UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): APRIL 11, 2000
DELAWARE 0-24061 56-2065535
(State or other jurisdiction of (Commission File (IRS Employer
incorporation) Number) Identification Number)
US LEC CORP.
(Exact name of registrant as specified in its charter)
401 NORTH TRYON STREET, SUITE 1000
CHARLOTTE, NORTH CAROLINA 28202
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, including area code: (704) 319-1000
NOT APPLICABLE
(Former Name or Former Address, If Changed Since Last Report)
<PAGE>
ITEM 5. OTHER EVENTS
On April 11, 2000, US LEC Corp. ("US LEC" or the "Company") entered
into a Preferred Stock Purchase Agreement (the "Purchase Agreement") pursuant to
which the Company sold 100,000 shares of the Company's Series A Convertible
Preferred Stock ("Series A Preferred Stock"), at a price of $1,000 per share, to
affiliates of each of Bain Capital, Inc. ("Bain") and Thomas H. Lee Partners,
L.P. ("THL") (collectively, the "Investors"). The gross proceeds of the sale
were $200 million.
Each share of Series A Preferred Stock issued in the transaction is
convertible into shares of the Company's Class A Common Stock, at an initial
conversion price of $35 per share, beginning on April 11, 2001 or earlier if the
Company is acquired or experiences a change of control. The conversion price is
subject to adjustment if the Company (i) subdivides its common stock by
effecting a stock split or stock dividend, or (ii) subject to certain
exceptions, issues or sells additional shares of common stock or securities
convertible into common stock for less than $35 per share. The Series A
Preferred Stock accrues preferential dividends daily and on a cumulative basis
at an annual rate of six percent (6%) per annum, payable quarterly in additional
shares of Series A Preferred Stock through April 11, 2003 and, at the option of
the Company, in cash or additional shares of Series A Preferred Stock during the
following seven years, unless the outstanding Series A Preferred Stock is
redeemed or converted. At any time on or after the occurrence of a change of
control and for a period of 60 days thereafter, holders of Series A Preferred
Stock will have the right to require the Company to redeem all or a portion of
their stock at a redemption price equal to 101% of its liquidation value. All
outstanding shares of Series A Preferred Stock are subject to mandatory
redemption by the Company on April 11, 2010 at liquidation value.
The holders of Series A Preferred Stock are entitled to elect two
directors of the Company for so long as they own at least 30% of the Class A
Common Stock issued or issuable upon conversion of the Series A Preferred Stock
(the "Underlying Common Stock"), and one director for so long as they own less
than 30% but more than 20% of the Underlying Common Stock. On April 12, 2000,
Michael A. Krupka, a managing director of Bain, and Anthony J. DiNovi, a
managing director of THL, were named directors of US LEC. The holders of Series
A Preferred Stock also are entitled to vote, as a class, with holders of common
stock on each matter submitted to a vote of the Company's stockholders. Each
share of Series A Preferred Stock has a number of votes equal to the number of
shares of Class A Common Stock issuable upon conversion of a share of Series A
Preferred Stock.
Pursuant to the Purchase Agreement, Bain and THL were each granted an
option to purchase up to 50,000 shares of the Company's Series B Convertible
Preferred Stock ("Series B Preferred Stock"), at a price of $1,000 per share,
exercisable, subject to limited exceptions, at any one time on or before April
11, 2001 (the "Option"). If the Option is exercised, the terms and conditions of
the Series B Preferred Stock will be substantially identical to those of the
Series A Preferred Stock, except that the initial conversion price will be
$46.50 per share.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
The following exhibits are being furnished with this report.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1 Preferred Stock Purchase Agreement, dated April 11,
2000.
4.2 Option Agreement, dated April 11, 2000.
4.3 Corporate Governance Agreement, dated April 11, 2000.
4.4 Registration Rights Agreement, dated April 11, 2000.
4.5 Certificate of Designation Relating to Series A
Convertible Preferred Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
US LEC Corp.
May 12, 2000 By: /s/ Michael K. Robinson
-----------------------
Name: Michael K. Robinson
Title: Executive Vice President and Chief
Financial Officer
3
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
4.1 Preferred Stock Purchase Agreement, dated April 11,
2000.
4.2 Option Agreement, dated April 11, 2000.
4.3 Corporate Governance Agreement, dated April 11, 2000.
4.4 Registration Rights Agreement, dated April 11, 2000.
4.5 Certificate of Designation Relating to Series A
Convertible Preferred Stock.
- --------------------------------------------------------------------------------
PREFERRED STOCK PURCHASE AGREEMENT
by and among
US LEC CORP.
and
the Persons listed on Schedule 1 attached hereto
Dated as of April 11, 2000
------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.........................................................1
1.1 Definitions...........................................................1
1.2 Accounting Terms......................................................9
ARTICLE II PURCHASE AND SALE OF PREFERRED STOCK..............................10
2.1 Purchase and Sale of the Preferred Stock.............................10
2.2 Closing..............................................................10
ARTICLE III CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE..........10
3.1 Representations and Warranties.......................................10
3.2 Compliance with this Agreement.......................................11
3.3 Officer's Certificate................................................11
3.4 Secretary's Certificate, Good Standing Certificates..................11
3.5 Transaction Documents................................................11
3.6 Payment of Fees......................................................11
3.7 Purchase Permitted by Applicable Laws................................12
3.8 Opinions of Counsel..................................................12
3.9 HSR Clearance........................................................13
3.10 Certificate of Designation........................................13
3.11 Preferred Stock Certificate.......................................13
3.12 Required Contractual Consents.....................................13
3.13 Voting and Tag-Along Agreement....................................13
3.14 Amendment to Senior Loan Agreement................................13
3.15 Required Governmental Consents....................................13
3.16 Regulatory Events.................................................14
3.17 Amendment of Bylaws...............................................14
3.18 Option Agreement..................................................14
3.19 Corporate Governance Agreement....................................14
3.20 Registration Rights Agreement.....................................14
3.21 Listing of Shares.................................................14
3.22 Amendment to Class B Stockholders Agreement.......................14
ARTICLE IV CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE..............14
4.1 Representations and Warranties True..................................15
4.2 Compliance with this Agreement.......................................15
4.3 Issuance Permitted by Requirements of Laws...........................15
4.4 HSR Clearance........................................................15
4.5 Opinion of Counsel...................................................15
4.6 Transaction Documents................................................15
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................15
5.1 Organization and Qualification.......................................15
5.2 Authority and Authorization..........................................16
5.3 Execution and Binding Effect.........................................16
i
<PAGE>
5.4 Governmental Authorizations..........................................16
5.5 Regulatory Authorizations............................................16
5.6 Agreements and Other Documents.......................................17
5.7 Absence of Conflicts.................................................17
5.8 Financial Statements.................................................17
5.9 Disclosure...........................................................18
5.10 Compliance with Material Agreements...............................18
5.11 Labor Matters.....................................................18
5.12 Litigation........................................................18
5.13 Rights to Property................................................19
5.14 Taxes.............................................................19
5.16 No Brokerage Fees.................................................20
5.17 ERISA.............................................................20
5.18 Intellectual Property.............................................20
5.19 Environmental.....................................................21
5.20 Subsidiaries......................................................21
5.21 Transactions with Affiliates......................................21
5.22 Capitalization....................................................21
5.23 Commission Filings................................................22
5.24 Investment Company; Public Utility Holding Company................22
5.25 Securities Act....................................................22
5.26 Books and Records.................................................23
5.27 Certain Payments..................................................23
5.28 Year 2000 Compliance..............................................23
5.29 Trade Relations...................................................23
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS..................23
6.1 Authorization; No Contravention......................................23
6.2 Binding Effect.......................................................24
6.3 Accredited Investor; Purchase for Own Account........................24
6.4 Governmental Authorizations..........................................25
6.5 No Brokers or Finders................................................25
6.6 Ownership of Company Securities; Voting and Other Agreements.........25
ARTICLE VII COVENANTS........................................................25
7.1 HSR Clearance........................................................25
7.2 Reservation of Shares................................................26
7.3 PUC Consents.........................................................26
7.4 Delivery of Financial and Business Information.......................26
7.5 Access to Properties.................................................27
7.6 Pre-Closing Covenants................................................27
7.7 Exclusivity..........................................................27
7.8 Tax Matters..........................................................28
7.9 Confidentiality......................................................28
7.10 Schedule 13D and 13G..............................................29
7.11 Election of Directors.............................................29
ii
<PAGE>
7.12 Series C Designation..............................................29
7.13 Additional Covenant...............................................29
ARTICLE VIII INDEMNIFICATION; TERMINATION....................................29
8.1 Indemnification......................................................29
8.2 Notification.........................................................30
8.3 Termination..........................................................30
ARTICLE IX MISCELLANEOUS.....................................................31
9.1 Claims and Suits Under Section 8.1...................................31
9.2 Notices..............................................................31
9.3 Successors and Assigns...............................................33
9.4 Determinations, Requests or Consents.................................33
9.5 Counterparts.........................................................33
9.6 Headings.............................................................33
9.7 Governing Law........................................................33
9.8 Severability.........................................................33
9.9 Rules of Construction................................................34
9.10 Entire Agreement..................................................34
9.12 Publicity.........................................................35
9.13 Further Assurances................................................35
SCHEDULES
Schedule 1 - Closing Purchasers
Schedule 5.4 - Governmental Authorizations
Schedule 5.5 - Regulatory Authorizations
Schedule 5.6 - Agreements and Other Documents
Schedule 5.7 - Absence of Conflicts
Schedule 5.8 - Financial Statements
Schedule 5.10 - Compliance with Material Agreements
Schedule 5.12 - Labor Matters and Litigation
Schedule 5.14 - Taxes
Schedule 5.15 - No Material Adverse Change
Schedule 5.16 - Brokerage Fees
Schedule 5.18 - Intellectual Property
Schedule 5.20 - Subsidiaries
Schedule 5.21 - Transactions with Affiliates
Schedule 5.22 - Capitalization
Schedule 5.29 - Trade Relations
Schedule 6.5 - Brokers or Finders
EXHIBITS
Exhibit A - Form of Certificate of Designation
Exhibit B - Bylaws
iii
<PAGE>
Exhibit C - Form of Corporate Governance Agreement
Exhibit D - Form of Registration Rights Agreement
Exhibit E - Form of Officer's Certificate
Exhibit F - Form of Secretary's Certificate
Exhibit G - Form of Preferred Stock Certificate
Exhibit H - Form of Voting and Tag-Along Agreement
Exhibit I - Form of Amendment to Senior Loan Agreement
Exhibit J - Form of Option Agreement
Exhibit K - Form of Certificate of Designation for Series C
Preferred Stock
Exhibit L - Form of Series C Preferred Stock Purchase Agreement
Exhibit M - Additional Covenant
iv
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
THIS PREFERRED STOCK PURCHASE AGREEMENT is dated as of April 11, 2000,
by and among US LEC CORP., a Delaware corporation (the "Company"), and the
Persons whose names are set forth on Schedule 1 attached hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
STATEMENT OF PURPOSE
WHEREAS, the Company will designate a new series of its preferred
stock, par value $0.01 per share, which shall be called the Company's Series A
Convertible Preferred Stock (the "Preferred Stock"), which shall be convertible
into shares of the Company's Class A common stock, par value $0.01 per share, in
accordance with the terms of the Company's Certificate of Designation amending
the Company's Restated Certificate of Incorporation in the form attached hereto
as Exhibit A (the "Certificate of Designation");
WHEREAS, the Purchasers wish to purchase at the Closing (as defined
below), upon the terms and conditions stated in this Agreement, the number of
shares of the Preferred Stock set forth opposite their name on Schedule 1
attached hereto for an aggregate of 200,000 shares of the Preferred Stock to be
purchased by the Purchasers; and
WHEREAS, the Company and the Purchasers have reached certain agreements
with regard to the foregoing transactions, all upon the terms and conditions
more particularly described herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
As used in this Agreement, and unless the context requires a different
meaning, the following terms have the meanings indicated:
"AFFILIATE" means, with respect to a Person, (a) any director, executive
officer, general partner, managing member or other manager of such Person, (b)
any other Person (other than a Subsidiary) which directly or indirectly through
one or more intermediaries, controls, or is controlled by, or is under common
control with, such Person and (c) if such Person is an individual, any member of
the immediate family (including parents, spouse and children) of such
individual, any trust whose principal beneficiary is such individual or one or
more members of such individual's immediate family and any Person who is
controlled by any such member or trust. The term "control" means (i) the power
to vote 25% or more of the securities or other equity interests of a Person
having ordinary voting power (on a fully diluted basis), or (ii) the possession,
directly or indirectly, of any other power to direct or cause the direction of
the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
<PAGE>
"AGREEMENT" means this Preferred Stock Purchase Agreement, as amended
or supplemented from time to time.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City, New York or Charlotte, North
Carolina are authorized or required by law or executive order to close.
"BYLAWS" means the Bylaws of the Company as amended pursuant to Section
3.17 on or prior to the Closing Date and attached hereto as Exhibit B.
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation of
the Company relating to the Preferred Stock filed with the Secretary of State of
the State of Delaware on or prior to the Closing Date and attached hereto as
Exhibit A, as subsequently amended, supplemented or otherwise modified.
"CERTIFICATE OF INCORPORATION" means the Restated Certificate of
Incorporation of the Company as in effect on the date hereof and as amended by
the Certificate of Designation.
"CLASS B COMMON STOCK" means the Company's Class B common stock, par
value $0.01 per share or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"CLOSING" has the meaning assigned thereto in Section 2.2.
"CLOSING DATE" has the meaning assigned thereto in Section 2.2.
"CLOSING FAILURE" has the meaning assigned thereto in Section 8.3(a).
"CODE" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"COMMISSION" means the United States Securities and Exchange
Commission.
"COMMON STOCK" means the Company's Class A common stock, par value
$0.01 per share or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
2
<PAGE>
"COMMUNICATIONS LAW" means any and all of (i) the Telecommunications
Act of 1996, the Communications Act of 1934, any similar or successor federal
statute to either and the rules and regulations of the FCC thereunder; and (ii)
any state law governing the provision of telecommunications services and the
rules and regulations of the PUC, all as the same may be in effect from time to
time.
"COMPANY" has the meaning assigned thereto in the Preamble.
"COMPANY INDEMNIFIED PARTY" has the meaning assigned thereto in Section
8.1.
"COMPANY LIABILITIES" has the meaning assigned thereto in Section 8.1.
"COMPETITOR" means any Person that is (directly or through one or more
Affiliates) both (i) engaged in the business of providing telecommunication
services offered by the Company and its Subsidiaries that generate at least 25%
of the Company's consolidated revenues as of the date of the Company's most
recent Form 10-K or 10-Q filed with the Commission and the revenues of such
Person attributable to such services exceed $50 million annualized and (ii) a
competitor of the Company operating in at least 25% of the MSAs (Metropolitan
Statistical Areas) in which the Company and its Subsidiaries are operating as of
the time of the proposed Transfer.
"CONTRACTUAL OBLIGATIONS" means, with respect to a Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"CORPORATE GOVERNANCE AGREEMENT" means the Corporate Governance
Agreement dated as of the Closing Date among the Company and the Purchasers
listed on the signature pages thereto and attached hereto as Exhibit C.
"DGCL" has the meaning assigned thereto in Section 2.1.
"ENVIRONMENTAL LAW" means any federal, state, foreign or local statute,
law, rule, regulation, ordinance, code or rule of common law now or hereafter in
effect and in each case as amended, and any judicial or administrative
interpretation thereof, including any legally binding judicial or administrative
order, consent decree or judgment, relating to the environment, employee, health
and safety or Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. ss. 9601 et seq.; the Resource Conservation and Recovery Act,
as amended, 42 U.S.C. ss. 6901 et seq.; the Federal Water Pollution Control Act,
as amended, 33 U.S.C. ss. 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. ss. 2601 et seq.; the Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe
Drinking Water Act, 42 U.S.C. ss.ss. 201 & 300f et seq.; the Oil Pollution Act
of 1990, 33 U.S.C. ss. 2701 et seq.; the Emergency Planning and the Community
Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 et seq.; the Hazardous Material
Transportation Act, 49 U.S.C. ss.1801 et seq. and the Occupational Safety and
Health Act, 29 U.S.C. ss. 651 et seq.; and any state and local or foreign
counterparts or equivalents, in each case as amended from time to time.
3
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" shall mean any corporation, trade or business that
is, along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses, as described in Section 414(b) and
414(c), respectively, of the Code or Section 4001 of ERISA.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FCC" means the Federal Communications Commission of the United States
of America, and any successor, in whole or in part, to its jurisdiction.
"FINANCIAL STATEMENTS" has the meaning assigned thereto in Section 5.8.
"GAAP" means generally accepted United States accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"GOVERNMENTAL AUTHORITY" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"HAZARDOUS MATERIALS" means (i) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, polychlorinated biphenyls, and radon gas;
(ii) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous substances", "restricted hazardous wastes", "toxic
substances", "toxic pollutants", "contaminants" or "pollutants", or words of
similar meaning and effect, under any applicable Environmental Law; and (iii)
any other chemical, material or substance the release of which is prohibited,
limited or regulated by any Environmental Law.
"INDEBTEDNESS" means as to any Person, at a particular time, (a)
indebtedness for borrowed money or for the deferred purchase price of property
or services in respect of which such Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or in respect of which such
Person otherwise assures a creditor against loss, (b) obligations under leases
which shall have been or should be, in accordance with GAAP, recorded as capital
leases in respect of which obligations such Person is liable, contingently or
otherwise, as obligor, guarantor or otherwise, or in respect of which
obligations such Person assures a creditor against loss, (c) obligations of such
Person to purchase or repurchase accounts receivable, chattel paper or other
payment rights sold or assigned by such Person, (d) indebtedness or obligations
of such Person under or with respect to letters of credit, notes, bonds or other
debt instruments (other than letters of credit that are cash collateralized) and
(e) all obligations of such Person under any interest rate swap, cap or collar
agreement or other similar agreement or arrangement designed to alter the risks
of that Person arising from fluctuations in interest rates, in each case whether
contingent or matured.
4
<PAGE>
"LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), priority or other security
agreement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing or similar
statement or notice filed under the Uniform Commercial Code or any other similar
recording or notice statute, and any lease having substantially the same effect
as any of the foregoing).
"MATERIAL ADVERSE CHANGE" means a material adverse change in (i) the
business, operations, assets, condition (financial or otherwise) or properties
of the Company and its Subsidiaries, taken as a whole or (ii) the ability of the
Company to perform its obligations, taken as a whole, under the Transaction
Documents.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (i) the
business, operations, assets, condition (financial or otherwise) or properties
of the Company and its Subsidiaries, taken as a whole, or (ii) the ability of
the Company to perform its obligations, taken as a whole, under the Transaction
Documents.
"MATERIAL CONTROVERSY" means a controversy that arises among the
Company and any of the holders of the Company's outstanding Common Stock in
respect of the purchase of the Preferred Stock pursuant to this Agreement, the
issuance of the Option Agreement, the potential issuance of the Option Preferred
Stock under the Option Agreement, and the proposed issuance and sale by the
Company of up to 25,000 shares of the Company's Series C Convertible Preferred
Stock to some or all of the lenders under the Senior Loan Agreement.
"MULTIEMPLOYER PLAN" means any "multiemployer plan" within the meaning
of Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate
makes, is making or is obligated to make contributions or has made or been
obligated to make contributions.
"OPTION AGREEMENT" means the Option Agreement dated as of the Closing
Date among the Company and the Purchasers listed in the signature pages thereto
and attached hereto as Exhibit J.
"OPTION PREFERRED STOCK" means the Series B Convertible Preferred Stock
of the Company or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"OPTION STOCK DESIGNATION" means the Certificate of Designation of the
Company relating to the Option Preferred Stock to be filed with the Secretary of
State of the State of Delaware in accordance with the terms and conditions of
the Option Agreement, as subsequently amended, supplemented or otherwise
modified.
"ORGANIZATIONAL DOCUMENTS" means with respect to a corporation, the
articles of incorporation and by-laws of such corporation; with respect to a
partnership, the certificate of partnership (or limited partnership, as
applicable) and partnership agreement, together with the analogous documents for
any corporate or partnership general partner; and in any case, any other
document governing the formation and conduct of business by such entity.
5
<PAGE>
"OTHER PROPOSAL" has the meaning assigned thereto in Section 7.8
"PBGC" means the Pension Benefit Guaranty Corporation established under
Title IV of ERISA or any other governmental agency, department or
instrumentality succeeding to its functions.
"PERMITTED TRANSFEREE" means (i) any Affiliate of any Purchaser to whom
a Purchaser or another Affiliate of any Purchaser transfers Preferred Stock,
rights under the Option Agreement, or Option Preferred Stock, (ii) any other
Person to whom a Purchaser or an Affiliate of any Purchaser transfers Preferred
Stock, rights under the Option Agreement, or Option Preferred Stock with the
prior written consent of the Board of Directors and (iii) any Person to whom a
transferee described in clause (ii) transfers Preferred Stock, rights under the
Option Agreement, or Option Preferred Stock with the prior written consent of
the Board of Directors and (iv) any THL Holder (as defined in the Corporate
Governance Agreement) and any of the funds affiliated with Bain Capital, Inc.
and any general or limited partner of such funds; provided, however, that in no
event shall any such transferee or proposed transferee under any of clauses (i),
(ii), (iii), or (iv) be a Competitor or Person acting as a representative of a
Competitor. No transfer otherwise permissible shall be effective unless the
Permitted Transferee agrees in writing expressly for the Company's benefit to be
bound by the provisions of this Agreement, and in this event, the transferor
shall not be liable for the transferee's performance of its obligations under
this Agreement.
"PERSON" means any individual, firm, corporation, partnership, trust,
limited liability company, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"PLAN" means (i) an "employee pension plan" as defined in Section 3(2)
of ERISA, (ii) an "employee welfare benefit plan" as defined in Section 3(1) of
ERISA or (iii) any other employee benefit or fringe benefit plan or program,
whether established by Requirements of Law, a written agreement or other
instrument, or custom or informal understanding.
"PREFERRED STOCK" means the Series A Convertible Preferred Stock of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"PROXY STATEMENT" has the meaning assigned thereto in Section 7.7.
"PUC" means the public utilities commission for any state or any other
jurisdiction, or any successor agency, and any successor, in whole or in part,
to its functions or jurisdictions.
"PURCHASER(S)" has the meaning assigned thereto in the Preamble and
their successors and permitted assigns.
6
<PAGE>
"PURCHASER PREFERRED STOCK" means the Series A Preferred Stock and the
Option Preferred Stock.
"PURCHASER REGULATORY EVENT" means any event in which any Purchaser
becomes subject to regulation as a "carrier," a "telephone company," a "common
carrier," a "public utility," or otherwise under any applicable law or
governmental regulation, federal, state or local, as a result of the purchase of
the Preferred Stock pursuant to this Agreement, the assumed purchase of 100,000
shares of Option Preferred Stock pursuant to the Option Agreement at the
Closing, and the execution and delivery of the Transaction Documents by the
parties thereto at the Closing.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
dated as of the Closing Date among the Company and the Purchasers listed on the
signature pages thereto and attached hereto as Exhibit D.
"REGULATION D" means Rule 506 of Regulation D as promulgated by the
Commission.
"REGULATORY AUTHORIZATIONS" means all approvals, authorizations,
licenses, filings, notices, registrations, consents, permits, exemptions,
registrations, qualifications, designations, declarations, or other actions or
undertakings made by, to or in respect of any telecommunications Governmental
Authority, including any certificates of public convenience and all grants,
approvals, licenses, filings and registrations from or to the FCC or any PUC or
under any Communications Law necessary in order to enable the Company or its
Subsidiaries to provide telecommunications service of the type provided or
proposed to be provided by such entity as of the date hereof.
"REGULATORY EVENT" means any of the following events: (i) the Company
or any of its Subsidiaries becomes subject to regulation by any Governmental
Authority in any way that is materially different from the regulation existing
at the date hereof and that would reasonably be expected to have a Material
Adverse Effect, or (ii) the FCC or any PUC issues an order revoking, denying or
refusing to renew, or recommending the revocation, denial or non-renewal of, any
Regulatory Authorization that would reasonably be expected to have a Material
Adverse Effect; provided, however, that the term "Regulatory Event" shall not
include (x) any adverse decision by the FCC, any PUC or Governmental Authority
regarding reciprocal compensation for enhanced service provider (including
Internet service provider) telecommunications traffic or the ability of the
Company or any of its Subsidiaries to collect such reciprocal compensation or
(y) the FCC, any PUC or Governmental Authority enacts Requirements of Law which
restrict, prevent or limit the billing, calculation, collection or payment of
reciprocal compensation for enhanced service provider (including Internet
service provider) telecommunications traffic.
"REPORTABLE EVENT" has the meaning assigned thereto in ERISA for which
notice has not been waived by regulation.
"REPRESENTATIVES" has the meaning assigned thereto in Section 7.9.
"REQUIRED HOLDERS" has the meaning assigned thereto in Section 9.4.
7
<PAGE>
"REQUIREMENTS OF LAW" means, with respect to a Person, the
Organizational Documents of such Person, and any law, treaty, rule, regulation,
right, privilege, qualification, license, permit or franchise or determination
of an arbitrator or a court or the FCC, PUC or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its property or to
which such Person or any of its property is subject or pertaining to any or all
of the transactions contemplated or referred to herein, including all applicable
common law, all provisions of all applicable material state and federal
constitutions, statutes, rules, regulations and orders of all governmental
bodies, all Regulatory Authorizations issued to the Company or its Subsidiaries,
all Communications Laws and all Environmental Laws.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR LOAN AGREEMENT" means the Second Amended and Restated Loan and
Security Agreement dated as of December 20, 1999 to which the Company is a party
as a borrower, as amended from time to time in accordance with the terms
thereof.
"SENIOR LOAN DOCUMENTS" means the Senior Loan Agreement and each other
Loan Document as defined and referred to in the Senior Loan Agreement, as
amended from time to time in accordance with the terms thereof.
"SERIES C DESIGNATION" means the Certificate of Designation of the
Company relating to the Series C Preferred Stock to be filed with the Secretary
of State of the State of Delaware in the form attached hereto as Exhibit K.
"SERIES C PREFERRED STOCK" means the Series C Convertible Preferred
Stock of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"SERIES C PREFERRED STOCK PURCHASE AGREEMENT" means the Series C
Preferred Stock Purchase Agreement in the form attached hereto as Exhibit L.
"STOCK OPTION PLAN" means the 1998 Omnibus Stock Plan of the Company as
in effect on the date hereof, as it may be amended from time to time, and any
and all stock options and other stock-based awards issued pursuant thereto.
"SUBSIDIARY" means, as to any Person, (i) any corporation more than
fifty percent (50%) of whose stock of any class or classes having by the terms
thereof ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time owned such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, limited liability
company, association, joint venture or other entity in which such Person and/or
one or more Subsidiaries of such Person has more than a 50% equity interest at
the time.
8
<PAGE>
"TAXES" means all taxes, assessments, fees and other charges levied
upon the properties of the Company and its Subsidiaries as shown upon all
federal, state and local tax returns and reports, U.S. and non-U.S., required to
be filed by such entity.
"TAX RETURN" means any return (including any information return),
report, statement, form or other document required to be filed with or submitted
to any Governmental Authority in connection with the determination, assessment,
collection or payment of any Taxes.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the
Certificate of Incorporation, the Certificate of Designation, the Option Stock
Designation, the Bylaws, the Corporate Governance Agreement, the Registration
Rights Agreement, the Voting and Tag-Along Agreement and the Option Agreement.
"UNDERLYING COMMON STOCK" means all shares of Common Stock issued or
issuable upon conversion of (i) the Preferred Stock issued pursuant to this
Agreement and (ii) the Option Preferred Stock actually issued pursuant to the
Option Agreement as of the date of any determination (which number shall be
determined, with respect to any given date, based upon the conversion price with
respect to the Preferred Stock or Option Preferred Stock, as applicable, in
effect as of such date without giving effect to the one year limitation on
conversion) without regard to any preferential dividends that accrue or are
issued or paid with respect to the Preferred Stock pursuant to the Certificate
of Designation or the Option Preferred Stock pursuant to the Option Stock
Designation.
"UNITED STATES" and "U.S." shall mean the United States of America.
"VOTING AND TAG-ALONG AGREEMENT" means the Voting and Tag-Along
Agreement dated as of the Closing Date by and among the Purchasers and Richard
T. Aab, Melrich Associates, L.P., Tansukh V. Ganatra and SuperSTAR Associates
Limited Partnership and attached hereto as Exhibit H.
"YEAR 2000 COMPLIANT" means that the computer systems and switches and
related equipment and software (i) are capable of recognizing, processing,
managing, representing, interpreting, and manipulating correctly date-related
data for dates earlier and later than January 1, 2000, (ii) have the ability to
provide date recognition for any data element without limitation (including, but
not limited to, date-related data represented without a century designation,
date-related data whose year is represented by only two digits and date fields
assigned special values), (iii) have the ability to automatically function into
and beyond the year 2000 without human intervention and without any change in
operations associated with the advent of the year 2000, (iv) have the ability to
correctly interpret data, dates and time into and beyond the year 2000, (v) have
the ability not to produce noncompliance in existing information, nor otherwise
corrupt such data into and beyond the year 2000, (vi) have the ability to
correctly process after January 1, 2000 data containing dates before that date,
and (vii) have the ability to recognize all "leap years," including February 29,
2000.
1.2 ACCOUNTING TERMS. All accounting terms used herein not expressly
defined in this Agreement shall have the respective meanings given to them in
accordance with sound accounting practice. The term "sound accounting practice"
shall mean such accounting practice as, in the opinion of the independent
certified public accountants regularly retained by the Company, conforms at the
time to GAAP applied on a consistent basis except for changes with which such
accountants concur.
9
<PAGE>
ARTICLE II
PURCHASE AND SALE OF PREFERRED STOCK
2.1 PURCHASE AND SALE OF THE PREFERRED STOCK. Subject to the terms and
conditions hereof, the Company agrees to issue to the Purchasers, and each
Purchaser agrees severally and not jointly to purchase from the Company, on the
Closing Date, the number of shares of the Preferred Stock set forth opposite
such Purchaser's name on Schedule 1 for a purchase price of $1,000 per share for
an aggregate purchase price of $200,000,000. The Preferred Stock shall have the
powers, rights and preferences as set forth in the Certificate of Designation,
which Certificate of Designation will be duly adopted by the Board of Directors
prior to the Closing Date in accordance with the provisions of Section 151 of
the Delaware General Corporation Law of the State of Delaware (the "DGCL") and
will be filed with the Secretary of State of the State of Delaware prior to or
contemporaneously with the Closing Date pursuant to the DGCL. A true and correct
copy of the Certificate of Incorporation of the Company as currently in effect
prior to the adoption and filing of the Certificate of Designation has
heretofore been furnished to the Purchasers by the Company.
2.2 CLOSING. Subject to the terms and conditions of this Agreement, the
issuance and purchase of the Preferred Stock shall take place at the closing
(the "Closing") to be held at the offices of Moore & Van Allen, PLLC, Charlotte,
North Carolina, at 10:00 a.m., on April __, 2000, or at such other time and
place as the Company and the Purchasers may agree in writing (the "Closing
Date"). At the Closing, the Company shall deliver to the Purchasers certificates
representing the 200,000 shares of the Preferred Stock against delivery to the
Company by the Purchasers of the purchase price therefor by wire transfer of
immediately available funds.
ARTICLE III
CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE
The obligation of each Purchaser to purchase the number of shares of
Preferred Stock set forth opposite its name on Schedule 1 at the Closing, to pay
the purchase price therefor at the Closing and to perform any other obligations
hereunder shall be subject to the reasonable satisfaction as determined by each
Purchaser of the following conditions on or before the Closing Date:
3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 5 hereof shall be true and correct (i) when
made and (ii) on and as of the Closing Date as if made on and as of such date
(except for representations and warranties that speak as of a specific date in
which case the representation or warranty only need be true and correct as of
the specified date).
10
<PAGE>
3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed
and complied in all material respects with all of the agreements, obligations,
covenants and conditions set forth in this Agreement or any other Transaction
Document or contemplated herein or therein that are required to be performed or
complied with by the Company on or before the Closing Date.
3.3 OFFICER'S CERTIFICATE. Each Purchaser shall have received a
certificate dated as of the Closing Date from the chief executive officer and
chief financial officer of the Company, substantially in the form of Exhibit E,
to the effect that (a) all representations and warranties of the Company
contained in this Agreement and the Option Agreement are true and correct, (b)
the Company is not in violation in any material respect of any of the covenants
contained in this Agreement, (c) all conditions precedent to the Closing to be
performed by the Company have been duly performed in all material respects, and
(d) no Material Controversy has occurred prior to Closing.
3.4 SECRETARY'S CERTIFICATE, GOOD STANDING CERTIFICATES. Each Purchaser
shall have received a certificate from the Company dated the Closing Date and
signed by the Secretary or an Assistant Secretary of the Company, substantially
in the form of Exhibit F, certifying (a) that the attached copies of the
Certificate of Incorporation, Bylaws or other applicable governance documents
and resolutions of the Board of Directors of the Company (i) authorizing the
issuance of the Preferred Stock pursuant to this Agreement, the issuance of the
Option Preferred Stock pursuant to the Option Agreement and the issuance of any
Common Stock upon conversion thereof and (ii) approving this Agreement, each of
the other Transaction Documents and the transactions contemplated hereby and
thereby to which it is a party, are all true, complete and correct and remain
unamended and in full force and effect, (b) as to the incumbency and specimen
signature of each officer of the Company executing this Agreement and the other
Transaction Documents to which it is a party and any other document delivered in
connection herewith or therewith on behalf of the Company and (c) as to the good
standing of the Company and its Subsidiaries in each such company's state of
incorporation.
3.5 TRANSACTION DOCUMENTS. Each Purchaser shall have received and
approved true, complete and correct copies of the executed Transaction
Documents, each of which will be in full force and effect as of the Closing
Date.
3.6 PAYMENT OF FEES. There shall have been paid by the Company to Bain
Capital Partners VI, L.P. a funding fee equal to 1% of the amount funded by Bain
Capital CLEC Investors, L.L.C. at the Closing, (b) to Thomas H. Lee Equity
Advisors IV, L.P. a funding fee equal to 1% of the amount funded by all
Purchasers other than Bain Capital CLEC Investors, L.L.C. at the Closing and (c)
to each Purchaser all legal fees and expenses required to be paid or reimbursed
to such Purchaser by the Company pursuant to Section 9.11 hereof. In addition,
the Company shall have paid in full all fees due to First Union Securities, Inc.
in connection with the transactions contemplated by this Agreement as of the
Closing.
11
<PAGE>
3.7 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and
payment for the Preferred Stock to be acquired by each Purchaser at the Closing
and the consummation of the transactions contemplated hereby at the Closing (a)
shall not be prohibited by any Requirement of Law, and (b) shall not subject any
Purchaser to any penalty or, in its reasonable judgment, other adverse condition
under or pursuant to any Requirement of Law.
3.8 OPINIONS OF COUNSEL. The Purchasers shall have received (a) from
Moore & Van Allen, PLLC, special legal counsel for the Company, a favorable
opinion as of the Closing Date, to the effect that: (i) the Company is duly
organized as a corporation under the DGCL; (ii) the Company is validly existing
and in good standing in the jurisdiction of its incorporation and has the
requisite corporate power to own or lease and operate its property, and to carry
on its business as currently conducted; (iii) each of this Agreement and the
other Transaction Documents executed by the Company is a legal, valid and
binding obligation of the Company enforceable in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general equitable
principles relating to enforceability; (iv) the Company's execution, delivery
and performance of this Agreement and the other Transaction Documents to which
it is a party were duly authorized by all corporate actions required under its
Organizational Documents and the DGCL; (v) the issuance of the Preferred Stock
and Option Preferred Stock, including the issuance of Preferred Stock and Option
Preferred Stock as preferential dividends pursuant to the Certificate of
Designation and the Option Stock Designation, has been duly authorized by all
corporate action required under the Company's Organizational Documents; (vi)
each of the Certificate of Designation and the Option Stock Designation has been
duly authorized by all corporate action required under the Company's
Organizational Documents and the Certificate of Designation has been filed with
the Secretary of State of Delaware; (vii) the execution, delivery and
performance of the Transaction Documents to which the Company is a party will
not (x) violate the Certificate or Bylaws or (y) violate, to such counsel's
knowledge, any order, writ, injunction or decree of any Governmental Authority;
(viii) upon issuance at the Closing, the Preferred Stock will be validly issued,
fully paid and nonassessable, and will not have been issued in violation of or
be subject to any preemptive rights, and the issuance of the shares of Common
Stock issuable upon conversion of the Preferred Stock has been duly authorized
and such shares have been duly reserved for issuance, and upon issuance will be
validly issued, fully paid and nonassessable, and will not have been issued in
violation of or be subject to any preemptive rights; and (ix) upon issuance
pursuant to the terms of the Option Agreement, the Option Preferred Stock will
be validly issued, fully paid and nonassessable, and will not have been issued
in violation of or be subject to any preemptive rights, and the issuance of the
shares of Common Stock issuable upon conversion of the Option Preferred Stock
has been duly authorized and such shares have been duly reserved for issuance,
and upon issuance will be validly issued, fully paid and nonassessable, and will
not have been issued in violation of or be subject to any preemptive rights; and
(b) from Swidler Berlin Shereff Friedman, LLP, special regulatory counsel to the
Company, a favorable opinion as of the Closing Date to the effect that: (i) no
consents or approvals of the FCC or any PUC are required for the purchase of the
Preferred Stock pursuant to this Agreement, the purchase of 100,000 shares of
Option Preferred Stock at the Closing pursuant to the Option Agreement, and the
execution and delivery at the Closing of the Transaction Documents by the
parties thereto; and (ii) neither the execution and delivery of this Agreement
or the Option Agreement by the Company and the Purchasers, the purchase of the
Preferred Stock and the purchase of 100,000 shares of Option Preferred Stock at
the Closing pursuant to the terms thereof, nor the execution and delivery at the
Closing of the other Transaction Documents by the parties thereto, will, in and
of themselves, subject the Purchasers to regulation as common carriers or
telephone companies under the Communications Act (as defined in such opinion) or
State Telecommunications Act (as defined in such opinion) or State
Telecommunications Laws (as defined in such opinion) in those states in which
the Company and its Subsidiaries are certified to operate as of the Closing. For
purposes of the opinion to be delivered pursuant to clause (b), Swidler Berlin
Shereff Friedman, LLP may assume that 100,000 shares of Option Preferred Stock
are purchased under the Option Agreement at the Closing.
12
<PAGE>
3.9 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino
Act to sell the Preferred Stock upon the terms of this Agreement shall have been
obtained.
3.10 CERTIFICATE OF DESIGNATION. On or prior to the Closing, the
Certificate of Designation shall have been duly filed with the Secretary of
State of the State of Delaware, all in accordance with the applicable provisions
of the DGCL, and the Certificate of Designation shall constitute a legal and
valid amendment of the Certificate of Incorporation and, as of the Closing, the
Certificate of Incorporation shall not have been otherwise amended.
3.11 PREFERRED STOCK CERTIFICATE. Each Purchaser shall have received
from the Company a duly executed preferred stock certificate, substantially in
the form of Exhibit G, dated the Closing Date representing the number of shares
of Preferred Stock purchased by it at the Closing.
3.12 REQUIRED CONTRACTUAL CONSENTS. The Company shall have received any
consents required pursuant to the terms of the Senior Loan Agreement or any
other material Contractual Obligation in connection with the execution and
delivery by the Company of this Agreement and the other Transaction Documents
and the consummation of the transactions to be performed by the Company
contemplated by the Transaction Documents.
3.13 VOTING AND TAG-ALONG AGREEMENT. The Purchasers shall have received
a Voting and Tag-Along Agreement, substantially in the form of Exhibit H, dated
the Closing Date duly executed by all parties thereto.
3.14 AMENDMENT TO SENIOR LOAN AGREEMENT. Each Purchaser shall have
received a copy of an amendment to the Senior Loan Agreement, substantially in
the form of Exhibit I, duly executed by all parties thereto.
3.15 REQUIRED GOVERNMENTAL CONSENTS. The Company shall have received
all Regulatory Authorizations and other Governmental Authority approvals or
consents required in connection with the execution and delivery by the Company
of this Agreement and the other Transaction Documents and the consummation of
the transactions to be performed by the Company contemplated by the Transaction
Documents.
13
<PAGE>
3.16 REGULATORY EVENTS. No Regulatory Event or Purchaser Regulatory
Event shall have occurred and be continuing or shall occur as a result of the
purchase of the Preferred Stock at the Closing.
3.17 AMENDMENT OF BYLAWS. The Bylaws shall have been amended (i) to
permit the holders of at least 50,000 of the outstanding shares of Purchaser
Preferred Stock to call for a meeting of the Company's stockholders, (ii) to
permit any two directors to call a meeting of the Company's board of directors,
(iii) to establish the size of the Company's board at seven directors, (iv) to
require regular meetings of the Company's board of directors to be held at least
once during each of the Company's fiscal quarters and (v) to provide that no
amendment to the preceding provisions of the Bylaws shall be effective without
the approval of holders of 50,000 of the outstanding shares of Purchaser
Preferred Stock. The Bylaws as so amended shall be in full force and effect as
of the Closing and shall not have been further amended.
3.18 OPTION AGREEMENT. The Purchasers shall have received an Option
Agreement, substantially in the form of Exhibit J, dated the Closing Date duly
executed by all parties thereto.
3.19 CORPORATE GOVERNANCE AGREEMENT. The Purchasers shall have received
a Corporate Governance Agreement, substantially in the form of Exhibit C, dated
the Closing Date duly executed by all parties thereto.
3.20 REGISTRATION RIGHTS AGREEMENT. The Purchasers shall have received
a Registration Rights Agreement, substantially in the form of Exhibit D, dated
the Closing Date duly executed by all parties thereto.
3.21 LISTING OF SHARES. The Company shall have filed with The Nasdaq
Stock Market notice of the maximum number of shares of Common Stock potentially
issuable pursuant to the terms of the Certificate of Designation and the Option
Stock Designation other than any such shares as may be issuable upon an
adjustment in the conversion price of the Preferred Stock or the Option
Preferred Stock.
3.22 AMENDMENT TO CLASS B STOCKHOLDERS AGREEMENT. The Purchasers shall
have received, in form and substance reasonably satisfactory to the Purchasers,
the Second Amended and Restated Stockholders' Agreement among the holders of the
Class B Common Stock duly executed by all such holders and in full force and
effect as of the Closing Date.
ARTICLE IV
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Preferred Stock at
the Closing and to perform its other obligations hereunder at the Closing shall
be subject to the satisfaction as determined by the Company of the following
conditions on or before the Closing Date:
14
<PAGE>
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of each of the Purchasers contained in Section 6 hereof shall be true
and correct on and as of the Closing Date as if made on and as of such date.
4.2 COMPLIANCE WITH THIS AGREEMENT. Each of the Purchasers shall have
performed and complied in all material respects with all of its agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by each of the Purchasers on or before the Closing Date.
4.3 ISSUANCE PERMITTED BY REQUIREMENTS OF LAWS. The issuance of the
Preferred Stock to be issued by the Company hereunder at the Closing and the
consummation of the transactions contemplated hereby at the Closing (a) shall
not be prohibited by any Requirement of Law and (b) shall not subject the
Company to any penalty or, in its reasonable judgment, other onerous condition
under or pursuant to any Requirement of Law.
4.4 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino
Act to acquire the Preferred Stock upon the terms of this Agreement shall have
been obtained.
4.5 OPINION OF COUNSEL. The Purchasers shall have delivered to the
Company an opinion dated the Closing Date, from the Purchasers' counsel, Ropes &
Gray, in form and substance reasonably acceptable to the Company and its
counsel, to the effect that: (i) each Purchaser's execution, delivery and
performance of this Agreement and the other Transaction Documents was duly
authorized by the requisite corporate, fiduciary, limited liability company or
partnership action required under its Organizational Documents and applicable
state law; (ii) the officer, partner, trustee, managing member or managing
director signing this Agreement and all other documents or instruments
contemplated hereby in its name was duly authorized to do so; and (iii) each of
this Agreement and the other Transaction Documents executed by such Purchaser is
a legal, valid and binding obligation of such Purchaser enforceable in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of creditors' rights
generally or by general equitable principles relating to enforceability.
4.6 TRANSACTION DOCUMENTS. The Company shall have received copies of
each of the Transaction Documents duly executed by all parties thereto.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers, after
giving effect to the transactions contemplated by this Agreement and the other
Transaction Documents, as follows:
5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its state of organization. Each of the Company and its Subsidiaries is
duly qualified to do business and in good standing in each jurisdiction in which
the failure to receive or retain such qualification would reasonably be expected
to have a Material Adverse Effect. As to any such entity that is a limited
liability company, each manager is duly organized, validly existing, in good
standing under the laws of its state of organization, and duly qualified to do
business and in good standing in each jurisdiction in which the failure to
receive or retain such qualification would reasonably be expected to have a
Material Adverse Effect.
15
<PAGE>
5.2 AUTHORITY AND AUTHORIZATION. Each of the Company and its
Subsidiaries has all requisite corporate or limited liability company right,
power, authority and legal right to carry on its business, to own or lease its
properties and to execute and deliver and perform its obligations under this
Agreement, and, in the case of the Company, to execute and deliver and to
perform its obligations under the Transaction Documents and consummate the
transactions contemplated by the Transaction Documents. The Company's execution,
delivery and performance of the Transaction Documents and any other documents or
instruments to be delivered pursuant thereto to which it is a party have been
duly and validly authorized by all necessary corporate proceedings on the part
of the Company. Upon issuance, the Preferred Stock, the Option Preferred Stock
and any shares of such stock issuable as preferential dividends pursuant to the
terms thereof, will be validly issued, fully paid and nonassessable, and will
not have been issued in violation of or subject to any preemptive rights, and
the shares of Common Stock issuable upon conversion of the Preferred Stock, the
Option Preferred Stock and any shares of stock issuable as preferential
dividends pursuant to the terms thereof, have been duly authorized and, as of
the Closing, will be reserved for issuance, and upon issuance will be validly
issued, fully paid and nonassessable, and will not have been issued in violation
of or be subject to any preemptive rights.
5.3 EXECUTION AND BINDING EFFECT. This Agreement and all other
Transaction Documents to which the Company is a party have been or will be duly
and validly executed and delivered by the Company, and constitute or, when
executed and delivered, will constitute, the legal, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other laws affecting creditors'
rights generally.
5.4 GOVERNMENTAL AUTHORIZATIONS. Except as set forth on Schedule 5.4,
no authorization, consent, approval, license, exemption or other action by, and
no registration, qualification, designation, declaration or filing with, any
Governmental Authority is or will be necessary in connection with the execution
and delivery of this Agreement or any other Transaction Documents by the
Company, consummation by the Company of the transactions herein or therein
contemplated, performance of or compliance by the Company with the terms and
conditions hereof or thereof or the legality, validity and enforceability hereof
or thereof.
5.5 REGULATORY AUTHORIZATIONS. Each of the Company and its Subsidiaries
holds all Regulatory Authorizations necessary for the conduct of its business as
now conducted and has conducted its business in substantial compliance with such
Regulatory Authorizations. All such Regulatory Authorizations are in full force
and effect, are subject to no further administrative or judicial review and are
therefore final. The Regulatory Authorizations are listed on Schedule 5.5. No
Regulatory Event has occurred and is continuing and no Regulatory Event will
occur as a result of the consummation of the transactions contemplated by the
Transaction Documents.
16
<PAGE>
5.6 AGREEMENTS AND OTHER DOCUMENTS. As of the date hereof, the Company
has provided to the Purchasers, accurate and complete copies (or summaries) of
all of the following agreements or documents to which the Company or any of its
Subsidiaries is subject and each of which is listed on Schedule 5.6: (a)
instruments or documents evidencing Indebtedness of the Company or its
Subsidiaries and any security interest granted by the Company or its
Subsidiaries with respect thereto; and (b) instruments and agreements evidencing
the issuance of any equity securities, warrants, rights or options to purchase
equity securities of the Company or its Subsidiaries.
5.7 ABSENCE OF CONFLICTS. The execution and delivery of this Agreement
and the other Transaction Documents to which the Company is a party, the
consummation by the Company of the transactions herein or therein contemplated
and the performance of or compliance with the terms and conditions hereof or
thereof by the Company will not, directly or indirectly (and with or without
notice or the passage of time or both), (a) violate any Requirements of Law
applicable to the Company or its Subsidiaries; (b) conflict with or result in a
breach of or a default under the Organizational Documents of the Company or its
Subsidiaries or any Contractual Obligation to which the Company or its
Subsidiaries is a party or by which such entity or its properties are bound; (c)
result in the creation or imposition of any Lien upon any property (now owned or
hereafter acquired); or (d) violate or conflict with, or give any Governmental
Authority the right to challenge the transactions contemplated by the
Transaction Documents or revoke, withdraw, suspend, cancel, terminate or modify,
any Regulatory Authorization issued to or held by the Company or any Subsidiary
(other than as set forth on Schedule 5.7).
5.8 FINANCIAL STATEMENTS. The Company has furnished to the Purchasers
the most recent annual financial statements (the "Financial Statements"),
certified by the Chief Financial Officer or the Vice-President and Treasurer,
including balance sheets and related statements of income, retained earnings and
cash flow, as described on Schedule 5.8. Such Financial Statements (including
the notes thereto) present fairly the financial condition of the Company and its
Subsidiaries on a consolidated basis as of the end of such fiscal period and the
results of its operations and the changes in its financial position for the
fiscal period then ended, all in conformity with GAAP applied on a basis
consistent with that of the preceding fiscal period. Neither the Company nor its
Subsidiaries has incurred any obligation or liability (absolute, contingent,
liquidated or unliquidated) material to the Company and its Subsidiaries, taken
as a whole, except for (i) those reflected in the Financial Statements on
Schedule 5.8, (ii) those that have been incurred or have arisen in the ordinary
course of business since December 31, 1999, (iii) those disclosed in the
Company's filings with the Commission, (iv) those listed on schedules attached
to this Agreement and (v) those permitted or arising under this Agreement and
the other Transaction Documents. The Company and each of its Subsidiaries have
made and kept books, records and accounts which, in reasonable detail,
accurately and fairly reflect their respective transactions and dispositions of
their assets.
17
<PAGE>
5.9 DISCLOSURE. No representation or warranty made by the Company in
this Agreement is or was false or misleading as of the date made in any material
respect (including by omission of material information necessary to make such
representation, warranty or statement not misleading).
5.10 COMPLIANCE WITH MATERIAL AGREEMENTS. As of the date hereof, except
as set forth on Schedule 5.10, neither the Company nor any of its Subsidiaries,
or to the Company's knowledge, any other party is in violation of any term of
any material Contractual Obligation to which it is a party or by which it or its
properties are bound that would reasonably be expected to have a Material
Adverse Effect. To the Company's knowledge, except as set forth on Schedule
5.10, no event has occurred or circumstance exists that (with or without notice
or the passage of time or both) would result in a default in a material respect
under a material Contractual Obligation or would give any party to a Contractual
Obligation the right to exercise any remedy under such Contractual Obligation or
to cancel, terminate or modify such Contractual Obligation which would
reasonably be expected to have a Material Adverse Effect. Except as set forth on
Schedule 5.10, neither the Company nor any Subsidiary has given notice to or
received notice from any other Person relating to an alleged, possible or
potential default under any material Contractual Obligation which would
reasonably be expected to have a Material Adverse Effect.
5.11 LABOR MATTERS. As of the date hereof, (a) no strikes or other
material labor disputes against either the Company or its Subsidiaries are
pending or, to either the Company or its Subsidiaries' knowledge, threatened;
(b) hours worked by and payment made to employees of the Company or any of its
Subsidiaries comply with the Fair Labor Standards Act and each other federal,
state, local or foreign law applicable to such matter; (c) all payments due from
either the Company or its Subsidiaries for employee health and welfare insurance
have been paid or accrued as a liability on the books of such entity; (d)
neither the Company nor any of its Subsidiaries is a party to or bound by any
collective bargaining agreement, management agreement, consulting agreement or
any employment agreement (e) there is no organizing activity involving either
the Company or its Subsidiaries pending or, to either the Company or its
Subsidiaries' knowledge, threatened by any labor union or group of employees;
(f) there are no representation proceedings pending or, to any either the
Company or its Subsidiaries' knowledge, threatened with the National Labor
Relations Board, and no labor organization or group of employees of either the
Company or its Subsidiaries has made a pending demand for recognition; and (g)
except as set forth in Schedule 5.12, there are no complaints or charges against
either the Company or its Subsidiaries pending or, to the knowledge of the
executive officers of the Company, threatened to be filed with any Governmental
Authority or arbitrator based on, arising out of, in connection with, or
otherwise relating to the employment or termination of employment by either the
Company or its Subsidiaries of any individual which, if adversely determined,
would reasonably be expected to have a Material Adverse Effect.
5.12 LITIGATION.
(a) Except as set forth in Schedule 5.12, there is no pending action,
suit or, to the Company's knowledge, threatened proceeding by or before any
Governmental Authority against the Company or any of its Subsidiaries or
affecting any of its properties, rights or licenses which if adversely decided
would reasonably be expected to have a Material Adverse Effect. To the Company's
knowledge, no event has occurred or circumstance exists that may give rise to or
serve as a basis for any action, suit or proceeding to be brought or threatened
against the Company or any Subsidiary, in which an outcome adverse to the
Company or Subsidiary would reasonably be expected to have a Material Adverse
Effect. There is no pending or, to the Company's knowledge, threatened action,
suit or proceeding that challenges the transactions contemplated by the
Transaction Documents or that would have the effect of preventing, delaying,
making illegal or otherwise interfering with the transactions contemplated by
the Transaction Documents.
18
<PAGE>
(b) Neither the Company nor any Subsidiary is in violation of any
applicable Requirements of Law the consequences of the violation of which would
reasonably be expected to have a Material Adverse Effect. To the Company's
knowledge, no event has occurred or circumstance exists that (with or without
notice or the passage of time or both) would constitute or result in a violation
by the Company or any Subsidiary of any applicable Requirements of Law the
consequences of the violation of which would reasonably be expected to have a
Material Adverse Effect.
5.13 RIGHTS TO PROPERTY. Each of the Company and its Subsidiaries has
good and marketable title, subject only to the encumbrances permitted under the
Senior Loan Agreement, to all personal property purported to be owned by it and
to all property reflected in the most recent balance sheet referred to in
Section 5.8 (except as sold or otherwise disposed of in the ordinary course of
business as no longer used or useful in the conduct of the business). Each lease
of real and personal property to which the Company or any of its Subsidiaries is
a party is in full force and effect and, except for such defaults as would not
have a Material Adverse Effect, is not subject to termination because of default
or otherwise. The Company and its Subsidiaries do not own nor have they entered
into any contract or commitment to acquire real property or any interest therein
other than such Leases.
5.14 TAXES.
(a) Except as set forth in Schedule 5.14, all Tax Returns required to
be filed by each of the Company and its Subsidiaries have been properly
prepared, executed and filed and were correct and complete in all material
respects, and all Taxes upon such entity or upon any of its respective
properties, incomes, sales or franchises which are shown to be due and payable
thereon have been paid, other than Taxes or assessments the validity or amount
of which such entity is contesting in good faith. The Tax reserves and
provisions for Taxes on the books of each of the Company and its Subsidiaries
are adequate for all open years and for its current fiscal period. Except as set
forth on Schedule 5.14, none of these Tax Returns is currently under audit or
examination, and neither the Company nor any Subsidiary has received notice from
any Governmental Authority that (i) any Tax Return that it filed will be audited
or examined or that (ii) it is or may be liable for additional Taxes in respect
of any Tax Return or for payment of Taxes in respect of a Tax Return that it did
not file (because, for example, it believed that it was not subject to taxation
by the jurisdiction in question).
(b) Except as set forth on Schedule 5.14, the Company and its
Subsidiaries have withheld and paid to the proper Governmental Authorities all
Taxes that they were required to withhold and pay in respect of compensation or
other amounts paid to any employee or independent contractor.
19
<PAGE>
(c) Except as set forth on Schedule 5.14, neither the Company nor any
Subsidiary has extended the time in which to file any Tax Return, waived the
statute of limitations for any Tax or agreed to any extension of time for a Tax
assessment or deficiency.
5.15 NO MATERIAL ADVERSE CHANGE. Since December 31, 1999, (i) there has
been no Material Adverse Change and (ii) except as set forth on Schedule 5.15
and the transactions contemplated by this Agreement and the other Transaction
Documents, the Company and its Subsidiaries have operated their business in the
ordinary course of business in all material respects.
5.16 NO BROKERAGE FEES. Except as set forth on Schedule 5.16, no
brokerage or other fee, commission or compensation is to be paid by the Company
or any Subsidiary to any Person in connection with the transactions hereunder
except as contemplated herein.
5.17 ERISA.
(a) In the case of each Plan that the Company or any Subsidiary
maintains or contributes to (or ever maintained or contributed to): (i) the Plan
(and each related trust or insurance policy) complies (or complied) in form and
in operation in all material respects with the applicable requirements of ERISA
and the Code, as the case may be; (ii) all required contributions to or premiums
or other payments in respect of the Plan have been paid, and all required
reports and descriptions have been filed with the proper Governmental Authority
or distributed to participants as appropriate; (iii) there have been no
"prohibited transactions' (as defined in Section 406 of ERISA and Section 4975
of the Code) in respect of the Plan; (iv) no action, suit, proceeding,
arbitration, hearing or investigation in respect of the administration of the
Plan or the investment of Plan assets is pending or, to the Company's knowledge,
threatened, and to the Company's knowledge, there is no basis for any such
action, suit, proceeding, arbitration, hearing or investigation; and (v) no Plan
is subject to Title IV of ERISA.
(b) Except to the extent required by Section 4980B of the Code, neither
the Company nor any Subsidiary provides health or other welfare benefits to any
retired or former employee or is obligated to provide health or other welfare
benefits to any active employee following his or her retirement or other
termination of service.
5.18 INTELLECTUAL PROPERTY. Each of the Company and its Subsidiaries
owns or possesses the right to use all patents, trademarks, service marks, trade
names, copyrights, know-how, franchises, software and software licenses used in
or necessary for the operation of its business as currently conducted, free from
burdensome restrictions except where such failure to own or possess the right to
use would not reasonably be expected to have a Material Adverse Effect. All such
rights are described on Schedule 5.18. Each executive officer and senior manager
of the Company and its Subsidiaries has executed and delivered to the Company a
confidentiality agreement. To the Company's knowledge, no present or former
executive officer or senior manager has breached any such agreement.
20
<PAGE>
5.19 ENVIRONMENTAL. Each of the Company and its Subsidiaries is in
compliance with all Environmental Laws applicable to such entity or its business
except for such non-compliances as in the aggregate would not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has received notice of, or is aware of, any violation or alleged
violation, or any liability or asserted liability, under any Environmental Law,
with respect to such entity or its business or its premises. The only premises
occupied by the Company and its Subsidiaries are office spaces in multi-tenant
commercial office buildings.
5.20 SUBSIDIARIES. Neither the Company nor its Subsidiaries has any
Subsidiaries, other than the Subsidiaries listed on Schedule 5.20 and all such
Subsidiaries are wholly-owned, directly or indirectly, by the Company.
5.21 TRANSACTIONS WITH AFFILIATES. No Affiliate and no officer or
director of either the Company or any of its Subsidiaries or any individual
related by blood, marriage, adoption or otherwise to any such Affiliate, officer
or director, or any Person in which any such Affiliate, officer, director or
individual related thereto owns any material beneficial interest, is a party to
any agreement, contract, commitment or transaction with the Company or any of
its Affiliates or has any material interest in any material property used by the
Company or any of its Affiliates, except as set forth on Schedule 5.21.
5.22 CAPITALIZATION. As of the Closing Date, the authorized capital
stock of the Company and its Subsidiaries and the issued and outstanding shares
thereof are as described on Schedule 5.22. As of the Closing Date, all
outstanding shares of capital stock of the Company and its Subsidiaries will be
duly authorized and validly issued, fully paid, nonassessable and free and clear
of any Lien created by the Company or any Subsidiary thereof (other than Liens
under the Senior Loan Documents). Except as described in Schedule 5.22, no other
class of capital stock or other ownership interests of the Company or its
Subsidiaries are authorized or outstanding. Except as described in Schedule
5.22, neither the Company nor any Subsidiary is subject to any obligation
(contingent or otherwise) to repurchase, redeem or otherwise acquire its capital
stock or any warrants, options or other rights to acquire its capital stock. The
Company does not have any outstanding securities convertible into capital stock
of the Company (other than the Class B Common Stock and, as of the Closing, the
Preferred Stock); and except for shares of Common Stock reserved for issuance
upon the exercise of outstanding warrants or in connection with the Company
Stock Option Plan, the Company does not have any shares of capital stock
reserved for issuance (other than shares of Common Stock reserved for issuance
upon conversion of the Class B Common Stock and, as of the Closing, upon
conversion of the Preferred Stock). Except as set forth on Schedule 5.22 and
other than the Company's outstanding warrants and stock options and this
Agreement, the Company does not have any commitment to authorize, issue or sell
any of its capital stock or securities convertible into or exchangeable for any
of its capital stock. Neither the Company nor any of its Subsidiaries is a party
to any "phantom stock", employee stock option plan, other equity-based incentive
plan or similar agreement, other than the Company Stock Option Plan. Schedule
5.22 sets forth the number of shares of capital stock reserved for issuance upon
the exercise of options granted or available to be granted under the Company
Stock Option Plan. Schedule 5.22 also lists all of the Company's outstanding
warrants to purchase capital stock. Except as set forth on Schedule 5.22, there
are no preemptive or similar rights to purchase or otherwise acquire equity
securities of, or interests in, the Company or any of its Subsidiaries pursuant
to any Requirements of Law or Contractual Obligations applicable to the Company
or any of its Subsidiaries. There are no existing rights with respect to
registration or sale or resale under the Securities Act or the securities or
blue sky laws of any state or jurisdiction of any securities of the Company or
any of its Subsidiaries. The shares of Preferred Stock to be issued to each
Purchaser on the Closing Date, and any additional shares of Preferred Stock to
be issued as preferential dividends pursuant to the terms thereof will, upon
issuance to such Purchaser, have the designations, preferences, qualifications,
limitations, restrictions and such special and relevant rights as are set forth
in the Certificate of Designation and the DGCL.
21
<PAGE>
5.23 COMMISSION FILINGS. Since April 23, 1998 (the date of the
Company's initial public offering), the Company has filed with the Commission,
on a timely basis, all registration statements, reports on Form 10-K, 10-Q and
8-K, proxy statements and information statements, and other documents that it
was required to file under the Securities Act or the Exchange Act. As of the
respective dates of such filings, none of the Company's filings with the
Commission contained (and the Company's most recent Form 10-K does not contain)
an untrue statement of a material fact or omitted (and the Company's most recent
Form 10-K does not omit) to state any material fact necessary to make any
statement of a material fact that it contained, in light of the circumstances in
which made, not misleading; and when filed with the Commission, each of such
filings with the Commission complied in all material respects with the
applicable requirements of the Securities Act or Exchange Act, as applicable.
The Company is eligible to file a registration statement on Form S-3 and has
taken all actions which would be required to permit sales of its securities
under Rule 144 under the Securities Act.
5.24 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING COMPANY. Neither the
Company nor any of its Subsidiaries is an "investment company" or a "company
controlled by an investment company" or an "affiliated person" or "promoter" or
"principal underwriter" for, an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
5.25 SECURITIES ACT. Based upon the representations and warranties of
each Purchaser in Section 6 of this Agreement, (i) the Preferred Stock to be
issued pursuant to the terms of this Agreement, any Preferred Stock to be issued
as preferential dividends pursuant to the terms thereof and the Common Stock
issuable upon conversion of such Preferred Stock and (ii) the issuance by the
Company thereof, are not required to be registered under the Securities Act or
under the securities or blue sky laws of any state or jurisdiction.
22
<PAGE>
5.26 BOOKS AND RECORDS. The minute books of the Company and of each of
the Subsidiaries contain, in all material respects, true, complete and accurate
records of all meetings and other corporate actions of each of their respective
stockholders, partners, members, board of directors and all committees, if any,
appointed by its board of directors in each case, since the later of (x) the
formation of the Company or such Subsidiary or (y) the date of the Company's
initial public offering, and accurate and complete copies thereof have been made
available to the Purchasers.
5.27 CERTAIN PAYMENTS. Other than discounts, rebates and incentives
provided to customers and commissions and similar compensation paid to sales
agents in the ordinary course of business, neither the Company nor any
Subsidiary nor any officer, director, employee or agent of the Company or any
Subsidiary or, to the Company's knowledge, any other Person associated with or
acting for or on behalf of the Company or any Subsidiary, has directly or
indirectly made or paid any contribution, gift, bribe, rebate, payoff, kickback
or other payment (whether in money, property or services or any other form) to
any Person (i) in order to gain or pay for favorable treatment in obtaining
business or special concessions or (ii) in violation of any Requirements of Law
(including Section 30A of the Exchange Act).
5.28 YEAR 2000 COMPLIANCE. The computer systems and switches of the
Company (including all software, hardware, workstations and related components,
automated devices, embedded chips and other date sensitive equipment) are Year
2000 Compliant except where the failure to be Year 2000 Compliant would not have
a Material Adverse Effect.
5.29 TRADE RELATIONS. Except as set forth on Schedule 5.29, there
exists no actual or, to the knowledge of the Company, threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between the Company or any of its Subsidiaries and any customer or
supplier that would reasonably be expected to have a Material Adverse Effect or
to prevent the Company or any of its Subsidiaries from conducting their business
after the consummation of the transactions contemplated by this Agreement in
substantially the same manner as it is currently being conducted or is proposed
to be conducted.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser as to itself and not as to any other Purchaser hereby
severally represents and warrants to the Company, as appropriate, as follows:
6.1 AUTHORIZATION; NO CONTRAVENTION. Such Purchaser (unless an
individual) is duly organized, validly existing and in good standing as a
corporation, limited liability company or general or limited partnership under
the laws of the state of its incorporation or formation. The execution, delivery
and performance by such Purchaser of this Agreement (a) is within the such
Purchaser's power and authority and has been duly authorized by all necessary
partnership, company or corporate action, (b) does not contravene the terms of
such Purchaser's organizational documents or any amendment thereof and (c) will
not violate, conflict with or result in any breach or contravention of any
material Contractual Obligation of such Purchaser, or any material Requirement
of Law directly relating to such Purchaser.
23
<PAGE>
6.2 BINDING EFFECT. This Agreement has been duly executed and delivered
by such Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights generally or by general
equitable principles relating to enforceability.
6.3 ACCREDITED INVESTOR; PURCHASE FOR OWN ACCOUNT. Such Purchaser is an
"accredited investor" within the meaning of Regulation D under the Securities
Act. The Preferred Stock to be issued pursuant to the terms of this Agreement,
any Preferred Stock to be issued as preferential dividends pursuant to the terms
thereof and the shares of Common Stock to be issued upon conversion of such
Preferred Stock are being or will be acquired for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the Securities Act or the
securities laws of any state, without prejudice, however, to the rights of such
Purchaser at all times to sell or otherwise dispose of all or any part of such
Preferred Stock or any shares of Common Stock under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act. If such Purchaser should in the future
decide to dispose of such Preferred Stock or any shares of Common Stock issued
upon conversion of the Preferred Stock, such Purchaser understands and agrees
that it may do so only in compliance with the Securities Act and applicable
state securities laws, as then in effect. Such Purchaser agrees to the
imprinting, so long as required by law, of a legend on certificates representing
such Preferred Stock or any shares of Common Stock issued upon conversion of the
Preferred Stock to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS."
The requirement to include the legend set forth above shall cease and
terminate as to any particular shares of Preferred Stock or Common Stock (a)
when, in the opinion of Ropes & Gray, or other counsel reasonably acceptable to
the Company, such legend is no longer required in order to assure compliance by
the Company with the Securities Act or (b) when such shares have been
effectively registered under the Securities Act or transferred pursuant to Rule
144. Whenever (x) such requirement shall cease and terminate as to any such
shares or (y) such shares shall be transferable under paragraph (k) of Rule 144,
the holder thereof shall be entitled to receive from the Company, without
expense, new certificates not bearing the legend set forth above.
24
<PAGE>
Such Purchaser also agrees to the imprinting, so long as required by
law, of a legend on certificates representing its shares of Preferred Stock:
"THESE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS, INCLUDING CERTAIN TRANSFER RESTRICTIONS, OF THAT
CERTAIN CORPORATE GOVERNANCE AGREEMENT, DATED AS OF APRIL 11, 2000,
AMONG THE COMPANY AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A COPY OF
SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST TO THE
COMPANY MADE BY THE HOLDER OF THIS CERTIFICATE."
6.4 GOVERNMENTAL AUTHORIZATIONS. Except for clearance under the
Hart-Scott-Rodino Act, no notice to, consent of, or registration, filing or
declaration with, any Governmental Authority is required in connection with such
Purchaser's execution, delivery and performance of this Agreement and the
Transaction Documents and consummation of the contemplated transactions.
6.5 NO BROKERS OR FINDERS. Except as disclosed on Schedule 6.5, no
agent, broker, finder, or investment or commercial banker or other Person or
firm engaged by or acting on behalf of such Purchaser in connection with the
negotiation, execution or performance of this Agreement or the transactions
contemplated herein is or will be entitled to any brokerage or finder's or
similar fee or other commission as a result of this Agreement or such
transaction.
6.6 OWNERSHIP OF COMPANY SECURITIES; VOTING AND OTHER AGREEMENTS.
Immediately following the Closing, such Purchaser will not beneficially own any
securities of the Company other than the Preferred Stock and the Option
Preferred Stock issuable upon the exercise of the Option Agreement. Such
Purchaser does not have any agreements, arrangements or understandings with any
other Person (other than with other Purchasers who are Affiliates of such
Purchaser) with regard to acquiring, holding, voting or disposing of the
securities of the Company other than as set forth in this Agreement and in the
other Transaction Documents to which such Purchaser is a party.
ARTICLE VII
COVENANTS
7.1 HSR CLEARANCE. The Company and each of the Purchasers shall
cooperate with and provide each other, respectively, with any information that
each party reasonably requires and file such notices and responses as may be
necessary to enable each party to obtain any required clearance under the
Hart-Scott-Rodino Act. Each such Purchaser required to obtain such clearance
agrees to use all reasonable best efforts to obtain such clearance as promptly
as practicable on or prior to the Closing Date.
25
<PAGE>
7.2 RESERVATION OF SHARES. The Company shall at all times reserve and
keep available out of the aggregate of its authorized but unissued shares, free
of preemptive rights, (i) such number of its duly authorized shares of Preferred
Stock as shall be sufficient to enable the Company to pay preferential dividends
pursuant to the terms of the Certificate of Designation with respect to all
shares of Preferred Stock issued thereunder, (ii) such number of duly authorized
shares of Option Preferred Stock as shall be sufficient to enable the Company to
issue the full number of shares of Option Preferred Stock issuable upon exercise
of the Option, (iii) such number of its duly authorized shares of Option
Preferred Stock as shall be sufficient to enable the Company to pay preferential
dividends pursuant to the terms of the Option Stock Designation with respect to
all shares of Option Preferred Stock issued thereunder and (iv) such number of
its duly authorized shares of Common Stock as shall be sufficient to enable the
Company to issue Common Stock upon conversion of all such Preferred Stock and
Option Preferred Stock.
7.3 PUC CONSENTS. The Company shall use all of its commercially
reasonable efforts to obtain all of the authorizations, consents, approvals,
licenses and/or exemptions listed on Schedule 5.4 on or prior to the Closing
Date.
7.4 DELIVERY OF FINANCIAL AND BUSINESS INFORMATION. The Company shall
deliver the following to (i) each Purchaser and (ii) each Permitted Transferee
(holding at least 5% of the Underlying Common Stock), so long as at least 20% of
the Underlying Common Stock continues to be beneficially owned by the Purchasers
and Permitted Transferees:
(a) promptly upon becoming available, one copy of (i) each financial
statement, report, notice or proxy statement sent by the Company or any
Subsidiary to public securities holders generally, and (ii) each regular or
periodic report, each registration statement that has become effective (without
exhibits unless expressly requested), and each final prospectus and all related
amendments filed by the Company or any Subsidiary with the Commission;
(b) promptly, and in any event within 10 days after the Company becomes
aware of the existence of any default under a material Contractual Obligation, a
written notice specifying the nature and period of duration of the default and
the action that the Company is taking or proposes to take with respect to the
default;
(c) concurrently with the delivery of such information to the lenders
under the Senior Loan Agreement, copies of annual and quarterly financial
statements of the Company prepared in accordance with GAAP; and
(d) promptly upon becoming available for each month, the Company's (i)
condensed consolidated financial statements, including income statement, balance
sheet and statement of cash flow, (ii) revenue analysis, (iii) summary of
customer activity, including customers, ISP trunk, voice trunk and voice lines,
(iv) functional organizational chart and staffing analysis, (v) summary of
network cost package, (vi) selling, general and administrative expense analysis,
(vii) capital spending summary, and (viii) summary income statements through
EBITDA by major markets.
26
<PAGE>
7.5 ACCESS TO PROPERTIES. The Company shall permit representatives
designated by (i) the Purchasers and (ii) Permitted Transferees holding at least
5% of the Underlying Common Stock (both prior to Closing and for as long as the
Purchasers and their Permitted Transferees own at least 20% of the Underlying
Common Stock), upon reasonable notice, during normal business hours and at such
other times as such Purchasers or Permitted Transferees reasonably may request,
and without unreasonable interference with the Company's operations, to visit
and inspect, at their expense, any of the properties, offices, personnel,
accountants and advisors of the Company and its Subsidiaries with respect to any
of the businesses and assets of the Company and its Subsidiaries, and the
transactions contemplated by the Transaction Documents, and to examine the
corporate and financial records of the Company and its Subsidiaries.
7.6 PRE-CLOSING COVENANTS. At all times after execution of this
Agreement and prior to the Closing (unless and until this Agreement is
terminated in accordance with its terms), the Company shall not, without the
prior written consent of the Purchasers (except as otherwise expressly permitted
or required by this Agreement or any of the Transaction Documents), directly or
indirectly take or commit to take any action that (i) would constitute a
violation of the restrictions in Section 3.2 of the Corporate Governance
Agreement if the action in question were to be taken after the Closing or that
(ii) would cause an adjustment to the Conversion Price under Sections 4.3, 4.4
or 4.5 of the Certificate of Designation if the Certificate of Designation had
been duly filed and in effect as of the date of this Agreement.
7.7 EXCLUSIVITY.
(a) Except for the possible issuance and sale of up to 25,000 shares of
the Company's Series C Convertible Preferred Stock to some of the lenders under
the Senior Loan Agreement, the Company shall not, and shall cause its
Affiliates, employees, investment bankers, attorneys, accountants and other
agents not to, initiate, solicit or encourage any inquiries relating to, or the
making of any Other Proposal or engage in negotiations or discussions with, or
furnish any information to, any third party relating to any Other Proposal. As
used in this Section 7.8, "Other Proposal" means any proposal made by any
Person, other than the Purchasers, as a group, to acquire from the Company or
any of its Affiliates, any convertible preferred stock, any other capital stock
or any securities having equity or profit participation features ("Equity
Securities"), or any debt securities in lieu of, or substitution for, any Equity
Securities; provided, that the term "Other Proposal" shall not include (i) any
proposed acquisition, by sale, merger or otherwise, of all or substantially all
of the Company's outstanding capital stock or assets or (ii) any proposed stock
or asset acquisitions, by sale, merger or otherwise, by the Company or one of
its Affiliates which involves the issuance to the sellers by the Company of its
capital stock as consideration.
The Company shall advise the Purchasers in writing of (i) the receipt,
directly or indirectly, of any inquiries relating to an Other Proposal promptly
following such receipt and (ii) the status of any discussions or negotiations
with respect thereto. Following the receipt, directly or indirectly of any Other
Proposal (or any inquiry referred to in clause (i) above), the Company shall
furnish to the Purchasers either a copy of such Other Proposal (or such inquiry)
or a written summary of such Other Proposal (or such inquiry). In addition, the
Company shall not, and shall cause its Affiliates, employees, investment
bankers, attorneys, accountants and other agents not to, actually consummate, or
enter into any Contractual Obligation or otherwise commit to consummate, any
transaction that includes or would include as any part thereof the acquisition
by any Person, other than the Purchasers, directly or indirectly, from the
Company or any of its Affiliates, any Equity Securities, or any debt securities
in lieu of or substitution for any Equity Securities.
27
<PAGE>
(b) The restrictions on and obligations of the Company under Section
7.8(a) shall terminate on the earlier to occur of (i) the Closing Date or (ii)
the termination of this Agreement pursuant to Section 8.3(a).
7.8 TAX MATTERS. The Purchasers intend that no pay-in-kind dividends on
the Preferred Stock or Option Preferred Stock will, when paid or accrued, be
includible in the Purchasers' gross income for federal, state or local tax
purposes. Accordingly, unless the Company concludes in good faith, with the
assistance and advice of its accountants and counsel, that there is no
reasonable basis to make or file any Tax Return that is consistent with such
intention, the Company shall not make or file any Tax Return that is
inconsistent with such intention.
7.9 CONFIDENTIALITY. Each Purchaser will hold, and will use its
reasonable efforts to cause its Permitted Transferees, and each Purchaser's and
each Permitted Transferee's officers, partners, directors, employees,
accountants, counsel, consultants, advisors and agents (the "Representatives")
to hold, in confidence, at all times unless compelled to disclose by judicial or
administrative process or by other Requirements of Law, all confidential
documents and information concerning the Company and it Affiliates that are
furnished to such Purchaser and its Permitted Transferees, except to the extent
that such information can be shown to have been (i) previously known on a
nonconfidential basis by such Purchaser, Permitted Transferee or such
Representatives or (ii) in the public domain through no fault of such Purchaser,
such Permitted Transferee or such Representative. If any Purchaser or Permitted
Transferee, or any of their respective Representatives is requested to disclose
any confidential information by judicial or administrative process or by other
Requirements of Law, such Person shall promptly notify the Company of such
request so that the Company may seek an appropriate protective order. Each
Purchaser agrees that it will not, and will use its reasonable best efforts to
cause its Permitted Transferees and the Representatives not to, use any
confidential documents or information for any purpose other than monitoring and
evaluating its investment in the Company and in connection with the transactions
contemplated by this Agreement. If this Agreement is terminated, each Purchaser
will, and will use its reasonable best efforts to cause its Representatives to,
destroy or deliver to the Company all documents and other materials, and all
copies thereof, obtained by such Purchaser, or on its behalf, from the Company
in connection with this Agreement and an investment in the Company.
28
<PAGE>
7.10 SCHEDULE 13D AND 13G. Each Purchaser agrees to provide the Company
with a copy of any Schedule 13D or 13G that it intends to file at any time with
the Commission in connection with their purchase of Preferred Stock in advance
of such filing.
7.11 ELECTION OF DIRECTORS. The Company will cause two representatives
of the Purchasers to be elected to the Company's Board of Directors on the day
immediately following the Closing Date.
7.12 SERIES C DESIGNATION. Without the prior written consent of the
Required Holders, the Company agrees that (a) it will not sell more than an
aggregate of 25,000 shares of Series C Preferred Stock and no such sale shall
occur on or after April 17, 2000, (b) such stock will not be sold for a purchase
price of less than $1,000 per share, (c) such stock will not be sold to any
Person other than the current lenders under the Senior Loan Agreement or their
Affiliates, no one of which will be permitted to purchase more than 10,000
shares of such stock, (d) the Series C Preferred Stock Purchase Agreement will
not be amended, supplemented or otherwise modified in any material respect prior
to the closing thereunder, except to include therein the number of shares of
Series C Preferred Stock to be purchased thereunder and (e) the Series C
Designation will not be amended, supplemented or otherwise modified prior to the
filing of such designation with the Secretary of State of Delaware, except to
include therein the number of shares of Series C Preferred Stock to be created
thereunder.
7.13 ADDITIONAL COVENANT. The parties hereto agree to Exhibit M which
is incorporated herein by this reference.
ARTICLE VIII
INDEMNIFICATION; TERMINATION
8.1 INDEMNIFICATION. Effective upon the Closing, the Company agrees to
indemnify and hold harmless the Purchasers and their Affiliates and their
officers, directors, agents, employees, subsidiaries, partners and controlling
Persons (each, a "Company Indemnified Party") to the fullest extent permitted by
law, from and against any and all losses, demands, actions, costs, claims,
damages, expenses (including reasonable fees, disbursements and other charges of
counsel) or other liabilities (collectively, "Company Liabilities") incurred or
suffered by such Company Indemnified Party resulting from or arising out of (i)
any misrepresentation or breach of any representation or warranty of the Company
in this Agreement, any other Transaction Document or any certificate or
instrument delivered pursuant thereto, (ii) any breach of any covenant or
obligation of the Company in this Agreement or any other Transaction Document,
or (iii) any investigation or proceeding against the Company or any Company
Indemnified Party and arising out of or in connection with this Agreement or any
of the Transaction Documents, whether or not the transactions contemplated by
this Agreement are consummated, which investigation or proceeding requires the
participation of, or is commenced or filed against, any Company Indemnified
Party because of this Agreement, any other Transaction Document or such other
documents or transactions contemplated hereby or thereby; provided that (x) the
Company shall not be liable under Section 8.1(iii) to a Company Indemnified
Party for any liabilities resulting primarily from any actions that involved the
gross negligence or willful misconduct of such Company Indemnified Party or the
breach by any Company Indemnified Party of any representation, warranty,
covenant or other agreement of such Indemnified Party contained herein or in any
other Transaction Documents.
29
<PAGE>
8.2 NOTIFICATION. The Company Indemnified Party, under Section 8.1(iii)
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Company Indemnified Party
in respect of which indemnity may be sought from the Company under Section
8.1(iii), notify the Company in writing of the commencement thereof. The
omission of any Company Indemnified Party so to notify the Company of any such
action shall not relieve the Company from any liability which it may have to
such Company Indemnified Party under Section 8.1(iii) unless, and only to the
extent that, such omission results in the Company's forfeiture of substantive
rights or defenses or the Company is otherwise irrevocably prejudiced in
defending such proceeding. In case any such action, claim or other proceeding
shall be brought against any Company Indemnified Party and it shall notify the
Company of the commencement thereof, the Company shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to the Company
Indemnified Party; provided, that any Company Indemnified Party may, at its own
expense, retain separate counsel to participate in such defense. Notwithstanding
the foregoing, in any action, claim or proceeding in which both the Company, on
the one hand, and a Company Indemnified Party, on the other hand, is, or is
reasonably likely to become, a party, such Company Indemnified Party shall have
the right to employ separate counsel at the Company's expense and to control its
own defense of such action, claim or proceeding if, (a) the Company has failed
to assume the defense and employ counsel as provided herein, (b) the Company has
agreed in writing to pay such fees and expenses of separate counsel or (c) in
the reasonable opinion of counsel to such Company Indemnified Party, a conflict
or likely conflict exists between the Company, on the one hand, and such Company
Indemnified Party, on the other hand, that would make such separate
representation advisable, provided, however, that the Company shall not in any
event be required to pay the fees and expenses of more than one separate counsel
(and if deemed necessary by such separate counsel, appropriate local counsel who
shall report to such separate counsel). The Company agrees that it will not,
without the prior written consent of a Company Indemnified Party, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding relating to the matters contemplated hereby (if such
Company Indemnified Party is a party thereto or has been actually threatened to
be made a party thereto) unless such settlement, compromise or consent includes
an unconditional release of such Company Indemnified Party from all liability
arising or that may arise out of such claim, action or proceeding. The Company
shall not be liable for any settlement of any claim, action or proceeding
effected against a Company Indemnified Party without the prior written consent
of the Company.
8.3 TERMINATION.
(a) This Agreement may be terminated at any time prior to the Closing
Date: (i) by mutual written agreement of the Company and each Purchaser; (ii) by
the Company or the Purchasers if the Closing shall not have been consummated on
or before June 30, 2000, (iii) by the Company or the Purchasers if a
Governmental Authority shall have issued a nonappealable final order, decree or
ruling or taken any action having the effect of permanently restraining or
enjoining the transactions contemplated by this Agreement or (iv) by the Company
if any one of the Purchasers (who is obligated to purchase at least 100,000
shares of the Preferred Stock) defaults in its obligations under this Agreement
to purchase such Preferred Stock (a "Closing Failure").
30
<PAGE>
(b) If this Agreement is terminated as permitted by Section 8.3(a),
such termination shall be without liability of any party hereto (or their
respective Affiliates) to any other party hereto; provided, however, that
nothing shall relieve any party from liability if such termination shall result
from the (i) willful failure by any party to fulfill a condition to the
performance of the obligations of the other parties, (ii) willful failure by any
party to perform a covenant of this Agreement, (iii) willful breach by any party
hereto of any representation or warranty contained in this Agreement or (iv) a
Closing Failure. The provisions of Sections 7.10, 8.3, 9.2, 9.8 and 9.11 shall
survive any termination hereof pursuant to Section 8.3.
ARTICLE IX
MISCELLANEOUS
9.1 CLAIMS AND SUITS UNDER SECTION 8.1. No claim may be made or suit
instituted under Section 8.1 with respect to any breach of a representation or
warranty (except if it relates to a breach of Sections 5.1, 5.2, 5.3, 5.8, and
5.22 or if it relates to fraud) after the date that is eighteen (18) months
after the Closing Date or, as to the representations and warranties in Section
5.14 after the expiration of applicable statutes of limitation with respect to
the subject matter of each such representation and warranty, unless the Company
Indemnified Party has given the indemnifying party written notice of such claim
or suit (describing with reasonable specificity the amount of and basis for such
claim or suit) on or prior to such date.
9.2 NOTICES. All notices, requests, claims, demands and other
communications ("Notices") provided for or permitted hereunder shall be made in
writing and shall be by registered or certified first class mail, return receipt
requested, telecopier, recognized overnight courier service or personal
delivery:
(a) if to the Company:
US LEC Corp.
Transamerica Square
401 N. Tryon Street, Suite 1000
Charlotte, North Carolina 28202
Attention: General Counsel
Telecopier: (704) 319-3098
31
<PAGE>
with a required copy to:
Moore & Van Allen, PLLC
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Barney Stewart III
Telecopier: (704) 331-1151
(b) if to the Purchasers:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Ian K. Loring
Telecopier: (617) 572-3274
and to:
Thomas H. Lee Partners, L.P.
75 State Street, 26th Floor
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Telecopier (617) 227-3514
with a required copy to:
Ropes & Gray
One International Plaza
Boston, Massachusetts 02110-2624
Attention: Philip J. Smith
Telecopier: (617) 951-7050
All Notices shall be deemed to have been duly given: when delivered by
hand, if personally delivered; when delivered by courier, if delivered by
commercial overnight courier service; five Business Days after being deposited
in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the
individual to whom the telecopy is sent, if telecopied.
32
<PAGE>
9.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the parties
hereto. Subject to applicable securities laws and except as otherwise set forth
in the Transaction Documents (including, without limitation, the Corporate
Governance Agreement), the Purchasers may assign any of their rights under this
Agreement, to any Person who is a Permitted Transferee. The Company may not
assign any of its rights under this Agreement without the prior written consent
of the Purchasers. Except as provided in Article 9, no Person other than the
parties hereto and their successors and permitted assigns is intended to be a
beneficiary of any of the Transaction Documents.
9.4 DETERMINATIONS, REQUESTS OR CONSENTS. Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure of the Company
from the terms of any provision of this Agreement, shall be effective (a) only
if it is made or given in writing and signed by the Company and the Required
Holders (as defined below) in accordance with this Section 9.4, and (b) only in
the specific instance and for the specific purpose for which made or given. All
determinations, requests, consents, waivers or amendments to be made by the
Purchasers in their opinion or judgment or with their approval or otherwise
pursuant to this Agreement shall be made (i) at any time following the Closing,
by the holders of at least 51% of the then outstanding Purchaser Preferred Stock
or (ii) at any time prior to the Closing, by Purchasers who have committed to
purchase hereunder at least 51% of the Purchaser Preferred Stock (in either
case, the "Required Holders").
9.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of law of such state.
9.8 SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
33
<PAGE>
9.9 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or"
is not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require.
9.10 ENTIRE AGREEMENT. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement, together with the exhibits
hereto, and the other Transaction Documents supersede all prior contemporaneous
agreements and understandings between the parties with respect to such subject
matter.
9.11 CERTAIN EXPENSES.
(a) The Purchasers and the Company shall each pay their own fees and
expenses in connection with the negotiation and preparation of this Agreement
and consummation of the transactions contemplated herein with the exception that
the Company shall pay or reimburse the Purchasers for their fees and expenses
(including HSR filing fees, the fees and expenses of their counsel and
accountants, and the expenses incurred by representatives of the Purchasers) for
the negotiation and preparation of the Transaction Documents and the
consummation of the purchase transactions contemplated thereby, including the
exercise of the Option Agreement. Thereafter, subject to the provisions of
Section 9.11(c), the Company shall reimburse the Purchasers for the reasonable
fees and expenses which they incur from time to time in consulting with their
counsel and accountants with respect to the Transaction Documents and any
amendments, supplements, consents or waivers with respect to such documents.
Reasonable documentation shall be provided to the Company by the Purchasers for
all fees and expenses which the Company has agreed to reimburse pursuant to this
Section 9.11(a).
(b) The Company shall not be required to pay or reimburse the
Purchasers for any of their fees and expenses in the event that the Closing does
not occur; provided, however, the Company shall be required to pay or reimburse
the Purchasers for such fees and expenses if the Closing does not occur due to
the failure of the Company to satisfy the closing conditions under Section 3 of
this Agreement.
(c) If any action, suit or proceeding is commenced by any Purchaser
after the Closing arising out of or related to an alleged breach by the Company
of a covenant in any Transaction Document, such Purchaser or Purchasers shall be
entitled to reimbursement by the Company of the attorneys fees and expenses,
accountants fees and expenses and other costs incurred in investigating,
prosecuting or defending such action, suit or proceeding, payable within 10 days
after presentation to the Company of reasonable documentation for such fees,
expenses and costs; provided, however, that the Company shall not be liable for
such fees and expenses in the event that it is finally determined that no such
breach occurred.
34
<PAGE>
9.12 PUBLICITY. Except as may be required by applicable law, none of
the parties hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto (which
approval will not be unreasonably withheld). If any announcement is required by
law to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties an opportunity to comment thereon.
9.13 FURTHER ASSURANCES. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement and/or the Certificate of
Incorporation.
[Signature Pages To Follow]
35
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
US LEC CORP.
By: /s/ Michael K. Robinson
-----------------------------------
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
BAIN CAPITAL CLEC INVESTORS, L.L.C.
By: Bain Capital Fund VI, L.P.,
its Administrative Member
By: Bain Capital Partners VI, L.P.,
its General Partner
By: Bain Capital Investors VI, Inc.,
its general partner
By: /s/ Michael A. Krupka
-----------------------------------
Name:
Title: Managing Director
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. DiNovi
-----------------------------------
Name: Anthony J. DiNovi
Title: Managing Director
36
<PAGE>
THOMAS H. LEE FOREIGN FUND IV-B, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. DiNovi
-----------------------------------
Name: Anthony J. DiNovi
Title: Managing Director
THOMAS H. LEE FOREIGN FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Scott M. Sperling
-----------------------------------
Name: Scott M. Sperling
Title: Managing Director
PUTNAM INVESTMENT HOLDINGS, LLC
By: /s/ William H. Woolverton
-----------------------------------
Name: William H. Woolverton
Title: Managing Director
1997 THOMAS H. LEE NOMINEE TRUST
By: /s/ Gerald Wheeler
-----------------------------------
Trustee
37
<PAGE>
THOMAS H. LEE CHARITABLE
INVESTMENT LIMITED PARTNERSHIP
By: /s/ Thomas H. Lee
-----------------------------------
Name: Thomas H. Lee
Title: President
/s/ David V. Harkins
-----------------------------------
DAVID V. HARKINS
THE HARKINS 1995 GIFT TRUST
By: /s/ Sheryll J. Harkins
-----------------------------------
Trustee
/s/ Scott A. Schoen
-----------------------------------
SCOTT A. SCHOEN
/s/ C. Hunter Boll
-----------------------------------
C. HUNTER BOLL
/s/ Scott M. Sperling
-----------------------------------
SCOTT M. SPERLING
/s/ Anthony J. DiNovi
-----------------------------------
ANTHONY J. DINOVI
/s/ Thomas M. Hagerty
-----------------------------------
THOMAS M. HAGERTY
/s/ Warren C. Smith, Jr.
-----------------------------------
WARREN C. SMITH, JR.
38
<PAGE>
/s/ Seth W. Lawry
-----------------------------------
SETH W. LAWRY
/s/ Kent R. Weldon
-----------------------------------
KENT R. WELDON
/s/ Terrence M. Mullen
-----------------------------------
TERRENCE M. MULLEN
/s/ Todd M. Abbrecht
-----------------------------------
TODD M. ABBRECHT
/s/ Charles A. Brizius
-----------------------------------
CHARLES A. BRIZIUS
/s/ Scott Jaeckel
-----------------------------------
SCOTT L. JAECKEL
/s/ Soren Oberg
-----------------------------------
SOREN L. OBERG
/s/ Thomas R. Shepherd
-----------------------------------
THOMAS R. SHEPHERD
/s/ Wendy L. Masler
-----------------------------------
WENDY L. MASLER
/s/ Andrew D. Flaster
-----------------------------------
ANDREW D. FLASTER
39
<PAGE>
ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST
By: /s/ Charles W. Robins
--------------------------------
Trustee: Charles W. Robins
------------------------------------
STEPHEN ZACHARY LEE
/s/ Charles W. Robins
--------------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
JESSE LEE
/s/ Charles W. Robins
--------------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
NATHAN LEE
/s/ Charles W. Robins
--------------------------------
CHARLES W. ROBINS
/s/ James Westra
--------------------------------
JAMES WESTRA
/s/ Adam A. Abramson
--------------------------------
ADAM A. ABRAMSON
--------------------------------
JOANNE M. RAMOS
/s/ P. Holden Spaht
--------------------------------
P. HOLDEN SPAHT
/s/ Nancy M. Graham
--------------------------------
NANCY M. GRAHAM
40
<PAGE>
/s/ Gregory A. Ciongoli
--------------------------------
GREGORY A. CIONGOLI
/s/ Wm. Matthews Kelly
--------------------------------
WM. MATTHEW KELLY
/s/ K. F. Sullivan
--------------------------------
KEVIN F. SULLIVAN
/s/ Diane M. Barriere
--------------------------------
DIANE M. BARRIERE
/s/ Kim H. Oakley
--------------------------------
KIM H. OAKLEY
41
"THE SECURITIES REPRESENTED BY THIS OPTION AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES
LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND SUCH LAWS."
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is made as of April 11, 2000,
by and between US LEC CORP., a Delaware corporation (the "Company"), and the
Persons whose names are set forth on Schedule 1 attached hereto (individually, a
"Purchaser" and collectively, the "Purchasers")
W I T N E S S E T H:
WHEREAS, the Company and the Purchasers are parties to a Preferred
Stock Purchase Agreement dated as of April 11, 2000 (the "Purchase Agreement");
WHEREAS, pursuant to the terms and conditions of the Purchase
Agreement, the Company has agreed to sell, and the Purchasers have agreed to
purchase, an aggregate of 200,000 shares of the Company's Series A Convertible
Preferred Stock which are convertible into shares of the Company's Class A
Common Stock, par value $.01 per share (the "Common Stock"); and
WHEREAS, the parties hereto now wish to provide for an option whereby
the Purchasers shall have the right to purchase an aggregate of up to 100,000
shares of the Preferred Stock (as defined in Article I below), subject to the
terms and conditions contained herein;
NOW, THEREFORE, in consideration of the foregoing and the
representations, covenants and agreements contained herein, and certain other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Unless otherwise defined herein, capitalized terms used herein shall
have the meaning given such terms below. Capitalized terms used herein and not
defined shall have the meanings set forth in the Purchase Agreement.
"ACQUISITION" means (i) the Company has consolidated with, or merged
with or into, any other Person and, in connection with any such consolidation or
merger, the holders of the Company's Common Stock and Class B Common Stock
outstanding immediately prior to such transaction do not own, in the aggregate,
at least 50% of the outstanding stock of the surviving entity in such
transaction, or (ii) any Person has made a tender offer or exchange offer to
acquire all of the Company's outstanding Common Stock and Class B Common Stock
(each such offer, a "Tender Offer"), and, upon the consummation of the Tender
Offer, the holders of the Company's Common Stock and Class B Common Stock
outstanding immediately prior thereto do not own, in the aggregate at least 50%
of the outstanding stock of the Person that made the Tender Offer.
"ACQUISITION PROPOSAL" means a written proposal submitted to the
Chairman, Chief Executive Officer, President or Chief Financial Officer of the
Company (each, an "Executive Officer") that (i) proposes a transaction that
would, if consummated, result in an Acquisition, (ii) values the Company at not
less than 120% of the Company's market capitalization at the time it is
submitted and (iii) the Executive Officers, after consultation among themselves,
have determined the proposal is a bona fide one that the Company should or is
required to discuss with the Person that submitted it or is then discussing the
proposal with the Person that submitted it.
"CLOSING" has the meaning assigned thereto in Section 2.2.
"CLOSING DATE" has the meaning assigned thereto in Section 2.2.
"COMPANY INDEMNIFIED PARTY" has the meaning assigned thereto in Section
8.1.
"EXERCISE NOTICE" has the meaning assigned thereto in Section 2.1(a).
"EXERCISE PERIOD" has the meaning assigned thereto in Section 2.1(c).
"INVESTOR AGENTS" has the meaning assigned to such term in the
Corporate Governance Agreement.
"MARKET PRICE" of any security means the average (weighted by daily
trading volume) of the closing prices of such security's sales on all securities
exchanges on which such security may be listed at the time, or, if there has
been no sales on any such exchange on any day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated or any similar successor
organization, in each such case averaged over a period of 30 days consisting of
the day as of which the "Market Price" is being determined and the 29
consecutive Business Days prior to such day. If at any time such security is not
listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Company and the Investor Agents. If such parties are
unable to reach agreement within a reasonable period of time, such fair value
shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the Company and the Investor Agents. The
determination of such appraiser shall be final and binding upon the parties, and
the Company shall pay the fees and expenses of such appraiser.
2
<PAGE>
"OPTION" has the meaning set forth in Section 2.1(a).
"OPTION PRICE" has the meaning assigned thereto in Section 2.1(a).
"PREFERRED STOCK" means the Series B Convertible Preferred Stock of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"PREMIUM ACQUISITION" means the consummation of an Acquisition that was
the subject of an Acquisition Proposal pursuant to which the holders of the
Company's outstanding Common Stock and Class B Common Stock receive stock, cash
or other consideration having a value on a per share basis at least equal to
110% of the Market Price of the Common Stock on the day the Company first
received such Acquisition Proposal.
"PURCHASER(S)" has the meaning assigned thereto in the Preamble and
their successors and permitted assigns.
"PURCHASER PREFERRED STOCK" means the Preferred Stock and the Series A
Preferred Stock.
"PURCHASER REGULATORY EVENT" means any event in which any Purchaser
becomes subject to regulation as a "carrier," a "telephone company," a "common
carrier," a "public utility," or otherwise under any applicable law or
governmental regulation, federal, state, or local, as a result of the purchase
of the Series A Preferred Stock pursuant to the Purchase Agreement, the purchase
of the Preferred Stock pursuant to this Agreement and the execution and delivery
of the Transaction Documents (as defined in the Purchase Agreement) by the
parties thereto at the closing under the Purchase Agreement.
"REQUISITE HOLDERS" has the meaning assigned thereto in Section 9.4.
"SERIES A DESIGNATION" means the Certificate of Designation of the
Company relating to the Series A Preferred Stock filed with the Secretary of
State of Delaware as of the date hereof.
"SERIES A PREFERRED STOCK" means the Series A Convertible Preferred
Stock of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
3
<PAGE>
"SERIES B DESIGNATION" means the Certificate of Designation relating to
the Preferred Stock attached as Exhibit A hereto.
"SERIES C DESIGNATION" means the Certificate of Designation of the
Company relating to the Series C Preferred Stock to be filed with the Secretary
of State of the State of Delaware in such form as is permitted by the Purchase
Agreement, as amended, supplemented or otherwise modified.
"SERIES C PREFERRED STOCK" means the Series C Convertible Preferred
Stock of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
ARTICLE II
GRANT AND EXERCISE OF OPTION
2.1. GRANT AND EXERCISE OF OPTION; EXERCISE PERIOD.
(a) The Company hereby grants to each Purchaser named on Schedule 1
hereto an option (the "Option") to purchase, subject to the terms hereof, that
number of shares of Preferred Stock set forth opposite such Purchaser's name on
Schedule 1, at a price of $1,000 per share (the "Option Price"). In the event
some or all of the Purchasers desire to exercise the Option, such Purchasers
shall send to the Company a written notice (the "Exercise Notice" ) specifying
(i) the total number of shares of Preferred Stock each such Purchaser will
purchase pursuant to such exercise and (ii) a date not earlier than five
Business Days nor later than 20 Business Days (subject to extension to satisfy
closing conditions hereunder) from the date of the Exercise Notice for the
closing of such purchase pursuant to Section 2.2. Subject to the provisions of
Section 2.1(c), the Option may be exercised, in whole or in part, at any one
time; provided that the Option may not be exercised in part unless the combined
Option exercises pursuant to the Exercise Notice provide for the purchase of at
least 25,000 shares of Preferred Stock.
(b) Notwithstanding the provisions of Section 2.1(a), the Company shall
not be obligated to issue and sell any Preferred Stock pursuant to an Exercise
Notice if, within five Business Days of receipt of such notice, the Company
delivers a certificate to the Investor Agents executed by an Executive Officer
stating that, as of the date of receipt of the Exercise Notice, the Company had
received an Acquisition Proposal and describing the material terms of such
Acquisition Proposal (the "Proposal Notice") and provides the Investor Agents
with sufficient documentation to enable them to determine whether the proposed
transaction meets the criteria set forth in the definition of Acquisition
Proposal. If the Company timely delivers a Proposal Notice to the Investor
Agents, the Exercise Notice shall be deemed withdrawn without further action by
the Company or the Purchasers that submitted the Exercise Notice. In the event
(i) the Company terminates discussions with respect to the Acquisition Proposal
that was the subject of the Proposal Notice or (ii) the proposed transaction no
longer meets the criteria set forth in the definition of Premium Acquisition,
the Company shall promptly notify the Investor Agents of that fact in writing
(the "Termination Notice"), in which event the Option may again be exercised,
subject to the terms hereof, including the provisions of this Section 2.1(b) and
Section 2.1(c); provided, however, that in the event of an exercise of the
Option following receipt by the Investor Agents of a Termination Notice pursuant
to clause (ii), the Company shall not close such proposed transaction prior to
the closing of the Option pursuant to Section 2.2. In the event the Company
consummates an Acquisition described in an Acquisition Proposal that was the
subject of a Proposal Notice, it shall promptly notify the Investor Agents of
that fact in writing (the "Consummation Notice") and shall provide the
Purchasers with such documentation as reasonably requested by the Purchasers to
enable them to determine whether such Acquisition constitutes a Premium
Acquisition.
4
<PAGE>
(c) The Option granted hereunder shall be exercisable in accordance
with the terms hereof by delivery of an Exercise Notice at any time during the
period beginning on the date of this Agreement and ending on April 11, 2001 (the
"Exercise Period"); provided that if the exercise of the Option is deemed to be
withdrawn by the delivery of a Proposal Notice by the Company pursuant to
Section 2.1(b) and either (i) the Investor Agents have received a Termination
Notice with respect to such Proposal Notice or (ii) the Acquisition described in
the Acquisition Proposal that was the subject of such Proposal Notice is
consummated and such Acquisition is not a Premium Acquisition, the Option may be
exercised by delivery of an Exercise Notice at any time until the later of the
expiration of the Exercise Period or 30 days after the receipt by the Investors
Agents of the Termination Notice or Consummation Notice with respect to such
Acquisition, as applicable; and, provided, further, that if the exercise of the
Option is deemed to be withdrawn by the delivery of a Proposal Notice pursuant
to Section 2.1(b) and the Acquisition described in the Acquisition Proposal that
was the subject of such Proposal Notice is consummated and such Acquisition is a
Premium Acquisition, the Option, and the right of any Purchaser to exercise the
Option, shall automatically terminate.
2.2 CLOSING. The issuance and purchase of the Preferred Stock upon the
exercise of the Option shall take place at the Closing (the "Closing") to be
held at the offices of Moore & Van Allen, PLLC, Charlotte, North Carolina, at
10:00 a.m., on the date specified in the Exercise Notice, or at such other time
and place as the Company and the Purchasers exercising the Option may agree in
writing (the "Closing Date"). At the Closing, the Company shall deliver to the
Purchasers certificates representing the number of shares of the Preferred Stock
specified in the Exercise Notice against delivery to the Company by the
Purchasers of the Option Price therefor by wire transfer of immediately
available funds.
ARTICLE III
CONDITIONS TO THE OBLIGATION OF THE PURCHASERS TO CLOSE
The obligation of each Purchaser to purchase the number of shares of
Preferred Stock set forth in the Exercise Notice at the Closing, to pay the
Option Price therefor at the Closing and to perform any other obligations
hereunder shall be subject to the reasonable satisfaction as determined by each
Purchaser of the following conditions on or before the Closing Date:
5
<PAGE>
3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company contained in Section 5 hereof shall be true and correct (a) when
made and (b) on and as of the Closing Date as if made on and as of such date
except for such changes to Schedules 5.9 and 5.10 as are permitted by the terms
of the Transaction Documents and set forth on revised Schedules 5.9 and 5.10
provided to the Purchasers at the Closing.
3.2 COMPLIANCE WITH THIS AGREEMENT. The Company shall have performed
and complied in all material respects with all of the agreements, obligations,
covenants and conditions set forth in this Agreement that are required to be
performed or complied with by the Company on or before the Closing Date.
3.3 OFFICER'S CERTIFICATE. Each Purchaser shall have received a
certificate dated as of the Closing Date from the chief executive officer and
chief financial officer of the Company, substantially in the form of Exhibit B,
to the effect that (a) all representations and warranties of the Company
contained in this Agreement are true and correct, (b) the Company is not in
violation in any material respect of any of the covenants contained in this
Agreement or any other Transaction Document, and (c) all conditions precedent to
the Closing to be performed by the Company have been duly performed in all
material respects.
3.4 SECRETARY'S CERTIFICATE, GOOD STANDING CERTIFICATES. Each Purchaser
shall have received a certificate from the Company dated the Closing Date and
signed by the Secretary or an Assistant Secretary of the Company, substantially
in the form of Exhibit C, certifying (a) that the attached copies of the
Certificate of Incorporation, Bylaws or other applicable governance documents
and resolutions of the Board of Directors of the Company (i) authorizing the
issuance of the Preferred Stock pursuant to this Agreement and the issuance of
any Common Stock upon conversion thereof and (ii) approving this Agreement and
the transactions contemplated hereby to which it is a party, are all true,
complete and correct and remain unamended and in full force and effect, and (b)
as to the incumbency and specimen signature of each officer of the Company
executing any document delivered in connection with this Agreement on behalf of
the Company.
3.5 PAYMENT OF FEES. There shall have been paid by the Company (a) to
Bain Capital Partners VI, L.P., a funding fee equal to 1% of the amount funded
by Bain Capital CLEC Investors, L.L.C. at the Closing, (b) to Thomas H. Lee
Equity Advisors IV, L.P. a funding fee equal to 1% of the amount funded by all
Purchasers other than Bain Capital CLEC Investors, L.L.C. at the Closing and (c)
to each Purchaser all legal fees and expenses required to be paid or reimbursed
to such Purchaser by the Company pursuant to Section 9.11 of the Purchase
Agreement. In addition, the Company shall have paid in full all fees due to
First Union Securities, Inc. in connection with the transactions contemplated by
this Agreement as of the Closing.
3.6 PURCHASE PERMITTED BY APPLICABLE LAWS. The acquisition of and
payment for the Preferred Stock to be acquired by each Purchaser at the Closing
and the consummation of the transactions contemplated hereby at the Closing (a)
shall not be prohibited by any Requirement of Law, and (b) shall not subject any
Purchaser to any penalty or, in its reasonable judgment, other adverse condition
under or pursuant to any Requirement of Law.
6
<PAGE>
3.7 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino
Act to sell the Preferred Stock upon the terms of this Agreement shall have been
obtained.
3.8 SERIES B DESIGNATION. On or prior to the Closing, the Series B
Designation for the number of shares of Preferred Stock to be delivered at the
Closing, including shares of Preferred Stock issuable as preferential dividends
with respect thereto, shall have been duly filed with the Secretary of State of
the State of Delaware, all in accordance with the applicable provisions of the
DGCL, and the Series B Designation shall constitute a legal and valid amendment
of the Certificate of Incorporation and, as of the Closing, the Certificate of
Incorporation shall not have been otherwise amended; provided, that if at any
time from the date of this Agreement until the Closing Date the Company shall
take any action that would have caused an adjustment in the $46.50 conversion
price in Section 4.2 of the Series B Designation pursuant to Sections 4.3, 4.4,
4.5 or 4.6 thereof if the Series B Preferred Stock had been outstanding, the
conversion price set forth in Section 4.2, at the time the Series B Designation
is filed with the Secretary of State of the State of Delaware on the Closing
Date, shall be the conversion price as so adjusted.
3.9 PREFERRED STOCK CERTIFICATE. Each Purchaser shall have received
from the Company a duly executed preferred stock certificate, substantially in
the form of Exhibit D, dated the Closing Date representing the number of shares
of Preferred Stock purchased by it at the Closing.
3.10 REQUIRED CONTRACTUAL CONSENTS. The Company shall have received any
consents required pursuant to the terms of any material Contractual Obligation
in connection with the delivery of the Preferred Stock at the Closing.
3.11 REQUIRED GOVERNMENTAL CONSENTS. The Company shall have received
all Regulatory Authorizations and other Governmental Authority approvals or
consents required in connection with the delivery of the Preferred Stock at the
Closing.
3.12 LISTING OF SHARES. The Company shall have filed with The Nasdaq
Stock Market notice of the maximum number of shares of Common Stock potentially
issuable pursuant to the terms of the Series B Designation as of the Closing
Date other than any such shares as may be issuable upon an adjustment in the
conversion price of the Preferred Stock after the Closing Date.
3.13 OPINIONS OF COUNSEL. The Purchasers shall have received (a) from
Moore & Van Allen, PLLC, special legal counsel for the Company, a favorable
opinion as of the Closing Date, to the effect that: (i) the Company is duly
organized as a corporation under the DGCL; (ii) the Company is validly existing
and in good standing in the jurisdiction of its incorporation and has the
requisite corporate power to own or lease and operate its property, and to carry
on its business as currently conducted; (iii) the issuance of the Preferred
Stock, including the issuance of Preferred Stock as preferential dividends
pursuant to the Series B Designation, has been duly authorized by all corporate
action required under the Company's Organizational Documents; (iv) the Series B
Designation has been duly authorized by all corporate action required under the
Company's Organizational Documents and filed with the Secretary of State of
Delaware; (v) upon issuance at the Closing, the Preferred Stock will be validly
issued, fully paid and nonassessable, and will not have been issued in violation
of or be subject to any preemptive rights, and the issuance of the shares of
Common Stock issuable upon conversion of the Preferred Stock has been duly
authorized and such shares have been duly reserved for issuance, and upon
issuance will be validly issued, fully paid and nonassessable, and will not have
been issued in violation of or be subject to any preemptive rights; and (b) from
Swidler Berlin Shereff Friedman, LLP, special regulatory counsel to the Company,
a favorable opinion as of the Closing Date, to the effect that (i) no consents
or approvals of the FCC or any PUC are required for the purchase of the
Preferred Stock pursuant to this Agreement and (ii) the purchase of the
Preferred Stock pursuant to this Agreement will not, in and of itself, subject
the Purchasers to regulation as common carriers or telephone companies under the
Communications Act (as defined in such opinion) in those states in which the
Company and its Subsidiaries are certified to operate as of the Closing.
7
<PAGE>
3.14 REGULATORY EVENTS. No Regulatory Event or Purchaser Regulatory
Event shall have occurred and be continuing or shall occur as a result of the
purchase of the Preferred Stock at the Closing.
ARTICLE IV
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Preferred Stock
pursuant to the Exercise Notice at the Closing and to perform its other
obligations hereunder at the Closing shall be subject to the satisfaction as
determined by the Company of the following conditions on or before the Closing
Date:
4.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of each of the Purchasers contained in Section 6 hereof shall be true
and correct on and as of the Closing Date as if made on and as of such date.
4.2 COMPLIANCE WITH THIS AGREEMENT. Each of the Purchasers shall have
performed and complied in all material respects with all of its agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by each of the Purchasers on or before the Closing Date.
4.3 ISSUANCE PERMITTED BY REQUIREMENTS OF LAWS. The issuance of the
Preferred Stock to be issued by the Company pursuant to the Exercise Notice at
the Closing and the consummation of the transactions contemplated hereby at the
Closing (a) shall not be prohibited by any Requirement of Law and (b) shall not
subject the Company to any penalty or, in its reasonable judgment, other onerous
condition under or pursuant to any Requirement of Law.
4.4 HSR CLEARANCE. Any required clearance under the Hart-Scott-Rodino
Act to acquire the Preferred Stock pursuant to the Exercise Notice upon the
terms of this Agreement shall have been obtained.
8
<PAGE>
4.5 OPINION OF COUNSEL. If the rights of any Purchaser to purchase
Preferred Stock hereunder have been Transferred to a Permitted Transferee, such
Permitted Transferee or Permitted Transferees shall have delivered to the
Company an opinion dated the Closing Date from the Permitted Transferees'
counsel, Ropes & Gray, in form and substance satisfactory to the Company and its
counsel, to the effect that each such Permitted Transferee's performance of this
Agreement was duly authorized by the requisite corporate, fiduciary, limited
liability company or partnership action required under its Organizational
Documents and applicable state laws.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchasers as
follows:
5.1 ORGANIZATION AND QUALIFICATION. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its state of organization. Each of the Company and its Subsidiaries is
duly qualified to do business and in good standing in each jurisdiction in which
the failure to receive or retain such qualification would reasonably be expected
to have a Material Adverse Effect. As to any such entity that is a limited
liability company, each manager is duly organized, validly existing, in good
standing under the laws of its state of organization, and duly qualified to do
business and in good standing in each jurisdiction in which the failure to
receive or retain such qualification would reasonably be expected to have a
Material Adverse Effect.
5.2 AUTHORITY AND AUTHORIZATION. Each of the Company and its
Subsidiaries has all requisite corporate or limited liability company right,
power, authority and legal right to carry on its business, to own or lease its
properties and to execute and deliver and perform its obligations under this
Agreement, and, in the case of the Company, to execute and deliver and to
perform its obligations under this Agreement and consummate the transactions
contemplated hereby. The Company's execution, delivery and performance of this
Agreement has been duly and validly authorized by all necessary corporate
proceedings on the part of the Company. Upon issuance, the Preferred Stock, and
any shares of such stock issuable as preferential dividends pursuant to the
terms thereof, will be validly issued, fully paid and nonassessable, and will
not have been issued in violation of or subject to any preemptive rights, and
the shares of Common Stock issuable upon conversion of the Preferred Stock, and
any shares of stock issuable as preferential dividends pursuant to the terms
thereof, have been duly authorized and, as of the date here of, will be reserved
for issuance, and upon issuance will be validly issued, fully paid and
nonassessable, and will not have been issued in violation of or be subject to
any preemptive rights.
9
<PAGE>
5.3 EXECUTION AND BINDING EFFECT. This Agreement has been duly and
validly executed and delivered by the Company, and constitutes the legal, valid
and binding obligations of the Company enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium or other laws affecting creditors'
rights generally.
5.4 GOVERNMENTAL AUTHORIZATIONS. Except as set forth on Schedule 5.4,
no authorization, consent, approval, license, exemption or other action by, and
no registration, qualification, designation, declaration or filing with, any
Governmental Authority is or will be necessary in connection with the execution
and delivery of this Agreement, the consummation by the Company of the
transactions herein contemplated, performance of or compliance by the Company
with the terms and conditions hereof or the legality, validity and
enforceability hereof.
5.5 NO BROKERAGE FEES. Except for a fee payable to First Union
Securities, Inc., no brokerage or other fee, commission or compensation is to be
paid by the Company or any Subsidiary to any Person in connection with the
transactions hereunder except as contemplated herein.
5.6 INVESTMENT COMPANY; PUBLIC UTILITY HOLDING COMPANY. Neither the
Company nor any of its Subsidiaries is an "investment company" or a "company
controlled by an investment company" or an "affiliated person" or "promoter" or
"principal underwriter" for, an "investment company," within the meaning of the
Investment Company Act of 1940, as amended, or a "holding company," or a
"subsidiary company" of a "holding company," or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company," within the meaning
of the Public Utility Holding Company Act of 1935, as amended.
5.7 SECURITIES ACT. Based upon the representations and warranties of
each Purchaser in Section 6 of this Agreement, (i) the Preferred Stock to be
issued pursuant to an Exercise Notice, any Preferred Stock to be issued as
preferential dividends pursuant to the terms thereof and the Common Stock
issuable upon conversion of such Preferred Stock and (ii) the issuance by the
Company thereof, are not required to be registered under the Securities Act or
under the securities or blue sky laws of any state or jurisdiction.
5.8 ABSENCE OF CONFLICTS. The consummation by the Company of the
transactions contemplated by this Agreement and the performance of or compliance
with the terms and conditions hereof by the Company will not, directly or
indirectly (and with or without notice or the passage of time or both), (a)
violate any Requirements of Law applicable to the Company or its Subsidiaries;
(b) conflict with or result in a breach of or a default under the Organizational
Documents of the Company or its Subsidiaries or any Contractual Obligation to
which the Company or its Subsidiaries is a party or by which such entity or its
properties are bound; (c) result in the creation or imposition of any Lien upon
any property (now owned or hereafter required); or (d) violate or conflict with,
or give any Governmental Authority the right to challenge the transactions
contemplated by this Agreement or revoke, withdraw, suspend, cancel, terminate
or modify, any Regulatory Authorization issued to or held by the Company or any
Subsidiary (other than as set forth on Schedule 5.8).
10
<PAGE>
5.9 TRANSACTIONS WITH AFFILIATES. No Affiliate and no officer or
director of either the Company or any its Subsidiaries or any individual related
by blood, marriage, adoption or otherwise to any such Affiliate, officer or
director, or any Person in which any such Affiliate, officer, director or
individual related thereto owns any material beneficial interest, is a party to
any agreement, contract, commitment or transaction with the Company or any of
its Subsidiaries or has any material interest in any material property used by
the Company or any of its Subsidiaries, except as set forth on Schedule 5.9.
5.10 CAPITALIZATION. The authorized capital stock of the Company and
its Subsidiaries and the issued and outstanding shares thereof are as described
on Schedule 5.10. As of the Closing Date, all outstanding shares of capital
stock of the Company and its Subsidiaries will be duly authorized and validly
issued, fully paid, nonassessable and free and clear of any Lien created by the
Company or any Subsidiary thereof (other than Liens under the Senior Loan
Documents). Except as described in Schedule 5.10, no other class of capital
stock or other ownership interests of the Company or its Subsidiaries are
authorized or outstanding. Neither the Company nor any Subsidiary is subject to
any obligation (contingent or otherwise) to repurchase, redeem or otherwise
acquire its capital stock or any warrants, options or other rights to acquire
its capital stock, except pursuant to the Series A Designation and, when filed
with the Secretary of State of Delaware, the Series B Designation and Series C
Designation. The Company does not have any outstanding securities convertible
into capital stock of the Company (other than the Class B Common Stock and the
Series A Preferred Stock); and except for shares of Common Stock reserved for
issuance upon the exercise of outstanding warrants or in connection with the
Company Stock Option Plan, the Company does not have any shares of capital stock
reserved for issuance (other than shares of Common Stock reserved for issuance
upon conversion of the Class B Common Stock, the Preferred Stock, Series A
Preferred Stock and Series C Preferred Stock). Except as set forth on Schedule
5.10 and other than the Company's outstanding warrants and stock options and
this Agreement, the Company does not have any commitment to authorize, issue or
sell any of its capital stock or securities convertible into or exchangeable for
any of its capital stock. Neither the Company nor any of its Subsidiaries is a
party to any "phantom stock", employee stock option plan, other equity-based
incentive plan or similar agreement, other than the Company Stock Option Plan.
Schedule 5.10 sets forth the number of shares of capital stock reserved for
issuance upon the exercise of options granted or available to be granted under
the Company Stock Option Plan. Schedule 5.10 also lists all of the Company's
outstanding warrants to purchase capital stock. Except as set forth on Schedule
5.10, there are no preemptive or similar rights to purchase or otherwise acquire
equity securities of, or interests in, the Company or any of its Subsidiaries
pursuant to any Requirements of Law or Contractual Obligations applicable to the
Company or any of its Subsidiaries. Other than as set forth in the Transaction
Documents, there are no existing rights with respect to registration or sale or
resale under the Securities Act or the securities or blue sky laws of any state
or jurisdiction of any securities of the Company or any of its Subsidiaries.
Subject to the provisions of Section 3.8, the shares of Preferred Stock to be
issued to each Purchaser on the Closing Date, and any additional shares of
Preferred Stock to be issued as preferential dividends pursuant to the terms
thereof, will upon issuance to such Purchaser have the designation, preferences,
qualifications, limitations, restrictions and such special and relevant rights
as are set forth in the Series B Designation.
11
<PAGE>
5.11 COMMISSION FILINGS. Since April 23, 1998 (the date of the
Company's initial public offering), the Company has filed with the Commission,
on a timely basis, all registration statements, reports on Form 10-K, 10-Q and
8-K, proxy statements and information statements, and other documents that it
was required to file under the Securities Act or the Exchange Act. As of the
respective dates of such filings, none of the Company's filings with the
Commission contained (and the Company's most recent Form 10-K does not contain)
an untrue statement of a material fact or omitted (and the Company's most recent
Form 10-K does not omit) to state any material fact necessary to make any
statement of a material fact that it contained, in light of the circumstances in
which made, not misleading; and when filed with the Commission, each of such
filings with the Commission complied in all material respects with the
applicable requirements of the Securities Act or Exchange Act, as applicable.
The Company is eligible to file a registration statement on Form S-3 and has
taken all actions which would be required to permit sales of its securities
pursuant to Rule 144 under the Securities Act.
5.12 LITIGATION. There is no pending or, to the Company's knowledge,
threatened action, suit or proceeding that challenges the transactions
contemplated by this Agreement or that would have the effect of preventing,
delaying, making illegal or otherwise interfering with the transactions
contemplated by this Agreement.
5.13 NO DEFAULT. To the Company's knowledge, no event has occurred or
circumstance exists that (with or without notice or the passage of time or both)
would constitute or result in a violation or breach by the Company or any
Subsidiary of any provisions of the Transaction Documents.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser as to itself and not as to any other Purchaser hereby
severally represents and warrants to the Company, as appropriate, as follows:
6.1 AUTHORIZATION; NO CONTRAVENTION. Such Purchaser (unless an
individual) is duly organized, validly existing and in good standing as a
corporation, limited liability company or general or limited partnership under
the laws of the state of its incorporation or formation. The execution, delivery
and performance by such Purchaser of this Agreement (a) is within such
Purchaser's power and authority and has been duly authorized by all necessary
partnership, company or corporate action, (b) does not contravene the terms of
such Purchaser's organizational documents or any amendment thereof and (c) will
not violate, conflict with or result in any breach or contravention of any
material Contractual Obligation of such Purchaser, or any material Requirement
of Law directly relating to such Purchaser.
6.2 BINDING EFFECT. This Agreement has been duly executed and delivered
by such Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of such Purchaser enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights generally or by general
equitable principles relating to enforceability.
12
<PAGE>
6.3 ACCREDITED INVESTOR; PURCHASE FOR OWN ACCOUNT. Such Purchaser is an
"accredited investor" within the meaning of Regulation D under the Securities
Act. The Preferred Stock to be issued pursuant to the terms of this Agreement,
any Preferred Stock to be issued as preferential dividends pursuant to the terms
thereof and the shares of Common Stock to be issued upon conversion of such
Preferred Stock are being or will be acquired for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the Securities Act or the
securities laws of any state, without prejudice, however, to the rights of such
Purchaser at all times to sell or otherwise dispose of all or any part of such
Preferred Stock or any shares of Common Stock under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act. If such Purchaser should in the future
decide to dispose of such Preferred Stock or any shares of Common Stock issued
upon conversion of the Preferred Stock, such Purchaser understands and agrees
that it may do so only in compliance with the Securities Act and applicable
state securities laws, as then in effect. Such Purchaser agrees to the
imprinting, so long as required by law, of a legend on certificates representing
such Preferred Stock or any shares of Common Stock issued upon conversion of the
Preferred Stock to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH
LAWS."
The requirement to include the legend set forth above shall cease and
terminate as to any particular shares of Preferred Stock or Common Stock (a)
when, in the opinion of Ropes & Gray, or other counsel reasonably acceptable to
the Company, such legend is no longer required in order to assure compliance by
the Company with the Securities Act or (b) when such shares have been
effectively registered under the Securities Act or transferred pursuant to Rule
144. Whenever (x) such requirement shall cease and terminate as to any such
shares or (y) such shares shall be transferable under paragraph (k) of Rule 144,
the holder thereof shall be entitled to receive from the Company, without
expense, new certificates not bearing the legend set forth above.
Such Purchaser also agrees to the imprinting, so long as required by
law, of a legend on certificates representing its shares of Preferred Stock:
"THESE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS, INCLUDING CERTAIN TRANSFER RESTRICTIONS, OF EACH OF
THAT CERTAIN CORPORATE GOVERNANCE AGREEMENT, DATED AS OF APRIL 11,
2000, AMONG THE COMPANY AND CERTAIN OF THE COMPANY'S STOCKHOLDERS. A
COPY OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST TO
THE COMPANY MADE BY THE HOLDER OF THIS CERTIFICATE."
13
<PAGE>
6.4 GOVERNMENTAL AUTHORIZATIONS. Except for clearance under the
Hart-Scott-Rodino Act, no notice to, consent of, or registration, filing or
declaration with, any Governmental Authority is required in connection with such
Purchaser's execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby.
6.5 NO BROKERS OR FINDERS. Except as disclosed on Schedule 6.5, no
agent, broker, finder, or investment or commercial banker or other Person or
firm engaged by or acting on behalf of such Purchaser in connection with the
negotiation, execution or performance of this Agreement or the transactions
contemplated herein is or will be entitled to any brokerage or finder's or
similar fee or other commission as a result of this Agreement or such
transaction.
6.6 VOTING AND OTHER AGREEMENTS. Such Purchaser does not have any
agreements, arrangements or understandings with any other Person (other than
with other Purchasers who are Affiliates of such Purchaser) with regard to
acquiring, holding, voting or disposing of the securities of the Company other
than as set forth in the Transaction Documents to which such Purchaser is a
party.
ARTICLE VII
COVENANTS
7.1 HSR CLEARANCE. The Company and each of the Purchasers shall
cooperate with and provide each other, respectively, with any information that
each party reasonably requires and file such notices and responses as may be
necessary to enable each party to obtain any required clearance under the
Hart-Scott-Rodino Act in connection with the exercise of the Option. Each such
Purchaser required to obtain such clearance agrees to use all reasonable best
efforts to obtain such clearance as promptly as practicable on or prior to the
Closing Date.
7.2 RESERVATION OF SHARES. The Company shall at all times reserve and
keep available out of the aggregate of its authorized but unissued shares, free
of preemptive rights, (i) such number of its duly authorized shares of Preferred
Stock as shall be sufficient to enable the Company to pay preferential dividends
pursuant to the terms of the Series B Designation with respect to all shares of
Preferred Stock issued thereunder, and (ii) such number of its duly authorized
shares of Common Stock as shall be sufficient to enable the Company to issue
Common Stock upon conversion of all such Preferred Stock.
7.3 NOTICE OF ADJUSTMENTS. The Company shall give each of the
Purchasers written notice of any adjustments in the conversion price of the
Series B Designation contemplated by Section 3.8 within 10 Business Days of the
adjustment.
14
<PAGE>
7.4 GOVERNMENTAL CONSENTS. The Company shall use all commercially
reasonable efforts to obtain all of the authorizations, consents, approvals,
licenses and/or exemptions necessary in connection with the Closing hereunder,
including those listed on Schedule 5.4, on or prior to the Closing Date.
7.5 CORPORATE CHANGE. Prior to the Closing Date, the Company shall:
(a) prior to the consummation of any Corporate Change (as defined in
the Series B Designation) in which the Company is the successor or purchasing
corporation, make appropriate provisions (in form and substance reasonably
satisfactory to the Purchasers) such that each Purchaser shall have the right to
receive upon exercise of the Option, the Preferred Stock into which such Option
is exercisable with such terms and rights as would otherwise have been
applicable if the provisions of Section 4 and 5 of the Series B Designation had
been in full force and effect with respect to such shares since the date of this
Agreement; and
(b) prior to the consummation of any Corporate Change in which the
successor or purchasing corporation is an entity other than the Company, make
appropriate provisions (in form and substance reasonably satisfactory to the
Purchasers) to ensure that each Purchaser shall have the right to receive upon
exercise of the Option, the number of shares of convertible preferred stock into
which such Option is exercisable to be issued by such successor or purchasing
corporation with substantially the same terms and rights as the Preferred Stock
as otherwise would have been applicable if the provisions of Section 4 and 5 of
the Series B Designation had been in full force and effect with respect to such
shares since the date of this Agreement.
7.6 BEST EFFORTS. The Company will, and will cause each of its
Affiliates to, use its best efforts to cause the conditions set forth in Article
III to be satisfied on or prior to the Closing.
7.7 ADJUSTMENTS IN CERTIFICATE OF DESIGNATION. The parties hereto agree
that upon the exercise of the Option, the terms of the Series B Designation
attached as Exhibit A hereto (including without limitation, the rate in clause
(i) of the definition of "Applicable Rate" and the number of "Dividend Payment
Dates" on which the Corporation is required to pay preferential dividends
through the issuance of additional shares of Preferred Stock) shall be adjusted
such that as of the twelfth dividend payment date under the Series A
Designation, the holders of each share of the Preferred Stock will have received
as preferential dividends thereon 0.19562 additional shares of Preferred Stock.
Such adjustments must be on terms reasonably satisfactory to each of the parties
hereto. The Series B Designation (as so adjusted) shall thereafter be referred
to herein as the "Series B Designation" and shall be filed with the Secretary of
State of Delaware in accordance with Section 3.8 hereof.
15
<PAGE>
ARTICLE VIII
INDEMNIFICATION; TERMINATION
8.1 INDEMNIFICATION. Effective upon the Closing, the Company agrees to
indemnify and hold harmless the Purchasers and their Affiliates and their
officers, directors, agents, employees, subsidiaries, partners and controlling
Persons (each, a "Company Indemnified Party") to the fullest extent permitted by
law, from and against any and all losses, demands, actions, costs, claims,
damages, expenses (including reasonable fees, disbursements and other charges of
counsel) or other liabilities (collectively, "Company Liabilities") incurred or
suffered by such Company Indemnified Party resulting from or arising out of (i)
any misrepresentation or breach of any representation or warranty of the Company
in this Agreement, or any certificate or instrument delivered pursuant hereto,
(ii) any breach of any covenant or obligation of the Company in this Agreement,
or (iii) any investigation or proceeding against the Company or any Company
Indemnified Party that arises out of or in connection with this Agreement,
whether or not the transactions contemplated by this Agreement are consummated,
which investigation or proceeding requires the participation of, or is commenced
or filed against, any Company Indemnified Party because of this Agreement or the
transactions contemplated hereby; provided that (x) the Company shall not be
liable under Section 8.1(iii) to a Company Indemnified Party for any liabilities
resulting primarily from any actions that involved the gross negligence or
willful misconduct or any Company Indemnified Party or the breach by any Company
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained herein.
8.2 NOTIFICATION. The Company Indemnified Party, under Section 8.1(iii)
will, promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Company Indemnified Party
in respect of which indemnity may be sought from the Company under Section
8.1(iii), notify the Company in writing of the commencement thereof. The
omission of any Company Indemnified Party so to notify the Company of any such
action shall not relieve the Company from any liability which it may have to
such Company Indemnified Party under Section 8.1(iii) unless, and only to the
extent that, such omission results in the Company's forfeiture of substantive
rights or defenses or the Company is otherwise irrevocably prejudiced in
defending such proceeding. In case any such action, claim or other proceeding
shall be brought against any Company Indemnified Party and it shall notify the
Company of the commencement thereof, the Company shall be entitled to assume the
defense thereof at its own expense, with counsel satisfactory to the Company
Indemnified Party; provided, that any Company Indemnified Party may, at its own
expense, retain separate counsel to participate in such defense. Notwithstanding
the foregoing, in any action, claim or proceeding in which both the Company, on
the one hand, and a Company Indemnified Party, on the other hand, is, or is
reasonably likely to become, a party, such Company Indemnified Party shall have
the right to employ separate counsel at the Company's expense and to control its
own defense of such action, claim or proceeding if, (a) the Company has failed
to assume the defense and employ counsel as provided herein, (b) the Company has
agreed in writing to pay such fees and expenses of separate counsel or (c) in
the reasonable opinion of counsel to such Company Indemnified Party, a conflict
or likely conflict exists between the Company, on the one hand, and such Company
Indemnified Party, on the other hand, that would make such separate
representation advisable, provided, however, that the Company shall not in any
event be required to pay the fees and expenses of more than one separate counsel
(and if deemed necessary by such separate counsel, appropriate local counsel who
shall report to such separate counsel). The Company agrees that it will not,
without the prior written consent of a Company Indemnified Party, settle,
compromise or consent to the entry of any judgment in any pending or threatened
claim, action or proceeding relating to the matters contemplated hereby (if such
Company Indemnified Party is a party thereto or has been actually threatened to
be made a party thereto) unless such settlement, compromise or consent includes
an unconditional release of such Company Indemnified Party from all liability
arising or that may arise out of such claim, action or proceeding. The Company
shall not be liable for any settlement of any claim, action or proceeding
effected against a Company Indemnified Party without the prior written consent
of the Company.
16
<PAGE>
ARTICLE IX
MISCELLANEOUS
9.1 CLAIMS AND SUITS UNDER SECTION 8.1. No claim may be made or suit
instituted under Section 8.1 with respect to any breach of a representation or
warranty (except if it relates to Sections 5.1, 5.2, 5.3, 5.10 or if it relates
to fraud) after the date that is eighteen (18) months after the Closing Date,
unless the Company Indemnified Party has given the indemnifying party written
notice of such claim or suit (describing with reasonable specificity the amount
of and basis for such claim or suit) on or prior to such date.
9.2 NOTICES. All notices, claims, demands and other communications
("Notices") provided for or permitted hereunder shall be made in writing and
shall be by registered or certified first class mail, return receipt requested,
telecopier, recognized overnight courier service or personal delivery:
(a) if to the Company:
US LEC Corp.
Transamerica Square
401 N. Tryon Street, Suite 1000
Charlotte, North Carolina 28202
Attention: General Counsel
Telecopier: (704) 319-3098
with a required copy to:
Moore & Van Allen, PLLC
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Barney Stewart III
Telecopier: (704) 331-1151
17
<PAGE>
(b) if to the Purchasers or the Investor Agents:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Ian K. Loring
Telecopier: (617) 572-3274
and to:
Thomas H. Lee Partners, L.P.
75 State Street, 26th Floor
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Telecopier (617) 227-3514
with a required copy to:
Ropes & Gray
One International Plaza
Boston, Massachusetts 02110-2624
Attention: Philip J. Smith
Telecopier: (617) 951-7050
All Notices shall be deemed to have been duly given: when delivered by
hand, if personally delivered; when delivered by courier, if delivered by
commercial overnight courier service; five Business Days after being deposited
in the mail, postage prepaid, if mailed; and when receipt is acknowledged by the
individual to whom the telecopy is sent, if telecopied.
9.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the parties
hereto. Subject to applicable securities laws and except as otherwise set forth
in the Transaction Documents (including, without limitation, the Corporate
Governance Agreement), the Purchasers may assign any of their rights under this
Agreement, to any Person who is a Permitted Transferee. The Company may not
assign any of its rights under this Agreement without the prior written consent
of the Purchasers. Except as provided in Article 9, no Person other than the
parties hereto and their successors and permitted assigns is intended to be a
beneficiary of this Agreement.
9.4 DETERMINATIONS, REQUESTS OR CONSENTS. Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure of the Company
from the terms of any provision of this Agreement, shall be effective (a) only
if it is made or given in writing and signed by the Company and the Required
Holders (as defined below) in accordance with this Section 9.4, and (b) only in
the specific instance and for the specific purpose for which made or given. All
determinations, requests, consents, waivers or amendments to be made by the
Purchasers in their opinion or judgment or with their approval or otherwise
pursuant to this Agreement shall be made at any time prior to the Closing by the
holders of at least 51% of the Series A Convertible Preferred Stock then
outstanding, and following the Closing by the holders of at least 51% of the
Purchaser Preferred Stock then outstanding (the "Required Holders").
18
<PAGE>
9.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
9.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9.7 GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of law of such state.
9.8 SEVERABILITY. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
9.9 RULES OF CONSTRUCTION. Unless the context otherwise requires, "or"
is not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require.
9.10 ENTIRE AGREEMENT. This Agreement, together with the exhibits
hereto and the other Transaction Documents, is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement, together with the exhibits hereto, and the
other Transaction Documents supersede all prior contemporaneous agreements and
understandings between the parties with respect to such subject matter.
9.11 FURTHER ASSURANCES. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
[Signature Pages To Follow]
19
<PAGE>
20
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
US LEC CORP.
By: /s/ Michael K. Robinson
Name: Michael K. Robinson
-----------------------------
Title: Executive Vice President and
Chief Financial Officer
BAIN CAPITAL CLEC INVESTORS, L.L.C.
By: Bain Capital Fund VI, L.P.,
its Administrative Member
By: Bain Capital Partners VI, L.P.,
its General Partner
By: Bain Capital Investors VI, Inc.,
its general partner
By: /s/ Michael A. Krupka
-----------------------------
Name: Michael A. Krupka
Title: Managing Director
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
-----------------------------
its general partner
By: /s/ Anthony J. DiNovi
-----------------------------
Name: Anthony J. DiNovi
Title: Managing Director
THOMAS H. LEE FOREIGN FUND IV-B, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. DiNovi
-----------------------------
Name: Anthony J. DiNovi
Title: Managing Director
21
<PAGE>
THOMAS H. LEE FOREIGN FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Scott M. Sperling
-----------------------------
Name: Scott M. Sperling
Title: Managing Director
PUTNAM INVESTMENTS, INC.
By: /s/ William H. Woolverton
-----------------------------
Name: William H. Woolverton
Title: Managing Director
1997 THOMAS H. LEE NOMINEE TRUST
By: /s/ Gerald Wheeler
-----------------------------
Trustee
THOMAS H. LEE CHARITABLE INVESTMENT L.P.
By: /s/ Thomas H. Lee
-----------------------------
Name: Thomas H. Lee
Title: President
22
<PAGE>
/s/ David V. Harkins
-----------------------------
DAVID V. HARKINS
THE HARKINS 1995 GIFT TRUST
By: /s/ Sheryll J. Harkins
-----------------------------
Trustee
/s/ Scott A. Schoen
-----------------------------
SCOTT A. SCHOEN
/s/ C. Hunter Boll
-----------------------------
C. HUNTER BOLL
/s/ Scott M. Sperling
-----------------------------
SCOTT M. SPERLING
/s/ Anthony J. DiNovi
-----------------------------
ANTHONY J. DINOVI
/s/ Thomas M. Hagerty
-----------------------------
THOMAS M. HAGERTY
/s/ Warren C. Smith, Jr.
-----------------------------
WARREN C. SMITH, JR.
/s/ Seth W. Lawry
-----------------------------
SETH W. LAWRY
/s/ Kent R. Weldon
-----------------------------
KENT R. WELDON
23
<PAGE>
/s/ Terrence M. Mullen
-----------------------------
TERRENCE M. MULLEN
/s/ Todd M. Abbrecht
-----------------------------
TODD M. ABBRECHT
/s/ Charles A. Brizius
-----------------------------
CHARLES A. BRIZIUS
/s/ Scott Jaeckel
-----------------------------
SCOTT JAECKEL
/s/ Soren Oberg
-----------------------------
SOREN OBERG
/s/ Thomas R. Shepherd
-----------------------------
THOMAS R. SHEPHERD
/s/ Wendy L. Masler
-----------------------------
WENDY L. MASLER
/s/ Andrew D. Flaster
-----------------------------
ANDREW D. FLASTER
ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST
By: /s/ Charles W. Robins
-----------------------------
Trustee
/s/ Stephen Zachary Lee
-----------------------------
STEPHEN ZACHARY LEE
24
<PAGE>
/s/ Charles W. Robins
-----------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
JESSE LEE
/s/ Charles W. Robins
-----------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
NATHAN LEE
/s/ Charles W. Robins
-----------------------------
CHARLES W. ROBINS
/s/ James Westra
-----------------------------
JAMES WESTRA
THL-CCI INVESTORS LIMITED
PARTNERSHIP
By: THL Investment Management Corp.,
its general partner
By:
-----------------------------
Name:
Title:
/s/ Adam A. Abramson
-----------------------------
ADAM A. ABRAMSON
/s/ Joanne M. Ramos
-----------------------------
JOANNE M. RAMOS
/s/ P. Holden Spaht
-----------------------------
P. HOLDEN SPAHT
/s/ Nancy M. Graham
-----------------------------
NANCY M. GRAHAM
/s/ Gregory A. Ciongoli
-----------------------------
GREGORY A. CIONGOLI
25
<PAGE>
/s/ Wm. Matthew Kelly
-----------------------------
WM. MATTHEW KELLY
/s/ Kevin F. Sullivan
-----------------------------
KEVIN F. SULLIVAN
/s/ Diane M. Barriere
-----------------------------
DIANE M. BARRIERE
/s/ Kim H. Oakley
-----------------------------
KIM H. OAKLEY
26
CORPORATE GOVERNANCE AGREEMENT
This Agreement is entered into as of April 11, 2000 by US LEC Corp., a
Delaware corporation (the "Company"), and the Persons whose names are set forth
on Schedule 1 attached hereto (collectively, the "Investors").
A. The Company and the Investors have entered into the Preferred Stock
Purchase Agreement dated as of the same date as this Agreement (the "Purchase
Agreement"), pursuant to the terms and conditions of which (i) the Company is
issuing and selling to the Investors, and the Investors are purchasing from the
Company an aggregate of 200,000 shares of Preferred Stock and (ii) the Company
is issuing an option to the Investors to purchase an aggregate of up to 100,000
shares of Option Preferred Stock pursuant to the terms of the Option Agreement.
B. The parties' execution and delivery of this Agreement is a condition
of their respective obligations to close under the Purchase Agreement.
The parties agree as follows:
1. DEFINITIONS. Capitalized terms which are used in this Agreement and
the foregoing recitations without being defined have the same meanings that they
are given in the Purchase Agreement. In addition, the following terms have these
meanings:
"ACQUISITION EVENT" means (i) the Company has consolidated with, or
merged with or into, any other Person and, in connection with any such
consolidation or merger, the holders of the Company's Common Stock outstanding
immediately prior to such transaction do not own, in the aggregate, at least 50%
of the outstanding stock of the surviving entity in such transaction, or (ii)
any Person has made a tender offer or exchange offer to acquire any of the
Company's Common Stock (each such offer, a "Tender Offer"), and, upon
consummation of the Tender Offer, the holders of the Company's Common Stock
outstanding immediately prior thereto do not own, in the aggregate, at least 50%
of the outstanding stock of the Person that made the Tender Offer.
"BOARD OF DIRECTORS" or " BOARD" means the Company's board of
directors.
"BOARD ACTION" means (i) such action by the Company as is necessary to
cause the majority of the members of the Board (including any incumbent Investor
Directors) to be persons designated by the Permitted Owners of the Underlying
Common Stock, including causing existing members of the Board to resign and
filling the vacancies created with such designees or increasing the size of the
Board and filling the vacancies created with such designees or (ii) calling a
special meeting of the Company's stockholders for the purpose of electing such
designees to fill such vacancies if they are not filled as provided in clause
(i). The action required by the Company hereunder shall be taken as soon as
practicable and shall include, if required, adoption by the Board of any
necessary amendments to the Bylaws, the preparation and submission to the
Company's stockholders of a proxy statement in connection with any special
stockholders' meeting and the filing of any required reports with the Commission
and The Nasdaq Stock Market.
<PAGE>
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation of
the Company relating to the Preferred Stock filed with the Secretary of State of
the State of Delaware, as amended, supplemented or otherwise modified.
"COMMON STOCK" means the Company's Class A Common Stock, Class B Common
Stock and any other class of common stock created by the Company.
"INITIAL OPTION STOCK" means the shares of Option Preferred Stock
actually issued by the Company to the Investors pursuant to the Option
Agreement.
"INITIAL PREFERRED STOCK" means the 200,000 shares of Preferred Stock
issued by the Company to the Investors at the Closing pursuant to the Purchase
Agreement.
"INVESTOR AGENT" means any person designated by the Permitted Owners to
serve in such capacity pursuant to this Agreement.
" INVESTOR DIRECTOR" means any person nominated or designated by the
Permitted Owners to serve as a director of the Company pursuant to this
Agreement.
"INVESTOR OBSERVER" means any person designated by the Permitted Owners
to serve as an observer at meetings of the Board pursuant to this Agreement;
provided that no person may be designated to serve as an Investor Observer whose
association with the Company would, in the opinion of a majority of the
directors, be materially damaging to the Company or who is a Competitor or
acting as a representative of a Competitor; it being understood that no Person
that is an executive of Bain Capital, Inc. or Thomas H. Lee Partners, L.P. shall
be deemed to be a representative of a Competitor solely by virtue of the fact
that Affiliates of such companies own securities of a Competitor.
"OPTION PREFERRED STOCK" means the Series B Convertible Preferred Stock
of the Company, or any other capital stock of the Company into which such stock
is reclassified or reconstituted.
"OPTION STOCK DESIGNATION" means the Certificate of Designation of the
Company relating to the Option Preferred Stock to be filed with the Secretary of
State of the State of Delaware in accordance with the terms and conditions of
the Option Agreement, as subsequently amended, supplemented or otherwise
modified.
"PERMITTED OWNER" means (i) an Investor, for as long as the Investor
continues to be the beneficial owner of any shares of the Underlying Common
Stock, and (ii) each Permitted Transferee, for as long as the Permitted
Transferee continues to be the beneficial owner of any shares of Underlying
Common Stock.
2
<PAGE>
"PERMITTED TRANSFEREE" means (i) any Affiliate of any Investor to whom
an Investor or another Affiliate of any Investor Transfers shares of Preferred
Stock or Option Preferred Stock, (ii) any other Person to whom an Investor or an
Affiliate of any Investor Transfers shares of Preferred Stock or Option
Preferred Stock with the prior written consent of the Board of Directors, (iii)
any Person to whom a transferee described in clause (ii) Transfers shares of
Preferred Stock or Option Preferred Stock with the prior written consent of the
Board of Directors and (iv) any THL Holder and any of the funds affiliated with
Bain Capital, Inc. and any general or limited partner of such funds; provided
that in no event shall any shares of Preferred Stock or Option Preferred Stock
be transferred to a Competitor or a Person acting as a representative of a
Competitor without the Company's prior written consent. No Transfer otherwise
permissible shall be effective unless the Permitted Transferee agrees in writing
expressly for the Company's benefit to be bound by the provisions of this
Agreement, and in this event, the transferor shall not be liable for the
transferee's performance of its obligations under this Agreement.
"PREFERRED STOCK" means the Series A Convertible Preferred Stock of the
Company, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
"SERIES C DESIGNATION" means the Certificate of Designation of the
Company relating to the Series C Preferred Stock to be filed with the Secretary
of State of the State of Delaware in such form as is permitted by the Purchase
Agreement, as amended, supplemented or otherwise modified.
"SERIES C PREFERRED STOCK" means the Series C Convertible Preferred
Stock of the Company or any other capital stock of the Company into which such
stock is reclassified or reconstituted.
"THL HOLDER" means (i) any general or limited partner of the THL
Entities (a "THL Partner") and any corporation, partnership, or other entity
which is an Affiliate of the THL Entities or any THL Partner (collectively, the
"THL Affiliates"), (ii) any managing director, general partner, director,
limited partner, officer or employee of the THL Entities or a THL Affiliate, or
the heirs, executors, administrators, testamentary trustees, lifetime trustees,
legatees or beneficiaries of any of the foregoing persons referred to in this
clause (iii) (collectively, "THL Associates"), (iv) a charitable institution as
defined in Section 501(c) of the Internal Revenue Code of 1986, as amended,
which receives a bona fide gift by a THL Associate of shares of Preferred Stock
or Option Preferred Stock, (v) a bank, financial institution or other lender
which receives a bona fide pledge by a THL Associate of shares of Preferred
Stock or Option Preferred Stock and (vi) any trust, the beneficiaries of which,
or any corporation, limited liability company or partnership, the stockholders,
members or general or limited partners of which include only the THL Entities,
THL Affiliates, THL Associates, their spouses or their lineal descendents. "THL
Entities" shall mean Thomas H. Lee Partners, L.P. and its affiliated entities.
"TOTAL ENTERPRISE VALUE" means, as at any date of determination, the
Market Price of the Company's issued and outstanding equity securities
(excluding any Preferred Stock issued under the Certificate of Designation, any
Option Preferred Stock issued under the Option Stock Designation and any Series
C Preferred Stock issued under the Series C Designation), plus the Stated Value
(as defined in the Certificate of Designation) of all issued and outstanding
Preferred Stock, plus the Stated Value (as defined in the Option Stock
Designation) of all issued and outstanding Option Preferred Stock, plus the
Stated Value (as defined in the Series C Designation) of all issued and
outstanding Series C Preferred Stock, plus the amount recorded on the Company's
balance sheet attributable to any other issued and outstanding shares of
securities that is not recorded in stockholders' equity in the Company's balance
sheet, plus the face amount of any existing debt recorded on the Company's
balance sheet, less the sum of the Company's cash and cash equivalents recorded
on the Company's balance sheet. References herein to the Company's balance sheet
mean the Company's most recent (i) audited year-end balance sheet, (ii)
unaudited interim period balance sheet included in a Form 10-K, 10-Q or 8-K
filed by the Company with the Commission or (iii) unaudited month-end balance
sheet certified by the Company's Chief Financial Officer prior to the date of
determination of Total Enterprise Value.
3
<PAGE>
"TRANSFER" means to sell, assign, transfer (voluntarily or
involuntarily), exchange (by merger or otherwise) or otherwise dispose of or to
grant a lien, encumbrance, pledge or other form of security interest, except
that any Investor may create a security interest in shares of Preferred Stock
and Option Preferred Stock to secure loans made to it so long as any Transfer
pursuant to such security interest is subject to the terms of this Agreement.
"UNDERLYING COMMON STOCK" means all shares of Common Stock issued or
issuable upon conversion of the Initial Preferred Stock and the Initial Option
Preferred Stock (which number shall be determined, with respect to any given
date, based upon the Conversion Price of the Initial Preferred Stock or Initial
Option Preferred Stock, as applicable, in effect as of such date without giving
effect to the one year limitation on conversion) without regard to any
preferential dividends that accrue or are issued or paid with respect to the
Initial Preferred Stock or the Initial Option Stock.
2. CORPORATE GOVERNANCE.
2.1 APPOINTMENT OF INVESTOR DIRECTORS AND DESIGNATION OF INVESTOR
OBSERVERS. Effective as of the Closing, the Company shall increase the size of
its Board of Directors from five directors to seven directors, and, on the day
immediately following the Closing, the Board shall appoint two Investor
Directors designated by the Investors to fill the vacancies created and the
Investors shall designate two persons to serve as Investor Observers. An
Investor Director shall be appointed to each committee of the Board of
Directors.
2.2 MAINTENANCE OF DIRECTORSHIPS.
(a) For as long as the Permitted Owners beneficially own at least 30%
of the Underlying Common Stock, Permitted Owners shall continue to have the
right to nominate two persons who shall be included among the Company's nominees
for election to the Board and to designate two persons to serve as Investor
Observers. The Company shall nominate each person so designated and shall use
reasonable efforts to have the two nominees of the Permitted Owners elected to
the Board of Directors. The Company's obligations under this Section 2.2(a)
shall be deemed satisfied if two persons are elected to the Board by holders of
Preferred Stock and Option Preferred Stock pursuant to the Certificate of
Designation and the Option Stock Designation and two persons designated by such
Permitted Owners to serve as Investor Observers are serving in that capacity.
4
<PAGE>
(b) If at any time the Permitted Owners beneficially own less than 30%
but at least 20% of the Underlying Common Stock, one of the two persons then
serving as an Investor Director (as specified by the Permitted Owners) shall, if
requested by the Board, immediately resign as a director and one of the two
persons then serving as an Investor Observer (as specified by the Permitted
Owners) shall immediately cease serving as an observer. For as long as the
Permitted Owners beneficially own at least 20% of the Underlying Common Stock,
the Permitted Owners shall continue to have the right to designate one person
who shall be included among the Company's nominees for election to the Board of
Directors and to designate one person to serve as an Investor Observer. The
Company shall nominate the person so designated and shall use reasonable efforts
to have the nominee of the Permitted Owners elected to the Board of Directors.
The Company's obligations under this Section 2.2(b) shall be deemed satisfied if
one person is elected to the Board by holders of Preferred Stock and Option
Preferred Stock pursuant to the Certificate of Designation and the Option Stock
Designation and one person designated by such Permitted Owners to serve as an
Investor Observer is serving in that capacity.
(c) If at any time Permitted Owners beneficially own less than 20% of
the Underlying Common Stock, Permitted Owners shall cease to be entitled to
nominate any person for election to the Board or any person as an Investor
Observer, and the Investor Director currently serving as a director (or both
Investor Directors currently serving as directors, as the case may be) shall, if
requested by the Board, immediately resign, and the Investor Observer (or both
Investor Observers, as the case may be) shall immediately cease serving as
observers.
2.3 REMOVAL AND REPLACEMENT.
(a) If at any time Permitted Owners notify the Board of Directors of
their wish to remove any incumbent Investor Director as a director, that
incumbent Investor Director shall immediately resign from the Board or the Board
shall vote to remove the Investor Director (if his or her removal is permitted
under the Bylaws and the DGCL). Removal of an incumbent Investor Director by the
Board or the resignation of an incumbent Investor Director otherwise than at the
request of the Permitted Owners shall require their prior written consent unless
the removal is based upon the Investor Director's willful misconduct; provided
that an incumbent Investor Director shall resign from the Board if a majority of
the remaining directors determine in good faith that he or she has engaged in
conduct that could be materially damaging to the Company or is a Competitor or
acting as a representative of a Competitor; it being understood that no Person
that is an executive of Bain Capital, Inc. or Thomas H. Lee Partners, L.P. shall
be deemed to be a representative of a Competitor solely by virtue of the fact
that Affiliates of such companies own securities of a Competitor.
(b) If at any time a vacancy is created on the Board by reason of the
incapacity, death, removal or resignation of an incumbent Investor Director, the
Permitted Owners may designate a person to fill the vacancy (who promptly shall
be appointed by the incumbent directors). If at any time an incumbent Investor
Observer is unable to serve in that capacity by reason of his or her incapacity,
death or resignation, the Permitted Owners may designate a person to fill the
vacancy or may leave the position unfilled.
5
<PAGE>
(c) At each meeting of stockholders of the Company at which directors
are elected, the nominees for directors proposed by the Company shall include
the Investor Director or Investor Directors required pursuant to this Agreement.
2.4 NOTICE AND MEETINGS; COMPLIANCE WITH POLICIES AND EXCHANGE ACT.
(a) Each incumbent Investor Director and Investor Observer shall
receive notice of each meeting of the Board of Directors at the same time and in
the same manner as other members of the Board. Each Investor Observer shall be
entitled to receive all information provided generally to members of the Board
of Directors and shall treat such information as confidential to the same extent
as would be required by an Investor Director in the observance of his or her
fiduciary responsibilities as a director of the Company. Any Investor Observer
may be excluded from meetings of the Board during consideration by the Board of
any matter that, in the opinion of counsel to the Company, is or may be subject
to the attorney-client privilege and any materials relating to any such matter
may be withheld from such observer. Each incumbent Investor Director shall be
entitled to indemnification rights, travel and expense reimbursement and cash
compensation (but not options or other equity-based compensation) substantially
similar to those of other non-employee directors of the Company and each
Investor Observer shall be entitled to such similar travel and expenses
reimbursement. The Company shall at all times maintain a directors' and officer'
insurance policy covering each incumbent Investor Director that provides in the
aggregate substantially the same coverage as the policy covering the current
directors of the Company as of the date of this Agreement.
(b) Each Investor Director and Investor Observer shall comply with the
policies established by the Company with respect to the timing of purchases or
sales of the Company's Common Stock and shall in any event comply with the
provisions of the Exchange Act and the rules of the Commission thereunder with
respect to information they receive from the Company as Investor Directors or
Investors Observers. Each Investor Director shall timely file all reports that
he or she may be required to file under the Exchange Act and the rules of the
Commission thereunder.
2.5 ACTIONS BY PERMITTED OWNERS. Any action by Permitted Owners under
this Section 2 shall be by majority vote of the number of shares of Underlying
Common Stock then beneficially owned by them, with each such share having one
vote.
3. CERTAIN ACTIONS OF THE COMPANY.
3.1 INVESTOR AGENTS. Until the covenants in Section 3.2 terminate as
provided in Section 3.5, the Permitted Owners shall appoint two persons to serve
as Investor Agents to act in accordance with Sections 3.3, 3.4 and 5.2. Until
the Permitted Owners notify the Company of the persons who they have designated
as the Investor Agents, Michael A. Krupka and Anthony J. DiNovi shall be deemed
to be the Investor Agents.
6
<PAGE>
3.2 ACTIONS. Subject to Section 3.5, the Company shall not, directly or
indirectly through any Subsidiary, do any of the following (whether in one or a
series of related actions or transactions) without the approval of the Investor
Agents:
(a) increase the size of the Board to more than 11 directors;
(b) amend, modify or change any provision of the Certificate of
Incorporation, or Bylaws, other than (i) in a manner that would not reasonably
be expected to adversely affect the holders of the Preferred Stock or Option
Preferred Stock or (ii) as contemplated by the Transaction Documents;
(c) incur any Indebtedness in excess of $200 million in the aggregate,
other than (i) Indebtedness arising under the Senior Loan Agreement and (ii)
Permitted Debt (as defined in subsections (ii), (iii), (v) and (vi) of the
definition of Permitted Debt in the Senior Loan Agreement);
(d) acquire an interest in or invest in any business (through an
acquisition, purchase of assets, purchase of securities, formation of a division
or otherwise) for cash or other consideration having a value in excess of $25
million if the business is outside the business of selling
telecommunications-related services and activities reasonably related thereto;
(e) declare or pay any dividend or make any distribution or other
payment to holders of Common Stock or any other securities junior in right of
payment to the Preferred Stock or Option Preferred Stock other than pursuant to
Common Stock subdivisions or combinations as described in Section 4.3 of the
Certificate of Designation or Option Stock Designation;
(f) directly, or indirectly, purchase, redeem or retire any shares of
the Company's capital stock or any shares of capital stock of its Subsidiaries
which shares are not owned by the Company or a wholly-owned Subsidiary of the
Company or make any offer to purchase, redeem or retire, any shares of the
Company's outstanding capital stock, other than the Preferred Stock pursuant to
Section 5 of the Certificate of Designation, Option Preferred Stock pursuant to
Section 5 of the Option Stock Designation or Series C Preferred Stock pursuant
to Section 5 of the Series C Designation, in each case as in effect on the date
of initial issuance of any shares thereunder; provided that the Company may
repurchase up to $100 million of the Common Stock at prices less than $30 per
share (as adjusted for the events described in Section 4.3 of the Certificate of
Designation or Option Stock Designation), but only if, in the written opinion of
counsel to the Company in form and substance reasonably satisfactory to the
Investor Agents, any of such purchases would not be treated as the receipt of
cash or property by stockholders for purposes of Section 305(b)(2) of the Code;
(g) enter into, or permit any Subsidiary to enter into, any transaction
(including, without limitation, making any advance to or investment in a
customer or any purchase, sale, lease or exchange of property or the rendering
of any service), or amend any agreements in effect as of the date of this
Agreement, with (i) any Affiliate of the Company (other than a Subsidiary) or
(ii) any Person in which any Affiliate of the Company has, in the case of any
private entity, an investment of at least $250,000 (the "Private Entity
Threshold") or, in the case of a public entity, beneficially owns at least 5% of
the publicly traded securities of any such entity that files or is required to
file reports pursuant to Section 13(a) or 15(d) of the Exchange Act (the "Public
Entity Threshold") or (iii) any Person in which any Affiliate of the Company
has, in the case of any private entity, an investment of less than the Private
Entity Threshold or, in the case of a public entity, beneficially owns less than
the Public Entity Threshold unless such transaction is entered into on an
arms-length basis; provided, however, that nothing contained in this Section
3.2(g) shall prohibit:
7
<PAGE>
(i) transactions existing as of the date hereof that are
listed on Schedule 5.21 to the Purchase Agreement;
(ii) any issuance of securities, or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options, stock purchase plans, stock
ownership plans or other equity-based incentive or compensation plans
and other reasonable fees, compensation, benefits and indemnities paid
or entered into by the Company or its Subsidiaries in the ordinary
course of business to or with its officers, directors or employees;
provided, however, that neither Richard T. Aab nor Tansukh V. Ganatra
shall be entitled to participate in any stock option, stock ownership,
stock appreciation or similar equity-based plan;
(iii) loans or advances to employees (other than Richard T.
Aab and Tansukh V. Ganatra) in the ordinary course of business of the
Company or any of its Subsidiaries not to exceed $1,000,000 in the
aggregate at any one time outstanding;
(iv) transactions between the Company and a wholly-owned
Subsidiary or between wholly-owned Subsidiaries;
(v) payments to Three Morrocroft Centre, LLC in accordance
with the terms of the Company's lease for the use and occupancy of its
corporate offices in Charlotte, North Carolina;
(vi) payments to Lincoln Harris LLC for real estate services
in accordance with past practices, not to exceed $400,000 in any fiscal
year;
(vii) payments to an Affiliate of Richard T. Aab for the use
by the Company's directors, executive officers and key employees for
business purposes of an aircraft owned by such Affiliate, not to exceed
$150,000 in any fiscal year, at rates no higher than those that could
be obtained in an arms' length transaction with an unrelated third
party; and
(viii) sales contracts for telecommunication services entered
into by the Company's sales representatives on an arms-length basis
with customers in the ordinary course of business on terms which are
consistent with past practices or which are consistent with practices
in the industry at the time any such contract is negotiated and that
provide for payments to the Company of not more than $5,000 per month
or $60,000 per year by a single customer;
8
<PAGE>
(h) terminate the employment of or hire a replacement for any one of
Tansukh V. Ganatra, Michael K. Robinson or Aaron D. Cowell, Jr. (each a "Key
Employee"); provided that a Key Employee may be replaced by any other Key
Employee or, if the position to be replaced is the Chief Executive Officer or
President of the Company and the replacement is not a Key Employee, the
replacement individual or individuals shall have been approved by a majority of
the members of the Board which majority shall include at least one Investor
Director;
(i) acquire, or permit any Subsidiary to acquire, any interest in any
Person or business (whether by purchase of assets, purchase of stock, merger or
otherwise), involving an aggregate consideration (including assumed liabilities)
equal to 20% or more of the Total Enterprise Value of the Company in any one
transaction or series of related transactions; or
(j) enter into, or become the subject of, or permit any Subsidiary to
enter into or become the subject of, any transaction of merger, acquisition or
consolidation, or convey, sell, lease, transfer or otherwise dispose of, or
permit any Subsidiary to convey, sell, lease, transfer or otherwise dispose of,
in one transaction or a series of transactions, all or any substantial part of
the Company's or any Subsidiary's business or assets, whether now owned or
hereafter acquired, other than (i) a merger or consolidation between the Company
and any wholly-owned Subsidiary or between one wholly-owned Subsidiary and
another, and (ii) acquisitions permitted pursuant to Section 3.1(i).
3.3 NOTICE REQUIREMENTS AND DEFAULT.
(a) The Company shall notify the Investor Agents of any inadvertent or
other violation of a covenant in Section 3.2 within five Business Days of the
occurrence thereof (which notice shall contain a brief description of such
violation and the actions, if any, that the Company proposes to take to cure any
such violation) (the "Company Notice"). In addition, the Investor Agents may
notify the Company at any time that they believe there has been a violation of a
covenant in Section 3.2 (the "Agent Notice").
(b) Upon the issuance of a Company Notice or Agent Notice, the Company
shall, for a period of 30 days from the date of such notice, have the right to
cure any violation specified in the Company Notice or Agent Notice or in the
event that such breach is not susceptible to cure in such 30-day period and is
susceptible to cure within 90 days, such longer period, not to exceed 90 days,
so long as the Company is proceeding diligently and in good faith during such
90-day period to cure any such violation and notifies the Investor Agents of the
Company's proposed curative actions (the "Cure Period"). The Investor Agents and
Permitted Owners shall not take any action to hinder or delay the Company's
efforts to cure any such violation. If, upon the expiration of the Cure Period,
the Company has not cured any such violation to the reasonable satisfaction of
the Investor Agents, then the Investor Agents may give notice to the Company
that such violation is a default by the Company in the observance of the
covenants in Section 3.2 (which notice shall specify the covenant or covenants
as to which a default has occurred). Upon receipt of such notice by the Company
(an "Event of Default"), the Investor Agents shall be entitled to exercise the
remedies set forth in Section 3.4 that, do not by their terms, operate
automatically upon an Event of Default.
9
<PAGE>
3.4 REMEDIES UPON AN EVENT OF DEFAULT.
(a) If an Event of Default occurs with respect to the covenant in
Section 3.2(a), the Investor Agents shall be entitled to take or cause the
Company to take a Board Action.
(b) If an Event of Default occurs with respect to a covenant in Section
3.2(b), (c), (d), (g), (i) or (j), the Investor Agents shall be entitled to take
or cause the Company to take a Board Action and the Conversion Price of the
Preferred Stock then in effect under the Certificate of Designation, and the
Conversion Price of the Option Preferred Stock then in effect under the Option
Stock Designation, shall each be automatically decreased by 10%; provided that
for purposes of determining whether the remedies under this Section 3.4(b) shall
apply, the dollar amount set forth in Section 3.2(c) shall be deemed to be $240
million and the dollar amount set forth in Section 3.2(d) shall be deemed to be
$30 million.
(c) If an Event of Default occurs with respect to a covenant in Section
3.2(e) or (f), the Conversion Price of the Preferred Stock then in effect under
the Certificate of Designation, and the Conversion Price of the Option Preferred
Stock then in effect under the Option Stock Designation shall each be
automatically decreased by 10%.
(d) If an Event of Default occurs with respect to the covenant in
Section 3.2(h), the Investor Agents shall be entitled to nominate one additional
Investor Director to the Board who shall serve in such capacity, subject to the
provisions of Sections 2.3 and 2.4, until such time as the Permitted Owners
cease to be entitled to nominate any person to the Board pursuant to Section
2.2(c).
3.5 TERMINATION. The covenants in Section 3.2 shall terminate as
follows.
(a) The covenants in Sections 3.2(a), (b), (c), (d), (e) and (f) shall
terminate when the Permitted Owners, in the aggregate, cease to beneficially own
at least 50,000 shares of the Preferred Stock or at least 50,000 shares of
Option Preferred Stock, in each case determined without regard to any
preferential dividends that accrue or are issued or paid with respect to the
Preferred Stock and the Option Preferred Stock.
(b) The covenants in Sections 3.2(g) and (h) shall terminate when the
Permitted Owners, in the aggregate, cease to beneficially own at least 25% of
the Underlying Common Stock.
(c) The covenant in Section 3.2(i) shall terminate upon the earlier of
(A) the fourth anniversary of the Closing Date or (B) the redemption of the
Preferred Stock pursuant to Section 5.2(b) of the Certificate of Designation and
the Option Preferred Stock pursuant to Section 5.2(b) of the Option Stock
Designation or (C) when the Permitted Owners, in the aggregate, cease to
beneficially own at least 25% of the Underlying Common Stock.
(d) The covenant in Section 3.2(j) shall terminate upon the earlier of
(A) the fourth anniversary of the Closing Date or (B) the redemption of the
Preferred Stock pursuant to Section 5.2(b) of the Certificate of Designation and
the Option Preferred Stock pursuant to Section 5.2(b) or the Option Stock
Designation or (C) when the Permitted Owners, in the aggregate, cease to
beneficially own at least 25% of the Underlying Common Stock; provided that if
(x) the Permitted Owners of Preferred Stock or Option Preferred Stock shall have
converted all of such Preferred Stock or Option Preferred Stock into Common
Stock pursuant to Section 5.2(a) of the Certificate of Designation or Section
5.2(a) of the Option Stock Designation at any time on or after the third
anniversary of the Closing Date, (y) prior to the fourth anniversary of the
Closing Date any of the actions described in Section 3.2(j) shall occur, and (z)
as a result of such actions, the Permitted Owners receive less than the
equivalent value (in cash or other consideration) of 150% of the Conversion
Price in effect at the time their Preferred Stock or Option Preferred Stock, as
applicable, was converted into Common Stock, then the Company shall pay to such
Permitted Owners the deficiency in cash (which determination shall be made by
the Company's independent auditors as soon as practicable whose determination,
absent demonstrable error, shall be final) simultaneously with the consummation
of any action in Section 3.2(j).
10
<PAGE>
4. RESTRICTIONS ON TRANSFER.
No Investor shall Transfer any Preferred Stock, any rights under the
Option Agreement or Option Preferred Stock except for (a) Transfers to Permitted
Transferees, and (b) after the third anniversary of the Closing Date, Transfers
of Preferred Stock or Option Preferred Stock in amounts greater than $50 million
(determined based upon the Stated Value of such shares); provided that in no
event shall shares of Preferred Stock, rights under the Option Agreement or
Option Preferred Stock be transferred to a Competitor or any person acting as a
representative of a Competitor. The foregoing restrictions on Transfers shall
not apply to (i) the Transfer of any Preferred Stock or Option Preferred Stock
which a Permitted Owner has a right to have redeemed pursuant to Section 5.1 of
the Certificate of Designation or Section 5.1 of the Option Stock Designation
but which for any reason the Company has failed to redeem within 30 days after
the Permitted Owner's exercise of his or its redemption right or (ii) Transfers
of any Preferred Stock, rights under the Option Agreement or Option Preferred
Stock upon the occurrence of an Acquisition Event or Change of Control. Shares
of Common Stock issued upon conversion of the Preferred Stock or the Option
Preferred Stock shall not be subject to any restrictions on Transfer except such
restrictions as may apply under the Securities Act or the rules of the
Commission issued thereunder.
5. MISCELLANEOUS.
5.1 NOTICES. All notices, requests, claims, demands and other
communications ("Notices") under this Agreement shall be in writing and sent by
certified or registered mail, return receipt requested, a recognized overnight
courier service, telecopier or personal delivery, as follows:
11
<PAGE>
(a) if to Company, to:
US LEC Corp.
Transamerica Square
401 N. Tryon Street, Suite 1000
Charlotte, North Carolina 28202
Attention: General Counsel
Telecopier: (704) 319-3098
with a required copy to:
Moore & Van Allen, PLLC
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Barney Stewart III
Telecopier: (704) 331-1151
(b) if to the Investors and/or the Investor Agents, in
care of:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Ian K. Loring
Telecopier: (617) 572-3274
and
Thomas H. Lee Partners, L.P.
75 State Street, 26th Floor
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Telecopier: (617) 227-3514
with a required copy to:
Ropes & Gray
One International Plaza
Boston, Massachusetts 02110-2624
Attention: Philip J. Smith
Telecopier: (617) 951-7050
All Notices shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five business days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged, if telecopied. A
party may change its address for purposes of this Agreement by Notice in
accordance with this Section 5.1.
12
<PAGE>
5.2 DETERMINATIONS, REQUESTS OR CONSENTS.
(a) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure of the Company from the terms of any provision of this
Agreement, shall be effective (i) only if it is made or given in writing and
signed by the Company and the holders of at least 51% of the Underlying Common
Stock than beneficially owned by the Permitted Owners in accordance with this
Section 5.2, and (ii) only in the specific instance and for the specific purpose
for which made or given. All determinations, requests, consents, waivers or
amendments to be made by the Permitted Owners in their opinion or judgment or
with their approval or otherwise pursuant to this Agreement shall be made by
Permitted Owners beneficially owning at least 51% of the Underlying Common
Stock.
(b) Notwithstanding the foregoing provisions of Section 5.2(a), any
request by the Company for a consent to or waiver of a violation of a covenant
in Section 3.2 shall be made in writing to the Investor Agent(s) and shall state
clearly in bold face letters that it is a request for a consent or waiver with
respect to the covenants set forth in Section 3.2 of this Agreement. The
Investor Agents shall endeavor to respond in writing to such request within ten
Business Days of the receipt thereof and, if the Investor Agent(s) fail to
respond within such ten Business Day period, the violation that was the subject
of the Company's request for a consent or waiver shall be deemed to have been
denied. The Company shall be entitled to rely on any action or failure to act by
the Investor Agent(s) pursuant to the foregoing sentence as an act or failure to
act on behalf of, and binding upon, all of the Permitted Owners.
5.3 ENTIRE AGREEMENT. This Agreement supersedes all prior agreements
between the parties with respect to its subject matter and constitutes a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter.
5.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement shall be
considered to give any Person other than the parties (and Permitted Transferees)
any legal or equitable right, claim or remedy under or in respect of this
Agreement or any provision of this Agreement. This Agreement and all of its
provisions are for the sole and exclusive benefit of the parties and their
respective successors and permitted assigns.
5.5 EQUITABLE RELIEF. In addition to any other remedies which may be
available (including any remedies available under Section 3.4), the Company and
each Permitted Owner shall be entitled to seek equitable relief, including
injunctive relief and specific performance, in the event of any breach of the
provisions of this Agreement, the Certificate of Designation or the Option Stock
Designation by another party.
5.6 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by a court of competent jurisdiction, the other provisions of this
Agreement shall remain in full force and effect. Any provision of this Agreement
which is held invalid or unenforceable only in part shall remain in full force
and effect to the extent not held invalid or unenforceable.
13
<PAGE>
5.7 CAPTIONS. The captions of sections of this Agreement are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
5.8 CONSTRUCTION. All references in this Agreement to "Section" or
"Sections" refer to the corresponding section or sections of this Agreement. All
words used in this Agreement shall be construed to be of the appropriate gender
or number as the context requires. Unless otherwise expressly provided, the word
"including" does not limit the preceding words or terms.
5.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be considered an original copy of this
Agreement and all of which, when taken together, shall be considered to
constitute one and the same agreement.
5.10 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to that
state's conflicts of laws principles.
5.11 BINDING EFFECT. This Agreement shall apply to, be binding in all
respects upon and inure to the benefit of parties and their respective
successors and permitted assigns.
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
US LEC CORP.
By: /s/ Michael K. Robinson
------------------------------------
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
BAIN CAPITAL CLEC INVESTORS, L.L.C.
By: Bain Capital Fund VI, L.P.,
its Administrative Member
By: Bain Capital Partners VI, L.P.,
its General Partner
By: Bain Capital Investors VI, Inc.,
its general partner
By: /s/ Michael A. Krupka
------------------------------------
Name: Michael A. Krupka
Title: Managing Director
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. DiNovi
------------------------------------
Name: Anthony J. DiNovi
Title: Managing Director
15
<PAGE>
THOMAS H. LEE FOREIGN FUND IV-B, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. DiNovi
------------------------------------
Name: Anthony J. DiNovi
Title: Managing Director
THOMAS H. LEE FOREIGN FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Scott M. Sperling
------------------------------------
Name: Scott M. Sperling
Title: Managing Director
PUTNAM INVESTMENTS, INC.
By: /s/ William H. Woolverton
------------------------------------
Name: William H. Woolverton
Title: Managing Director
1997 THOMAS H. LEE NOMINEE TRUST
By: /s/ Gerald Wheeler
------------------------------------
Trustee
16
<PAGE>
THOMAS H. LEE CHARITABLE INVESTMENT L.P.
By: /s/ Thomas H. Lee
------------------------------------
Name: Thomas H. Lee
Title: President
/s/ David V. Harkins
------------------------------------
DAVID V. HARKINS
THE HARKINS 1995 GIFT TRUST
By: /s/ Sheryll J. Harkins
------------------------------------
Trustee
/s/ Scott A. Schoen
------------------------------------
SCOTT A. SCHOEN
/s/ C. Hunter Boll
------------------------------------
C. HUNTER BOLL
/s/ Scott M. Sperling
------------------------------------
SCOTT M. SPERLING
/s/ Anthony J. DiNovi
------------------------------------
ANTHONY J. DINOVI
/s/ Thomas M. Hagerty
------------------------------------
THOMAS M. HAGERTY
/s/ Warren C. Smith, Jr.
------------------------------------
WARREN C. SMITH, JR.
/s/ Seth W. Lawry
------------------------------------
SETH W. LAWRY
17
<PAGE>
/s/ Kent R. Weldon
------------------------------------
KENT R. WELDON
/s/ Terrence M. Mullen
------------------------------------
TERRENCE M. MULLEN
/s/ Todd M. Abbrecht
------------------------------------
TODD M. ABBRECHT
/s/ Charles A. Brizius
------------------------------------
CHARLES A. BRIZIUS
/s/ Scott Jaeckel
------------------------------------
SCOTT JAECKEL
/s/ Soren Oberg
------------------------------------
SOREN OBERG
/s/ Thomas R. Shepherd
------------------------------------
THOMAS R. SHEPHERD
/s/ Wendy L. Masler
------------------------------------
WENDY L. MASLER
/s/ Andrew D. Flaster
------------------------------------
ANDREW D. FLASTER
ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST
By: /s/ Charles W. Robins
--------------------------------
Trustee
18
<PAGE>
/s/ Stephen Zachary Lee
------------------------------------
STEPHEN ZACHARY LEE
/s/ Charles W. Robins
------------------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
JESSE LEE
/s/ Charles W. Robins
------------------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
NATHAN LEE
/s/ Charles W. Robins
------------------------------------
CHARLES W. ROBINS
/s/ James Westra
------------------------------------
JAMES WESTRA
THL-CCI INVESTORS LIMITED
PARTNERSHIP
By: THL Investment Management Corp.,
its general partner
By:
------------------------------------
Name:
Title:
/s/ Adam A. Abramson
------------------------------------
ADAM A. ABRAMSON
/s/ Joanne M. Ramos
------------------------------------
JOANNE M. RAMOS
/s/ P. Holden Spaht
------------------------------------
P. HOLDEN SPAHT
19
<PAGE>
/s/ Nancy M. Graham
------------------------------------
NANCY M. GRAHAM
/s/ Gregory A. Ciongoli
------------------------------------
GREGORY A. CIONGOLI
/s/ Wm. Matthew Kelly
------------------------------------
WM. MATTHEW KELLY
/s/ Kevin F. Sullivan
------------------------------------
KEVIN F. SULLIVAN
/s/ Diane M. Barriere
------------------------------------
DIANE M. BARRIERE
/s/ Kim H. Oakley
------------------------------------
KIM H. OAKLEY
20
REGISTRATION RIGHTS AGREEMENT
This Agreement is entered into as of April 11, 2000 by US LEC Corp., a
Delaware corporation (the "Company"), and the Persons whose names are set forth
on the attached Schedule I (collectively, the "Investors").
A. The Company and the Investors have entered into a Series A
Convertible Preferred Stock Purchase Agreement, dated as of the same date as
this Agreement (the "Purchase Agreement"), pursuant to the terms and conditions
of which (i) the Company is issuing and selling to the Investors, and the
Investors are purchasing from the Company, an aggregate of up to 200,000 shares
of Series A Convertible Preferred Stock and (ii) the Company is issuing an
option (the "Option") to the Investors to purchase an aggregate of 100,000
shares of convertible preferred stock pursuant to the terms and conditions of an
Option Agreement, dated as of the same date as this Agreement (the 200,000
shares of Series A Convertible Preferred Stock, the number of shares of
convertible preferred stock (the "Option Stock") issued to the Investors upon
the exercise of the Option, and any shares of convertible preferred stock issued
as preferential dividends pursuant to the terms of the Series A Convertible
Preferred Stock and Option Stock are collectively referred to herein as the
"Preferred Shares").
B. The parties' execution and delivery of this Agreement is a condition
of their respective obligations to close the Purchase Agreement.
The parties agree as follows:
1. DEFINITIONS.
Capitalized terms which are used in this Agreement without being
defined have the same meanings that they are given in the Purchase Agreement. In
addition, the following terms have these meanings:
"REGISTRABLE SECURITIES" means (i) any shares of Common Stock issued or
issuable upon conversion of the Preferred Shares and (ii) any shares of Common
Stock issued or issuable (A) as a dividend or distribution in respect of, or
(B), in exchange for or replacement of, or (C) upon conversion or exercise of
any warrant or other security issued or issuable as a dividend or distribution
in respect of or in exchange for or replacement of, the Preferred Shares and any
shares of Common Stock issued or issuable upon conversion of the Preferred
Shares. Any Registrable Securities shall cease to be Registrable Securities (i)
when they have been distributed to the public pursuant to a offering registered
under the Securities Act or sold to the public through a broker, dealer or
market maker in compliance with Rule 144 under the Securities Act (or any
similar rule then in force) or repurchased by the Company or any Subsidiary or
(ii) if and when they (or, in respect of issuable but not yet issued Registrable
Securities, the underlying Preferred Shares or Common Stock) cease to be held by
an Investor, a Permitted Transferee (as "Permitted Transferee" is defined in the
Corporate Governance Agreement) or a transferee to whom an Investor or a
Permitted Transferee has transferred Registrable Securities with a value of at
least $50 million.
<PAGE>
"REGISTRATION EXPENSES" means all expenses incident to the Company's
performance of or compliance with this Agreement, including all registration and
filing fees, fees and expenses of compliance with securities or blue sky laws,
printing expenses, messenger and delivery expenses, fees and disbursements of
custodians, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts,
commissions and underwriters' counsel fees) and other Persons retained by the
Company.
"VIOLATION" means any of the following statements, omissions or
violations: (i) any untrue statement or alleged untrue statement of a material
fact contained or incorporated by reference in a registration statement pursuant
to this Agreement, including any related preliminary or final prospectus, any
amendment or supplement, or any document filed under state securities or "blue
sky" laws, (ii) the omission or alleged omission to state a material fact
required to be stated in any such registration statement, prospectus, amendment,
supplement or document or necessary to make the statements in any such
registration statement, prospectus, amendment, supplement or document not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law, or any rule or
regulation promulgated under the Securities Act, the Exchange Act or any state
securities law.
2. DEMAND REGISTRATIONS.
2.1 GENERAL. On or at any time after the second anniversary of Closing,
holders of a majority of the Registrable Securities then outstanding may request
registration under the Securities Act of all or any portion of their Registrable
Securities. All registrations requested pursuant to this Section 2.1 are
referred to in this Agreement as "Demand Registrations." Holders of Registrable
Securities then outstanding shall be limited to three Demand Registrations and
each such Demand Registration must include an initial request to register
Registrable Securities having an aggregate offering value of at least $20
million. In regard to Demand Registrations:
(a) Each request for a Demand Registration shall specify the
approximate number of Registrable Securities requested to be
registered. Within 10 Business Days after receipt of any request for a
Demand Registration, the Company shall give written notice of the
requested registration to all other holders of Registrable Securities
and, subject to Section 2.2 below, shall include in the registration
all Registrable Securities with respect to which the Company has
received written requests for inclusion within 15 Business Days after
receipt of the Company's notice.
(b) A Demand Registration shall not be counted as one of the
three permitted Demand Registrations unless (i) it has become effective
and (ii) the Persons making the request are able to register and sell
at least 75% of the Registrable Securities included in the
registration.
2
<PAGE>
(c) The Company shall pay all Registration Expenses in
connection with any Demand Registration whether or not it is counted as
one of the three permitted Demand Registrations.
(d) Demand Registrations shall be on Form S-2 or Form S-3 or
any similar short-form registration statement, if available. Otherwise
Demand Registrations shall be on Form S-1 or any similar long-form
registration statement.
(e) The Company shall have the right to select the managing
underwriters in connection with an underwritten public offering of
Registrable Securities, subject to the approval of a majority of the
holders of the Registrable Securities included in any Demand
Registration which approval shall not be unreasonably withheld, and
holders of a majority of the Registrable Securities included in any
Demand Registration shall have the right to select a co-managing
underwriter, subject to the Company's approval which shall not be
unreasonably withheld.
(f) The holders of a majority of the Registrable Securities
included in any Demand Registration shall have the right to select the
investment banker(s) and manager(s) to administer an offering of
Registrable Securities that is not an underwritten public offering,
subject to the Company's approval which shall not be unreasonably
withheld.
2.2 PRIORITY ON DEMAND REGISTRATIONS. The Company will not include in
any Demand Registrations any securities which are not Registrable Securities
without the prior written consent of the holders of a majority of the
Registrable Securities included in such registration. If a Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that in their opinion the number of Registrable Securities and, if
permitted hereunder, other securities requested to be included in such offering
exceeds the number of Registrable Securities, and other securities, if any, that
can be sold without adversely affecting the marketability of the offering, the
Company shall include in the registration (i) FIRST, the number of Registrable
Securities requested to be included which in the opinion of the underwriters can
be sold without adversely affecting the marketability of the offering, pro rata
among the respective holders thereof on the basis of the number of Registrable
Securities owned by each such holder, and (ii) SECOND, other securities
requested to be included in such Demand Registration, pro rata among the holders
of such securities on the basis of the number of such securities owned by each
such holder.
3
<PAGE>
2.3 RESTRICTIONS ON DEMAND REGISTRATIONS. The Company shall not be
obligated to effect more than two Demand Registrations in any 12-month period.
The Company shall not be obligated to effect any Demand Registration within 180
days after the effective date of a previous Demand Registration or a previous
registration in which the holders of Registrable Securities were given piggyback
rights pursuant to Section 3 and, in the case of a previous Demand Registration,
were able to register and sell at least 75% of the Registrable Securities
proposed to be included in such registration or, in the case of a previous
Piggyback Registration, were able to register and sell at least 50% of the
Registrable Securities proposed to be included in such registration. The Company
may postpone for up to 90 days the filing or the effectiveness of a registration
statement for a Demand Registration if a certificate signed by an executive
officer of the Company is promptly furnished to the holders requesting the
Demand Registration stating that the Board of Directors of the Company has
determined that such a Demand Registration would reasonably be expected to have
a material adverse effect on any proposal or plan by the Company to engage in
any acquisition of assets (other than in the ordinary course of business) or any
merger, consolidation, tender offer, reorganization or similar transaction. In
addition, the Company may postpone for up to 180 days the filing of a
registration statement for a Demand Registration if a certificate signed by an
executive officer of the Company is promptly furnished to the holders requesting
the Demand Registration stating that the Company intends to file a registration
statement for a primary offering of its debt or equity securities within the
next 60 days so long as the Company is at all times proceeding in good faith to
make such registration statement effective. In the event the filing or the
effectiveness of a registration statement is postponed pursuant to this Section
2.3, the holders of Registrable Securities initially requesting the Demand
Registration shall be entitled to withdraw their request. If their request is
withdrawn, the Demand Registration shall not count as one of the three permitted
Demand Registrations and the Company will pay all Registration Expenses in
connection with such registration. The Company may delay the filing or suspend
the effectiveness of a Demand Registration pursuant to this Section 2.3 only
once in any 12-month period.
3. PIGGYBACK REGISTRATIONS.
3.1 RIGHT TO PIGGYBACK. After the first anniversary of Closing,
whenever the Company proposes to register any of its equity securities under the
Securities Act (other than (i) pursuant to a Demand Registration or (ii) a
registration on Form S-4 or Form S-8 or any successor or similar form) and the
registration form to be used may be used for the registration of Registrable
Securities (a "Piggyback Registration"), whether or not for sale for its own
account, the Company shall give prompt written notice to all holders of
Registrable Securities of its intention to effect such a registration and shall
include in the registration all Registrable Securities with respect to which the
Company has received written requests for inclusion within 15 Business Days
after receipt of the Company's notice. Holders of Registrable Securities shall
be entitled to unlimited Piggyback Registrations for their Registrable
Securities.
3.2 PIGGYBACK EXPENSES. The Registration Expenses of the holders of
Registrable Securities shall be paid by the Company in all Piggyback
Registrations.
4
<PAGE>
3.3 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in the registration exceeds the number that
can be sold without adversely affecting the marketability of the offering, the
Company shall include in the registration (i) first, the securities that the
Company proposes to sell, (ii) second, the Registrable Securities requested to
be included in the registration and any other securities requested to be
included in such registration by the holders thereof who have been granted
rights by the Company to participate in a Piggyback Registration pari passu with
the holders of Registrable Securities pursuant to Section 10.1, pro rata among
the holders of the Registrable Securities and the holders of such other
securities on the basis of the number of the Registrable Securities and such
other securities owned by each holder, and (iii) third, any other securities
requested to be included in the registration.
3.4 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the Company's
securities (other than on behalf of holders of Registrable Securities that have
initiated a Demand Registration pursuant to Section 2), and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in the registration exceeds the number that
can be sold without adversely affecting the marketability of the offering, the
Company shall include in the registration (i) first, the securities requested to
be included therein by the holders requesting such registration and the
Registrable Securities requested to be included in the registration, pro rata
among the holders thereof on the basis of the number of such securities and
Registrable Securities owned by each such holder, and (ii) second, any other
securities requested to be included in the registration.
3.5 OTHER REGISTRATIONS. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 2 or pursuant to this Section 3, and if the previous registration has
not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4 or Form S-8 or any successor or similar
forms), whether on its own behalf or at the request of any holder or holders of
its securities, until a period of at least 180 days has elapsed from the
effective date of the previous registration or, if shorter, a period of at least
60 days has elapsed from the date all securities covered by such registration
have been disposed of.
4. HOLDBACK AGREEMENTS.
4.1 HOLDERS OF REGISTRABLE SECURITIES. Each holder of Registrable
Securities shall not effect any public sale or distribution (including sales
pursuant to Rule 144) of equity securities of the Company, or any securities
convertible into or exchangeable or exercisable for equity securities of the
Company, during the seven days prior to and the 120-day period beginning on the
effective date of any Demand Registration or any underwritten Piggyback
Registration in which Registrable Securities are included (except as part of
such underwritten offering), unless the underwriters managing the registered
public offering otherwise agree.
5
<PAGE>
4.2 COMPANY. The Company shall not effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during such period prior to and
following the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration as the Company and the underwriters managing
the offering may agree.
5. REGISTRATION PROCEDURES.
Whenever holders of Registrable Securities have requested that any
Registrable Securities be registered pursuant to this Agreement, the Company
shall use its reasonable best efforts to effect the registration and the sale of
such Registrable Securities in accordance with the intended method of
disposition. In this regard, the Company will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its reasonable best efforts to
cause the registration statement to become effective;
(b) notify each holder of Registrable Securities of the effectiveness
of each registration statement filed under this Agreement and prepare and file
with the Commission any amendments and supplements to the registration statement
and the prospectus that may be necessary to keep the registration statement
effective for a period of either (i) not less than 120 days (subject to
extension pursuant to Section 8.2), or if such registration statement relates to
an underwritten offering, such longer period as in the opinion of counsel for
the underwriters a prospectus is required by law to be delivered in connection
with sales of Registrable Securities by an underwriter or dealer or (ii) such
shorter period as will terminate when all of the securities covered by such
registration statement have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement (but in any event not before the expiration of any longer
period required under the Securities Act), and to comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such registration statement until such time as all of such securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities the number of
copies of the registration statement, each amendment and supplement, the
prospectus included in the registration statement (including each preliminary
prospectus) and any other documents that each seller may reasonably request in
order to facilitate the disposition of the seller's Registrable Securities;
(d) use its best efforts to register or qualify the Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable the seller to consummate the
disposition in those jurisdictions of the Registrable Securities owned by the
seller (but the Company shall not be required to (i) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
6
<PAGE>
(e) notify each seller of Registrable Securities, at any time when a
prospectus relating to those securities is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in the registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements in the
prospectus not misleading; and, at the request of any seller, the Company shall
prepare a supplement or amendment to the prospectus so that, when delivered to
purchasers of the Registrable Securities, the prospectus, as supplemented or
amended, does not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements in the prospectus not
misleading;
(f) cause all such Registrable Securities to be quoted on the Nasdaq
National Market System and listed on any other exchange on which the Company's
shares of Common Stock are listed;
(g) provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of the registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all other actions that holders of a
majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of the
Registrable Securities;
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to the
registration statement and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, employees and independent accountants to supply all information
reasonably requested by any such seller, underwriter, attorney, accountant or
agent in connection with the registration statement;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its security holders,
as soon as reasonably practicable, an earnings statement covering the period of
at least twelve months beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158; and
(k) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any securities included in the registration statement for sale in any
jurisdiction, use its reasonable best efforts promptly to obtain the withdrawal
of such order.
7
<PAGE>
6. REGISTRATION EXPENSES.
6.1 PAYMENT BY COMPANY. All Registration Expenses shall be borne as
provided in this Agreement, except that the Company shall, in any event, pay its
internal expenses (including all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review and the expenses and fees for listing the securities
to be registered on the Nasdaq National Market System or any other exchange on
which the Company's shares of Common Stock are listed.
6.2 FEES OF COUNSEL. In connection with each Demand Registration and
each Piggyback Registration, the Company shall reimburse the holders of
Registrable Securities included in the registration for the reasonable fees and
disbursements of one counsel chosen by the holders of a majority of the
Registrable Securities included in such registration.
6.3 PAYMENT BY HOLDERS. To the extent that Registration Expenses are
not required to be paid by the Company, each holder of securities included in
any registration under this Agreement shall pay those Registration Expenses
allocable to the registration of such holder's securities so included, and any
Registration Expenses not so allocable shall be borne by all sellers of
securities included in the registration in proportion to the aggregate selling
price of the securities to be so registered.
7. INDEMNIFICATION.
7.1 INDEMNIFICATION BY COMPANY. The Company agrees to indemnify, to the
extent permitted by law, each holder of Registrable Securities, each Person who
controls such holder (within the meaning of the Securities Act), and their
respective partners, shareholders, trustees, members, officers and directors
against all losses, claims, damages, liabilities and expenses caused by any
Violation, except insofar as the Violation is caused by or contained in any
information furnished in writing to the Company by the holder expressly for use
in a registration statement, prospectus, amendment, supplement or related
document or is caused by the holder's failure to deliver a copy of the
registration statement or prospectus or any amendment or supplements after the
Company has furnished the holder with a sufficient number of copies. In
connection with an underwritten offering, the Company shall indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent
provided in this Section 7.1 with respect to the indemnification of holders of
Registrable Securities.
7.2 INDEMNIFICATION BY HOLDER. In connection with any registration
statement pursuant to which a holder of Registrable Securities is selling
Registrable Securities, the holder shall furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with the registration statement or prospectus and, to the extent
permitted by law, shall indemnify the Company, its directors and any of its
officers who signs such registration statement and each Person who controls the
Company (within the meaning of the Securities Act) against any losses, claims,
damages, liabilities and expenses resulting from any Violation to the extent
that the Violation is caused by or contained in any information furnished in
writing to the Company by the holder expressly for use in such registration
statement, prospectus, amendment, supplement or related document. This
obligation to indemnify shall be individual, not joint and several, for each
holder and shall be limited to the net amount of proceeds received by the holder
from the sale of Registrable Securities pursuant to the registration statement.
8
<PAGE>
7.3 PROCEDURES. Any Person entitled to indemnification under this
Section 7 shall, promptly after the receipt of notice of the commencement of any
action, investigation, claim or other proceeding against such indemnified party
in respect of which indemnity may be sought from an indemnifying party under
this Section 7, notify the indemnifying party in writing of the commencement
thereof. The omission of any indemnified party so to notify an indemnifying
party of any such action shall not relieve the indemnifying party from any
liability which it may have to such indemnified party under this Section 7
unless, and only to the extent that, such omission results in the indemnifying
party's forfeiture of substantive rights or defenses or the indemnifying party
is otherwise irrevocably prejudiced in defending such proceeding. In case any
such action, claim or other proceeding shall be brought against any indemnified
party for which indemnification is claimed pursuant to Section 7.1, and it shall
notify the Company of the commencement thereof, the Company shall be entitled to
assume the defense thereof at its own expense, with counsel satisfactory to the
Company; provided, that any such indemnified party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action, claim or proceeding in which both the Company, on the
one hand, and an indemnified party, on the other hand, is, or is reasonably
likely to become, a party, such indemnified party shall have the right to employ
separate counsel at the Company's expense and to control its own defense of such
action, claim or proceeding if, (a) the Company has failed to assume the defense
and employ counsel as provided herein, (b) the Company has agreed in writing to
pay such fees and expenses of separate counsel or (c) in the reasonable opinion
of counsel to such indemnified party, a conflict or likely conflict exists
between the Company, on the one hand, and such indemnified party, on the other
hand, that would make such separate representation advisable, provided, however,
that the Company shall not in any event be required to pay the fees and expenses
of more than one separate counsel (and if deemed necessary by such separate
counsel, appropriate local counsel who shall report to such separate counsel).
The Company agrees that it will not, without the prior written consent of an
indemnified party, settle, compromise or consent to the entry of any judgment in
any pending or threatened claim, action or proceeding relating to the matters
contemplated hereby (if such indemnified party is a party thereto or has been
actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of such indemnified
party from all liability arising or that may arise out of such claim, action or
proceeding. The Company shall not be liable for any settlement of any claim,
action or proceeding effected against an indemnified party without the prior
written consent of the Company. The rights accorded to indemnified parties
hereunder shall be in addition to any rights that any indemnified party may have
at common law, by separate agreement or otherwise.
9
<PAGE>
7.4 SURVIVAL. The indemnification under this Section 7 shall remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of the
indemnified party and shall survive the transfer of securities. The Company and
each holder subject to Section 7.2 also agree to make such provisions as are
reasonably requested by any indemnified party for contribution to the
indemnified party in the event that the Company's or such holder's
indemnification is unavailable for any reason.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATION.
8.1 COOPERATION WITH UNDERWRITERS. No Person may participate in any
underwritten registration pursuant to this Agreement unless the Person (i)
agrees to sell securities on the basis provided in the underwriting arrangements
and (ii) completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents required under the
terms of the underwriting arrangements. In any event, however, no holder of
Registrable Securities included in any underwritten registration shall be
required to make any representations or warranties to the Company or the
underwriters (other than representations and warranties regarding the holder and
the holder's intended method of distribution) or to undertake any
indemnification obligations to the Company or the underwriters except as
otherwise provided in Section 7.2.
8.2 DISCONTINUANCE OF DISPOSITIONS. Each Person that is participating
in any registration hereunder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 5(e)
above, such Person will forthwith discontinue the disposition of its Registrable
Securities pursuant to the registration statement until such Person receives
copies of a supplemented or amended prospectus as contemplated by such Section
5(e). In the event the Company shall give any such notice, the applicable time
period mentioned in Section 5(b) during which a registration statement is to
remain effective shall be extended by the number of days during the period from
and including the date of the giving of such notice pursuant to this Section to
and including the date when each seller of a Registrable Security covered by
such registration statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 5(e).
9. CURRENT PUBLIC INFORMATION.
The Company will timely file all reports required to be filed by it
under the Securities Act and the Exchange Act and the rules and regulations
adopted by the Commission thereunder, and will take such further action as any
holder or holders of Registrable Securities may reasonably request, all to the
extent required to enable such holders to sell Registrable Securities pursuant
to Rule 144 adopted by the Commission under the Securities Act (as such rule may
be amended from time to time) or any similar rule or regulation hereafter
adopted by the Commission and pursuant to Form S-3 or any similar short form
registration statement. Upon written request, the Company will deliver to such
holders a written statement as to whether it has complied with such
requirements. In addition, unless the Common Stock is listed for trading on the
New York Stock Exchange, the Company will continue to cause its Common Stock and
any Common Stock issuable upon conversion of Purchaser Preferred Stock
(including preferential dividends issued thereon) to be listed for trading on
the Nasdaq National Market System.
10
<PAGE>
10. MISCELLANEOUS.
10.1 NO INCONSISTENT AGREEMENTS. The Company shall not enter into any
agreement with respect to its securities which is inconsistent with or violates
the rights granted to the holders of Registrable Securities in this Agreement.
Without limiting the generality of the foregoing, until the initial holders of
Registrable Securities cease to hold at least 25% of the Underlying Common
Stock, the Company shall not grant to any Person, other than Affiliates of the
Company as of the date hereof, the right to request the Company to register any
equity securities of the Company, or any securities convertible or exchangeable
into or exercisable for such securities, without the prior written consent of
the holders of a majority of the Registrable Securities. The Company may grant
rights to other Persons to participate in Piggyback Registrations, however, so
long as (i) such rights are subordinate to the rights of the holders of
Registrable Securities with respect to such Piggyback Registrations as set forth
in Sections 3.3 and 3.4 of this Agreement or (ii) such rights are pari passu
with the rights of the holders of Registrable Securities with respect to such
Piggyback Registration as set forth in Sections 3.3 and 3.4 of this Agreement
and have been consented to by the holders of a majority of the Registrable
Securities.
10.2 NOTICES. All notices, claims, demands and other communications
("Notices") under this Agreement shall be in writing and sent by certified or
registered mail, return receipt requested, a recognized overnight courier
service, telecopier or personal delivery, as follows:
(a) if to the Company, to:
US LEC Corp.
Transamerica Square
401 N. Tryon Street, Suite 1000
Charlotte, North Carolina 28202
Attention: General Counsel
Telecopier: (704) 319-3098
with a required copy to:
Moore & Van Allen, PLLC
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Barney Stewart III
Telecopier: (704) 331-1151
11
<PAGE>
(b) if to the Investors, in care of:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Ian K. Loring
Telecopier: (617) 572-3274
and
Thomas H. Lee Partners, L.P.
75 State Street, 26th Floor
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Telecopier: (617) 227-3514
with a required copy to:
Ropes & Gray
One International Plaza
Boston, Massachusetts 02110-2624
Attention: Philip J. Smith
Telecopier: (617) 951-7050
All Notices shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged by the individual
to whom the telecopy is sent, if telecopied. A party may change its address for
purposes of this Agreement by Notice in accordance with this Section 10.2.
10.3 WAIVER. The rights and remedies of the Company and holders of
Registrable Securities are cumulative and not alternative. Neither the failure
nor any delay by the Company or any holder of Registrable Securities in
exercising any right, power or privilege under this Agreement shall operate as a
waiver of that right, power or privilege, and no single or partial exercise of
any right, power or privilege shall preclude any other or further exercise of
that right, power or privilege or the exercise of any other right, power or
privilege. All waivers shall be in writing signed by the party to be charged
with the waiver, and no waiver that may be given by a party shall be applicable
except in the specific instance for which it is given.
10.4 AMENDMENT. This Agreement may not be amended except by a written
agreement signed by the Company and holders of a majority of the Registrable
Securities.
10.5 SEVERABILITY. If any provision of this Agreement is held invalid
or unenforceable by a court of competent jurisdiction, the other provisions of
this Agreement shall remain in full force and effect. Any provision of this
Agreement which is held invalid or unenforceable only in part shall remain in
full force and effect to the extent not held invalid or unenforceable.
12
<PAGE>
10.6 CAPTIONS. The captions of sections of this Agreement are for
convenience only and shall not affect this the construction or interpretation of
this Agreement.
10.7 CONSTRUCTION. All references in this Agreement to "Section" or
"Sections" refer to the corresponding section or sections of this Agreement. All
words used in this Agreement shall be construed to be of the appropriate gender
or number as the context requires. Unless otherwise expressly provided, the
word" including" does not limit the preceding words or terms.
10.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be considered an original copy of this
Agreement and all of which, when taken together, shall be considered to
constitute one and the same agreement.
10.9. ENTIRE AGREEMENT. This Agreement supercedes all prior agreements
between the parties with respect to its subject matter and constitutes a
complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter.
10.10 GOVERNING LAW. This Agreement shall be governed by the Laws of
the State of Delaware without regard to conflicts of laws principles.
10.11 BINDING EFFECT. This Agreement shall apply to, be binding in all
respects upon and inure to the benefit of the parties and their respective
successors and permitted assigns and transferees.
13
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
US LEC CORP.
By: /s/ Michael K. Robinson
-------------------------------------
Name: Michael K. Robinson
Title: Executive Vice President and
Chief Financial Officer
BAIN CAPITAL CLEC INVESTORS, L.L.C.
By: Bain Capital Fund VI, L.P.,
its Administrative Member
By: Bain Capital Partners VI, L.P.,
its General Partner
By: Bain Capital Investors VI, Inc.,
its general partner
By: /s/ Michael A. Krupka
-------------------------------------
Name: Michael A. Krupka
Title: Managing Director
THOMAS H. LEE EQUITY FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. DiNovi
-------------------------------------
Name: Anthony J. DiNovi
Title: Managing Director
14
<PAGE>
THOMAS H. LEE FOREIGN FUND IV-B, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Anthony J. DiNovi
-------------------------------------
Name: Anthony J. DiNovi
Title: Managing Director
THOMAS H. LEE FOREIGN FUND IV, L.P.
By: THL Equity Advisors IV, LLC,
its general partner
By: /s/ Scott M. Sperling
-------------------------------------
Name: Scott M. Sperling
Title: Managing Director
PUTNAM INVESTMENTS, INC.
By: /s/ William H. Woolverton
-------------------------------------
Name: William H. Woolverton
Title: Managing Director
1997 THOMAS H. LEE NOMINEE TRUST
By: /s/ Gerald Wheeler
-------------------------------------
Trustee
THOMAS H. LEE CHARITABLE INVESTMENT L.P.
By: /s/ Thomas H. Lee
-------------------------------------
Name: Thomas H. Lee
Title: President
/s/ David V. Harkins
-------------------------------------
DAVID V. HARKINS
15
<PAGE>
THE HARKINS 1995 GIFT TRUST
By: /s/ Sheryll J. Harkins
-------------------------------------
Trustee
/s/ Scott A. Schoen
-------------------------------------
SCOTT A. SCHOEN
/s/ C. Hunter Boll
-------------------------------------
C. HUNTER BOLL
/s/ Scott M. Sperling
-------------------------------------
SCOTT M. SPERLING
/s/ Anthony J. DiNovi
-------------------------------------
ANTHONY J. DINOVI
/s/ Thomas M. Hagerty
-------------------------------------
THOMAS M. HAGERTY
/s/ Warren C. Smith, Jr.
-------------------------------------
WARREN C. SMITH, JR.
/s/ Seth W. Lawry
-------------------------------------
SETH W. LAWRY
/s/ Kent R. Weldon
-------------------------------------
KENT R. WELDON
/s/ Terrence M. Mullen
-------------------------------------
TERRENCE M. MULLEN
16
<PAGE>
/s/ Todd M. Abbrecht
-------------------------------------
TODD M. ABBRECHT
/s/ Charles A. Brizius
-------------------------------------
CHARLES A. BRIZIUS
/s/ Scott Jaeckel
-------------------------------------
SCOTT JAECKEL
/s/ Soren Oberg
-------------------------------------
SOREN OBERG
/s/ Thomas R. Shepherd
-------------------------------------
THOMAS R. SHEPHERD
/s/ Wendy L. Masler
-------------------------------------
WENDY L. MASLER
/s/ Andrew D. Flaster
-------------------------------------
ANDREW D. FLASTER
ROBERT SCHIFF LEE 1988 IRREVOCABLE TRUST
By: /s/ Charles W. Robins
-------------------------------------
Trustee
/s/ Stephen Zachary Lee
-------------------------------------
STEPHEN ZACHARY LEE
/s/ Charles W. Robins
-------------------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
JESSE LEE
17
<PAGE>
/s/ Charles W. Robins
-------------------------------------
CHARLES W. ROBINS AS CUSTODIAN FOR
NATHAN LEE
/s/ Charles W. Robins
-------------------------------------
CHARLES W. ROBINS
/s/ James Westra
-------------------------------------
JAMES WESTRA
THL-CCI INVESTORS LIMITED
PARTNERSHIP
By: THL Investment Management Corp.,
its general partner
By:
-------------------------------------
Name:
Title:
/s/ Adam A. Abramson
-------------------------------------
ADAM A. ABRAMSON
/s/ Joanne M. Ramos
-------------------------------------
JOANNE M. RAMOS
/s/ P. Holden Spaht
-------------------------------------
P. HOLDEN SPAHT
/s/ Nancy M. Graham
-------------------------------------
NANCY M. GRAHAM
/s/ Gregory A. Ciongoli
-------------------------------------
GREGORY A. CIONGOLI
/s/ Wm. Matthew Kelly
-------------------------------------
WM. MATTHEW KELLY
18
<PAGE>
/s/ Kevin F. Sullivan
-------------------------------------
KEVIN F. SULLIVAN
/s/ Diane M. Barriere
-------------------------------------
DIANE M. BARRIERE
/s/ Kim H. Oakley
-------------------------------------
KIM H. OAKLEY
19
US LEC CORP.
CERTIFICATE OF DESIGNATION RELATING TO
SERIES A CONVERTIBLE PREFERRED STOCK
US LEC Corp., a Delaware corporation (the "Corporation"), acting
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
does hereby submit the following Certificate of Designation relating to its
Series A Convertible Preferred Stock.
FIRST: The name of the Corporation is US LEC Corp.
SECOND: By unanimous consent of the Board of Directors of the
Corporation dated March 10, 2000, the following resolutions
were duly adopted:
WHEREAS, the Corporation's Restated Certificate of Incorporation, as
amended, authorizes the issuance of Preferred Stock consisting of Ten Million
(10,000,000) shares, par value $.01 per share, issuable from time to time in one
or more series; and
WHEREAS, the Board of Directors of the Corporation is authorized,
subject to limitations prescribed by law and by the provisions of Article IV of
the Corporation's Restated Certificate of Incorporation, to establish and fix
the number of shares to be included in any series of Preferred Stock and the
designation, rights, preferences, powers, restrictions and limitations of the
shares of such series; and
WHEREAS, it is the desire of the Board of Directors to establish and
fix the number of shares to be included in a new series of Preferred Stock and
the designation, rights, preferences and limitations of the shares of such new
series;
NOW, THEREFORE, BE IT RESOLVED, there is hereby created a series of the
Preferred Stock of the Corporation designated as Series A Convertible Preferred
Stock, par value $.01 per share (the "Series A Preferred Stock"), consisting of
364,406 shares (164,406 of which shall be available solely for the payment of
preferential dividends pursuant to the following Section 1.1) and having the
following voting powers, preferences, relative, participating, optional,
conversion and other special rights, and qualifications, limitations and
restrictions:
1. DIVIDENDS.
1.1 PREFERENTIAL DIVIDENDS. Preferential dividends on each share of
Series A Preferred Stock shall be cumulative and accrue (whether or not there
are profits or surplus available therefor) at the rate of 6% per annum on the
Accrued Value thereof (computed on the basis of a 360-day year of twelve 30-day
months) from the date of issuance of such share (or in the case of Series A
Preferred Stock issued as dividends, from the Dividend Payment Date applicable
to such dividend) until the earliest of (i) the date on which the Liquidation
Value of such share of Series A Preferred Stock is paid to the holder thereof in
connection with the liquidation of the Corporation, (ii) the date on which the
Corporation redeems such share of Series A Preferred Stock, (iii) the date on
which such share of Series A Preferred Stock is converted into shares of Class A
Common Stock or (iv) the date on which such share of Series A Preferred Stock is
otherwise acquired by the Corporation. All dividends on each share of Series A
Preferred Stock shall accrue daily but be payable and compound quarterly in
arrears on each Dividend Payment Date, commencing on the first Dividend Payment
Date after the date of issuance of such share. During the period commencing on
the Initial Issue Date and continuing through the twelfth Dividend Payment Date
thereafter, all such dividends shall be paid by the Corporation through the
issuance of additional shares of Series A Preferred Stock valued at the Stated
Value and not in cash. Thereafter, all such dividends shall, at the option of
the Corporation, be paid on any Dividend Payment Date through either (x) the
issuance of additional shares of the Series A Preferred Stock valued at the
Stated Value, or (y) the payment of cash legally available for payment thereof,
whether or not such dividends have been declared; provided, however, that all
dividends payable on the Series A Preferred Stock, Option Preferred Stock and
Series C Preferred Stock on any given Dividend Payment Date must either all be
paid in cash or all be paid in additional shares of the applicable series of
preferred stock. If and when any shares of Series A Preferred Stock are issued
under this Section 1.1 for the payment of dividends, such shares of Series A
Preferred Stock shall be deemed to be validly issued and outstanding and fully
paid and nonassessable. Each such dividend shall be payable to the holders of
record of shares of the Series A Preferred Stock on the Dividend Payment Date,
as they appear on the stock records of the Corporation at the close of business
on such record dates.
<PAGE>
1.2 PARTICIPATING DIVIDENDS. In addition to preferential dividends
payable under Section 1.1, holders of Series A Preferred Stock shall share pro
rata with holders of Common Stock, on the basis of the number of shares of
Common Stock which each holder of Series A Preferred Stock would be entitled to
receive upon conversion of the holder's Series A Preferred Stock into Common
Stock as of the record date for the dividend or distribution in accordance with
Section 4 (without giving effect to the one-year limitation on conversion), in
all other dividends and distributions, if any, that the Corporation's board of
directors may declare from time to time with respect to the Common Stock;
provided, however, that the holders of Series A Preferred Stock shall not be
entitled to participate in any stock dividend or distribution pursuant to this
Section 1.2 if, as a result of such stock dividend or distribution, the
Conversion Price is adjusted pursuant to Section 4.3.
2. LIQUIDATION.
Upon any liquidation, dissolution or winding up of the Corporation (a
"Liquidation"), each holder of Series A Preferred Stock shall be entitled to be
paid in preference to any distribution to holders of Junior Securities, but in
parity to any distribution to holders of Parity Securities, an amount in cash
(the "Liquidation Distribution") equal to the greater of (i) the product
obtained by multiplying the Liquidation Value of each share by the number of
shares of Series A Preferred Stock held by the holder or (ii) the amount that
would be payable to the holder in respect of the Common Stock issuable upon
conversion of the holder's shares of Series A Preferred Stock if all outstanding
shares of Series A Preferred Stock were converted into Common Stock immediately
prior to the Liquidation in accordance with Section 4 (without giving effect to
the one-year limitation on conversion). If, upon a Liquidation, the
Corporation's assets available for distribution to its stockholders are
insufficient to permit payment to holders of Series A Preferred Stock and Parity
Securities of the aggregate Liquidation Value of their Series A Preferred Stock
or the aggregate liquidation value of their Parity Securities, as applicable,
then the entire assets available for distribution shall be distributed among
holders of Series A Preferred Stock and Parity Securities pro rata on the basis
of the aggregate Liquidation Value of the Series A Preferred Stock or the
aggregate liquidation value of the Parity Securities, as applicable, held by
each holder before any payment is made to holders of Junior Securities. After
payment in full has been made to holders of Series A Preferred Stock and Parity
Securities of the aggregate Liquidation Distributions in respect of their Series
A Preferred Stock or the aggregate liquidation distribution in respect of the
Parity Securities, as applicable, any other series or class or classes of Junior
Securities shall be entitled to receive any and all assets remaining to be paid
or distributed to holders of capital stock of the Corporation, and holders of
Series A Preferred Stock and Parity Securities shall not share in any remaining
assets of the Corporation available for distribution. The Corporation shall mail
written notice of a Liquidation to each holder of record of Series A Preferred
Stock at least 30 days prior to the date for payment or distribution to
stockholders stated in the Corporation's notice. Solely for the purposes of this
Section 2, neither the sale, conveyance, exchange or transfer (for cash, shares
of stock, securities or other consideration) of all or substantially all of the
property or assets of the Corporation nor the consolidation or merger of the
Corporation with or into one or more other entities shall be deemed to be a
Liquidation.
2
<PAGE>
3. VOTING RIGHTS.
3.1 ORDINARY VOTING. Except as otherwise required by law, the
Corporation's Restated Certificate of Incorporation or this Certificate of
Designation, holders of Series A Preferred Stock shall be entitled to vote with
holders of Common Stock, Option Preferred Stock and Series C Preferred Stock as
a single class on each matter submitted to a vote of the Corporation's
stockholders. Each share of Series A Preferred Stock shall have a number of
votes equal to the number of votes possessed by the number of shares of Class A
Common Stock into which the share of Series A Preferred Stock is convertible
(without giving effect to the one-year limitation on conversion) as of the
record date for determining the stockholders entitled to vote on the matter. Any
fractional voting rights that result (after aggregating, in the case of each
holder of Series A Preferred Stock, all shares of Class A Common Stock into
which all of the holders' shares of Series A Preferred Stock could be converted)
shall be rounded upwards or downwards to the nearest whole number (with one-half
being rounded upwards).
3.2 ELECTION OF PREFERRED STOCK DIRECTORS. So long as Permitted Owners
hold at least 30% of the Underlying Common Stock, holders of Purchaser Preferred
Stock, voting separately as a single class to the exclusion of all other classes
of the Corporation's capital stock and with each share of Purchaser Preferred
Stock entitled to one vote, shall be entitled, in the election of directors of
the Corporation, to elect two directors to serve on the Corporation's board of
directors. Such directors shall comprise a third class of directors and be
referred to as "Preferred Stock Directors." Each Preferred Stock Director so
elected shall serve until his successor is duly elected by holders of Purchaser
Preferred Stock or he is removed from office by holders of Purchaser Preferred
Stock. If holders of Purchaser Preferred Stock for any reason fail to elect
anyone to fill any such directorship, the position shall remain vacant until
such time as holders of Purchaser Preferred Stock elect a Preferred Stock
Director to fill the position, and it shall not be filled by resolution or vote
of the Corporation's board of directors or its other stockholders. In the event
that Permitted Owners cease to hold at least 30% of the Underlying Common Stock
but continue to hold at least 20% of the Underlying Common Stock, the right and
power provided to holders of Purchaser Preferred Stock by this Section 3.2 shall
be limited to the election of only one Preferred Stock Director. In the event
that Permitted Owners cease to hold at least 20% of the Underlying Common Stock,
the right and power provided to holders of Purchaser Preferred Stock by this
Section 3.2 shall terminate.
3
<PAGE>
3.3 INITIAL TERM OF PREFERRED STOCK DIRECTORS. Each initial Preferred
Stock Director shall be appointed by the Board of Directors to serve until the
Corporation's annual meeting of stockholders in 2001 or until his resignation,
removal or death, or until his successor has been duly elected by holders of
Purchaser Preferred Stock. Thereafter, each Preferred Stock Director shall be
elected in accordance with Section 3.2 either (a) by written consent of the
holders of at least a majority of the outstanding shares of Purchaser Preferred
Stock or (b) at the annual meeting of stockholders.
4. CONVERSION.
4.1 CONVERSION PROCEDURE.
(a) At any time and from time to time beginning on the first
anniversary of the Initial Issue Date, a holder of Series A Preferred
Stock may convert all or any portion of the holder's shares of Series A
Preferred Stock (including any fraction of a share) into a number of
shares of Class A Common Stock computed by dividing (i) the aggregate
Liquidation Value of the shares of Series A Preferred Stock to be
converted by (ii) the Conversion Price then in effect; provided,
however, that a holder of Series A Preferred Stock shall have the right
to convert all or any portion of the holder's shares of Series A
Preferred Stock as set forth above in the event of the occurrence of
(i) an Acquisition Event or (ii) a Change of Control, in either case
prior to the date of the first anniversary of the Initial Issue Date.
(b) Each conversion of Series A Preferred Stock shall be
deemed to have been effected as of the close of business on the date on
which the certificate or certificates representing the Series A
Preferred Stock to be converted have been surrendered for conversion at
the Corporation's principal office. When the conversion has been
effected, the rights of the converting holder of Series A Preferred
Stock as such holder shall cease, and the Person or Persons in whose
name or names any certificate or certificates for shares of Class A
Common Stock are to be issued upon the conversion shall be deemed to
have become the holder or holders of record of the shares of Class A
Common Stock represented thereby.
(c) As soon as possible but in any event within 10 Business
Days after a conversion has been effected, the Corporation shall
deliver to the converting holder: (i) a certificate or certificates
representing the number of shares of Class A Common Stock issuable by
reason of the conversion in such name or names and such denomination or
denominations as the converting holder has specified; and (ii) a
certificate representing any shares of Series A Preferred Stock which
were represented by the certificate or certificates delivered to the
Corporation in connection with the conversion but which were not
converted.
4
<PAGE>
(d) The issuance of a certificate or certificates for shares
of Class A Common Stock upon the conversion of Series A Preferred Stock
shall be made without charge to the converting holder for any issuance
tax in respect of the conversion or other cost incurred by the
Corporation in connection with the conversion and the related issuance
of shares of Class A Common Stock. Upon conversion of each share of
Series A Preferred Stock, the Corporation shall take all actions that
may be necessary in order to ensure that the Class A Common Stock
issued as a result of the conversion is validly issued, fully paid and
nonassessable.
(e) The Corporation shall not close its books against the
transfer of Series A Preferred Stock or of Class A Common Stock issued
or issuable upon conversion of Series A Preferred Stock in any manner
which interferes with the timely conversion of Series A Preferred
Stock.
(f) If any fractional interest in a share of Class A Common
Stock would, except for the provisions of this Section 4.1(f), be
issuable upon any conversion of Series A Preferred Stock, the
Corporation, in lieu of issuing the fractional share otherwise
issuable, may pay an amount in cash to the holder of the fractional
interest equal to the Market Price of the fractional interest as of the
date of conversion.
(g) Notwithstanding any other provision of this Section 4, if
a conversion of Series A Preferred Stock is to be made in connection
with a Corporate Change, an Acquisition Event or a Change of Control or
any other similar transaction affecting the Corporation and its capital
stock, the conversion may be conditioned, at the election of the
converting holder, upon the consummation of the Corporate Change,
Acquisition Event or Change of Control or other such similar
transaction affecting the Corporation and its capital stock, in which
event the conversion shall not be deemed to be effective until the
Corporate Change, Acquisition Event or Change of Control or other such
similar transaction affecting the Corporation and its capital stock has
been consummated.
4.2 CONVERSION PRICE. The initial conversion price for Series A
Preferred Stock (the "Conversion Price") shall be $35. In order to prevent
dilution of the conversion rights granted under Section 4.1, the initial
Conversion Price for Series A Preferred Stock shall be subject to adjustment
from time to time pursuant to Sections 4.3, 4.4, 4.5 and 4.6.
4.3 COMMON STOCK SUBDIVISION OR COMBINATION. If the Corporation at any
time subdivides (by a stock split, stock dividend, recapitalization or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to the subdivision
shall be proportionately reduced; and if the Corporation at any time combines
(by reverse stock split or otherwise) its outstanding shares of Common Stock
into a smaller number of shares, the Conversion Price in effect immediately
prior to the combination shall be proportionately increased. Any adjustment of
the Conversion Price under this Section 4.3 shall become effective as and when
the subdivision or combination becomes effective.
5
<PAGE>
4.4 CORPORATE CHANGE. Prior to the consummation of any Corporate
Change, the Corporation shall make appropriate provisions (in form and substance
reasonably satisfactory to holders of a majority of the shares of Series A
Preferred Stock then outstanding) to ensure that each holder of Series A
Preferred Stock shall have the right to receive upon conversion of the holder's
Series A Preferred Stock, in lieu of the shares of Class A Common Stock that the
holder otherwise would have been entitled to receive upon conversion, the stock,
securities or assets that the holder would have received in connection with the
Corporate Change if the holder had converted the holder's Series A Preferred
Stock immediately prior to the Corporate Change. The Corporation shall also make
appropriate provisions (in form and substance reasonably satisfactory to holders
of a majority of the shares of Series A Preferred Stock then outstanding) to
ensure that the provisions of this Section 4 and Section 5 will continue to be
applicable to the Series A Preferred Stock (including, in the case of any
Corporate Change in which the successor or purchasing corporation is other than
the Corporation, an immediate adjustment of the Conversion Price to the value of
the Common Stock reflected by the terms of the Corporate Change, if the value so
reflected is less than the Conversion Price in effect immediately prior to the
Corporate Change). The Corporation shall not effect any Corporate Change unless,
prior to the consummation of the Corporate Change, the successor corporation (if
other than the Corporation) or the purchasing corporation assumes by written
instrument (in form and substance reasonably satisfactory to holders of a
majority of the shares of Series A Preferred Stock then outstanding) the
obligation to deliver to each holder of Series A Preferred Stock such shares of
stock, securities or assets that the holder is entitled to receive in accordance
with this Section 4.4.
4.5 WEIGHTED AVERAGE ANTI-DILUTION PROTECTION. If, on or after the
Initial Issue Date, the Corporation issues or sells, or in accordance with
Section 4.6 is deemed to have issued or sold, any shares of Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such issue or sale, then immediately upon such issuance or
sale the Conversion Price shall be reduced to the Conversion Price determined by
dividing (i) the sum of (x) the product derived by multiplying the Conversion
Price in effect immediately prior to such issue or sale by the number of shares
of Common Stock Deemed Outstanding immediately prior to such issue or sale plus
(y) the consideration, if any, received by the Corporation upon such issue or
sale, by (ii) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
Notwithstanding the foregoing and Section 4.6, there shall be no
adjustment in the Conversion Price as a result of:
(a) the issuance of shares of Common Stock upon the exercise
of Options outstanding as of the date of filing this Certificate of
Designation (including any repricing of such options so long as such
options are not repriced to an exercise price per share that is less
than the Market Price on the date of repricing); and
6
<PAGE>
(b) by reason of any one or combination of the following:
(i) the grant or repricing of Options which are
authorized to be granted or repriced under the
Corporation's existing stock option plan as of
the date of filing this Certificate of
Designation, as such plan may be amended,
replaced and supplemented, and which are granted
or repriced after the date of filing this
Certificate of Designation at an exercise price
not less than the Market Price on the date of
grant or repricing, and the issuance of Common
Stock pursuant to the exercise of such Options;
(ii) the grant or repricing of Options which are
authorized to be granted or repriced under any
new stock option or other stock-based employee
incentive plan which is adopted by the
Corporation and approved by its stockholders
after the date of filing this Certificate of
Designation and which are granted or repriced at
an exercise price not less than the Market Price
on the date of grant or repricing, and the
issuance of Common Stock pursuant to the
exercise of such Options; and
(iii) the issuance and sale of Common Stock at a price
per share that is less than the Market Price
pursuant to any employee stock purchase plan
adopted by the Corporation that satisfies the
requirements of Section 423 of the Code and is
approved by the Corporation's stockholders after
the date of filing this Certificate of
Designation;
provided, however, that the foregoing exceptions to the
anti-dilution provisions of this Section 4.5 shall not apply to Options
or shares granted, repriced or issued pursuant to clauses (b)(i), (ii)
or (iii) or to Options repriced pursuant to clause (a) at a price less
than the then applicable Conversion Price to the extent that all such
Options and shares represent in the aggregate in any calendar year more
than two percent (2%) of the number of shares of Common Stock of the
Company outstanding (on a fully diluted basis) on the last day of
December of the previous calendar year (as adjusted for events
occurring pursuant to Section 4.3 after the last day of the previous
calendar year);
(c) the issuance of shares of Class A Common Stock upon
conversion or exercise of the Series A Preferred Stock, or the
adjustment of the Conversion Price related to the Series A Preferred
Stock;
(d) the issuance of shares of Series A Preferred Stock;
7
<PAGE>
(e) the issuance of shares of Option Preferred Stock pursuant
to the terms of the Option Agreement;
(f) the issuance of Class A Common Stock upon conversion of
the shares of Option Preferred Stock issued pursuant to the terms of
the Option Agreement, or the adjustment of the conversion price related
thereto in accordance with the terms of the Option Stock Designation as
in effect on the first date of issuance of Option Preferred Stock;
(g) the issuance of shares of Series C Preferred Stock;
(h) the issuance of Class A Common Stock upon conversion of
the Series C Preferred Stock or the adjustment of the conversion price
related thereto in accordance with the terms of the Series C
Designation as in effect on the first date of issuance of Series C
Preferred Stock;
(i) the issuance of Class A Common Stock as a result of the
conversion of Class B Common Stock to Class A Common Stock; and
(j) any other events with respect to which holders of a
majority of the outstanding shares of Series A Preferred Stock waive
their rights under this Section 4.5.
4.6 EFFECT ON CONVERSION PRICE OF CERTAIN EVENTS. For purposes of
determining the adjusted Conversion Price under Section 4.5, the following shall
be applicable:
(a) If the Corporation in any manner grants or sells any
Options and the price per share for which Common Stock is issuable upon
the exercise of such Options, or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Options, is less
than the Conversion Price in effect immediately prior to the time of
the granting or sale of such Options, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall
be deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the granting or sale of such Options for
such price per share. For purposes of this paragraph the "price per
share for which Common Stock is issuable" shall be determined by
dividing (A) the total amount, if any, received or receivable by the
Corporation as consideration for the granting or sale of such Options,
plus the minimum aggregate amount of additional consideration payable
to the Corporation upon exercise of all such Options, plus in the case
of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the
Corporation upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (B) the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No further adjustment of
the Conversion Price shall be made when Convertible Securities are
actually issued upon the exercise of such Options or when Common Stock
is actually issued upon the exercise of such Options or the conversion
or exchange of such Convertible Securities.
8
<PAGE>
(b) If the Corporation in any manner issues or sells any
Convertible Securities and the price per share for which Common Stock
is issuable upon conversion or exchange thereof is less than the
Conversion Price in effect immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the issuance or sale of such Convertible
Securities for such price per share. For the purposes of this
paragraph, the "price per share for which Common Stock is issuable"
shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (B) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment of the Conversion
Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any such
issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustments of the Conversion Price had been or
are to be made pursuant to other provisions of this Section 4.6(b), no
further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
(c) If the purchase price provided for in any Options, the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities or the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock changes at any time, a corresponding number of shares of Common
Stock shall be deemed to have been issued and the Conversion Price in
effect at the time of such change shall be immediately adjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as
the case may be, at the time initially granted, issued or sold. If such
adjustment would result in an increase of the Conversion Price then in
effect, however, such adjustment shall not be effective until 30 days
after written notice thereof has been given by the Corporation to all
holders of Series A Preferred Stock. For purposes of this Section
4.6(c), if the terms of any Option or Convertible Security which was
outstanding as of the date of filing of this Certificate of Designation
are changed in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the Common Stock
deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such change; but no such
change shall at any time cause the Conversion Price hereunder to be
increased.
(d) Upon the termination or expiration of any Option or the
termination of any right to convert or exchange any Convertible
Security without the exercise of any such Option or right, the
Conversion Price then in effect hereunder shall be adjusted immediately
to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Security,
to the extent outstanding immediately prior to such expiration or
termination, never been issued. If such expiration or termination would
result in an increase in the Conversion Price then in effect, however,
such increase shall not be effective until 30 days after written notice
thereof has been given to all holders of Series A Preferred Stock. For
purposes of this Section 4.6(d), the expiration or termination of any
Option or Convertible Security which was outstanding as of the date of
filing of this Certificate of Designation shall not cause the
Conversion Price hereunder to be adjusted unless, and only to the
extent that, a change in the terms of such Option or Convertible
Security caused it to be deemed to have been issued after the Initial
Issue Date.
9
<PAGE>
(e) If any Common Stock, Option or Convertible Security is
issued or sold or deemed to have been issued or sold for cash, the
Consideration received therefor shall be deemed to be the amount
received by the Corporation therefor (net of discounts, commissions and
related expenses). If any Common Stock, Option or Convertible Security
is issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Corporation shall be
the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration
received by the Corporation shall be the Market Price thereof as of the
date of receipt. If any Common Stock, Option or Convertible Security is
issued to the owners of the non-surviving entity in connection with any
merger in which the Corporation is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair value
of such portion of the net assets and business or then on-surviving
entity as is attributable to such Common Stock, Option or Convertible
Security, as the case may be. The fair value of any consideration other
than cash and securities shall be determined jointly by the Corporation
and the holders of a majority of the outstanding shares of Series A
Preferred Stock. If such parties are unable to reach agreement within a
reasonable period of time, the fair value of such consideration shall
be determined by an independent appraiser experienced in valuing such
type of consideration jointly selected by the Corporation and the
holders of a majority of the outstanding shares of Series A Preferred
Stock. The determination of such appraiser shall be final and binding
upon the parties, and the fees and expenses of such appraiser shall be
borne by the Corporation.
(f) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the account
of the Corporation or any Subsidiary, but the disposition of any shares
of Common Stock so owned or held shall be considered an issue or sale
of Common Stock.
(g) If the Corporation takes a record of the holders of Common
Stock for the purpose of entitling them (i) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible
Securities or (ii) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to
have been issued or sold upon the declaration of such dividend or upon
the making of such other distribution or the date of the granting of
such right of subscription or purchase, as the case may be.
10
<PAGE>
(h) In case any Option is issued in connection with the issue
or sale of other securities of the Corporation, together comprising one
integrated transaction in which no specific consideration is allocated
to such Option by the parties thereto, the Option shall be deemed to
have been issued for a consideration of $.01.
(i) Upon the occurrence of an Event of Default described in
Section 3.4 (b) or (c) of the Corporate Governance Agreement, the
Conversion Price then in effect shall automatically be decreased by
10%.
4.7 NOTICES OF ADJUSTMENT. Within 10 Business Days of any adjustment of
the Conversion Price, the Corporation shall give written notice of the
adjustment to all holders of Series A Preferred Stock.
5. REDEMPTIONS.
5.1 MANDATORY REDEMPTION; REDEMPTION AT HOLDER'S OPTION.
(a) On April 11, 2010, the Corporation shall redeem all of the
issued and outstanding shares of the Series A Preferred Stock at a
redemption price equal to the aggregate Liquidation Value of the shares
to be redeemed. The Corporation shall give written notice of the
redemption to all holders of Series A Preferred Stock not more than 90
nor less than 10 days prior to the date the redemption is to be made.
Redemptions under this Section 5.1(a) shall be subject to the terms of
the Corporation's outstanding indebtedness, and the Corporation shall
have no obligation to redeem any shares of Series A Preferred Stock in
violation of the terms of its outstanding funded indebtedness.
(b) At any time on or after the occurrence of a Change of
Control and for a period of 60 days thereafter, each holder of Series A
Preferred Stock shall have the right to require the Corporation to
redeem all or a portion of the holder's Series A Preferred Stock at a
redemption price equal to 101% of the aggregate Liquidation Value (the
"Change of Control Amount") of the shares to be redeemed. Any holder of
Series A Preferred Stock may exercise the holder's redemption right
under this Section 5.1(b) by delivering to the Corporation at its
principal office a written notice stating the holder's intention to
exercise the holder's redemption right and the number of the holder's
shares of Series A Preferred Stock to be redeemed. The Corporation
shall be obligated to redeem the total number of shares of Series A
Preferred Stock specified in the holder's redemption notice on the 30th
Business Day following its receipt of the holder's notice (the "Change
of Control Payment Date"). Redemptions under this Section 5.1(b) shall
be subject to the terms of the Corporation's outstanding indebtedness,
and the Corporation shall have no obligation to redeem any shares of
Series A Preferred Stock in violation of the terms of its outstanding
funded indebtedness.
11
<PAGE>
(c) The Corporation covenants that, if any of its outstanding
funded indebtedness prohibits a redemption pursuant to Section 5.1(a)
or (b) and is prepayable, the Corporation will make commercially
reasonable efforts to prepay any such indebtedness so that the
foregoing redemptions can be made. The Corporation further covenants
that it will make commercially reasonable efforts to include in the
terms of any of its funded indebtedness a provision to the effect that,
if the holders thereof do not require or waive a required prepayment or
redemption upon a Change of Control, the redemption required by Section
5.1(b) shall not be prohibited.
(d) If the Corporation is unable for any reason to make the
full amount of redemption pursuant to Sections 5.1(a), including as a
result of Section 5.3, the Corporation shall immediately take a Board
Action and the Conversion Price in effect on the date on which such
redemption was required to be made shall be reduced to the lower of (i)
50% of the Conversion Price as of such date and (ii) the Market Price
as of such date.
(e) If the holders of all of the issued and outstanding shares
of the Series A Preferred Stock notify the Corporation of their intent
to exercise their redemption rights pursuant to Section 5.1(b) and the
Corporation is unable for any reason to redeem all of such shares,
including as a result of Section 5.3, the Corporation shall immediately
take a Board Action and the Conversion Price in effect on the date on
which such redemption was required to be made shall be reduced to the
lower of (i) 50% of the Conversion Price as of such date and (ii) the
Market Price as of such date.
5.2 REDEMPTION AT CORPORATION'S OPTION.
(a) At any time on or after April 11, 2003, the Corporation
shall have the right to redeem all (but not less than all) of the
outstanding shares of Series A Preferred Stock at a redemption price
equal to the aggregate Liquidation Value of the shares to be redeemed,
upon written notice of the proposed redemption to all holders of Series
A Preferred Stock given at least 30 days prior to the proposed
redemption date, if the Market Price of a share of Common Stock for 30
consecutive trading days during the 90-day period immediately preceding
the date of the Corporation's redemption notice is at least 150% of the
Conversion Price then in effect (without giving effect to any change in
Conversion Price pursuant to Section 4.6(i), 5.1(d) or 5.1(e));
provided, however, that the Corporation may not exercise its redemption
rights under this Section 5.2(a) unless the Market Price of a share of
Common Stock on the redemption date also is at least 150% of the
Conversion Price then in effect (without giving effect to any change in
the Conversion Price pursuant to Section 4.6(i), 5.1(d) or 5.1(e)). The
Corporation's exercise of its redemption rights under this Section
5.2(a) shall be subject to the conversion rights under Section 4 of
each holder of Series A Preferred Stock, who may exercise those rights
at any time prior to the redemption date.
12
<PAGE>
(b) Upon the occurrence of a Covenant Triggering Event, the
Corporation shall have the right to redeem all (but no less than all)
of the outstanding shares of Series A Preferred Stock at a redemption
price equal to (i) 135% of the aggregate Liquidation Value of the
shares to be redeemed if such redemption occurs on or prior to the
first anniversary of the Initial Issue Date or (ii) an internal rate of
return from the Initial Issue Date of 20% per annum compounded
quarterly on the Stated Value of the Series A Preferred Stock (other
than shares of Series A Preferred Stock issued as dividends in
accordance with Section 1.1) (as determined in accordance with standard
financial practice by the Corporation's independent auditors whose
determination shall be, in the absence of demonstrable error, final) to
each holder of Series A Preferred Stock if such redemption occurs after
the first anniversary of the Initial Issue Date, upon written notice of
the proposed redemption to all holders of Series A Preferred Stock
given at least 30 days prior to the proposed redemption date; provided,
however, that the Corporation may not exercise its redemption rights
under this Section 5.2(b) unless it also redeems all (but not less than
all) of the outstanding shares of Option Preferred Stock pursuant to
the terms of Section 5.2(b) of the Option Stock Designation. The
Corporation's exercise of its redemption rights under this Section
5.2(b) shall be subject to the conversion rights under Section 4 of
each holder of Series A Preferred Stock, who may exercise those rights
at any time prior to the redemption date.
5.3 PAYMENT OF REDEMPTION PRICE. For each share of Series A Preferred
Stock which is to be redeemed pursuant to Sections 5.1 or 5.2, the Corporation
shall be obligated on the redemption date to pay to the holder, upon the
holder's surrender at the Corporation's principal office of the certificate
representing the share to be redeemed, the full redemption price of the share in
immediately available funds. In the case of a redemption pursuant to Section
5.1(a), if the funds of the Corporation legally available for the redemption of
Series A Preferred Stock and Series C Preferred Stock on the redemption date are
insufficient to redeem the total number of shares of Series A Preferred Stock
and Series C Preferred Stock that the Corporation is required to redeem
(pursuant to Section 5.1(a) hereof and Section 5.1 of the Series C Designation),
those funds which are legally available shall be used to redeem the maximum
possible number of shares of Series A Preferred Stock and Series C Preferred
Stock pro rata among the holders of the shares to be redeemed on the basis of
the number of shares held by each holder. As and when following the redemption
date additional funds of the Corporation become legally available for the
redemption of Series A Preferred Stock and Series C Preferred Stock, the
Corporation shall immediately use such funds to redeem the balance of the shares
of Series A Preferred Stock and Series C Preferred Stock which the Corporation
became obligated to redeem on the redemption date but which it has not redeemed.
In the case of a redemption pursuant to Section 5.1(b), if the funds of the
Corporation legally available for the redemption of Purchaser Preferred Stock on
the redemption date are insufficient to redeem the total number of shares of
Purchaser Preferred Stock that the Corporation is required to redeem (pursuant
to Section 5.1(b) hereof and Section 5.1(b) of the Option Stock Designation),
those funds which are legally available shall be used to redeem the maximum
possible number of shares of Purchaser Preferred Stock pro rata among the
holders of the shares to be redeemed on the basis of the number of shares held
by each holder. As and when following the redemption date additional funds of
the Corporation become available for the redemption of the Purchaser Preferred
Stock, the Corporation shall immediately use such funds to redeem the balance of
the shares of Purchaser Preferred Stock which the Corporation became obligated
to redeem on the redemption date but which it has not redeemed. In the case of a
redemption pursuant to Section 5.2(a), the Corporation may not redeem any shares
of Series A Preferred Stock unless the funds of the Corporation legally
available for the redemption of Series A Preferred Stock are sufficient to
redeem the total number of the outstanding shares of Series A Preferred Stock.
In the case of a redemption pursuant to Section 5.2(b), the Corporation may not
redeem any shares of Series A Preferred Stock unless the funds of the
Corporation legally available for the redemption of Purchaser Preferred Stock
pursuant to Section 5.2(b) hereof and Section 5.2(b) of the Option Stock
Designation are sufficient to redeem the total number of outstanding shares of
Purchaser Preferred Stock.
13
<PAGE>
5.4 REISSUANCE OF CERTIFICATES. In the event that fewer than the total
number of shares of Series A Preferred Stock represented by any certificate are
redeemed upon a redemption pursuant to Section 5.1, the Corporation shall issue
a new certificate representing the number of unredeemed shares of Series A
Preferred Stock to the holder of those shares without cost to the holder
promptly after the holder's surrender of the certificate representing the
redeemed shares of Series A Preferred Stock.
5.5 REDEEMED SHARES. Any shares of Series A Preferred Stock which are
redeemed by the Corporation shall be canceled and shall not be reissued, sold or
transferred.
6. RESTRICTIONS AND LIMITATIONS.
As long as any of the initial number of shares of Series A Preferred
Stock remain outstanding, the Corporation shall not, directly or indirectly,
including directly or indirectly through a subsidiary, take any of the following
actions without the affirmative vote or written consent of holders of a majority
of the shares of Series A Preferred Stock then outstanding:
(a) file any other certificate of designation or amend or
restate this Certificate of Designation or the Corporation's Restated
Certificate of Incorporation or by-laws (as each of them may be amended
in compliance with this Section 6) in any manner that adversely affects
the powers, preferences and rights of Series A Preferred Stock as
designated in this Certificate of Designation (as it may be amended in
compliance with this Section 6) (other than the filing of the Option
Stock Designation and the Series C Designation);
(b) authorize or issue additional Senior Securities or Parity
Securities (other than (x) Option Preferred Stock authorized and issued
pursuant to the Option Stock Designation, (y) Series C Preferred Stock
authorized and issued pursuant to the Series C Designation, and (z)
issuances of Series A Preferred Stock in accordance with Section 1);
(c) issue (i) any convertible or redeemable stock or
securities other than those that would, in the written opinion of
counsel to the Corporation in form and substance reasonably
satisfactory to the holders of a majority of the outstanding Series A
Preferred Stock, be treated as common stock for federal income tax
purposes, or (ii) any convertible debt securities;
(d) declare or pay any dividends on or declare or make any
other direct or indirect distribution on account of any Junior
Securities, or set apart any sum for any such purpose (other than
pursuant to Common Stock subdivisions or combinations as described in
Section 4.3);
14
<PAGE>
(e) redeem, purchase or otherwise acquire for value any shares
of its capital stock unless any such redemption, purchase or other
acquisition would not, in the written opinion of counsel to the
Corporation in form and substance reasonably satisfactory to the
holders of a majority of the outstanding Series A Preferred Stock, be
treated as the receipt of cash or property by stockholders for purposes
of Section 305(b)(2) of the Code (other than (x) Series A Preferred
Stock redeemed pursuant to Section 5, (y) shares of Option Preferred
Stock issued pursuant to the Option Agreement and redeemed in
accordance with Section 5 of the Option Stock Designation as in effect
on the date of initial issuance of the Option Preferred Stock and (z)
shares of Series C Preferred Stock redeemed in accordance with Section
5 of the Series C Designation as in effect on the date of initial
issuance of the Series C Preferred Stock); or
(f) redeem, purchase or otherwise acquire for value any shares
of Series A Preferred Stock, except in accordance with Section 5.
7. REGISTRATION AND TRANSFER.
(a) The Corporation shall keep at its principal office a
register for the registration of Series A Preferred Stock. The
Corporation may deem and treat the registered holder(s) of the Series A
Preferred Stock as the absolute owner(s) thereof (notwithstanding any
notation of ownership or other writing on the Series A Preferred Stock
certificates made by any Person) for the purpose of any conversion
thereof or any payment or distribution to the holder(s) thereof, and
for all other purposes, and the Corporation shall not be affected by
any notice to the contrary other than pursuant to Section 7(b). For the
purpose of this Agreement, all references to a holder herein shall
refer to a registered holder of Series A Preferred Stock.
(b) Upon the surrender of any certificate representing Series
A Preferred Stock at the Corporation's principal office, the
Corporation shall, at the request of the record holder of the
certificate, execute and deliver (at the Corporation's expense) a new
certificate or certificates in exchange representing in the aggregate
the number of shares of Series A Preferred Stock represented by the
surrendered certificate. Each new certificate shall be registered in
the name and represent the number of shares of Series A Preferred Stock
requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate. Any
transfer of Series A Preferred Stock shall be subject, however, to any
applicable contractual or other restrictions on transfer and the
payment of any applicable transfer taxes by the transferring holder.
8. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation
(e.g., an affidavit of the registered holder) of the ownership and the loss,
theft, destruction or mutilation of any certificate evidencing shares of Series
A Preferred Stock, and in the case of any such loss, theft or destruction, upon
receipt of indemnity reasonably satisfactory to the Corporation, or, in the case
of any such mutilation, upon surrender of the mutilated certificate, the
Corporation shall (at its expense) execute and deliver in replacement a new
certificate of like kind representing the number of shares of Series A Preferred
Stock represented by the lost, stolen, destroyed or mutilated certificate and
dated the date of the lost, stolen, destroyed or mutilated certificate.
15
<PAGE>
9. AMENDMENT AND WAIVER.
No amendment, modification or waiver will be binding or effective with
respect to any provision of this Certificate of Designation without the prior
written consent of holders of not less than a majority of the shares of Series A
Preferred Stock outstanding at the time that the action is taken. No change in
the terms of this Certificate of Designation may be accomplished by merger or
consolidation of the Corporation with another corporation unless the Corporation
has obtained the prior affirmative vote or written consent of holders of not
less than a majority of the shares of Series A Preferred Stock then outstanding.
10. NOTICES.
The Corporation shall give written notice to all holders of Series A
Preferred Stock at least 20 days prior to the date on which the Corporation (a)
closes its books or takes a record (i) with respect to the payment of any
dividend or distribution to stockholders, (ii) with respect to any pro rata
subscription offer to holders of Common Stock or (iii) for determining rights to
vote with respect to any Liquidation or Corporate Change or (b) if no notice is
given pursuant to clause (a), consummates a transaction constituting a Corporate
Change. In addition, the Corporation shall give the notices required by Sections
2 and 4.7 and shall also give written notice to all holders of Series A
Preferred Stock at least ten Business Days prior to any Acquisition Event or
Change of Control. All notices, requests, claims, demands and other
communications ("Notices") under this Certificate of Designation shall be in
writing and sent by certified or registered mail, return receipt requested, a
recognized overnight courier service, telecopier or personal delivery, as
follows:
(a) if to Corporation, to:
US LEC Corp.
Transamerica Square
401 N. Tryon Street, Suite 1000
Charlotte, North Carolina 28202
Attention: General Counsel
Telecopier: (704) 319-3098
16
<PAGE>
with a required copy to:
Moore & Van Allen, PLLC
100 North Tryon Street, Floor 47
Charlotte, North Carolina 28202-4003
Attention: Barney Stewart III
Telecopier: (704) 331-1151
(b) if to any holder of Series A Preferred Stock (unless
the holder has otherwise indicated in writing), in
care of:
Bain Capital, Inc.
Two Copley Place
Boston, Massachusetts 02116
Attention: Ian K. Loring
Telecopier: (617) 572-3274
and
Thomas H. Lee Partners, L.P.
75 State Street, 26th Floor
Boston, Massachusetts 02109
Attention: Anthony J. DiNovi
Telecopier: (617) 227-3514
with a required copy to:
Ropes & Gray
One International Plaza
Boston, Massachusetts 02110-2624
Attention: Philip J. Smith
Telecopier: (617) 951-7050
All Notices shall be deemed to have been duly given: when delivered by hand, if
personally delivered; when delivered by courier, if delivered by commercial
overnight courier service; five Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is acknowledged by the individual
to whom the telecopy is sent, if telecopied. A party may change its address for
purposes of this Agreement by Notice in accordance with this Section 10.2.
17
<PAGE>
11. DEFINITIONS.
"ACCRUED VALUE" means, with respect to a share of Series A Preferred
Stock, the sum of (as adjusted for stock splits, stock combinations,
recapitalizations and similar events with respect to Series A Preferred Stock)
(i) $1,000, plus (ii) any dividends that have accrued on any Dividend Payment
Date and that have not been paid.
"ACQUISITION EVENT" means (i) the Corporation has consolidated with, or
merged with or into, any other Person and, in connection with any such
consolidation or merger, the holders of the Common Stock outstanding immediately
prior to such transaction do not own, in the aggregate, at least 50% of the
outstanding stock of the surviving entity in such transaction, or (ii) any
Person has made a tender offer or exchange offer to acquire any of the Common
Stock (each such offer, a "Tender Offer"), and, upon the consummation of the
Tender Offer, the holders of the Common Stock outstanding immediately prior
thereto do not own, in the aggregate, at least 50% of the outstanding stock of
the Person that made the Tender Offer.
"AFFILIATE" means, with respect to a Person, (a) any director,
executive officer, general partner, managing member or other manager of such
Person, (b) any other Person (other than a Subsidiary) which directly or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, such Person and (c) if such Person is an
individual, any member of the immediate family (including parents, spouse and
children) of such individual, any trust whose principal beneficiary is such
individual or one or more members of such individual's immediate family and any
Person who is controlled by any such member or trust. The term "control" means
(i) the power to vote 25% or more of the securities or other equity interests of
a Person having ordinary voting power (on a fully diluted basis), or (ii) the
possession, directly or indirectly, of any other power to direct or cause the
direction of the management and policies of a Person, whether through ownership
of voting securities, by contract or otherwise.
"BOARD ACTION" means (i) such action by the Corporation as is necessary
to cause the majority of the members of the Board (including any directors
elected pursuant to Section 3.2 hereof) to be persons designated by the
Permitted Owners of the Underlying Common Stock, including causing existing
members of the Board to resign and filling the vacancies created with such
designees or increasing the size of the Board and filling the vacancies created
with such designees or (ii) calling a special meeting of the Corporation's
stockholders for the purpose of electing such designees to fill such vacancies
if they are not filled as provided in clause (i). The action required by the
Corporation hereunder shall be taken as soon as practicable and shall include,
if required, adoption by the Board of any necessary amendments to the Bylaws,
the preparation and submission to the Corporation's stockholders of a proxy
statement in connection with any special stockholders' meeting and the filing of
any required reports with the United States Securities and Exchange Commission
and The Nasdaq Stock Market.
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day
on which commercial banks in New York City, New York or Charlotte, North
Carolina are authorized or required by law or executive order to close.
18
<PAGE>
"CHANGE OF BOARD" means an occurrence whereupon, at any time, fewer
than one-half of the directors comprising the board of directors of the
Corporation shall include members of a group consisting of any existing Board
members as the date of filing this Certificate of Designation with the Secretary
of State of Delaware, and replacement or additional directors nominated or
supported by one-half or more of the members of the foregoing group and any such
replacement or additional directors; provided, however, that, in the event the
Permitted Owners exercise their rights under Section 3.4 of the Corporate
Governance Agreement, such exercise shall not constitute a "Change of Board."
"CHANGE OF CONTROL" means (i) the failure of Richard T. Aab ("Aab") and
Tansukh V. Ganatra ("Ganatra"), in the aggregate, to own or control, directly or
indirectly, stock of the Corporation representing at least 50% of the total
number of shares of voting capital stock of the Corporation (as adjusted for the
events described in Section 4.3) that they, in the aggregate, own or control,
directly or indirectly, as of the Initial Issue Date, (ii) the failure of Aab
and Ganatra, in the aggregate, to own or control, directly or indirectly, more
shares of the voting capital stock of the Corporation than any other Person or
group (other than a Permitted Owner or group of the Permitted Owners and their
Affiliates), within the meaning of Regulation 13D under the Securities Exchange
Act of 1934 or (iii) a Change of Board shall occur; provided, however, that if
either Aab or Ganatra dies and the survivor holds an irrevocable proxy to vote
the Class B Common Stock owned or controlled, directly or indirectly, by the
deceased stockholder as of the time of his death, then so long as such
irrevocable proxy remains in effect, such survivor shall be deemed to control
such Class B Common Stock for purposes of clauses (i) and (ii) so long as such
Class B Common Stock remains subject to such irrevocable proxy; and provided,
further, that upon the simultaneous death of Aab and Ganatra or upon the death
of the last to survive of Aab and Ganatra, if within 30 days of such deaths or
death all of the Class B Common Stock owned or controlled, directly or
indirectly, by Aab and Ganatra immediately prior to such deaths or death is
converted into Class A Common Stock by Permitted Transferees (as defined in the
Certificate of Incorporation) of Aab and Ganatra, such Class A Common Stock
shall be deemed to be controlled by Aab and Ganatra for purposes of clauses (i)
and (ii) so long as such Class A Common Stock is held by such Permitted
Transferees.
"CHANGE OF CONTROL AMOUNT" has the meaning set forth in Section 5.1(b).
"CHANGE OF CONTROL PAYMENT DATE" has the meaning set forth in Section
5.1(b).
"CLASS A COMMON STOCK" means the Corporation's class A common stock,
par value $.01 per share, or any other capital stock of the Corporation into
which such stock is reclassified or reconstituted.
"CLASS B COMMON STOCK" means the Corporation's class B common stock,
par value $.01 per share, or any other capital stock of the Corporation into
which such stock is reclassified or reconstituted.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the regulations promulgated and rulings issued thereunder.
19
<PAGE>
"COMMON STOCK" means Class A Common Stock, Class B Common Stock and any
other class of common stock created by the Corporation.
"COMMON STOCK DEEMED OUTSTANDING" means, at any given time, (i) the
number of shares of Common Stock actually outstanding at such time, plus (ii)
the number of shares of Common Stock issuable upon conversion at such time of
the shares of Series A Preferred Stock, plus (iii) the number of shares of
Common Stock deemed to be outstanding pursuant to Sections 4.6(a) and 4.6(b),
whether or not the Options or Convertible Securities are actually exercisable or
convertible at such time.
"COMPETITOR" means any Person that is (directly or through one or more
Affiliates) both (i) engaged in the business of providing telecommunication
services offered by the Corporation and its subsidiaries that generate at least
25% of the Corporation's consolidated revenues as of the date of the
Corporation's most recent Form 10-K or 10-Q filed with the United States
Securities and Exchange Commission and the revenues of such Person attributable
to such services exceed $50 million annualized and (ii) a competitor of the
Corporation operating in at least 25% of the MSAs (Metropolitan Statistical
Areas) in which the Corporation and its subsidiaries are operating as of the
time of the proposed Transfer.
"CONVERSION PRICE" is defined in Section 4.2.
"CONVERTIBLE SECURITIES" means any stock or securities directly or
indirectly convertible into or exchangeable for Common Stock.
"CORPORATE CHANGE" means any capital reorganization, reclassification,
consolidation, merger or sale of all or substantially all of the Corporation's
assets to another Person which is effected in such a way that holders of Common
Stock are entitled to receive (either directly or upon a subsequent liquidation
of the Corporation) stock, securities or assets in respect of or in exchange for
Common Stock.
"CORPORATE GOVERNANCE AGREEMENT" means that Corporate Governance
Agreement dated as of April 11, 2000 among the Corporation and the investors
listed on Schedule 1 attached thereto, as amended, supplemented or otherwise
modified.
"COVENANT TRIGGERING EVENT" means the failure of the Permitted Owners
(as defined in the Corporate Governance Agreement) to consent to a transaction
contemplated by Section 3.1(i) or 3.1(j) of the Corporate Governance Agreement.
"DIVIDEND PAYMENT DATE" means January 11, April 11, July 11 and October
11 of each year, beginning July 11, 2000.
"INITIAL ISSUE DATE" means the first date on which any shares of Series
A Preferred Stock are issued hereunder.
20
<PAGE>
"INITIAL OPTION STOCK" means the aggregate number of shares of Option
Preferred Stock actually purchased and issued under the Option Agreement,
excluding any preferential dividends that accrue or are issued or paid pursuant
to the terms of the Option Preferred Stock.
"INITIAL PREFERRED STOCK" means the 200,000 shares of Series A
Preferred Stock issued by the Corporation to the Purchasers pursuant to the
Purchase Agreement.
"JUNIOR SECURITIES" means any class or series of capital stock or
series of preferred stock of the Corporation, the terms of which do not
expressly provide that it ranks senior to, or on a parity with, the Series A
Preferred Stock as to dividend rights and rights upon a liquidation, dissolution
or winding up of the Corporation.
"LIQUIDATION" is defined in Section 2.
"LIQUIDATION DISTRIBUTION" is defined in Section 2.
"LIQUIDATION VALUE" means, with respect to a share of Series A
Preferred Stock, the sum of (as adjusted for stock splits, stock combinations,
recapitalizations and similar events with respect to Series A Preferred Stock)
(i) $1,000 plus (ii) all accrued and unpaid dividends on such share.
"MARKET PRICE" of any security means the average (weighted by daily
trading volume) of the closing prices of such security's sales on all securities
exchanges on which such security may be listed at the time, or, if there has
been no sales on any such exchange on any day, or, if on any day such security
is not so listed, the average of the representative bid and asked prices quoted
in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated or any similar successor
organization, in each such case (except when the "Market Price" is being
determined for purposes of Section 5.2(a)) averaged over a period of 20 days
consisting of the day as of which the "Market Price" is being determined and the
19 consecutive Business Days prior to such day. If at any time such security is
not listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by the Corporation and the holders of a majority of the
shares of Series A Preferred Stock then outstanding. If such parties are unable
to reach agreement within a reasonable period of time, such fair value shall be
determined by an independent appraiser experienced in valuing securities jointly
selected by the Corporation and the holders of a majority of the shares of
Series A Preferred Stock. The determination of such appraiser shall be final and
binding upon the parties, and the Corporation shall pay the fees and expenses of
such appraiser. Notwithstanding the preceding: (i) an Option which is granted or
repriced at an exercise price equal to the last reported sales price of a share
of Common Stock on the Nasdaq National Market on the date of grant or repricing
shall be considered to have been granted or repriced at the Market Price on the
date of grant or repricing; and (ii) shares of Common Stock which are issued and
sold in an underwritten registered public offering shall be considered to have
been issued and sold at the Market Price.
21
<PAGE>
"OPTION AGREEMENT" means that Option Agreement dated as of April 11,
2000 among the Corporation and the purchasers listed on Schedule 1 attached
thereto, as amended, supplemented or otherwise modified.
"OPTION PREFERRED STOCK" means the Series B Convertible Preferred Stock
of the Corporation, or any other capital stock of the Corporation into which
such stock is reclassified or reconstituted.
"OPTION STOCK DESIGNATION" means the Certificate of Designation of the
Corporation relating to the Option Preferred Stock to be filed with the
Secretary of State of the State of Delaware in accordance with the terms and
conditions of the Option Agreement, as amended, supplemented or otherwise
modified.
"OPTIONS" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"PARITY SECURITIES" means (i) the Option Preferred Stock, (ii) the
Series C Preferred Stock and (iii) any class or series of capital stock or
series of preferred stock of the Corporation, the terms of which provide that it
ranks on a parity with the Series A Preferred Stock as to dividend rights and
rights upon a liquidation, dissolution or winding up of the Corporation.
"PERMITTED OWNER" means (i) a Purchaser, for as long as the Purchaser
continues to be the beneficial owner of any shares of the Underlying Common
Stock, and (ii) each Permitted Transferee, for as long as the Permitted
Transferee continues to be the beneficial owner of any shares of Underlying
Common Stock.
"PERMITTED TRANSFEREE" means (i) any Affiliate of any Purchaser to whom
a Purchaser or another Affiliate of any Purchaser Transfers shares of Series A
Preferred Stock or Option Preferred Stock, (ii) any other Person to whom a
Purchaser or an Affiliate of any Purchaser Transfers shares of Series A
Preferred Stock or Option Preferred Stock with the prior written consent of the
Board of Directors, (iii) any Person to whom a transferee described in clause
(ii) Transfers shares of Series A Preferred Stock or Option Preferred Stock with
the prior written consent of the Board of Directors and (iv) any THL Holder and
any of the funds affiliated with Bain Capital, Inc. and any general or limited
partner of such funds; provided that in no event shall any shares of Series A
Preferred Stock or Option Preferred Stock be transferred to a Competitor or a
Person acting as a representative of a Competitor without the Corporation's
prior written consent.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or other
entity.
"PREFERRED STOCK DIRECTOR" is defined in Section 3.2.
"PURCHASE AGREEMENT" means the Preferred Stock Purchase Agreement dated
as of April 11, 2000 by and among the Corporation and the Purchasers listed on
Schedule 1 attached thereto, as amended, supplemented, or otherwise modified.
22
<PAGE>
"PURCHASER" or PURCHASERS" shall have the respective meanings given
such terms in the Purchase Agreement.
"PURCHASER PREFERRED STOCK" means the Series A Preferred Stock and the
Option Preferred Stock.
"SENIOR SECURITIES" means any class or series of capital stock or
series of preferred stock of the Corporation, the terms of which expressly
provide that it ranks senior to the Series A Preferred Stock as to dividend
rights and rights upon a liquidation, dissolution or winding up of the
Corporation.
"SERIES C DESIGNATION" means the Certificate of Designation of the
Corporation relating to the Series C Preferred Stock to be filed with the
Secretary of State of the State of Delaware in such form as is permitted by the
Purchase Agreement, as amended, supplemented or otherwise modified.
"SERIES C PREFERRED STOCK" means the Corporation's Series C Convertible
Preferred Stock, or any other capital stock of the Corporation into which such
stock is reclassified or reconstituted.
"STATED VALUE" means, with respect to a share of Series A Preferred
Stock, $1000.
"THL HOLDER" means (i) any general or limited partner of the THL
Entities (a "THL Partner") and any corporation, partnership, or other entity
which is an Affiliate of the THL Entities or any THL Partner (collectively, the
"THL Affiliates"), (ii) any managing director, general partner, director,
limited partner, officer or employee of the THL Entities or a THL Affiliate, or
the heirs, executors, administrators, testamentary trustees, lifetime trustees,
legatees or beneficiaries of any of the foregoing persons referred to in this
clause (iii) (collectively, "THL Associates"), (iv) a charitable institution as
defined in Section 501(c) of the Internal Revenue Code of 1986, as amended,
which receives a bona fide gift by a THL Associate of shares of Series A
Preferred Stock or Option Preferred Stock, (v) a bank, financial institution or
other lender which receives a bona fide pledge by a THL Associate of shares of
Series A Preferred Stock or Option Preferred Stock, and (vi) any trust, the
beneficiaries of which, or any corporation, limited liability company or
partnership, the stockholders, members or general or limited partners of which
include only the THL Entities, THL Affiliates, THL Associates, their spouses or
their lineal descendents. "THL Entities" shall mean Thomas H. Lee Partners, L.P.
and its affiliated entities.
"TRANSFER" means to sell, assign, transfer (voluntarily or
involuntarily), exchange (by merger or otherwise) or otherwise dispose of or to
grant a lien, encumbrance, pledge or other form of security interest, except
that any Purchaser may create a security interest in shares of Series A
Preferred Stock or Option Preferred Stock to secure loans made to it so long as
any Transfer pursuant to such security interest is subject to the terms of the
Corporate Governance Agreement.
23
<PAGE>
"UNDERLYING COMMON STOCK" means all shares of Common Stock issued or
issuable upon conversion of (i) the Initial Preferred Stock and (ii) the Initial
Option Stock as of any date of determination (which number shall be determined,
with respect to any given date, based upon the Conversion Price or the
conversion price of the Option Preferred Stock, as applicable, in effect as of
such date without giving effect to the one year limitation on conversion)
without regard to any preferential dividends that accrue or are issued or paid
with respect to the Initial Preferred Stock pursuant to the Certificate of
Designation or the Initial Option Stock pursuant to the Option Stock
Designation.
24
<PAGE>
In witness, the Corporation has caused this Certificate of Designation
to be duly executed on April 7, 2000.
US LEC CORP.,
a Delaware corporation
By /s/ Michael K. Robinson
----------------------------------
Michael K. Robinson
Executive Vice President, and
Chief Financial Officer
