Quadrangle

A Global Private Investment Firm Leveraging Experience, Knowledge & Relationships

NewSouth Communications Receives $62.5 Million In Equity Financing

3/5/2003

Greenville, SC - March 5, 2003 - - NewSouth Communications, an Integrated Communications Provider (ICP) serving thousands of business customers across the South, today announced that it has received $62.5 million in equity financing. Firms participating in this round of financing include three existing investors, Kohlberg Kravis Roberts & Company (KKR), who remains NewSouth's largest investor, Wachovia Capital Partners, and Vaxa Capital Partners, LP. Also participating are two new investors, M/C Venture Partners and Quadrangle Group LLC. This investment will be used to fund the continued growth of the business, and fully funds NewSouth to profitability.

This equity investment follows NewSouth's announcement last month of excellent 2002 financial and operational results, marked by a 25 percent increase in total revenue to $156 million, a 31 percent increase in the number of lines installed, and a 9 percent reduction in SG&A expense. Operating cash flow in 2002 exceeded the company's plan by $17 million.

"NewSouth is now generating positive operating cash flow each month, and this investment will provide substantial opportunities for accelerated growth and profitability in the future. The demand for our data, voice, and bundled products is growing, and we are further penetrating each of our markets in the Southeast. The support from our existing investors, combined with participation from two additional exceptional private equity groups in M/C and Quadrangle, absolutely positions NewSouth as a leader in the communications space," commented Jim Akerhielm, President & CEO of NewSouth Communications.

"Today, NewSouth is well capitalized to build on its solid foundation and proven track record in delivering communications solutions to medium to large business customers. In differentiating itself from other providers through disciplined, controlled growth and spending, NewSouth has clearly shown the strength of its strategy. KKR looks forward to continuing to work with Jim Akerhielm and his team to drive NewSouth's growth and success over the long term. We are very enthusiastic about NewSouth's future and being an active player in the company's success," stated James H. Greene, Jr., Member of KKR LLC, the general partner of KKR, and a director of NewSouth.

"M/C was attracted to NewSouth for a wide variety of reasons. The quality of NewSouth's customer base, almost exclusively medium and large business customers, combined with the proven expertise of the management team, made this deal a very good fit for M/C. We are looking forward to working with the NewSouth team and seeing very strong financial results going forward," commented James F. Wade, Managing Partner with M/C Venture Partners and a new director of NewSouth.

Joshua L. Steiner, Managing Principal of Quadrangle and a new director of NewSouth, said, "We're delighted to partner with Jim Akerhielm and the entire NewSouth team. By focusing on superior customer service and network reliability, Jim and his team have built a sustainable telecommunications company with tremendous growth prospects. We look forward to contributing to NewSouth's continued success."

The Board of Directors at NewSouth Communications will expand to a 12-member body as a result of the investment. KKR, Wachovia Capital Partners, M/C Venture Partners, and Quadrangle Group will be allocated two seats each; one seat is for Jim Akerhielm, President & CEO of NewSouth; and the remaining three seats will be filled by independent directors, including R. Clint Johnstone, who will continue to serve as Chairman of the Board, Leighton Cubbage, and John Fujii.

Wachovia Capital Partners made its initial investment in NewSouth Communications in 1998, while both KKR and Vaxa Capital Partners participated for the first time in July 2000.

"Wachovia Capital Partners is excited to remain closely involved with the pre-eminent communications provider in the Southeast. NewSouth has grown successfully in a difficult economic environment. The completion of this financing is a very strong endorsement of NewSouth's excellent management team," added Scott B. Perper, Managing Partner of Wachovia Capital Partners and a director of NewSouth.

NewSouth Communications was advised in this transaction by Sonenshine Pastor and King & Spalding LLP. Other terms of the agreement were not disclosed.

About NewSouth Communications:
Headquartered in Greenville, South Carolina, NewSouth Communications is a privately held broadband ICP serving business customers in Florida, Georgia, South Carolina, North Carolina, Tennessee, Alabama, Kentucky, Mississippi, and Louisiana. The company offers a comprehensive selection of data, Internet, voice, and other advanced communications solutions, including the recently launched Suite T, a bundled product for medium and large customers. NewSouth Communications was founded in 1997, and has a fully deployed network, which includes the Tekelec VXi MGC softswitch, Cisco packet-based switches, Lucent Technologies, Inc. AnyMediaTM 5ESS-2000 switches, Siemens Information and Communications Networks EWSD digital switches, and 80 collocations across the South. For more information, visit www.newsouth.com.

About KKR:
KKR is a private investment firm headquartered in New York; Menlo Park, California; and London. Since its founding in 1976, KKR has completed more than 100 transactions involving more than $110 billion of total financing. For more information, visit www.kkr.com.

About Wachovia Capital Partners:
Wachovia Capital Partners, with $1.3 billion of invested equity capital, is the private equity investing arm of Wachovia Corp., the nation's fourth largest bank holding company. Wachovia Capital Partners targets investments of $10 to $50 million in growth industrial, business services, financial services, media and communications, healthcare, and energy opportunities. For more information on Wachovia Capital Partners, visit www.wachoviacapitalpartners.com.

About M/C Venture Partners:
M/C Venture Partners has long been recognized as one of the most active venture capital investors in the emerging communications and IT industries. The firm has invested in early-stage companies across these segments for over 20 years. The firm manages over $1 billion in assets, including the nation's largest state and corporate pension funds, prominent university endowments, private trusts, and strategic financial institutions. The firm has offices in Boston and London. For more information, visit www.mcventurepartners.com.

About Quadrangle Group LLC:
Quadrangle Group LLC manages Quadrangle Capital Partners LP, a private equity fund that specializes in the media and communications industries. The firm also invests in financially troubled companies across industry groups through a separately managed distressed debt hedge fund investment program. Quadrangle Group was founded in March 2000 by four former Managing Directors of Lazard Frères & Co. LLC who have more than 60 years of combined experience in private equity and in media and communications. For more information, visit www.quadranglegroup.com.

Vaxa Capital Partners, LP:
Vaxa Capital Partners, with offices in Greenville, SC and Charlotte, NC, is an experienced private equity firm serving as equity partner to growing companies like Crescent Publishing, LLC. Vaxa Capital also invests in acquisitions, management buyouts, owner recapitalizations, and industry consolidations. Vaxa Capital invests in a broad spectrum of businesses such as media & publishing, telecommunications, plastics & film manufacturing, and other manufacturing, distribution, and service companies. For more information, visit www.vaxacapital.com.



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