,313 in 2000 $ 36,187 $ 29,392 $ 31,280
Income taxes $ (1,038) $ (2,216) $ 1,340
-----------------------------------------------------------------------------------------------
In July 2001, the Company announced the signing of a definitive merger
agreement to acquire Conestoga Enterprises, Inc. ("CEI"). In November 2001, CEI
announced that it had signed a conditional agreement to merge with a third
party, believing this transaction to be superior to the original merger
agreement with NTELOS Inc. Subsequently, management of the Company terminated
its original merger agreement with CEI in December 2001. Under the terms of the
merger agreement, the Company received a $10 million termination fee. The
Company recorded a $2.2 million gain on this transaction, which is included in
other income, net of financing and commitment fees and legal and other costs
associated with the transaction.
In February 2001, the Company closed on the non-cash merger transaction
with R&B, resulting in the issuance of 3.7 million common shares of the Company
in exchange for the common shares of R&B (Note 6).
Concurrent with closing the PrimeCo VA acquisition and aforementioned
financing (Notes 6, 8 and 9), $149.4 million of the amount borrowed under the
Senior Credit Facility was loaned to the Alliances, which they used to repay
their indebtedness to the Rural Telephone Finance Cooperative ("RTFC").
Additionally, of the total proceeds obtained from all financing sources, the
Company paid $408.6 million to PrimeCo as part of the acquisition consideration,
paid $43.0 million of outstanding borrowings under previously existing lines of
credit, placed $69.1 million in escrow to be used to fund the first four
interest payments on the Senior Notes, acquired additional common ownership
interest in the VA Alliance for $11.4 million, and incurred approximately $36.0
million in transaction fees and costs and issued warrants valued at $22.9
million relating to all of the transactions discussed herein. Of the total
transaction fees and costs, $6.5 million has been recognized as bridge financing
costs with the majority of the remainder to be recognized through amortization
and accretion over the expected life of the related asset or debt obligation.
Note 11. Financial Instruments
The Company is exposed to market risks with respect to certain of the
financial instruments that it holds. See Note 1 for a discussion of the
bankruptcy filing on March 4, 2003 which could result in a material change in
the fair value of the financial instruments. The following is a summary by
balance sheet category:
CASH AND SHORT-TERM INVESTMENTS: The carrying amount approximates fair value
because of the short-term maturity of those instruments.
LONG-TERM INVESTMENTS: The fair values of investments are based on quoted market
prices for those investments which are actively traded. For investments where
there are no quoted market prices, a reasonable estimate of fair value could not
be made without incurring excessive costs. Of the investments carried under the
cost method, $8.3 million, or 95% of the total, are high quality instruments.
Additional information regarding the Company's investments is included in Notes
5 and 12.
INTEREST RATE SWAPS: During September 2000, in accordance with conditions of the
Senior Notes, the Company entered into two interest rate swap agreements with
aggregate notional amounts of $162.5 million, with maturities of up to 5 years,
to manage its exposure to interest rate movements by effectively converting a
portion of its long-term debt from variable to fixed rates. The net face amount
of interest rate swaps subject to variable rates as of December 31, 2002 and
2001 was $162.5 million. These agreements involve the exchange of fixed rate
payments for variable rate payments without the effect of leverage and without
the exchange of the underlying face amount. Fixed interest rate payments are at
a per annum rate of 6.76%. Variable rate payments are based on one month US
dollar LIBOR. The weighted average
26
LIBOR rate applicable to these agreements was 1.382% and 1.876% as of December
31, 2002 and 2001, respectively. The notional amounts do not represent amounts
exchanged by the parties, and thus are not a measure of exposure of the Company.
The amounts exchanged are normally based on the notional amounts and other terms
of the swaps. Interest rate differentials paid or received under these
agreements are recognized over the one-month maturity periods as adjustments to
interest expense. The fair values of our interest rate swap agreements are based
on dealer quotes. The fair value of the interest rate swap agreements at
December 31, 2002 and 2001 was a liability of $20.0 million and $13.1 million,
respectively. The interest rate swap liability at December 31, 2002 has been
classified as a current liability as a result of the bankruptcy filing and a
cross-default as a result of non-compliance with the debt to capitalization
rates under the Senior Credit Facility (see Note 8).
Neither the Company nor the counterparties, which are prominent banking
institutions, are required to collateralize their respective obligations under
these swaps. The Company is exposed to loss if one or more of the counterparties
default. At December 31, 2002, the Company had no exposure to credit loss on
interest rate swaps. The Company does not believe that any reasonably likely
change in interest rates would have a material adverse effect on the financial
position, the results of operations or cash flows of the Company. All interest
rate swaps are reviewed with and, when necessary, are approved by the Company's
Board of Directors.
DEBT INSTRUMENTS: The fair value of our Senior Notes due in 2010, which are
traded on open markets, is based on dealer quotes for those instruments. The
Senior Notes have traded well below their book values, with the values noted in
the table below being indicative of the values during much of the period since
issuance. The Company's management believes that the risk of the fair value
exceeding the carrying value of this debt in the foreseeable future is unlikely
due to the current trading level, as well as market and industry conditions.
On December 31, 2002, the Company's Senior Credit Facility totaled
$260.5 million, $98 million over the swap agreements. Therefore, the Company had
variable rate exposure related to this amount over the swap agreement as noted
above. In the table below, the Company assumed the fair value of the Senior
Credit Facility to be equal to the face value.
The fair value of the Company's Senior Notes was determined based on
the most recent trading prices prior to year-end 2002. The Company assumed that
the fair value of the Subordinated Notes were discounted similar to that of the
Senior Notes. The fair value of all other long-term debt, which is not traded on
open markets, is estimated based on the effective rates of the Senior Credit
Facility (after giving effect of the interest rate swap), the Subordinated Notes
and the Senior Notes. The fair values represent estimates of possible value,
which may not be realized in the future (see Note 3).
27
The following table indicates the difference between face amount, carrying
amount and fair value of the Company's financial instruments at December 31,
2002 and 2001:
Financial Instruments (In thousands) Face amount Carrying amount Fair value
----------------------------------------------------------------------------------------------------
December 31, 2002
Nonderivatives:
Financial assets:
Cash and short-term investments $ 12,216 $ 12,216 $ 12,216
Restricted cash
Long-term investments for which it is:
Practicable to estimate fair value $ N/A $ 8,593 $ 8,593
Not practicable to estimate fair value N/A 103 103
Financial liabilities:
Marketable long-term debt in default $ 280,000 $ 271,416 $ 84,000
Non-marketable long-term debt* 380,540 371,306 311,237
Derivatives relating to debt:
Interest rate swaps $ 162,500** $ 20,012 $ 20,012
December 31, 2001
Nonderivatives:
Financial assets:
Cash and short-term investments $ 7,293 $ 7,293 $ 7,293
Restricted cash 18,069 18,069 18,069
Long-term investments for which it is:
Practicable to estimate fair value $ N/A $ 10,346 $ 10,346
Not practicable to estimate fair value N/A 3,617 3,617
Financial liabilities:
Marketable long-term debt $ 280,000 $ 270,492 $ 196,000
Non-marketable long-term debt 352,379 341,924 320,219
Derivatives relating to debt:
Interest rate swaps $ 162,500** $ 13,102 $ 13,102
* A majority of which is in default at December 31, 2002 (Note 8)
** Notional amount
28
Note 12. Securities and Investments
Investments consist of the following as of December 31:
Carrying Values
(In thousands) Type of Ownership 2002 2001
-----------------------------------------------------------------------------------------------------------------
Available for Sale:
WorldCom, Inc. Equity Securities $ - $ 916
Other Equity Securities 44 231
-----------------------------------------------------------------------------------------------------------------
44 1,147
Cost Method:
Restricted investments Cooperative subordinated capital 7,829 7,829
certificates
America's Fiber Network, LLC (see Note 7) Partnership Interest - 2,437
Cash surrender value of life insurance policies Guaranteed rate government 720 1,699
securities
Other Equity securities 103 851
-----------------------------------------------------------------------------------------------------------------
8,652 12,816
------------------
$ 8,696 $ 13,963
=================================================================================================================
The Company acquired RTFC subordinated capital certificates ("SCC") of
$7.5 million concurrent with the tranche C Senior Credit Facility borrowings
of $75 million. The debt instrument required the Company to purchase SCC's
equal to 10% of the tranche C term loan of the Senior Credit Facility. The
SCC's are nonmarketable securities and are stated at historical cost and are
included in restricted investments. As the RTFC loans are repaid, the SCC's
will be refunded through a cash payment to maintain a 10% SCC to outstanding
loan balance ratio.
Changes in the unrealized gain (loss) on available for sale securities
during the years ended December 31, 2002 and 2001, reported as a separate
component of shareholders' equity (deficit), are as follows:
(In thousands) 2002 2001 2000
-----------------------------------------------------------------------------------------------------------
Unrealized gain (loss), beginning balance $ (195) $ 8,458 $ 35,869
Realization of gain due to sale of investment - (8,458) -
Unrealized holding losses during the year (321) (319) (21,927)
Reclassification of unrealized loss due to investment impairment 509 - -
-----------------------------------------------------------------------------------------------------------
Unrealized loss, ending balance (7) (319) 13,942
Deferred tax effect related to net unrealized holding gains - 124 (5,484)
-----------------------------------------------------------------------------------------------------------
Unrealized loss, included in shareholders' equity (deficit) $ (7) $ (195) $ 8,458
===========================================================================================================
29
Note 13. Income Taxes
The components of income tax expense are as follows for the years ended December
31:
(In thousands) 2002 2001 2000
------------------------------------------------------
Current tax expense:
Federal $ - $ - $ -
State 957 781 411
------------------------------------------------------
957 781 411
------------------------------------------------------
Deferred tax (benefit) expense:
Federal (137,775) (29,829) 754
State (25,131) (5,484) 161
Valuation allowance for temporary differences 155,485 - -
------------------------------------------------------
(7,421) (35,313) 915
------------------------------------------------------
$ (6,464) $ (34,532) $ 1,326
======================================================
Income tax (benefit) expense from continuing operations $ (6,464) $ (34,532) $ 1,326
Income tax expense from discontinued operation - - 252
Income tax expense from gain on sale of discontinued operation - - 10,205
------------------------------------------------------
$ (6,464) $ (34,532) $ 11,783
======================================================
Total income tax (benefit) expense was different than an amount computed by
applying the graduated statutory federal income tax rates to income before
taxes. The reasons for the differences are as follows for the years ended
December 31:
(In thousands) 2002 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------
Computed tax at statutory rate $ (173,394) $ (35,865) $ 685
Gain on sale of investments - 2,091 -
State income taxes, net of federal income tax benefit (15,713) (4,072) 372
Nondeductible asset impairments 26,951 - -
Nondeductible amortization - 2,218 273
Valuation allowance for temporary differences 155,485 - -
Other, net 207 1,096 (4)
------------------------------------------------------
$ (6,464) $ (34,532) $ 1,326
======================================================
30
Net deferred income tax assets and liabilities consist of the following
components at December 31:
(In thousands) 2002 2001
-----------------------------------------------------------------------------------------------------------------
Deferred income tax assets:
Retirement benefits other than pension $ 4,238 $ 3,978
Pension and minimum pension liability 2,749 657
Net operating loss of acquired companies 6,504 6,504
Net operating loss 110,107 53,028
Alternative minimum tax credit carryforwards 709 709
Licenses 56,921 -
Interest rate swap 7,784 5,097
Debt issuance and discount 2,791 2,749
Accrued expenses 3,393 3,223
Federal and state tax credits 403 403
Unrealized loss on securities available for sale - 124
Other 1,307 1,923
-----------------------------------
Gross deferred tax assets 196,906 78,395
Valuation allowance (156,704) -
-----------------------------------
40,202 78,395
-----------------------------------
Deferred income tax liabilities:
Property and equipment 32,418 41,712
Licenses - 38,540
Other - 343
-----------------------------------
32,418 80,595
-----------------------------------
Net deferred income tax assets (liabilities) $ 7,784 $ (2,200)
===================================
A valuation allowance is provided to reduce the deferred tax assets to a level
which, more likely than not under the rules of SFAS No. 109, will be realized.
The Company had alternative minimum tax ("AMT") credit carryforwards of $.7
million which have been reflected as deferred tax assets. AMT credits may
generally be carried forward indefinitely and used in future years to the extent
the Company's regular tax liability exceeds the AMT liability for such future
years.
For tax purposes, the Company had available, at December 31, 2001 net
operating loss ("NOL") carryforwards, excluding NOL's from acquired companies,
for regular income tax purposes of approximately $150 million. The Company is
anticipating that the 2002 NOL will be approximately $120 million, which will
expire in 2022. The Company also had federal and state investment tax credit
carryforwards for tax purposes of approximately $.4 million, which expire during
2019. As a result of the R&B acquisition, both R&B, and likely the Company,
experienced ownership changes during 2001 under Section 382 of the Internal
Revenue Code ("IRC"); however, such changes should not place any material
limitation on the ability to use the pre-acquisition net operating loss
carryovers of either R&B or the Company. Depending on the outcome of the
restructuring of the Company's debt and equity securities under the bankruptcy
filing (see Note 1), the restructuring could result in a substantial reduction
in the amount of existing NOL carryovers and could result in limitations on the
Company's ability to use remaining carryovers and built-in losses in future
years. The reduction of or potential limitation on the Company's ability to use
such favorable tax attributes could adversely affect our financial position in
future years.
Note 14. Shareholder Rights Plan
In February 2000, the Company adopted a new ten-year shareholder rights plan
("Rights Plan") that provides a right to common shareholders to acquire a unit
of preferred stock of the Company at a purchase price of $162. The new Rights
Plan, amended as of July 11, 2000, replaces the Company's prior plan which was
adopted in 1990 and expired in
31
February 2000. The right to purchase preferred stock is exercisable only upon
the occurrence of certain events, such as if a third party acquires 15% or more
of the Company's common stock, without prior approval of the Board of Directors,
except for Welsh, Carson, Anderson & Stowe, provided that it is in compliance
with our amended and restated shareholders' agreement. In such event, other
shareholders are entitled to receive, upon exercise of the right and payment of
the purchase price, common stock or preferred stock at the option of the Company
having a value equal to twice the amount of the purchase price. To date, no
shares have been issued under the Rights Plan.
Note 15. Pension Plans and Other Postretirement Benefits
The Company sponsors several qualified and nonqualified pension plans and other
postretirement benefit plans for its employees. The following tables provide a
reconciliation of the changes in the plans' benefit obligations and fair value
of assets over the two-year period ending December 31, 2002, a statement of the
funded status as of December 31 of each year, and the classification of amounts
recognized in the Consolidated Balance Sheets:
Defined Benefit Pension Plan Other Postretirement Benefit Plan
(In thousands) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------------
Change in benefit obligations:
Benefit obligations, beginning $ 22,803 $ 20,987 $ 9,168 $ 8,478
Service cost 1,450 1,058 175 172
Interest cost 1,619 1,555 661 624
Amendment - 300 - -
Actuarial loss (gain) 1,922 88 (465) 40
Benefits paid (1,198) (1,185) (190) (176)
Curtailment gain - - 363 30
Early retirement program cost 1,098 - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Benefit obligations, ending $ 27,694 $ 22,803 $ 9,712 $ 9,168
===================================================================================================================================
Change in plan assets:
Fair value of plan assets, beginning $ 20,223 $ 20,938 $ - $ -
Actual return (loss) on plan assets (2,636) 470 - -
Employer contribution - - 190 176
Benefits paid (1,198) (1,185) (190) (176)
- -----------------------------------------------------------------------------------------------------------------------------------
Fair value plan assets, ending $ 16,389 $ 20,223 $ - $ -
===================================================================================================================================
Funded status:
Funded status $ (11,305) $ (2,580) $ (9,712) $ (9,168)
Unrecognized net actuarial loss (gain) 6,711 179 (1,183) (1,092)
Unrecognized prior service cost 659 712 - -
- -----------------------------------------------------------------------------------------------------------------------------------
Accrued benefit cost $ (3,935) $ (1,689) $ (10,895) $ (10,260)
===================================================================================================================================
Recognized in Consolidated Balance Sheet:
Intangible pension asset $ 659 $ -
Additional minimum pension liability (3,792) -
- -----------------------------------------------------------------------------------------
Minimum pension liability adjustment- reduction
of shareholders' equity (deficit) $ 3,133 $ -
=========================================================================================
SFAS No. 87, Employers' Accounting For Pensions, requires the Company to
recognize a minimum pension liability equal to the amount by which the actuarial
present value of the accumulated benefit obligations exceeds the fair value of
plan assets. In 2002, the Company recorded $3.8 million to recognize the minimum
pension liability. A corresponding amount is required to be recognized as an
intangible asset to the extent of the unrecognized prior service cost and
unrecognized net transition obligation. Any excess of the minimum pension
liability above the intangible asset is recorded as a separate component and
reduction of shareholders' equity (deficit). The tax benefit associated with the
minimum pension liability is subject to the valuation reserve discussed in Note
13.
32
The Company's matching contributions to the defined contribution plan were $0.2
million, $0.8 million, and $0.6 million for the years ended December 31, 2002,
2001 and 2000, respectively. The Company ceased matching contributions to the
defined contribution plan for the period April 1, 2002 through March 31, 2003 as
part of the actions taken in the operational restructuring plan (Note 19).
The accumulated benefit obligation of the Company's nonqualified pension plan
was approximately $5.8 million, $3.9 million and $1.1 million at December 31,
2002, 2001 and 2000, respectively, and has been classified with retirement
benefits other than pensions. All of the Company's plans for postretirement
benefits other than pensions also have no plan assets.
On July 11, 2000, the Company disposed of one of its business lines (see Note
7). The sale was considered a partial plan termination and participants were
100% vested as of July 10, 2000. Under the provisions of SFAS No. 88, Accounting
for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, the Company recognized a $198,000 net curtailment gain in
2000. This gain is reported in discontinued operations.
The following table provides the components of net periodic benefit cost for the
plans:
Defined Benefit Pension Plan Other Post Employment Benefit Plan
(In thousands) 2002 2001 2000 2002 2001 2000
- --------------------------------------------------------------------------------------------------------------------------
Service cost $ 1,450 $ 1,058 $ 889 $ 175 $ 172 $ 190
Interest cost 1,619 1,555 1,426 661 624 604
Expected return on plan assets (1,975) (2,046) (2,025) - - -
Amortization of transition
obligations - 12 15 - - -
Amortization of prior service
cost 54 49 42 - - -
Recognized net actuarial gain - - (49) (12) (28) (7)
Early retirement cost 1,098 - - - - -
Curtailment gain (loss) - - (48) - 30 -
- --------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 2,246 $ 628 $ 250 $ 824 $ 798 $ 787
==========================================================================================================================
The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses
in excess of 10% of the greater of the benefit obligation and the
market-related value of assets are amortized over the average remaining
service period of active participants.
The Company has multiple nonpension postretirement benefit plans. The
health care plan is contributory, with participants' contributions adjusted
annually. The life insurance plans are also contributory. Eligibility for
the life insurance plan has been restricted to active pension participants
age 50-64 as of January 5, 1994. The accounting for the plans anticipates
that the Company will maintain a consistent level of cost sharing for the
benefits with the retirees.
The assumptions used in the measurements of the Company's benefit
obligations are shown in the following table:
Defined Benefit Pension Plan Other Post Employment Benefit Plan
Assumptions as of December 31 2002 2001 2000 2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------
Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Expected return on plan assets 9.00% 10.00% 10.00% - - -
Rate of compensation increase 3.50% 4.75% 4.75% - - -
==============================================================================================================================
During 2002, the Company offered an early retirement incentive to eligible
employees, resulting in 23 employees accepting early retirement at a cost to the
plan of $1.1 million. During 2001, the plan was amended to reflect the increase
in the IRC Sec. 415 limits. The result of this amendment was an increase of $.3
million in the projected benefit obligation.
33
The Company reviews the assumptions noted in the above table on an annual
basis. These assumptions were changed in 2002 from those used in the prior two
years to reflect anticipated future changes in the underlying economic factors
used to determine these assumptions. For measurement purposes, a 10.0% annual
rate of increase in the per capita cost of covered health care benefits was
assumed for 2002. The rate was assumed to decrease gradually each year to a rate
of 5.0% for 2010 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. The effect of a 1% change on the
total of service and interest cost components of net periodic postretirement
health care benefit cost would be $0.1 million for a 1% increase and $0.1
million for a 1% decrease. Additionally, the effect of a 1% change on the health
care component of the accumulated postretirement benefit obligations would be
$1.3 million for a 1% increase and $1.0 million for a 1% decrease.
Note 16. Earnings Per Share
The computations of basic and diluted earnings per share from continuing
operations for each of the three years ended December 31 were as follows:
2002 2001 2000
(In thousands)
- ---------------------------------------------------------------------------------------------------------------------
Numerator:
Income (loss) from continuing operations $ (488,947) $ (63,713) $ 2,270
Preferred stock dividend (20,417) (18,843) (8,168)
- ---------------------------------------------------------------------------------------------------------------------
Numerator for basic and diluted earnings (loss) per share $ (509,364) $ (82,556) $ (5,898)
=====================================================================================================================
Denominator:
Number of common shares at the beginning of the year 17,209 13,132 13,060
Weighted-average common shares issued during the year 149 3,310 46
- ---------------------------------------------------------------------------------------------------------------------
Denominator for basic and diluted earnings (loss) per share
from continuing operations 17,358 16,442 13,106
=====================================================================================================================
For additional information regarding the preferred stock and stock options, see
Notes 9 and 17, respectively. The following options and warrants were
outstanding during each year, but were not included in the computation of
diluted earnings per share due to the fact that the results from continuing
operations were a loss (therefore, any addition to the shares results in an
antidilutive effect) or because the exercise price was greater than the average
market price of the common shares for the year and, therefore, the effect would
be antidilutive:
(In thousands) 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Number of common stock equivalents antidilutive due to a loss
from continuing operations:
Options 43 21 165
Warrants 300 300 300
- -------------------------------------------------------------------------------------------------------------------------
Number of shares antidilutive as exercise price was greater than
average market price of the common shares for the year:
Options 1,352 937 368
Warrants 1,004 1,004 1,004
Redeemable, convertible preferred stock 6,847 6,395 5,973
- ------------------------------------------------------------------------------------------------------------------------
34
Note 17. Stock Plans
The Company's 1997 Stock Compensation Plan ("Option Plan"), as amended, provides
for the grant of stock options, stock appreciation rights ("SARS"), stock awards
and performance shares to officers and certain key management employees. A
maximum of 2.5 million shares of common stock may be issued under the Option
Plan by means of the exercise of options or SARS, the grant of stock awards
and/or the settlement of performance shares. The Company's Non-Employee
Director's Stock Option Plan ("Director's Plan"), as amended, provides for the
grant of stock options to a non-employee director and provides the non-employee
director the opportunity to receive stock options in lieu of a retainer fee. A
maximum of 125,000 shares of common stock may be issued upon the exercise of
options granted under the Director's Plan. Hereinafter the Option Plan and
Directors Plan may be referred to as the "Plans". Stock options must be granted
under the Plans at not less than 100% of fair value at the date of grant and
have a maximum life of ten years from the date of grant. Options and other
awards under the Plans may be exercised in compliance with such requirements as
determined by a committee of the Board of Directors.
A summary of the status of the stock option Plans at December 31, 2002,
2001 and 2000 and changes during the years ended on those dates are as follows:
2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 1,146,001 $25.24 826,113 $28.26 522,901 $20.59
Granted 544,657 4.03 389,367 18.17 409,017 36.26
Exercised - - (27,671) 23.31 (76,720) 18.10
Forfeited (120,742) 20.09 (41,808) 25.92 (29,085) 29.66
- -------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,569,916 $18.28 1,146,001 $25.24 826,113 $28.26
- -------------------------------------------------------------------------------------------------------------------------
Exercisable at end of year 656,591 $25.09 476,135 $25.52 262,104 $20.52
Weighted average fair value per option
of options granted during the year $ 2.75 $ 7.96 $14.61
=========================================================================================================================
The following table summarizes information about stock options outstanding at
December 31, 2002:
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------------
Weighted- Weighted-
Average Average Weighted-
Number of Remaining Exercise Number of Average Exercise
Range of Exercise Prices Shares Contractual Life Price Shares Price
- ------------------------------------------------------------------------------------------------------------------------
$.53 - $3.98 221,950 9 years $ 2.65 1,435 $ 2.66
$4.34 - $15.49 304,797 9 years $ 5.13 20,904 $14.45
$15.53 - $20.18 278,769 7 years $16.64 135,269 $17.28
$20.37 - $22.625 338,767 6 years $21.62 216,299 $21.75
$23.00 - $40.25 256,533 7 years $30.05 212,384 $29.49
$40.50 - $45.06 169,100 7 years $40.69 70,300 $40.73
- ------------------------------------------------------------------------------------------------------------------------
$.53 - $45.06 1,569,916 8 years $18.28 656,591 $25.09
The Company had a non-compensatory Employee Stock Purchase Plan ("ESPP") that
qualifies under IRC Section 423. A total of 840,000 shares of common stock could
have been issued under the ESPP and there were 258,350 shares remaining at
December 31, 2002. Under the ESPP, qualified employees can use up to 10% of
their gross wages to purchase the Company's common stock at a price 10% less
than the market price on the purchase date. The Company's board of directors
suspended participation in the ESPP effective January 1, 2003.
Note 18. Commitments and Contingencies
Operating Leases
The Company has several operating leases for administrative office space, retail
space, tower space, channel rights, and equipment, certain of which have renewal
options. The leases for retail and tower space have initial lease periods of
three to thirty years. These leases are associated with the operation of
wireless digital PCS services primarily in Virginia and West Virginia. The
leases for channel rights relate to the Company's wireless cable operations and
have initial terms of
35
three to ten years. The equipment leases have an initial term of three years.
Rental expense for operating leases was $14.7 million, $14.4 million and $5.6
million in 2002, 2001 and 2000, respectively. The total amount committed under
these lease agreements is: $13.2 million in 2003, $12.6 million in 2004, $9.0
million in 2005, $5.2 million in 2006, $3.6 million in 2007 and $21.7 million
for the years thereafter.
Other Commitments and Contingencies
In connection with an amendment to the Sprint/Horizon network services agreement
which provides for scheduled wholesale revenue minimums over the 30 months
commencing July 1, 2001, the Company committed to upgrading the Alliances'
network to 3G-1XRTT technology capable of handling high-speed data applications.
The Company had capital outlays of $38 million through the end of 2002 related
to this upgrade. The upgrade is expected to be completed in 2003 with total
estimated capital outlays related to this project being $45 million. Revenue
from this services agreement was $32.5 million, $19.1 million, and $7.0 million
for the years ended December 31, 2002, 2001 and 2000, respectively
Pursuant to the terms of the Sprint/Horizon network services agreement, the
Company has billed Horizon for wholesale minutes of use of its wireless PCS
network. Horizon withheld payment of approximately $1.2 million from the
billings covering October 2002 through December 2002, alleging overbilling by
the Company. In addition, Horizon has alleged that the Company has overbilled
Horizon by approximately $4.8 million for the period from 1999 through September
2002. Management disagrees with Horizon's allegations. The Company is seeking to
resolve this dispute and has recognized as wholesale revenue amounts collected
to date from revenues earned through December 31, 2002. The wholesale network
services agreement provides for arbitration if the companies cannot settle
disputes that arise under the agreement.
On March 28, 2003, Horizon filed its Form 10-K for the year ending December
31, 2002. This document disclosed that there was substantial doubt about
Horizon's ability to continue as a going concern because of the probability that
Horizon will violate one or more of its debt covenants in 2003. The Company's
future wholesale revenues under the wholesale network services agreement with
Horizon could be materially impacted if Horizon was to be unable to continue as
a going concern. No other single customer accounted for more than 10% of the
Company's consolidated revenues in any of the three years during the period
ended December 31, 2002.
The Company entered into an asset purchase agreement for the sale of the
Company's wireline cable business for $8.7 million. Also included in this
agreement was a fiber optic Indefeasible Right to Use ("IRU") agreement for some
joint use fibers owned by the ILEC segment. The Company expects the gain or loss
on this sale to be minimal. Additionally, the Company has entered into an asset
purchase agreement for the sale of the Company's Portsmouth call center building
for $6.9 million. The agreements are subject to bankruptcy court approval and
ordinary closing terms and conditions, including FCC approval of the wireline
cable disposition. The net book value of the Portsmouth call center assets was
$8.1 million at December 31, 2002. The Company will record $1.2 million of
accelerated deprecation during 2003 prior to the planned disposition.
In addition to the items discussed above, the Company is periodically
involved in disputes and legal proceedings arising from normal business
activities. In the opinion of management, resolution of these matters will not
have a materially adverse effect on the financial position or future results of
operations of the Company and adequate provision for any probable losses has
been made in our financial statements.
Other than the commitments noted separately above, the Company has
commitments for capital expenditures of approximately $10 million as of December
31, 2002, all of which are expected to be incurred in fiscal 2003.
Note 19. Restructuring Charge
In March 2002, the Company approved a plan that would reduce its workforce by
approximately 15% through the offering of early retirement incentives, the
elimination of certain vacant and budgeted positions and the elimination of some
jobs. A total of 96 current employees left the Company as a result of these
actions. The employees impacted were primarily in management, operations,
engineering and a number of other support functions. The plan also involved
exiting certain facilities in connection with the workforce reduction and
centralizing certain functions.
36
Restructuring charges were reported during the first, second and fourth
quarters of 2002 totaling $4.3 million relating to severance costs and pension
curtailment costs for employees affected by the reduction in force activity,
lease termination obligations associated with the exit of certain facilities and
financial restructuring legal and advisor costs (see Notes 1 and 3). At December
31, 2002, $1.5 million remained accrued of the total operational restructuring
costs relating to the early retirement program ($1.1 million cost - see Note 15)
and certain obligations pursuant to employment contracts and salary continuation
plans.
Note 20. Pro Forma Financial Information (unaudited)
The pro forma unaudited results of operations for the years ended December 31,
2001, assuming consummation of the transactions more fully described in Notes 6,
7, 8 and 9 as of January 1, 2001 are as follows:
(In thousands, except per share data) 2001 2000
==============================================================================
Operating revenues $ 220,230 $ 179,715
Operating expenses other than depreciation
and amortization 199,829 174,546
Depreciation and amortization 83,647 71,087
Operating loss (63,246) (65,918)
Net loss (64,127) (87,323)
Dividend requirements on preferred stock 19,843 18,598
Loss applicable to common shares $ (84,000) $ (105,921)
Net loss per common share:
Basic and diluted $ (4.93) $ (6.30)
As described in the notes referred to above, these unaudited pro forma results
include the results of operations for NTELOS Inc., the VA Alliance, the WV
Alliance, PrimeCo VA, and R&B Communications and exclude the discontinued
operation (directory assistance business), the VA RSA6 analog cellular business
and the RSA5 equity investment earnings. Additionally, it assumes all related
financing and preferred equity transactions described in Notes 8 and 9 occurred
on January 1, 2001.
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which would have actually resulted had the transactions been in effect on
January 1, 2001 or 2000, or of future results of operations.
37
[LOGO] . Ernst & Young LLP . Phone:(703) 747-1000
8484 Westpark Drive Fax:(703) 747-0100
McLean, Virginia 22102 www.ey.com
Report of Independent Auditors
The Board of Directors and
Shareholders of NTELOS Inc.
We have audited the accompanying consolidated balance sheets of NTELOS Inc. and
Subsidiaries as of December 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders' equity (deficit), and cash flows for the
years than ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. The consolidated financial statements
of NTELOS Inc. and Subsidiaries for the year ended December 31, 2000 were
audited by other auditors whose report dated February 22, 2001 expressed an
unqualified opinion on those statements.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of NTELOS Inc. and
Subsidiaries at December 31, 2002 and 2001, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As more fully described in
Note 1, the Company has incurred recurring operating losses and has a working
capital deficit. In addition, on March 4, 2003, the Company filed a petition for
relief under Chapter 11 of the U.S. Bankruptcy Code. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts
and classification of liabilities that may result from the outcome of this
uncertainty.
As discussed in Notes 2 and 3 to the financial statements, effective January 1,
2002 the Company adopted Financial Accounting Standards Board Statement No. 142,
Goodwill and Other Intangible Assets.
/s/ Ernst & Young LLP
April 11, 2003
38
39
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets, March 31, 2003 and December 31, 2002 41-42
Unaudited Condensed Consolidated Statements of Operations, Three Months Ended March 31, 2003 and 2002 43
Unaudited Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, 2003 and 2002 44
Unaudited Condensed Consolidated Statements of Shareholders' Deficit, Three Months Ended March 31, 2003 and 2002 45
Notes to Unaudited Condensed Consolidated Financial Statements 46-55
40
CONDENSED CONSOLIDATED BALANCE SHEETS
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
MARCH 31, 2003 December 31,
(In thousands) (Unaudited) 2002
- -------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 24,839 $ 12,216
Accounts receivable, net of allowance of $20,851 ($23,170 in 2002) 33,013 33,748
Inventories and supplies 2,039 2,588
Other receivables and deposits 3,049 3,058
Prepaid expenses and other 6,405 3,557
- -------------------------------------------------------------------------------------------------------------------
69,345 55,167
- -------------------------------------------------------------------------------------------------------------------
INVESTMENTS AND ADVANCES
Securities and investments 533 867
Restricted investments 7,829 7,829
- -------------------------------------------------------------------------------------------------------------------
8,362 8,696
- -------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
Land and building 51,151 51,026
Network plant and equipment 450,315 437,938
Furniture, fixtures and other equipment 65,177 65,366
- -------------------------------------------------------------------------------------------------------------------
Total in service 566,643 554,330
Under construction 16,828 15,722
- -------------------------------------------------------------------------------------------------------------------
583,471 570,052
Less accumulated depreciation 153,315 135,597
- -------------------------------------------------------------------------------------------------------------------
430,156 434,455
- -------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Goodwill, net 86,016 86,016
Other intangibles, less accumulated amortization of $1,466 ($1,379 in
2002) 1,793 1,879
Radio spectrum licenses in service 107,234 107,234
Other radio spectrum licenses, net 2,441 2,572
Radio spectrum licenses not in service 7,107 7,155
Deferred charges 4,917 18,563
Deferred income taxes 7,485 7,784
- -------------------------------------------------------------------------------------------------------------------
216,993 231,203
- -------------------------------------------------------------------------------------------------------------------
$ 724,856 $ 729,521
===================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
41
CONDENSED CONSOLIDATED BALANCE SHEETS
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
MARCH 31, 2003 December 31,
(In thousands) (Unaudited) 2002
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Current Liabilities Not Subject to Compromise
Long-term debt in default and scheduled maturities $ 2,371 $ 623,762
Deferred liabilities - interest rate swap agreements relating to debt in
default - 20,012
Accounts payable 9,470 22,350
Advance billings and customer deposits 11,380 13,013
Accrued payroll 1,620 6,160
Accrued interest 459 19,131
Deferred revenue 1,106 4,455
Income tax payable 106 50
Other accrued liabilities 1,877 5,177
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities Not Subject to Compromise 28,389 714,110
Current Liabilities Subject to Compromise 722,417 -
- -------------------------------------------------------------------------------------------------------------------
750,806 714,110
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES
Long-term Liabilities Not Subject to Compromise
Long-term debt 11,958 18,960
Other long-term liabilities
Retirement benefits 287 25,542
Long-term deferred liabilities 21,473 26,899
- -------------------------------------------------------------------------------------------------------------------
Total Long-term Liabilities Not Subject to Compromise 33,718 71,401
Long-term Liabilities Subject to Compromise 40,916 -
- -------------------------------------------------------------------------------------------------------------------
74,634 71,401
- -------------------------------------------------------------------------------------------------------------------
Minority Interests 503 523
- -------------------------------------------------------------------------------------------------------------------
Redeemable Convertible Preferred Stock Not Subject to Compromise - 286,164
Redeemable Convertible Preferred Stock Subject to Compromise 298,246 -
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred stock, no par value per share, authorized 1,000
shares; none issued - -
Common stock, no par value per share, authorized 75,000 shares;
issued 17,780 shares (17,780 in 2002) 182,380 182,380
Stock warrants 22,874 22,874
Accumulated deficit (589,673) (532,565)
Accumulated other comprehensive loss (14,914) (15,366)
- -------------------------------------------------------------------------------------------------------------------
(399,333) (342,677)
- -------------------------------------------------------------------------------------------------------------------
$ 724,856 $ 729,521
===================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
42
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
(Unaudited)
Three Months Ended
- -------------------------------------------------------------------------------------------------------------------
MARCH 31, March 31,
(In thousands, except per share amounts) 2003 2002
- -------------------------------------------------------------------------------------------------------------------
OPERATING REVENUES
Wireless PCS $ 46,782 $ 35,771
Wireline communications 25,130 22,318
Other communication services 1,539 1,932
- -------------------------------------------------------------------------------------------------------------------
73,451 60,021
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Cost of wireless sales (exclusive of items shown separately below) 10,780 12,223
Maintenance and support 15,689 16,891
Depreciation and amortization 17,911 23,095
Accretion of asset retirement obligations 152 -
Customer operations 18,065 15,771
Corporate operations 5,665 5,854
Operational and capital restructuring charges 2,427 1,267
- -------------------------------------------------------------------------------------------------------------------
70,689 75,101
- -------------------------------------------------------------------------------------------------------------------
Operating Income (Loss) 2,762 (15,080)
OTHER INCOME (Expenses)
Gain on sale of assets - 1,955
Interest expense (contractual interest for the three months ended
March 31, 2003 was $21,836) (15,285) (19,004)
Other expenses (86) (133)
Reorganization items (29,358) -
- -------------------------------------------------------------------------------------------------------------------
(41,967) (32,262)
Income Tax (Benefit) 326 (1,569)
- -------------------------------------------------------------------------------------------------------------------
(42,293) (30,693)
Minority Interests in Losses of Subsidiaries 21 29
- -------------------------------------------------------------------------------------------------------------------
Loss before Cumulative Effect of an Accounting Change (42,272) (30,664)
Cumulative effect of an accounting change 2,754 -
- -------------------------------------------------------------------------------------------------------------------
NET LOSS (45,026) (30,664)
Dividend requirements on preferred stock (contractual preferred stock
dividends for the three months ended March 31, 2003 were $5,367) 3,757 5,019
Reorganization item - accretion of preferred stock 8,325 -
- -------------------------------------------------------------------------------------------------------------------
Loss Applicable to Common Shares $ (57,108) $ (35,683)
===================================================================================================================
Per Common Share - Basic and Diluted:
Loss applicable to common shares before cumulative effect of an
accounting change $ (3.06) $ (2.07)
Cumulative effect of an accounting change (.15) -
- -------------------------------------------------------------------------------------------------------------------
Loss Applicable to Common Shares $ (3.21) $ (2.07)
Average shares outstanding - basic and diluted 17,780 17,220
===================================================================================================================
Pro forma amounts assuming the accounting change is applied retroactively:
- -------------------------------------------------------------------------------------------------------------------
Loss applicable to common shares $ (54,354) $ (35,929)
Loss applicable to common shares (per share) - basic and diluted $ (3.06) $ (2.09)
See Notes to Condensed Consolidated Financial Statements.
43
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
(Unaudited)
THREE MONTHS ENDED
- --------------------------------------------------------------------------------------------------------------------
(In thousands) MARCH 31, 2003 March 31, 2002
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
- --------------------------------------------------------------------------------------------------------------------
Net loss $ (45,026) $ (30,664)
Cumulative effect of an accounting change 2,754 -
- --------------------------------------------------------------------------------------------------------------------
Loss before cumulative effect of an accounting change (42,272) (30,664)
Adjustments to reconcile net income to net cash provided by operating
activities:
Non cash reorganization items 28,066 -
Gain on sale of assets - (1,955)
Depreciation and amortization 17,911 23,095
Accretion of asset retirement obligations 152 -
Deferred taxes - (1,820)
Retirement benefits and other 553 784
Net interest expense from restricted cash - 9,100
Accrued interest income on restricted cash - (102)
Accretion of loan discount and origination fees 853 1,072
Changes in assets and liabilities from operations, net of effects of
acquisitions and dispositions:
Decrease (increase) in accounts receivable 735 (1,597)
Decrease in inventories and supplies 549 3,792
(Increase) decrease in other current assets (2,839) 1,412
Changes in income taxes 56 68
Increase in accounts payable 5,944 2,896
Increase (decrease) in other current liabilities 6,097 (142)
Accrued interest expense on debt subject to compromise 8,612 -
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,417 5,939
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (11,377) (29,120)
Proceeds from sale of assets and other 335 10,606
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,042) (18,514)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt - 10,000
Additional payments under line of credit (net) and other debt instruments (752) (1,770)
Other - (1,034)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (752) 7,196
- --------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 12,623 (5,379)
Cash and cash equivalents:
Beginning 12,216 7,293
- --------------------------------------------------------------------------------------------------------------------
Ending $ 24,839 $ 1,914
====================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
44
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
(Unaudited)
Accumulated Total
Other Shareholders'
Common Stock Accumulated Comprehensive (Deficit)
(In thousands) Shares Amount Warrants Deficit (Loss) Income Equity
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 17,209 $ 182,093 $ 22,874 $ (23,201) $ (8,200) $ 173,566
Comprehensive loss:
Net loss (30,664)
Derivative gain, net of $735 of
deferred tax benefit 1,156
Unrealized loss on securities
available for sale, net of $212
of deferred tax benefit (333)
Comprehensive loss (29,841)
Dividends on preferred shares (5,019) (5,019)
Common stock issuance 4 58 58
Shares issued through
employee stock purchase
plan 29 146 146
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2002 17,242 $ 182,297 $ 22,874 $ (58,884) $ (7,377) $ 138,910
=================================================================================================================================
Balance, December 31, 2002 17,780 $ 182,380 $ 22,874 $ (532,565) $ (15,366) $ (342,677)
Comprehensive loss:
Loss before cumulative effect of an
accounting change (42,272)
Cumulative effect of an accounting
change (2,754)
Derivative gain, net of $299 of
deferred taxes 452
Comprehensive loss (44,574)
Dividends on preferred shares
(contractual preferred stock
dividends for the three months ended
March 31, 2003 were $5,367) (3,757) (3,757)
Reorganization item - accretion of
preferred stock (8,325) (8,325)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2003 17,780 $ 182,380 $ 22,874 $ (589,673) $ (14,914) $ (399,333)
=================================================================================================================================
See Notes to Condensed Consolidated Financial Statements.
45
Notes to Condensed Consolidated Financial Statements
NTELOS Inc. and Subsidiaries
(Debtor-in-Possession)
1. ORGANIZATION
Overview
NTELOS Inc. (debtor-in-possession, hereafter referred to as "NTELOS" or the
"Company") is an integrated communications provider that provides a broad range
of products and services to businesses, telecommunication carriers and
residential customers in Virginia and surrounding states. The Company's services
include wireless digital personal communications services ("PCS"), local and
long distance telephone services, dial-up Internet access, DSL (high-speed
Internet access), paging, and wireline and wireless cable television.
On March 4, 2003 (the "Petition Date"), the Company and certain of its
subsidiaries (collectively, the "Debtors"), filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code (the
"Bankruptcy Code") in the United States Bankruptcy Court for the Eastern
District of Virginia (the "Bankruptcy Court"). By order of the Bankruptcy Court,
the Debtors' respective cases are being jointly administered under the case
number 03-32094 (the "Bankruptcy Case") for procedural purposes only. The
Bankruptcy Case was commenced in order to implement a comprehensive financial
restructuring of the Company. Total assets and liabilities for subsidiaries not
included in the Bankruptcy filing were $1,103,000 and $4,000, respectively as of
March 31, 2003. Additionally, revenues and operating loss for these subsidiaries
for the quarter ended March 31, 2003 were $138,000 and $44,000, respectively.
In the first half of 2002, the Company took a number of restructuring steps
which reduced operating expenses and improved operating results, financial
condition and cash flow. Despite the improved operating performance resulting
from these measures and continued execution of the Company's business plan, the
Company continued to require additional cash to fund its operating expenses,
debt service and capital expenditures. In the latter half of 2002, the Company
actively negotiated with its debtholders to develop a comprehensive financial
restructuring plan. Despite its efforts, the Company was unable to reach an
agreement with its debtholders on an out-of-court restructuring plan and,
accordingly, on March 4, 2003, the Company filed a petition for relief under
Chapter 11 of the Bankruptcy Code. For more information regarding the events and
circumstances leading up to the Chapter 11 filing, please refer to Note 1 of the
notes to the consolidated financial statements contained in Item 8 of the
Company's Form 10-K for the year ended December 31, 2002 on file with the
Securities and Exchange Commission.
The Company conducts its operations through a number of wholly-owned or
majority-owned subsidiaries. While it implements the proposed recapitalization,
the Company expects its subsidiaries to continue to operate in the ordinary
course of business.
Proposed Restructuring
The Bankruptcy Case was commenced in order to implement a comprehensive
financial restructuring of the Company, including the senior notes due 2010 (the
"Senior Notes"), subordinated notes due 2011 and preferred and common equity
securities. As of the date of this report, a plan of reorganization (the "Plan")
has not been submitted to the Bankruptcy Court.
In order to meet ongoing obligations during the reorganization process, the
Company entered into a $35 million debtor-in-possession financing facility (the
"DIP Financing Facility"), which was approved by final order of the Bankruptcy
Court on March 24, 2003. As of April 11, 2003, the Company had satisfied all
conditions for full access to the DIP Financing Facility.
The Company anticipates that the Plan will be funded by two sources of capital:
(i) an equity investment made by certain holders of Senior Notes of an aggregate
of $75 million in exchange for new 9% convertible notes ("New Notes") of the
reorganized company and (ii) a credit facility which permits the Company to
continue to have access to its current $225 million of outstanding term loans
with a $36 million revolver commitment ("Exit Financing Facility"). This Exit
46
Financing Facility also provides that the term loans and any new borrowings
under the revolver will be at current rates and existing maturities.
On April 10, 2003, the Company entered into a Plan Support Agreement (the "Plan
Support Agreement") with a majority of the lenders under its Senior Credit
Facility. The Plan Support Agreement provides that the lenders will agree to
support a "Conforming Plan," which must include the following: (i) financing
upon emergence from bankruptcy on agreed terms, (ii) cancellation or conversion
into equity of the reorganized company upon emergence from bankruptcy, of
substantially all of the Company's outstanding debt and equity securities, (iii)
outstanding indebtedness on the effective date of the Plan consisting of only
certain hedge agreements, Exit Financing Facility, New Notes, existing
government loans and certain capital leases, (iv) consummation of the sale of
New Notes on the effective date of the Plan and (v) repayment of the DIP
Financing Facility and the $36 million outstanding under the revolver.
On April 10, 2003, the Company also entered into a Subscription Agreement with
certain holders of Senior Notes for the sale of $75 million aggregate principal
amount of New Notes. The Plan Support Agreement and Subscription Agreement are
subject to, among other things, confirmation of a Conforming Plan.
The Plan Support Agreement provides that a Conforming Plan and accompanying
disclosure statement must be filed with the Bankruptcy Court prior to May 31,
2003 and that a disclosure statement, reasonably acceptable to the lenders, must
be approved by the Bankruptcy Court no later than August 15, 2003. In addition,
the Plan Support Agreement obligates the Company to have filed a Conforming
Plan, solicited votes and conducted a confirmation hearing prior to September
30, 2003.
For more information regarding the Plan Support Agreement and Subscription
Agreement, including conditions to the consummation of such agreements, please
refer to the Company's Form 8-K dated April 10, 2003, which attaches copies of
the agreements.
The Company believes it is making substantial progress with its creditors in
developing a Plan and the Company anticipates filing a Plan that will constitute
a Conforming Plan prior to May 31, 2003. It is likely that, in connection with
the final Plan, the liabilities of the Company will be found in the Bankruptcy
Case to exceed the fair value of its assets. This would result in claims being
paid at less than 100% of their face value and holders of preferred stock being
entitled to little or no recovery and holders of common stock being entitled to
no recovery. At this time, it is not possible to predict with certainty the
outcome of the bankruptcy proceedings.
Bankruptcy Proceeding
The Debtors are currently operating their businesses as debtors-in-possession
under the Bankruptcy Code. Pursuant to the Bankruptcy Code, pre-petition
obligations of the Debtors, including obligations under debt instruments,
generally may not be enforced against the Debtors, and any actions to collect
pre-petition indebtedness are automatically stayed, unless the stay is lifted by
the Bankruptcy Court. The pre-petition obligations of the Debtors are subject to
compromise under a plan of reorganization. As part of the reorganization
process, the Debtors have attempted to notify all known or potential creditors
of the Chapter 11 filings for the purpose of identifying all pre-petition claims
against the Debtors. June 10, 2003 (the "Bar Date") was set by the Court as the
date by which creditors, other than governmental units (as defined by the
Bankruptcy Code), are required to file proof of claims against the Debtors. The
bar date for governmental units to file proof of claims is August 31, 2003. At
this time, the ultimate amount of claims that will be allowed by the Court is
not determinable. In addition, as debtors-in-possession, the Debtors have the
right, subject to the Bankruptcy Court approval and certain other limitations,
to assume or reject executory contracts and unexpired leases. The Debtors are in
the process of reviewing their executory contracts and unexpired leases to
determine which they will reject. The Debtors cannot presently determine or
reasonably estimate the ultimate liability that may result from rejecting
contracts or leases or from the filing of claims for any rejected contracts or
leases, and no provisions have yet been made for these items. The amount of the
claims to be filed by the creditors could be significantly different than the
amount of the liabilities recorded by the Debtors.
Since the Petition Date, the Debtors have conducted business in the ordinary
course. After developing the Plan, the Debtors will seek the requisite
acceptance of the Plan by impaired creditors and equity holders, if any, who
will receive a
47
distribution under the Plan, and confirmation of the Plan by the Bankruptcy
Court, all in accordance with the applicable provisions of the Bankruptcy Code.
During the pendency of the Bankruptcy Case, the Debtors may, with the Bankruptcy
Court approval, sell assets and settle liabilities, including for amounts other
than those reflected in the financial statements. The administrative and
reorganization expenses resulting from the Bankruptcy Case will unfavorably
affect the Debtor's results of operations. Future results of operations may also
be adversely affected by other factors related to the Bankruptcy Case. Except as
contemplated by the Plan Support Agreement, no assurance can be given that the
Debtor's creditors will support the proposed Plan, or that the Plan will be
approved by the Bankruptcy Court. Additionally, there can be no assurance of the
level of recovery to which the Debtors' secured and unsecured creditors will
receive.
Basis of Presentation
Our consolidated financial statements have been prepared on a going concern
basis of accounting in accordance with accounting principles generally accepted
in the United States. The going concern basis of presentation assumes that the
Company will continue in operation for the foreseeable future and will be able
to realize its assets and discharge its liabilities in the normal course of
business. Because of the Bankruptcy Case and the circumstances leading to the
filing thereof, there is substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to realize the carrying value
of its assets and discharge its liabilities is subject to substantial
uncertainty. The Company's ability to continue as a going concern depends upon,
among other things, the Company's ability to comply with the terms of the DIP
Financing Facility, confirmation of a plan of reorganization, availability of
exit financing from existing lenders under the Senior Credit Facility, receipt
of additional funding through the issuance of an aggregate of $75 million of New
Notes, and the Company's ability to generate sufficient cash flows from
operations. Our financial statements do not reflect adjustments for possible
future effects on the recoverability of assets or the amounts that may result
from the outcome of the Bankruptcy Case.
The Company has adopted the provisions of AICPA Statement of Position 90-07
("Financial Reporting by Entities in Reorganization Under the Bankruptcy Code")
("SOP 90-07") which apply to the periods after the March 4, 2003 Chapter 11
filing through the application of fresh start accounting upon emergence from
bankruptcy. Accordingly, at March 31, 2003, the Company has separated its
pre-petition liabilities subject to compromise from those that are not (such as
fully secured liabilities that are expected not to be compromised and
post-petition liabilities). The Company's senior notes, subordinated notes and
redeemable convertible preferred stock were adjusted to the estimated allowable
claims for each of these instruments as of March 31, 2003 in accordance with SOP
90-07. This adjustment resulted in reorganization items of $22.4 million
consisting of unaccreted balances relating to the value originally allocated to
the attached stock warrants and preferred stock origination fees. The portion of
this relating to preferred stock was $8.3 million which was separately
classified from the other reorganization items below net loss as "reorganization
items - accretion of preferred stock". Also, deferred charges for loan
origination fees associated with the Senior Credit Facility and Senior Notes of
$14.0 million were written off through the recognition of a reorganization
items. In addition, the Company recognized capital restructuring charges of $1.3
million for professional services related to the Company's financial
reorganization for the period March 4, 2003 to March 31, 2003. Professional fees
for the period January 1, 2003 through March 3, 2003 totaled $2.4 million and
continued to be classified within "Operational and Capital Restructuring
Charges" in the March 31, 2003 Statement of Operations.
Generally, all actions to enforce or otherwise effect repayment of pre-petition
liabilities as well as all pending litigation against the Debtors are stayed
while the Debtors continue their business operations as debtors-in-possession.
Liabilities that may be affected by the Plan are reported at the amounts
expected to be allowed as determined in the bankruptcy process (referred to as
"allowable claims"). An allowable claim is the amount that is determined to
represent a valid claim against the Company. The final settlement amount may
differ significantly from the allowable claim. In the Bankruptcy Case,
substantially all unsecured liabilities as of the Petition Date are subject to
compromise under a plan of reorganization to be voted on by impaired creditors
and equity holders, if any, who will receive a distribution under the Plan, and
approved by the Bankruptcy Court. The ultimate amount of and settlement terms
for such liabilities are subject to this approved plan of reorganization and,
accordingly, are not presently determinable. Additionally, pursuant to SOP
90-07, professional fees associated with the Bankruptcy Case will be expensed as
incurred and reported as reorganization items. Finally, interest expense and
preferred dividends will be reported only to the extent that they will be paid
during the Bankruptcy Case or that it is probable that they will be an allowed
claim. Accordingly, from March 4, 2003 through
48
March 31, 2003 (period during the first quarter 2003 subsequent to the
Bankruptcy filing), $6.6 million of interest expense and $1.6 million in
preferred dividends, which would have otherwise been recognized, were not
recorded pursuant to these requirements.
These consolidated financial statements do not reflect all of the adjustments
that may occur in accordance with the SOP 90-07. It is expected that the
proposed Plan will result in "Fresh Start" reporting pursuant to SOP 90-07.
Under Fresh Start reporting, the value of the reorganized Company would be
determined based on the amount a willing buyer would pay for the Company's
assets upon confirmation of the Plan by the Bankruptcy Court. This value would
be allocated to specific tangible and identifiable intangible assets.
Liabilities existing as of the effective date of the Plan would be stated at the
present value of amounts to be paid based on current interest rates.
2. SIGNIFICANT ACCOUNTING POLICIES
In the Company's opinion, the accompanying condensed consolidated financial
statements which are unaudited, except for the condensed consolidated balance
sheet dated December 31, 2002, which is derived from audited financial
statements, contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of March 31,
2003 and December 31, 2002, the results of operations for the three months ended
March 31, 2003 and 2002 and cash flows for the three months ended March 31, 2003
and 2002. The results of operations for the three months ended March 31, 2003
and 2002 are not necessarily indicative of the results to be expected for the
full year.
ASSET IMPAIRMENT CHARGES
The Company adopted Statement of Financial Accounting Standard No. 142, Goodwill
and Other Intangible Assets ("SFAS No. 142"), and Statement of Financial
Accounting Standard No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("SFAS No. 144"), on January 1, 2002.
The Company reported $402.9 million in asset impairment charges in the fourth
quarter of 2002. For more information regarding this testing and other relevant
facts and circumstances related to the asset impairment charge recorded in the
fourth quarter of 2002, please refer to Note 2 of the notes to the consolidated
financial statements contained in Item 8 of the Company's Form 10-K for the year
ended December 31, 2002 on file with the Securities and Exchange Commission.
The Company has considered the existence of further impairment indicators at
March 31, 2003 or after which would require re-measurement for the purpose of
determining whether additional adjustments or disclosures are required. The
Company does not believe that there is sufficient evidence of impairment
indicators to warrant re-measurement at this time.
After adjustments for the aforementioned asset impairment charges, the cost and
net book value of the remaining goodwill and licenses with indefinite lives at
March 31, 2003 and December 31, 2002 followed by the totals by reportable unit
are indicated in the following table.
49
Net Book
(In thousands) Cost Value
- -----------------------------------------------------------------------------------------------
Goodwill $ 93,540 $ 86,016
PCS Radio Spectrum Licenses In Service 107,386 107,234
- -----------------------------------------------------------------------------------------------
Total Indefinite Lived Assets $ 200,926 $ 193,250
===============================================================================================
Goodwill and Indefinite Lived Assets by Reporting Unit
Wireless PCS $ 107,386 $ 107,234
Telephone 68,472 65,463
CLEC - -
Network 4,683 4,683
Internet 12,665 9,833
Other
Wireline Cable 7,720 6,037
Wireless Cable - -
- -----------------------------------------------------------------------------------------------
Total Indefinite Lived Assets $ 200,926 $ 193,250
===============================================================================================
ACCOUNTING FOR ASSET RETIREMENT OBLIGATION
Effective January 1, 2003, the Company changed its method of accounting for
asset retirement obligations in accordance with FASB Statement No. 143,
Accounting for Asset Retirement Obligations. Previously, the Company had been
recognizing amounts related to asset retirement obligations as operating expense
when the specific work was performed. Under the new accounting method, the
Company now recognizes asset retirement obligations in the period in which they
are incurred if a reasonable estimate of a fair value can be made.
The Company recorded the effect of the adoption of this standard as of January
1, 2003 in its statement of operations by reporting a $2.8 million charge for
the cumulative effect of this accounting change. There is no income tax impact
on this amount as the $1.1 million income tax benefit is fully offset by the
related valuation reserve (see Note 6). Additionally, $5.6 million of asset
retirement obligations and retirement obligation assets with the net book value
of $2.7 million were recorded. In addition to the cumulative effect impact
reported in the statement of operations, the Company reported depreciation
charges related to the retirement obligation assets and accretion expenses
related to the asset retirement obligations for the quarter ended March 31, 2003
of $.1 million and $.2 million, respectively.
The Company enters into long term leasing arrangements primarily pertaining to
tower sites and retail store locations in its wireless segment. Additionally, in
its wireline operations, the Company enters into various facility co-location
agreements and is subject to locality ordinances. In both cases, the Company
constructs assets at these locations and, in accordance with the terms of many
of these agreements, the Company is obligated to restore the premises to its
original condition at the conclusion of the agreements, generally at the demand
of the other party to these agreements. The Company recognized the fair value of
a liability for an asset retirement obligation and capitalized that cost as part
of the cost basis of the related asset, depreciating it over the useful life of
the related asset. The following table describes all changes to the Company's
asset retirement obligation liability (in thousands):
Asset retirement obligation at December 31, 2002 $ -
Liability recognized in transition 5,484
Accretion of asset retirement obligations 152
--------
Asset retirement obligation at March 31, 2003 $ 5,636
========
The pro forma asset retirement obligation liability balances as if SFAS No. 143
had been adopted when the asset retirement obligations were incurred (rather
than January 1, 2003) are as follows (in thousands):
50
2003 2002
--------------------------
Pro forma amounts of liability for asset
retirement obligation at January 1 $ 5,484 $ 4,815
Pro forma amounts of liability for asset
retirement obligation at March 31 $ 5,636 $ 4,945
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation plans under
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, and follows the disclosure only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. The Company
has elected to apply the disclosure only provisions of SFAS No. 123 and the
revised disclosure requirements of SFAS No. 148.
Had compensation cost been recorded based on the fair value of awards at the
grant date, the pro forma impact on the Company's loss applicable to common
shares and loss per common share - basic and diluted would have been as follows
(in thousands except per share amounts):
March 31, March 31,
2003 2002
---------------------------------------------------------------------------------
Loss applicable to common shares, as reported $ (57,108) $ (35,683)
Deduct: Total stock-based employee compensation
expense determined under fair value based
method, net of tax 325 427
---------------------------------------------------------------------------------
Pro forma loss applicable to common shares $ (57,433) $ (36,110)
=================================================================================
Loss applicable to common shares (per share):
Basic and diluted - as reported $ (3.21) $ (2.07)
Basic and diluted - pro forma $ (3.23) $ (2.10)
FINANCIAL STATEMENT CLASSIFICATION
Certain amounts on the prior year financial statements have been reclassified,
with no effect on net income, to conform to classifications adopted in 2003.
3. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company manages its business segments with separable management focus and
infrastructures. The "Other" segment is comprised of the paging operation, all
cable operations and the other communications services operations. Additionally,
certain unallocated corporate related items that, in management's opinion do not
provide direct benefit to the operating segments, are included in the Other
segment. Total unallocated corporate operating expenses were $5.3 million and
$2.1 million for the three month periods ended March 31, 2003 and 2002,
respectively. Within the current year amount is $2.4 million of pre-petition
bankruptcy-related professional service fees and within the prior year amount is
$1.3 million of operational restructuring charges. Both of these amounts are
classified as operational and capital restructuring charges in the statement of
operations.
Depreciation and amortization of corporate assets is included in the "Other"
column in the tables below. This amounted to $.1 million and $.1 million for the
quarters ended March 31, 2003 and 2002, respectively, of the total "Other"
depreciation and amortization.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. These segments are described in more detail in
Note 4 of the notes to the consolidated financial statements in Item 8 of the
Company's Form 10-K for the year ended December 31, 2002 on file with the
Securities and Exchange Commission.
51
(In thousands) TELEPHONE NETWORK CLEC INTERNET WIRELESS PCS OTHER TOTAL
- -------------------------------------------------------------------------------------------------------------------------------
As of and for the three months ended
March 31, 2003
Operating Revenues $ 12,717 $ 1,762 $ 6,050 $ 4,601 $ 46,782 $ 1,539 $ 73,451
Operating Income (Loss) 6,303 364 1,232 971 (2,312) (3,796) 2,762
Less: Reconciling items to arrive
at EBITDA/1/, a non-GAAP measure:
Depreciation & Amortization 2,440 909 842 767 12,590 363 17,911
Accretion of asset retirement
obligations 2 1 8 - 141 - 152
-----------------------------------------------------------------------------------------
EBITDA 8,745 1,274 2,082 1,738 10,419 (3,433) 20,825
-----------------------------------------------------------------------------------------
Total Segment Assets 142,464 35,980 33,287 16,833 386,428 15,705 630,697
Corporate Assets 94,159
------------
Total Assets $ 724,856
============
Total Expenditures for Long-Lived
Segment Assets/2/ $ 965 $ 299 $ 610 $ 639 $ 8,327 $ 537 $ 11,377
As of and for the three months ended
March 31, 2002
Operating Revenues $ 10,509 $ 2,243 $ 4,943 $ 4,622 $ 35,771 $ 1,933 $ 60,021
Operating (Loss) Income 4,456 971 (168) (263) (17,951) (2,125) (15,080)
Less: Reconciling items to arrive
at EBITDA/1/, a non-GAAP measure:
Depreciation &Amortization 1,807 700 710 982 18,196 700 23,095
-----------------------------------------------------------------------------------------
EBITDA 6,263 1,671 542 719 245 (1,425) 8,015
-----------------------------------------------------------------------------------------
Total Segment Assets 142,022 58,087 32,239 17,420 771,170 31,033 1,051,971
Corporate Assets 116,767
------------
Total Assets $ 1,168,738
============
Total Expenditures for Long-Lived
Segment Assets/2/ $ 1,161 $ 1,827 $ 1,357 $ 543 $ 23,014 $ 1,218 $ 29,120
/1/ To supplement its financial statements presented on a GAAP basis, the
Company references non-GAAP measures, such as EBITDA, to measure operating
performance. Management believes EBITDA to be a meaningful indicator of the
Company's performance that provides useful information to investors regarding
the Company's financial condition and results of its operations. Presentation of
EBITDA is consistent with the Company's past practice and EBITDA is a non-GAAP
measure commonly used in the communications industry and by financial analysts
and others who follow the industry to measure operating performance. EBITDA
should not be construed as an alternative to operating income or cash flows from
operating activities (both of which are determined in accordance with generally
accepted accounting principles) or as a measure of liquidity.
/2/ Includes purchases of long-lived assets other than deferred charges and
deferred tax assets.
4. LONG TERM DEBT IN DEFAULT AND OTHER LONG-TERM DEBT
On March 4, 2003, the Company and certain of its subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code (see Note 1). In addition, the Company did not make the scheduled
semi-annual interest payments due on February 18, 2003 on its 13% senior notes
due 2010 ("Senior Notes") and 13.5% subordinated notes due 2011 ("Subordinated
Notes") of $18.2 million and $6.4 million, respectively. As a result of the
bankruptcy filing, a default for non-payment of these interest payments and
non-compliance with a debt to capitalization covenant under its credit
agreement, dated July 26, 2000, as amended (also referred to as "Senior Credit
Facility"), the Company has classified borrowings under its Senior Credit
Facility, Senior Notes and Subordinated Notes as current liabilities within the
caption "Long-term debt in default and scheduled maturities" at December 31,
2002 and within current liabilities subject to compromise at March 31, 2003.
The Company has borrowed $261 million as of December 31, 2002 and March 31, 2003
under its Senior Credit Facility. The Company was in default of the debt to
total capitalization covenant requirement at December 31, 2002. This covenant
was not met due to the significant asset impairment charges recognized in the
fourth quarter of 2002. Accordingly, due to this and other issues noted above,
access to the Senior Credit Facility was restricted and the debt, along with the
other debt instruments containing cross-default provisions were listed as
current obligations at December 31, 2002. At March 31, 2003, all of the debt,
except for the 6.25% to 7.0% notes payable secured by certain PCS radio spectrum
licenses ($7.7 million at March 31, 2003, the current portion of which is $1.9
million, and $8.2 million at December 31, 2002) and the senior secured 5.0% to
6.05% notes payable ($6.6 million at March 31, 2003, the current portion of
which is $.5 million, and $6.7 million at December 31, 2002), was classified as
current, within the liabilities
52
subject to compromise caption. The debt will remain subject to compromise under
the requirements of SOP 90-07 pending consummation of the Company's plan of
reorganization. Additionally, under the provisions of 90-07, interest expense
and preferred dividends will be reported only to the extent that they will be
paid during the Bankruptcy Case or that it is probable that they will be an
allowed claim. Accordingly, from March 4, 2003 through March 31, 2003(period
during the first quarter 2003 subsequent to the bankruptcy filing), $6.6 million
of interest expense and $1.6 million in preferred dividends, which would have
otherwise been recognized, were not recorded pursuant to these requirements.
In order to meet ongoing obligations during the reorganization process, the
Company entered into a $35 million debtor-in-possession financing facility (the
"DIP Financing Facility"), subject to Bankruptcy Court approval. On March 5,
2003, the Bankruptcy Court granted first priority mortgages, security interests,
liens (including priming liens), and super priority claims on substantially all
of the assets of the Debtors to secure the this Facility. On March 24, 2003, the
Bankruptcy Court entered a final order authorizing the Company to access up to
$35 million under the DIP Financing Facility and, as of April 11, 2003, the
Company satisfied all other conditions to obtain full access to the DIP
Financing Facility. At March 31, 2003 and through the date of this filing, the
Company has not borrowed against this facility.
On April 10, 2003, the Company entered into a Subscription Agreement with
certain holders of Senior Notes for the sale of $75 million aggregate principal
amount of New Notes (Note 1). Additionally, the Company anticipates that its
plan of reorganization will be funded by the Exit Financing Facility (Note 1).
This Exit Financing Facility provides that the term loans and any new borrowings
under the revolver will be at current rates and existing maturities.
5. SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION
On May 6, 2003, the Company closed on the sale of its Portsmouth Virginia call
center building for $6.9 million. This 100,000 square foot facility housed part
of the Company's wireless customer care center and certain other support
personnel, as well as provided $.7 million of rental income from third party
tenants. The Company will continue to occupy 7,000 square feet of the facility
through a 7 year operating lease agreement. The customer care center is
currently being transitioned to other Company owned or leased facilities. As
defined in the April 17, 2003 court orders approving this transaction, the net
proceeds from this sale were paid against the senior credit facility.
The Company made its scheduled semi-annual payment of interest for $18.2 million
on the $280 million senior notes out of restricted cash during the quarter
ending March 31, 2002 in accordance with the terms and conditions set forth in
the senior note indenture. See Note 4 above regarding the default for nonpayment
of the semi-annual payment of interest due February 15, 2003.
During the quarter ended March 31, 2002, the Company sold communication towers
for total proceeds of $8.2 million, deferring a $1.3 million gain, which is
being amortized over the twelve-year leaseback period. Additionally, the Company
sold certain inactive PCS licenses for proceeds of $2.4 million, recognizing a
$2.0 million gain.
6. INCOME TAXES
Income taxes decreased $1.9 million, or 121%, from a tax benefit of $1.6 million
for the three months ended March 31, 2002 to tax expense of $.3 million for the
three months ended March 31, 2003. The 2002 benefit is net of a valuation
allowance of $11.0 million. The benefit that was recorded was based on an
evaluation of the future realization of deferred tax assets and the reversal of
our deferred tax liabilities. The deferred tax benefit associated with our
interest rate swap agreement has not been reserved due to the certainty of
realization. The current year tax expense relates to state minimum taxes. At
March 31, 2003, the tax asset valuation reserve was $174.0 million which fully
offsets the related deferred income tax net assets generated primarily from net
operating losses except for the portion related to the swap agreement as
discussed above.
7. EARNINGS PER SHARE
The weighted average number of common shares outstanding, which was used to
compute diluted net income per share in accordance with FASB Statement No. 128,
Earnings Per Share, was not increased by assumed conversion of dilutive stock
options in the three months ended March 31, 2003 and 2002 due to the fact that
the Company recorded a net loss
53
for both periods. For the three months ended March 31, 2003 and 2002, the
Company had common stock equivalents from options totaling 6,000 shares and
145,000 shares, respectively, and stock warrants totaling 286,000 and 299,600,
respectively, which would be dilutive. However, these common stock equivalents
are antidilutive as additional shares would decrease the computed loss per share
information and, therefore, basic and diluted earnings per share are the same.
The Company currently has a total of 1.6 million options outstanding and 1.3
million warrants outstanding to acquire shares of common stock. Of these, .9
million options and all of the warrants are currently exercisable.
8. LIABILITIES AND REDEEMABLE CONVERTIBLE PREFERRED STOCK SUBJECT TO
COMPROMISE
Liabilities subject to compromise in the Bankruptcy Case at March 31, 2003
consisted of the following (in thousands):
Current Liabilities Subject to Compromise
Accrued interest on long-term debt $ 27,784
Other current liabilities 38,044
Variable rate senior secured term loans 260,250
13.0% unsecured Senior Notes 276,674
13.5% unsecured Subordinated Notes 95,000
Net present value of long-term capital leases 5,393
Interest rate swap agreements 19,272
-----------
Total Current Liabilities Subject to Compromise 722,417
-----------
Long-term Liabilities Subject to Compromise
Net present value of long-term capital leases 4,527
Retirement benefits and other long-term deferred liabilities 36,389
-----------
Total Long-term Liabilities Subject to Compromise 40,916
-----------
Redeemable convertible preferred stock 298,246
-----------
$ 1,061,579
===========
9. OPERATIONAL AND CAPITAL RESTRUCTURING CHARGES
During the quarter ended March 31, 2003, the Company incurred $3.7 million of
legal, financial, and bankruptcy related professional fees in connection with
the Company's comprehensive financial restructuring, $2.4 million of which
relates to the period January 1, 2003 through March 3, 2003 (period prior to the
Bankruptcy filing) and is classified as operational and capital restructuring
charges and the remaining $1.3 million of which relates to the period March 4,
2003 through March 31, 2003 and is classified in reorganization items (Note 1).
In March 2002, the Company approved a plan that would reduce its workforce by
approximately 15% through the offering of early retirement incentives, the
elimination of certain vacant and budgeted positions and the elimination of some
jobs. The plan also involved exiting certain facilities in connection with the
workforce reduction and centralizing certain functions. Under the accounting
provisions of Emerging Issues Task Force 94-3 (prior to the adoption of SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities"), a
restructuring charge was reported in the first quarter of 2002 for $1.3 million
relating to severance costs for employees notified in the first quarter 2002 and
estimated lease obligations associated with the exit of certain facilities under
the accounting provisions. Had the Company reported these charges under SFAS No.
146, the timing of recognition during 2002 would have been impacted as the
related liabilities would have been recognized as incurred.
10. COMMITMENTS AND CONTINGENCIES
In late 2002, Horizon disputed certain categories of charges under the
agreement, alleging the Company overcharged Horizon $4.8 million during the
period commencing October 1999 and ending September 2002 and $1.2 million for
the period commencing October 2002 and ending December 2002. Management
disagrees with Horizon's allegations.
Horizon withheld these categories of charges from payments made from and after
December 2002 and failed to timely pay their January 2003 invoice due following
the Filing Date. On March 11, 2003, Horizon filed a motion with the Bankruptcy
Court which effected an administrative freeze as to the amounts payable on the
January invoice. On March
54
12, 2003, the Company notified Horizon of the failure to make payment on
the January invoice, reserving the right to terminate the agreement in
accordance with the terms thereof. On March 24, 2003, the parties entered a
Stipulation with the Bankruptcy Court pursuant to which Horizon paid the January
invoice and agreed to pay all future invoices and the Company agreed not to
exercise their termination right, assuming all future payments are made in
accordance with the agreement. The Stipulation further provides that Horizon is
permitted to withhold amounts under monthly invoices in excess of $3 million if
it determines in good faith that such amounts in excess of $3 million represent
an overcharge by the Company, pending resolution of the dispute. In addition,
the parties agreed to continue to discuss and negotiate, in good faith, their
dispute regarding Horizon's claim. Following a 30 day-period, either party had
the right to submit the dispute to arbitration in accordance with the agreement.
For the three months ended March 31, 2003, Horizon withheld an additional $.4
million relating to the billings for this time period. The Company fully
reserved for the amounts withheld. Discussions have continued with Horizon but
no significant resolutions have been reached.
On March 28, 2003, Horizon filed its Form 10-K for the year ending December 31,
2002. This document disclosed that there was substantial doubt about Horizon's
ability to continue as a going concern because of the probability that Horizon
will violate one or more of its debt covenants in 2003. The Company's future
wholesale revenues under the wholesale network services agreement with Horizon
could be materially impacted if Horizon were unable to continue as a going
concern.
In addition to the item discussed above, the Company is periodically involved in
disputes and legal proceedings arising from normal business activities. In the
opinion of management, resolution of these matters will not have a materially
adverse effect on the financial position or future results of operations of the
Company and adequate provision for any probable losses has been made in our
financial statements.
55
EXHIBIT F
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is dated as of April 10,
2003, by and between NTELOS Inc., Debtor In Possession, a Virginia corporation
with its principal place of business at 401 Spring Lane, Suite 300, P.O. Box
1990, Waynesboro, Virginia 22980 (together with the reorganized company, the
"Company"), and the purchasers listed on Schedule I (each a, "Purchaser" and
collectively, the "Purchasers").
RECITALS
WHEREAS, on March 4, 2003, the Company and certain of its subsidiaries
(collectively, the "Debtors") filed in the United States Bankruptcy Court for
the Eastern District of Virginia, Richmond Division (the "Bankruptcy Court"),
petitions for relief under chapter 11 of title 11 of the United States Code (the
"Chapter 11 Cases") and have continued in possession of their assets as debtors
in possession;
WHEREAS, the Debtors intend to consummate a financial restructuring
pursuant to a plan of reorganization (the "Plan") to be filed in the Chapter 11
Cases;
WHEREAS, the Company, the subsidiary guarantors party thereto, the
lender parties party thereto (the "Lenders") and Wachovia Bank, National
Association (the "Agent"), have entered into a Revolving Credit and Guaranty
Agreement dated as of March 6, 2003 (as may be amended, the "DIP Facility")
pursuant to which the Lenders have agreed to provide up to $35 million (the "DIP
Commitment") of debtor-in-possession financing to the Company;
WHEREAS, it is a condition precedent to the Company having full access
to the DIP Commitment that the Company provide evidence to the Agent that at
least $75 million of new financing will be in place on the effective date of the
Plan (the "Plan Effective Date"), a portion of which shall be used to pay in
full the unpaid balance of the DIP Facility on the Plan Effective Date and to
pay in full (subject to the Company's right to reborrow under the Exit Facility)
the revolving loans then outstanding under the credit agreement dated as of July
26, 2000 among the Company, the subsidiary guarantors party thereto, the lender
parties party thereto, and Wachovia Bank, National Association, as
Administrative Agent and Collateral Agent (as amended, the "Pre-Petition Credit
Agreement");
WHEREAS, upon the terms and subject to the conditions set forth in the
Plan Support Agreement, dated as of April 10, 2003 and attached as Exhibit A
hereto (the "Plan Support Agreement"), among the Company and the lenders party
thereto, the Company and such lenders have reached certain agreements with
respect to a Plan (and disclosure statement) that includes the following terms
(a "ConformingPlan"): (i) an exit financing facility in replacement of the Pre-
Petition Credit Agreement conforming in all material respects with the terms set
forth on Exhibit B (the "Exit Facility"); (ii) the cancellation of all existing
senior notes, subordinated notes, indentures, other debt for borrowed money,
preferred stock, common stock, options and other equity securities of the
Company (provided that some or all of the holders of the foregoing may receive
equity securities of the reorganized Debtors) other than (A) the Exit Facility,
(B) the outstanding hedge agreements dated as of September 14, 2000 and
September 15, 2000 with Wachovia Securities and Sun Trust Equitable Securities,
respectively (the "Permitted Hedge Agreements"), (C) the existing RUS/RTB loans
having an aggregate principal amount of approximately $6,712,000 (the "Permitted
RUS/RTB Loans"), (D) the existing FCC loans having an aggregate principal amount
of approximately $8,180,000 (the "Permitted FCC Loans"), and (E) the existing
capital leases having an aggregate net present value of approximately
$10,149,000 and such other capital leases as may be agreed upon by the
Purchasers and the Company (the "Permitted Capital Leases"); (iii) on the Plan
Effective Date, the reorganized Debtors have no indebtedness for borrowed money
other than (A) the Exit Facility, (B) the Convertible Notes (as defined below),
(C) the Permitted Hedge Agreements, (D) the Permitted RUS/RTB Loans, (E) the
Permitted FCC Loans, and (F) the
Permitted Capital Leases; and (iv) the purchase by the Purchasers, severally and
not jointly, on the Plan Effective Date of not less than $75 million of 9.0%
senior unsecured convertible notes due 2013 of the reorganized Company
conforming in all material respects with the terms set forth on Exhibit C
attached hereto (the "Convertible Notes");
WHEREAS, on March 13, 2003, the United States Trustee appointed an
official committee of creditors holding unsecured claims in the Chapter 11 Cases
pursuant to ss. 1102(a)(1) of the Bankruptcy Code (the "Creditors Committee");
WHEREAS, the Purchasers are willing to commit that they will purchase,
severally and not jointly, from the Company not less than $75 million in
aggregate principal amount of Convertible Notes upon the terms and conditions
set forth in this Agreement (the "Investment");
WHEREAS, the purchase by the Purchasers of the Convertible Notes is
fundamental to the Debtors' efforts to effect a confirmable Plan; and
WHEREAS, the Agent on behalf of the Lenders is relying on the
commitments of each of the Purchasers set forth herein in making the full DIP
Facility available to the Company and is an intended third party beneficiary of
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows:
1. Subscription.
(a) Subject to the terms and conditions of this Agreement, at the
Closing (as defined below), the Company shall sell to each Purchaser,
and each Purchaser shall purchase from the Company, Convertible Notes
in the aggregate principal amount set forth opposite such Purchaser's
name of Schedule I.
(b) Subject to the terms and conditions of this Agreement, at the
Closing, the Company shall issue to each Purchaser, for no additional
consideration, shares of the common stock of the reorganized Company
(the "New Common Stock") having an aggregate value equal to the value
set forth opposite such Purchaser's name on Schedule I, which
represents 1.0% of the aggregate principal amount of the Convertible
Notes purchased by such Purchaser (such shares of New Common Stock,
together with the Convertible Notes, the "Securities").
(c) Notwithstanding anything to the contrary set forth herein, if
any Purchaser shall fail at the Closing to purchase from the Company
Convertible Notes in the aggregate principal amount set forth opposite
such Purchaser's name on Schedule I (such Purchaser being referred to
as a "Defaulting Purchaser"), the Company shall offer to each Purchaser
who is not a Defaulting Purchaser (the "Non- Defaulting Purchasers")
the right (but without any obligation) to increase further the
aggregate principal amount of Convertible Notes (and number of shares
of New Common Stock) that such Non-Defaulting Purchaser agreed to
purchase as set forth opposite such Non-Defaulting Purchaser's name on
Schedule I, pro rata in accordance with the aggregate principal amount
of Convertible Notes (and number of shares of New Common Stock) that
all of the Non-Defaulting Purchasers agreed to purchase as set forth
opposite such Non-Defaulting Purchasers' names on Schedule I (with the
right to increase proportionately their respective shares in the event
that one or more of the Non-Defaulting Purchasers declines such offer),
in an aggregate amount equal to the aggregate principal amount of
Convertible Notes (and number of shares of New Common Stock) that such
Defaulting Purchaser failed to purchase.
F-2
(d) Subject to the terms and conditions of this Agreement, the
closing of the purchase and sale of the Securities (the "Closing")
shall take place on the Plan Effective Date.
2. Representations and Warranties.
(a) The Company represents and warrants to each Purchaser that (i)
the Company has the requisite corporate power and authority to enter
into this Agreement and, upon the satisfaction of the condition set
forth in Section 3(c), will have the requisite corporate power and
authority to consummate the transactions contemplated hereby to be
consummated by the Company, (ii) the execution and delivery of this
Agreement by the Company have been and, upon the satisfaction of the
condition set forth in Section 3(c), the consummation by the Company of
the transactions contemplated hereby will be, duly authorized by all
necessary corporate action of the Company, (iii) this Agreement has
been duly and validly executed and delivered by the Company, (iv) this
Agreement constitutes a valid and binding agreement of the Company
enforceable against the Company in accordance with its terms and (v)
the execution and delivery of this Agreement by the Company does not
and, upon the satisfaction of the condition set forth in Section 3(c),
the consummation by the Company of the transactions contemplated hereby
will not (I) violate any provision of law, rule or regulation
applicable to it or any of its subsidiaries, (II) violate its
certificate of incorporation, bylaws, or other organizational documents
or those of any of its subsidiaries, or (III) conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a
default under any material contractual obligation to which it is a
party.
(b) Each Purchaser represents and warrants, severally and not
jointly, to the Company as follows:
(i) Such Purchaser has sufficient knowledge and experience in
financial and business matters and information relating to the
business, operations, financial condition and prospects of the Company
to evaluate the merits and risks of its investment in the Securities
and in the New Common Stock issuable upon conversion of the Convertible
Notes (the Securities and such New Common Stock together, the
"Investment Securities"). Such Purchaser is an "accredited investor"
within the meaning of Rule 501(a) of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"). Such
Purchaser will acquire the Investment Securities solely for its own
account and for investment and not with a view to, or for sale in
connection with, the distribution of the Investment Securities in any
transaction that would be in violation of the Securities Act or any
applicable state securities laws. Such Purchaser understands that the
Investment Securities have not been and will not be registered under
the Securities Act or any applicable state securities laws and that the
Securities may be resold, pledged, hypothecated, transferred or
otherwise disposed of only if registered under the Securities Act and
applicable state securities laws or if an exemption from such
registration requirements is available, and subject, nevertheless, to
the disposition of its property being at all times within its control.
(ii) (I) Such Purchaser has the requisite corporate,
partnership or limited liability company power and authority to enter
into this Agreement and to consummate the transactions contemplated
hereby to be consummated by such Purchaser, (II) the execution and
delivery of this Agreement by such Purchaser and, upon the satisfaction
of the condition set forth in Section 3(c), the consummation by such
Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate, partnership or limited liability
company action of such Purchaser, (III) this Agreement has been duly
and validly executed and delivered by such Purchaser, (IV) this
Agreement constitutes a valid and binding agreement of such Purchaser
enforceable against such Purchaser in accordance with its terms, (V)
the execution and delivery of this Agreement by such Purchaser does not
and, upon the satisfaction of the condition set forth in Section 3(c),
the consummation by such
F-3
Purchaser of the transactions contemplated hereby will not (A) violate
any provision of law, rule or regulation applicable to it or any of its
subsidiaries, (B) violate its certificate of incorporation, bylaws, or
other organizational documents or those of any of its subsidiaries, or
(C) conflict with, result in a breach of or constitute (with due notice
or lapse of time or both) a default under any material contractual
obligation to which it is a party and (VI) such Purchaser has, and will
have as of the Closing, sufficient funds to pay the purchase price for
all of the Convertible Notes that it is obligated to purchase pursuant
to Section 1.
3. Conditions to Obligations of the Purchasers.
The obligations of the Purchasers to consummate the transactions
contemplated by this Agreement are subject to the satisfaction or
waiver at or prior to the Closing Date of the following conditions:
(a) the Company shall not have failed to perform any of its
obligations hereunder and shall not have breached any of the agreements
set forth herein;
(b) a Conforming Plan and an accompanying disclosure statement (i)
containing the terms set forth in the recitals hereto, (ii) providing
for the Exit Facility as the plan treatment of Lenders under the
Pre-Petition Credit Agreement as set forth on Exhibit B and (iii) in
all other respects reasonably acceptable to the Purchasers, shall have
been filed with the Bankruptcy Court on or before May 31, 2003 and a
disclosure statement in respect of the filed Conforming Plan and
reasonably acceptable to the Purchasers shall have been approved by the
Bankruptcy Court on or before August 15, 2003;
(c) a Conforming Plan shall have been confirmed by a final order of
the Bankruptcy Court (which final order shall be reasonably acceptable
to the Purchasers) on or before September 30, 2003 and the Plan
Effective Date shall have occurred on or before October 15, 2003;
(d) the Conforming Plan shall provide (i) for the cancellation of
all existing senior notes, subordinated notes, indentures, other debt
for borrowed money, preferred stock, common stock, options and other
equity securities of the Company (provided that some or all of the
holders of the foregoing may receive equity securities of the
reorganized Debtors) other than (A) the Exit Facility, (B) the
Permitted Hedge Agreements, (C) the Permitted RUS/RTB Loans, (D) the
Permitted FCC Loans, and (E) Permitted Capital Leases, and (ii) that on
the Plan Effective Date, the reorganized Debtors shall have no
indebtedness for borrowed money other than (A) the Exit Facility, (B)
the Convertible Notes, (C) the Permitted Hedge Agreements, (D) the
Permitted RUS/RTB Loans, (E) the Permitted FCC Loans, and (F) Permitted
Capital Leases;
(e) the Bankruptcy Court shall not have denied at any time
confirmation of a Conforming Plan (other than in a fashion that
reasonably admits of or leaves open the possibility that a Conforming
Plan can still be confirmed and effective prior to September 30, 2003);
(f) there shall not have been any material modification of a
Conforming Plan (other than one that could not reasonably be expected
to have an adverse impact on the reorganized Debtors or the Purchasers)
not acceptable to the Purchasers in their sole discretion;
(g) no Debtor and no committee appointed by the Bankruptcy Court or
the United States Trustee (a "Committee"): (i) shall have filed a plan
of reorganization or plan of liquidation that is not a Conforming Plan,
(ii) shall have filed any motion or other pleading materially
inconsistent with the confirmation and consummation of a Conforming
Plan (other than as to provisions thereof that could not reasonably be
expected to have an adverse impact on the reorganized Debtors or the
Purchasers), (iii) shall have filed a motion seeking, and the
Bankruptcy Court shall not have entered, an order
F-4
appointing a trustee, responsible officer or an examiner with powers
beyond the duty to investigate and report, as set forth in subclauses
(3) and (4) of clause (a) of section 1106 of the Bankruptcy Code, in
the Chapter 11 Cases;
(h) no Event of Default shall have occurred under the DIP Facility
that was not waived by the Lenders;
(i) the Plan Support Agreement shall have been entered into by and
among the Company and the supporting lenders parties thereto on or
before the date hereof and shall not have been amended, modified or
supplemented in a manner adverse to the Company or the Purchasers
without the prior written consent of the Purchasers;
(j) the amendment and restatement of or substitution for the
Pre-Petition Credit Facility with the Exit Facility, on terms
conforming in all material respects with the terms set forth on Exhibit
B attached hereto, which shall have become effective on the Plan
Effective Date;
(k) the Convertible Notes to be purchased and sold at the Closing
shall conform in all material respects with the terms set forth on
Exhibit C;
(l) the Company and the Purchasers shall have executed and
delivered such other documents as are customary for transactions such
as the Investment, including, without limitation, a purchase agreement
(the "Purchase Agreement") containing customary representations,
warranties, covenants (including, without limitation, covenants of the
Company providing for securities registration rights with respect to
the Securities) and closing conditions (with customary exceptions
relating to the filing and continuation of the Chapter 11 Case) which
documents, when delivered, shall be in form and substance satisfactory
to the Purchasers and the Company;
(m) no preliminary or permanent injunction or other order by any
governmental entity which prevents the consummation of the transactions
contemplated by this Agreement shall have been issued and remain in
effect;
(n) no statute, rule, regulation or other law shall have been
enacted by any governmental entity which would prevent or make illegal
the consummation of the transactions contemplated by this Agreement;
(o) all necessary or required consents, orders, approvals or
authorizations of, notifications or submissions to, filings with,
licenses or permits from, or exemptions or waivers by, any governmental
entity, stock exchange or other person shall have been made or
obtained, except where the failure by a party to make or obtain any of
the foregoing would not have a material adverse effect on (i) the
properties, assets, operations, business, prospects, results of
operations or financial condition of the Debtors, taken as a whole, or
(ii) such party's ability to perform its obligations under this
Agreement;
(p) the Purchasers shall have purchased, severally and not jointly,
at least $65,000,000 in aggregate principal amount of Convertible Notes
upon the terms and subject to the conditions set forth herein; and
(q) since December 31, 2002, there shall not have occurred any
event, there shall not exist any condition or set of circumstances and
there shall have been no damage to or destruction or loss of any
property or asset of the Debtors that, individually or in the
aggregate, could have or has had a material adverse effect on the
properties, assets, operations, business, prospects, results of
operations or financial condition of the Debtors, taken as a whole, or
on the ability of the Company to perform its obligations under this
Agreement (a "Material Adverse Change"); provided, however, that
F-5
no Material Adverse Change shall be deemed to exist solely as a result
of (i) the commencement of the Chapter 11 Cases, (ii) the items
specifically identified and reflected in the financial projections made
available to the Purchasers prior to the date hereof, (iii) the taking
of any non-cash writedowns or impairment charge-offs disclosed in
writing to the Purchasers prior to the date hereof, (iv) restructuring
and reorganization costs expensed in the last quarter of fiscal year
2002 and in fiscal year 2003 or (v) any going concern qualification or
explanation by the Company's auditors in connection with the Company's
consolidated financial statements for the fiscal year ended December
31, 2002 or for any subsequent reporting period after the Petition
Date.
4. Covenants.
(a) At any time or from time to time after the date of this
Agreement, each party agrees to execute and deliver any further
instruments or documents and to take, or cause to be taken, and to do,
or cause to be done, and to assist and cooperate with the other party
in doing, all things necessary, proper, desirable or advisable to
evidence or effectuate the consummation of the transactions
contemplated by this Agreement and otherwise to carry out the intent of
the parties hereunder.
(b) The Company and each of the Purchasers agree that the
confidentiality agreement previously entered into by the Company and
such Purchaser (as amended, modified or supplemented from time to time)
shall remain in full force and effect between the Company and such
Purchaser pursuant to the terms thereof.
(c) The Company agrees to pay all out-of-pocket fees and expenses
of Paul, Weiss, Rifkind, Wharton & Garrison LLP, counsel to the
Purchasers, reasonably incurred by the Purchasers in connection with
this Agreement and the consummation of the transactions contemplated
hereby up to $150,000 or such greater amount as may be approved by the
Bankruptcy Court or consented to by the Agent and the Creditors
Committee.
5. Termination.
(a) This Agreement shall automatically terminate upon the
termination of the Plan Support Agreement.
(b) In event of the termination of this Agreement pursuant to this
Section 5, then, (i) each of the Purchasers and the Company fully
reserves any and all of its rights; (ii) the provisions of this
Agreement and all of the obligations of each of the Purchasers and the
Company shall be of no further force and effect and (iii) nothing
contained herein shall be deemed to be an admission or concession, or
be in any way binding upon, any of the Purchasers or the Company in any
way, including but not limited to in connection with the Chapter 11
Cases.
6. No Waiver of Participation. Each of the Company and each of the
Purchasers expressly acknowledges and agrees that, except as expressly
provided in this Agreement, nothing herein is intended to, or does, in any
manner waive, limit, impair or restrict the ability of any of the
Purchasers to protect and to preserve all of its rights, remedies and
interests, including, without limitation, with respect to any of its claims
against the Debtors, or its full participation in any of the Chapter 11
Cases. Nothing herein shall be deemed to affect any of the rights and
obligations of any of the Purchasers in any other capacity it may have in
the Chapter 11 Cases or otherwise.
7. Miscellaneous Provisions.
(a) The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be
given, without (i) the prior written consent thereto of the Company and
the
F-6
Purchasers who have committed to purchase at least 66 2/3% aggregate principal
amount of Convertible Notes, except that any amendment, modification or
supplement to the terms of the Convertible Notes set forth on Exhibit C shall
require the consent thereto of the Company and each of the Purchasers, and (ii)
if such amendments, modifications, supplements, waivers or consents have an
adverse impact on the Company or the Lenders, the prior written consent thereto
of the Agent for the benefit of the Lenders as intended third party
beneficiaries. The Company agrees to provide advance notice of and, promptly
following execution, a copy of any such amendment, modification, supplement,
waiver or consent specified in clause (i) of this Section 7(a) to the Agent.
(b) Except as set forth in the next succeeding sentence, neither this
Agreement nor any rights which may accrue to either party hereunder may be
transferred or assigned without the prior written consent of the other party.
From and after the date of this Agreement, each of the Purchasers shall have the
right, without the prior written consent of the Company, to assign all or a
portion of its rights, obligations and liabilities under this Agreement to a
single direct or indirect wholly owned subsidiary of such Purchaser or to
another Purchaser, provided that no such assignment shall relieve such Purchaser
of its obligations or liabilities under this Agreement. As a condition of any
such assignment to such subsidiary of such Purchaser, such assignee subsidiary
shall be deemed to have made all of the representations and warranties of such
Purchaser set forth in this Agreement. From and after the effective date of any
such assignment, all references in this Agreement to such Purchaser shall be to
such assignee subsidiary or such Purchaser unless the context requires
otherwise. Nothing in this Agreement, express or implied, shall give to any
party or entity, other than the Company, each of the Purchasers and the Agent
for the benefit of the Lenders, any benefit or any legal or equitable right,
remedy or claim under this Agreement.
(c) All notices, demands, requests, consents or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when (i) delivered
personally to the recipient, (ii) telecopied to the recipient (with hard copy
sent to the recipient by reputable overnight courier service (charges prepaid)
that same day) if telecopied before 5:00 p.m. New York City time on a business
day, and otherwise on the next business day, or (iii) one business day after
being sent to the recipient by reputable overnight courier service (charges
prepaid). Such notices, demands, requests, consents and other communications
shall be sent to the parties at the following addresses:
(i) if to the Company:
NTELOS Inc.
401 Spring Lane, Suite 300
P.O. Box 1990
Waynesboro, Virginia 22980
Attention: Michael B. Moneymaker
Telecopier: (540) 946-3595
with a copy to:
Hunton & Williams
Bank of America Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Telecopier: (404) 888-4190
Attention: David M. Carter, Esq.
with a copy to:
F-7
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Attention: J. Waverly Pulley, III
Telecopier: (804) 788-8218
with a copy to:
The Creditors Committee
c/o Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Telecopier: (212) 403-2000
Attention: Richard G. Mason, Esquire
(ii) if to any of the Purchasers:
To the address or telecopier set forth opposite
such Purchaser's name on Schedule I
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Bruce A. Gutenplan, Esq. and
Andrew N. Rosenberg, Esq.
Telecopier: (212) 757-3990
(iii) if to the Agent:
Wachovia Bank, National Association
301 South College Street
Charlotte, NC 28288-0537
Attention: Kathy Harkness
Telecopier: (704) 383-6249
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Marshall S. Huebner
Telecopier: (212) 450-3099
or to such other address or to the attention of such other person as the
receiving party has specified by prior written notice to the sending party.
(d) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to contracts executed and to be
performed wholly within such state.
F-8
(e) Any process against either party in, or in connection with, any suit,
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby may be served personally or by certified mail
pursuant to the notice provision set forth in Section 7(c) with the same effect
as though served on it personally. Each party hereby irrevocably submits in any
suit, action or proceeding arising out of or relating to this Agreement or any
of the transactions contemplated hereby to the exclusive jurisdiction and venue
of the Bankruptcy Court and irrevocably waives any and all objections to
exclusive jurisdiction and review of venue that any such party may have under
the laws of the Commonwealth of Virginia or the United States of America.
Without limiting the other remedies, this Agreement shall be enforceable by
specific performance.
(f) Each of the Company and each of the Purchasers hereby waives any rights
it may have to a trial by jury in respect of any suit, action or proceeding
directly or indirectly arising out of, under or in connection with this
Agreement.
(g) The descriptive headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provision of this Agreement. The parties to this Agreement
have participated jointly in the negotiation and drafting of this Agreement. If
an ambiguity or question of intent or interpretation arises, this Agreement
shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
(h) Whenever required by the context, any pronoun used in this Agreement
shall include the corresponding masculine, feminine or neuter forms, and the
singular forms of nouns, pronouns and verbs shall include the plural, and vice
versa.
(i) This Agreement, including Schedule I, Exhibit A, Exhibit B and Exhibit
C hereto, contains the entire agreement of the parties with respect to any
subject matter of this Agreement, and no party shall be liable or bound to the
other party in any manner by any representations, warranties, covenants and
agreements except as specifically set forth herein.
(j) This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute one and the same instrument.
(k) Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid or unenforceable in
any respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
(l) This Agreement, the agreements referred to herein, and each other
agreement or instrument entered into in connection herewith or therewith or
contemplated hereby or thereby, and any amendments hereto or thereto, to the
extent signed and delivered by means of a facsimile machine, shall be treated in
all manner and respects as an original agreement or instrument and shall be
considered to have the same binding legal effect as if it were the original
signed version thereof delivered in person. At the request of any party hereto
or to any such agreement or instrument, the other parties hereto or thereto
shall re-execute original forms thereof and deliver them to the other party. No
party hereto or to any such agreement or instrument shall raise the use of a
facsimile machine to deliver a signature or the fact that any signature or
agreement or instrument was transmitted or communicated through the use of a
facsimile machine as a defense to the formation or enforceability of a contract,
and each party forever waives any such defense.
(m) This Agreement shall be binding upon each party hereto and such party's
successors and permitted assigns.
F-9
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
Company
NTELOS INC., Debtor in Possession
By:
----------------------------------------
[Purchasers]
By:
----------------------------------------
F-10
Exhibit A
(to Exhibit F)
________________________________________________________________________________
- --------------------------------------------------------------------------------
Plan Support Agreement
________________________________________________________________________________
- --------------------------------------------------------------------------------
THIS PLAN SUPPORT AGREEMENT (this "Agreement") is dated as of April 10,
2003, among NTELOS Inc., Debtor in Possession, a Virginia corporation with its
principal place of business at 401 Spring Lane, Suite 300, P.O. Box 1990,
Waynesboro, Virginia 22980 (together with the reorganized company, the
"Company"), and the undersigned lenders (the "Supporting Lenders", together with
the Company the "Parties") party to the credit agreement dated as of July 26,
2000 among the Company, the subsidiary guarantors party thereto, the lender
parties party thereto, and Wachovia Bank, National Association as Administrative
Agent and Collateral Agent (as amended, the "Pre-Petition Credit Agreement").
RECITALS
WHEREAS, on March 4, 2003 (the "Petition Date"), the Company and
certain of its subsidiaries (collectively, the "Debtors") filed in the United
States Bankruptcy Court for the Eastern District of Virginia, Richmond Division
(the "Bankruptcy Court"), petitions for relief under chapter 11 of title 11 of
the United States Code (the "Chapter 11 Cases") and have continued in possession
of their assets as debtors in possession.
WHEREAS, the Debtors intend to consummate a financial restructuring
pursuant to a Conforming Plan (as defined below) to be filed in the Chapter 11
Cases;
WHEREAS, the Company, the Supporting Lenders and certain of the
Company's other material creditors have previously held discussions, subject to
Rule 408 of the Federal Rules of Evidence, relating to the terms of a possible
pre-negotiated plan of reorganization;
WHEREAS, the discussions and negotiations among such parties have
resulted in preliminary agreement among the Company, the Supporting Lenders and
certain of the Company's other material creditors with respect to the terms of a
Conforming Plan
WHEREAS, the Company, the subsidiary guarantors party thereto, the
lender parties party thereto (the "DIP Lenders"), and Wachovia Bank, National
Association as Administrative Agent and Collateral Agent (the "Agent") have
entered into a Revolving Credit and Guaranty Agreement dated as of March 6, 2003
(as may be amended, the "DIP Facility") pursuant to which the DIP Lenders may
provide up to $35 million (the "DIP Commitment") of debtor-in-possession
financing to the Company;
WHEREAS, it is a condition precedent to the Company having full access
to the DIP Commitment that the Company provide written evidence acceptable to
the Agent in its sole discretion that at least $75 million of new unsecured
financing will be in place on the effective date of the Conforming Plan (the
"Plan Effective Date"), a portion of which shall be used to pay in full the
unpaid balance of the DIP Facility on the Plan Effective Date and to pay in full
(subject to the Company's right to reborrow) 100% of the revolving loans then
outstanding under the Pre-Petition Credit Agreement;
WHEREAS, as part of a Conforming Plan, the Company anticipates selling
to certain investors (the "Purchasers") $75 million of 9.0% senior unsecured
convertible notes due 2013 of the reorganized Company conforming in all material
respects with the terms set forth on Exhibit A attached hereto (the "Convertible
Notes");
WHEREAS, it is a condition precedent to the Purchasers' obligations to
purchase the Convertible Notes that the Purchasers have assurances that the
Supporting Lenders will make the Exit Facility (as hereinafter defined)
available to the Company on the Plan Effective Date; and
WHEREAS, on March 13, 2003, the United States Trustee appointed an
official committee of creditors holding unsecured claims in the Chapter 11 Cases
pursuant to ss. 1102(a)(1) of the Bankruptcy Code (the "Creditors Committee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the Parties agree as follows:
1. Proposal of a Conforming Plan. So long as no Termination Event
(as hereinafter defined) shall have occurred, the Company shall have the
following obligations pursuant to this Agreement:
(a) to have filed, solicited votes and conducted a
confirmation hearing before the Bankruptcy Court on or before
September 30, 2003 on a plan of reorganization that includes the terms
set forth below (a "Conforming Plan"):
(i) an exit financing facility in replacement of the
Pre-Petition Credit Agreement conforming in all material respects with
the terms set forth on Exhibit B, with such amendments, changes or
modifications as may be agreed upon by the Supporting Lenders in their
sole discretion (the "Exit Facility");
(ii) other than as set forth in (i) above, the cancellation
of all existing senior notes, subordinated notes, indentures, other
debt for borrowed money, preferred stock, common stock, options and
other equity securities of the Company (provided that some or all of
the holders of the foregoing may receive equity securities of the
reorganized Debtors) other than (A) the Exit Facility, (B) any
outstanding hedge agreements entered into in September 2000 with lender
parties to the Pre-Petition Credit Agreement the "Permitted Hedge
Agreements"), (C) the existing RUS/RTB loans having an aggregate
principal amount of approximately $6,712,000 (the "Permitted RUS/RTB
Loans"), (D) the existing FCC loans having an aggregate principal
amount of approximately $8,180,000 (the "Permitted FCC Loans"), and (E)
the existing JLL permitted capital leases having an aggregate net
present value of $10,149,000 and such other capital leases as may be
agreed upon by the Agent and the Company (the
"Permitted Capital Leases");
(iii) on the Plan Effective Date, the reorganized Debtors
shall have no indebtedness for borrowed money other than (A) the Exit
Facility, (B) the Convertible Notes, (C) the Permitted Hedge
Agreements, (D) the Permitted RUS/RTB Loans, (E) the Permitted FCC
Loans, and (F) the Permitted Capital Leases;
(iv) the purchase by the Purchasers of not less than $75
million of Convertible Notes on the Plan Effective Date; and
(v) the payment in full in cash of the DIP Facility and the
revolving loans under the Pre-Petition Credit Agreement (subject to
reborrowing under the Exit Facility) on the Plan Effective Date.
(b) to use all commercially reasonable efforts to expedite the
Chapter 11 Cases whenever possible and obtain confirmation and
consummation of a Conforming Plan as soon as reasonably practicable;
and
(c) to refrain from taking any action that could reasonably
be expected to prevent, delay or impede the successful restructuring of
the Company in accordance with the terms of a Conforming Plan.
2. Support of a Conforming Plan. So long as no Termination Event
shall have occurred, each Supporting Lender shall have the following obligations
pursuant to this Agreement:
(a) to refrain from proposing a plan of reorganization or
supporting, consenting to or participating in the formulation of any
plan of reorganization proposed by any other constituency in the
Chapter 11 Cases other than a Conforming Plan;
(b) not to object to accurate disclosure by the Company of the
contents of this Agreement in a disclosure statement describing a
Conforming Plan; and
(c) to refrain from (i) objecting to confirmation of a
Conforming Plan or ii) commencing any proceeding to oppose or alter a
Conforming Plan or any of the documents to implement the same in any
way inconsistent with this Agreement.
3. Representations and Warranties of the Parties. Each Party
represents and warrants as to itself that the following statements are true,
correct and complete as of the date hereof:
a) Corporate Power and Authority. It has all requisite
corporate, partnership, or limited liability company power and
authority to enter into this Agreement and to carry out the
transactions contemplated by, and perform its respective obligations
under, this Agreement. The execution and delivery of this Agreement and
the performance of its obligations hereunder have been duly authorized
by all necessary corporate, partnership or limited liability company
action on its part.
(b) No Conflicts. The execution, delivery and performance by
the Parties of this Agreement does not and shall not: (i) violate any
provision of law, rule or regulation applicable to it or any of its
subsidiaries; (ii) violate its certificate of incorporation, bylaws, or
other organizational documents or those of any of its subsidiaries; or
(iii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any material
contractual obligation to which it is a party.
(c) Governmental Consents. The execution, delivery and
performance by the Supporting Lenders or the Company of this Agreement
does not and shall not require any registration or filing with, consent
or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body,
other than the approval of the Bankruptcy Court, in the case of the
Debtors.
4. Representations and Warranties of the Supporting Lenders. Each
Supporting Lender represents and warrants as to itself that it owns the
Revolving Loans, Tranche A Term Loans, Tranche B Term Loans, Tranche C Term
Loans and participations in Letters of Credit under the Pre-Petition Credit
Agreement as set forth on Exhibit C.
5. Termination. This Agreement shall immediately terminate upon
the earlier to occur of (x) the Plan Effective Date or (y) the occurrence of any
of the following events (each a "Termination Event"):
(a) the Company shall fail to perform any of its obligations
hereunder or shall have breached any of the agreements set forth
herein;
(b) any of the subscription agreements of even date hereof
under which the Purchasers have agreed to purchase $75 million in the
aggregate of Convertible Notes shall have been amended,
modified, supplemented or terminated in a manner adverse to the
Debtors, the Supporting Lenders or the DIP Lenders without the prior
written consent of the Supporting Lenders;
(c) a Conforming Plan and an accompanying disclosure statement (i)
containing the terms set forth in Section 1(a) above, (ii) providing
for the Exit Facility as the plan treatment of the Lenders under the
Pre-Petition Credit Agreement and (iii) in all other respects
reasonably acceptable to the Supporting Lenders, shall not have been
filed with the Bankruptcy Court on or before May 31, 2003 and a
disclosure statement in respect of the filed Conforming Plan and
reasonably acceptable to the Supporting Lenders shall not have been
approved by the Bankruptcy Court on or before August 15, 2003;
(d) a Conforming Plan shall not have, on or before September 30,
2003, been confirmed by a final order of the Bankruptcy Court
reasonably acceptable to the Supporting Lenders;
(e) the Plan Effective Date and the "Closing Date" of the Exit
Facility (as defined on Exhibit B hereof) shall not have occurred on or
before October 15, 2003;
(f) the Bankruptcy Court at any time denies confirmation of a
Conforming Plan (other than in a fashion that reasonably admits of or
leaves open the possibility that a Conforming Plan can still be
confirmed and effective prior to September 30, 2003);
(g) there shall be any material modification of a Conforming Plan
(other than one that could not reasonably be expected to have an
adverse impact on the reorganized Debtors, the DIP Lenders or the
lenders under the Pre-Petition Credit Facility) not acceptable to the
Supporting Lenders in their sole discretion;
(h) (i) an order, ruling or administrative decision of any state
regulatory authority is entered at any time that has the practical
effect of preventing the confirmation or consummation of a Conforming
Plan or (ii) a permanent injunction or other order shall have been
entered by any governmental entity that prevents the consummation of
the transactions contemplated by this Agreement or (iii) a statute,
rule, regulation or other law shall have been enacted by any
governmental entity that would prevent or make illegal the consummation
of the transactions contemplated by this Agreement;
(i) any one of the Debtors or any committee appointed by the
Bankruptcy Court or the United States Trustee (a "Committee"): (i)
files a plan of reorganization or plan of liquidation that is not a
Conforming Plan, (ii) files any motion or other pleading materially
inconsistent with the confirmation and consummation of a Conforming
Plan (other than as to provisions thereof that could not reasonably be
expected to have an adverse impact on the reorganized Debtors, the DIP
Lenders or the lenders under the Pre-Petition Credit Facility), (iii)
files a motion seeking, or the Bankruptcy Court enters, an order
appointing a trustee, responsible officer or an examiner with powers
beyond the duty to investigate and report, as set forth in subclauses
(3) and (4) of clause (a) of section 1106 of the Bankruptcy Code, in
the Chapter 11 Cases;
(j) an Event of Default shall have occurred under the DIP Facility;
or
(k) there shall have occurred (i) any adverse change to, or any of
the Debtors default upon, the adequate protection obligations set forth
in the DIP Orders or (ii) any material adverse change in the business,
condition (financial or otherwise), operations, performance or
properties of the Debtors taken as a whole provided that no material
adverse change shall be deemed to exist solely as a result of (A) the
commencement of the Chapter 11 Cases, (B) the items specifically
identified and reflected in the financial projections made available to
the Supporting Lenders prior to the Petition Date, (C) the taking of
any non-cash writedowns or impairment charge-offs disclosed to the
Supporting Lenders
prior to the Petition Date, (D) restructuring and reorganization costs
expensed in the last quarter of fiscal year 2002 and in fiscal year
2003 and (E) any going concern qualification or explanation by the
Company's auditors in connection with the Company's consolidated
financial statements for the fiscal year ending December 31, 2002 or
for any subsequent reporting period after the Petition Date.
In event of the termination of this Agreement pursuant to this Section
5, then, (i) the Parties hereto fully reserve any and all of their rights; (ii)
the provisions of this Agreement and all of the obligations of the Parties
hereunder shall be of no further force and effect and (iii) nothing contained
herein shall be deemed to be an admission or concession, or be in any way
binding upon, any of the Parties in any way, including but not limited to in
connection with the Chapter 11 Cases.
6. No Solicitation of Plan Approval. The Company and each of the
Supporting Lenders agree that neither the negotiation nor the execution and
delivery of this Agreement is intended by the Company to be a solicitation of
the approval of any plan of reorganization within the meaning of section 1125 of
the Bankruptcy Code. No Supporting Lender will be solicited before it has
received a disclosure statement in accordance with applicable law.
7. Transfer or Acquisition of Claims, Interests and Securities. This
Agreement shall not in any way restrict the right or ability of any Supporting
Lender to sell, assign, transfer or otherwise dispose of any of its claims
against the Debtors or any of its affiliates under the Pre-Petition Credit
Agreement (the "Claims"), provided, however, that such transfer or assignment
shall not be effective unless and until the transferee or assignee delivers to
the transferor or assignor, the Administrative Agent and the Company, at the
time of such transfer or assignment pursuant to Section 9.07 of the Pre-Petition
Credit Agreement, a written agreement containing the provisions set forth in the
form attached hereto as Exhibit D pursuant to which such transferee or assignee
shall assume, and be bound by, the obligations of the transferor or assignor
hereunder in respect of the Claims transferred. In addition, this Agreement
shall in no way be construed to preclude any Supporting Lender from acquiring
additional Claims. However, any such additional Claims so acquired shall
automatically be deemed to be subject to the terms of this Agreement.
8. No Waiver of Participation. Each Party hereto expressly
acknowledges and agrees that, except as expressly provided in this Agreement,
nothing herein is intended to, or does, in any manner waive, limit, impair or
restrict the ability of any Supporting Lender to protect and to preserve all of
its rights, remedies and interests, including, without limitation, with respect
to any of its claims against the Debtors, or its full participation in any of
the Chapter 11 Cases. Nothing herein shall be deemed to affect any of the rights
and obligations of any of the Supporting Lenders in any other capacity they may
have in the Chapter 11 Cases or otherwise.
9. Obligations Several and Not Joint. The obligations, agreements,
representations and warranties of each of the Supporting Lenders are several and
not joint. Any breach of this Agreement by any Supporting Lender shall not
result in liabilities for any other Supporting Lender.
10. Consideration. It is hereby acknowledged by the Parties that no
consideration, other than the Company's obligations under this Agreement, shall
be due or paid to any Supporting Lender for its agreements hereunder.
11. Specific Performance. It is understood and agreed by the Parties
that money damages would not be an appropriate or sufficient remedy for any
breach of this Agreement by any Party and each non-breaching Party shall be
entitled to the sole and exclusive remedy of specific performance and injunctive
or other equitable relief, as a remedy for any such breach, and each Party
agrees to waive any requirement for the securing or posting of a bond in
connection with such remedy.
12. Miscellaneous Provisions.
(a) The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be
given, without the written consent thereto of the Company and the
Supporting Lenders.
(b) This Agreement shall be binding upon, and inure to the benefit
of, the Parties. No rights or obligations of any Party under this
Agreement may be assigned or transferred to any other person or entity,
except as provided in Section 5 hereof. Nothing in this Agreement,
express or implied, shall give to any party or entity other than the
Parties, any benefit or any legal or equitable right, remedy or claim
under this Agreement.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(d) All notices, demands, requests, consents or other
communications to be given or delivered under or by reason of the
provisions of this Agreement shall be in writing and shall be deemed to
have been given when (i) delivered personally to the recipient, (ii)
telecopied to the recipient (with hard copy sent to the recipient by
reputable overnight courier service (charges prepaid) that same day) if
telecopied before 5:00 p.m. New York City time on a business day, and
otherwise on the next business day, or (iii) one business day after
being sent to the recipient by reputable overnight courier service
(charges prepaid) . Such notices, demands, requests, consents and other
communications shall be sent to the following addresses:
(i) if to the Company:
NTELOS Inc.
401 Spring Lane, Suite 300
P.O. Box 1990
Waynesboro, Virginia 22980
Attention: Michael B. Moneymaker
Telecopier: (540) 946-3595
with a copy to:
Hunton & Williams
Bank of America Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: David M. Carter, Esq.
Telecopier: (404) 888-4190
(ii) if to the Supporting Lenders:
Wachovia Bank, National Association
301 South College Street
Charlotte, NC 28288-0537
Attention: Kathy Harkness
Telecopier: 704-383-6249
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, NY 10017
Attention: Marshall S. Huebner, Esq.
Telecopier: 212-450-3099
or to such other address or to the attention of such other person as
the receiving party has specified by prior written notice to the
sending party.
(e) This Agreement, including all Exhibits hereto and thereto,
contains the entire agreement of the Parties with respect to the
subject matter of this Agreement, and no Party shall be liable or bound
to any other Party in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein.
(f) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which taken
together shall constitute one and the same instrument. Delivery of an
executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of an original executed
counterpart of this Agreement.
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the date first above written.
Company:
NTELOS INC., Debtor in Possession
By:
-------------------------------
Name:
Title:
Supporting Lenders:
[Lenders]
By:
-------------------------------
Name:
Title:
Exhibit A
(to Plan Support Agreement)
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- --------------------------------------------------------------------------------
Summary of Proposed Terms of Senior Convertible Notes
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Issuer: Reorganized NTELOS Inc. ("Reorganized NTELOS"), the successor to
NTELOS Inc., Debtor in Possession
Issue: Senior Convertible Notes (the "Convertible Notes")
Principal Amount: $75 million
Ranking: Unsecured; otherwise pari passu with all other senior debt.
Maturity: Ten (10) years
Interest: 9.0%, payable semi-annually in cash. Interest shall accrue and be
cumulative from the date of issuance of the Convertible Notes.
Covenants: Customary for instruments of this type (including, among others, certain
incurrence covenants and excluding financial maintenance covenants).
Optional Redemption: Redeemable by Reorganized NTELOS for the first two (2) years at a
redemption price of 109% of the face value of note, for the third year
at a redemption price of 104.5% of the face value of the note, and
redeemable thereafter at the option of Reorganized NTELOS at any time
with 60 days notice at a redemption price of 100% of the face value of
the note. Any redemption of the Convertible Notes shall permit the holders
to exercise their conversion rights within a notice of period of not less
than 60 days.
Conversion: Convertible Notes will be convertible at holders' option into New Common Stock.
Backstop Consideration: In consideration for purchasing the Convertible Notes, the Purchasers will
receive shares of New Common Stock valued at 1.0% of the purchase price provided
by the Purchasers.
Expenses: The Company or Reorganized NTELOS shall pay all out-of-pocket fees and expenses
of Paul, Weiss, Rifkind, Wharton & Garrison LLP, counsel to the holders,
reasonably incurred by the holders up to $150,000 or such greater amount
approved by the Bankruptcy Court or consented to by the Agent and the Creditors
Committee in connection with the negotiation, preparation, execution, delivery
and performance of the definitive Purchase Agreement and related documents for
the Convertible Notes.
Exhibit B
(to Plan Support Agreement)
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- --------------------------------------------------------------------------------
EXIT FACILITY
Summary of Terms and Conditions
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I. Parties
Borrower: Ntelos Inc. ("Ntelos" or the "Borrower").
Guarantors: Each of the Borrower's present and future domestic subsidiaries
(the "Guarantors") will guarantee (a "Guarantee") the Borrower's
obligations under the Facility, up to the maximum amount possible
without violating applicable fraudulent conveyance laws.
Lead Arranger Wachovia Securities Inc. ("WSI").
and Bookrunner:
Administrative Agent: Wachovia Bank, National Association (in such
capacity, the "Administrative Agent").
Lenders: A syndicate of banks, financial institutions and other entities,
including Wachovia Bank, National Association, arranged by the Lead
Arranger (collectively, the "Lenders") with any institutions not
currently lenders to the Borrower reasonably acceptable to the
Borrower.
Purpose: The proceeds of the Revolving Credit Loans (defined below) shall be used
for general corporate purposes of the Borrower and its subsidiaries in
the ordinary course of business.
II. Revolving Credit Facility
Type and Amount of
Facility: Revolving credit facility (the "Revolving Credit Facility")
in the amount of $36,000,000 (the loans thereunder, the "Revolving Credit
Loans").
Availability: The Revolving Credit Facility shall be available on a revolving basis
during the period commencing on the Closing Date and ending on July 25,
2007 (the "Revolving Credit
Termination Date").
Letters of Credit: A portion of the Revolving Credit Facility not in excess of $5 million
shall be available for the issuance of letters of credit (the
"Letters of Credit") by Wachovia Bank, National Association (in
such capacity, the "Issuing Lender"). No Letter of Credit shall
have an expiration date after the earlier of (a) one year after
the date of issuance and (b) five business days prior to the
Revolving Credit Termination Date, provided that any Letter of
Credit with a one-year tenor may provide for the renewal thereof
for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (b) above).
Maturity: The Revolving Credit Termination Date.
III. Term Loan Facility
Tranche A: Up to $50,000,000 term loan, to be reduced by the aggregate amount
of principal payments received from the Borrower during the bankruptcy
case and applied to the Tranche A loan under the Pre-Petition Credit
Agreement. The Tranche A commitment will expire at the close of business
on the Closing Date and the Tranche A loans will mature on July 25, 2007.
Tranche B: Up to $99,500,000 term loan, to be reduced by the aggregate amount
of principal payments received from the Borrower during the bankruptcy
case and applied to the Tranche B loan under the Pre-Petition Credit
Agreement. The Tranche B commitment will expire at the close of business
on the Closing Date and the Tranche B loans will mature on July 25, 2008.
Tranche C: Up to $75,000,000 term loan, to be reduced by the aggregate amount
of principal payments received from the Borrower during the bankruptcy
case and applied to the Tranche C loan under the Pre-Petition Credit
Agreement. The Tranche C commitment will expire at the close of business
on the Closing Date and the Tranche C loans will mature on July 25, 2008.
IV. Security The Borrower's obligations under the Facility and any hedging arrangements
with any Lender or affiliate of any Lender and each guarantee will be secured
by perfected liens on substantially all assets of the Borrower or the relevant
guarantor, as the case may be, including, but not limited to, receivables,
inventory, equipment, real estate, leases, licenses, patents, brand names,
trademarks, contracts, securities and stock of domestic subsidiaries and 65%
of the stock of any first tier foreign subsidiary.
V. Certain Payment Provisions
Fees and Interest Rates: As set forth on Annex I.
Scheduled Amortization and
Commitment Reductions: Tranche A, B & C loans will be amortized according to the terms set forth in the
Pre-Petition Credit Agreement (defined below).
Contingent Mandatory
Prepayments: In addition to scheduled amortization payments, the following
amounts will be applied, first, to prepay a proportionate part
of the Tranche A loans and, to the extent the Tranche B Lenders
and Tranche C Lenders so elect, the Tranche B loans and Tranche C
loans (pro rata on the basis of the aggregate principal amount of
loans of each tranche subject to prepayment), second, to prepay any
remaining Tranche B loans and Tranche C loans (once all the Tranche
A loans have been paid in full) and, third, to reduce the Revolving
Credit commitment (and to repay and/or cash collateralize exposure
under the Revolving Credit Facility in an amount equal to the excess
of such exposure over the Revolving Credit commitment as reduced).
1. 50% of excess cash flow for any fiscal year (discuss revised
definition of excess cash flow).
2. A percentage of the net proceeds from asset sales by the Borrower and
its subsidiaries equal to (i) 25% with respect to the first $20,000,000
of aggregate net proceeds and (ii) 75% with respect to aggregate net
proceeds in excess of $20,000,000.
3. 100% of the net proceeds from the issuance of indebtedness by the
Borrower and its subsidiaries (other than the (i) amounts raised through
the issuance of Convertible Notes on the Closing Date that are in excess
of the Revolver outstandings on the Closing Date and (ii) permitted
capital leases).
The above mandatory prepayments will be applied in reverse order to
scheduled amortization of term loans of such tranche held by lenders in
such tranche on a pro-rata basis.
Optional Prepayments and
Commitment Reductions: Loans may be prepaid and commitments may be reduced by the Borrower in a
minimum amount of $500,000 or integral multiples of $100,000. Optional
prepayments of the term loans will be applied, first, to prepay the Tranche
A loans and, to the extent the Tranche B Lenders and Tranche C Lenders so
elect, the Tranche B loans and the Tranche C loans, and, second, to prepay
any remaining Tranche B loans or Tranche C loans (once all Tranche A loans
have been paid in full). Optional prepayments of term loans of any tranche
held by any Lender will be applied to subsequent scheduled amortization on
a pro-rata basis.
VI. Certain Conditions
Initial Conditions: The availability of the Facility shall be conditioned upon satisfaction of
certain conditions substantially similar to those set forth in the $325 million
credit agreement dated as of
July 26, 2000 among Ntelos, as borrower, Wachovia Bank, National
Association, as successor administrative agent, collateral agent
and issuing bank, and the lenders and guarantors party thereto (as
amended, the "Pre-Petition Credit Agreement"), with such
modifications as the parties shall agree. In addition,
availability of the Facility will be subject to (a) each lender
with Working Capital Commitments (as defined in the Pre-Petition
Credit Agreement) having agreed to provide commitments under the
Revolving Credit Facility equal to their pro-rata share of the
Working Capital Facility (as defined in the Pre-Petition Credit
Agreement) (b) the execution and delivery of satisfactory
definitive financing documentation with respect to the Credit
Facility (the "Credit Documentation"), (c) the sale by the
Borrower of senior unsecured convertible notes (the "Convertible
Notes") with an aggregate principal amount of not less than
$75,000,000, on terms (i) reasonably satisfactory to the
Administrative Agent and (ii) consistent with the terms therefor
set forth in the Plan Support Agreement dated April 10, 2003, (d)
the effectiveness of a plan of reorganization that is: (i)
acceptable to the Administrative Agent in its sole discretion as
to the treatment of the lenders under the Pre-Petition Credit
Agreement and is otherwise reasonably acceptable to the
Administrative Agent, (ii) the subject of a confirmation order
that has become a final order, is acceptable to the Administrative
Agent in its sole discretion and provides for the consummation of
the transactions contemplated thereby and (iii) consistent with
terms therefor set forth in the Plan Support Agreement dated April
10, 2003, (e) cash on the balance sheet on the Closing Date minus
the sum of all unpaid administrative claims, priority claims and
secured claims (other than (x) claims under the Pre-Petition
Credit Agreement, Permitted Hedge Agreements, Permitted RUS/RTB
Loans, Permitted FCC Loans and Permitted Capital Leases and (y)
obligations not due and payable as of the Effective Date that are
incurred in the ordinary course of operations including under any
assumed leases or pension plans) that are allowed, expected to be
allowed or otherwise expected to be due and payable, shall not be
less than $5 million and (f) payment in full of the Reinstatement
Fee described in Annex I hereto. For the purpose hereof, the
"Closing Date" shall be the date upon which all such conditions
precedent shall be satisfied.
On-Going Conditions: The making of each extension of credit shall be subject to conditions
substantially similar to those set forth in the Pre-Petition
Credit Agreement, with such modifications as the parties shall agree.
VII. Certain Documentation Matters
Representations and Warranties,
Covenants, Events of Default: The Credit Documentation shall contain representations, warranties,
covenants and events of default substantially similar
to those set forth in the Pre-Petition Credit Agreement, with such
modifications as the parties may agree including (i) the amount of
Investments (as defined in the Pre-Petition Credit Agreement) made
by the Borrower and the Guarantors shall be not greater than the
amount of net proceeds from asset sales permitted to be retained
by the Borrower; provided, that in no event may the Borrower or
Guarantors make any individual Investment exceeding $2.5 million
or make aggregate Investments exceeding (y) $10 million in any
twelve month period or (z) $20 million prior to June 25, 2008;
provided further, that aggregate Investments made by the Borrower
or Guarantors resulting in the ownership of less than 51% of an
entity's equity interests shall not exceed $1 million in any
twelve month period and (ii) that the maximum cash balance
covenant contained in the Pre-Petition Credit Agreement shall not
apply so long as there are no outstanding borrowings under the
Revolving Facility.
Financial Covenants: As set forth on Annex II.
Other Documentary
Matters: The Credit Documentation shall contain terms as to voting,
assignments, yield protection, expenses and indemnification
substantially similar to those set forth in the Pre-Petition Credit
Agreement, with such modifications as the parties shall agree.
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent
and the Lead Arranger: Davis Polk & Wardwell.
Annex I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that the Loans comprising each borrowing bear
interest at a rate per annum equal to:
the Base plus the Applicable Margin; or
the Eurodollar Rate plus the Applicable Margin.
As used herein:
"Base Rate" means the highest of (i) the rate of
interest publicly announced by the
Administrative Agent as its prime rate in effect
at its principal office in Charlotte, North
Carolina (the "Prime Rate"), and (ii) the
federal funds effective rate from time to time
plus 0.5%.
"Eurodollar Rate" means the rate at which
eurodollar deposits in the London interbank
market for one month, two months, three months,
or, if commercially available to all Lenders,
six months (as selected by the Borrower) are
quoted on the Telerate screen as adjusted for
statutory reserve requirements for eurocurrency
liabilities.
"Applicable Margin" means the percentage margin
determined in accordance with the Pricing
Schedule.
Interest Payment Dates: In the case of Loans bearing interest based upon the Base Rate
("Base Rate Loans"), monthly in arrears.
In the case of Loans bearing interest based upon
the Eurodollar Rate ("Eurodollar Loans"), on the
last day of each relevant interest period.
Commitment Fees: The Borrower shall pay a fee calculated at 1/2 of 1% per annum on
the average daily amount of the unused Revolving Credit Facility,
payable quarterly in arrears.
Letter of Credit Fees: The Borrowers shall pay a commission on all outstanding Letters of
Credit at a per annum rate equal to Applicable Margin then in effect
with respect to Eurodollar Loans on the face amount of each such
Letter of Credit.
A fronting fee equal to 1/4 of 1% per annum on
the face amount of each Letter of Credit shall
be payable quarterly in arrears to the Issuing
Lender for its own account. In addition,
customary administrative, issuance, amendment,
payment and negotiation charges shall be payable
to the Issuing Lender for its own account.
Reinstatement Fee: On the Closing Date, Borrower shall pay to the Administrative
Agent, for the benefit of the lenders under the Revolver, Tranche A
and Tranche B loans a reinstatement fee in an amount equal to 0.25%
(the "Fee Rate") on the aggregate Revolver, Tranche A and Tranche B
loans.
Default Rate: If a Default has occurred and is continuing, all amounts due under
the Facility shall bear interest at 2% above the rate otherwise
applicable thereto.
Rate and Fee Basis: All per annum rates shall be calculated on the basis of a year of
360 days (or 365/366 days, in the case of Base Rate Loans the
interest rate payable on which is then based on the Prime Rate) for
actual days elapsed.
Pricing Schedule
Revolving Loans Tranche A Loans Tranche B Loans Tranche C Loans
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Eurodollar Loans 3.25% 3.25% 4.00% 2.75%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Base Rate Loans 2.25% 2.25% 3.00% 1.75%
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
On and after the day that is 3 months after closing, the margins indicated above
shall be reduced by 25 bps for each of the Revolving, Tranche A and Tranche B
Loans when and during such time as the Borrower's total leverage ratio is less
than 3.0:1.0. Such margin reduction shall take effect upon receipt by the
Administrative Agent of a quarterly or annual report accompanied by a
certificate of the Chief Financial Officer attesting that the Borrower's total
leverage ratio is less than 3.0:1.0.
Annex II
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Proposed Covenants under Exit Facility
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EBITDA / (Taxes +
Minimum Maximum Senior Leverage Leverage Interest Coverage Interest
EBITDA CapEx Ratio Ratio Ratio + Sch Amort)
------------- ----------------- ----------------- ----------- ------------------- ---------------------
9/30/03 74,000 3.50x 4.50x 2.50x 1.50x
12/31/03 72,000 70,000 3.50x 4.50x 2.50x 1.50x
3/31/04 72,000 3.50x 4.25x 2.75x 1.50x
6/30/04 75,000 3.25x 4.25x 2.75x 1.50x
9/30/04 3.00x 4.00x 2.75x 1.75x
12/31/04 70,000 2.75x 4.00x 2.75x 1.75x
3/31/05 2.75x 3.50x 3.00x 1.75x
6/30/05 2.75x 3.50x 3.00x 1.75x
9/30/05 2.75x 3.50x 3.00x 1.75x
12/31/05 70,000 2.75x 3.50x 3.00x 2.00x
12/31/06 60,000 2.50x 3.50x 3.00x 2.25x
12/31/07 60,000 2.50x 3.50x 3.00x 2.50x
12/31/08 55,000 2.50x 3.50x 3.00x 0.50x
Notes:
1) Minimum EBITDA calculated on an LTM basis and excludes results from Cable
Business for 3Q & 4Q 2003.
2) Maximum CapEx calculated on an annual basis.
3) Senior Leverage Ratio includes Bank Debt, R&B, FCC and Capital Leases over
LTM EBITDA.
4) Leverage Ratio includes debt in Senior Leverage Ratio plus $75MM
in new Convertible Notes over LTM EBITDA.
5) Calculated on a buildup basis from emergence date and includes only cash
interest assuming the $75MM Convertible Note interest is paid semi-annually on
6/30 and 12/31.
6) Calculated on a buildup basis from emergence date.
Exhibit B
(to Exhibit F)
...............................................................................
...............................................................................
Outline of Certain Key Terms of Exit Facility
...............................................................................
...............................................................................
I. Parties
Borrower: Ntelos Inc. ("Ntelos" or the "Borrower").
Guarantors: Each of the Borrower's present and future domestic subsidiaries
(the "Guarantors") will guarantee (a "Guarantee") the Borrower's
obligations under the Facility, up to the maximum amount possible
without violating applicable fraudulent conveyance laws.
Lead Arranger Wachovia Securities Inc. ("WSI").
and Bookrunner:
Administrative Agent: Wachovia Bank, National Association (in such capacity, the
"Administrative Agent").
Lenders: A syndicate of banks, financial institutions and other entities,
including Wachovia Bank, National Association, arranged by the
Lead Arranger (collectively, the "Lenders") with any institutions
not currently lenders to the Borrower reasonably acceptable to
the Borrower.
Purpose: The proceeds of the Revolving Credit Loans (defined below) shall
be used for general corporate purposes of the Borrower and its
subsidiaries in the ordinary course of business.
II. Revolving Credit Facility
Type and Amount of
Facility: Revolving credit facility (the "Revolving Credit Facility") in
the amount of $36,000,000 (the loans thereunder, the "Revolving
Credit Loans").
Availability: The Revolving Credit Facility shall be available on a revolving
basis during the period commencing on the Closing Date and ending
on July 25, 2007 (the "Revolving Credit Termination Date").
Letters of Credit: A portion of the Revolving Credit Facility not in excess of $5
million shall be available for the issuance of letters of credit
(the "Letters of Credit") by Wachovia Bank, National Association
(in such capacity, the "Issuing Lender"). No Letter of Credit
shall
have an expiration date after the earlier of (a) one year after
the date of issuance and (b) five business days prior to the
Revolving Credit Termination Date, provided that any Letter of
Credit with a one-year tenor may provide for the renewal thereof
for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (b) above).
Maturity: The Revolving Credit Termination Date.
III. Term Loan Facility
Tranche A: Up to $50,000,000 term loan, to be reduced by the aggregate
amount of principal payments received from the Borrower during
the bankruptcy case and applied to the Tranche A loan under
the Pre-Petition Credit Agreement. The Tranche A commitment
will expire at the close of business on the Closing Date and
the Tranche A loans will mature on July 25, 2007.
Tranche B: Up to $99,500,000 term loan, to be reduced by the aggregate
amount of principal payments received from the Borrower during
the bankruptcy case and applied to the Tranche B loan under the
Pre-Petition Credit Agreement. The Tranche B commitment will
expire at the close of business on the Closing Date and the
Tranche B loans will mature on July 25, 2008.
Tranche C: Up to $75,000,000 term loan, to be reduced by the aggregate
amount of principal payments received from the Borrower during
during the bankruptcy case and applied to the Tranche C loan
under the Pre-Petition Credit Agreement. The Tranche C commitment
will expire at the close of business on the Closing Date and the
Tranche C loans will mature on July 25, 2008.
IV. Security The Borrower's obligations under the Facility and any hedging
arrangements with any Lender or affiliate of any Lender and
each guarantee will be secured by perfected liens on
substantially all assets of the Borrower or the relevant
guarantor, as the case may be, including, but not limited to,
receivables, inventory, equipment, real estate, leases, licenses,
patents, brand names, trademarks, contracts, securities and stock
of domestic subsidiaries and 65% of the stock of any first tier
foreign subsidiary.
V. Certain Payment Provisions
Fees and Interest Rates: As set forth on Annex I.
Scheduled Amortization and
Commitment Reductions: Tranche A, B & C loans will be amortized according to the terms
set forth in the Pre-Petition Credit Agreement (defined below).
Contingent Mandatory
Prepayments: In addition to scheduled amortization payments,
the following amounts will be applied, first, to
prepay a proportionate part of the Tranche A
loans and, to the extent the Tranche B Lenders
and Tranche C Lenders so elect, the Tranche B
loans and Tranche C loans (pro rata on the basis
of the aggregate principal amount of loans of
each tranche subject to prepayment), second, to
prepay any remaining Tranche B loans and Tranche
C loans (once all the Tranche A loans have been
paid in full) and, third, to reduce the
Revolving Credit commitment (and to repay and/or
cash collateralize exposure under the Revolving
Credit Facility in an amount equal to the excess
of such exposure over the Revolving Credit
commitment as reduced).
1. 50% of excess cash flow for any fiscal year
(discuss revised definition of excess cash
flow).
2. A percentage of the net proceeds from asset
sales by the Borrower and its subsidiaries equal
to (i) 25% with respect to the first $20,000,000
of aggregate net proceeds and (ii) 75% with
respect to aggregate net proceeds in excess of
$20,000,000.
3. 100% of the net proceeds from the issuance of
indebtedness by the Borrower and its
subsidiaries (other than the (i) amounts raised
through the issuance of Convertible Notes on the
Closing Date that are in excess of the Revolver
outstandings on the Closing Date and (ii)
permitted capital leases).
The above mandatory prepayments will be applied
in reverse order to scheduled amortization of
term loans of such tranche held by lenders in
such tranche on a pro-rata basis.
Optional Prepayments and
Commitment Reductions: Loans may be prepaid and commitments may be
reduced by the Borrower in a minimum amount of
$500,000 or integral multiples of $100,000.
Optional prepayments of the term loans will be
applied, first, to prepay the Tranche A loans
and, to the extent the Tranche B Lenders and
Tranche C Lenders so elect, the Tranche B loans
and the Tranche C loans, and, second, to prepay
any remaining Tranche B loans or Tranche C loans
(once all Tranche A loans have been paid in
full). Optional prepayments of term loans of any
tranche held by any Lender will be applied to
subsequent scheduled amortization on a pro-rata
basis.
VI. Certain Conditions
Initial Conditions: The availability of the Facility shall be
conditioned upon satisfaction of certain
conditions substantially similar to those set
forth in the $325 million credit agreement dated
as of July 26, 2000 among Ntelos, as borrower,
Wachovia Bank, National Association, as
successor administrative agent,
collateral agent and issuing bank, and the
lenders and guarantors party thereto (as
amended, the "Pre-Petition Credit Agreement"),
with such modifications as the parties shall
agree. In addition, availability of the Facility
will be subject to (a) each lender with Working
Capital Commitments (as defined in the
Pre-Petition Credit Agreement) having agreed to
provide commitments under the Revolving Credit
Facility equal to their pro-rata share of the
Working Capital Facility (as defined in the
Pre-Petition Credit Agreement) (b) the execution
and delivery of satisfactory definitive
financing documentation with respect to the
Credit Facility (the "Credit Documentation"),
(c) the sale by the Borrower of senior unsecured
convertible notes (the "Convertible Notes") with
an aggregate principal amount of not less than
$75,000,000, on terms (i) reasonably
satisfactory to the Administrative Agent and
(ii) consistent with the terms therefor set
forth in the Plan Support Agreement dated April
10, 2003, (d) the effectiveness of a plan of
reorganization that is: (i) acceptable to the
Administrative Agent in its sole discretion as
to the treatment of the lenders under the
Pre-Petition Credit Agreement and is otherwise
reasonably acceptable to the Administrative
Agent, (ii) the subject of a confirmation order
that has become a final order, is acceptable to
the Administrative Agent in its sole discretion
and provides for the consummation of the
transactions contemplated thereby and (iii)
consistent with terms therefor set forth in the
Plan Support Agreement dated April 10, 2003, (e)
cash on the balance sheet on the Closing Date
minus the sum of all unpaid administrative
claims, priority claims and secured claims
(other than (x) claims under the Pre-Petition
Credit Agreement, Permitted Hedge Agreements,
Permitted RUS/RTB Loans, Permitted FCC Loans and
Permitted Capital Leases and (y) obligations not
due and payable as of the Effective Date that
are incurred in the ordinary course of
operations including under any assumed leases or
pension plans) that are allowed, expected to be
allowed or otherwise expected to be due and
payable, shall not be less than $5 million and
(f) payment in full of the Reinstatement Fee
described in Annex I hereto. For the purpose
hereof, the "Closing Date" shall be the date
upon which all such conditions precedent shall
be satisfied.
On-Going Conditions: The making of each extension of
credit shall be subject to conditions
substantially similar to those set forth in the
Pre-Petition Credit Agreement, with such
modifications as the parties shall agree.
VII. Certain Documentation Matters
Representations and
Warranties, Covenants,
Events of Default: The Credit Documentation shall contain
representations, warranties, covenants and
events of default substantially similar to those
set forth in the Pre-Petition Credit Agreement,
with such modifications as the parties may agree
including (i) the amount
of Investments (as defined in the Pre-Petition
Credit Agreement) made by the Borrower and the
Guarantors shall be not greater than the amount
of net proceeds from asset sales permitted to be
retained by the Borrower; provided, that in no
event may the Borrower or Guarantors make any
individual Investment exceeding $2.5 million or
make aggregate Investments exceeding (y) $10
million in any twelve month period or (z) $20
million prior to June 25, 2008; provided
further, that aggregate Investments made by the
Borrower or Guarantors resulting in the
ownership of less than 51% of an entity's equity
interests shall not exceed $1 million in any
twelve month period and (ii) that the maximum
cash balance covenant contained in the
Pre-Petition Credit Agreement shall not apply so
long as there are no outstanding borrowings
under the Revolving Facility.
Financial Covenants: As set forth on Annex II.
Other Documentary
Matters: The Credit Documentation shall contain terms as
to voting, assignments, yield protection,
expenses and indemnification substantially
similar to those set forth in the Pre-Petition
Credit Agreement, with such modifications as the
parties shall agree.
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent
and the Lead Arranger: Davis Polk & Wardwell.
Annex I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that the Loans comprising
each borrowing bear interest at a rate per annum
equal to:
the Base plus the Applicable Margin; or
the Eurodollar Rate plus the Applicable
Margin.
As used herein:
"Base Rate" means the highest of (i) the rate of
interest publicly announced by the
Administrative Agent as its prime rate in effect
at its principal office in Charlotte, North
Carolina (the "Prime Rate"), and (ii) the
federal funds effective rate from time to time
plus 0.5%.
"Eurodollar Rate" means the rate at which
eurodollar deposits in the London interbank
market for one month, two months, three months,
or, if commercially available to all Lenders,
six months (as selected by the Borrower) are
quoted on the Telerate screen as adjusted for
statutory reserve requirements for eurocurrency
liabilities.
"Applicable Margin" means the percentage margin
determined in accordance with the Pricing
Schedule.
Interest Payment Dates: In the case of Loans bearing interest based upon
the Base Rate ("Base Rate Loans"), monthly in
arrears.
In the case of Loans bearing interest based upon
the Eurodollar Rate ("Eurodollar Loans"), on the
last day of each relevant interest period.
Commitment Fees: The Borrower shall pay a fee calculated at 1/2
of 1% per annum on the average daily amount of
the unused Revolving Credit Facility, payable
quarterly in arrears.
Letter of Credit Fees: The Borrowers shall pay a commission on all
outstanding Letters of Credit at a per annum
rate equal to the Applicable Margin then in
effect with respect to Eurodollar Loans on the
face amount of each such Letter of Credit.
A fronting fee equal to 1/4 of 1% per annum on
the face amount of each Letter of Credit shall
be payable quarterly in arrears to the Issuing
Lender for its own account. In addition,
customary administrative, issuance, amendment,
payment and negotiation charges shall be payable
to the Issuing Lender for its own account.
Reinstatement Fee: On the Closing Date, Borrower shall pay to the
Administrative Agent, for the benefit of the
lenders under the Revolver, Tranche A and
Tranche B loans a reinstatement fee in an amount
equal to 0.25% (the "Fee Rate") on the aggregate
Revolver, Tranche A and Tranche B loans.
Default Rate: If a Default has occurred and is continuing, all
amounts due under the Facility shall bear
interest at 2% above the rate otherwise
applicable thereto.
Rate and Fee Basis: All per annum rates shall be calculated on the
basis of a year of 360 days (or 365/366 days, in
the case of Base Rate Loans the interest rate
payable on which is then based on the Prime
Rate) for actual days elapsed.
Pricing Schedule
- --------------------------------------------------------------------------------------------
Revolving Loans Tranche A Loans Tranche B Loans Tranche C Loans
- --------------------------------------------------------------------------------------------
Eurodollar Loans 3.25% 3.25% 4.00% 2.75%
- --------------------------------------------------------------------------------------------
Base Rate Loans 2.25% 2.25% 3.00% 1.75%
- --------------------------------------------------------------------------------------------
On and after the day that is 3 months after closing, the margins indicated above
shall be reduced by 25 bps for each of the Revolving, Tranche A and Tranche B
Loans when and during such time as the Borrower's total leverage ratio is less
than 3.0:1.0. Such margin reduction shall take effect upon receipt by the
Administrative Agent of a quarterly or annual report accompanied by a
certificate of the Chief Financial Officer attesting that the Borrower's total
leverage ratio is less than 3.0:1.0.
Annex II
- ----------------------------------------------------------------------------------------------------------------
Proposed Covenants under Exit Facility
- ----------------------------------------------------------------------------------------------------------------
EBITDA / (Taxes +
Minimum Maximum Senior Leverage Leverage Interest Coverage Interest
EBITDA CapEx Ratio Ratio Ratio + Sch Amort)
-----------------------------------------------------------------------------------------------
9/30/03 74,000 3.50x 4.50x 2.50x 1.50x
12/31/03 72,000 70,000 3.50x 4.50x 2.50x 1.50x
3/31/04 72,000 3.50x 4.25x 2.75x 1.50x
6/30/04 75,000 3.25x 4.25x 2.75x 1.50x
9/30/04 3.00x 4.00x 2.75x 1.75x
12/31/04 70,000 2.75x 4.00x 2.75x 1.75x
3/31/05 2.75x 3.50x 3.00x 1.75x
6/30/05 2.75x 3.50x 3.00x 1.75x
9/30/05 2.75x 3.50x 3.00x 1.75x
12/31/05 70,000 2.75x 3.50x 3.00x 2.00x
12/31/06 60,000 2.50x 3.50x 3.00x 2.25x
12/31/07 60,000 2.50x 3.50x 3.00x 2.50x
12/31/08 55,000 2.50x 3.50x 3.00x 0.50x
Notes:
1) Minimum EBITDA calculated on an LTM basis and excludes results from Cable
Business for 3Q & 4Q 2003.
2) Maximum CapEx calculated on an annual basis.
3) Senior Leverage Ratio includes Bank Debt, R&B, FCC and Capital Leases over
LTM EBITDA.
4) Leverage Ratio includes debt in Senior Leverage Ratio plus $75MM in
new Convertible Notes over LTM EBITDA.
5) Calculated on a buildup basis from emergence date and includes only cash
interest assuming the $75MM Convertible Note interest is paid semi-annually
on 6/30 and 12/31.
6) Calculated on a buildup basis from emergence date.
Exhibit C
(to Exhibit F)
================================================================================
- --------------------------------------------------------------------------------
Summary of Proposed Terms of Senior Convertible Notes
- --------------------------------------------------------------------------------
================================================================================
Issuer: Reorganized NTELOS Inc. ("Reorganized
NTELOS"), the successor to NTELOS Inc.,
Debtor in Possession
Issue: Senior Convertible Notes (the "Convertible
Notes")
Principal Amount: $75 million
Ranking: Unsecured; otherwise pari passu with all other
senior debt.
Maturity: Ten (10) years
Interest: 9.0%, payable semi-annually in cash. Interest
shall accrue and be cumulative from the date of
issuance of the Convertible Notes.
Covenants: Customary for instruments of this type
(including, among other covenants, certain
incurrence covenants but excluding any financial
maintenance covenants)
Optional Redemption: Redeemable by Reorganized NTELOS for the
first two (2) years at a redemption price of
109% of the face value of note, for the third
year at a redemption price of 104.5% of the face
value of the note, and redeemable thereafter at
the option of Reorganized NTELOS at any time
with 60 days notice at a redemption price of
100% of the face value of the note. Any
redemption of the Convertible Notes shall permit
the holders to exercise their conversion rights
within a notice of period of not less than 60
days.
Conversion: Convertible Notes will be convertible at
holders' option into New Common Stock.
Backstop Consideration In consideration for purchasingt he Convertible
Notes, the Purchasers will receive shares of New
Common Stock valued at 1.0% of the purchase
price provided by the Purchasers.
Expenses: The Company or Reorganized NTELOS shall pay all
out-of-pocket fees and expenses of Paul, Weiss,
Rifkind, Wharton & Garrison LLP, counsel to the
holders, reasonably incurred by the holders up
to $150,000 or such greater amount approved by
the Bankruptcy Court or consented to by the
Agent and the Creditors Committee in connection
with the negotiation, preparation, execution,
delivery and performance of the definitive
Purchase Agreement and related documents for the
Convertible Notes
EXHIBIT G
________________________________________________________________________________
- --------------------------------------------------------------------------------
Plan Support Agreement
________________________________________________________________________________
- --------------------------------------------------------------------------------
THIS PLAN SUPPORT AGREEMENT (this "Agreement") is dated as of April 10,
2003, among NTELOS Inc., Debtor in Possession, a Virginia corporation with its
principal place of business at 401 Spring Lane, Suite 300, P.O. Box 1990,
Waynesboro, Virginia 22980 (together with the reorganized company, the
"Company"), and the undersigned lenders (the "Supporting Lenders", together with
the Company the "Parties") party to the credit agreement dated as of July 26,
2000 among the Company, the subsidiary guarantors party thereto, the lender
parties party thereto, and Wachovia Bank, National Association as Administrative
Agent and Collateral Agent (as amended, the "Pre-Petition Credit Agreement").
RECITALS
WHEREAS, on March 4, 2003 (the "Petition Date"), the Company and
certain of its subsidiaries (collectively, the "Debtors") filed in the United
States Bankruptcy Court for the Eastern District of Virginia, Richmond Division
(the "Bankruptcy Court"), petitions for relief under chapter 11 of title 11 of
the United States Code (the "Chapter 11 Cases") and have continued in possession
of their assets as debtors in possession.
WHEREAS, the Debtors intend to consummate a financial restructuring
pursuant to a Conforming Plan (as defined below) to be filed in the Chapter 11
Cases;
WHEREAS, the Company, the Supporting Lenders and certain of the
Company's other material creditors have previously held discussions, subject to
Rule 408 of the Federal Rules of Evidence, relating to the terms of a possible
pre-negotiated plan of reorganization;
WHEREAS, the discussions and negotiations among such parties have
resulted in preliminary agreement among the Company, the Supporting Lenders and
certain of the Company's other material creditors with respect to the terms of a
Conforming Plan
WHEREAS, the Company, the subsidiary guarantors party thereto, the
lender parties party thereto (the "DIP Lenders"), and Wachovia Bank, National
Association as Administrative Agent and Collateral Agent (the "Agent") have
entered into a Revolving Credit and Guaranty Agreement dated as of March 6, 2003
(as may be amended, the "DIP Facility") pursuant to which the DIP Lenders may
provide up to $35 million (the "DIP Commitment") of debtor-in-possession
financing to the Company;
WHEREAS, it is a condition precedent to the Company having full access
to the DIP Commitment that the Company provide written evidence acceptable to
the Agent in its sole discretion that at least $75 million of new unsecured
financing will be in place on the effective date of the Conforming Plan (the
"Plan Effective Date"), a portion of which shall be used to pay in full the
unpaid balance of the DIP Facility on the Plan Effective Date and to pay in full
(subject to the Company's right to reborrow) 100% of the revolving loans then
outstanding under the Pre-Petition Credit Agreement;
WHEREAS, as part of a Conforming Plan, the Company anticipates selling
to certain investors (the "Purchasers") $75 million of 9.0% senior unsecured
convertible notes due 2013 of the reorganized Company conforming in all material
respects with the terms set forth on Exhibit A attached hereto (the "Convertible
Notes");
WHEREAS, it is a condition precedent to the Purchasers' obligations to
purchase the Convertible Notes that the Purchasers have assurances that the
Supporting Lenders will make the Exit Facility (as hereinafter defined)
available to the Company on the Plan Effective Date; and
WHEREAS, on March 13, 2003, the United States Trustee appointed an
official committee of creditors holding unsecured claims in the Chapter 11 Cases
pursuant to ss. 1102(a)(1) of the Bankruptcy Code (the "Creditors Committee").
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, the Parties agree as follows:
1. Proposal of a Conforming Plan. So long as no Termination
Event (as hereinafter defined) shall have occurred, the Company shall have the
following obligations pursuant to this Agreement:
(a) to have filed, solicited votes and conducted a
confirmation hearing before the Bankruptcy Court on or before
September 30, 2003 on a plan of reorganization that includes the terms
set forth below (a "Conforming Plan"):
(i) an exit financing facility in replacement of the
Pre-Petition Credit Agreement conforming in all material respects with
the terms set forth on Exhibit B, with such amendments, changes or
modifications as may be agreed upon by the Supporting Lenders in their
sole discretion (the "Exit Facility");
(ii) other than as set forth in (i) above, the cancellation of
all existing senior notes, subordinated notes, indentures, other debt
for borrowed money, preferred stock, common stock, options and other
equity securities of the Company (provided that some or all of the
holders of the foregoing may receive equity securities of the
reorganized Debtors) other than (A) the Exit Facility, (B) any
outstanding hedge agreements entered into in September 2000 with lender
parties to the Pre-Petition Credit Agreement (the "Permitted Hedge
Agreements"), (C) the existing RUS/RTB loans having an aggregate
principal amount of approximately $6,712,000 (the "Permitted RUS/RTB
Loans"), (D) the existing FCC loans having an aggregate principal
amount of approximately $8,180,000 (the "Permitted FCC Loans"), and (E)
the existing JLL permitted capital leases having an aggregate net
present value of $10,149,000 and such other capital leases as may be
agreed upon by the Agent and the Company (the "Permitted Capital
Leases");
(iii) on the Plan Effective Date, the reorganized Debtors
shall have no indebtedness for borrowed money other than (A) the Exit
Facility, (B) the Convertible Notes, (C) the Permitted Hedge
Agreements, (D) the Permitted RUS/RTB Loans, (E) the Permitted FCC
Loans, and (F) the Permitted Capital Leases;
(iv) the purchase by the Purchasers of not less than $75
million of Convertible Notes on the Plan Effective Date; and
(v) the payment in full in cash of the DIP Facility and the
revolving loans under the Pre-Petition Credit Agreement (subject to
reborrowing under the Exit Facility) on the Plan Effective Date.
(b) to use all commercially reasonable efforts to expedite the
Chapter 11 Cases whenever possible and obtain confirmation and
consummation of a Conforming Plan as soon as reasonably practicable;
and
G-2
(c) to refrain from taking any action that could reasonably be
expected to prevent, delay or impede the successful restructuring of
the Company in accordance with the terms of a Conforming Plan.
2. Support of a Conforming Plan. So long as no Termination Event
shall have occurred, each Supporting Lender shall have the following obligations
pursuant to this Agreement:
(a) to refrain from proposing a plan of reorganization or
supporting, consenting to or participating in the formulation of any
plan of reorganization proposed by any other constituency in the
Chapter 11 Cases other than a Conforming Plan;
(b) not to object to accurate disclosure by the Company of the
contents of this Agreement in a disclosure statement describing a
Conforming Plan; and
(c) to refrain from (i) objecting to confirmation of a
Conforming Plan or (ii) commencing any proceeding to oppose or alter a
Conforming Plan or any of the documents to implement the same in any
way inconsistent with this Agreement.
3. Representations and Warranties of the Parties. Each Party
represents and warrants as to itself that the following statements are true,
correct and complete as of the date hereof:
(a) Corporate Power and Authority. It has all requisite
corporate, partnership, or limited liability company power and
authority to enter into this Agreement and to carry out the
transactions contemplated by, and perform its respective obligations
under, this Agreement. The execution and delivery of this Agreement and
the performance of its obligations hereunder have been duly authorized
by all necessary corporate, partnership or limited liability company
action on its part.
(b) No Conflicts. The execution, delivery and performance by
the Parties of this Agreement does not and shall not: (i) violate any
provision of law, rule or regulation applicable to it or any of its
subsidiaries; (ii) violate its certificate of incorporation, bylaws, or
other organizational documents or those of any of its subsidiaries; or
(iii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any material
contractual obligation to which it is a party.
(c) Governmental Consents. The execution, delivery and
performance by the Supporting Lenders or the Company of this Agreement
does not and shall not require any registration or filing with, consent
or approval of, or notice to, or other action to, with or by, any
federal, state or other governmental authority or regulatory body,
other than the approval of the Bankruptcy Court, in the case of the
Debtors.
4. Representations and Warranties of the Supporting Lenders. Each
Supporting Lender represents and warrants as to itself that it owns the
Revolving Loans, Tranche A Term Loans, Tranche B Term Loans, Tranche C Term
Loans and participations in Letters of Credit under the Pre-Petition Credit
Agreement as set forth on Exhibit C.
5. Termination. This Agreement shall immediately terminate upon
the earlier to occur of (x) the Plan Effective Date or (y) the occurrence of any
of the following events (each a "Termination Event"):
(a) the Company shall fail to perform any of its obligations
hereunder or shall have breached any of the agreements set forth
herein;
(b) any of the subscription agreements of even date hereof
under which the Purchasers have agreed to purchase $75 million in the
aggregate of Convertible Notes shall have been amended,
G-3
modified, supplemented or terminated in a manner adverse to the
Debtors, the Supporting Lenders or the DIP Lenders without the prior
written consent of the Supporting Lenders;
(c) a Conforming Plan and an accompanying disclosure statement
(i) containing the terms set forth in Section 1(a) above, (ii)
providing for the Exit Facility as the plan treatment of the Lenders
under the Pre-Petition Credit Agreement and (iii) in all other respects
reasonably acceptable to the Supporting Lenders, shall not have been
filed with the Bankruptcy Court on or before May 31, 2003 and a
disclosure statement in respect of the filed Conforming Plan and
reasonably acceptable to the Supporting Lenders shall not have been
approved by the Bankruptcy Court on or before August 15, 2003;
(d) a Conforming Plan shall not have, on or before
September 30, 2003, been confirmed by a final order of the Bankruptcy
Court reasonably acceptable to the Supporting Lenders;
(e) the Plan Effective Date and the "Closing Date" of the Exit
Facility (as defined on Exhibit B hereof) shall not have occurred on or
before October 15, 2003;
(f) the Bankruptcy Court at any time denies confirmation of a
Conforming Plan (other than in a fashion that reasonably admits of or
leaves open the possibility that a Conforming Plan can still be
confirmed and effective prior to September 30, 2003);
(g) there shall be any material modification of a Conforming
Plan (other than one that could not reasonably be expected to have an
adverse impact on the reorganized Debtors, the DIP Lenders or the
lenders under the Pre-Petition Credit Facility) not acceptable to the
Supporting Lenders in their sole discretion;
(h) (i) an order, ruling or administrative decision of any
state regulatory authority is entered at any time that has the
practical effect of preventing the confirmation or consummation of a
Conforming Plan or (ii) a permanent injunction or other order shall
have been entered by any governmental entity that prevents the
consummation of the transactions contemplated by this Agreement or
(iii) a statute, rule, regulation or other law shall have been enacted
by any governmental entity that would prevent or make illegal the
consummation of the transactions contemplated by this Agreement;
(i) any one of the Debtors or any committee appointed by the
Bankruptcy Court or the United States Trustee (a "Committee"): (i)
files a plan of reorganization or plan of liquidation that is not a
Conforming Plan, (ii) files any motion or other pleading materially
inconsistent with the confirmation and consummation of a Conforming
Plan (other than as to provisions thereof that could not reasonably be
expected to have an adverse impact on the reorganized Debtors, the DIP
Lenders or the lenders under the Pre-Petition Credit Facility), (iii)
files a motion seeking, or the Bankruptcy Court enters, an order
appointing a trustee, responsible officer or an examiner with powers
beyond the duty to investigate and report, as set forth in subclauses
(3) and (4) of clause (a) of section 1106 of the Bankruptcy Code, in
the Chapter 11 Cases;
(j) an Event of Default shall have occurred under the DIP
Facility; or
(k) there shall have occurred (i) any adverse change to, or
any of the Debtors default upon, the adequate protection obligations
set forth in the DIP Orders or (ii) any material adverse change in the
business, condition (financial or otherwise), operations, performance
or properties of the Debtors taken as a whole provided that no material
adverse change shall be deemed to exist solely as a result of (A) the
commencement of the Chapter 11 Cases, (B) the items specifically
identified and reflected in the financial projections made available to
the Supporting Lenders prior to the Petition Date, (C) the taking of
any non-cash writedowns or impairment charge-offs disclosed to the
Supporting Lenders
G-4
prior to the Petition Date, (D) restructuring and reorganization costs
expensed in the last quarter of fiscal year 2002 and in fiscal year
2003 and (E) any going concern qualification or explanation by the
Company's auditors in connection with the Company's consolidated
financial statements for the fiscal year ending December 31, 2002 or
for any subsequent reporting period after the Petition Date.
In event of the termination of this Agreement pursuant to this Section
5, then, (i) the Parties hereto fully reserve any and all of their rights; (ii)
the provisions of this Agreement and all of the obligations of the Parties
hereunder shall be of no further force and effect and (iii) nothing contained
herein shall be deemed to be an admission or concession, or be in any way
binding upon, any of the Parties in any way, including but not limited to in
connection with the Chapter 11 Cases.
6. No Solicitation of Plan Approval. The Company and each of the
Supporting Lenders agree that neither the negotiation nor the execution and
delivery of this Agreement is intended by the Company to be a solicitation of
the approval of any plan of reorganization within the meaning of section 1125 of
the Bankruptcy Code. No Supporting Lender will be solicited before it has
received a disclosure statement in accordance with applicable law.
7. Transfer or Acquisition of Claims, Interests and Securities.
This Agreement shall not in any way restrict the right or ability of any
Supporting Lender to sell, assign, transfer or otherwise dispose of any of its
claims against the Debtors or any of its affiliates under the Pre-Petition
Credit Agreement (the "Claims"), provided, however, that such transfer or
assignment shall not be effective unless and until the transferee or assignee
delivers to the transferor or assignor, the Administrative Agent and the
Company, at the time of such transfer or assignment pursuant to Section 9.07 of
the Pre-Petition Credit Agreement, a written agreement containing the provisions
set forth in the form attached hereto as Exhibit D pursuant to which such
transferee or assignee shall assume, and be bound by, the obligations of the
transferor or assignor hereunder in respect of the Claims transferred. In
addition, this Agreement shall in no way be construed to preclude any Supporting
Lender from acquiring additional Claims. However, any such additional Claims so
acquired shall automatically be deemed to be subject to the terms of this
Agreement.
8. No Waiver of Participation. Each Party hereto expressly
acknowledges and agrees that, except as expressly provided in this Agreement,
nothing herein is intended to, or does, in any manner waive, limit, impair or
restrict the ability of any Supporting Lender to protect and to preserve all of
its rights, remedies and interests, including, without limitation, with respect
to any of its claims against the Debtors, or its full participation in any of
the Chapter 11 Cases. Nothing herein shall be deemed to affect any of the rights
and obligations of any of the Supporting Lenders in any other capacity they may
have in the Chapter 11 Cases or otherwise.
9. Obligations Several and Not Joint. The obligations, agreements,
representations and warranties of each of the Supporting Lenders are several and
not joint. Any breach of this Agreement by any Supporting Lender shall not
result in liabilities for any other Supporting Lender.
10. Consideration. It is hereby acknowledged by the Parties that
no consideration, other than the Company's obligations under this Agreement,
shall be due or paid to any Supporting Lender for its agreements hereunder.
11. Specific Performance. It is understood and agreed by the
Parties that money damages would not be an appropriate or sufficient remedy for
any breach of this Agreement by any Party and each non-breaching Party shall be
entitled to the sole and exclusive remedy of specific performance and injunctive
or other equitable relief, as a remedy for any such breach, and each Party
agrees to waive any requirement for the securing or posting of a bond in
connection with such remedy.
12. Miscellaneous Provisions.
G-5
(a) The provisions of this Agreement, including the provisions
of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be
given, without the written consent thereto of the Company and the
Supporting Lenders.
(b) This Agreement shall be binding upon, and inure to the
benefit of, the Parties. No rights or obligations of any Party under
this Agreement may be assigned or transferred to any other person or
entity, except as provided in Section 5 hereof. Nothing in this
Agreement, express or implied, shall give to any party or entity other
than the Parties, any benefit or any legal or equitable right, remedy
or claim under this Agreement.
(c) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
(d) All notices, demands, requests, consents or other
communications to be given or delivered under or by reason of the
provisions of this Agreement shall be in writing and shall be deemed to
have been given when (i) delivered personally to the recipient, (ii)
telecopied to the recipient (with hard copy sent to the recipient by
reputable overnight courier service (charges prepaid) that same day) if
telecopied before 5:00 p.m. New York City time on a business day, and
otherwise on the next business day, or (iii) one business day after
being sent to the recipient by reputable overnight courier service
(charges prepaid) . Such notices, demands, requests, consents and other
communications shall be sent to the following addresses:
(i) if to the Company:
NTELOS Inc.
401 Spring Lane, Suite 300
P.O. Box 1990
Waynesboro, Virginia 22980
Attention: Michael B. Moneymaker
Telecopier: (540) 946-3595
with a copy to:
Hunton & Williams
Bank of America Plaza, Suite 4100
600 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: David M. Carter, Esq.
Telecopier: (404) 888-4190
(ii) if to the Supporting Lenders:
Wachovia Bank, National Association
301 South College Street
Charlotte, NC 28288-0537
Attention: Kathy Harkness
Telecopier: 704-383-6249
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
G-6
New York, NY 10017
Attention: Marshall S. Huebner, Esq.
elecopier: 212-450-3099
or to such other address or to the attention of such other person as
the receiving party has specified by prior written notice to the
sending party.
(e) This Agreement, including all Exhibits hereto and thereto,
contains the entire agreement of the Parties with respect to the
subject matter of this Agreement, and no Party shall be liable or bound
to any other Party in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein.
(f) This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of
which taken together shall constitute one and the same instrument.
Delivery of an executed counterpart of a signature page to this
Agreement by telecopier shall be effective as delivery of an original
executed counterpart of this Agreement.
IN WITNESS WHEREOF, the Parties have duly executed and delivered this
Agreement as of the date first above written.
Company:
NTELOS INC., Debtor in Possession
By:
----------------------------
Name:
Title:
Supporting Lenders:
[Lenders]
By:
----------------------------
Name:
Title:
G-7
Exhibit A
(to Exhibit G)
____________________________________________________________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
Summary of Proposed Terms of Senior Convertible Notes
____________________________________________________________________________________________________________________________________
- ------------------------------------------------------------------------------------------------------------------------------------
Issuer: Reorganized NTELOS Inc. ("Reorganized NTELOS"), the successor to NTELOS Inc.,
Debtor in Possession
Issue: Senior Convertible Notes (the "Convertible Notes")
Principal Amount: $75 million
Ranking: Unsecured; otherwise pari passu with all other senior debt.
Maturity: Ten (10) years
Interest: 9.0%, payable semi-annually in cash. Interest shall accrue and be cumulative
from the date of issuance of the Convertible Notes.
Covenants: Customary for instruments of this type (including, among others, certain
incurrence covenants and excluding financial maintenance covenants).
Optional Redemption: Redeemable by Reorganized NTELOS for the first two (2) years at a redemption
price of 109% of the face value of note, for the third year at a redemption
price of 104.5% of the face value of the note, and redeemable thereafter at the
option of Reorganized NTELOS at any time with 60 days notice at a redemption
price of 100% of the face value of the note. Any redemption of the Convertible
Notes shall permit the holders to exercise their conversion rights within a
notice of period of not less than 60 days.
Conversion: Convertible Notes will be convertible at holders' option into New Common Stock.
Backstop Consideration: In consideration for purchasing the Convertible Notes, the Purchasers will
receive shares of New Common Stock valued at 1.0% of the purchase price provided
by the Purchasers.
Expenses: The Company or Reorganized NTELOS shall pay all out-of-pocket fees and expenses
of Paul, Weiss, Rifkind, Wharton & Garrison LLP, counsel to the holders,
reasonably incurred by the holders up to $150,000 or such greater amount
approved by the Bankruptcy Court or consented to by the Agent and the Creditors
Committee in connection with the negotiation, preparation, execution, delivery
and performance of the definitive Purchase Agreement and related documents for
the Convertible Notes.
Exhibit B
(to Exhibit G)
================================================================================
EXIT FACILITY
Summary of Terms and Conditions
================================================================================
I. Parties
Borrower: Ntelos Inc. ("Ntelos" or the "Borrower").
Guarantors: Each of the Borrower's present and future
domestic subsidiaries (the "Guarantors") will
guarantee (a "Guarantee") the Borrower's
obligations under the Facility, up to the
maximum amount possible without violating
applicable fraudulent conveyance laws.
Lead Arranger Wachovia Securities Inc. ("WSI").
and Bookrunner:
Administrative Agent: Wachovia Bank, National Association (in
such capacity, the "Administrative Agent").
Lenders: A syndicate of banks, financial institutions
and other entities, including Wachovia Bank,
National Association, arranged by the Lead
Arranger (collectively, the "Lenders") with any
institutions not currently lenders to the
Borrower reasonably acceptable to the Borrower.
Purpose: The proceeds of the Revolving Credit Loans
(defined below) shall be used for general
corporate purposes of the Borrower and its
subsidiaries in the ordinary course of
business.
II. Revolving Credit Facility
Type and Amount of
Facility: Revolving credit facility (the "Revolving
Credit Facility") in the amount of $36,000,000
(the loans thereunder, the "Revolving Credit
Loans").
Availability: The Revolving Credit Facility shall be
available on a revolving basis during the
period commencing on the Closing Date and
ending on July 25, 2007 (the "Revolving Credit
Termination Date").
Letters of Credit: A portion of the Revolving Credit
Facility not in excess of $5 million shall be
available for the issuance of letters of credit
(the "Letters of Credit") by Wachovia Bank,
National Association (in
such capacity, the "Issuing Lender"). No Letter
of Credit shall have an expiration date after
the earlier of (a) one year after the date of
issuance and (b) five business days prior to
the Revolving Credit Termination Date, provided
that any Letter of Credit with a one-year tenor
may provide for the renewal thereof for
additional one-year periods (which shall in no
event extend beyond the date referred to in
clause (b) above).
Maturity: The Revolving Credit Termination Date.
III.Term Loan Facility
Tranche A: Up to $50,000,000 term loan, to be reduced by
the aggregate amount of principal payments
received from the Borrower during the
bankruptcy case and applied to the Tranche A
loan under the Pre-Petition Credit Agreement.
The Tranche A commitment will expire at the
close of business on the Closing Date and the
Tranche A loans will mature on July 25, 2007.
Tranche B: Up to $99,500,000 term loan, to be reduced by
the aggregate amount of principal payments
received from the Borrower during the
bankruptcy case and applied to the Tranche B
loan under the Pre-Petition Credit Agreement.
The Tranche B commitment will expire at the
close of business on the Closing Date and the
Tranche B loans will mature on July 25, 2008.
Tranche C: Up to $75,000,000 term loan, to be reduced by
the aggregate amount of principal payments
received from the Borrower during the
bankruptcy case and applied to the Tranche C
loan under the Pre-Petition Credit Agreement.
The Tranche C commitment will expire at the
close of business on the Closing Date and the
Tranche C loans will mature on July 25, 2008.
IV.Security The Borrower's obligations under the Facility
and any hedging arrangements with any Lender or
affiliate of any Lender and each guarantee will
be secured by perfected liens on substantially
all assets of the Borrower or the relevant
guarantor, as the case may be, including, but
not limited to, receivables, inventory,
equipment, real estate, leases, licenses,
patents, brand names, trademarks, contracts,
securities and stock of domestic subsidiaries
and 65% of the stock of any first tier foreign
subsidiary.
V. Certain Payment Provisions
Fees and Interest Rates: As set forth on Annex I.
Scheduled Amortization and
Commitment Reductions: Tranche A, B & C loans will be amortized
according to the terms set forth in the
Pre-Petition Credit Agreement (defined below).
Contingent Mandatory
Prepayments: In addition to scheduled amortization payments,
the following amounts will be applied, first,
to prepay a proportionate part of the Tranche A
loans and, to the extent the Tranche B Lenders
and Tranche C Lenders so elect, the Tranche B
loans and Tranche C loans (pro rata on the
basis of the aggregate principal amount of
loans of each tranche subject to prepayment),
second, to prepay any remaining Tranche B loans
and Tranche C loans (once all the Tranche A
loans have been paid in full) and, third, to
reduce the Revolving Credit commitment (and to
repay and/or cash collateralize exposure under
the Revolving Credit Facility in an amount
equal to the excess of such exposure over the
Revolving Credit commitment as reduced).
1. 50% of excess cash flow for any fiscal year
(discuss revised definition of excess cash
flow).
2. A percentage of the net proceeds from asset
sales by the Borrower and its subsidiaries
equal to (i) 25% with respect to the first
$20,000,000 of aggregate net proceeds and (ii)
75% with respect to aggregate net proceeds in
excess of $20,000,000.
3. 100% of the net proceeds from the issuance
of indebtedness by the Borrower and its
subsidiaries (other than the (i) amounts raised
through the issuance of Convertible Notes on
the Closing Date that are in excess of the
Revolver outstandings on the Closing Date and
(ii) permitted capital leases).
The above mandatory prepayments will be applied
in reverse order to scheduled amortization of
term loans of such tranche held by lenders in
such tranche on a pro-rata basis.
Optional Prepayments and
Commitment Reductions: Loans may be prepaid and commitments may be
reduced by the Borrower in a minimum amount of
$500,000 or integral multiples of $100,000.
Optional prepayments of the term loans will be
applied, first, to prepay the Tranche A loans
and, to the extent the Tranche B Lenders and
Tranche C Lenders so elect, the Tranche B loans
and the Tranche C loans, and, second, to prepay
any remaining Tranche B loans or Tranche C
loans (once all Tranche A loans have been paid
in full). Optional prepayments of term loans of
any tranche held by any Lender will be applied
to subsequent scheduled amortization on a
pro-rata basis.
VI.Certain Conditions
Initial Conditions: The availability of the Facility
shall be conditioned upon satisfaction of
certain conditions substantially similar to
those set forth in the $325 million credit
agreement dated as of July 26, 2000 among
Ntelos, as borrower, Wachovia Bank,
National Association, as successor
administrative agent, collateral agent and
issuing bank, and the lenders and guarantors
party thereto (as amended, the "Pre-Petition
Credit Agreement"), with such modifications as
the parties shall agree. In addition,
availability of the Facility will be subject to
(a) each lender with Working Capital
Commitments (as defined in the Pre-Petition
Credit Agreement) having agreed to provide
commitments under the Revolving Credit Facility
equal to their pro-rata share of the Working
Capital Facility (as defined in the
Pre-Petition Credit Agreement) (b) the
execution and delivery of satisfactory
definitive financing documentation with respect
to the Credit Facility (the "Credit
Documentation"), (c) the sale by the Borrower
of senior unsecured convertible notes (the
"Convertible Notes") with an aggregate
principal amount of not less than $75,000,000,
on terms (i) reasonably satisfactory to the
Administrative Agent and (ii) consistent with
the terms therefor set forth in the Plan
Support Agreement dated April 10, 2003, (d) the
effectiveness of a plan of reorganization that
is: (i) acceptable to the Administrative Agent
in its sole discretion as to the treatment of
the lenders under the Pre-Petition Credit
Agreement and is otherwise reasonably
acceptable to the Administrative Agent, (ii)
the subject of a confirmation order that has
become a final order, is acceptable to the
Administrative Agent in its sole discretion and
provides for the consummation of the
transactions contemplated thereby and (iii)
consistent with terms therefor set forth in the
Plan Support Agreement dated April 10, 2003,
(e) cash on the balance sheet on the Closing
Date minus the sum of all unpaid administrative
claims, priority claims and secured claims
(other than (x) claims under the Pre-Petition
Credit Agreement, Permitted Hedge Agreements,
Permitted RUS/RTB Loans, Permitted FCC Loans
and Permitted Capital Leases and (y)
obligations not due and payable as of the
Effective Date that are incurred in the
ordinary course of operations including under
any assumed leases or pension plans) that are
allowed, expected to be allowed or otherwise
expected to be due and payable, shall not be
less than $5 million and (f) payment in full of
the Reinstatement Fee described in Annex I
hereto. For the purpose hereof, the "Closing
Date" shall be the date upon which all such
conditions precedent shall be satisfied.
On-Going Conditions: The making of each extension of credit shall be
subject to conditions substantially similar to
those set forth in the Pre-Petition Credit
Agreement, with such modifications as the
parties shall agree.
VII.Certain Documentation Matters
Representations and
Warranties, Covenants,
Events of Default: The Credit Documentation shall contain
representations, warranties, covenants and
events of default substantially similar
to those set forth in the Pre-Petition Credit Agreement, with such
modifications as the parties may agree including (i) the amount of
Investments (as defined in the Pre-Petition Credit Agreement) made
by the Borrower and the Guarantors shall be not greater than the
amount of net proceeds from asset sales permitted to be retained
by the Borrower; provided, that in no event may the Borrower or
Guarantors make any individual Investment exceeding $2.5 million
or make aggregate Investments exceeding (y) $10 million in any
twelve month period or (z) $20 million prior to June 25, 2008;
provided further, that aggregate Investments made by the Borrower
or Guarantors resulting in the ownership of less than 51% of an
entity's equity interests shall not exceed $1 million in any
twelve month period and (ii) that the maximum cash balance
covenant contained in the Pre-Petition Credit Agreement shall not
apply so long as there are no outstanding borrowings under the
Revolving Facility.
Financial Covenants: As set forth on Annex II.
Other Documentary
Matters: The Credit Documentation shall contain terms as to voting,
assignments, yield protection, expenses and indemnification
substantially similar to those set forth in the Pre-Petition
Credit Agreement, with such modifications as the parties shall agree.
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent
and the Lead Arranger: Davis Polk & Wardwell.
Annex I
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that the Loans comprising each borrowing
bear interest at a rate per annum equal to:
the Base plus the Applicable Margin; or
the Eurodollar Rate plus the Applicable Margin.
As used herein:
"Base Rate" means the highest of (i) the rate of interest
publicly announced by the Administrative Agent as its prime rate
in effect at its principal office in Charlotte, North Carolina
(the "Prime Rate"), and (ii) the federal funds effective rate
from time to time plus 0.5%.
"Eurodollar Rate" means the rate at which eurodollar deposits in
the London interbank market for one month, two months, three
months, or, if commercially available to all Lenders, six months
(as selected by the Borrower) are quoted on the Telerate screen
as adjusted for statutory reserve requirements for eurocurrency
liabilities.
"Applicable Margin" means the percentage margin determined in
accordance with the Pricing Schedule.
Interest Payment Dates: In the case of Loans bearing interest based upon the Base Rate
("Base Rate Loans"), monthly in arrears.
In the case of Loans bearing interest based upon the Eurodollar
Rate ("Eurodollar Loans"), on the last day of each relevant
interest period.
Commitment Fees: The Borrower shall pay a fee calculated at 1/2 of 1% per annum on
the average daily amount of the unused Revolving Credit Facility,
payable quarterly in arrears.
Letter of Credit Fees: The Borrowers shall pay a commission on all outstanding Letters of
Credit at a per annum rate equal to the Applicable Margin then in
effect with respect to Eurodollar Loans on the face amount of each
such Letter of Credit.
A fronting fee equal to 1/4 of 1% per annum on the face amount
of each Letter of Credit shall be payable quarterly in arrears
to the Issuing Lender for its own account. In addition,
customary administrative, issuance, amendment, payment and
negotiation charges shall be payable to the Issuing Lender for
its own account.
Reinstatement Fee: On the Closing Date, Borrower shall pay to the Administrative
Agent, for the benefit of the lenders under the Revolver,
Tranche A and Tranche B loans a reinstatement fee in an
amount equal to 0.25% (the "Fee Rate") on the aggregate
Revolver, Tranche A and Tranche B loans.
Default Rate: If a Default has occurred and is continuing, all amounts due
under the Facility shall bear interest at 2% above the rate
otherwise applicable thereto.
Rate and Fee Basis: All per annum rates shall be calculated on the basis of a
year of 360 days (or 365/366 days, in the case of Base
Rate Loans the interest rate payable on which is then
based on the Prime Rate) for actual days elapsed.
Pricing Schedule
Revolving Loans Tranche A Loans Tranche B Loans Tranche C Loans
Eurodollar Loans 3.25% 3.25% 4.00% 2.75%
Base Rate Loans 2.25% 2.25% 3.00% 1.75%
On and after the day that is 3 months after closing, the margins indicated above
shall be reduced by 25 bps for each of the Revolving, Tranche A and Tranche B
Loans when and during such time as the Borrower's total leverage ratio is less
than 3.0:1.0. Such margin reduction shall take effect upon receipt by the
Administrative Agent of a quarterly or annual report accompanied by a
certificate of the Chief Financial Officer attesting that the Borrower's total
leverage ratio is less than 3.0:1.0.
Annex II
- --------------------------------------------------------------------------------
Proposed Covenants under Exit Facility
- --------------------------------------------------------------------------------
EBITDA / (Taxes +
Minimum Maximum Senior Leverage Leverage Interest Coverage Interest
EBITDA CapEx Ratio Ratio Ratio + Sch Amort)
------------- ----------------- ----------------- ----------- ------------------- ---------------------
9/30/03 74,000 3.50x 4.50x 2.50x 1.50x
12/31/03 72,000 70,000 3.50x 4.50x 2.50x 1.50x
3/31/04 72,000 3.50x 4.25x 2.75x 1.50x
6/30/04 75,000 3.25x 4.25x 2.75x 1.50x
9/30/04 3.00x 4.00x 2.75x 1.75x
12/31/04 70,000 2.75x 4.00x 2.75x 1.75x
3/31/05 2.75x 3.50x 3.00x 1.75x
6/30/05 2.75x 3.50x 3.00x 1.75x
9/30/05 2.75x 3.50x 3.00x 1.75x
12/31/05 70,000 2.75x 3.50x 3.00x 2.00x
12/31/06 60,000 2.50x 3.50x 3.00x 2.25x
12/31/07 60,000 2.50x 3.50x 3.00x 2.50x
12/31/08 55,000 2.50x 3.50x 3.00x 0.50x
Notes:
1) Minimum EBITDA calculated on an LTM basis and excludes results from Cable
Business for 3Q & 4Q 2003.
2) Maximum CapEx calculated on an annual basis.
3) Senior Leverage Ratio includes Bank Debt, R&B, FCC and Capital Leases over
LTM EBITDA.
4) Leverage Ratio includes debt in Senior Leverage Ratio plus $75MM in
new Convertible Notes over LTM EBITDA.
5) Calculated on a buildup basis from emergence date and includes only cash
interest assuming the $75MM Convertible Note interest is paid semi-annually on
6/30 and 12/31.
6) Calculated on a buildup basis from emergence date.
Exhibit H
Exit Financing Term Sheet
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXIT FACILITY
Summary of Terms and Conditions
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
I. Parties
Borrower: Ntelos Inc. ("Ntelos" or the "Borrower").
Guarantors: Each of the Borrower's present and future domestic subsidiaries (the
"Guarantors") will guarantee (a "Guarantee") the Borrower's
obligations under the Facility, up to the maximum amount possible
without violating applicable fraudulent conveyance laws.
Lead Arranger Wachovia Securities Inc. ("WSI").
and Bookrunner:
Administrative Agent: Wachovia Bank, National Association (in such capacity, the
"Administrative Agent").
Lenders: A syndicate of banks, financial institutions and other entities,
including Wachovia Bank, National Association, arranged by the Lead
Arranger (collectively, the "Lenders") with any institutions not
currently lenders to the Borrower reasonably acceptable to the
Borrower.
Purpose: The proceeds of the Revolving Credit Loans (defined below) shall be
used for general corporate purposes of the Borrower and its subsidiaries
in the ordinary course of business.
II. Revolving Credit Facility
Type and Amount of
Facility: Revolving credit facility (the "Revolving Credit Facility") in the amount
of $36,000,000 (the loans thereunder, the "Revolving Credit Loans").
Availability: The Revolving Credit Facility shall be available on a revolving basis
during the period commencing on the Closing Date and ending on July 25,
2007 (the "Revolving Credit Termination Date").
Letters of Credit: A portion of the Revolving Credit Facility not in excess of $5 million
shall be available for the issuance of letters of credit (the "Letters
of Credit") by Wachovia Bank, National Association (in
such capacity, the "Issuing Lender"). No Letter of Credit shall
have an expiration date after the earlier of (a) one year after
the date of issuance and (b) five business days prior to the
Revolving Credit Termination Date, provided that any Letter of
Credit with a one-year tenor may provide for the renewal thereof
for additional one-year periods (which shall in no event extend
beyond the date referred to in clause (b) above).
Maturity: The Revolving Credit Termination Date.
III. Term Loan Facility
Tranche A: Up to $50,000,000 term loan, to be reduced by the aggregate amount
of principal payments received from the Borrower during the bankruptcy
case and applied to the Tranche A loan under the Pre-Petition Credit
Agreement. The Tranche A commitment will expire at the close of business
on the Closing Date and the Tranche A loans will mature on July 25,
2007.
Tranche B: Up to $99,500,000 term loan, to be reduced by the aggregate amount
of principal payments received from the Borrower during the bankruptcy
case and applied to the Tranche B loan under the Pre-Petition Credit
Agreement. The Tranche B commitment will expire at the close of business
on the Closing Date and the Tranche B loans will mature on July 25,
2008.
Tranche C: Up to $75,000,000 term loan, to be reduced by the aggregate amount
of principal payments received from the Borrower during the bankruptcy
case and applied to the Tranche C loan under the Pre-Petition Credit
Agreement. The Tranche C commitment will expire at the close of business
on the Closing Date and the Tranche C loans will mature on July 25, 2008.
IV. Security The Borrower's obligations under the Facility and any hedging arrangements
with any Lender or affiliate of any Lender and each guarantee will be secured
by perfected liens on substantially all assets of the Borrower or the relevant
guarantor, as the case may be, including, but not limited to, receivables,
inventory, equipment, real estate, leases, licenses, patents, brand names,
trademarks, contracts, securities and stock of domestic subsidiaries and 65%
of the stock of any first tier foreign subsidiary.
V. Certain Payment Provisions
Fees and Interest Rates: As set forth on Annex I.
Scheduled Amortization and
Commitment Reductions: Tranche A, B & C loans will be amortized according to the terms set forth in the
Pre-Petition Credit Agreement (defined below).
H-2
Contingent Mandatory
Prepayments: In addition to scheduled amortization payments, the following
amounts will be applied, first, to prepay a proportionate part
of the Tranche A loans and, to the extent the Tranche B Lenders
and Tranche C Lenders so elect, the Tranche B loans and Tranche
C loans (pro rata on the basis of the aggregate principal amount
of loans of each tranche subject to prepayment), second, to prepay
any remaining Tranche B loans and Tranche C loans (once all the
Tranche A loans have been paid in full) and, third, to reduce the
Revolving Credit commitment (and to repay and/or cash collateralize
exposure under the Revolving Credit Facility in an amount equal to
the excess of such exposure over the Revolving Credit commitment
as reduced).
1. 50% of excess cash flow for any fiscal year (discuss revised
definition of excess cash flow).
2. A percentage of the net proceeds from asset sales by the Borrower and
its subsidiaries equal to (i) 25% with respect to the first $20,000,000
of aggregate net proceeds and (ii) 75% with respect to aggregate net
proceeds in excess of $20,000,000.
3. 100% of the net proceeds from the issuance of indebtedness by the
Borrower and its subsidiaries (other than the (i) amounts raised through
the issuance of Convertible Notes on the Closing Date that are in excess
of the Revolver outstandings on the Closing Date and (ii) permitted
capital leases).
The above mandatory prepayments will be applied in reverse order to
scheduled amortization of term loans of such tranche held by lenders in
such tranche on a pro-rata basis.
Optional Prepayments and
Commitment Reductions: Loans may be prepaid and commitments may be reduced by the Borrower in a
minimum amount of $500,000 or integral multiples of $100,000. Optional
prepayments of the term loans will be applied, first, to prepay the Tranche
A loans and, to the extent the Tranche B Lenders and Tranche C Lenders so
elect, the Tranche B loans and the Tranche C loans, and, second, to prepay
any remaining Tranche B loans or Tranche C loans (once all Tranche A
loans have been paid in full). Optional prepayments of term loans of
any tranche held by any Lender will be applied to subsequent scheduled
amortization on a pro-rata basis.
VI. Certain Conditions
Initial Conditions: The availability of the Facility shall be conditioned upon satisfaction of
certain conditions substantially similar to those set forth in the $325 million
credit agreement dated as of July 26, 2000 among Ntelos, as borrower,
Wachovia Bank,
H-3
National Association, as successor administrative agent,
collateral agent and issuing bank, and the lenders and guarantors
party thereto (as amended, the "Pre-Petition Credit Agreement"),
with such modifications as the parties shall agree. In addition,
availability of the Facility will be subject to (a) each lender
with Working Capital Commitments (as defined in the Pre-Petition
Credit Agreement) having agreed to provide commitments under the
Revolving Credit Facility equal to their pro-rata share of the
Working Capital Facility (as defined in the Pre-Petition Credit
Agreement) (b) the execution and delivery of satisfactory
definitive financing documentation with respect to the Credit
Facility (the "Credit Documentation"), (c) the sale by the
Borrower of senior unsecured convertible notes (the "Convertible
Notes") with an aggregate principal amount of not less than
$75,000,000, on terms (i) reasonably satisfactory to the
Administrative Agent and (ii) consistent with the terms therefor
set forth in the Plan Support Agreement dated April 10, 2003, (d)
the effectiveness of a plan of reorganization that is: (i)
acceptable to the Administrative Agent in its sole discretion as
to the treatment of the lenders under the Pre-Petition Credit
Agreement and is otherwise reasonably acceptable to the
Administrative Agent, (ii) the subject of a confirmation order
that has become a final order, is acceptable to the Administrative
Agent in its sole discretion and provides for the consummation of
the transactions contemplated thereby and (iii) consistent with
terms therefor set forth in the Plan Support Agreement dated April
10, 2003, (e) cash on the balance sheet on the Closing Date minus
the sum of all unpaid administrative claims, priority claims and
secured claims (other than (x) claims under the Pre-Petition
Credit Agreement, Permitted Hedge Agreements, Permitted RUS/RTB
Loans, Permitted FCC Loans and Permitted Capital Leases and (y)
obligations not due and payable as of the Effective Date that are
incurred in the ordinary course of operations including under any
assumed leases or pension plans) that are allowed, expected to be
allowed or otherwise expected to be due and payable, shall not be
less than $5 million and (f) payment in full of the Reinstatement
Fee described in Annex I hereto. For the purpose hereof, the
"Closing Date" shall be the date upon which all such conditions
precedent shall be satisfied.
On-Going Conditions: The making of each extension of credit shall be subject to conditions
substantially similar to those set forth in the Pre-Petition Credit
Agreement, with such modifications as the parties shall agree.
VII. Certain Documentation Matters
Representations and Warranties,
Covenants, Events of Default: The Credit Documentation shall contain representations, warranties,
covenants and events of default substantially similar
H-4
to those set forth in the Pre-Petition Credit Agreement, with such
modifications as the parties may agree including (i) the amount of
Investments (as defined in the Pre-Petition Credit Agreement) made
by the Borrower and the Guarantors shall be not greater than the
amount of net proceeds from asset sales permitted to be retained
by the Borrower; provided, that in no event may the Borrower or
Guarantors make any individual Investment exceeding $2.5 million
or make aggregate Investments exceeding (y) $10 million in any
twelve month period or (z) $20 million prior to June 25, 2008;
provided further, that aggregate Investments made by the Borrower
or Guarantors resulting in the ownership of less than 51% of an
entity's equity interests shall not exceed $1 million in any
twelve month period and (ii) that the maximum cash balance
covenant contained in the Pre-Petition Credit Agreement shall not
apply so long as there are no outstanding borrowings under the
Revolving Facility.
Financial Covenants: As set forth on Annex II.
Other Documentary
Matters: The Credit Documentation shall contain terms as to voting,
assignments, yield protection, expenses and indemnification
substantially similar to those set forth in the Pre-Petition Credit
Agreement, with such modifications as the parties shall agree.
Governing Law and Forum: State of New York.
Counsel to the
Administrative Agent
and the Lead Arranger: Davis Polk & Wardwell.
H-5
Annex I to Exhibit H
Interest and Certain Fees
Interest Rate Options: The Borrower may elect that the Loans comprising each borrowing
bear interest at a rate per annum equal to:
the Base plus the Applicable Margin; or
the Eurodollar Rate plus the Applicable Margin.
As used herein:
"Base Rate" means the highest of (i) the rate of interest
publicly announced by the Administrative Agent as its prime rate
in effect at its principal office in Charlotte, North Carolina
(the "Prime Rate"), and (ii) the federal funds effective rate
from time to time plus 0.5%.
"Eurodollar Rate" means the rate at which eurodollar deposits in
the London interbank market for one month, two months, three
months, or, if commercially available to all Lenders, six months
(as selected by the Borrower) are quoted on the Telerate screen
as adjusted for statutory reserve requirements for eurocurrency
liabilities.
"Applicable Margin" means the percentage margin determined in
accordance with the Pricing Schedule.
Interest Payment Dates: In the case of Loans bearing interest based upon the Base Rate
("Base Rate Loans"), monthly in arrears.
In the case of Loans bearing interest based upon the Eurodollar
Rate ("Eurodollar Loans"), on the last day of each relevant
interest period.
Commitment Fees: The Borrower shall pay a fee calculated at 1/2 of 1% per annum on
the average daily amount of the unused Revolving Credit Facility,
payable quarterly in arrears.
Letter of Credit Fees: The Borrowers shall pay a commission on all outstanding Letters of
Credit at a per annum rate equal to the Applicable Margin then in
effect with respect to Eurodollar Loans on the face amount of each
such Letter of Credit.
A fronting fee equal to 1/4 of 1% per annum on the face amount
of each Letter of Credit shall be payable quarterly in arrears
to the Issuing Lender for its own account. In addition,
customary administrative, issuance, amendment, payment and
negotiation charges shall be payable to the Issuing Lender for
its own account.
Reinstatement Fee: On the Closing Date, Borrower shall pay to the Administrative Agent,
for the benefit of the lenders under the Revolver, Tranche A and
Tranche B loans a reinstatement fee in an amount equal to 0.25%
(the "Fee Rate") on the aggregate Revolver, Tranche A and Tranche B
loans.
Default Rate: If a Default has occurred and is continuing, all amounts due under
the Facility shall bear interest at 2% above the rate otherwise
applicable thereto.
Rate and Fee Basis: All per annum rates shall be calculated on the basis of a year
of 360 days (or 365/366 days, in the case of Base Rate Loans
the interest rate payable on which is then based on the Prime
Rate) for actual days elapsed.
Pricing Schedule
Revolving Loans Tranche A Loans Tranche B Loans Tranche C Loans
Eurodollar Loans 3.25% 3.25% 4.00% 2.75%
Base Rate Loans 2.25% 2.25% 3.00% 1.75%
On and after the day that is 3 months after closing, the margins indicated above
shall be reduced by 25 bps for each of the Revolving, Tranche A and Tranche B
Loans when and during such time as the Borrower's total leverage ratio is less
than 3.0:1.0. Such margin reduction shall take effect upon receipt by the
Administrative Agent of a quarterly or annual report accompanied by a
certificate of the Chief Financial Officer attesting that the Borrower's total
leverage ratio is less than 3.0:1.0.
Annex II to Exhibit H
- --------------------------------------------------------------------------------
Proposed Covenants under Exit Facility
- --------------------------------------------------------------------------------
EBITDA / (Taxes +
Minimum Maximum Senior Leverage Leverage Interest Coverage Interest
EBITDA CapEx Ratio Ratio Ratio + Sch Amort)
------------- ----------------- ----------------- ----------- ------------------- ---------------------
9/30/03 74,000 3.50x 4.50x 2.50x 1.50x
12/31/03 72,000 70,000 3.50x 4.50x 2.50x 1.50x
3/31/04 72,000 3.50x 4.25x 2.75x 1.50x
6/30/04 75,000 3.25x 4.25x 2.75x 1.50x
9/30/04 3.00x 4.00x 2.75x 1.75x
12/31/04 70,000 2.75x 4.00x 2.75x 1.75x
3/31/05 2.75x 3.50x 3.00x 1.75x
6/30/05 2.75x 3.50x 3.00x 1.75x
9/30/05 2.75x 3.50x 3.00x 1.75x
12/31/05 70,000 2.75x 3.50x 3.00x 2.00x
12/31/06 60,000 2.50x 3.50x 3.00x 2.25x
12/31/07 60,000 2.50x 3.50x 3.00x 2.50x
12/31/08 55,000 2.50x 3.50x 3.00x 0.50x
Notes:
1) Minimum EBITDA calculated on an LTM basis and excludes results from Cable
Business for 3Q & 4Q 2003.
2) Maximum CapEx calculated on an annual basis.
3) Senior Leverage Ratio includes Bank Debt, R&B, FCC and Capital Leases over
LTM EBITDA.
4) Leverage Ratio includes debt in Senior Leverage Ratio plus $75MM in
new Convertible Notes over LTM EBITDA.
5) Calculated on a buildup basis from emergence date and includes only cash
interest assuming the $75MM Convertible Note interest is paid semi-annually on
6/30 and 12/31.
6) Calculated on a buildup basis from emergence date.
Exhibit I
Shareholder's Agreement