UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
CAIS Internet, Inc.
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(Name of Issuer)
Common Stock, par value $ 0.01 per share
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(Title of Class of Securities)
12476Q102
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(CUSIP Number)
KKR 1996 Fund L.P., KKR Partners II, L.P., KKR Associates 1996 L.P.,
KKR 1996 GP LLC, KKR Associates (Strata) L.P., Strata LLC, CII Ventures LLC
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street, New York, New York 10019 (212) 750-8300
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(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications)
April 13, 2000
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box /_/.
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
<PAGE>
securities, and for any subsequent amendment containing information which
would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however,
see the Notes).
PAGE 2 of 33 PAGES
<PAGE>
SCHEDULE 13D
CUSIP No. 12476Q102 Page 3 of 33 Pages
----- ---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KKR 1996 FUND L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO, AF (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 11,060,606 (see Row 12)
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
10 SHARED DISPOSITIVE POWER
11,060,606 (see Row 12)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11,060,606 (see Row 12)
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /X/
Excludes an aggregate of 14,499,862 shares of Common Stock of the
Issuer beneficially owned by certain stockholders of the Issuer
(based on information contained in the Issuer's definitive Proxy
Statement dated March 22, 2000) who are party to a voting agreement
with CII Ventures LLC with respect to voting on certain matters.
See Item 4 -- "Voting Agreement." If such shares were included in
the amount shown in Row 11, the percentage of Common Stock shown in
Row 13 would be 70.5%.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.3%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
CUSIP No. 12476Q102 Page 5 of 33 Pages
----- ---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KKR PARTNERS II, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO, AF (see Item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 11,060,606 (see Row 12)
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
10 SHARED DISPOSITIVE POWER
11,060,606 (see Row 12)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11,060,606 (see Row 12)
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /X/
Excludes an aggregate of 14,499,862 shares of Common Stock of the
Issuer beneficially owned by certain stockholders of the Issuer
(based on information contained in the Issuer's definitive Proxy
Statement dated March 22, 2000) who are party to a voting agreement
with CII Ventures LLC with respect to voting on certain matters.
See Item 4 -- "Voting Agreement." If such shares were included in
the amount shown in Row 11, the percentage of Common Stock shown in
Row 13 would be 70.5%.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.3%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
CUSIP No. 12476Q102 Page 7 of 33 Pages
----- ---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KKR ASSOCIATES 1996 L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO, AF (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 11,060,606 (see Row 12)
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
10 SHARED DISPOSITIVE POWER
11,060,606 (see Row 12)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11,060,606 (see Row 12)
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /X/
Excludes an aggregate of 14,499,862 shares of Common Stock of the
Issuer beneficially owned by certain stockholders of the Issuer
(based on information contained in the Issuer's definitive Proxy
Statement dated March 22, 2000) who are party to a voting agreement
with CII Ventures LLC with respect to voting on certain matters.
See Item 4 -- "Voting Agreement." If such shares were included in
the amount shown in Row 11, the percentage of Common Stock shown in
Row 13 would be 70.5%.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.3%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
CUSIP No. 12476Q102 Page 9 of 33 Pages
----- ---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KKR 1996 GP LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO, AF (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 11,060,606 (see Row 12)
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
10 SHARED DISPOSITIVE POWER
11,060,606 (see Row 12)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11,060,606 (see Row 12)
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /X/
Excludes an aggregate of 14,499,862 shares of Common Stock of the
Issuer beneficially owned by certain stockholders of the Issuer
(based on information contained in the Issuer's definitive Proxy
Statement dated March 22, 2000) who are party to a voting agreement
with CII Ventures LLC with respect to voting on certain matters.
See Item 4 -- "Voting Agreement." If such shares were included in
the amount shown in Row 11, the percentage of Common Stock shown in
Row 13 would be 70.5%.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.3%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
CUSIP No. 12476Q102 Page 11 of 33 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KKR ASSOCIATES (STRATA) L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO, AF (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 11,060,606 (see Row 12)
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
10 SHARED DISPOSITIVE POWER
11,060,606 (see Row 12)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11,060,606 (see Row 12)
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /X/
Excludes an aggregate of 14,499,862 shares of Common Stock of the
Issuer beneficially owned by certain stockholders of the Issuer
(based on information contained in the Issuer's definitive Proxy
Statement dated March 22, 2000) who are party to a voting agreement
with CII Ventures LLC with respect to voting on certain matters.
See Item 4 -- "Voting Agreement." If such shares were included in
the amount shown in Row 11, the percentage of Common Stock shown in
Row 13 would be 70.5%.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.3%
14 TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
CUSIP No. 12476Q102 Page 13 of 33 Pages
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
STRATA LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO, AF (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 11,060,606 (see Row 12)
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
10 SHARED DISPOSITIVE POWER
11,060,606 (see Row 12)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11,060,606 (see Row 12)
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /X/
Excludes an aggregate of 14,499,862 shares of Common Stock of the
Issuer beneficially owned by certain stockholders of the Issuer
(based on information contained in the Issuer's definitive Proxy
Statement dated March 22, 2000) who are party to a voting agreement
with CII Ventures LLC with respect to voting on certain matters.
See Item 4 -- "Voting Agreement." If such shares were included in
the amount shown in Row 11, the percentage of Common Stock shown in
Row 13 would be 70.5%.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.3%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
SCHEDULE 13D
CUSIP No. 12476Q102 Page 15 of 33 Pages
----- ---------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
CII VENTURES LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO, AF (see item 3)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
NUMBER OF
SHARES 0
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 11,060,606 (see Row 12)
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 0
10 SHARED DISPOSITIVE POWER
11,060,606 (see Row 12)
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11,060,606 (see Row 12)
<PAGE>
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* /X/
Excludes an aggregate of 14,499,862 shares of Common Stock of the
Issuer beneficially owned by certain stockholders of the Issuer
(based on information contained in the Issuer's definitive Proxy
Statement dated March 22, 2000) who are party to a voting agreement
with CII Ventures LLC with respect to voting on certain matters.
See Item 4 -- "Voting Agreement." If such shares were included in
the amount shown in Row 11, the percentage of Common Stock shown in
Row 13 would be 70.5%.
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
32.3%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE AND THE SIGNATURE ATTESTATION
<PAGE>
This Amendment No. 1 (this "Amendment") amends and supplements the
Statement on Schedule 13D (the "Schedule 13D") filed on March 2, 2000, on
behalf of KKR 1996 Fund L.P., a Delaware limited partnership ("KKR 1996
Fund"), KKR Associates 1996 L.P., a Delaware limited partnership ("KKR
Associates 1996"), KKR 1996 GP LLC, a Delaware limited liability company
("KKR 1996 LLC"), KKR Partners II, L.P., a Delaware limited partnership ("KKR
Partners"), KKR Associates (Strata) L.P., a Delaware limited partnership
("KKR Associates Strata"), Strata LLC, a Delaware limited liability company
("Strata LLC"), and CII Ventures LLC, a Delaware limited liability company
("CII Ventures" and, together with KKR 1996 Fund, KKR Associates 1996, KKR
1996 LLC, KKR Partners, KKR Associates Strata and Strata LLC, the "Reporting
Persons"), relating to the Common Stock, par value $.01 ("Issuer Common
Stock"), of CAIS Internet, Inc., a Delaware corporation (the "Issuer").
Capitalized terms used and not defined in this Amendment have the meanings
set forth in the Schedule 13D.
This Amendment is being filed in connection with the purchase by CII
Ventures of 1,866,235 shares of Series D Stock and its option to purchase up
to 7,142,857 shares of Series E Stock (each as defined in Item 4 below),
following receipt of approval of the stockholders of the Issuer of the
issuance of such Series D Stock and Series E Stock, as further described in
Item 4 below.
<PAGE>
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
-------------------------------------------------
Item 3 of the Schedule 13D is hereby amended and supplemented by
deleting the text thereof and replacing it with the following:
The funds used in connection with the purchase of Series D Stock at
the Initial Closing (as defined in Item 4) consisted of $73,872,708. The funds
used in connection with the purchase of Series D Stock at the Second Closing
(as defined in Item 4) consisted of $26,127,290. These funds were provided
from general funds available to CII Ventures and its affiliates.
ITEM 4. PURPOSE OF TRANSACTION.
----------------------
Item 4 of the Schedule 13D is hereby amended and supplemented by
replacing the text thereof with the following:
PURCHASE AGREEMENT
Pursuant to a Preferred Stock Purchase Agreement, dated as of
December 20, 1999 (the "Purchase Agreement"), between the Issuer and CII
Ventures, CII Ventures agreed to purchase a total of 7,142,857 shares of the
Issuer's Series D Convertible Participating Preferred Stock ("Series D
Stock") at a purchase price of $14.00 per share. Each share of Series D
Stock is convertible at any time at the holder's option at an initial
conversion price of $16.50 per share into 0.8484 shares of Issuer Common
Stock, or a total of 6,060,606 shares of Issuer Common Stock, subject to
anti-dilution adjustments. The Purchase Agreement also granted CII Ventures
an option to purchase up to 7,142,857 shares of the Issuer's Series E
Convertible Participating Preferred Stock ("Series E Stock") at a purchase
<PAGE>
price of $14.00 per share (the "Option"). The Option is exercisable at any
time on or prior to April 13, 2001. Upon issuance, each share of Series E
Stock will be convertible at any time at the holder's option at an initial
conversion price of $20.00 per share into 0.7 shares of Issuer Common Stock,
or a total of 5,000,000 shares of Issuer Common Stock, subject to anti-
dilution adjustments. The Purchase Agreement is attached to this Schedule
13D as Exhibit 3 and is incorporated herein by reference.
On February 25, 2000, CII Ventures purchased 5,276,622 shares of
Series D Stock (the "Initial Closing"). The shares purchased at the Initial
Closing currently are convertible into 4,477,134 shares of Issuer Common
Stock, which represented approximately 19.9% of the Issuer Common Stock
outstanding immediately prior to the Initial Closing. The issuance of the
remaining 1,866,235 shares of Series D Stock and, if CII Ventures exercises
the Option, the issuance of the Series E Stock, were subject to the approval
of the holders of the Issuer Common Stock at a meeting of the stockholders of
the Company to be held to vote on such matter (the "Stockholders' Meeting").
On April 13, 2000, the holders of the Issuer Common Stock approved such share
issuances. On April 14, 2000, CII Ventures purchased the remaining 1,866,235
shares of Series D Stock (the "Second Closing"), which currently are
convertible into 1,583,472 shares of Issuer common stock, or approximately
6.4% of the Issuer Common Stock outstanding immediately prior to the Second
Closing. CII Ventures has not yet exercised the Option.
TERMS OF THE SERIES D STOCK AND THE SERIES E STOCK
The Series D Stock and the Series E Stock rank senior to Issuer
Common Stock, on a parity with each other and junior to the Issuer's Series C
<PAGE>
Convertible Preferred Stock. Holders of the Series D Stock and the Series E
Stock are entitled to receive quarterly dividends, payable in additional
shares of Series D Stock and Series E Stock, respectively, at a rate per
annum equal to six percent of the sum of $14.00 plus all compounded accrued
and unpaid dividends, as adjusted for stock dividends, stock combinations or
similar events. In addition, when and if the board of directors of the
Issuer (the "Board") declares dividends on the Issuer Common Stock, holders
of the Series D Stock and the Series E Stock are entitled to receive the
amount of dividends as would have been payable to such holders if such shares
had been converted into Issuer Common Stock.
Each holder of Series D Stock or Series E Stock is entitled to the
number of votes equal to the number of whole shares of Issuer Common Stock
into which all of such holder's shares of Series D Stock or Series E Stock,
as the case may be, are convertible, with respect to all matters submitted
for stockholder approval. Except as provided by law or by the express terms
of the Series D Stock and the Series E Stock, such holders vote together with
holders of the Issuer Common Stock as a single class.
For so long as CII Ventures and its affiliates own a majority of
the outstanding shares of Series D Stock and Series E Stock and CII Ventures
is entitled to comparable rights under the Stockholders Agreement, the
approval of the holders of at least a majority of the Series D Stock and
Series E Stock, voting together as a single class, shall be required to take
certain actions, including: (i) the authorization or issuance of additional
equity securities, other than certain exempt issuances; (ii) any merger or
consolidation with, or acquisition of, another entity, subject to certain
<PAGE>
exceptions, and any "change of control" of the Issuer (as such term is
defined in the Certificate of Designation of Series and Determination of
Rights and Preferences of Series D Convertible Participating Preferred Stock
(the "Series D Certificate")); (iii) certain redemptions of capital stock for
an aggregate purchase price in excess of $10 million; (iv) any sale of a
subsidiary's securities to a third party (other than the Issuer or another
wholly owned subsidiary of the Issuer); (v) any sale or other transfer of the
Issuer's technology or other intellectual property other than in the ordinary
course of business; and (vi) entering into any arrangement or contract to
take any of the foregoing actions.
In addition, for so long as any shares of Series D Stock or Series
E Stock are outstanding, the approval of the holders of at least a majority
of the Series D Stock and the Series E Stock shall be required to take any of
the following actions: (i) any amendment, alteration or change to the terms
of the Series D Stock or the Series E Stock which adversely affects such
shares; (ii) any increase or decrease in the total number of authorized or
issued shares of Series D Stock or Series E Stock; (iii) any amendment or
repeal of the Issuer's constituent documents in a manner that adversely
affects the Series D Stock or the Series E Stock; and (iv) entering into any
arrangement or contract to take any of the foregoing actions.
In addition, if any of the following events occurs (each, an "Event
of Default"), then the holders of the Series D Stock and Series E Stock,
voting together as a single class, will have the right to elect a majority of
the Board until such time as the Issuer cures the default. The Events of
Default are: (i) if the Issuer fails to pay any dividend on the Series D
<PAGE>
Stock or Series E Stock or make any required redemption or liquidation
payment thereon for a period of five days; (ii) if the Issuer fails to
perform in any material respect certain specified material covenants
contained in the Purchase Agreement and the Stockholder Agreement between the
Issuer, certain significant stockholders of the Issuer and CII Ventures,
dated as of February 9, 2000 (the "Stockholders Agreement"), the terms of
which are described below; (iii) if the Issuer breaches certain material
representations and warranties in the Purchase Agreement; (iv) the Issuer's
bankruptcy, receivership, assignment for the benefit of creditors or
liquidation, which in the case of any involuntary proceeding, has not been
discharged or stayed within 60 days; or (v) the acceleration of any third
party obligations or unsatisfied judgments in excess of $500,000 of, by or on
behalf of the Issuer, which obligations are not satisfied, discharged or
stayed within 30 days.
Upon the occurrence of a "mandatory redemption event," holders of a
majority of the outstanding shares of Series D Stock or Series E Stock may,
at their option, require the Issuer to redeem all of the outstanding shares
of Series D Stock or Series E Stock, respectively. Mandatory redemption
events include: February 25, 2005, in the case of the Series D Stock, and
the fifth anniversary of the date on which the Series E Stock is first
issued, in the case of Series E Stock (provided that the holders must elect,
within 60 days of such date, to have their shares redeemed), a change of
control of the Issuer, the sale or other transfer of all or substantially all
of the Issuer's assets and an Event of Default. The redemption price will
equal the greater of (i) the sum of $14.00 plus compounded, accrued and
<PAGE>
unpaid dividends thereon, as adjusted for stock splits, stock combinations
and similar events, and (ii) the fair market value of the shares of Issuer
Common Stock into which the Series D Stock or the Series E Stock, as
applicable, may then be converted.
The holders of the Series D Stock or the Series E Stock may convert
their shares of Series D Stock or Series E Stock, as the case may be, into
Issuer Common Stock at any time and from time to time on the terms described
above. In addition, commencing on February 25, 2005, in the case of the
Series D Stock, and the fifth anniversary of the date on which the Series E
Stock is first issued, in the case of the Series E Stock, the Issuer may,
upon 60 days notice, cause all of the outstanding shares of such stock to be
converted into shares of Issuer Common Stock at the conversion price then in
effect.
Upon liquidation, dissolution or winding up of the Issuer, holders
of Series D Stock and Series E Stock will be entitled to a liquidation
preference per share in an amount equal to the greater of (i) the sum of
$14.00 plus compounded, accrued and unpaid dividends thereon, and (ii) the
amount that would have been payable if such holders had converted their
shares, including accrued but unpaid dividends thereon, into shares of Issuer
Common Stock. At the election of the holders of a majority of the
outstanding shares of Series D Stock and Series E Stock, voting together as a
single class, (i) a merger or consolidation of the Issuer where (A) the
stockholders of the Issuer immediately prior to such transaction cease to own
in the aggregate at least 50% of the voting securities of the surviving
entity (or ultimate parent thereof) or (B) any entity or "group" (as defined
<PAGE>
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) becomes the beneficial owner of more than 50% of the voting
securities of the surviving entity (or ultimate parent thereof) or (ii) a
sale of substantially all of the Issuer's assets or all of the stock of its
subsidiaries will be deemed a liquidation, dissolution or winding up of the
Issuer.
The terms of the Series D Stock and the Series E Stock are set
forth in the Series D Certificate and the Form of Certificate of Designation of
Series and Determination of Rights and Preferences of Series E Convertible
Participating Preferred Stock, respectively, attached to this Schedule 13D as
Exhibits 4 and 5, respectively, which are incorporated herein by reference.
VOTING AGREEMENT
Concurrently with and as a condition to the execution and delivery
of the Purchase Agreement, CII Ventures and certain significant stockholders
of the Issuer (the "Stockholders") entered into a Voting Agreement, dated as
of December 20, 1999 (the "Voting Agreement"), whereby, among other things,
each Stockholder agreed to vote any Issuer Common Stock owned by such
Stockholder as of the date of the Voting Agreement or acquired by such
Stockholder after the date of the Voting Agreement (the "Subject Securities")
in favor of the election to the Board of the designees of CII Ventures. Each
Stockholder has further agreed not to take any action that would change the
size of the Board, except as contemplated by the Stockholders Agreement, and
to vote such Stockholder's Subject Securities against certain matters set
forth in the Stockholders Agreement (and described below in the discussion of
the "consent rights" granted pursuant to the Stockholders Agreement) unless
such matters were consented to by at least one of the directors of the Issuer
<PAGE>
who was designated by CII Ventures. These provisions of the Voting Agreement
will terminate upon the termination of the Stockholders Agreement pursuant to
its terms.
The Stockholders include: Ulysses G. Auger, II, the Issuer's
Chairman of the Board and Chief Executive Officer; Ulysses G. Auger, Sr., a
director of the Issuer; William M. Caldwell, IV, the Issuer's President;
Chancery Lane, L.P.; Evans K. Anderson, an Executive Vice President of the
Issuer; Gary H. Rabin, an Executive Vice President of the Issuer; and Kevin
Brand, an officer of the Issuer. According to the Issuer's Definitive Proxy
Statement dated March 22, 2000 (the "Proxy Statement"), as of March 15, 2000,
such Stockholders beneficially own, in the aggregate, 14,499,862 shares of
Issuer Common Stock.
The Voting Agreement is attached to this Schedule 13D as Exhibit 6
and is incorporated herein by reference.
STOCKHOLDERS AGREEMENT
Pursuant to the terms of the Purchase Agreement, on February 25,
2000 the Issuer, CII Ventures and the Stockholders entered into the
Stockholders Agreement. Under the terms of the Stockholders Agreement, CII
Ventures has the right to designate two of eight members of the Board. If
CII Ventures exercises the Option, it will have the right to designate three
of nine members of the Board. These rights will continue as long as CII
Ventures and its affiliates own a certain percentage of the outstanding
Issuer Common Stock (assuming the conversion or exchange of all convertible
or exchangeable securities owned by CII Ventures). When CII Ventures,
together with its affiliates, ceases to own at least ten percent of the
<PAGE>
outstanding Issuer Common Stock, its right to designate more than two
directors will terminate. When CII Ventures ceases to own at least five
percent of the outstanding Issuer Common Stock, its right to designate more
than one director will terminate, and when it ceases to own at least the
lesser of (i) five percent of the outstanding Issuer Common Stock and (ii)
1,428,571 shares of voting securities of the Issuer. Effective February 25,
2000, James H. Greene, Jr., a member of KKR 1996 LLC and Strata LLC, and Alex
Navab, an executive of KKR, were appointed to the Board by the directors of
the Issuer.
The Stockholders Agreement also prohibits the Issuer from taking
certain corporate actions unless such actions are approved by at least one
director that was designated by CII Ventures. These "consent rights"
include: (i) changes in the number of authorized or issued shares of Series
D Stock or Series E Stock; (ii) changes to the rights, preferences or powers
of the Series D Stock or Series E Stock or alterations of the Issuer's
constituent documents in a manner that adversely affects such shares; (iii)
related party transactions; (iv) removal of certain executive officers; (v)
approval or modification of material employment agreements or compensation
plans or arrangements; (vi) changes in the number or composition of the
Board; (vii) the rights described in clauses (i), (iii), (iv) and (v) of the
third paragraph under the caption "Terms of the Series D Stock and the Series E
Stock" of this Item 4; and (viii) entering into any arrangement or contract to
take any of the foregoing actions. These consent rights are dependent upon CII
Ventures' continuing to own certain specified percentages of Issuer Common Stock
as set forth the Stockholders Agreement, except for the restrictions against the
<PAGE>
Issuer's making any change in the amount of authorized Series D Stock or
Series E Stock or any adverse change in the terms thereof, or making any
alterations of its constituent documents in a manner that adversely affects
the Series D Stock or Series E Stock, which survive until no shares of the
Series D Stock and Series E Stock are outstanding.
In addition, the Stockholders Agreement provides that CII Ventures
and its transferees will have the right to require the Issuer to file a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), covering the registration of any or all of the equity
securities held by such holder, including shares of Issuer Common Stock
received upon conversion of such holder's Series D Stock or Series E Stock
(the "Registrable Securities"). CII Ventures and its transferees are
entitled to three such "demand" registration rights under the Stockholders
Agreement (or four "demand" rights if CII Ventures exercises at least 50% of
the Option). Holders of Registrable Securities also have unlimited
"piggyback" registration rights with respect to the Registrable Securities.
These demand and piggyback registration rights are subject to customary
restrictions and limitations. The Issuer has agreed to pay all registration
expenses in connection with the registration of the Registrable Securities,
except that underwriting discounts and commissions and transfer taxes, if
any, will be at the holders' expense. Furthermore, in connection with any
registration statement filed pursuant to the Stockholders Agreement, the
Issuer and the holders have agreed to indemnify each other against certain
liabilities, including certain liabilities under the Securities Act.
<PAGE>
Under the Stockholders Agreement, CII Ventures and its affiliates
are restricted from transferring securities of the Issuer to any individual
or entity that is principally engaged in the business of providing high-speed
Internet connections specifically targeting hotels and multi-dwelling unit
buildings, subject to certain exceptions. In addition, certain Stockholders
are restricted from transferring more than a certain percentage of their
securities of the Issuer without CII Ventures' consent until February 25,
2005, and other Stockholders are restricted from transferring more than a
certain percentage of their securities of the Issuer without CII Ventures'
consent until February 25, 2003.
Under the Stockholders Agreement, CII Ventures has the right to
purchase its pro rata portion of new equity securities issued by the Issuer,
other than certain exempt issuances. In addition, CII Ventures and its
affiliates have agreed not to acquire additional voting securities of the
Issuer until February 25, 2005 if such acquisitions would increase CII
Ventures' ownership percentage above a specified threshold equal to the sum
of (i) the ratio, expressed as a percentage, of (A) 7,142,857 to (B) the
total number of outstanding shares of voting securities on a fully diluted
basis as of the Initial Closing plus (ii) five percent, subject to certain
exceptions.
The Stockholders Agreement is attached to this Schedule 13D as Exhibit 7
and is incorporated herein by reference.
The Reporting Persons intend to review on a continuing basis their
investment in the Issuer. Subject to the limitations described above, the
Reporting Persons may decide to increase or decrease their investment in the
<PAGE>
Issuer depending upon the price and availability of the Issuer's securities,
subsequent developments affecting the Issuer, the Issuer's business and
prospects, other investment and business opportunities available to the
Reporting Persons, general stock market and economic conditions, tax
considerations and other factors.
Other than as described above, none of the Reporting Persons has
any present plans or proposals that relate to or would result in any of the
actions described in subparagraphs (a) through (j) of Item 4 of Schedule 13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
------------------------------------
Item 5 of the Schedule 13D is hereby amended and supplemented by
replacing paragraphs (a) and (b) thereof with the following:
(a) and (b) As of April 13, 2000, CII Ventures did not own any
shares of Issuer Common Stock. However, pursuant to Rule 13d-3 under the
Exchange Act, CII Ventures may be deemed to beneficially own 6,060,606 shares
of Issuer Common Stock, which are subject to issuance upon conversion of the
Series D Stock acquired at the Initial Closing and the Second Closing, and
5,000,000 shares of Issuer Common Stock, which are subject to issuance upon
conversion of the Series E Stock issuable upon the exercise by CII Ventures
of the Option. The 11,060,606 shares issuable upon conversion of the Series
D Stock and Series E Stock would constitute approximately 32.3% of the Issuer
Common Stock outstanding upon such conversion (based on the number of
outstanding shares of Issuer Common Stock as of March 15, 2000, as set forth
in the Proxy Statement).
<PAGE>
Accordingly, the percentage of the outstanding Issuer Common Stock
beneficially owned by CII Ventures is approximately 32.3%.
As the sole members of CII Ventures, KKR 1996 Fund and KKR Partners
have the power to direct the voting of and disposition of any shares of
Issuer Common Stock deemed to be beneficially owned by CII Ventures. As a
result, KKR 1996 Fund and KKR Partners may be deemed to beneficially own any
shares of Issuer Common Stock deemed to be beneficially owned by CII
Ventures.
KKR Associates 1996, as the sole general partner of KKR 1996 Fund,
has the power to direct the voting of and disposition of any shares of Issuer
Common Stock deemed to be beneficially owned by KKR 1996 Fund. KKR
Associates Strata, as the sole general partner of KKR Partners, has the power
to direct the voting of and disposition of any shares of Issuer Common Stock
deemed to be beneficially owned by KKR Partners. As a result, KKR Associates
1996 and KKR Associates Strata may be deemed to beneficially own any shares
of Issuer Common Stock deemed to be beneficially owned by KKR 1996 Fund and
KKR Partners, respectively.
KKR 1996 LLC, as the sole general partner of KKR Associates 1996,
has the power to direct the voting of and disposition of any shares of Issuer
Common Stock deemed to be beneficially owned by KKR Associates 1996. As a
result, KKR 1996 LLC may be deemed to beneficially own any shares of Issuer
Common Stock deemed to be beneficially owned by KKR Associates 1996.
Strata LLC, as the sole general partner of KKR Associates Strata,
has the power to direct the voting of and disposition of any shares of Issuer
Common Stock deemed to be beneficially owned by KKR Associates Strata. As a
<PAGE>
result, Strata LLC may be deemed to beneficially own any shares of Issuer
Common Stock deemed to be beneficially owned by KKR Associates Strata.
As a member of each of KKR 1996 LLC and Strata LLC, each of Messrs.
Kravis, Roberts, MacDonnell, Raether, Michelson, Greene, Tokarz, Golkin,
Stuart and Gilhuly may be deemed to beneficially own any shares of Issuer
Common Stock that KKR 1996 LLC and Strata LLC may beneficially own or be
deemed to beneficially own. Each such individual disclaims beneficial
ownership of such shares. Neither the filing of this Schedule 13D nor any of
its contents shall be deemed to constitute an admission that any Reporting
Person is the beneficial owner of the Issuer Common Stock referred to herein
for purposes of Section 13(d) of the Exchange Act or for any other purpose,
and such beneficial ownership is expressly disclaimed.
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this Statement is true,
complete and correct.
CII VENTURES LLC
By: KKR 1996 Fund L.P.
By: KKR Associates 1996 L.P., its General Partner
By: KKR 1996 GP LLC, its General Partner
By: /s/ William J. Janetschek
-----------------------------------------------
Name: William J. Janetschek
Title: Attorney-in-fact for Henry R. Kravis
KKR 1996 FUND L.P.
By: KKR Associates 1996 L.P., its General Partner
By: KKR 1996 GP LLC, its General Partner
By: /s/ William J. Janetschek
-----------------------------------------------
Name: William J. Janetschek
Title: Attorney-in-fact for Henry R. Kravis
KKR PARTNERS II, L.P.
By: KKR Associates (Strata) L.P., its General
Partner
By: Strata LLC, General Partner
By: /s/ William J. Janetschek
-----------------------------------------------
Name: William J. Janetschek
Title: Attorney-in-fact for Henry R. Kravis
<PAGE>
KKR ASSOCIATES 1996 L.P.
By: KKR 1996 GP LLC, its General Partner
By: /s/ William J. Janetschek
-----------------------------------------------
Name: William J. Janetschek
Title: Attorney-in-fact for Henry R. Kravis
KKR ASSOCIATES (STRATA) L.P.
By: Strata LLC, its General Partner
By: /s/ William J. Janetschek
-----------------------------------------------
Name: William J. Janetschek
Title: Attorney-in-fact for Henry R. Kravis
KKR 1996 GP LLC
By: /s/ William J. Janetschek
-----------------------------------------------
Name: William J. Janetschek
Title: Attorney-in-fact for Henry R. Kravis
STRATA LLC
By: /s/ William J. Janetschek
Name: William J. Janetschek
Title: Attorney-in-fact for Henry R. Kravis
Dated: April 18, 2000
